COUNTER-INFLATION (PRICE CODE) (AMENDMENT) (No. 2) ORDER 1976

HL Deb 06 May 1976 vol 370 cc693-7

6.31 p.m.

Lord ORAM rose to move, That the Counter-Inflation (Price Code) (Amendment) (No. 2) Order 1976 laid before the House on 23rd April, be approved. The noble Lord said: My Lords, I beg to move that this order be approved. When I spoke to the House a few minutes ago my noble friend Lady Phillips said that it sounded a little like a saga. To me also it sounded a little like a saga, although on that occasion it was unavoidable. I need not, however, long detain your Lordships in explaining the purpose and effect of this order.

The order makes a small change to the Price Code. It becomes necessary as a result of the excise duty changes made in the Budget. On 17th February my noble friend Lord Jacques moved the approval of a substantive Price Code provision about the Price Check scheme. As he explained then, a number of representative trade associations, in the national interest, had agreed to recommend to member firms that they should hold price increases on certain goods and services to—at most—5 per cent. in the six-month period between February and July of 1976. The Price Code was to be amended to permit firms, if they wished and could, to make up for restraint on these items by charging rather more on others. But this does not mean that the restraint shown by participants has been easy or painless, since there are many cases where the market will preclude alternative price increases. For many firms, revenue once lost is foregone for ever. Therefore, one can only applaud the fact that in these circumstances products or services covering between 15 to 20 per cent. of consumers' expenditure have been put into the scheme, and a good display of red triangles has appeared in every shopping centre.

While it is the Government's firm purpose to achieve a lower rate of price inflation, there are, unfortunately, circumstances in which all Governments have no alternative but to put up prices by raising taxes. My right honourable friend the Chancellor of the Exchequer said in his Budget Statement: Increases in indirect taxes would add to the Retail Price Index and I have been tempted to conclude that I should take no such action in a year when the fight against inflation is so important. But there are important arguments in the opposite direction. Inflation over the past five or six years has substantially shifted the balance of our tax system from indirect to direct taxation, since the yield of income tax rises with rising earnings while the yield of the specific duties is not linked to the inflation rate. In addition, increased revenue in this area will help make room for the socially desirable expenditure I shall be describing.

Dealing with income tax reliefs, the Chancellor went on to say: The revenue from the increased duties on alcoholic drink, tobacco and petrol will broadly cover the cost of the unconditional £370 million which is concentrated on the old and children. I believe that the House will feel that this reflects the right social priorities.

Moreover, the increase in prices on drink, tobacco and petrol should also be seen against the background of the decreased prices in other areas as a result of the reduction in VAT. The increased tax on beer and cigarettes affects the Price Check scheme because those commodities are included in the scheme at the retail level. There has also been an increase in the hydrocarbon oil duty. The oil companies are parties to the scheme for their own wholesale prices, but because of the present situation in the retail petrol market it was not possible for garages to come into the scheme.

Without this order, the Budget tax changes would have left the manufacturing firms concerned in an anomalous position. They might still be prepared to restrain their own prices, but despite this the tax changes might, willy-nilly, force up their prices beyond the 5 per cent. envisaged in the scheme. And this, as the Price Code now stands, would have disqualified them from using the cross-subsidy provisions which had been written into the Code to facilitate price restraint of this kind. Yet for consumers, it is as important as ever it was that the brewers, tobacco firms and other manufacturers should continue to exercise restraint. My right honourable friend the Secretary of State for Prices and Consumer Protection very much welcomes the fact that they are prepared to stay in the scheme, so far as their own prices are concerned. For Price Code purposes, it is therefore essential that the latest duty changes should be left out of account. Otherwise, firms could find themselves debarred from recovering the revenue foregone as the result of price restraint, because the cold statistics would show a price increase of more than 5 per cent; that is, adding such price increases as they themselves might need, together with the tax increases. Unless the Code is amended, as this order proposes, this would bring them outside the scope of the scheme.

Therefore, it is the simple purpose of this order to ensure that the latest duty changes should be left completely out of account in the application of this part of the Price Code. If your Lordships approve it, there is a greater incentive to voluntary price restraint on the part of the brewers and the tobacco firms. On this understanding, I feel sure that your Lordships will give approval to this order. My Lords, I beg to move.

Moved, That the Counter-Inflation (Price Code) (Amendment) (No. 2) Order 1976, laid before the House on 23rd April, be approved.—(Lord Oram.)

6.40 p.m.

The Earl of GOWRIE

My Lords, I rather hope that that astute political analyst, Mr. Peter Simple, is in his place in the Press Gallery this afternoon listening to this Counter-Inflation (Price Code) (Amendment) (No. 2) Order which has been moved with great clarity by the noble Lord, Lord Oram. If ever there were an example of the shining nonsense with which a prices and incomes policy clothes itself, regardless of which Government are running it, this would seem to me to be it.

As we have heard, the order exempts the various changes in Excise which the Chancellor announced in his Budget, from the Price Check Scheme. In other words, we in Parliament are party to a scheme to limit price increases and, with solemn faces and much talk of crises, we pass laws and support policies to that end. Almost immediately we have to pass further laws—in this case the present order—exempting ourselves from the consequences of our earlier decision. Parliament, following the dictates of the Government—which have an effective majority if not an actual majority of their Members—limits prices increases for the reasons given by the noble Lord. The Chancellor, as I admit is his right, puts up taxes; back comes Parliament and exempts the Government from the policy they formulated in the first place. It does not even do so by debating the issue fully, but more or less "on the nod", as the modern fashion has it, and I do not see those stern enemies of delegated legislation when we were in Government, the noble Lords, Lord Diamond and Lord Beswick, in their places today.

I feel that this is all of the same order of distastefulness as the knowledge we have that those who are in charge at present of running effectively a statutory incomes policy, are themselves exempt from the consequences of that policy through the Civil Service system of incremental salary increases. I think the whole business is not only distasteful but decadent and we in Parliament are, within individual limits, of course, responsible. In this case I do not single out the Government for special censure.

It might be said that my objection could apply to the whole principle of price control—and so indeed it does; but I am saying that we do not need a programme of profit restraint to counterbalance the programme of wage and salary restraint at the present time. If one is a chain smoker it may be necessary at some stage to have an operation for the removal of a lung. Nevertheless, it remains the case that it would be far better not to take up chain smoking in the first place. What I am saying is that restraint, like charity, should begin at home. The Government should restrain their spending so as to restrain taxation, so as to keep within the price checks that they have themselves imposed or encouraged. I hope that we shall be debating these issues later in this Session. Certainly, in spite of encouraging noises recently by the Prime Minister, the whole prices policy is in considerable disarray, and certainly it is crucial to the question of investment and therefore of employment. Meanwhile, this nasty little order, a monument to self-abuse if ever there were one, had better go through. I for one, however, hope that its nastiness and sterility will not pass unnoticed.

Lord ORAM

My Lords, I rather felt that the noble Earl, Lord Gowrie, used somewhat extravagant language in his attack on what he called this "nasty little order", although he agrees that the House should pass it. I was glad that in one passage of his speech he took some share of the blame—or at least asked Parliament as a whole to take some share of the blame—for the contradictions to which he claims to draw attention.

I think this order should be seen against a general background of what is being done to check prices and that we should not just pick out those bits—as I suggest the noble Earl did—which happen to suit a selected case. There is no doubt that the six months' Price Check Scheme is advantageous to the consumer, and that in shops all over the country prices are being maintained at a lower level as a result of the introduction of this Scheme. Therefore, in my judgment, it is right that this extra price on just a few of the commodities, which has come about as a result of the Budget, should be dealt with in the way proposed in the order.

The noble Earl spoke of Chancellors coming along and putting up prices. In my opening remarks I quoted from the Chancellor's speech two passages which I believe, if the noble Earl will read them tomorrow, he will agree give a very effective case for what the Chancellor did in his Budget. But as I explained, it had a consequential effect on the Price Check Scheme, not of an enormous amount and not in respect of many commodities in the Scheme. Therefore I think it is sensible and reasonable that the House should pass this order, which will put the matter right.

On Question, Motion agreed to.