§ 3.19 p.m.
My Lords, I beg to move that this Bill be now read a second time. While much may be said about this Bill, I trust that no one will seek to argue that it has not received the fullest possible debate before its introduction into your Lordships' House. No doubt this House will wish to ensure that the Bill is thoroughly debated here, but perhaps I might express the hope that in considering the Bill, your Lordships will not seek to emulate the record-breaking attempts witnessed last week in another place.
The basic purpose of this Bill is to provide new power to replace the current price control legislation which expires on 31st July. That legislation is to be found in the Counter-Inflation Act 1973, 1224 the Prices Act 1974, and the Remuneration, Charges and Grants Act 1975. The present system of controls is based on a Price Code which is subject to approval by both Houses of Parliament. The Price Commission is the interpreter of the Code and examines prices to see whether they comply with its terms. Except as a matter of law, there is no appeal from the Commission's decisions, subject to the ability of the Secretary of State to consent to matters which would otherwise be prohibited by the Code.
While the Code is a valuable weapon in the war against inflation, the present system has a number of defects. It is based on two elements, allowable costs and profit margin controls. The former permit a firm to pass on to the consumer virtually all increases in its costs and do not permit any investigation into questions of efficiency. The profit margin controls are based on levels of profitability which prevailed when price controls were first introduced. A firm's net profit margin reference level may be above or below the average for that sector, and this may work to the firm's unfair advantage or detriment.
The proposals put forward in this Bill contain a different approach. The Price Code will be retained, but on a limited and temporary basis. The power to impose cost controls will be repealed with only the margin controls remaining. Moreover, the power to enforce a Code will disappear completely after 31st July 1978, unless further legislation is introduced in the meanwhile.
The main feature of the new system will be selective investigations of price increases carried out by a strengthened and expanded Price Commission. As at present, the larger manufacturing and service firms will have to give the Price Commission 28 days' notice of their intention to raise prices. The Commission will consider these pre-notifications and the information supplied with them. If it considers that the reason for the increase requires further scrutiny, it will mount an investigation during which the price may be partially, or completely, frozen. When the Commission has completed its investigation, it will submit a report to the Secretary of State, who may make an order freezing the increase for up to 12 months from the date of pre-notification.
1225 The Government attach importance to making the investigatory system permanent. It has been argued that this feature of the Bill is undesirable, except possibly as a temporary anti-inflationary device. However, this argument ignores the nature of the new powers. Unlike the margin controls, which are to be temporary, which apply across the board and which are tied to pay policy, the investigatory powers will be selective. They will enable the Commission to carry out an in-depth survey of the reasons for individual price increases and, on the basis of generalised criteria, to see whether these are justified. The Commission will be able to form a view as to whether costs are being incurred unnecessarily, or whether a company is abusing a dominant market position.
While most of the Price Commission's investigations are likely to be in areas where competition is limited, it would be wrong to confine the new powers to the statutory monopoly situations within the meaning of the Fair Trading Act 1973. There are many areas outside the field of pure monopoly where competition is far from perfect. Price leadership and parallel pricing are common, and it should be recalled that about 40 per cent. of net manufacturing output is concentrated in the top 100 firms.
The Government consider that there is a case for an eventual amalgamation of the Price Commission and the Monopolies and Mergers Commission. However, as was explained by my right honourable friend the Secretary of State during the debate on Report in another place, many policy and legal issues remain to be resolved before such legislation can be introduced. Meanwhile, the Government consider the present Bill represents the best means of establishing an effective prices policy.
I should stress very firmly that industry is unlikely to suffer as a result of the new system. Criticism has been levelled at the proposed powers to freeze prices during investigations. However, it is the Government's view that the absence of such powers would he totally unfair to consumers who had paid prices later held by the Commission to be unjustified. Firms under investigation will, moreover, be protected in a number of ways. Their 1226 protection will lie in the independence and good sense of the Commission, the new Chairman and Deputy Chairmen of which were announced last week. They will be protected from unnecessary investigation by the inability of the Commission to mount more than about 40 investigations a year—a small percentage of all increases notified.
Finally, there will be the safeguards regulations. Under Clause 9 of the Bill, the Secretary of State will be required to make regulations prescribing minimum levels of profitability which firms ate not to be prevented from earning as a result of investigations and examinations. A firm whose profits fall within the safeguard limits will thus be entitled to an interim price increase during an investigation as of right, and the Commission will also be free to permit it further increases over and above the safeguards level.
The Bill is admittedly complex in parts. This is perhaps inevitable, especially because it amends the Counter-Inflation Act 1973, which has already undergone substantial amendment. It is hoped to introduce a Consolidation Bill very shortly. However, it might be of assistance to your Lordships if I explain some of the more important of the various clauses.
The first clause deals with the constitution of the Price Commission. The Commission is to continue in being as a body corporate subject to the provisions of the Bill. The requirement for members of the Commission to be appointed, jointly by the Minister of Agriculture, Fisheries and Food, as well as by the Secretary of State, is deleted. This reflects the fact that when the Counter-Inflation Act was enacted, there was no Secretary of State for Prices, and appointments were made jointly by the Secretary of State for Trade and Industry, and the Minister of Agriculture, Fisheries and Food. The creation of the Department of Prices and Consumer Protection removes the need for such joint appointments.
In conjunction with Schedule 1, Clause 1 provides for investigations and examinations to be carried out by a group consisting of not less than three members of the Commission. However, as a result of an Amendment made to the Bill before its introduction into your Lordships' House, reports must now be made 1227 by the Commission. A group's conclusions will have no legal effect unless endorsed by the Commission as a whole. Finally, the clause contains a declaratory provision stating that the Commission is not to be regarded as an agent of the Crown. While this is not part of the Bill itself, I think it is relevant to consideration of Clause 1 to mention that an order will shortly be made by the Secretary of State increasing the maximum size of the Commission from 12 to 16. This will assist the Commission in the performance of its new investigative role, and enable it to reflect the widest possible range of experience.
Clause 2 contains the fundamental criteria which are to guide the Commission and the Secretary of State in performing their functions under the Bill. The Commission is required to have regard to all matters which appear to it, in the particular circumstances, to be relevant, with a view to restraining prices of goods and charges for services in so far as that appears to the Commission to be consistent with the making of adequate profits by efficient suppliers of goods and services. However, the Commission is also required to have particular regard to eight specified criteria. These criteria, to be found in subsection (2) of Clause 2, are not to he regarded as a substitute for the Price Code. The Commission does not have to take them all into account if it considers that certain items are not relevant to the case under consideration. Moreover, provided that it considers them relevant, the Commission can take into account other factors which do not feature in the list of criteria. But the criteria are the basic guidelines to which the Commission and the Secretary of State must have regard, and firms will be able to pray them in aid in justifying proposed price increases.
Clause 3 deals with the Commission's general reports to the Secretary of State. As originally drafted, the Bill provided that the Commission need make only an annual report. However, Amendments made in another place provide for retention of the current practice of quarterly reports.
Clauses 4 to 8 deal with the conduct of investigations, the preparation of reports by the Commission and the subsequent making of orders by the 1228 Secretary of State. Clause 4 deals with firms subject to the requirement to prenotify price increases. Basically, these are the larger manufacturing and service firms. If the Commission wishes to investigate a proposed increase, it must serve a notification on the Secretary of State and the firm within the 28 days following pre-notification of the proposed price increase. The Secretary of State will have the right to order that an investigation be discontinued at any time, although such a veto will be exercised only in the most exceptional circumstances. During the investigation, the price increase may be frozen, but the Commission may award an interim price increase of any amount. The Commission will be obliged to award such an increase as the firm is entitled to obtain under the safeguards regulations. Clause 5 deals with the investigation of the prices of non-prenotifying manufacturing and service firms and of the margins of distributors. The procedure is similar to that set out in Clause 4, but, as there is no pre-notification, it is the existing price rather than a proposed price increase which is investigated. Moreover, distributors' margins may not be frozen during an investigation.
Clause 6 specifies the manner in which an investigation is to be conducted. Essentially, all investigations must be concluded within three months. A firm subject to investigation is allowed to demand a public inquiry if it so wishes, but such an inquiry may not be forced on the firm against its will. Certain restrictions are imposed on the recommendations which may be contained in the Commission's report. The Commission may not recommend that a price increase be restricted to a greater degree than is permitted under the safeguards regulations, nor may it recommend an increase of less amount than an interim price increase already awarded to the firm. The restriction recommended may not be of more than 12 months' duration, calculated from the date of pre-notification in the case of an investigation under Clause 4 and from the start of the investigation in the case of proceedings under Clause 5.
Clauses 7 and 8 deal with undertakings given and orders made following an investigation. The Price Commission's 1229 recommendations are to have automatic effect for 28 days following delivery of the report. The Secretary of State may accept an undertaking from the firm at any time, or he may make an order in the last two weeks of the 28-day period. Such orders are subject to annulment by Resolution of either House of Parliament, and they may not impose restrictions more onerous than those recommended by the Price Commission. Where an undertaking is broken, the Secretary of State's order-making powers are brought into play once more. Clause 9 requires the Secretary of State to make safeguards regulations defining profits which firms are not to be prevented from earning as a result of investigations or examinations. The Consultative Document containing an outline of the Government's proposals was published on the 15th June, and draft regulations will be published next week.
Clauses 10 to 13 deal with sectoral examinations. The Secretary of State already has power, under Schedule 1 to the Counter-Inflation Act 1973, to refer to the Price Commission general matters relating to prices and charges. The main innovation introduced by the Bill is that the Secretary of State will now have power to make orders giving effect to the Commission's recommendations. The new powers are naturally hedged about with suitable safeguards. The Secretary of State will not be able to refer an individual firm to the Commission unless it is in a monopoly position. Individual investigations may be initiated only by the Commission. Moreover, where an order following an examination is to be of more Wan 12 months' duration, it will be subject to approval by Resolution of each House of Parliament, rather than to annulment. Under the sectoral examinations provisions, the Secretary of State will be given the specific power to refer to the Commission practices involving recommended retail prices, and to make orders in consequence of the Commission's recommendations.
Clause 14 gives permanent force to various provisions of the Counter-Inflation Act 1973. They are the power to require the pre-notification of price increases, to enforce the Commission's decisions, and to obtain information. They are all a necessary part of the investigatory system. 1230 The powers of the Secretary of State for Trade to control insurance premiums are also made permanent.
Clause 15 provides that future Price Codes may not contain cost controls. Industry will naturally be consulted on the new Code to take effect after 31st July and a Consultative Document will be published next week. The clause also renews the provisions of the Remuneration Charges and Grants Act 1975 which permit the Code to contain a pay sanction and extends that to the new investigatory system. Clause 16 extends the powers of the Secretary of State in the field of price display. In particular, it extends these powers to all goods which a retailer indicates are for sale, or may be for sale, and it brings within control the display of prices for the provision of services to a consumer in his private capacity.
Clause 17 renews until 31st July 1978 certain of the provisions of the Remuneration Charges and Grants Act 1975 which support a pay policy. These pay provisions have no effect unless a White Paper has been published and approved by both Houses of Parliament. The clause also extends until 31st July 1978 the power to enforce a Price Code.
Clause 18 places on a permanent statutory basis the power of the Secretary of State to make grants to local authorities and other bodies in respect of local price surveys and the provision of advice to consumers. Clause 19 requires the Price Commission to give the Director General of Fair Trading information about any unregistered restrictive trade agreement which comes to light in the course of its investigations. It also gives the Secretary of State the right to transfer to the Price Commission the task of supervising orders and undertakings arising from an investigation by the Monopolies and Mergers Commission. The remaining clauses, Clauses 20 to 24, and the second and third Schedules are largely technical.
My Lords, the Bill is an important measure. The Government do not pretend that it will provide a panacea for controlling inflation. The cure for that ill lies in a wider range of policies, including the control of public expenditure and the maintenance of an effective voluntary wage policy. However, by enabling effective action to be taken in areas where market forces do not serve as an adequate 1231 restraint on prices, the Bill will play an important dual role both in restraining prices and in improving competition policy. As such, it will be of benefit to every inhabitant of this country. I commend the Bill to Your Lordships and beg to move that it be read a second time.
§ Moved, That the Bill be now read 2a—(Lord Oram.)