§ 4.45 p.m.
§ Lord WALLACE of COSLANY rose to move, That the Counter-Inflation (Price Code) Order 1978, laid before the House on 31st July, be approved. The noble Lord said: My Lords, it is some five years since this House first considered an order to establish a Price Code. In the years since then we have seen the code with each annual revision become more complex and elaborate. The order we are considering today is a very different matter. One need only compare the single sheet of paper before us with the lengthy provisions of any previous code to appreciate that it has little but its title in common with them. The present measure has a very limited and entirely technical significance. It will not, I trust, be contentious. The significance of the measure may not, however, be immediately apparent, and I will therefore endeavour to explain as briefly as possible the necessity for this order and the form it takes.
§ The Counter-Inflation Act 1973 established a Price Commission. The Act further provided that the Government should prepare a Price Code for the guidance of the Commission in performing their functions under the Act. The most important function of the Commission was indeed to ensure that the provisions of the code were implemented, and to this end the Commission was given wide-ranging powers of enforcement. The main principle of the Price Code as originally established was to limit allowable price increases by reference to allowable costs. This cost-based control was reinforced by overriding profit controls. 841 Between 1973 and 1977 a Price Code of this type was the basis of the Price Commission's work. The code laid down precise rules for permissible price increases. The Commission's task was to implement the code fairly and effectively but with little scope for flexibility. The code itself became increasingly detailed and complex, as it was found necessary to modify the original simple rules to take account of special cases and changing circumstances.
§ By 1977 it had become clear that the code was no longer an adequate and effective basis for prices policy. The Government therefore introduced a radically different approach. With the 1977 Price Commission Act, the functions of the Price Commission were radically revised. In place of the detailed Price Code, the Commission was to be guided by a set of comprehensive general criteria laid down in the Act itself. The Commission was to apply these criteria in the investigation of prices and profit margins of individual firms selected by the Commission itself and in the examination of questions referred to it by the Secretary of State. On the basis of its findings, the Commission was to make recommendations to the Secretary of State.
§ The Commission, newly constituted, embarked on these challenging tasks in August 1977. The transition from the earlier system of price control was, however, not effected overnight. It was decided that while the Commission gathered experience in the operation of its new and more flexible powers, a Price Code should continue in force for at least a year. The Price Code which was thus retained on a temporary basis was more limited in scope than earlier codes, in that it no longer made provision for control of prices by relation to costs, but was confined to a control on profit margins; it was, nevertheless, the duty of the Commission to enforce it rigorously, as before.
§ It was never intended that the enforcement of a Price Code should continue indefinitely in parallel with the Commission's new powers of investigation. The Price Commission Act therefore provided that the Commission's powers of enforcement should expire at the end of July this year. The Price Code itself, however, was not to expire automatically. The first purpose of the present order is therefore to revoke the 1977 order, which 842 has now become quite irrelevant. I do not think it will be seriously suggested that it would be desirable to retain nominally in force a detailed system of profit margin controls now that the Commission no longer has either the power or responsibility to enforce them. Were the 1977 code to remain in force, there would, moreover, be a considerable danger of confusion and misunderstanding. The code is addressed not only to the Commission but to all those who are concerned in decisions on prices and charges; principally, of course, to industry, commerce and the distributive trades. It is not the Government's intention that industry should continue to observe the detailed system of margin controls on a voluntary basis. To avoid all possibility of confusion on that score, it is necessary to revoke the 1977 code.
§ Having revoked the existing code, however—and it is this which may give rise to some puzzlement over the present order—the Government are still under an obligation to continue with a Price Code in some form. Although the main function of the Price Commission under the Counter-Inflation Act has now been terminated, there remain some subsidiary matters to which the Price Code is relevant. The Government are under a continuing statutory obligation, under Section 2 of the Counter-Inflation Act, to produce a code for the guidance of the Commission in performing its remaining functions under the Act, however limited these may be. The remaining functions are in fact reduced to two: the publication of information and advice, and the continuous review of questions relating to prices and charges referred to the Commission by the Secretary of State.
§ These functions are of relatively minor practical importance, as compared with the Commission's functions under the Price Commission Act, but in principle they are of a very general, wide-ranging nature. In performing these functions it is therefore appropriate for the Commission to be guided by general principles relevant to the control of inflation, rather than any more detailed provisions. Such a statement of principles in fact already exists in Section 2 of the Price Commission Act, which guides the Commission in performing its more important functions. It is unnecessary to go beyond 843 these guidelines, which have already proved appropriate in the wide range of circumstances to which the Commission has applied them. The new Price Code therefore provides quite simply that the Commission should have regard to these general principles in performing its remaining functions under the Counter-Inflation Act. The Commission will therefore be subject to a single set of guidelines covering all its major activities. This approach has the advantage of simplicity and consistency.
§ I think it will be apparent from this explanation that the order we are considering today in no way represents a departure from the existing policy which has been approved by Parliament. It may be regarded as the last step in the process initiated by last year's legislation. It completes the transition to the system embodied in that legislation in the simplest possible way. I will readily concede that it might have been preferable to have provided for this transition in advance through the primary legislation. The legislation on prices is undeniably already very complex, and it is perhaps unfortunate that we should be required to continue with a measure to be known as a Price Code although in practice it has little or nothing in common with previous measures under that name. Certainly at some stage consideration will be given to a simplification of the relevant primary legislation. In the meantime, however, I hope it will be agreed that the present order is the simplest and most satisfactory means of discharging the statutory obligation to provide the Commission with guidance in the form of a Price Code. My Lords, I beg to move.
§ Moved, That the Counter-Inflation (Price Code) Order 1978, laid before the House on 31st July, be approved.—(Lord Wallace of Coslany.)
§ 4.54 p.m.
§ Lord LYELL
My Lords, I am sure that the whole House is very grateful to the noble Lord, Lord Wallace of Coslany, for his customary detailed explanation of orders of this kind, particularly this one. As he pointed out, the order is brief enough, but I wish to suggest that it is not quite as innocuous as its length would indicate. At the outset of his comments, 844 the noble Lord mentioned that legislation on prices was complex, although the Government are attempting to simplify much of it, and I believe that all of us in the House will applaud that. It is interesting to note the remarks of my noble colleague Lord Gowrie, who exactly a year ago was in the same position as I am in now. When my noble colleague replied to the moving of the 1977 Price Code Order—by, I think, the noble Lord, Lord Oram—he said that he thought that there was an element of retrospection, in that it took two and a half months to approve the order. It would be unjust of me to belabour the noble Lord, Lord Wallace, in this regard. It is certainly not his fault, nor indeed the fault of his Department or the Government. I am sure that there must be an adequate reason for the arrival in your Lordships' House of an order which took effect on 1st August 1978; and I expect that the noble Lord will be able to indicate a valid reason. He will find me very easy to satisfy on that point, but I should be interested to know.
My noble friend Lord Mottistone will have something to say after I have spoken, and therefore I shall not try to pre-empt anything which we may want to raise. However, I think it right to mention one or two points which cause me some concern in regard to both the Price Commission itself and the powers, be they investigatory or otherwise. I wonder whether the noble Lord, Lord Wallace, would accept that many sectors of business are a little anxious, not so much at the existence of the Commission, but more at the varying and, it seems, wide interpretation of its powers. Admittedly this particular order—especially the Explanatory Note—makes it very clear that the Commission has fewer and fewer functions under the Counter-Inflation Act 1973, and that the Commission does not have power to enforce any controls on prices or profit margins. However, there is still the worry that the Commission will investigate as a result of having fairly wide powers to do so as, according to a wide interpretation, such powers are in the public interest.
Here I should like to give one example. It concerns a company which might be familiar to the noble Lord, Lord Wallace; it is the Royal Doulton China and Table ware Company. I believe that recently 845 this company wished to raise the prices of its goods by a little over 9 per cent. I would not believe that a manufacturer of fine china would cause the Retail Price Index to jump several points by seeking to maintain its profit margins. Yet this proposed increase was the subject of an inquiry by the Commission. The report was duly published, and the whole increase was granted; in other words, everything which was in contention was agreed. Originally 7.5 per cent. was allowed under the existing threshold safeguards of the Commission, but there was an entire inquiry over an extra 2 per cent. It appears that now an inquiry into the whole china and tableware sector is likely to be carried out.
I hope that the noble Lord, Lord Wallace, will permit me to allude to our debate yesterday during which we had a little peep into QUANGO-land. I am sure that the Price Commission is investigating these price rises to see whether or not they are justified, but certainly in this case—and probably in one or two others —I am tempted to compare the Commission to a large and possibly lordly, predator in that misty land of QUANGOs, and similar bodies, between Parliament and the public. The Commission certainly is akin to something that is toothed and clawed, and which probably has a sharp tail in the QUANGO world.
So far as we have heard this afternoon, some of these powers, the teeth of this beast, are decayed or are otherwise out of use, but it seems that as one set of weapons comes out of use the claws and the tail appear to be as strong as ever. It does not seem that they are defined, and the investigating powers are very strong. Can the noble Lord, Lord Wallace, indicate that the apparent self-justification for the Commission in all its aspects—we would accept it in many cases, and probably in the majority—might be subject to control? I take the view, as my noble friend Lady Young did yesterday, that QUANGOs and the Price Commission are not matters for Party points, and as the noble Lord, Lord Wallace, pointed out, the whole of the Price Commission was set up under a 1973 Conservative Act. I am sure that the noble Lord, Lord Wallace, will accept that there are reasons for my raising this matter. Interpretation of the powers of the Commission can—I do not say that it 846 does—in a minority of cases give grounds for disquiet. I am sure that the noble Lord, Lord Wallace, will accept this point. We for our part accept that the order is necessary.
§ 5 p.m.
§ Baroness SEEAR
My Lords, we on these Benches also accept that this order is necessary, and we welcome the simplification that it embodies. The amount of detail and the reference to historical standards that was embodied in previous regulations is something which we are very glad to see removed. However, my Lords, this order is, after all, headed "Counter-Inflation", and control over prices, of which this is an instrument, is or ought to be, in our view, only one part of a counter-inflation programme. We very much regret the tendency on the part of the Government to put all the burden of controlling inflation on the control of prices, while apparently abandoning, in practice and in legal enforcement, any attempt to exercise control over pay.
To call this a counter-inflation measure and to leave all the emphasis in the area of prices is, we think, a very inadequate approach to this whole issue; and we very much hope that when it comes to the enforcement of price controls, with counter-inflation in mind, the Government are not going to take either the line which was advocated by the TUC —that all the controls should be exercised through holding down prices, which is in our view a totally impractical way of approaching the matter—or the line that employers are to be very seriously penalised in their ability to raise prices if they have, under great pressure, given way to pay increases. We fully recognise—and we take a strong line on this, in some ways even stronger than that taken by any other Party—the importance of seeing that pay levels are not exceeded; but where the Government are apparently unable to take any stand to enforce pay control on those who are claiming pay increases, it is in our view quite improper that employers who have been unable to resist such claims should then be penalised through the price system.
In particular, I very much hope, and my Party very much hopes, that we shall 847 not continue the system whereby, without any legal backing for control over pay, companies are going to be penalised, although there is no legal basis for so doing, where they have in fact exceeded the pay level laid down, but not enforced in law, by the Government. The inconsistency which lies behind this document, when it is called "Counter-Inflation" and is concerned only with prices, is something which we very much deplore.
§ 5.2 p.m.
§ Lord BALOGH
My Lords, the two speeches which we have heard point from a direction which I deplore. They were really calculated merely to criticise price control, when we now know that it would obviously have been nicer and much better if we could have devised a context in which wages and other incomes, as well as prices, came under a certain amount of supervision, which the market no longer affords. But it was not to be. However, I should like to use this opportunity to re-affirm once more my firm belief that we shall have to have both permanent price control and permanent incomes direction. In what way that should be arranged—whether we can do it voluntarily, or not —is a very different question.
Since our debate on the economic situation only a few days ago two very important events have taken place, and I should like to reflect on them because I think they influence our situation very much. There was the seminal speech of the Prime Minister, which buried for once and all the myth that this country receives fair treatment in its membership of the EEC and which took a robust attitude towards the additional shackles implied in the Franco-German proposals for a European Monetary System. The other event was the refusal by the TUC, on a minority vote, to accept the accord with the Government negotiated by its Economic Committee. While one can have different and, indeed, contrary views about the practical significance of this, it must be admitted that it discloses an ominous, indeed menacing, psychology.
In my view, one of the most distressing aspects of our present situation is without doubt the growing exacerbation of the relationship between occupation and 848 occupation, between occupations and the community and between the individual and the vested interests. What we are witnessing today is a deterioration of that relaxed feeling which had made this country the pleasantest among large industrial territories in which to live and, even more perhaps, to work. In a recent debate, I spelt out the meaning of what is written as free collective bargaining and in practice acted on as licentious sectional blackmail. Considering the news of a 15 per cent. rate of increase in earnings while prices in the comparable period, assisted by legislation, have risen only about 7.8 per cent., one wonders how a 6 to 7 per cent. increase in real wages was possible when national output rose only 3 per cent.
It was possible, my Lords, because we have used (and if the Treasury forecasts of the balance of payments for 1979 are correct, we shall continue to use) the massive accretion of some £4 billion, rising to about £6 billion or more next year, from our oil and gas to boost unearned consumption. We have been here before. In the period 1951 to 1955 we had a favourable turn in our terms of trade. The country gained about £1.3 billion per annum by this turn. Did we reconstruct our industries? No. What did we do with this enormous accretion of funds? We increased consumption, mainly of foreign goods; and we continue to do so. Our current investment, despite the woeful shortage of capital equipment, is expected to decline. The brave words about the use of oil to repay debt and reorganise industry have been honoured by total disregard, though the Government did their best. Free collective drop—that is what we are engaged in.
I do not single out the trade unions for blame. They are doing what all vested interests (including those who have sworn the Hippocratic Oath) are doing: they are extracting the maximum from an unhappy, bewildered community. The CBI is against taxes and price control; wage, salary and professional earners are for increases in their earnings. I cannot repeat too often that the one inescapable conclusion from our sad experience is that a social contract is essential if we are to combine stability and full employment, and that full employment is essential if 849 we are to increase investment and productivity, not merely because our work-force must be backed by adequate equipment but because innovation and productivity, which create unemployment, will be resisted by the work-force if alternative work is not available.
We have been here before. This is the sixth or seventh time that we contemplate the ruin of incomes policy when everyone with a little common sense must by now know that by leapfrogging we shall land in the abyss of "stagflation". I venture to say that a restrictive monetary policy and increased taxation is hardly a help. We have tried that tack before, and we came to grief. After each bout of deflation, inflation reappeared; and each time we were weaker than before and more exposed and more vulnerable to foreign competition.
I admire the Prime Minister's and the Chancellor's stand on pay limits, and I wish them well; but I would respectfully submit that a much more intensive educational effort is necessary to secure a national consensus on these matters and, more especially, on the need for a permanent incomes policy buttressed by an independent assessment of national prospects. It is here that the leaders have not had the impact that the importance of the task so urgently demands. We can only hope that common sense and enlightenment, which seem to have been so singularly failing in strength, will in the British tradition once more triumph.
§ 5.10 p.m.
§ Lord MOTTISTONE
My Lords, perhaps I might bring us back to the order under debate rather than the orders that the noble Lord, Lord Balogh, and the noble Baroness, Lady Seear, think we ought to be debating instead. I would agree with my noble friend Lord Lyell and with the noble Lord, Lord Wallace of Coslany, that this is a simpler and, in that respect, perhaps, a better code than we have been used to; but if I could suggest to the Government—and that they relay it to the Price Commission—my great concern about this order is that it really leaves the whole thing in the hands of the Price Commission. Section 2(1)(b) says;… having regard to matters mentioned in the following section as far as the Commission consider them relevant …850 and Section 2(1) (a) says:… have regard to all matters which appear to the Commission …Giving a semi-public body—and I am not going back to QUANGOs—this sort of sense of being its own judge and jury, so to speak, may serve to increase its sense of self-importance; and all the reports that I have had of the operations of the Price Commission so far are that it is rather excessively self-important already. I think that one of the things which needs to be brought to its attention is Section 2(2)(b) which reads:The desirability of encouraging reductions in costs by improvements in the use of resources …".A large company investigated will have increased costs in terms of senior staff time, and people that they have to hire for the occasion, in the order of five figures —just to cope with an investigation which, in the end, more often than not (and particularly in the competitive part of industry) reveals that the price that they applied for is a perfectly reasonable one. The Price Commission could well more rigorously apply to itself the kind of criteria set out in Section 2 rather than perhaps they are applying at present.
Another feature which perhaps could be brought to their attention is that there is a sort of mixed (I do not know quite how to put it without referring to medical terms) approach. The Price Commission say that they rigorously try to listen to the firms they are investigating and that they are consulting with them at every turn before taking any action of any importance. This is not always the case. There are many cases where there has been somewhat unilateral action by the Price Commission in the way in which it has conducted its inquiries which does not serve to make a good relationship with the company and, therefore, does not serve to ensure that the truth it is seeking comes through as fully as it should. I think the main point is that this order will give more power, in a sense, to the Price Commission, and the Price Commission must use that power much more responsibly than hitherto they have used the power that they have already.
§ 5.13 p.m.
Lord WALLACE of COSLANY
My Lords, I would thank noble Lords and the noble Baroness for the contributions 851 they have made to the debate. Quite a number of important points have been made. I think that I will disregard the QUANGO exposition of the noble Lord, Lord Lyell, because I think the Opposition has a little QUANGO complex at the moment. This Commission, while it is not perfect (and there are faults in all organisations) is doing a good public service. If there is anything receiving public support and opinion, it is the need to control inflation not only by controlling prices but in some sensible reaction to the level of pay increases. If there is anything that the public support today it is that particular issue and those particular points; and there is no argument about it.
The noble Lord, Lord Lyell, made a number of points. He referred to the retrospective approach of the order. This order was linked with the notification order which came into effect on 1st August. Industry and the trade unions had to be given time for consultation, as there has been consultation over this. Both orders were laid at the earliest possible date but the Summer Recess prevented an earlier debate. I think that we are all in favour of Recesses. I am looking forward to the next one which, I believe, is at Christmas.
The Royal Doulton case, of course, is not strictly relevant to this particular order but the noble Lord is right to raise specific cases. It was an investigation under the 1977 Act. The Commission had recommended a sectoral examination of the retailing margins in chinaware, not duplicating Royal Doulton. The Secretary of State is considering this, but many other candidates for examination have also been suggested.
Coming on to the speech of the noble Baroness, Lady Seear, it is true that while the Government policy is a 5 per cent. pay norm, it is also true that so far there has been no general acceptance or agreement except in the general body of public opinions; although there are some cases already of settlements within that norm. But as far as prices are concerned, I think that the noble Baroness and the House will accept that pay increases must have some relation to price increases and the Price Commission's ability to scrutinise the effects of pay settlements will not be affected in any way by the present measure.
852 On the broaderissue of the Commission's role in general, the Commission's chairman has already made it clear that under its existing powers the Commission is entitled to consider the effects of pay increases on prices—and that is acceptable —and, in particular, the scope for the absorption of cost increases through a more efficient use of resources. That, again, is reasonable. Therefore, one must relate pay increases; and if they are exceptional pay increase this must give cause for concern in regard to the effect on prices. As the public interest is involved in price increases the Commission is quite right to take it into account and will have to see what happens when these cases are under investigation.
With reference to the speech of my noble friend Lord Balogh, we accept that he is giving a general outline which I generally agree with. My noble friend did not deal with this order but, on the other hand, he made a valuable contribution which is always worth receiving from him. We shall be considering that in due course and I commend the House to read Hansard when it comes out—subject to the usual clause that we might have an industrial dispute. We cross our fingers.
With reference to the speech of the noble Lord, Lord Mottistone, I am grateful to him. We had a hurried conversation in which he indicated to me, generally speaking, his approach. He is con cerned—and I can see the point—about the cost to companies of investigations. One knows what happens when the audit takes place and there is an intensive audit. The whole industry and departments get gloriously mixed up and their routine is affected.
My Lords, we recognise that the Commission's work involves some administrative cost to industry. This is inevitable with any system of investigation. I have referred to audits. We believe the benefits far outweigh the costs. Industry itself is a major beneficiary of the decline in the rate of inflation to which the Price Commission's work has contributed—and are not we all! Nevertheless, both the Government and the Commission recognise the need to reduce the administrative cost to companies as far as possible. The very fact that the investigation system is selective as compared with earlier methods of price control greatly reduces the burden 853 of the Price Commission's activities for the majority of firms. Moreover, as recently as August this year, the Government further reduced the information requirements on industry by amending the Notification and Information Order. So far as individual investigations are concerned, the Commission is well aware of the need to minimise the inconvenience caused to companies. It is true that in the early days of the new system there was some criticism justified on this score, but the Commission have always been ready to learn from experience.
While no doubt there is always room for further improvement, the Government have reason to believe that at present there is no other cause for concern. If there are individual cases which give noble Lords concern, we will contact the Commission and bring forward cases, or individual noble Lords can make their own representations. If its only right that we should do so because although the Price Commission generally aims to do its job efficiently, as with all other organisations—including this noble House—sometimes we make mistakes. If there are any other points which I have not covered I will contact the noble Lord and the noble Baroness and give them any information they require.
§ On Question, Motion agreed to.