HL Deb 08 February 1979 vol 398 cc832-41

3.32 p.m.

Report of Amendments received.

Clause 1 [Amendment of Price Commission Act 1977]:

Lord JACQUES moved manuscript Amendment No. 1A: Page 1, line 8, leave out ("(a)").

The noble Lord said: My Lords, I circulated a manuscript Amendment this morning dealing with an issue which was raised in the earlier stages of this Bill; that is, the passing on of the cost of imported raw materials. As your Lord-ships will recall, your Lordships in Committee passed an Amendment against the advice of the Government which required the Secretary of State to make safeguard regulations designed to guarantee a minimum level of profitability to firms whose costs increased as a result of rises in prices of imported raw materials. This Amendment now appears as Clause 1(1)(b) of the Bill.

The Government's objection to the Amendment was, and remains, that it is inconsistent with the Bill and with the parent Act to establish minimum profit levels to take account of one particular kind of increase in costs. Profits, as I explained on Tuesday, must relate to the total of a company's costs and not to individual elements of those costs. Moreover, the Amendment as drafted would have required regulations to cover a wide range of firms and thus would have frustrated much of the purpose of the Bill.

However, the Government are aware of the strength of feeling in the House that increases in the price of imported raw materials should not have to be absorbed by firms during an investigation. While, therefore, such increases are a matter which the Commission must already take into account under the statutory criteria of Section 2 in deciding whether to grant an interim price increase, the Government are prepared to amend the Bill so as to impose a more precise obligation upon the Commission.

The manuscript Amendments which I have tabled today have this purpose. The first two delete the Amendments passed in Committee. The third amends Section 4(5) of the parent Act of 1977 so that where it appears to the Commission that the whole or part of the increase pre-notified ought not to be restricted on account of an increase in the cost of imported raw materials, then they shall be under a duty to allow an interim increase accordingly. This principle is also applied by the Amendment to investigations made under Section 5 of the parent Act into non-pre-notifying firms. The fourth Amendment is consequential.

In tabling these Amendments, the Government have tried to meet the fears expressed by your Lordships without destroying the main purpose of the Bill. The Amendments do not provide a mathematical formula for the passing on of certain cost increases which this Government regard as inconsistent with the philosophy both of the Bill and of the parent Act; but they do require the Commission, in deciding upon an interim price increase, to address their minds specifically to increases in cost of imported raw materials, and require them to allow an interim price increase where it appears to them that the whole or part of the increase sought ought not to be restricted on account of this factor.

I am satisfied that in practice any firm which is efficient and which operates in a competitive environment will be able, if it so desires, to pass on in prices additional costs which it cannot help incurring as a result of increases in the prices of imported raw materials. I hope that the House will welcome the spirit in which these Amendments have been tabled and will accept them. I am authorised by the Government to say that the Government will support these Amendments in the other place if this House accepts them and if the other Amendments dealing with imported raw materials are withdrawn.

The Earl of GOWRIE

My Lords, it is my duty to recommend to my noble friends that we withdraw the Amendments which at a former stage were in our name and that of the Liberals and which were passed in Committee. The fact that we are prepared, if my noble friends take my advice, to withdraw them, does not mean that we are any happier about this Bill, which I described earlier as an "invidious little piece of legislation"—a description I certainly stick to. It still seems to us quite illogical to attempt to curb prices in the face of the level of wage settlements which are currently being achieved and which are likely to be achieved. It would be one thing if the Government's target were to be adhered to: it is quite another thing if it patently is not.

However, our immediate concern at this stage must be that if this legislation is to go through in another place it must be in as minimally damaging a form as possible. We feel that the Government have made a significant concession here in that, as the noble Lord, Lord Jacques, has told us, they are prepared to concede that any increase in the price of imported raw materials should not be absorbed by the firms who have to suffer the increases. This was the substantive point of our Amendment, and had we decided to stick with our Amendment, this would have been mandatory upon the Price Commission.

There is a certain amount of argument as to whether the word "ought" in the new Amendment is exhortatory or mandatory. My feeling is that in English and in logic it is exhortatory, but if, nevertheless, the Price Commission were to go against the exhortation they would run into legal difficulties. Therefore the de facto effect is mandatory. That seems to me the best we can do, and I, for one, am prepared to recommend to my noble friends that they accept it.

Baroness SEEAR

My Lords, we on these Benches still consider this a disreputable little Bill. However, we believe that the Amendment put forward by the Goverment gives increasing safeguards to companies in the very important matter of increases in imported raw material prices. We believe that the way in which the Amendment is worded would strengthen the hand of any company which believed that it had been unfairly dealt with, in taking the Commission to the court. To this extent it minimises the arbitrary nature of the Bill and the wide powers of the Commission to which we objected so strongly, and to which we still object.

I do not, however, accept the point of the noble Lord the Minister who has presented it, that it was against the spirit of the original Act to have any mathematical element in the safeguards. There was a figure of 80 per cent.—an arithmetical, if not a mathematical, limitation—imposed in the legislation. That was in the original Act and it is not inconsistent to require something of that kind in the Amendment. However, in view of the fact that the Government have agreed that this shall go through, and that it improves this little Bill, which is so much in need of improvement—indeed, it would have been much better if it had not been brought before us at all—we are prepared to accept.

Lord COCKFIELD

My Lords, may I raise what may appear to be a very technical point with the noble Lord, Lord Jacques? Am I right in thinking that what he is proposing in Amendment 3A is a substantive Amendment to Section 4 of the 1977 Act, as opposed to an amendment of the safeguard provisions? If that is so, it is covered by the Long Title to the Bill; and if it is not covered by the Long Title to the Bill, ought he not now to be moving an Amendment to the Long Title as well? I realise that this is highly technical, but if we are going to do this we must get it right.

Lord JACQUES

My Lords, I will ask my advisers to consider the point which the noble Lord has made.

On Question, Amendment agreed to.

Lord JACQUES moved manuscript Amendment No. 1B: Page 1, line 10, leave out from ("examinations)") to end of line 13.

The noble Lord said: My Lords, I beg to move this Amendment, to which I have already spoken.

On Question, Amendment agreed to.

3.43 p.m.

Baroness SEEAR moved Amendment No. 1:

Page 1, line 13, at end insert— ("or (c) in consequence of any increases in costs incurred by such persons as a result of Government action;").

The noble Baroness said: My Lords, we put this Amendment down because decisions made by Government are also a very heavy potential cost on employers and can increase their costs very considerably in ways over which they have no control. The area with which we are particularly concerned is increases in rates, which are certain to rise if pay increases of the order which appear to be in the offing are given to local authority workers. For companies to be faced with a potential increase of rates of the size that may well arise, without any specific safeguard that this will be taken into account during the interim period of an inquiry, is something that we cannot accept. My Lords, I beg to move.

Lord JACQUES

My Lords, I said at the Committee stage that I would give further consideration to the Amendment which is before us as Amendment No. 1 today. I am afraid that I certainly cannot support the Amendment as it stands. Indeed, on further examination it is clear that, in addition to the points which I made on Tuesday, the Amendment is open to the same criticism which I directed at the Amendment on increased raw material costs. Like that Amendment, it seeks to ensure that a certain category of increased costs can be automatically passed on in prices that cannot be achieved in the manner proposed.

As it stands, the Amendment requires the Secretary of State to make regulations specifying the levels of profit which firms are not to be prevented from earning in consequence of increased costs of the kind in question. But profit is the difference between revenue and total costs. You just cannot say that a level of profit is to be determined by the amount of one particular cost. If the Amendment became law, the Secretary of State would have to make the best sense he could of it. He would have to make regulations so wide in their application that the coverage of safeguards would be very little different from those obtaining at present. The effect of the Amendment would therefore be to damage very much the main purposes of the present Bill.

With permission, I should like to speak to Amendment No. 5 which deals with the same subject. Amendment No. 5 proposes a different means of achieving the purpose intended. It is certainly a better approach. It requires the Secretary of State to make regulations to oblige the Commission to allow price increases to the extent necessary to cover increased costs resulting from Government action. Although Amendment No. 5 is preferable to Amendment No. 1, "costs resulting from Government action" is an impossibly vague term.

Some costs, such as increases in Excise duties, can be readily measured. I am advised that already, under an existing order—Order 1978 No. 1083—made under the 1973 Act, price increases due solely to increases in indirect taxation are generally exempt from notification to the Commission and cannot be investigated. But as soon as we move away from the relevant straightforward kind of costs, matters become much more difficult. How could the Commission make a reliable estimate of all the costs resulting from Government action, and how does one decide what is the result of Government action? For example, if in managing the monetary system there was an increase in interest charges generally, would that be the result of Government action and would it be covered by Amendment No. 5? I hardly need say that questions of that kind could be very controversial, even political, and I am sure that none of us would wish that the Commission should be dragged into political issues.

Finally, I must emphasise again, as I did on Tuesday, that the Commission must already take account of all costs which are unavoidably incurred by efficient companies. I believe that, in practice, this offers a quite adequate safeguard for the purposes that we are considering. To do more, to require that costs be passed on automatically without consideration, would weaken the whole purpose of the Bill and the system established by the 1977 Act, which was intended to replace a system of detailed controls based on allowable cost increases. That system had proved increasingly complicated and ineffective. We prefer these matters to be open to the scrutiny of the Price Commission.

I have been asked to make a specific statement with regard to rates. An increase in local government rates, by itself, has nothing to do with the efficiency of a company. It follows that it would be automatically allowed under Section 2 to an efficient company. In considering an overall increase in prices—that is, an increase due to several causes—the Commission would, of course, have regard to efficiency.

Baroness SEEAR

My Lords, I was very glad to hear the Minister's statement at the end. It will comfort a great many people who are deeply anxious as to the effect of current events on the level of rates. While what the noble Lord has said does not have the force of law, we can hope that when this legislation is being interpreted in the courts, where this question may arise, the statement which he has made will be borne in mind. In view of the noble Lord's statement, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 2 and 3 not moved].

3.50 p.m.

Lord JACQUES moved manuscript Amendment No. 3A:

Page 2, line 2, at end insert— (" ( ) In section 4(5)—

  1. (a) after paragraph (a) there shall be inserted—
  2. (b) after paragraph (i) there shall be inserted—

( ) In section 5(4) (application of section 4(5) in relation to notifications in respect of prices) for the words "and for any other reference to the increase there were substituted a reference to the price" there shall be substituted the words "and as if—

  1. (i) in paragraph (aa), for the words from "the whole" to "restricted" there were substituted the words "a particular increase in the price ought not to be restricted by virtue of section 5(3) of this Act";
  2. (ii) in paragraph (ia), for the words from "so" to "as" there were substituted the words "the increase in the price which"; and
  3. (iii) for any reference to the increase (except those in paragraphs (a), (aa) and (ia)) there were substituted a reference to the price;".").

The noble Lord said: My Lords, I have already spoken to this Amendment. Therefore, I beg to move.

Lord HAILSHAM of SAINT MARY-LEBONE

My Lords, having considered what was said by my noble friend who is sitting behind me, and subject to anything which the noble Lord, Lord Jacques, may have received from his advisers whom he was consulting, I think I can recommend my noble friend to accept that this is within the Long Title of the Bill.

Lord JACQUES

My Lords, I am wholly satisfied with that advice. I need not go further.

The LORD CHANCELLOR

My Lords in view of the general satisfaction, perhaps I need not read out the whole of the Amendment.

On Question, Amendment agreed to.

[Amendments Nos. 4 and 5 not moved.]

Schedule [Repeals]:

Lord JACQUES moved manuscript Amendment No. 5A: Page 4, column 3, leave out lines 4 to 10 and insert ("Section 4(5)(b) and (ii).").

The noble Lord said: My Lords, I have already spoken to this Amendment. I beg to move.

On Question, Amendment agreed to.

[Amendments Nos. 6 to 9 not moved]

Then Standing Order No. 43 having been suspended, pursuant to resolution:

Lord JACQUES

My Lords, I beg to move that the Bill be now read a third time.

Moved, That the Bill be now read 3a.—(Lord Jacques.)

Viscount MASSEREENE and FERRARD

My Lords, I wonder whether the Government could clarify this Bill so far as nationalised industries are concerned. I have heard it said that the Price Commission (Amendment) Bill will be a great advantage because it will hold down prices in the nationalised industries. However, what I do not understand is this. As nationalised industries on the whole make a loss and the price of goods produced by nationalised industries is consequently held down or reduced because of the Bill, surely it will increase the losses made by nationalised industries. The result will be that the taxpayer will have to give more support to nationalised industries and that consequently more money will have to be printed. Surely that will increase inflation. I do not understand the logic. In fact, I do not understand the logic of this Bill. I think it is completely illogical.

Lord JACQUES

My Lords, I think that the noble Viscount has got something. If, as a result of the Bill, the Commission in their wisdom keep down prices, they may very well have to be borne at a later stage by the taxpayer. However, may I ask the noble Viscount to have regard to the whole of the criteria in Section 2 of the parent Act. If he has regard to the whole of the criteria, he will find that it is extremely unlikely that the Commission would have wisdom of the kind which he has in mind.

On Question, Bill read 3a, with the Amendments.

Lord JACQUES

My Lords, I wish to move that the Bill do now pass. In doing so, may I say that I have noticed one point on which we are all agreed; namely, that it is a little Bill. I should like to thank very much the Front Benchers of both Opposition Parties for the generous co-operation they have given to us in a very restricted period of time. As a result, we have a happy outcome. Probably we have reached the stage where the House is acting at its best. I beg to move that the Bill do now pass.

Moved, That the Bill do now pass.—(Lord Jacques.)

Bill passed, and returned to the Commons.