§ 2.53 p.m.
§ The MINISTER OF STATE, DEPARTMENT OF INDUSTRY (Viscount Trenchard)My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
§ Moved, that the House do now resolve itself into Committee.—(Viscount Trenchard.)
§ On Question, Motion agreed to. House in Committee accordingly.
§ [The LORD ABERDARE IN THE CHAIR.]
§ Clause I [Abolition of Price Commission]:
§ On Question, Whether Clause 1 shall stand part of the Bill?
Lord WALLACE of COSLANYWe strongly object to this clause. The clause itself is a formality to put into effect what has, in the main, already been carried out. No mention was made during the general election or in the gracious Speech of a Conservative decision to abolish the Price 571 Commission. During the election a review of the work of the Price Commission was promised and in the gracious Speech it was promised that the Government would publish proposals for more effective competition and fair pricing policies. However, during the debate on the Address, the Prime Minister in another place suddenly announced the abolition of the Price Commission.
"Competition" certainly comes into the title of the Bill, but how far it will be effective in operation is open to doubt. Fair pricing certainly takes a back seat in the Bill and Clause 1 rules out any effective measure of price protection for the consumer. There is no doubt that the work of the Price Commission played a significant part during the effective period of wage restraint under the Labour Government. In the winter before the election there was a demand for the return of free collective bargaining by some trade unions, actively and stridently supported by the present Prime Minister. That helped the Tories to win the election. But having sown the wind the Government and the country are reaping the whirlwind of escalating pay demands and rising prices. Eventually an incomes policy of some sort must emerge and to support it there must be price regulation or restraint. Those are the vital ingredients of a counter-inflation policy.
There is no doubt that the existence of the Price Commission had a deterrent effect on price increases. I see the noble Lord, Lord Trefgarne, shaking his head in dissent, but that is a fact. Indeed, one of the main complaints of manufacturers was that they did not want to fill in forms; they wanted to increase their prices without restraint. It also made consumers feel that they had a defendant. It made people conscious of the problem of inflation and people felt in some way that the Government cared about the problem of prices and pay. Today prices are a vital issue in the average household, as I am sure the noble Viscount, Lord Trenchard, realises as he wheels his shopping basket around the shopping centres trying to find bargain prices. Housewives look to the Government for action, but all the action they have is the Government forcing up prices by 15 per cent. VAT and ordering a gas price 572 increase against the Gas Board's wishes. To abolish the Price Commission in the way the Government are doing under this clause is not only an error of judgment but a serious psychological error as well.
§ Lord ROBBINSWithout entering into controversy at all on the noble Lord's main point, may I ask him whether he can quantify the effect which successive attempts to control prices have had on the retail price index?
Lord WALLACE of COSLANYThere has been an undoubted deterrent effect. In some cases prices were held without an increase being made and in some cases price increases were postponed. All of those added up to a position where until last winter—and I readily admit that position—there was recognised restraint on the part of trade unions. There were, of course, some awkward people involved, but in the main I think it is fair to claim that until last winter, when the dam broke, there was restraint, and that had some effect on the inflation issue.
§ Lord BOYD-CARPENTERThe abolition of the Price Commission, which I welcome, raises two issues. First, there is the issue which the noble Lord, Lord Robbins, raised, as to whether any system of price control—any instrument for seeking to regulate prices—is likely to be either effective or beneficial. I take the view—I will not weary your Lordships with it at any length—that, save in the most exceptional circumstances, such as a war-time situation, such a system on the whole is inefficient and does more harm than good, creates a black market and damages the profitability of industry.
The second point is whether, even if one concedes to the noble Lord, Lord Wallace of Coslany, the opposite view (that a system of price regulation is what the editors of 1066 and All That would call a good thing), the Price Commission was an effective instrument for doing that. I will detain your Lordships for a moment, and I have one justification for doing so because I have had very direct experience of the actual working of the Price Commission.
About this time last year a company of which I happen to be chairman was submitted to an examination by the Price Commission. The result was, in 573 fact, an acceptance that the price increase which we were contemplating was justified. So I have no grievance on that score. But if your Lordshios could have seen the waste of time, effort and public money involved in the examination of what was shown to be a perfectly efficient company, by an organisation which knew absolutely nothing about the industry concerned, then I think you would have been fully convinced that, whether or not one wants price control, the Price Commission was the clumsiest and most blunt instrument that anyone could have invented for the purpose.
They knew nothing about the industry concerned. They started with doctrinaire views. They sought to persuade us—your Lordships will hardly credit this—to adopt a pricing system based on cost-plus. Noble Lords who have served in the House of Commons know that the Public Accounts Committee in that place spent years getting Government departments off the system of cost-plus, which of course is a system which stimulates inefficiency, because on a cost-plus basis the less efficient you are, the higher your costs; the higher your costs, the bigger your percentage margin, and therefore the bigger your profits. Yet this was solemnly advocated to us by the Price Commission They knew nothing about the industry. They did not even understand that in the distribution of cement prompt and punctual delivery and service to the customer is what matters. Their chairman even went out of his way to say, "Oh, does it matter whether you deliver today, tomorrow, or in a few weeks' time?" This was the body who set themselves up to pronounce upon the efficiency of industry.
The experience which I have related to your Lordships is one of which I have direct knowledge. I am perfectly certain that other noble Lords who are in industry could add to this. Whatever may be said in theory for a system of price control, the elimination of the Price Commission has been greeted with a gasp of relief by British industry.
§ Baroness GAITSKELLThe noble Lord, Lord Robbins, asked my noble friend to quantify the rise in prices. What happened under the Price Commission? Is it not wonderful to hear noble Lords 574 —not the women, but the men—asking questions like that. Why do they not get together, go out into the streets, and ask the housewives whether prices have risen, or whether the Price Commission was any good? This is what they should do. They should not be talking in this theoretical, completely impractical, and ignorant way about price rises at this time. The extent of price rises really is staggering. Prices have practically doubled on all kinds of items. I bought a reel of cotton last week; I had to pay 30p for it. Do any of the noble Lords in this House know what was the price of a reel of cotton a year ago? Have they any idea of what they are talking about? They have no idea.
§ Lord ROBBINSAs usual, I am in complete agreement with the noble Baroness that prices have risen, but I submit that my question as to whether the Price Commission had exercised quantitative and significant restraint on the increase in prices—which, in my opinion has, since the beginning of the 'seventies, been due to both parties—was very down-to-earth. I think that the rise in prices, on which the noble Baroness and I are in complete agreement, is due to factors other than the existence or the non-existence of a Price Commission.
§ Baroness GAITSKELLMay I suggest, though, that the Price Commission had some effect—
§ Several noble Lords: No!
§ Baroness GAITSKELL—on keeping prices lower? No one can deny that.
§ 3.6 p.m.
§ Viscount TRENCHARDMay I at this stage get a word in edgeways. We are on opposite routes to the party opposite in terms of trying to control inflation. To rely on competition, and to make sure that competition works, is the object of the Bill and is thus the reason for the abolition of the Price Commission. There are put in its place some very extensive powers to ensure that competition really works. These are opposites. I, too, have spent some 30 years in industry with price control and without price control, and I know very well that when there is a Price Commission operating one talks more to competitors, and one gets in applications 575 early for the maximum amounts that could be justified. The Price Commission then claim that they have kept prices down by a certain amount. That route breaks down competition and is not effective. I should not dare to do what the noble Baroness, Lady Gaitskell, has just done; namely, to question the noble Lord, Lord Robbins, in terms of what have been the effects of price control so far as objective total measurements are concerned. Whether in the past there has been a Conservative Government or a Labour Administration in office, or whether one is talking of outside surveys, so far as I am aware no one has claimed, even at any one moment, that more than just on 1 per cent. of RPI has been affected; and at the time that 1 per cent. of RPI was affected very considerable damage was done to profit margins, cash flow and investment.
In those days I was an industrialist, and our excellent Civil Service under both Administrations were forced to use the word "cosmetic" over and over again, because the real purpose of the Price Commission, when difficulties were encountered under both Governments in trying to make a pay policy stick, was to try to encourage the trade unions to accept it. I have been asked to play the cosmetic game. The proof of this pudding is in the profit levels of industry, which have been reduced to very low levels, but which in time of extreme competition were never such that they could do more than fund the necessary investment; nor are they more in Germany, the USA, or other countries that have not followed this route.
I have no doubt that this subject will come up at a later stage, and I have little doubt that the noble Baroness, Lady Seear, who made many points on Second Reading, will want to raise it again when she moves her amendments, and I have perhaps a few extra points that I should like to make at that time.
§ Lord DAVIES of LEEKA question was asked about quantifying—a horrible word, anyway—and when we are asking the trade union movement to modify its demands, it is important to ask ourselves how this can be expected if all the time we leave prices entirely to what is believed to be, wrongly, the logic of competition. When it comes to the shopping basket 576 both sides of the Committee plead that they want to keep prices low. There is no doubt whatever about the success of the Price Commission in regard to articles that matter to the housewife, her husband, and thereby the trade union movement. It is from the kitchen of the housewife consumer that demands of the trade unions emanate. Rents and the ordinary victuals of daily living are more than anything else the cause of the demands by the trade union movement.
As a matter of fact, since we strengthened the Price Commission in 1974, and again in 1977, there are on record hundreds of notified price increases which were modified. The Commission estimated that direct savings from their activities between August 1977 and July 1978 were around £120 million—and that is savings to the British housewife. That would therefore have a lessening effect on the demands of the trade union movement for increases in pay. This does not include unquantifiable artifacts. I know that the noble Lord opposite was one of the most capable Ministers in his day, and it would not be for me to denigrate his constructive speeches from time to time, but I should like to know in what article or artifact he was dealing. I do not doubt his words.
§ Lord BOYD-CARPENTERI am very happy to tell the noble Lord, although it might perhaps almost rank as a commercial. I manufacture cement.
§ Lord DAVIES of LEEKWe do not eat cement, quite, but it does enter into the cost of buildings and therefore it enters into rents. We will accept that. I do not know whether the noble Viscount wants to intervene, but I have not finished.
§ Viscount TRENCHARDI wonder whether I may intervene for one second. If I may say so, I think we are going over the same ground. I do not doubt the noble Lord on the £120 million. This is the difference between the applications put in and the price increases granted. I would just ask him: Can he account to me, please, for the reason why, since the announcement that the Price Commission was to be abolished, the overall profit margins, already abysmally low in industry, have in fact reduced, and reduced substantially, rather than gone up? This is quite separate from the question which the noble Baroness raises about prices rising.
§ Lord DAVIES of LEEKNow I have the Minister on the hip, because —and he had an illustrious father in the military period—we used to have a phrase during the war to answer that question—"It's a piece of cake"! Obviously there has been a depression since the Tories won the election. Shops are closing all over the country, and people serving in shops are worried about their jobs. If you ask the Union of Shop, Distributive and Allied Workers you will find that there is a falling off in the number of shops. In fact, competition is forcing the average little shopkeeper on to the streets.
§ Baroness GAITSKELLMay I ask the Minister this? If prices are going to go up as well as profits, who wins? If they are both going up at the same time to the same extent, who is going to win?
§ Viscount TRENCHARDThat is a hypothetical question, and I do not fully understand it, if I may say so. At the moment, prices are going up for reasons of the inflation we inherited and the once-only moves that we have made—I repeat, for reasons of the inflation that we have inherited and the once-only moves that we have made—to lower tax. So we have added to it, but have added to it by a known amount. In the last year of office of the Government of noble Lords opposite inflation was accelerating. On a six-month basis it was over 13 per cent. We have added to it. The fact is that profits are going down. The noble Lord is quite right in saying that they are going down because conditions are difficult; but because, when conditions are difficult, competition exists, as it does all the time, very strongly, it makes it quite impossible, without a Price Commission, for industry to profiteer.
§ Lord JACQUESThe party opposite is being as contradictory in office as it was in opposition. First of all, we are told that the Price Commission was a waste of money; it was completely ineffective. Then, in the next breath, we are told that it had serious effects; it reduced the profits, and therefore reduced investment. You cannot have it both ways. The noble Viscount further said that their inflation, Government-induced, was once-and-for-all. I do not think that stands up to examination. I believe that the Government are going to find out, sooner or later, that 578 control of the public sector borrowing requirement and control of the minimum lending rate are by themselves insufficient to rid us of inflation, for the simple reason that in operating those controls over the demand for money the Government induce inflation in the first place. I will give them details to show that it is estimated that, from mid-1979 to mid-1980, 8½ per cent. of the inflation rate is Government induced. Three per cent. comes from the reductions of the PSBR, 1¾ per cent. comes from the high interest rates, and 3¾ per cent. comes from the increase in VAT. That makes up 8½ per cent.—approximately one—half of the inflation rate.
Now the Minister says that is once-and for-all. Not on your life! If you are at the same time operating a free bargaining policy, then it follows inevitably that trade unionists will expect their leaders to try to maintain their standard of living; and you do not need to belong to any party to take that view. Even the Conservative trade unions would take that view. Consequently, Government-induced inflation is perpetuated through wage claims into the succeeding years, and because of that I believe the Government are going to find that their present policies are completely inadequate to control inflation and that ultimately, like many of their predecessors, they will have to have some form of incomes policy, whether statutory or voluntary. They will never get that policy unless there is some effort made to control prices and profits; and I believe that ultimately, while you may not wish to have the Price Commission, you will certainly have to have profit control and a certain measure of price control. The sooner noble Lords opposite get that into their heads the better, because otherwise they are just burning their boats behind them.
§ Viscount TRENCHARDI am hoping that in a moment we can perhaps get on with the amendments. I will try very hard not to respond in kind on this occasion, but merely in detail. The noble Lord, Lord Jacques, said I was contradicting myself. I do not believe I was. I said that the effect on the RPI had been very small even at the height of the strongest Price Commission applications—under 1 per cent. of the RPI. I said it did a lot of harm of other kinds in breaking down competition, and I would point out that 579 a fraction of a per cent. on a sales price can make a very big dent in profit margin and in investment—and that is what it did. It is the arithmetic of the situation, if I may say so, to which noble Lords opposite have not given adequate weight.
I shall not go back over the statements I made on the inflation that we inherited and added to, but they are correct and are in accordance with the figures. I would merely add once again that in many other countries where inflation rates are very low indeed they do not depend upon price control; they do depend upon competition, the principles of which are unaltered though the details need to be clearly understood. I hope that perhaps we shall have time to come back to them later where amendments have been moved to the appropriate clauses.
§ Lord PONSONBY of SHULBREDEI want to add just one word. I was very surprised to hear the remarks of the noble Viscount opposite about inflation. I think it is largely unproductive to quote figures, because everybody quotes different figures on different bases. But what is absolutely undoubted is that inflation has shown a substantial increase since the Government came into office, and a lot of that increase was deliberately induced by increasing the rate of VAT from 8 to 15 per cent Now it would not be so objectionable that this clause should be included in the Bill, if, later on in the Bill, there were adequate powers to deal with prices. However, these powers are not there. A number of amendments have been put up to deal with them but, in the absence of any adequate substitute for a Price Commission, we feel that this clause should not stand part of the Bill.
§ Baroness HORNSBY-SMITHOn this occasion I support my noble friend. The noble Lord, Lord Jacques, referred to the necessity for the Price Commission May I say that trade, industry and the retail trade were delighted to see it go? It was a good propaganda exercise for the former Government, but it only scratched the surface and made a very small dent in inflation. It investigated only a tiny proportion of increases and it tended to 580 act as an arbitrary penalty on a very limited and selective number of companies. I believe that a Price Commission would be justified only if there was a lack of competition or where excessive profits are being made. There is no evidence today of lack of competition in the High Street, and Government policy is to encourage it.
We believe that, so far as the argument about profitability is concerned, that falls to the ground because profitability, in the old terms as understood, has been declining in industry for the past 10 or 15 years and is now at a level which positively discourages the investment that we all seek and need. I believe that the old Price Commission was likely further to have exacerbated the situation by holding down prices artificially. The major areas in which the Price Commission might have had an effect were in restricting price agreements. I understand that that will be covered in the increased powers given to the Director General of Fair Trading and a through strengthening of the Monopolies and Mergers Commission.
That commission should also perhaps be given power to investigate restrictive labour practices, which are a major source of industrial inefficiency and low production today and which therefore push up prices. The operation of the Price Commission as it was has, I believe, been wasteful of resources, and we are told that it cost £7 million a year. I shall not quibble about whether it was 1 per cent. or 5 per cent. of one point by which they were able to bring down retail prices; but no one can compare the £7 million which it cost the Government with the quite appalling loss in time and money for the companies which have been investigated. Therefore, I congratulate Her Majesty's Government on abolishing the Price Commission and, although I may disagree with him later, I support my noble friend in retaining this clause in the Bill.
§ 3.24 p.m.
§ On Question, Whether Clause 1 shall stand part of the Bill?
§ Their Lordships divided: Contents, 121; Not-Contents, 61:
581| CONTENTS | ||
| Addison, V. | Enniskillen, E. | Middleton, L. |
| Adeane, L. | Exeter, M. | Morris, L. |
| Ailesbury, M. | Falkland, V. | Mottistone, L. |
| Airey of Abingdon, B. | Faithfull, B. | Mountgarret, V. |
| Alport, L. | Ferrier, L. | Mowbray and Stourton, L. |
| Amherst, E. | Fraser of Kilmorack, L. | Moyne, L. |
| Ampthill, L. | Gage, V. | Newall, L. |
| Amulree, L. | Glasgow, E. | Northchurch, B. |
| Auckland, L. | Gowrie, E. | Nugent of Guildford, L. |
| Banks, L. | Greenway, L. | O'Brien of Lothbury, L. |
| Barrington, V. | Grey, E. | Orkney, E. |
| Bellwin, L. | Grimthorpe, L. | Piercy, L. |
| Belstead, L. | Grimston of Westbury, L. | Reilly, L. |
| Berkeley, B. | Hailsham of Saint Marylebone, L.(L. Chancellor.) | Robbins, L. |
| Bessborough, E. | Roberthall, L. | |
| Boyd-Carpenter, L. | Hampton, L. | Rochdale, V. |
| Brentford, V. | Hankey, L. | Romney, E. |
| Byers, L. | Harding of Petherton, L. | St. Aldwyn, E. |
| Caithness, E. | Henley, L. | St. Davids, V. |
| Campbell of Croy, L. | Hives, L. | St. Just, L. |
| Clancarty, E. | Home of the Hirsel, L. | Saint Oswald, L. |
| Clifford of Chudleigh, L. | Hornsby-Smith, B. | Sandys, L. [Teller.] |
| Clitheroe, L. | Hylton-Foster, B. | Seear, B. |
| Clwyd, L. | Ilchester, E. | Selkirk, E. |
| Cork and Orrery, E. | Inchyra, L. | Simon, V. |
| Cottesloe, L. | Inglewood, L. | Sligo, M. |
| Cromartie, E. | Kilmany, L. | Spens, L. |
| Cullen of Ashborne, L. | Kilmarnock, L. | Stamp, L. |
| Daventry, V. | Kimberley, E. | Stanley of Alderley, L. |
| De Freyne, L. | Kinloss, Ly. | Strathclyde, L. |
| De La Warr, E. | Kinnoull, E. | Suffield, L. |
| Denham, L. [Teller.] | Lauderdale, E. | Teviot, L. |
| Derwent, L. | Long, V. | Tranmire, L. |
| Drumalbyn, L. | Loudoun, C. | Trefgarne, L. |
| Duncan-Sandys, L. | Lovat, L. | Trenchard, V. |
| Dundonald, E. | Luke, L. | Vaux of Harrowden, L. |
| Ebbisham, L. | Macleod of Borve, B. | Vickers, B. |
| Effingham, E. | McNair, L. | Vivian, L. |
| Ellenborough, L. | Mancroft, L. | Wakefield of Kendal, L. |
| Elliot of Harwood, B. | Margadale, L. | Wigoder, L. |
| Emmet of Amberley, B. | Merrivale, L. |
| NOT-CONTENTS | ||
| Ardwick, L. | Goronwy-Roberts, L. | Plant, L. |
| Aylestone, L. | Gosford, E. | Ponsonby of Shulbrede, L. |
| Birk, B. | Greenwood of Rossendale, L. | Ross of Marnock, L. |
| Blease, L. | Hale, L. | Sefton of Garston, L. |
| Blyton, L. | Henderson, L. | Segal, L. |
| Boston of Faversham, L. | Houghton of Sowerby, L. | Shinwell, L. |
| Brooks of Tremorfa, L. | Irving of Dartford, L. | Stedman, B. |
| Bruce of Donington, L. | Jacques, L. | Stewart of Alvechurch, B. |
| Burton of Coventry, B. | Janner, L. | Stewart of Fulham, L. |
| Cledwyn of Penrhos, L. | Kilbracken, L. | Stone, L. |
| Collison, L. | Leatherland, L. | Strabolgi, L. |
| Cooper of Stockton Heath, L. | Lee of Newton, L. | Taylor of Blackburn, L. |
| Crook, L. | Leonard, L. | Taylor of Mansfield, L. |
| David, B. | Listowel, E. | Wallace of Coslany, L. [Teller.] |
| Davies of Leek, L. | Llewelyn-Davies of Hastoe, B. [Teller.] | Walston, L. |
| Davies of Penrhys, L. | Wells-Pestell, L. | |
| Diamond, L. | Lloyd of Hampstead, L. | Whaddon, L. |
| Gaitskell, B. | Maybray-King, L. | Wilson of Radcliffe, L. |
| Galloway, E. | Paget of Northampton, L. | Wootton of Abinger, B. |
| Galpern, L. | Pargiter, L. | Wynne-Jones, L. |
| Resolved in the Affirmative and Clause 1 agreed to accordingly. |
§ 3.34 p.m.
§ Clause 2 [Anti-competitive practices]:
§
Lord WALLACE of COSLANY moved Amendment No. 1:
Page 2, line 22, after ("of") insert ("constituting a monopoly or").
§ The noble Lord said: With the passion of the Division subsiding, I put the point to the opposite Benches that this is a simple and straightforward amendment. Monopoly is obviously an anti-competitive practice. Some would argue that a 100 per cent. monopoly is not anti-competitive as there is no competition; but that would be playing with words. Constituting a monopoly is an uncompetitive practice. There are some patterns of behaviour for monopolies—restrictive trading arrangements, and inefficiency. Large organisations often arouse a great deal of inefficiency, rigidity and bureaucracy. This is evident in the nationalised industries as well as private industry. An example is the gas board taking a long time to give estimates to people and not calling at the right time.
§ There is also monopoly pricing. I would not say that it could be argued that petrol companies constitute a monopoly. I suppose the large three companies have the market. I am not a motorist but I understand that in some areas it is very difficult to get petrol; in other areas petrol varies in price. It is the small man who is finding it difficult to keep up with the bigger garage proprietors who are getting supplies on a basis of preferential treatment and discount. This is happening quite a lot throughout the rural areas and, as a result, it is a difficult job to obtain supplies of petrol. I am quoting this as an example. I hope that the Government will accept this amendment; it is simple and straightforward. There is no malice aforethought in it. I beg to move.
§ Lord TREFGARNEI understand that it would be convenient if we now took the Statement. I therefore beg to move that the House do now resume.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.