§ Mr. Peter Millsasked the Minister of Agriculture, Fisheries and Food if he has received the latest Binder Hamlyn report on the liquid milk costings system; and if he will make a statement on milk prices.
§ Mr. Peter WalkerOn 16 April 1981 I made an interim statement setting out the Government's basic conclusions on the review which an independent firm of accountants, Binder Hamlyn, had undertaken of the way in which the dairy trade's costs are measured and taken into account under the system of control of maximum prices for liquid milk. In particular, I indicated that the Government had accepted one of Binder Hamlyn's major recommendations, that it would be right in principle to determine the dairy trade's target rate of profit by reference to the rate of return in other industries.
I subsequently commissioned Binder Hamlyn to carry out a further detailed study to see how this principle might best be applied in practice and I have now received its report. This recommends that a basic target rate of profit for the dairy trade should be established on the basis of comparisons with two similar groups of industries. For the processing part of the dairying industry, it recommends a comparison with the rate of return on capital in a specified reference group of food manufacturers: for the retail part, the comparison would be with the rate of profit on turnover in a specified group of food retailers. Binder Hamlyn also recommended that the current convention on depreciation—which allows writing off in one year on the basis of tax allowances—should he replaced by one on a basis consistent with the calculation of the reference rates of profit, and adopting the conventions used by companies in drawing up their accounts.
The Government have decided that these and the other recommendations by Binder Hamlyn which they have accepted should take effect from 1 October 1980, and that CCA depreciation should be applied during the 1980–81 and 1981–82 costings years by scaling up the historic cost charge. After due allowance has been made in the calculated rate of return, this will result in a target rate of profit for the dairy trade of 0.724p per litre in 1980–81 and 0.784p per litre in 1981–82. Further studies of the capital employed in the processing and distribution of liquid milk and in the relevant reference groups will be undertaken next year and annually thereafter to determine the target rate of profit for 1982–83 and subsequent years. From 1982–83 the Government's aim is to use actual CCA depreciation data provided by the dairies, failing which it will assess depreciation charges and the target rate of profit for the costings on an historic cost basis.
As a consequence of these latest changes, the Government have now implemented virtually all the 359W detailed recommendations of Binder Hamlyn. In taking these steps, it has been my objective to encourage the provision of a full and efficient service to consumers, especially through the maintenance of a viable doorstep delivery system, and the continued health and competitiveness of the dairying industry and of the milk production industry which depends to so large an extent on returns from the liquid milk market. In particular, I have sought to shape the costings system in such a way as to maximise the spur to efficiency it provides, and I am confident that the revised system is well adapted to this end.
I recognise, however, that the need to carry out this fundamental and thorough review of the costings system has inevitably created a period of uncertainty and some delay in initiating the usual autumn review of costings and prices. I also realise that both these important industries now look for a period of greater stability and regularity in the operation of the system so that they have a firmer basis for planning their commercial operations over the year as a whole. It will be my intention in operating the revised price control and costing system to seek to provide that firmer basis, and in normal circumstances to take and announce decisions promptly each spring and autumn regarding adjustments to the maximum wholesale price so as to contribute to the fullest possible extent to the objective I have stated above.
Having assessed the effect which the implementation of the changes to the costings system recommended by Binder Hamlyn will have upon the measured level of costs and profits in the dairy industry, the Government have also given consideration to the levels of the maximum prices for milk to apply this winter. They have decided to increase the maximum retail price for ordinary pasteurised milk by 1½p per pint, to 20p per pint on 10 January 1982. At the same time, the maximum retail prices for Channel Islands milk and sterilised milk will be increased by 2p per pint, to 22½p per pint and 21½p per pint respectively. The maximum retail price for untreated milk will be increased by just ½p per pint to bring it into line with the price for ordinary pasteurised milk, in accordance with the decision announced on 1 December 1980.
These changes mean that the maximum wholesale prices in England, Wales and Northern Ireland will be increased as follows with effect from 1 January 1982 (in p per litre):
Present price Increase New price England and Wales (other than London) 16.200 1.783 17.983 London 14.563 1.653 16.216 Northern Ireland 18.840 1.783 20.623 Orders giving effect to these changes will be laid before Parliament as soon as possible. In the meantime, copies of Binder Hamlyn's most recent report are being placed in the Library of the House.
My right hon. Friend the Secretary of State will be making a separate statement about the arrangements in Scotland.