Price Code (Hansard, 25 March 1974)

§ Mrs. Shirley Williams

The following is the text of the consultative document proposing amendments to the relevant parts of the Counter-Inflation (Price and Pay Code) (No. 2) Order 1973 and of the Counter-Inflation (Notification of Increases in Prices and Charges) (No. 3) Order 1973:

CHANGES IN PRICE CONTROL

Introduction 1. The Government intend to take early action to strengthen the price controls in the Counter-Inflation (Price and Pay Code) Order, 1973 (Statutory Instrument 1973 No. 1785) and the associated Counter-Inflation (Notification of Increases in Prices and Charges) (No. 3) Order (Statutory Instrument 1973 No. 1786). 2. Under the Counter-Inflation Act 1973, the Treasury are required, before the Code is amended, to consult the representative bodies it considers appropriate, as well as the Agencies set up under the Act. The Government think it right that these consultations should embrace not only proposed changes in the Code but in connected notification procedural matters. This document will form the basis for these consultations. 3. As soon as the consultations are completed, Orders will be made amending the Code and Notification Order referred to in paragraph 1. Amendments to the Code and Notification Order take effect when the amending Orders are made or on a date specified in the Orders. Code amendments are 51W subject to Affirmative Resolution procedure; Notification Order amendments to Negative Resolution procedure. The date for completing consultation is Tuesday, 9th April. 4. A draft of the proposed amendments to the Code is in the Annex.

PART I—THE CODE

REDUCTION OF THE GROSS PERCENTAGE MARGINS OF DISTRIBUTORS 5. The Code already includes a provision (paragraph 80) recognising that undue rises in retail prices may occur if distributors maintain existing profit margins in percentage terms on goods which have risen substantially in price. Under this provision, the Price Commission have carried out a review of the situation in food distribution and announced on 22nd March that they have decided to confirm that there should be a reduction of one-tenth in the limit set in the Code on gross percentage margins of large or medium sized food retailers: they are giving further consideration to smaller food retailers and to food wholesalers. 6. The Government welcome the action taken by the Price Commission under the Code as it now stands but consider that the Code should be amended to require a general reduc tion of gross percentage margins over the whole range of distribution. The proposed amendment would cut by one-tenth the gross percentage margin reference levels defined in paragraphs 74 and 75 of the Code. The practical effect of the amendment would be that a distributor now required to operate within a gross percentage margin reference level of, for example, twenty per cent. will be required to operate within a percentage margin of eighteen per cent., a distributor now operating within a reference level of thirty per cent., within a margin of twenty-seven per cent. and so on. 7. The proposed cut in margins will not displace the existing procedure under which the Price Commission can investigate the situation in particular areas: nor is it intended to prejudice further consideration that the Commission are giving to smaller food retailers and to food wholesalers. The Government propose, moreover, to amend paragraph 80 so that the Price Commission can, in future, vary margins upwards or downwards as conditions warrant. This will offer a safeguard to any trades in which a more general reduction might operate too harshly because of special circumstances, while keeping open the possibility of making further reductions in margins where these are justified.

Restriction of the Re-pricing of Shelf Stock 8. The Government believe that repricing of goods on shop shelves is not only generally unjustified but is damaging to the confidence of consumers in the fairness of retail prices. The Government therefore propose to restrict the extent to which goods displayed for sale can be repriced because the cost of replacement stock has increased. This means that consumers may find the same goods on the shelves at different prices, depending on 52W whether goods are old or new stock, but they believe that this will be less damaging to consumer confidence than the present repricing practice. Accordingly the draft amendment in the Annex would amend paragraph 77 of the Code so as to make the upward repricing of goods already displayed for sale a breach of the Code where this was done on grounds that the cost of replacement stock had increased. 9. The Government recognise that goods which are the subject of special offers or of sales for a particular period, may need to be repriced at the end of the special promotional period. The best way of handling this and other problems, eg trades where the rate of stock turn is exceptionally low, will be discussed with trade representatives during the consultations.

Minimum 3 Month Interval Between Price Increases 10. The Government consider that there should he some restriction on the frequency with which manufacturing and service firms may increase prices. The proposed amendment to the Code, therefore, provides that an enterprise may not normally implement a price increase within three months of a previous price increase on the same product or service. 11. The Government recognise that there may need to be some safeguard for sectors or enterprises in situations where applying the three month rule would be too harsh. 12. This provision will apply to all price increases in manufacturing and service enterprises which are subject to the allowable cost rules of the Code including increases by public sector enterprises. It will not apply to price increases made under other provisions of the Code including the provisions relating to loss-making, low profits and investment. It is also recognised that it would be inappropriate to apply the 3 month rule for increases under cost escalation clauses in areas where these are already normal practice and it is normal practice for adjustments to take place more frequently, and the Government hope to cover this aspect in the consultations.

ANNEX

PROPOSED AMENDMENTS TO THE PRICE CODE

3 months between price increases Insert after paragraph 26 a new paragraph:

"Frequency of price increases A price may not be increased within 3 months of its last increase, except where the provisions of paragraphs 56, 68 and 69 (companies making losses or lower profits) or paragraphs 70 or 71 (companies undertaking new investment) apply.

10 per cent. reduction in gross percentage margins Revise paragraph 74 as follows: 74(i) in the determination of prices for sales within the United Kingdom, wholesalers, retailers and other enterprises engaged in distribution should ensure that their gross percentage margins do not 53W exceed the proportion specified in subparagraph (ii) of the level of the gross percentage margin in either

(a) the last complete account year of the enterprise ending on or before 30th April 1973; or
(b) a 12-month period ending between 30th April 1972 and 30th April 1973 for which separate accounts are or can be made available.

less in either case an appropriate reduction for the abolition of SET. Where an enterprise has not traded long enough to establish a gross percentage margin under (i) or (ii) the margin for a complete quarter's trading before 30th April 1973 will apply. (ii) The proportion of the gross percentage margin referred to in sub-paragraph (i) should be

(a) 100 per cent. for any period on or before 31st March 1974;
(b) 90 per cent. for any period after 31st March 1974."

Revise paragraph 80 as follows: 80. Where in the judgment of the Commission a substantial change takes place in the costs of any goods to wholesalers or retailers or in their costs of operation, the Commission shall:

(i) consult any body or person whom they regard as representative of enterprises affected and take into account all relevant information supplied by them;
(ii) having regard to the situation of the product group as a whole, to the existing volume of trade, to the costs of operation of the enterprises concerned, and to the effect on the net profit margins consider whether the proportion of the gross percentage margins specified in paragraph 74(ii)(b) should be varied whether by way of reduction or increase;
(iii) after consultation with the bodies or persons referred to in sub-paragraph (i) inform them of any variation in margins which they consider appropriate and notify this to any enterprises.

When such a further variation in gross percentage margin has been notified paragraph 74(ii) in its application to that enterprise shall be modified accordingly.

Re-pricing Insert a new paragraph after paragraph 77: Retailers should not make price increases on goods that are or have been displayed for sale by reference to increases in replacement costs even if such increase would otherwise be permitted by the Code.