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New Cost-Of-Living Index

Volume 436: debated on Tuesday 15 April 1947

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So far, though the pursuit of this policy of stabilisation has become more and more costly, it has remained practical. But now I have no doubt that we must pause and review it afresh—particularly since, now, the scene changes, in the light of the announcement by my right hon. Friend the Minister of Labour on 10th March, in this House, that the present index number, which has been a natural target for so much criticism, is to be revised. The present index—it is extraordinary that this should be so and while I have no doubt most hon. Members of the Committee are aware of it, I will re-state the present position—relates to prices paid by an average working class family in 1914, for a selection of articles of ordinary working-class consumption in the year 1904, nearly half a century ago. This selection of articles included flannelette—then a favoured costume material for ladies' dresses—and candles, by which, in 1904, people lit their rooms. But it did not include either rayon or electric light. We have moved forward since then. This is a fantastic basis for a definition of the cost of living in this year, 1947, and it is now intended by my right hon. Friend to bring the index a generation nearer to the present time, and to base it, as an interim measure, until things have settled down in the postwar period, on the household expenditure of the average working-class family, not in 1904, but in 1938, 34 years nearer today.

This new index will take account of a much wider range of prices than the old one did; many more articles will be included. For this reason, the new index will give considerably less prominence than the old to food items, because considerably smaller proportion of the average working class income was spent on food in 1938 than in 1904. I read in the report that has been published by the committee which has advised my right hon. Friend, that only 40 per cent. was spent on food out of an average working class family's expenditure in 1938 as against 6o per cent. in 1904. It follows that any given change in food prices, either up or down, will have a good deal less effect upon the new index than it had upon the old. It follows, also, that the policy of holding the index steady, as we have done, principally by variations in food prices, has ceased to be practical in view of the smaller relative weight of food items in the new index. The new index, covering so much wider a range of commodities, will, by reason of its changed composition, be much less subject than the old index to our present controls, which have, therefore, to be revised and looked at again.

The old policy, of using food subsidies to keep the old index stable, cannot be applied to the new, for the reasons I have given. This means we shall have to devise, in due course, a modified policy, which will no longer aim at an absolute stability, and will, I hope, cost the taxpayer less money, but will still continue, at a lower cost, to exercise a stabilising influence upon the index. In particular, I suggest to the Committee—I make no commitments on this point; it is a matter for consideration in due course—that there is much to be said for carrying further a practice which we have begun in the last year, of concentrating food subsidies— having determined what is a reasonable sum to pay on them—on a smaller number of commodities which will be of greater importance to the housewife, instead of scattering them over a wide range of articles, many of them not of first importance in a household budget. That, I think, is a policy which should be examined.

It is the intention of my right hon. Friend the Minister of Labour to bring this new index into operation in the near future. He is now holding consultations with the two sides of industry on various matters—wage arrangements, and so on. After these discussions, my right hon. Friend hopes to bring the new index into operation within the next few months. Meanwhile, we shall continue the old index. It is my purpose to keep this old index steady and stable, as we have kept it until now, until it passes out of use in a few months' time, and, thereafter, to continue to exercise a stabilising influence upon the new index along the lines which I have been indicating. There will, I imagine, be a suitable occasion on which to discuss this a little later, when we are nearer to the point of change over.

The estimated expenditure on all these cost-of-living subsidies for this year, £425 million, was based on certain assumptions—the estimate was drawn up a little while ago, and things have moved since then—which are no longer real. It was based on the assumptions that the old cost of living index would be kept in operation—the estimate was drawn up before we had the report, that it would be held stable throughout the year, and that prices would rise no further. These assumptions must now be revised, and new arrangements must be made in due course. But I shall hope, in any case, to keep the cost to the taxpayer this year within the estimate, even though the assumptions have, in fact, changed. What would suit us best—but paradise is not so easily attained in this postwar world—and what for several years I have been hoping for, would be that prices, especially of imported foods, should begin to fall, instead of going on rising, so that the cost-of-living index, whether the old or the new, could be kept stable, in a period of gradually falling prices, with a diminishing cost to the taxpayer. That is what would suit us best; but it does not look as though we could yet confidently count upon that happy state of affairs coming to pass.