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Nationalised Industries (Prices)

Volume 897: debated on Thursday 7 August 1975

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2.30 p.m.

In the middle of the present heat wave I confess that the problem facing all of us is one of over-heating. However, unless heed is taken of certain aspects of the recent report of the Price Commission in the right quarters, many households in this country will be plunged into a domestic ice-box by Christmas, because with higher heating and lighting charges many families will have to cut down on their consumption of gas and electricity.

The report of the Price Commission for the period 1st March to 31st May 1975 was produced prior to the publication of the White Paper on inflation. It is interesting to note that in the "Highlights of the Report" it says:
"Everything now depends upon the rate of pay settlements. If these are kept within reasonable bounds, the rate of inflation will fall and go on falling."
The report strikes an optimistic note that
"The tide can be turned."
On page 6 of its report the commission singles out the nationalised industries for special attention. It points out that they are
"responsible for bigger price increases than any other sector in the last six months"
that is, up to 31st May. In fact 32p in every £1 of increased prices was due to the nationalised industries. It is interesting that in the report it emerges that this could not be entirely attributed to the substantial increases that have taken place as a result of increased oil prices.

One of the fears of many hon. Members about reports that are published by various Government Departments is that a civil servant in one Government office writes reports about his next-door neighbours, those reports are filed away and nothing is ever done about the conclusions reached. The Price Commission report reaches a conclusion which has serious implications for the future of the nationalised industries and for social trends in our present inflationary situation, which must be mastered.

This morning we heard about the prospect of higher postal charges. I greatly fear that in the coming months the only items that may appear behind the door will be more and more bills, which will land with a heavy thud. We know that the cost of public transport, both buses and trains, is increasing with the result that people will be making fewer journeys. We know that television costs have increased. It is interesting that just the other day we heard from the manufacturers that more black and white than colour television sets are being sold. Unless we watch the underlying trends in the nationalised sector, we shall find that more and more people will be isolated and cut off because the main means of communication into the home will be via radio and television and there will be less social mobility.

Apart from that there are serious implications not only for the family budget, but for society as a whole. This morning it was made clear that we do not want to see a witch-hunt of the nationalised industries. There is, however, now a need for a root and branch investigation of our various public corporations.

My hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Thomas) may get an opportunity of making a few remarks on the pricing policies of some of the nationalised industries. It is said that technology is the art of getting the maximum from the minimum of resource. The opportunity should arise for us to look at our public corporations and ensure that both their financial and manpower resources are being deployed as effectively as possible.

One of the problems in this Chamber is the difficulty of individual hon. Members being able to call our great public corporations to account. We have to go through Ministers for many of these matters. I hope that the Minister, whose task is to oversee the work of the Price Commission, will tell us what follow-up there will be to the Commission's recent report. I am under no illusions about the difficulties facing nationalised industries because, clearly, at present they are uncertain about their exact rôle. There are pressures for them to be economically viable and, on the other hand, to provide social services. It may be that the whole accounting procedure of our nationalised industries will have to be re-examined in order that we can separate the one from the other and draw clearer distinctions where one service is being supported because it is felt that it is socially necessary although it might well not be financially viable.

The report was somewhat cryptic in its comments about why the increased prices in the nationalised sector had occurred. However, it was ominous in making the point that all the evidence is that the deficit in the nationalised industries is greater today, despite the recent price increases, than it was in April 1973. I should like the Minister to spell out in more detail why the present situation has arisen and what he hopes the consumer watchdog will be able to do, how it will get the bit between its teeth and tackle the nationalised industries over the present problem. Unless we put our house in order I greatly fear that every family budget will be in total disorder within the foreseeable future.

2.38 p.m.

I am grateful to my hon. Friend the Member for Glasgow, Mary-hill (Mr. Craigen) for allowing me a brief intervention in this debate and to the Minister for agreeing to it.

I want to make two main points. The first is that the present level of increase in nationalised industry prices, which is so well documented in the Price Commission Report, will have two important effects on the Government's present strategy. The first, which I have mentioned before in this House, is that it will have a profoundly damaging effect on the Government's anti-inflation strategy. It is a fact that when my constituents pay their electricity bills this coming winter they will be paying twice as much for their electricity as they were the same time last year. If we ask ordinary people to bear increases of as much as 100 per cent. in the prices of basic commodities we shall profoundly damage the Government's anti-inflation strategy.

My second point is simply that the other effect of increases of this magnitude will be further to erode the standard of living of the poorest in our community, who are already weakened and ravaged by the inflation that has occurred over the past two or three years. This level of increases is not only damaging but cannot be borne by pensioners or by the low paid in my constituency. They will find that they cannot pay higher bills because they will not have the money to do so, and the only course open to them will be simply not to switch on the fire, the cooker or whatever appliance it may be.

I am concerned about the Price Commission Report because, implicitly, it goes a long way towards removing the three main planks in the Government's justification for the increase in the nationalised industries' prices over the past six months.

The Government have been using three arguments—first, that there has been a massive increase in oil prices; secondly, that the industries had suffered from restraint and were catching up; and, thirdly, that the industries were making losses which must be recouped. The Price Commission report goes a long way towards removing those three arguments from the Government's ammunition. Paragraph 2.8 says that oil prices are clearly not as important as the Government and others have made them out to be. Paragraph 2.11 shows that it is not true that the policy of restraint in the past is the principal reason for the increases.

The report tabulates some figures which, far from showing that the nationalised industries have exercised restraint in the recent past, clearly shows that they have virtually increased their prices in line with the private sector. The crucial statistics are found in paragraph 2. 11, which says that between April and November 1973 private sector prices increased by 6·5 per cent. and nationalised industry prices increased by 6 per cent. There is not much sign of restraint there. Between December 1973 and May 1974 private sector prices increased by 10·8 per cent. and nationalised industry prices by 12·1 per cent. Between June and November 1974 private sector prices went up by 8·4 per cent. and nationalised industry prices by 7·9 per cent., only just behind the private sector. In the most recent period, from December 1974 to May 1975, private sector prices rose by 7·4 per cent., while nationalised industry prices increased by 15·6 per cent., rather more than twice as much. Those figures show that restraint has certainly not been one of the characteristics of the nationalised industries' price pattern.

The Government's third argument has been that the nationalised industries have made loses and that steps must be taken to recoup them. But in paragraph 2.12 the Price Commission repudiates that argument. It says that the current increases fall short of the increases in costs over the period to which they apply, and do nothing to recoup the losses.

What concerns me is that if those are not the reasons—and the Price Commission seems to show clearly that the arguments are at best fairly fragile—the real reason why nationalised industry prices have gone up so dramatically faster than private sector prices must be an unprecedented and unjustified escalation of costs in those industries. If that is so, who will tell the nationalised industries as my right hon. Friend the Secretary of State for the Environment has told the local authorities, "The party is over. We cannot in this House be prepared for ever to increase your prices just because you need the increases to meet your increased costs. What are you doing to minimise those costs? What steps are being taken to operate more efficiently?"?

I have raised a number of issues. I have been somewhat confined in the past by the Government's arguments about oil, restraint and losses. Now we have a report from the creature of the Department of Prices and Consumer Protection, the Price Commission, the Government's own mechanism for monitoring price increases, which undermines those arguments. That places the problem fairly and squarely in the Government's lap.

There is an argument in the report for the closest examination of the cost structures of the nationalised industries and the basis on which the Government are agreeing their costs. The report also supports an argument on a policy matter for which the Government are wholly responsible. It is that in the present circumstances they should stop the crazy programme of phasing out nationalised industry subsidies so rapidly. They should try to spread it more evenly, so that our inflation policies may work, and, most of all, so that the poorest in our community will be able to buy their heat, post their letters, and travel on public transport without risking putting themselves in penury by doing so.

2.45 p.m.

The Under-Secretary of State for Prices and Consumer Protection
(Mr. Robert Maclennan)

I thank my hon. Friend the Member for Glasgow, Mary-hill (Mr. Craigen) for initiating this debate and drawing attention to the sombre comments of the Price Commission on nationalised industries in its latest report. I also thank my hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Thomas) for his contribution to the debate.

The report is important and merits careful consideration. In paragraph 2.11, the Price Commission states that
"in the first year of control, nationalised industry prices were lagging a little behind private sector prices. But in the second year, this shortfall was more than made up. Taking the two-year period of control as a whole, nationalised industry prices have increased significantly more than private sector prices".
In paragraph 2.13 the Price Commission makes the more general point that
"the fact that nationalised industry prices have gone up faster than private sector prices is a reflection of the fact that nationalised industry costs have gone up faster than private sector costs".
That underlines the point made by my hon. Friend the Member for Newcastle-upon-Tyne, East.

It would not be fruitful to engage in a statistical dispute on the significance or otherwise of the Price Commission's findings. The commission has undoubtedly referred to a relatively limited period—April 1973 to May 1975—during which we faced an unprecedented explosion in commodity and energy costs as well was the aftermath of statutory wage controls, and during which price controls were operating. Examination of the figures from March 1969 to May 1975 shows a more balanced picture.

As a follow-up to the report, I shall be asking my Department to examine the movement of nationalised industry costs compared with private sector costs to see whether there is a divergence.

Is there not the further factor that the report specifically says that certain dramatic price increases such as electricity prices, have been excluded from the commission's consideration, so that there are arguments the other way too?

That is a point to be considered.

No one disputes the vital importance of the nationalised industries to our economy as suppliers of vital products and services and as major investors. They also have a vital rôle to play in our battle against inflation, and it is on that area that I want to concentrate in the short time at my disposal.

On the pay front, we all know the vital importance of achieving consent from the unions and employees in the nationalised industries. In 1972 and 1974 the lack of consent led to pay in the nationalised industries outstripping the limits necessary to contain inflation. We have set a premium on winning the agreement of the unions to the new policy to bring down inflation. There is little doubt that if we are to succeed as a nation in achieving our inflation target for next year, it will be largely because negotiators in the nationalised industries have implemented the terms of the national agreement on pay and prices, set out in the White Paper "The Attack on Inflation".

As a Government we are bound by the national agreement. We have made clear that the pay policy should be strictly applied by the nationalised industries and that we will not foot the bill for excessive settlements in the nationalised industries through subsidies, by permitting extra borrowing or by allowing excess costs to be loaded on the public through increased prices or charges. In this respect the Government are determined to protect the public both as taxpayers and as consumers, from the effects of excessive settlements.

The chairmen of the nationalised industries have agreed to operate strictly within the limits laid down by the guidelines, and I do not expect any question of sacking or other sanctions to arise. It may be asked why at this time, when inflation is at an unprecedented level, the Government should permit the nationalised industries to put up their prices by such an enormous amount.

I know that the answer is not easy to accept but I hope that at least it is easy to understand. The nationalised industries have tended to run up deficits due to a variety of reasons in recent times, due to severe price restraint as much as to anything else. In some cases, such as British Rail, part of the deficit is attributable to keeping services running for social reasons. In the energy sector prices have been held back, again for social reasons. The worst recession for 40 years has been hitting steel industries all over the world. These deficits have to be financed and paid for, and this invariably and inevitably means an extra burden on the taxpayer.

A few moments ago the hon. Gentleman said that it was not the Secretary of State's policy to allow nationalised industries to increase their borrowing powers. There have recently been Press reports that the amount of money provided for under the Statutory Corporations Act has already been used up and that further legislation will be necessary to allow the nationalised industries to borrow more money.

I think that the hon. Gentleman misheard me. I said that we would not permit the financing of pay increases which were out of line with the agreed pay limits by borrowing for that purpose. It was about excessive wage settlements that I was speaking specifically.

To hold prices down below costs for an excessive length of time has the same damaging effect on nationalised industries as it does in the private sector and creates a misallocation of resources. In the energy sector in particular, it would make no sense to subsidise excess demand at a time of rising energy prices.

In formulating our prices policy for nationalised industries, therefore, we have had to try to balance the interests of the individual as taxpayer against the interests of the individual as consumer, and that is not an easy balance to maintain. The nationalised industries have been fully involved in the policy to control inflation and in the development of that policy. They have been subject to Price Code control since early 1973 and were involved in the freeze and voluntary agreement prior to that time.

Indeed, at one time the policy was much more severe on the nationalised industries, with the consequence that many of them were forced into substantial deficit which had to be met by Government subsidy. This in itself had to be raised from taxation or by borrowing, and so contributed to the growing level of public sector borrowing requirement. As a consequence, the Government decided last year that nationalised industries must be allowed to raise their prices to the point where they eliminated their deficits, and this must be done as quickly as possible—that is, in the financial year 1976–77. This was the objective that my right hon. Friend the Chancellor of the Exchequer set and reaffirmed in his Budget speeches of last November and April.

I have been asked what examination will be taking place following the report. Among measures which have already started is the inquiry by the NEDO to make a study of the rôle of nationalised industries in the economy and the way they are to be controlled in the future. After that study has been completed, which is likely to be early next year, a White Paper will be published by the Government embodying the NEDO's report and dealing in particular with the relationship between the Government and the nationalised industries.

My hon. Friend the Member for Newcastle-upon-Tyne, East asked about the restructuring of nationalised industry prices. He has made this point before and I am well aware of it. The Government are keenly aware that nationalised industry prices are a key element in the household budget and that they are of special significance to low-paid and pensioner households. My hon. Friend is right to draw attention to these facts.

For less-well-off people, there are discretionary powers to give additional help where there is need for more than the normal expenditure on heating on the ground of poor health or bad accommodation, including help with central heating costs. Extra heating additions consist of varying standard amounts depending on the degree of poor health. These standard additions are not fixed maxima and may be increased where there are exceptional circumstances.

We decided that even though social security benefits were increased by record amounts in July 1974 and are to be increased again in April and November 1975, it was desirable to shield this category of people from the worst effects of nationalised industry price increases. We therefore asked the gas and electricity industries to tilt their tariff increases on 1st January and 1st April this year so as to bear less heavily on the consumer using a small amount of energy. This they have agreed to do. Moreover, the Gas Corporation has reflected this approach in its rates proportionately.

The National Consumer Council is starting an inquiry into whether the present policy of the nationalised energy industries needs revising in the interests of the poorer consumers. This is a long-term study, but the preliminary results will be announced at the September Consumer Conference, particularly on the subject of tariff policy affecting poorer consumers.

At a time when these deficits are being phased out, and because pressures on the industries are particularly intense, the protection of the consumer is an exceedingly difficult but important task. In the five months since my right hon. Friend took over responsibility for the nationalised industry consumer councils, we in the Department have been striving, and still are, to develop a close relationship with all the nationalised industry consumer committees.

We hope to enhance the impact which the expression of consumer opinion can make upon the efficiency of nationalised industries. For example, we are making use of the procedure of specially referring to these councils matters which we think of importance and worthy of investigation. One such subject is the reference we have made to them of the possibility of merging gas and electricity showrooms.

The principal means by which we hope to develop our aim is, first, by giving the views of the councils a direct voice where necessary within the Government so as to ensure that the interests of the consumers are given due weight in the formulation of policy; secondly, through the appointment of members who will secure effective representation of all types of consumers, not only the big commercial and industrial consumers but the millions of individual domestic users, and above all the old and disabled, who are especially dependent upon gas and electricity; and thirdly, through the provision of adequate staff and finance to enable the councils to carry out their functions.

My right hon. Friend has already made a reference to the National Consumer Council asking it to review the present arrangements for consumer representation in the nationalised industries and to report its findings by March next year. In the light of its advice, my right hon. Friend will consider what further action the Government might take to strengthen the machinery for representing effectively the needs of the consumer to the industries and, where appropriate, to the Government themselves.

I turn finally to perhaps the most worrying element in the Price Commission's report, namely, the contention that nationalised industry costs have gone up faster than private industry costs. It is not easy to disentangle cost structures and compare them, but the contention reflects a commonly-held opinion that the nationalised industries suffer from their monopoly status and from their avoidance of market disciplines, and are thereby inefficient and wasteful of resources.

I do not think that that charge is wholly true or wholly justified. There are many facts that show the nationalised industries in a better light than some parts of the private sector. For example, capital—fixed assets excluding dwellings—per person is £16,500 in the nationalised industries compared with a £5,000 average for the economy as a whole. We can hold those arguments on another occasion.

My hon. Friend the Member for Newcastle-upon-Tyne, East spoke about the vicious regressive effect of inflation. My Department has great sympathy with much of his approach to the essentials. We have tried to shape our prices policy to fill in the gaps where social security benefits do not apply. We have initiated a thorough-going review of the nationalised industries to see what can be done to minimise the impact of unavoidably steep nationalised industry price increases now coming through on the smaller user, who tends to be the poorer consumer. We look forward to the constructive recommendations

which may emerge from Sub-committee B of the Select Committee on Nationalised Industries.

Meanwhile we have sought to hold down standing charges as far as possible and to tilt the tariff increases in favour of the smaller users. There is a strict limit on how far we can go towards achieving the ideal in this area. There are many practical difficulties. Some poor consumers are large users, and it may be unreasonable to expect one section of the poor to cost subsidise another. There are the critical limitations imposed by the extent of the public sector borrowing requirement and the burden of taxation, to which I have referred. It costs about £600 million to reduce the retail price index by 1 per cent. whereas the cost of improving the living standards of social security beneficiaries by 1 per cent. is rather less than £80 million.

We must move with care if we are to help the needy in the most cost effective way we can. We have moved in the way which I have mentioned over the past year to meet the objectives which hon. Members hold dear. We are determined to move further in the same direction over the next year within the price limitation programme announced in the White Paper.