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Price Code

Volume 897: debated on Saturday 16 August 1975

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On a point of order, Mr. Speaker. The Secretary of State for Prices and Consumer Protection is not yet here to move the Price Code order. May we have your guidance? What happens when a Minister fails to attend? Does it mean that the House should adjourn or go on to other business?

Further to that point of order, Mr. Speaker. I was about to raise a point of order myself, but on second thoughts, following the arrival of my right hon. Friend the Secretary of State for Prices and Consumer Protection, my point of order might be bogus and therefore I shall not detain you any longer.

6.12 p.m.

I apologise to you and the House, Mr. Speaker, for being delayed. I am afraid that the message that reached me was rather misleading, indicating that the consideration of the Lords amendments to the Sex Discrimination Bill was expected to last another 45 minutes. I apologise if I have caused any difficulty to the House.

I beg to move,
That the Counter-Inflation (Price Code) (Amendment) (No. 2) Order 1975 (S.I., 1975, No. 1293), a copy of which was laid before this House on 5th August, be approved.

With this we shall take the Opposition Prayer on the Order Paper,

That an humble Address be presented to Her Majesty, praying that the Counter-inflation (Notification of Increases in Prices and Charges) (Amendment) Order 1975 (S. I., 1975, No. 1294), dated 4th August 1975, a copy of which was laid before this House on 5th August, be annulled.

We are debating the orders concerned with the changes to the Price Code that are required as a result of the discussions on the Counter-inflation policy which the House held in July. It would be best if I were to begin by outlining the effects of the two orders.

The first is the Price Code order itself, which amends the Price Code by strengthening the sanction against excessive pay settlements. It ensures that all firms subject to the code are prevented from passing the costs of an excessive pay settlement through into their prices. The order makes separate provision for each of the relevant sections of the code.

With regard to manufacturing and service firms, the largest proportion of the total, the costs of excessive settlements are to be disallowed in the operation not only of the normal allowable costs but also of the low-profit safeguards in the code. To override the safeguards in this way may seem Draconian to some, but having improved the safeguards as a result of our review of the code last year, and thus making them accessible to larger numbers of firms, we could not contemplate immunising such a significant section of industry from the effect of the sanctions. By applying the sanctions to all firms which breach the limit, whatever their profit situation, we intend to leave negotiators with no illusion as to the effects on their firm or industry of exceeding the pay limit.

For firms using escalation, or variation of price clauses, such as the construction industry, the cost of excessive settlements will be disallowed from price increases under these arrangements, and the order makes it clear that the disallowance will also apply to variation of price contracts which are governed by indices, where the indices reflect costs arising from excessive settlements.

For distributors who are not covered by normal allowable cost rules and who invoke the low-profit safeguards the code will prevent any increase in gross profit margins to compensate for the increased costs of an excessive settlement. In other words, the gross profit margin will not be allowed to reflect excessive settlements.

For distributors whose profit margins are above the safeguard levels no extra provision is needed to apply the sanction, because they would in any case be forced to absorb the costs of an excessive settlement from their existing profit margins.

For nationalised industries the sanction will apply in the same way as for the private sector, as a deduction either from an industry's allowable cost increases or from price increases justified under the provisions which permit a surplus of 2 per cent. on turnover or a 10 per cent. return on net assets.

Finally, for firms whose labour costs form less than 15 per cent. of total costs—and I acknowledge that these may include not only capital-intensive firms but those whose labour costs are small for other reasons, such as a high raw material content—the disallowance of cost increases will be increased to achieve the same effect on these firms' margins as if labour costs had represented 15 per cent. of their total costs. In other words, the minimum amount considered to be allowable for labour costs will be 15 per cent., and that will be allowed for even if the firm spends less than that on labour, even in the event that it breaks the guidelines.

The order also includes a separate provision of concern to the self-employed. It re-establishes control over the self-employed whose business expenses amount to less than 10 per cent. of their profits or gains. All those whose business expenses amount to more than 10 per cent. of their profits or gains are already covered by the Price Code as it at present exists. A pay limit makes little practical sense for people in this group, but we thought it right to bring them back within the scope of price control—where they were a few months ago—at a time when wage and salary earners are being asked to make sacrifices as regards their pay increases.

I turn now to the second order. Procedural requirements have aroused more interest and caused greater difficulty in the House in some ways than the form of the sanction itself. This is understandable because prenotification affects all manufacturing and service firms with sales of over £5 million—that is to say, the great bulk of British industry—and because it is not easy to strike a balance between the need to ensure adequate scrutiny of pay settlements which enter into price increases and the desire to avoid unnecessary delay which could affect a firm's cash flow because it cannot pass on legitimate cost increases. After full discussion with the CBI and the Price Commission I hope that we have now struck the right balance.

Hon. Members will be interested to know what has developed out of the discussions which took place during the recess. They will recall, as this was fully debated in July, that the procedure involves the submission by firms to the Price Commission of data about the pay settlements which enter into their price notifications.

The commission passes the information about a pay settlement to the Department of Employment, which looks at the settlement to see whether it conforms with the pay limit. If, in the light of that investigation and also of any further discussions which may be initiated by the firm or the Department, it appears to the Department that the settlement has exceeded the limit, the Secretary of State for Employment issues a certificate to the Price Commission, which will then operate the sanction, refusing to allow the cost of such a settlement to be reflected in a price increase.

The problem has been to provide for adequate time for the notification period stage, to ensure a proper scrutiny of new information about a pay settlement, and to enable further information or clarification to be sought from the firm concerned in case of doubt. The House will know that the present normal period of notification is only 28 days for the price increase. This additional cycle of activity can make that 28 days inadequate.

In the consultative document which we were debating in the House just before the recess, I proposed a clock-stopping arrangement which would have meant that the time taken to obtain and assess further information from a firm would not count against the normal 28-day notification period. In other words, if a firm took more than 28 days, the clock would be stopped for the additional time.

Because of the administrative difficulties and uncertainties which clock stopping involves—it is in many ways an artificial procedure—we considered another alternative which might be effective, that of allowing a 56-day period of notification, but taking away from that period any number of days before the lodging of a price application in which firms had voluntarily lodged information about their relevant pay settlements. In other words, if a firm lodged information about its pay settlements 20 days before the beginning of the price notification period of 28 days, there would be only an additional period of eight days which would be counted against it.

However, the CBI assured me that it would much prefer to urge its members to make full use of the voluntary advance procedure under which firms may send information about relevant pay settlements to the Price Commission anything up to 28 days in advance of their price notifications. Thus, a firm can send details about a pay settlement, or for that matter about an intended pay settlement, at any time in the month before that in which it intends to make a price application. The CBI argued that an extension of the statutory 28-day notification period would be equivalent to tougher price controls for all firms, whether or not they comply with the Counter-inflation policy, and that this was not the Government's intention in introducing this sanction.

I have, therefore, accepted the CBI assurance that it would urge firms which are members of the CBI to use the voluntary procedure, on the understanding that in the few cases which may occur where the advance procedure is not used, and where clearance of the price notification might not be completed within the statutory 28 days, the firm might have to delay its price increase or it might have to face the risk of an order from the Price Commission to roll back its prices if a settlement subsequently turned out to be outside the guidelines of the Counter-inflation policy.

Basically, what we have got is a voluntary policy under which firms would be allowed to notify pay increases up to a month before they put in a price application. It is understood between the CBI and myself that if these arrangements do not work satisfactorily the CBI will accept the inevitability of reverting to one of the other alternative policies—that is, either clock stopping or a lengthening to 56 days. All of this has been set out in the published exchange of letters between the Director-General of the CBI and myself. I will go into the details a little later, but I am bound to say that this proposal is working quite well.

We have now had the first indications of how the policy is working. The position is that a good many firms are using the advance procedure. It is fair to say that a growing number of firms are doing so, evidently as they learn about it. Until 6th October, the last date for which I can give the House information, the Price Commission had referred to the Department of Employment 163 price notifications in which there were increases in remuneration since the White Paper was introduced. In that period of 163 price notifications, there were 155 advance notices of pay information.

The House must recognise that this is not exactly a parallel figure because some of the notifications of pay settlements could be related to price notifications that have not yet been received. Some of them, in other words, are within the 28-day period before a price application is lodged. It does show a high corelation between price applications and voluntary information about pay settlements. This was something about which I know the hon. Lady and her colleagues were concerned during our July debates. I am pleased to say that it appears to be working pretty well.

Can the right hon. Lady say whether she has disallowed any of those price determinations on the grounds of pay settlements being above the White Paper level?

If the hon. Gentleman will allow me I will deal with that point a little later. First, I want to deal with one or two other important points which I wish to record for the purpose of assisting firms in this exercise.

There will be far more notifications within the next few months because the period of pay settlements is now upon us. Both in November and December, particularly November, there are a good many pay settlements due to be made under the 12-month rule. We urge firms as far as possible to use the voluntary procedure and, wherever they can, to give the full 28 days notification or as close as possible to that so that this voluntary procedure can go on as smoothly as it has up to now. If the trend continues I am hopeful that the voluntary procedure will work so smoothly that there will be no need to resort to any extension of the period.

I want to say a word about the information that is required from firms regarding pay settlements. It may be alleged that this information appears formidable. Indeed it has been so alleged in an article which appeared recently in The Times. I do not deny that it imposes burdens upon firms, although we have done our best to minimise requirements so as to make them consistent with effective scrutiny. The Price Commission has issued a pro-forma to firms to assist them in presenting the information needed. We have had a good many indications from the firms that they welcome this help from the Commission. It is also fair to say that the information required is substantially less than the information required for the purposes of the old Prices and Incomes Board or its successors. We intend to try to keep the information needed as simple as we possibly can.

May I say a word about the last order which is not before us—No. 1295? It is one which we do not have to debate for statutory purposes and deals with the requirement of firms which do not have to prenotify but have to make regular reports to the Price Commission or which have to keep records to show what their pay settlements have been.

We recognise that the CBI, while it does not particularly like this extra burden, has very much welcomed the counter-inflation policy and has shown a willingness to co-operate with it.

I will now tell the hon. Gentleman that there has been no case, up to now, of a firm having to notify to the Price Commission. There has been no case yet in which the Price Commission has found that a settlement has been outside the guidelines of the Counter-inflation policy. That does not mean to say that there may not be such cases. I wish to make it clear that, if there are, it will certainly be my responsibility, as one of the Ministers involved, to make quite certain that there will be a full application of the sanctions against any such firm. This is because I believe it to be overridingly in the national interest that the Counter-inflation policy should work. I want to make no bones about that. It is overwhelmingly in the interests of both sides of industry, the nation and the House that we achieve a major reduction in the rate of inflation.

The House will want to know how things are progressing. It is fair to say that a deceleration in the rate of increase in labour costs means, among other things from the point of view of companies, that the productivity deduction bites less hard on their margins. Therefore the policy advanced is very much in the interests of growth and future investment.

I turn now to the figures for inflation to bring the House fully up to date. In August, as the House will be aware, the year-on-year figure of increase was 26·9 per cent., but the three-monthly figure, on an annual rate, had fallen from the 53 per cent. of May, about which the hon. Lady was understandably scathing, to 32·6 per cent. in July and then to 152 per cent. in August—the lowest three-monthly rate since last October.

I take the three-monthly rate as well as the annual rate so that the House will know that I am not trying to play with figures, but it is fair to look at both because it is fair to look at the trend as well as the year-on-year figures. I will whenever possible give the House both so that we can argue which is the more representative.

It is also fair to say that there are encouraging notes in respect of wholesale price increases in the case of manufactured goods, both on a monthly and on a three-monthly basis. The figure of increase in September was the smallest since the second quarter of 1973. That gives us good reason to believe that the present deceleration of price rises over the last three months will continue in the immediate future.

I wish that I could be as sanguine about raw material and fuel prices. Alas, I cannot. The House will know that the OPEC countries decided to increase crude oil prices by an average of 10 per cent. and that oil is a basic material for many of our industries, including food manufacturing and the whole of distribution.

World food prices have also been hardening recently, especially of wheat from North America and of dairy products and meat, partly because of poor harvests in some parts of the world such as the Ukraine and partly because of the entry of very large purchasers on a substantial scale into the North American markets for grain. It would be pointless to suggest that this country is not affected substantially by deals with which it may have nothing to do between large purchasers and large suppliers of grain.

At home, both the potato and the vegetable crops were adversely affected by the summer's long drought.

In August, materials and fuel bought by the food manufacturers went up by 7½ per cent., in September by 3 per cent. Although the inputs in manufacturing industry, as distinct from food, rose rather less, there was an increase of 6½ per cent. in the third quarter, which again was the highest for at least six quarters, I think I am right in saying.

All this means that there are still costs in the pipeline, including some past pay settlements as well, which are not yet fully reflected in prices. So we shall see, or are seeing, a marked and substantial improvement at present. It would be optimistic to suppose that there will not be a further hump to be got through, most of it the result—[Laughter.] The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) laughs, but he should not laugh because this is a matter of the most intense concern to this country. I hope that he will not laugh, because it cannot be in the interests of hon. Members on either side to regard an increase in raw material and oil prices as being in the interests of this country. I do not much care what one's politics are when I say that: it is bound to be the case.

I hope that that hump will be the last hump and that, by the turn of the year—I have said this before—the improvements which flow from the considerable slowing down in commodity price increases—not a straight fall, but a slowing down in the rate of increase—the lower pay settlements and, it has to be added, the considerable squeeze on company profits over the last few quarters, will all be reflected in prices. I have little doubt that that will be so.

On the pay side, the Government's Counter-inflation measures have received a widespread welcome. Hon. Members will know that during the recess there was a substantial demonstration of support by the trade union movement in September when the General Council's report, "Developing the Social Contract", was carried by more than two to one. Since that vote, a number of unions which opposed it, including such substantial unions as USDAW and SOGAT have announced their intention of supporting the policy despite having gone on record as part of the minority at that time.

It is still early days in the new pay round, but the agreements already made are very encouraging. They cover about 1½ million workers in a wide range of occupations—local authority manual workers, workers in the grocery trade, both of them relatively low-paid, but also plumbers, bakers, shipbuilders and a substantial section among car workers who would not normally be described as being in the low-paid category. All of these have accepted settlements in accordance with the policy. In some cases, this acceptance has involved a complete renegotiation of an existing pay settlement to bring it into line with the policy. Hon. Members should not be unaware of what a difficult exercise that can be.

I repeat that in no case so far has it been necessary to impose a sanction under the price code, but I am not so sure that I can continue to be so sanguine in the immediate future. I hope so, because it is in the interests of all concerned that we should not have to use that sanction if it can be avoided.

I should now like to say something about a number of Press reports which have appeared on the general subject of the Price Code. I hope that the hon. Member for Gloucester (Mrs. Oppenheim) will agree that this would not be an appropriate evening to discuss the future of the Price Code in great depth and that she will not hold it against me if I, therefore, do not do so, but it would be helpful if I said a few words about how I see the future of price policy developing.

First, it is not my intention to make any fundamental changes in the price controls before the end of the current phase of the pay and prices policy, which lasts only till next summer. Indeed, it would be extremely foolish to do so. We made it clear in our White Paper, "The Attack on Inflation", that we believed it to be essential to keep price increases to a minimum and to maintain a strict control of the Price Code and the Price Commission. For that reason, we took powers under Section 2 of the Remuneration, Charges and Grants Act to extend by order price control powers to the end of July 1976 and, if absolutely necessary, to the end of July 1977.

I do not want to give the impression that I would wish to go till the summer of 1977. Obviously, prices policy must be closely related to how the economy develops. It is, frankly, too early to say at this stage what the shape of price controls will or should be after the summer of 1976. It is too early for a straightforward reason, which will, no doubt, be adduced by others contributing to the debate—that we do not yet know and cannot yet guess whether the targets in the Counter-inflation policy will actually be achieved.

If they are achieved, and if we do get inflation down to 10 per cent. by the summer of 1976—as I have said, we are at least on a reasonable course to achieve that—the Government, the CBI and the TUC will want to do everything possible to encourage worth-while investment and create new jobs by the summer. The present Price Code is not appropriate either to a period of recession, or, for that matter, to a period of encouraging manufacturing and distributive investment. So I would not suggest that the Price Code in is present form would be the right answer if we can move rapidly towards growth by next summer.

Equally, because I do not know whether we shall have achieved that state so quickly, and also because there are circumstances, beyond the control of any British Government, which might determine how rapidly that target might be achieved, it would be the height of foolishness for me to make a statement about the look of price controls in the summer. What I will say—I have said it before—is that it will be of the highest priority to move as soon as we can on to the basis of more rapid growth and of higher investment.

I recognise that the Price Code will have to be changed for that purpose but the primary job must be and still is, in the Government's view, that of defeating inflation. For this purpose, we do not believe that a major relaxation of the Price Code at this time would be appropriate. The achievement of our target depends upon the contribution that both the unions and industry can make. So it is to some extent in the hands of both sides of industry—though not totally, for the reasons I have indicated—whether we achieve that target and how quickly we can reach a position from which we can again begin to grow and to encourage investment.

6.39 p.m.

I beg to move,

That a Humble Address be presented to Her Majesty—

Order. The hon. Lady must speak first to the motion of the Secretary of State. She can discuss the two motions together, but the formal movement of her motion must come later.

It is probably for the convenience of the House that we discuss the two orders together. Having said that, I must protest strenuously at the outrageous way in which the House has been treated over this debate. These orders are complex, significant and far-reaching in their effects, yet this is the first opportunity that the House has had to discuss them, over two months after they have been in force, and probably only for a short period.

Does the hon. Lady think that we should have recalled Parliament to discuss these orders? The attendance in the Chamber hardly suggests that would have been the view of Parliament.

The orders should have been discussed before the recess, and they would have been if the Government had not been suffering from legislative indigestion. They are very important orders, and when my right hon. Friend the Leader of the Opposition made representations to the Leader of the House, he indicated on a number of occasions that ample time would be made available for this debate. These orders are, after all, the nuts and bolts of the Government's Counter-inflation policy and, in some ways, are even more important than the Act itself. We were assured that we would have ample time to discuss them, possibly before they came into effect. During the proceedings on the Remuneration, Charges and Grants Bill, we received a number of unsatisfactory replies from the right hon. Lady. Some were contradictory and confusing and, when we expressed our concern, she indicated that there would be ample time to discuss the orders. She said:

"The details are open to change and are likely to be filled out before an order is made. There will be a closer definition of what is meant by a settlement and how large a group will constitute a group for the purposes of a settlement. All the matters will be discussed by Parliament."—[Official Report, 24th July 1975; Vol. 896, c. 1158.]
These matters were not discussed by Parliament before the orders were laid or the regulations came into force. If the Opposition had not tabled a Prayer against one of the orders tonight, it could not have been discussed at all. This is typical of the way the Government have handled every aspect of their Counter-inflation policy. The way this debate has been handled bears all the familiar trade marks. These orders have come before the House late and we did not have an opportunity to discuss them before they came into force.

The orders representing the legal implementation of the Government's pay policy and this debate, coming as it does a year and a week after their re-election, will loom from this Session of Parliament like a tombstone on the grave of their broken promises and their complete failure to contain inflation.

The Secretary of State presented the orders with her customary attention to detail and her customary expressions of concern about inflation, but she can take little comfort and deserves none from the fact that 20 months after she took office, we now have the situation, where we are told that for the first time since the 1930s some of the poorest families in this country are going hungry and the price index for the lowest paid is rising faster than for anybody else. That is hardly an achievement in terms of social justice.

How can we take seriously the Government's expressed determination to tackle inflation when their own spending is at such terrifying levels and the public sector borrowing requirement has not been adequately curtailed? Even the reference in the orders to the £6 pay limit throws doubt on the Government's policy. The White Paper, Prime Ministerial statements, answers to questions and that circumventive document that was pushed through all our letterboxes, have proclaimed that the £6 is a limit and not an entitlement and that some employers might not be able to pay it. I ask the House to note those words, "some employers may not be able to pay it".

It is true that USDAW has settled for £5·20 a week, but this represents a pay increase of more than 20 per cent. and will put £30 million on the country's food and grocery bill. We are told that it is considerably more than the union would have settled for outside the contents of this policy. Since then, local authorities have been called on to pay the full £6 without a word of dissent from the Government and with nearly the whole bill to be borne by ratepayers.

Is that what the Government mean when they talk of protecting people against inflation? I should like to ask the Secretary of State whether, in the sense that this is meant in the Government's pamphlet, she believes that nationalised industries are able to pay the full £6. Their prices have gone up twice as fast as prices in the private sector and the pay of their workers has gone up even faster. They have enormous losses and even larger debts. Are the consumers and the taxpayers to be left to pay that bill? The House and the country will welcome an indication from the right hon. Lady whether she thinks that nationalised industries are able to pay the full £6, because there is nothing in these orders to restrain them. The rules for conformity with the Price Code have been tightened as far as nationalised industries are concerned, but we have still seen nothing like the imposition of cash limits on the nationalised industries about which the Chancellor of the Exchequer spoke during the debate on the White Paper. It would be interesting to hear the Government's proposals. Until they are made, this policy is virtually meaningless as far as nationalised industries are concerned.

It is time that the Government made clear their position, too, and their policy on whether the £6 is a limit or an entitlement. The Secretary of State referred to the decision of the TUC, but the Congress has only agreed on a £6 entitlement. It would be interesting to know whether that is now the Government's policy since they have claimed an agreement with the TUC.

I am as aware as anyone else of the need to help the lower paid. However, are the Government and the TUC, in their expressed concern for the lower paid, going to give an undertaking that, if the policy in these orders is used as a method of levelling up for the lower paid, we shall not have that used as a springboard for the restoration of differentials next year with a resulting further fierce burst of inflation which would erode any benefit to the lower paid?

It may suit the Government to speak with a forked tongue on these matters, but until they make clear their position, they have not got a policy. And references to £6 in these orders are highly inflationary, especially when we are now re-importing our own home-bred inflation through higher raw material prices caused by the fall in the value of the pound and the fact that the Government have allowed inflation to run riot for the past 20 months. Now we are perhaps more vulnerable than any other developed nation in the world to every rise in oil prices and every tremor in the commodity markets. The Government have brought us to the point where every cold breeze that blows can give us pneumonia.

In the early part of this year, commodity prices were falling quite fast, but inflation in this country was going up even faster. How can my hon. Friend feel that commodity prices affect the rate of inflation after that unpleasant experience?

At that time, pay was rising extremely quickly. We have now missed the boat and are likely to find that, even if pay is restrained, we shall have to take on board not only high prices for commodities but even higher prices because of the fall in the value of the pound. We have the worst of all worlds.

There is now real doubt whether the Government's target figure for the end of next year can be reached and the shadows of the International Monetary Fund are lengthening daily, with all that that implies. Yet still we get half-truths, half-policies and non-policies from the Government. These orders are just part of the charade which their policy has become. They represent a bureaucratic tangle of complicated rules and regulations, the main purpose of which is to make one sector of the community believe that Government policy is what it is not, while making the other sector believe that the policy is not what it is.

The most important and overriding impression one gets from the regulations is that their complexity and their very nature highlight the fact that the Price Code itself is a totally unsuitable vehicle for pay restraint. In view of the time which has elapsed since the Remuneration, Charges and Grants Act was before the House it might be propitious now to remind the House of the assurances the Secretary of State gave on that occasion, with perhaps less than her usual candour, that the effect of Section 3 would be very little different in the imposition of sanctions on employers than those provisions already existing under the previous Act and under the Price Code. She said,
"There is nothing new in the way of sanctions in this legislation, despite what some hon. Members seem to think."
She also said of hon. Members,
"they will be aware that nothing proposed in the Bill goes beyond that Act with respect to the possibility of the creation of criminal offences or the possibility of penalties against employers or employees."—[Official Report, 24th July 1975; Vol. 896, c. 1120–21.]
What she omitted to say was that as the Price Code is now being used for something entirely different from that which was originally intended, there is all the difference in the world, particularly since companies can now be penalised for something over which they might have no control.

Having given repeated assurances that the powers under Section 3 were not likely to be used to enable further amendments to the Price Code and new sanctions to be imposed, the Secretary of State had to concede, following an amendment we moved to the Bill, that there could be further amendments and new sanctions under the powers taken in the Bill, and that we have not seen the last of amendments to the Price Code yet. This evening she has tried very clearly to explain and describe the regulations as best she can, but they are very complex and so obscure that two documents of guidance have already been published, one by the Price Commission and one by the CBI.

I am afraid that they will still be very obscure to many companies and I wonder whether the Government have thought for a moment just how high will be the cost of all this additional record keeping and the provision of information, required especially for companies in category 3 and below. Many of these companies and distributors will have to collect this information and keep these records for the first time, and they will have to carry this burden on top of the additional burdens that the right hon. Lady imposed upon them last year.

Even category 1 and 2 companies will have to avail themselves of continuing specialist professional advice, and that is very expensive. Like category 3 companies they will have to make available more information more often. It will need to be extremely detailed and will relate both to the irrelevant as well as the relevant pay settlements. As all that will come under the category of allowable costs the expense will be passed on in higher prices, and so that makes the whole exercise seem slightly counterproductive.

However, the companies will be grateful to the Secretary of State for the concession she has given over the non-imposition of the 56-day limit between notification of pay settlements and the implementation of price increases. This period is to be restored to the existing 28-day pre-notification period. Nevertheless, this is a very temporary concession for a trial period. Its continuance will depend on the extent to which companies are able to avail themselves of the voluntary early notification period.

Paragraph 3.9 of Price Commission data sheet No. 15 makes quite clear how qualified this concession is. No assurance is given that these delays will not take place. All that is said is that if companies avail themselves of the voluntary procedures the risk of delay will be reduced. That is nothing like a bankable assurance. I do not need to say how damaging—how irretrievably damaging in some cases—these delays will be.

What of the decision about pay settlements? Once again we are obliged to the data sheet which says in paragraph 2.7 that the decision whether pay settlements are or are not within the limits is a matter solely for the Secretary of State for Employment. I am sure that that revelation will hardly fill everyone with a great deal of confidence when they remember with what zeal the right hon. Gentleman defended every obvious breach of the social contract, and we all know what the consequences of that have been. If he is to be the sole arbiter of every pay settlement he will be very busy indeed.

This brings me to a relevant and disturbing point raised in a memorandum presented to the right hon. Lady last July by the Consultative Committee of Accountancy Bodies. It was claiming that there was no adequate definition of a pay settlement because there was no statement as to what groups constitute the subject of separate settlements where composite pay agreements affect several groups. In Committee the right hon. Lady gave assurances in column 1103 on 24th July that if further guidelines were sought from her Department the Department would be very pleased to provide them. Later in that debate she said:
"There will be a closer definition of what is meant by a settlement and how large a group will constitute a group for the purposes of a settlement ".—[Official Report, 24th July 1975; Vol. 896, c. 1158.]
But all we know from the definition in the orders is that any settlement for a group of 100 employees or more is a notifiable settlement, and that does not meet the point put to the right hon. Lady in the document submitted to her by the accountancy bodies. Nor does the only other definition in Statutory Instrument 1294 on remuneration of employees. It is a pity that the right hon. Lady has not found it possible to enlarge on this definition. Where the effects of a policy can bear beavily and unfairly on companies with, in some cases, disastrous effects for the company and its employees, the least one has a right to expect are definitions which can be simply interpreted and over which there should be no confusion at this late stage.

Then there is the considerable effect of incremental payments on costs and prices. Where these are very substantial they will appear unfair to those whose pay is much more restricted. The Secretary of State has done her best to close the loophole, but with a policy which is dependent on a maze of complicated regulations, some of which are too loosely defined, some of which are over-precise and some of which are subject to enter-pretation difficulties, there will be loopholes, there will be injustice and there will be damage.

As the whole framework of the Price Code starts to groan under the new burden being imposed upon it, and as the Price Commission is put under severe pre-sure the whole ramshackle edifice could collapse. Quite apart from the right hon. Lady's remarks on the Price Code today, she has often said that it was high time the code was replaced. However, these orders are aimed at the continuation of the Price Code.

It is ironic that they should have come on a day when we read in the Press that the CBI has made a special appeal to the Secretary of State telling her that the Price Code is crippling their efficiency and their investment and is causing them a great deal of damage. It is more ironic because in a speech on 10th October at a Merseyside dinner she said,
"perhaps this is as important as any individual element, the attack on inflation forms part of an overall strategy to act on all domestic factors contributing towards inflation and blocking modernisation and growth."
I submit that the Price Code in its present form, with the imposition of these regulations, as the CBI has quite rightly claimed, is doing precisely that.

Today, once again, we have had from the right hon. Lady reassurances and counter-reassurances. She has made the complex sound simple to us. However, as I listened to her I could not help thinking of the Red Queen in "Alice Through the Looking Glass", when Alice complained:
"One can't believe impossible things."
The Red Queen replied:
"I dare say you haven't had much practice…. Why, sometimes I've believed as many as six impossible things before breakfast."
I should not dream of describing the right hon. Lady as a Red Queen. She may be a pink queen, but she is certainly not a red one. Nevertheless, she puts a great deal of strain on our credulity when she asks us to accept that these orders are simple and likely to be effective because—

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

She did not say that.

If the Government do not expect these orders to be effective why are we debating them?

The hon. Lady must not give the impression that she is quoting me unless she is. I am sure she will accept that.

Similarly, I hope that the right hon. Lady will accept that the impression she has given is that the Government hope that these orders will be effective. I believe that they are likely to provide the worst of both worlds and impose the greatest bureaucratic burden on employers and provide a good many loopholes for employees.

However, at present, I am suffering from a stab of compunction. I believe that I have been too caustic about these regulations and that I have not been fair when criticising the drafting quite as brutally as I have. In many ways, as the right hon. Lady knows, with the addition of a few new stringencies and twists, much of what is contained in these orders reproduces word for word the regulations that were made under the Conservative Pay Code in 1973.

So what we are debating today is nothing new. We are merely witnessing an operation in plastic surgery in which part of the Pay Code is being grafted on to the Price Code. At least the Government might have had the honesty to change its name to that of the "Pay and Price Code", because that is what it has become. That is why I find the right hon. Lady's statement in her speech in Liverpool rather surprising because she said,
"The pay limit is something that the TUC has proposed. It is not a Government imposition".
If that is not what these orders are, then I am sorry, I do not know what they are and the whole policy belongs in a phantasy world with Alice and the Red Queen.

Even at best, that part of the Government's policy which these orders implement is nothing more than a sticking-plaster patch on a serious wound. Nothing has been done to deal with the fundamental problems of structural inflation which are causing so much of our present trouble.

I hope that I speak for all my hon. Friends when I say that we do not intend to divide the House on these orders, because we have given the Government an undertaking that we shall not obstruct their legislation. Unlike the present Government, we are giving their policies a fair chance.

However, I should like to put it clearly and unequivocally on record that we consider it highly unsatisfactory to use the Price Code in this way and we consider it deplorable to make employers and small companies the scapegoats of the Government's own failure.

7.4 p.m.

My complaint against the timing of these orders is rather different from that of my hon. Friend the Member for Gloucester (Mrs. Oppenheim), namely, that they have been put down for discussion after the Sex Discrimination Bill. I complain that that irrelevant trivia should take precedence in timing over an order of fundamental economic significance at a time when our economy clearly needs some wise guidance.

I might also find myself guilty of some form of sex discrimination if I were to pursue my doubts about both the speeches we have heard. Therefore, I must be as moderate as I can for fear of chastisement by the law.

I agree with the right hon. Lady on one point—this might not be such a popular cause to espouse for those who sit on the Opposition side of the House—namely, that the rate of inflation has been coming down. In my opinion there is no doubt about that. Although it is traditional politics to say that under the Conservatives inflation always goes down and under the Socialists it always goes up and that the Conservatives always build more houses, and so on, one should give credit where credit is due. Credit is probably due to my noble friend Lord Barber for his fine piece of economic deflation at the end of 1973 which caused a drop in the rate of inflation. I believe that this was borne out in an article by Mr Utiger in the Financial Times to which the right hon. Lady made glancing reference.

Incidentally, I believe that the right hon. Lady presented the CBI as being highly satisfied with the orders and, indeed, with the conduct of the Price Code. I should like to quote one sentence from the article, namely:
"The Price Code must be abolished."
That is the view of the chairman of the CBI prices negotiating team. Let it be made clear that the CBI is beginning to turn against the Price Code and the right hon. Lady must not invoke it in her aid.

If I gave that impression, it would have been a false one. I do not think I did. There is a distinction between the attitude of the CBI towards the use of the Price Code for Counter-inflation purposes which it does not like but has accepted, and the attitude of the CBI towards the Price Code itself on which it has made not only on this occasion but on numerous occasions both to myself and the Government representations which preceded mine about its dislike of the Price Code.

Let it be understood that the Price Code must now be abolished. That is now the view of the CBI. At least we are making some progress. Indeed, I believe that my hon. Friend's speech showed that we are making quite a lot of progress. The only disappointing feature is that the right hon. Lady has still not seen the light.

I should like to reinforce this point by quoting another passage from this article:
"Competition in very depressed markets is holding prices and profits below the level permitted by the Code. The Price Commission's report shows that profit margins in the first three months of 1975 had fallen on average to only half the reference level."
Therefore, inflation is abating, but the level of prices is not as high as would be permitted by the Price Code. Inflation abatement has not been brought about by the Price Code. If that were the case, prices would be bumping on the ceiling. I ask the Government, and I want an answer: what on earth is the point of the Price Code if it is not causing inflation to moderate? Inflation is moderating and there can be no doubt about it. I am sure that the right hon. Lady would agree with the Price Commission that prices are not bumping on the ceiling of price limitation. Therefore, what is the point of the ceiling?

This question is of enormous importance, and it is not one which the Under-Secretary of State, who I hope will reply, can lightly shrug off. He may say "That is just temporary. In due course the economy will get going, competition will slacken, and manufacturers will try to put up their prices." If that is what will happen it will mean that just at the time when production and investment might be stimulated by some increase in economic activity the lid will be firmly held on the whole thing. We have only to look at our industrial production and levels of industrial investment to see how disastrous that lid has proved in the past.

The Government must face the fact that production in this country is now about 4 per cent. below the level of production during the three-day week. I remember the Prime Minister taunting the Conservatives all through the summer. To practically everything one said he shouted, "Three-day week", as if it were a sort of schoolboy taunt that stuck and hurt—"Three-day week minus 4 per cent. to you and snubs." That has been the effect of Labour policies and the effect particularly of price control. I hasten to add that I was not saying snubs to you, Mr. Deputy Speaker.

I am obliged to the hon. Gentleman. I was looking anxious because, although I realise that both Front Benchers went a little wide, we must try to keep to the two orders. It is not the whole of the Price Code which is under consideration.

I have a lot to say about the orders, but I should be grateful if I could complete one point on the wider scene. I will then come to the orders.

I want to refer to investment. The right hon. Lady makes herself out to be a moderate member of the Labour Party, somebody who has the best interests of the mixed economy at heart, a social democrat to the core, and one who forswears extremism and militancy and the horrible tendencies appearing on her Left wing. Yet she is presiding over the destruction of British industrial investment.

The one single thing which is causing more damage to investment in the private sector is the fear of price controls. When the right hon. Lady rose to that Box today and said that she had not decided by how much she should tighten the screw after the summer of 1976, she was frightening off another £1 billion of private sector investment. That was the effect of her words. If she would now interrupt me and say "I undertake to take this silly lid off as soon as any price starts to touch it" she would get a large upsurge in investment straight away. If she undertook not to reimpose price controls, that would be the effect.

Which does the right hon. Lady want to do? Does she want to encourage investment? Does she want to see British private sector investment increasing? Or does she want to stick to this policy which, by the admission of the Price Commission, is in no sense affecting the rate of inflation? How stupid can one be and how much damage can one do with the best of intentions? If the right hon. Lady is really such a benign, wise, middle-of-the-roader, she will not play into the hands of the Left wing by causing such a lack of profitability in British industry that it can no longer invest.

I now turn to the orders, which are very strange. There are three major categories of firms which are not affected by the orders. The first category comprises firms which are largely or entirely involved in exports, because there is no control of export prices. Even a firm which has quite a high proportion of exports only can claim that it does not matter how much it pays its workers because its goods are being exported. I am delighted that some people should be free, but the worker on the shop floor will say "How strange this is. I am making a pump for the home market and can only have £6 a week, but Bill, who is making a pump for Afghanistan, can have as much more as he likes. What is the logic of that?" That is one defect.

Secondly, small firms will not tell the right hon. Lady that they have paid more than £6 a week. They will not tell her anything. Indeed, quite a lot of medium-sized firms will not tell her, either. Yet this is the whole idea of prenotification.

One does not say to schoolchildren "Will you write in every month and tell the head teacher how many sweets you have stolen from the sweetie shop?", because they will not do it. It is not human nature. If they write in, they will make a nil return. It is no wonder all the returns made to the right hon. Lady have been nil returns. Nobody will write in and admit that he has broken the pay guidelines, because he knows that he will be clobbered with this order and super conditions will be imposed on his price increases which will damage him. The right hon. Lady will not get any telltale answers. That is another large area of exceptions.

Thirdly, the right hon. Lady mentioned builders. How will the right hon. Lady know whether a builder, who quotes separately for every job and for every job quotes a different rate for concrete, excavation, form work, steel fixing, plastering and painting, dependent upon the conditions of the job, has put up his prices? It is impossible. Therefore, to start with there will be areas in the economy where the Pay Code does not bite. I am delighted that there should be such areas. I wish that there were more.

Let us consider a situation where the Pay Code will bite and will be enforced through the Price Code. That is the purpose of the orders. Let us suppose a firm in the private sector is forced by threats of industrial action and whatever else to pay an increase which is greatly over the pay limits contained in the White Paper, and, by some mischance, the Secretary of State for Employment finds out. He will tell the Price Commission and the Price Commission will put a stop on the next price increase. The effect will be to reduce that firm's profits, if not to turn them into a loss. That will mean either that the firm goes bankrupt or that, at best, it is unable to make as much investment as it would otherwise have done. That will hit investment. It will cause the firm to become uncompetitive and eventually it will shrivel away and die. The Secretary of State for Industry will then come along and say that that firm has failed the nation. There will be a sit-in, because he will ask the chaps to sit in. We shall then have to fork out I do not know how many millions of pounds to salvage that bankrupt firm which has been bankrupted by the orders before us. What good does that do? It seems remarkable as a policy.

What happens once that firm is nationalised? Suppose it were British Leyland or a straightforward nationalised industry like the Gas Board and, by dint of industrial action, strike threats and holding the community to ransom—all those emotive phrases which we hear—the workers extract £10 a week. The nationalised industry will then be asked to control its prices lower than it would otherwise have been allowed to do according to the complicated formulae, and it would make a bigger loss at the end of the year. If it were the Post Office, instead of losing £350 million it would presumably lose £450 million, £500 million, or whatever the figure may be. As a result, the Government would have to print another £100 million which they have not got. If they print another £100 million, they make inflation a little worse. If this policy were ever applied—I suspect that it will not be applied—its effect would be to worsen slightly the rate of inflation.

In view of that, could not the right hon. Lady use her nut and withdraw these orders, withdraw the Price Code, scrap the whole thing, wrap it all up, and get on with helping the attack on inflation by doing what she can to stop the Government spending so much money? That is what is required.

There is one further objectionable feature. I hate being personal. I never am if I can help it. However, the Secretary of State for Employment will be in the position of deciding which settlements are within and which are without the White Paper guidelines. The temptations will be very great. The Secretary of State is a man of complete probity and honour, but even such a man will be tempted to overlook unpleasant things—and he has his political prejudices just as we all have. What is the citizen's redress against being singled out from many who have exceeded the pay increase limit for special treatment by the right hon. Gentleman?

Imagine, for instance, if the right hon. Member for Bristol, South-East (Mr. Benn) were appointed to that position in the next Government reshuffle. His desire is to turn all the private sector into public sector, and he could with the greatest of ease, by referring pay settlements left, right and centre, conduct a vendetta against private sector companies, letting through perhaps one or two in Bristol, South-East but not others anywhere else. Such a policy would be objectionable.

Indeed, the risks of ministerial fiat, of government by ministerial whim, are again increased by this policy. The long and short of it is that it is highly bureaucratic, with hundreds of civil servants passing around pieces of paper. Its net effect is mildly—I say mildly because I am a man of moderate claims—inflationary. It increases the area open to political decision-making clear of this House, and I feel that this should be the last time that the House lets through any of these orders. They do not help, but exacerbate the situation. I hope that my hon. Friend's near conversion to understanding the damage that this order can do will be reflected in her and my other hon. Friends combining to throw out the next order made under this legislation.

7.21 p.m.

It is always a pleasure to listen to my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), and it is a pleasure to follow him in this debate.

It is a great pity that when we are discussing measures of this importance, which, let us face it, will result in sanctions being available to be imposed upon employers, there is such a poor attendance in the Chamber. There may be special reasons for that.

But for many reasons this day is a sad and sorry one. It is a sad day because the sanctions which this order embodies are not particularly attractive to the Secretary of State or, indeed, to the Government as a whole. I think that the right hon. Lady is on record on several occasions as being most reluctant to consider such proposals as these. Indeed, there was a discussion on the Prices Bill when the right hon. Lady removed a half-proposal to that effect.

It is a sad day also because we are debating the imposition by the back door of a pay policy which the Government are unwilling or unable to impose by the front door. There can be no doubt that the order deals primarily with pay policy, and not with pricing policy, and, although it was foreshadowed during the debate on the Remuneration, Charges and Grants Bill that an order would be laid to provide these powers, the fact that it has been so laid and is now in force and we are having a retrospective debate on it accentuates the sadness of the day, because we are that little bit further along the road to the inevitability of wishing to use these powers.

I believe that when legislation is enacted it always encourages the use of it. More legislation encourages more use, and orders that are made and passed are likely sooner or later to be used, because the Government can reasonably say "If we have taken these measures and gone to this trouble and defined the area in this way, and the orders are available, why should we not see that they are used and try to have a dummy run to see whether they are effective?" I am, therefore, sad on that ground, too.

A much more important matter was raised in the speeches of my hon. Friends the Members for Gloucester (Mrs. Oppenheim) and Cirencester and Tewkesbury, and that is that these measures will not have an effect that is likely to be helpful in the present situation, where both sides of the House are agreed that the prime priority is the attack on inflation. My hon. Friend the Member for Cirencester and Tewkesbury suggested that these measures may have a counterproductive effect. That could be so, but I wish to draw the attention of the House to the fact that sanctions are now available, and these require careful definition.

I am not as sanguine as the Secretary of State that what is before us is not a difficult task but a simple one. The right hon. Lady suggested that this was not too great a complication with which to face British management at this time, yet we did not get an answer to the first simple question that my hon. Friend the Member for Gloucester asked: "What is the pay limit?" Is it £6 flat, or is it a combination of various features within this figure of £6?

If one looks at the order, one notes that it deals with remuneration and says that remuneration
"in relation to any employee includes any benefit, facility or advantage, whether in money or otherwise, provided by the employer or by some other person under arrangements with the employer, whether for the employee or otherwise, by reason of the fact that the employer employs him."
I accept that that is the terminology that is inevitably used to describe remuneration, but in so far as the Government are seeking to employ sanctions, and where the £6 limit is a matter to be defined, we might ask who should define it. That would be done by the Secretary of State for Employment. But when we come to discuss benefits in kind available, let us say, within the coal mining industry, is the value of the coal that miners take home—and they are fully entitled to do that—to be deducted from the £6 to which they may or may not feel they are entitled, or do they take less coal? We want to know precisely how remuneration and the £6 limit will be defined.

When it comes to the imposition of £6 within the food manufacturing and food distribution sectors, this must be a grave risk. We are talking about 20 per cent. to 25 per cent. increases being put on to the food manufacturing and distribution sectors at a time when there is the completion of the equal pay movement, and when this is a considerable burden.

But it is not just a matter of defining remuneration. It is that the particulars required are so comprehensive. The order requires
"in relation to each employee, the date of the last settlement relating to his remuneration which was implemented before 12th July."
It also requires in relation to each employee
"the date of making each settlement…relating to such remuneration or to that and other remuneration, the persons by whom it was made the persons to whom it applies and the date of its implementation."
All this involves a great deal of additional work, and it must involve some marginal increase in industrial costs. Many smaller companies are within the ambit of the code for the first time, and they will be taking this on board while they are still smarting from their efforts to deal with multi-rate VAT. I suggest that this is a substantial burden in which the Secretary of State is involving management. It is a difficult burden, and it comes at a particularly difficult time.

The arrangements require more time for consultation. I welcome the information given by the Secretary of State that, on the whole, the prior consultation procedure is working well. I am glad that guidelines are being issued, but I should welcome confirmation from the Minister that the guidelines issued by the CBI and by the Price Commission have the blessing of the Department of Employment and that what we are getting are definitive guidelines in this highly sensitive area. Can the right hon. Lady assure us that the interpretation given by offices of the Department of Employment in different parts of the country will be identical when it comes to giving advice to employers on whether settlements are within the guidelines? This is a valuable service, and it would be a disaster if one found different interpretations in different parts of the country.

However, our main concern is whether coming at this time and in this way these orders will serve a useful purpose. Those of us who have been involved with the pricing policy on the two prices Bills have seen the code come and go and be amended favourably and unfavourably. As my hon. Friend the Member for Cirencester and Tewkesbury pointed out, there is now sufficient evidence that the code has ground steadily further and further into the management problems of industry until industry has reached a point where it has little more to give.

It is obvious from the Price Commission's report that profit levels are seriously undermined, and from the economic conditions that pricing is more or less dictated by market considerations and not by artificial factors. Therefore, it is quite natural for the Confederation of British Industry to seek an end to the use of the Price Code.

When the Secretary of State suggested that no review would be undertaken for the remaining 12-month period until mid-July 1976, she also suggested that what was in hand was in line with her general policy for growth. She believed that there could be a climate conducive to more investment. However, I think she must recognise the enormous lead time required for the results of investment to show in higher production. It would be difficult to delay decisions of that kind for, say, 12 months and to assume that a rapid return to full employment and investment could be achieved overnight. I am sure that the right hon. Lady does not expect that to happen. However, Governments have frequently waited too long before reacting to the pleas of British industry to release it from the straitjacket of the Price Code in order to increase and encourage investment. If the Secretary of State seriously believes that investment will be required for 1976–77, action should be taken now within the code. I urge her to consider most carefully the timing of the follow-through from the present most difficult economic circumstances.

I am not persuaded that these orders are easy for industry to handle. They are difficult, costly in management time and costly to the small companies that come within their scope. I greatly regret that we are discussing sanctions, because once the principle of a sanction is enacted, although it be the principle of a pay policy, it would be possible for sanctions to be imposed via the code for other purposes; for example, employment policy, regional policy and possibly political purposes. I am sure that the Secretary of State has no intention of doing that.

However, the principle of establishing the Price Code as a vehicle whereby pay policy can be enacted by sanction suggests that we are opening a door which is capable of being wildly misused if the Government are not careful.

Therefore, together with my hon. Friend the Member for Cirencester and Tewkesbury, I hope that we might not have more orders of this kind and I look forward to the day when perhaps a fuller House might be debating not merely orders but the possible removal of the Price Code altogether, with the recognition that that would be a far more profitable day's work than that in which we are currently engaged.

7.34 p.m.

My hon. Friend the Member for Gloucester (Mrs. Oppenheim), described the Government's Counter-inflation policy as a charade. That is a formidable indictment. I am certain that with the passage of time her astringent observations will receive increasing endorsement. Certainly she will have a ready ally in my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley).

Tempted as I am to follow these macroeconomic debates, which have often been features of consideration of orders under successive prices and incomes legislation, I shall restrain myself and consider the statutory instrument which is before the House this evening. It has immense implications as a sanction for policy.

Quite early in the lifetime of this Government the idea was floated that the Price Code might be used as a sanction for a pay policy. It received a rather angry retort and reaction from those elements of the Labour Party whose memories were still green with the belief that there would be no statutory control of wages under this Government.

Therefore, I am grieved this evening that the Labour benches are graced by not one member of the Tribune Group. Where have all the radicals gone? Where is the hon. Member for Liverpool, Walton (Mr. Heffer)? I had thought that he would carry the torch even in these dark times to demonstrate that there is still a thread of continuity and scepticism within the Labour Party, where there are grave doubts about the value of a Price Code as a sanction for a wages policy. However, in his absence the industrial working class must be represented as well as possible by my hon. Friends and my self. I am sure that we are wholly equal to that.

The question has been raised, will this policy work? This evening we have a chance to consider some of the mere mechanics of the application of the order. I agree with the suggestion of my hon. Friends that there are wider forces at work in the economy that make orders of this kind irrelevant to the overall movement in the rate of inflation. That is not the issue under consideration. The issue under consideration, whatever our doubts may be about the efficacy of these orders as a means of countering inflation, is the reality in the burden they will impose upon industry, which has to comply with the law. The fundamental charge that is being levelled this evening is that this it literally an intolerable burden. I do not want to use exaggerated language to deal with this situation—that tends to be more characteristic of others in public life. However, as we sit calmly legislating at 7·40 in the evening I do not believe that we have the slightest idea of what this will mean for the company secretaries of those companies that have to report under this legislation.

My hon. Friend the Member for Pudsey (Mr. Shaw) advanced the argument, how did one deal with the more exotic forms of remuneration? He instanced the miners' concessionary coal. The National Coal Board does not have to notify under the provisions of this legislation. However, I shall take as an example a mythical company that could be located in any of the constituencies of my hon. Friends who represent rural seats.

Although it is a mythical company it is, none the less, typical because it has three characteristics. It is large enough to have to notify, report and conform to the requirements of the statutory instrument. It has canteen facilities and a system of company transport to bring workers to its premises from the surrounding villages. There is nothing unusual or strange about a company that has those three characteristics. The question that immediately comes to mind is, how does one treat what may well be an increasing subsidy content in the canteen account? Almost certainly the canteen meal will be bearing a subsidy. How is that subsidy treated if it increases during the period under notification? How does one assess whether the workers whose remuneration is being notified have taken the meal entitlement? Some may use the canteen facilities; others may not.

These are not absurd or barrack-room lawyer point. They are exactly the day-to-day issues that will immediately confront anyone seeking to interpret the statutory instrument. Such people will note, as has been observed by my hon. Friend the Member for Pudsey, that
"'remuneration; in relation to any employee, includes any benefit, facility or advantage, whether in money or otherwise".
I turn from how the canteen facility is to be assessed and interpreted and, above all, notified, to the second facility—either subsidised, or, as is often the case, free transport. How is the increasing value of that facility to be calculated? If the mythical factory were located in the constituency of Oswestry, where the Crossville bus fares have been increased very substantially, and if the company's travel arrangements were paralleled by a Crossville bus service, some idea could be gained of the benefit which might be implicit where free travel is still being provided and where otherwise the worker would have to go by public bus service. Often, those who will be collected by the company travel arrangements will be conveyed from villages where there is no bus service. In those circumstances how does one calculate the remuneration or the facility or advantage implicit in that situation? One thing is certain. Free travel to work, if that is one of the conditions of employment, is a facility of considerably enhanced value today compared with a year ago.

Company secretaries and all who will have to fill in these forms will want to know how they are to cope with this situation. When the Under-Secretary answers it will not be for him to say that this is something that can be determined in conversation with the regional offices. These judgments should be made known in the House of Commons legislating tonight, so that there will be an understanding that there shall be parity of treatment in this important aspect of remuneration.

I have made this point only in respect of subsidised canteen facilities and subsidised travel arrangements. I assure the Under-Secretary, who, I trust, will take my word for it, that there are many other aspects of what I will call exotic remuneration in industry and commerce today, and the straightforward wage content of a company's total wage cost is a diminishing factor. Therefore, it is all the more important that the Under-Secretary should be explicit about how these other fringe forms of remuneration are to be dealt with.

It will be evident to a wider public in the country as it is already crystal evident to my hon. Friends and myself that what we are seeing burgeon forth is a most complex and bureaucratic form of control. We are moving to a situation where industry and commerce will be burdened by so much form filling, so much reporting and so much notifying that the time will be ripe for a bonfire of controls. The Prime Minister boasted in a previous incarnation that he once conducted a bonfire of controls. I fear that he has learned badly in the period since those days of the early 1950s. It will be left to these benches.

I wish my hon. Friend the Member for Gloucester well and advise her to take a crash course in incineration because sooner or later there will have to be evidenced a political will to sweep away this policy and the bureaucracy that goes with it.

7.46 p.m.

These orders give effect to the sanctions under the Government's Counter-inflation policy and embody the policy whereby firms which offend against the pay limit will not be able to get the price increase under the code that they would otherwise have got.

The orders represent the culmination of months of delay, talking and thinking about how to deal with inflation that the Government have been undertaking. Manoeuvre after manoeuvre has been gone through—U-turns, W-turns. Z-turns, bends, hoops, spirals and loops, and we have eventually ended up exactly where we started—with what is in effect a statutory incomes policy.

The Chancellor was determined, above all, to win the General Election, and all national interest was subject to that end. So he determined that no action would be taken to bring inflation under control. He was determined to buy his country in the cheapest market and sell it in the dearest.

The Prime Minister's broadcast during the recess was nothing less than a repudiation of the very means by which he seized power. He used his broadcast to adopt the very policies that he had set out to undermine and to make unworkable.

During all these months of delay and inaction we have had the spectacle of inflation being allowed to rip. Inflation, which was at 13 per cent. when the Government came to power in February, 1974, has doubled to an annual rate of over 26 per cent. and now it exceeds even that of Italy, which has succeeded in getting its inflation rate down to under 16 per cent.

Some people may attempt to draw comfort from the statistics which have appeared in the last few days about the wholesale price index. At times I thought that the right hon. Lady was almost presenting those figures as the last cloud of a dying storm. However, if we look ahead, we can see that there are plenty of clouds over the sea. There are plenty of reasons for thinking that inflation will get worse, even if it gets better in the next few months. There are plenty of reasons for thinking that the Government will not be able to meet their target of getting inflation down to 10 per cent. by the end of next year.

The right hon. Lady dwelt at some length on the statistics—the wholesale price statistics and input prices. What she did not relate in any great detail was that input prices rose by 3½ per cent. in September alone and that costs to the food industry rose particularly sharply She did not dwell on the effects that are bound to be reflected increasingly in the Index of Retail Prices in the months ahead—effects of the depreciation in sterling, effects of the devaluation of the green pound, effects of the increase in oil prices, and effects of the increases in telephone charges and postal charges which have yet to work through the system.

On top of all that, we have the prospect of world demand picking up in other countries. The Chancellor of the Exchequer has been extremely keen that other countries should rush into reflation and so help to solve some of our problems. However, as soon as that begins to happen it will make it even less likely that this country will be in a position to meet its inflation target.

To reply to what the right hon. Lady said about the slowing down in inflation, even if inflation has slowed down in the past few months it has done so only at a massive cost—namely, a great rise in unemployment. We remember the period when we were told that there was no other way to deal with inflation other than through the social contract. The social contract was held out to be the gateway to the promised land. We have now discovered that the Government knew all the time that unemployment was another way of slowing down inflation. At the same time as accusing their political opponents of wanting to espouse that policy they sensibly got on with it themselves. They used the policy they were so quick and hypocritical to condemn in their opponents.

I must confess that I was a little alarmed when the right hon. Lady talked about resuming growth next summer. If there is any lesson that has to be learned from the past I should have thought it is that cost increases after a period of prolonged inflation can continue in the pipeline for perhaps years. Certainly the one thing that would undermine any trend towards a reduction in the rate of inflation would be for the Government to decide that next summer was the moment to get back on the path of rapid growth. Let the right hon. Lady tell that to the holders of sterling and we shall see what it will do for confidence in our currency.

The right hon. Lady has also been at some pains to say that the orders do not represent the implementation of a statutory policy. However, these orders, together with the clause in the Remuneration, Charges and Grants Act, talk about specific pay limits and statutory sanction which is embodied in the orders. There is the sanction of not being able to obtain the price increase to which one would otherwise be entitled. The Act from which the orders derive refers to "a sanction against…remuneration".

The right hon. Lady may argue that one could envisage a situation in which an employer could concede a wage claim over and above the £6 limit and the Government would not be intervening unless the employer made an application for a price increase. Strictly speaking that is correct, but we all know that in the present situation, with wages a high proportion of firms' total costs, firms do not have that added flexibility. In fact, if firms are refused the freedom to pass on increased wage costs in prices there is imposed a full-blooded statutory incomes policy.

Does it make any difference to say that what we have is not a statutory policy, that we have a voluntary policy and if it does not work we shall introduce a statutory policy? Is there any distinction between a statutory policy and a policy that is imposed with the threat that if it is not accepted a statutory policy will follow? I do not believe that that is a distinction which can be maintained.

It is because the Government have been so reluctant to admit that the orders represented a statutory policy that we have had so little light cast on some of the ambiguities and problems to which my hon. Friend the Member for Oswestry (Mr. Biffen) referred. If it had been admitted from the start that this was a statutory policy we could have had a proper White Paper explaining how some of these matters were to operate rather than leaving it to the public and to Members of Parliament to consult documents made available by the TUC and the CBI. The Government have proceeded by way of the back door. Without doubt these two orders represent the implementation of another statutory incomes policy.

We would complain about the basic unfairness and inappropriateness of the way in which the Secretary of State is now using the Price Code, to which we have many other objections. We have the added objection that the right hon. Lady is now using it for a purpose for which it was never originally intended. She is using it in an unfair way by imposing the burden entirely on employers. To listen to the right hon. Lady or to read the legislation one would have thought that it was a case of employers stuffing pound notes down the pockets of unwilling trade unionists. Why should a firm have to bear all the penalties of this legislation? Why should a firm have to choose between bankruptcy or conceding a wage claim and then being penalised by the Government? Why, too, if the employer gives way to an inflationary wage claim, should he lose the whole of the claim as an allowable cost as opposed to just that part in excess of the limit stated in the original legislation from which the orders stem?

I also have a number of detailed points to make about the orders. Like my hon. Friend the Member for Pudsey (Mr. Shaw), I am glad that the Government have abandoned the attempt to halve the notification time from 56 days to 28 days. I welcome the understanding that the right hon. Lady has come to with the CBI on that matter. I hope that the notification period—I know that the CBI had some doubts about the matter—will work out and prove to be operational.

I ask the Under-Secretary of State why it is that those firms which have labour costs of less than 15 per cent. should be treated as though their labour costs were 15 per cent. That hardly seems to be fair. What proportion of firms fall in that category? What is the reason for that provision?

We have had further enlightenment about the £6 entitlement. My hon. Friend the Member for Gloucester (Mrs. Oppenheim) dwelt on this point. My hon. Friend wanted to know whether or not it was an entitlement. Different noises have been made by different people who support the £6 policy. Clearly, the effect in different sectors in our economy could be very different. For example, my hon. Friend the Member for Pudsey pointed out that a £6 increase in the retailing industry or the food industry could be extremely large in percentage terms and could have very damaging results.

My hon. Friend the Member for Oswestry referred to the treatment given to benefits in kind. On the back of one of the forms that are sent out to firms it is set out specifically in notes to Part 3 that
"improvements in conditions other than pay which count against the pay limit include for example reduction in standard working hours, holiday improvments, overtime and shift premia, any other benefits in cash or kind."
How are these matters to be assessed? Above all, how is the poor person presented with this form expected to fill in the box at the bottom which reads "Answer Yes or No"

We do not apologise for repeating that we do not agree with using these orders to drag in the Price Code for purposes for which it was originally not intended. One result of doing that has been the unfortunate fact that the Price Code will now remain in existence beyond March 1976, when it would have expired.

I listened with some concern to what the Secretary of State said about the policy and code remaining broadly unamended in existence until July 1976. It is increasingly clear that the code is becoming unworkable and is getting out of date and that the structure on which it was originally based is becoming absurd. The reference levels for profits relate to the years 1967–72. The base date for prices is 30th April 1973. It is true that the reference levels allow the two best years out of the last five years, but these regulations cannot be flexible enough to allow for changes which have taken place over the period which now amounts to nearly a decade.

I appreciate that the Secretary of State has made concessions about productivity deductions. Those concessions are welcome, but as long as there remains a distinction between real and allowable costs, the pressure will continue to increase on industry. What the code represents is a noose placed around the neck of industry. As long as there are different movements between allowed costs and the costs of the real world, not the costs in the imagination of the gentlemen in Whitehall, the stranglehold on industry will become tighter and tighter.

On top of this there is the ratchet effect of the productivity deduction. The Government, by allowing the Price Code to continue in existence well into 1976, seem to think that there is some invisible pool of productivity on which firms can draw for ever. They try to take away productivity twice, first in the form of a productivity deduction and then via the calculations on unit costs. Any improvement in productivity that leads to lower costs has to be passed on as a deduction from allowable costs. Firms which manage to increase productivity will have it deducted twice over. Now that the Price Code is being extended long beyond the period originally intended it means that it is becoming a major disincentive to a firm seeking to improve its productivity and the efficiency of its operations.

There is another major objection against continuing the Price Code. We may argue in this House whether the cause of inflation stems from wages, or whether it is ultimately a monetary phenomenon. But what is not argued is that we have a profit-led inflation. That argument is advanced by nobody in this House, yet the effect of the Price Code and unit costs deduction has been to squeeze profits disastrously.

I agree with all the remarks of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). We have seen the disastrous effects on the food industry. At one time the United Kingdom had the finest food industry in the world, but it is slowly being strangled by the noose of price control and is undermined by the 10 per cent. cut in gross profit ceilings.

We reached a period when the Government began to realise that they were taxing inflationary profits. They came to the view that some of the attacks they made on excessive profits were exaggerated. We then had a period when the Chancellor of the Exchequer made speeches about it and we moved to a period when that right hon. Gentleman spoke of stock appreciation and of relieving firms from that element of tax. However, we have still had no adjustments in the Price Code to take account of that factor. No amendment has been tabled to that end. It is hardly surprising that profits have been so badly hit by the noose placed around the neck of private industry. No wonder profits have plummeted by half and that the return on capital is only 6 and 7 per cent. at a time when it costs at least 12 per cent. to borrow money.

The Price Code is now in many ways becoming harmful. My hon. Friends the Members for Pudsey, Cirencester and Tewkesbury and Oswestry dealt with the vast army of bureaucrats and the jungle of regulations now being created. We are now creating a new profession half way between an accountant and a solicitor who seem to spend most of their time following changes in the Price Code and writing letters to Whitehall. They are the people who talk in the "newspeak" of today in which a company is not a company but a "profit margin unit". We have a vast bureaucratic machine absorbing far too much time of both the governed and the governors. We have profit calculations belonging to pre-inflation days. We have feeble proposals to deal with shortages when they arise—and shortages always arise from price controls of this kind. We block one anomaly merely at the expense of creating another.

These matters have little to do with the problem of inflation and how we should deal with it. It reminds me of the Duke de Morny who was one of Napoleon III's ministers and was an insomniac. He passed a law through the French Assembly that prevented swallows sitting on telegraph wires at night. One cannot deal with inflation in that way. It cannot be done by laws to squeeze profits and profit margins.

What the Government propose to do remains fundamentally inadequate. Until the Government get at the root cause of inflation, public spending, their attack will be destined to fail and will be as futile as trying to clap with one hand. When the Government get to grips with inflation, we shall give them our full-hearted support—but not before.

8.8 p.m.

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

Those of us who take an interest in the affairs of this House will be surprised that the Opposition this evening, given this first opportunity in the reassembled House of Commons to discuss the serious issue of inflation, have not advanced one single constructive suggestion during the entire debate. We have, of course, become accustomed to that from the Opposition in debates on the Price Code.

The level of seriousness with which the hon. Member for Gloucester (Mrs. Oppenheim) treated the debate was illustrated by her absurd suggestion that what was most at fault was the fact that the Government had waited two months before debating this order. She was more impassioned about that point than anything else for there was a good deal of jollity in her speech. It is curious that the hon. Lady should have fastened on that procedural point but not bothered to refresh her mind about what had happened previously. She claimed that we had not had an opportunity to discuss these matters.

I do not come to these debates as do some hon. Members with a prepared speech that bears no relationship to anything said in the debate. I come to listen to what is being said and seek to answer any points that require reply. The hon. Lady has not taken advantage of this debate to raise any new point. She preferred to jest about my right hon. Friend and to describe her as a character from Lewis Carroll. The hon. Lady reminds me of a character from Lewis Carroll—the Duchess, whose advice was:
"Speak roughly to your little boy,
And beat him when he sneezes;
He only does it to annoy,
Because he knows it teases."
That describes the attitude of the hon. Lady.

We are taking steps to give backing to a voluntary wage policy agreed to with remarkable unanimity by the trade unions and acquiesced to by industry at large. There was not one word of congratulation to either side of industry for the statesmanlike attitude which they have always displayed in difficult times. I suppose that the hon. Lady's attitude is not surprising as she comes hot foot from the atmosphere of the Conservative Party conference and has not yet come down to earth to debate the real issues.

As the hon. Gentleman mentioned Blackpool, will he say whether the TUC Congress at Blackpool accepted a £6 limit or a £6 entitlement?

The hon. Lady knows what is the policy of the Government for whom I speak. Members of the Government have stated on many occasions both inside and outside the House that the £6 limit dealt with in this statutory instrument is a limit. There is no ambiguity about that. To suggest that there is ambiguity is throwing dust in the jurymen's eyes.

The Minister says that there is unanimity on this policy. Does he agree that Mr. Len Murray believes that the £6 is an entitlement?

Mr. Len Murray speaks for himself. I speak for the Government. It would be a pity if the hon. Gentleman adopted the more extreme arguments of Opposition Front Bench spokesmen, as he is normally a reasonable man. The hon. Gentleman demonstrated his reasonableness tonight.

The hon. Member for Gloucester spoke, as did a number of her hon. Friends, about the unsuitability of the Price Code mechanism as a vehicle for a sanction, but she did not say whether she believed that a sanction was necessary. She did not even say whether she thought that it was appropriate to have a wage restraint policy. The country would like to hear answers from the hon. Lady and her right hon. Friend to those questions.

The one bull point which the hon. Member for Gloucester might have made had there been a debate two months ago, about which she was so disappointed, would have been that there were differences of views, which have been happily resolved, over the period of notification of wage claims. Perhaps that is why she would have preferred the debate to have taken place two months ago, so that she could have inflated a soluble difference of view into a major criticism of a modest measure. That is characteristic of the way the hon. Lady proceeds in these debates. She proceeds by hypotheses, by "ifs" and "buts" and suggestions of horrors which may be in store.

That line of argument was colourfully taken up by the hon. Member for Oswestry (Mr. Biffen). He gave it a concrete form when he spoke about exotic methods of payment. He sought to involve me in the work done with some Byzantine tortuousness by the Pay Board —the creation of a Conservative Government—in seeking to analyse in advance how certain payments, which he described as exotic, would be treated.

I shall not deal with those hypothetical questions down the rural highways and by-ways which the Opposition would like me to follow. However, I do not believe that that creates the difficulty which the hon. Gentleman mentioned. I base my opinion on my experience of how these claims and notifications have been dealt with. The majority of the notifications received have raised no difficulty which has not been capable of being solved by means of a simple telephone call.

I am glad that it is so easy. In that case the hon. Gentleman will have no difficulty in disposing of my questions. The statutory instrument speaks of remuneration and of

"any benefit, facility or advantage, whether in money or otherwise."
Does that cover subsidised canteen facilities and subsidised travel arrangements?

The answers to those questions in general terms were set out in the Department of Employment Gazette in August. If there are difficulties in interpreting these general rules or the general answers which the Department has given to the questions most frequently posed, the answer is to telephone the Department of Employment to discuss the issue.

The hon. Lady widened the debate and no doubt expects answers to questions.

I shall answer those questions about which I hold responsibility. Detailed questions on the interpretation of specific pay settlements are clearly matters for my right hon. Friend the Secretary of State for Employment. I am informed by my right hon. Friend that there have been virtually no serious problems of interpretation in the two months since this policy was initiated. I know that it is good clean fun, and is often done in this House, to set up Aunt Sallies and to knock them down, especially when the House is rather thin, but I do not think that the hon. Lady will expect me to give an extended answer to such questions.

Will not the Minister go further than that? I am sure that he wishes to help the House. I assure him that the thinness of the attendance in the House bears no relation to the importance of the argument, as this debate will be widely read by those who have the responsibility for carrying out the terms of the statutory instrument, whatever they may think of it. I suggest that subsidised canteen facilities and subsidised travel arrangements are a widespread and legitimate practice in industry and commerce and that it is wholly reasonable for a Member of Parliament to ask such questions. It does not help to keep the temperature of the debate at a nice low level to be told that we can telephone the Department. Surely questions can be posed in the Chamber and ought to be answered not merely for my benefit but for the benefit of the wider public who read Hansard.

There is no mystery about it. The general principle is clear. These subsidiary payments—or exotic payments as the hon. Gentleman prefers to call them—are specifically referred to in Part 3 of the Price Commission's pro-forma. That they are generally to be counted against the £6 limit is clear.

Any answer beyond that must be related to the specific circumstances of the individual claim or the individual settlement. It would not be helpful to firms which are genuinely seeking an answer for me to go beyond enunciating that general principle. If they have a specific difficulty, let them bring it to the Department, which will seek to assist them, as it has already done in a number of cases.

The hon. Member for Gloucester has described these documents as obscure and burdensome. In so far as they are couched in legal language, I assent. Statutory instruments frequently are, but, as one of her hon. Friends said, other assistance has already been given. There was some criticism that two documents had been produced seeking to explain the statutory instruments in simple language. The Price Commission has produced its data sheet, a simple document which raises few difficulties of interpretation. I beg to differ from her if she thinks that there is any problem of interpretation of intention in these orders. I know that she enjoys throwing doubt on assertions when, perhaps, there is little doubt, but she failed tonight. The position is abundantly clear and simple and the mechanism whereby firms can resolve any doubts is clear and simple, unlike the procedure produced by the Conservatives when they were in Government, which involved the Pay Code and all the labyrinthine interpretations which had to be put on it. We have learned from experience and we are happy to learn from the experience of the Conservative Government on this.

The hon. Member for Pudsey (Mr. Shaw) made his usual thoughtful speech—in marked contradistinction to his Front Bench—and raised several matters that merit consideration. He asked how we should deal with the question of advice being given in various centres and whether that advice would be consistent The advice given stems from one central point, the Special Information Unit which was set up by the Department of Employment at the beginning of August. Most of the queries received indicate that the main essentials of the policy are well understood by people in industry. That is almost incontrovertible. There has been a noticeable decline in the number of questions coming to the Department of Employment about interpretation and, as my right hon. Friend said, we are approaching a season when more settlements are made.

The hon. Gentleman asked the most serious question that was asked in the debate—whether these measures will be effective and helpful in countering inflation. Whatever view one may take of the internal dialogue which goes on constantly on the Opposition benches about the ingredients of our inflation, few would deny that wage costs were contributing unacceptably to the level of inflation and that, in accepting a policy of wage restraint, the trade union movement is contributing most helpfully to tackling the nation's problems.

In reply to the second half of the question as to what is the impact of the Government's action on the profitability of industry, the effect of this Price Code amendment is neutral in so far as industry co-operates in holding the line on the wage limit. Industry will not suffer in seeking to make this policy effective, and there can be little doubt that what industry would welcome more than anything is the overcoming of the inflation which exercises us all.

Would the hon. Gentleman care to comment on the fact that in some industries the size of—dare I say it?—the entitlement is of such a scale that it constitutes an inflationary wage settlement? I think of the food manufacturing and distribution industry where it is about 20 per cent. or 25 per cent.

I take the hon. Gentleman's point that there are problems for the food industry if the limit is to be interpreted as an entitlement and not as a maximum, but, as I stressed earlier, it is a maximum and not an entitlement.

There is nothing in the Price Code amendment that imposes a new burden upon industry. That that is so is clear from the representations that we received after the consultative document was produced and from the nature of the debate, especially on the earlier Bill from which the order stems and which concentrated on the procedural aspects and not on the substantive questions. They concentrated on notification requirements and not on the possibility of the sanction being invoked. From what has been said in the debate it is clear that it is recognised that these sanctions are a shot in the locker which it is hoped it will not be necessary to pull.

From the experience of two months of this policy I can report that it has not been necessary to do so. I say that in full recognition that the policy has not yet come under full stress. If both sides of industry co-operate, as they have done to this date, in seeking to bring their interests within the greater interests of the country in countering inflation, we can with optimism look to the success of this policy.

I am glad that the House has had this debate and that we have had it so soon after the Summer Recess.

Question put and agreed to.


That the Counter-Inflation (Price Code) (Amendment) (No. 2) Order 1975 (S.I., 1975, No. 1293), a copy of which was laid before this House on 5th August, be approved.