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Food Subsidies

Volume 927: debated on Monday 7 March 1977

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10.59 p.m.

The Minister will not need reminding that I raised this subject of food subsidies on the Consolidated Fund Bill just 12 months ago. That was at 3 o'clock in the morning. The debate tonight is at a more civilised time. Nevertheless, the Minister may feel that we should not keep meeting like this, because one advantage of anniversaries is that they provide a yardstick—or perhaps the word is yearstick—by which to measure progress and to test the accuracy of min-

isterial predictions. In addition, it happens to be as close as we can get to the third anniversary of the Labour Government coming to office at the beginning of March 1974. We can therefore also consider the record in that more precise perspective.

In the debate last year, the Minister said, as a general background to our discussion:
"On the counter-inflation front, we are on course towards our target of reducing the rate of inflation to single figures by the end of the year."
At the end of December, the annual rate of inflation was 15·1 per cent. and was therefore missing the target of no more than 9 per cent. by 66 per cent. That must have been extremely disappointing for the Government. In January, the rate of inflation had increased to 16·6 per cent. and it is rising. The rate has increased in each of the last six months and will undoubtedly go higher. The wholesale prices index today shows a further increase of 1·25 per cent.—giving an annual increase in that index of 19·75 per cent.

Once again, we are considering the subvention for food subsidies against a background of generally rapidly rising prices. It is a matter of relief that they are not rising quite as fast as they have been in recent months, but they are rising none the less and it can be confidently predicted that they will go nearer 20 per cent. before they fall again towards the end of the year.

It must be a matter of regret that in three years, the cumulative effect of price rises, whether in food or generally, has been savage. By December, the cumulative rise in the Index of Retail Prices since the Government were returned to office was about 65·2 per cent. Now, at the third anniversary of the Government's election, it is the better part of 70 per cent. Food prices have been even worse. By mid-December, the rise in food prices was 74·5 per cent. and one can expect it to be nearly 80 per cent. now.

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

The hon. Gentleman has begun his speech by seeking to draw the picture very widely indeed. The debate is essentially quite narrow and I should like to answer any points he may have about the Supplementary Estimates. I hope that he will give me the opportunity to do that.

I have been speaking for only five minutes, having sat and listened to the previous debate for much longer. I hope that I shall be allowed to develop my arguments at the normal pace and with the sufficient care and cogency that this important subject demands. I am referring to the Minister's own remarks in an identical speech last year and I hope that I am meeting his wishes and those of the Chair in making these points.

On the narrower question, the Minister said last year in justification of food subsidies:
"Food subsidies have played an essential role in the Government's social policies, but because of our successes on other fronts we can now begin to give them a less important part to play."
He also said:
"The present situation is very different from which we faced when taking office two years ago. Prices were then rising sharply and causing considerable concern to the poorer families in the community, who necessarily spend a large proportion of their income on food and other basic essentials."—[Official Report, 19th March 1976; Vol. 907, c. 1768, 1770, 1767–8.]
Having paid tribute to the contribution of wage restraint to the easing of the frightening high rates of inflation, it is necessary to have very sharp eyesight to spot any other successes to which the Government can point in the past year. Considering the effect on poorer families, one wonders whether the Minister is still prepared to argue the same case. After all, last year—presumably the same will be true this year—he argued the case for the phasing out of food subsidies. My concern is that he may not be sufficiently firm or resolute in that purpose. Indeed, the occasion for this debate is an increase in the Vote for those subsidies.

Admittedly, the increase is of the least significance—£1,000—which against a background of £400 million of food subsidies is so minute as to be almost invisible. Neverthless, on past performance, there are grounds for believing that the Government may not keep to their course.

In July 1975, having embarked on phasing out these subsidies, the Govern- ment, under trade union pressure, found it necessary to add £70 million to the subsidy provision. Similarly, referring to subsidies last year, I dealt with the school meals programme, for which an increase of 5p per meal had been proposed for the following September.

Order. Perhaps I may help the hon. Gentleman. This debate relates only to milk, bread, flour and household flour and the reason for the increases set out in Class III, Vote 5. As long as the hon. Member keeps to that subject we shall both be happy.

Having lived through the previous debate, Mr. Speaker, I now understand better the term "disorderly house". I hope that, having referred to arguments on this subject in last year's debate on the same specific issue of an increase in food subsidies, and having kept to the same general argument, I shall not incur your disfavour, Mr. Speaker.

I shall certainly try to relate my remarks closely to food subsidies. If I stray from the six basic foods, it will be by way of illustration, rather than in an attempt to diverge into a completely new argument. I shall of course refer to the fact that the Government have phased out two of their subsidies, on butter and tea, and have substantially reduced others. That is why I want to be sure that they will continue in this progress—and I do regard it as progress.

Although I may already have suggested a rather more simple attitude—that this was not the best time to phase out food subsidies and therefore increase prices—I intend to make a different argument. That is that these subsidies should have been phased out earlier, and certainly much earlier than is at present proposed. It is not merely the £1,000 additional provision but all the £110 million remaining in the subsidy programme which is called into question by these changes.

The effect at this time on the poorer family of phasing out food subsidies is likely to be more serious than the Minister suggested 12 months ago. If he has seen the report in The Guardian of 1st March to the effect that the cost of a shopping basket has risen by 10 per cent. in the past three months, he must realise that in that shopping basket for basic foods, which is designed to monitor the spending of a low-income couple with two children on a range of basic foods, are listed the very items with which we are concerned, namely, bread, milk, cheese and flour.

My calculation is that on present subsidy rates under the proposals before us tonight in these Supplementary Estimates there will be, if the subsidies are to be phased out overnight, which is not the proposal, an increase of 21p for that typical low-income family.

I am sorry. I hope that the hon. Gentleman understands how reluctant I am to interrupt him, but we are discussing only the reason for the increases set out in Class III, Vote 5—milk, bread, flour and household flour. Decreases are not relevant, because the Government are not seeking permission for them. The question is not food subsidies in general but the reason for the increases in the price of the items I have mentioned.

It would be a matter of considerable regret to me if I were to forfeit your good will, Mr. Speaker. However, I put it to you that it makes it very difficult if one is allowed to discuss only the precise form of the proposals for which we are asked to vote supplementary provision. I think you would accept it as a reasonable statement that the increase of £1,000 is not just symbolic. It is the net effect of changes in provision for subsidies on these six items. Some will have risen and some will have decreased. In these terms I hope that I can discuss the whole of the Government's food policy. I submit that one must do that if this matter is to be taken in the context of the Government's subsidy policy in general.

This is a point on which I think I can enlighten the hon. Gentle. man. The opportunity for that debate arises on the main Estimates, not on the ones we are discussing now. The House gets its opportunity to discuss those food subsidies, but not tonight—not in general, at any rate.

Thank you, Mr. Speaker I shall endeavour, having received that guidance, to observe it throughout the rest of my speech. I shall, of course, have to give more precise attention to the changes which are proposed under this head.

An increase is proposed in respect of milk. At present the subsidy on milk is 1 p a pint. On bread flour there is an increase of £14 million, leaving the subsidy at 1p a large loaf. On household flour there is an increase of £2 million. Again, there has been a lower reduction in subsidy. The current subsidy to the individual is about 1p on a pound of household flour.

These increases are offset by decreases which are set out. The subsidies on butter and tea were abolished at the end of last year. The subsidy on cheese has been reduced by 4p a pound from 7p to 3p.

I would dispute why these changes have not been greater than they are and why, instead of an increase of £1,000, we are not being asked to take account of a much more substantial saving. These amounts, in terms of current demands on the household budget, are relatively minor by comparison with the much larger forces at work in the economy.

I ask the Minister, in commenting on the debate I have initiated on the rather narrow basis of these Supplementary Estimates, to indicate to the House whether his policy for subsidies as previous announced is confirmed or denied by this provision, May we know whether the Government remain on course to phase out subsidies entirely within a limited time, and will the Minister put a terminal date to the subsidy programme? In particular, does he intend to follow the precept of not introducing in the future such subsidies as are proposed here?

If it is not out of order, I wish to make the further point that, although at a time of rising food prices the most commonly expected attitude might be a wish to retain some subsidies, it is my understanding that the Government intend to phase them out, and I wish them to do so. The Preamble to the Consolidated Fund (No. 2) Bill begins:

"We, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom in Parliament assembled, towards making good the supply which we have cheerfully granted to Your Majesty".
Some of us have granted these sums of money more cheerfully than have others, because they run into millions of pounds. Although I must endeavour to keep closely to the specific £1,000, it will be within the knowledge of the House that more than £1,100 million has been spent on subsidies in 1975–76 alone. Although this specific small item may not have any impact on the world at large, that larger sum certainly has. It has increased the borrowing requirement. Second, it has adversely affected, though to a lesser extent, the balance of trade. Both of those effects have resulted in the depreciation of the pound and therefore in higher prices, which in turn have led, no doubt, to higher costs in the food subsidy programme before us.

For those reasons, I consider further increases in the food subsidy programme to be not in the public interest. I hope that we can be assured that the Government are firm of purpose, that there will be no change under union pressure, from Mr. Jack Jones or anyone else, and that we can expect to see people paying the proper price for their food and the pound restored to its proper value as a result of bringing our expenditure within our means.

When we return to the subject on another occasion, perhaps with wider terms of reference, we may explore again the matter which today has proved not only embarrassing to the Minister but a cause of disquiet to the Chair, which was something which I did not wish to cause by raising it in the first place. With those comments, I thank you, Mr. Speaker, for allowing me to develop the argument so far as I could, and look forward to the Minister's response.

11.19 p.m.

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

If the hon. Member for Romford (Mr. Neubert) felt that I was in any way embarrassed by his remarks during the first part of his speech, remarks which, on his own admission, were not directed to the increase of £1,000 in the Supplementary Estimate, I assure him that it was simply that I felt that I should have some difficulty in replying to him in so extensive a fashion as that in which he opened the debate.

The hon. Gentleman took the opportunity to rehearse again the Opposition's familiar criticisms of food subsidies, and he sought to build upon the slim evidence of the additional £1,000 of expenditure which we seek some indication of infirmity of purpose in moving towards the already clearly announced objectives. I assure the hon. Gentleman that there is no change of policy involved in the publication of this Supplementary Estimate and that we are proceeding along lines which are broadly those adumbrated in earlier Estimates.

The principal reason for publication of this Supplementary Estimate is to enable the House to be fully aware of how expenditure is proceeding on food subsidies. Had the figure been £1,000 less than that published, there would not have been the opportunity for the hon. Gentleman to rehease tonight his familiar objections to the programme, so I have no doubt that to that extent he welcomes the occasion. Lest the hon. Gentleman has misled, although perhaps not by deliberate intent, anyone into thinking that the expenditure on food subsidies will exceed the original estimate for this financial year, I reassure him that that will not be the case.

As the year has progressed, events have required adjustments in our global estimates. The milk subsidy has been increased as a result of a number of factors, including higher production, lower consumption of liquid milk, weakness of the market for manufacturing milk, and measures to help farmers on account of last summer's drought. Expenditure on the bread and household flour subsidies is also higher in consequence of our decision to slow down the planned rate of phasing out.

The estimate of the cost of the milk subsidy was raised by £19,602,000, the bread subsidy by £14 million and the household flour subsidy by £2 million, a total of £35,602,000. Our latest outtum forecast, however, indicates that extra expenditure will be rather less than this figure.

On the other hand, we have abolished the butter and tea subsidies and accelerated the rundown of the cheese subsidy. Our latest forecasts point to a saving of about £40 million compared with the original estimate for these three subsidies. The net result is that our total expenditure will probably be some £6 million to £7 million less than that indicated by the original estimate. Thus we have expenditure firmly under control, as we always have had.

I hope that these facts will indicate clearly to the hon. Gentleman the force of what I began by saying—that we have not departed from our expressed intention in this matter. We accept that the current rate of inflation is disturbingly high. It is, however, substantially lower than the peak level of 1975, when subsidies proved their real worth, and we must bear in mind—in his discursive introduction the hon. Gentleman did not seem to notice this—the extent to which we have made progress in social security benefits since taking office.

The food subsidies must now give way to more effective forms of protection for the poor, such as social security and price controls. Public expenditure has to be restrained, and food subsidies can make a valuable contribution to savings without aggravating the unemployment situation. In the long term, those on low incomes are best safeguarded by a strong economy and by minimal rates of inflation. That is our aim, and we shall achieve it. Indeed, it must be emphasised that we always saw food subsidies as essentially a bridging operation to the point when it would be possible to bring forward adequate social measures which would help to protect the most exposed in our community, and that we have done.

The hon. Gentleman has served a function in enabling me to reassure him and the Conservative Party that the Supplementary Estimate amounts to no more than an opportunity for me to express to the House in the clearest way how expenditure on food subsidies has gone and is going and to relieve him of any anxiety that our figurings had got wildly out of line with our predictions. As I have said, expenditure on food subsidies is and remains firmly under control.