Orders of the Day — Prices and Profits

– in the House of Commons at 12:00 am on 27th July 1951.

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Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Sparks.]

12.42 p.m.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

It is appropriate that the Adjournment subject which we are discussing this afternoon should follow the important economic statement made yesterday by the Chancellor of the Exchequer and the debate upon that statement.

Yesterday we had from the Government Front Bench, both in my right hon. Friend's statement and in the supporting speeches, a recognition of the fact that the policy outlined only a few months ago in the Budget, and also the price control policy pursued by the Board of Trade in recent months, has been quite inadequate to check the threat of serious inflation and to protect the consumer against a drastic rise in the prices of the essentials of life. It was, therefore, a recognition of the need for some action to be taken, however belatedly, to limit profits and to restore controls which had been unwisely abandoned. I welcome the conversion of the Government to certain sections of "One Way Only."

I agree that the Government cannot be blamed for the rise in world prices, and I agree with the statement of the Chancellor yesterday about the tremendous problem with which this faces us and which any Government would have to tackle. What we can blame the Government for is the failure to have tackled the effects of those world price rises in a good Socialist way. One would not expect hon. Gentlemen opposite to adopt those policies, but we had a right to expect it from our own Government. I regret that we have allowed so many months to pass in which the optimism of the Budget has worked itself out to a situation in which today we realise that something drastic has to be done.

The consequences of world re-armament which have led to the rise in raw material prices to such an alarming extent—prices which influence us very much because we are so dependent upon imported raw materials—have, unfortunately, owing to the timidity of Government policy, been allowed to reflect themselves in. at one and the same time, a quite unjustified rise in profits on the very goods on which the ordinary wage earner in this country is most dependent, and excessive rises in profits upon the essentials of life through failure to restore price and production controls which alone could have prevented this.

The reason why we have today a second serious inflationary danger—that arising from wage demands—comes from this fact, that the wage earner sees the prices of clothing, of shoes, of household textiles thinks he and his wife and his family cannot by any amount of sacrifice entirely do without—increasing. He sees these tremendous increases not only in the prices but also in the profits made out of their manufacture.

That has induced such a patriotic and understanding person as Mr. Andrew Naesmith, on behalf of the cotton unions, to say that cotton operatives cannot be expected to sit back and not ask for a wage increase when they know that not only are the essentials of life rising in price, but the manufacturers who make them and who pay their wages are participating in enormous dividends.

I regret that the Chancellor, last April, did not foresee what would inevitably happen: that the rise in prices, if allowed to get out of control, would have the effect not of mopping up inflationary pressure, but of increasing it. My right hon. Friend said yesterday that he had been falsely accused of encouraging the rise in prices. I do not accuse him of that, but I accuse him of this: that he belittled the policy of subsidies and gave the impression of accepting the fact that some price increases would have to be passed on to the consumer. It was the complacency of the Budget which gave the "all clear" to two sections of the community to do two things which were detrimental to the national interest.

First, the Chancellor gave an "all clear" to the consumer to go in and buy—"Buy now, because prices will rise; we cannot hold them, we cannot do anything about them." And the consumer did go in and buy and so added to the spiral. Second, the Budget, by rejecting at that time a policy of statutory dividend limitation, now to be adopted in the autumn when the horse has bolted miles away from the stable, gave an "all clear" to firms to go ahead with those dividend increases which have caused such profound resentment among wage earners who are struggling against a serious cost of living problem.

It was suggested by the President of the Board of Trade at Question time yesterday, and again by the Chancellor, that profits were not all that unreasonable and that, in so far as they had increased, the profits were due to the expansion of our export drive. That is asking the House to accept a naive interpretation of the situation which is quite out of keeping with the facts. Far from the export drive having kept up to expectations, we are, unfortunately, aware that our exports are below the level hoped for in the Economic Survey. Exports have fallen behind at a time when home consumption has exceeded all the calculations of the Chancellor.

The Chancellor is alarmed because there has been a tremendous increase in sales on the home front, and it is on those sales that dividend and profit increases have been made; and they have been made because there was a failure by the Board of Trade to restore the controls which alone would have prevented them. Let us look at the extent of this picture, because we cannot expect any holding back by operatives when this sort of fact comes to their attention.

They cannot be expected to hold back on wage demands when they know that the profit for the past year of Courtaulds, for instance, more than doubled to £17.3 million, with net profits almost doubled at £8.2 million; when the same picture is reflected throughout the whole range of textile firms; when, as the "Financial Times" shows in the published trading results of textile firms, chairman after chairman have at their annual general meetings have announced profits for the past year that were an all-time record in the history of their firms, and in a year in which we are talking about sacrifices for the defence of the community.

Take, for example, the Bury Felt Manufacturing Co., Ltd., and the statement reported to have been made at their recent 46th Annual General Meeting: The gross trading profit of £293,968 is again a satisfactory one and is in excess of any previous annual profit earned by your company. Another firm is Brocklehurst-Whiston Amalgamated, Ltd., who are silk, nylon and rayon throwsters, spinners, manufacturers, dyers, printers, finishers, and merchants. This firm's chairman has announced that the profits they made in the past year were the highest since the amalgamation was formed in 1929. There was a report the other day in the "Financial Times" headed: More Good Textile Figures.The steady rise in textile shares continues to be justified by the appearance of excellent results from one after another of the leading firms. In very many cases the chairmen, recalling the lean years which shareholders passed through in the 1930's, have taken pleasure in celebrating their companies' present prosperity with a rise in the dividend. I interpose here to say—and no one will know this better than my hon. Friend the Parliamentary Secretary to the Board of Trade—that it was not only the shareholders who went through lean years in the textile industries in the 1930's. The wage earners went through very lean years. The cotton weavers in my constituency went through years which were so lean that they were paper thin. But are they to be allowed now to make up for those lean years? On the contrary, they are being asked to make sacrifices.

The "Financial Times" continues: This week's contribution comes from British Cotton and Wool Dyers ('Slubbers') who is raising the dividend from 6⅔ to 8⅓ per cent., the best figure since 1929. The company has so far managed to carry through an extensive re-equipment programme and at the same time strengthen its finances. Shareholders must be hoping that once the capital commitments are out of the way and the benefits begin to accrue the Board will seek to break through the 1929 dividend figure, for holders have certainly had to exercise their patience in the past.Another good textile result is announced by John Bright and Brothers, but since, at the time"—

Photo of Mr James Milner Mr James Milner , Leeds South East

Order. I am sorry to interrupt the hon. Lady, but she appears to be dealing with the question of profits. Any matter of profits would, of course, have to be the subject of legislation. It is not permissible to raise questions of legislation on an Adjournment debate.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

With respect, Mr. Deputy-Speaker, if I could be allowed to develop my argument, no legislation is involved in this. I am discussing the effects on profits of failures to restore price controls, and the whole case of my argument is that if the Board of Trade had not relaxed their price controls throughout the whole field of textile production and clothing manufacture, these record profits could not have been made. I think, therefore, that the matter is an administrative one. I am quoting these facts to show the urgency of the need for administrative tightening up by the Board of Trade.

If I may continue, Mr. Deputy-Speaker the report goes on to say: Another good textile result is announced by John Bright and Brothers, but since, at the time of the offer for sale last November, the dividend forecast was of a mere maintenance of the 20 per cent. rate, there were no real grounds for dividend hopes. The profits, however, have made an impressive showing at £907,900, against last year's £651,000, a rise of 40 per cent., though the steep rise in the taxation figure brings the rate of improvement in net profit down to under 20 per cent.To some extent dependent on textile prosperity is B. S. & W. Whiteley, which has the good fortune to be half in the paper industry and, through the manufacture of press boards, half in the textile industry. The result is a group profit of £220,000, against £150,000, and a 100 per cent. dividend against 80 per cent. That is a fairly good resume of the sort of picture that the cotton worker and other textile workers get, and which, not unnaturally, causes them a good deal of resentment. When we come to examine why these profits have been made, I think that our resentment should be even greater. If it were true that this was due to some tremendous new strain for efficiency or exports, we might say that there should be this incentive for this additional enterprise.

But the firms themselves do not even claim that. As chairman's speech after chairman's speech points out, what firms have enjoyed in the past year has really been a windfall as a result of a rise in prices which has enabled them to mark up stocks and has enabled them, thanks to the laxity of Board of Trade control, to pass on to the consumer that increased mark-up in the value of their stocks.

My case this afternoon is that the consumer has carried, and is carrying, the burden of those increased dividends in prices that ought not to have been increased to the extent that they have been. Let me quote what was said by the Chairman of John C. Horsfall & Sons, Ltd.. spinners. woolcombers and dyers, when reporting to his annual general meeting about the exceptional results of the firm. After showing that the profits have been highly satisfactory and that a dividend on ordinary share capital of 30 per cent. has been advocated, the chairman said: The exceptional result has been caused by many reasons. Sufficient wool and tops to make over 600,000 lb. of yarn, which was unsold at the beginning of the year, has been sold during the year, and realised exceptional profits. One-quarter of this was sold in tops during October at a profit of £55,000 on cost. The balance was sold during the year in yarn, in a very rapidly rising market, producing fantastic profits. If the chairman of a textile company tells the world that the re-armament difficulties of his country have put a windfall in his firm's lap and have produced what he calls "fantastic profits," I think the time has come for us to look not only at dividend limitation, which my right hon. Friend the Chancellor belatedly announced yesterday, but at the administrative structure of our price and production controls to see whether we are protecting the consumer from being fleeced in this way.

I know that the Parliamentary Secretary has been concerning himself with this problem for a great time. He has made speeches, and I have read a lot of them which have been reported widely in the textile Press. I have with me an extract from "Women's Wear News" in which it is said that the Government have called on the trade to "Play the Game" and that: There have, it appears, been a number of cases of overcharging, and the Government is saying, in effect, 'Don't do it or it will be the worse for you.' A few days ago makers of Utility cotton cloths were told Play the Game and don't charge too much for your goods—or the Board of Trade may re-introduce price and production control.' That was in December. We are now in August. It was true that the Chancellor announced yesterday that the Board of Trade is now going to do this, but for goodness' sake why the delay? Why have we sat back not only between December, and August but why, in August do we hear that the Board of Trade is only to consider re-introducing this more meticulous price control and possibly look again at the cost-plus control which it had abandoned?

The Chancellor said yesterday that the matter had to be discussed with the trade. Why has it still to be discussed with the trade after all this time? What is the meaning of that very vague phrase that "in appropriate cases" this control will be re-introduced? I wish to ask the Parliamentary Secretary, who so far as exhortation can go has done a very good job in asking the textile trade to play the game—and the game has not been played—whether we can this afternoon hope to hear something precise, something which will dot the i's and cross the t's of that vague statement of the Chancellor yesterday about the re-introduction of these controls.

How has the game not been played? In what way has the consumer been rooked—there is no other word for it? It has been done by a very simple device, of which the Board of Trade has been long aware—by the refusal of manufacturers to quote firm prices for forward delivery to the retailer. When the retailer has placed an order with a manufacturer at a certain price he has been faced with the reply, "We will not accept this order at a firm price. All we will accept it at is at the price ruling at the date of delivery." In other words, the manufacturer has claimed for himself, although he is producing out of current stock bought at current prices, the right to mark up the price when the time of delivery comes, to the new ceiling which may be permitted.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I am listening with great interest to the hon. Lady, and I have to disclose an interest. Has she evidence to support her statement that manufacturers have refused to deliver at the agreed price?

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

I shall be glad to provide it. I refer to a statement made by Mr. Hugh Fraser, President of the Scottish Retail Drapers' Association, at a meeting of its Glasgow members. I have a report of his speech from the "Drapers' Record" of 12th May, of which I shall be glad to let the hon. Member have a copy.

I should like to read the following extract from this report: Suggestion that deliveries of utility goods from manufacturers were deliberately deferred until after ceiling prices had been raised and that official action should be taken to stop the practice was made by Mr. Hugh Fraser. …Mr. Fraser said that some drapers had been complaining of the 'insidious and increasing use by certain manufacturers and suppliers' of the clause 'price ruling at date of delivery' on contract notes for U goods sold by them for delivery at a specified future date.The Board of Trade … was asking trade organisations for details of this practice.The experience of some traders was that where goods were scarce it was difficult to buy at firm prices unless for immediate delivery. Was it merely a coincidence that late deliveries were often received immediately after ceiling prices had been raised.The manifold difficulties of producers were obvious, yet they could not but conclude that deferred deliveries of that nature had a serious effect on continuity of supplies and were also instrumental in forcing up retail prices. It could be assumed that prudent manufacturers, like Governments, had been able to stockpile reasonable quantities of raw and finished materials as a necessary precaution to enable them to meet the loss which would come when prices fell. If there were no longer the possibility of higher ceiling prices it was reasonable to expect that some of that reserve stock would gradually reach the market and cause at least a temporary recession in prices.The practice was morally wrong and contrary to all accepted standards of business probity. It was the duty of the Board of Trade to give an immediate and unequivocal ruling on such a vitally important matter. … That is an authority which I am sure the hon. Member for Louth (Mr. Osborne) will accept as reliable. But there is lots of similar evidence about this matter. The "Drapers' Record" had a leading article on it on 19th May, as follows: Further complaints are voiced against the practice of some manufacturers who, after accepting orders at specified prices, invoice at appreciably higher amounts when delivery is made. On several occasions recently we have referred to the matter, yet there is no sign of its diminution. Indeed, to judge by reports, the procedure mentioned seems to be increasing.Most of the cases relate to utility lines which are not in plentiful supply. While some producers stamp the contract that the price payable will be that ruling at date of delivery, others do not even bother to do this; they quote firm, and then uplift when the parcel is dispatched, relying on the buyer's keenness to get the goods. I could, if I had time, give many other examples where evidence of this practice is given, but surely the hon. Member is aware that in the case of certain goods a very close trade association control operates, and it is an instruction to members of those associations that they shall not do otherwise than sell at the price ruling at the date of delivery. There are two important fields of great importance to the housewife—carpets and linoleum—where price rings operate through the trade associations, and where membership of the association carries with it the obligation never to sell below maximum prices and always to interpret the maximum price as being the one ruling at the date of delivery. A member of that association, a manufacturer who wants to sell to the retailer at below maximum prices, is forbidden to do so by the conditions of the association to which he belongs.

It is time we did something about this if we are really in earnest about the cost of living problem. It is time we prevented the consumer being exploited by trade rings which will make it very hard for any firm that tries to give the consumer the benefit of falling prices. The result is that carpet profits, like every other profit, show enormous increases. I have here a list of carpet companies whose profits without exception show a marked increase between 1949 and 1950. In some cases the profit is almost double.

How can we expect the ordinary consumers to believe that everything possible is being done to protect their standard of life while we allow this to continue? I wish to ask the Parliamentary Secretary what he can tell us about the Board of Trade's determination to handle this situation. The trouble is that before Korea, when our production had increased and we seemed to be getting to something like a buyer's market again, many of the controls of the Board of Trade were relaxed.

The cost-plus controls, which had already been taken off the spinners in 1947, were taken off other stages of manufacture, and we were left merely with a cash maximum price control for all utility goods, other than gloves, which were controlled by the cost-plus method at each stage: and furs and shoes, which were controlled by maximum retail prices. The interesting point, which has been mentioned more than once in this House, is that shoes are an outstanding example of utility goods which are frequently sold below the maximum price.

One of the reasons may well be that this form of control gives the retailer, who is feeling pressure from the consumer, a chance to fight the manufacturer. But as long as we have only a manufacturer's ceiling price, then the manufacturer, in the period of scarcity of goods which has resulted since Korea. will always be in position to hold the retailer to ransom and, through the retailer, the consumer.

The time has come when we must restore these controls in every case in which they were operated. They should have been restored a long time ago. The situation changed dramatically after the start of the Korean war. The re-armament which resulted turned that potential buyers' market into very much of a sellers' market again.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

I should like to understand what the hon. Lady wants. For example, she said that in the shoe trade the maximum price allows a flexibility of which she approves. Shortly before that, she said something entirely different. I am sure that the Parliamentary Secretary will deal very easily with the argument put forward, but we should be very much better off if she would tell us what she wants.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

I am saying that certain forms of price control can prove worse than no price control at all. At present we have got maximum price control at the manufacturing stage and the retailer adds his margin on top of that. This form of maximum price control is in many cases an inflated maximum. It is a maximum which operates in a period of scarcity, so that there is no check from the demand side, and the retailer is glad to take anything at whatever price the manufacturer insists on. We have not got, at the same time, the second check on the manufacturer of the cost-plus control.

These on-cost controls operated before the war in Korea and they saved us from these kind of fantastic profits. These exceptional profits have only been made since this form of control was abandoned. They have been made because there has been a sellers' market in which maximums have been fixed in a way which has allowed certain sections of the trade to exploit other sections of the trade without a proper control. As a result, this has forced up retail prices higher than was necessary.

Therefore, what I am asking for is the restoration of the position which was abandoned by the Board of Trade, no doubt for good reasons at that time. I maintain that the situation that we hoped was giving us a buyers' market has not developed and that it cannot develop as long as we have shortages forced upon us by re-armament. In that situation the only hope of preventing inflated prices is to restore these controls.

I ask my hon. Friend if he will give us some detailed information to fill out the general references which the Chancellor made yesterday to the restoration of price controls. I think it is true that we have passed the peak of many raw materials prices which were the result of the stockpiling inflationary move. But I think that we should be very unwise if we assumed that the pendulum would swing to any extent in the other direction. The stockpiling boom may be over, but the re-armament inflation is only just beginning.

Military requirements in textiles are only just beginning to be felt. Although it may be true that the world market price of wool has dropped spectacularly, following the check in the American stockpiling, we know that, in the coming three years, there will be an enormous demand for wool in the military sphere. That demand is only just beginning to be felt.

We must face the fact that we shall have uncomfortably high prices. In that situation, I would conclude on this note. Although we can do something by the restoration of these price controls, I believe that the situation will be sufficiently serious for it to be our duty to restore the subsidies on textiles, which were withdrawn, and to couple that with the rationing of the subsidised goods. The Chancellor of the Exchequer dismissed the subsidy argument yesterday very lightly. He told us that to have kept the Index of Retail Prices steady since 1950 would have cost £600 million to £700 million. He did not tell us on what basis of consumption that figure was calculated. There has been a buying boom in the last few months.

Nobody suggests that, as a country, we can afford to subsidise clothing and utility textiles to the full quantity that everybody would like to buy. But I think that my right hon. Friend would have a very different figure to give to the House if he made a careful calculation of what it would cost to subsidise a minimum of essentials of utility clothing, household goods and shoes which would meet the requirements of our citizens. We should be extremely foolish if we thought that, with a re-armament programme of this level, we could get away from a very serious cost of living headache in the coming years.

That being so, I believe that we ought to make a much more bold attempt to see that every family has its requirements of food and clothing, just as we try to provide shelter, necessary for a reasonably healthy and happy life. I ask the Board of Trade to bear that in mind but, above all, I hope that my hon. Friend will give us some detailed, concrete and encouraging news about the intentions of the Board of Trade to deal with these inflated profits.

1.18 p.m.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I should like to say, first, that I have a great deal of sympathy with the plea of the hon. Lady the Member for Blackburn, East (Mrs. Castle). Nothing causes more anxiety in this country than the high cost of living, except perhaps the fear of war. The fear of still higher costs of living presses on every family. It presses most of all on those who can least afford to meet the higher costs. Therefore, I sincerely sympathise with her plea.

I should like to know how we are to produce the conditions that the hon. Lady wants. In one statement the hon. Lady talked about the cost-plus system being reintroduced. I beg her to disabuse her mind of the value of that system. During the war in all trades that system was regarded as being almost the worst that had been invented. It led to inefficiency and to waste, and it caused men of all trades not to care at all, for, after all, the taxpayer paid.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

If that system was combined with maximum price control, it would meet the objections which the hon. Gentleman is making.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

To a degree, yes. But, the cost system is only a very general system. I beg of her to look at that suggestion again. I speak as one who has a little interest in the production of utility clothing. I suggest that she will not get down prices greatly by re-imposing more restrictions. More regulations will not get down our costs.

While I agree with what the hon. Lady desires to achieve, I am sure that she is barking up the wrong tree. The hon. Lady said that the textile people, especially the workers in Lancashire, found that they could not purchase the very goods which they were making because they were too dear, and yet, at the same time, they were reading in the newspapers of the enormous profits made as the result of their own labour and were irritated and complained about it. The hon. Lady went on to say that these increased dividends caused them to feel that they were not getting a square deal, and that, if these profits were not paid, the burden of the higher cost of living would be more easily borne.

I think that is the crux of her case, and with it I have a good deal of sympathy, but I would point out to her that, when the dividend freeze was imposed at the request of Sir Stafford Cripps three years ago, for the first three years between 90 and 95 per cent. of the companies who were asked to agree to the freeze honourably kept to their word, and there were no dividend increases. The cases the hon. Lady cited were exceptions.

Furthermore, and this is the point I want to put to her, those companies which played the game by the Government and did as the Chancellor had asked them to do, in the interests of the country and in order to lower costs, are now to suffer under the latest suggestion which was made by the Chancellor yesterday. The companies which did not keep their dividends down can now get away with a higher payment, whereas those who played the game by the Chancellor are penalised because of their patriotic action. As a matter of fact, it would seem that under the Chancellor's new proposals regarding dividends, it does not pay to do as the Chancellor asked and it scarcely pays to be honest.

Photo of Mr Michael Foot Mr Michael Foot , Plymouth, Devonport

Does not the hon. Gentleman think that dividend limitation should have been introduced at the beginning?

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

If we go back far enough, we shall get back to the Garden of Eden.

Photo of Mr Marcus Lipton Mr Marcus Lipton , Lambeth Brixton

But there were no coupons required there.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

The hon. Lady kept her argument to the texile industry, and she talked about high profits being made because of the rise in the price of raw materials. May I remind her and the House that the industry is now facing that problem in reverse, and I am sure the Minister will be informed of this.

If we take a typical botany yarn like the 2/28 before the war it cost about 3s. per lb. Before devaluation, the price was 10s. per lb., but, just after devaluation, the same yarn rose to 15s. per lb. as the direct result of devaluation. Within a period of months, due, I agree, to the Korean developments, the price of that yarn rose as high as 34s. 6d. per lb, but today it is down to 19s. 6d., and many of the manufacturers who are having to produce utility goods are faced with this problem.

They have, on commitments coming through the trade, yarn purchased at prices from 34s. 6d. downwards, and today's price is about 19s., and it may well be that in a few weeks' time it will be very much lower. Their problem is how they are going to face these losses, which are due to the fact that they have to purchase many months ahead in order to get their yarn supplies. The profits made by most companies—I am not talking about the exceptions—are put to raw material reserves, and all these reserves will be wiped out as the price of raw materials comes down.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

It is quite true that this problem has to be faced, and it is referred to in many of these statements, which point out that this reserve provision has had to be made. But these increases in dividends which I have quoted are net, after all these adjustments have been made.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I agree that these dividends are calculated after the allocations to reserve have been made. That is quite true, but my point is that, even today, over three-quarters of the public companies of this country have maintained the dividend freeze which Sir Stafford Cripps asked them to accept. While I readily recognise the extraordinarily good work which many of the leading trade unionists have done in trying to keep down wage demands, it is only fair to say that, as between one side and the other, the freeze of dividends has been more successful than the freeze on wages. There is no denying that at all.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

I have here some 30 or so more instances of increased dividends which I could have quoted.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

Out of how many companies? The hon. Lady may have another dozen which she could produce, but how many companies are engaged in the industry? Does she know that? There are many thousands, and the bulk of them—and I speak with some knowledge of this industry—have honourably kept to the dividend freeze which they were asked to accept.

I come back to the central argument of the hon. Lady, who argued that the high prices are largely or materially due to high costs.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

I say that high profits show that these prices are higher than they need to be.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

Do I take it that, if the high profits had not been made, the hon. Lady accepts that prices would still be as high as they are today, and that there is no correlation at all between the size of profits and the price of the product?

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

I say that the size of the profits is a reflection of unnecessarily high prices. Of course, in addition high profits have an indirect effect on prices, because they lead to a impression of a lot of money being available in industry, and higher wage demands result.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I take it that the hon. Lady is not complaining that high prices are due to high profits, but that high profits are a kind of extraneous result. I would ask her, if that be her point of view, how she equates that in the case of the products of the nationalised industries. The one thing that bears on the consumer as much as, if not more than, anything else, is the high cost of coal, its poor quality and its scarcity in supply. I think she would agree with that. There is no profit element in the production of coal today.

Photo of Mr William Ross Mr William Ross , Kilmarnock

Oh, yes, there is; there is the interest on the compensation stock.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

The hon. Gentleman is now taking the Communist attitude in talking about the interest on compensation stock. If he will get up and say that his view is that the industry should have been confiscated, I should like to hear it.

Photo of Mr William Ross Mr William Ross , Kilmarnock

I am not prepared to say that, but I do think that it would be a good idea to apply a little dividend limitation in that respect, too.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

Again, it depends on how little and how far. The hon. Gentleman is saying what many of his hon. Friends are saying—that no compensation should have been given at all.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

The hon. Gentleman seems to suggest that the owners of the industries which have been nationalised should not have been compensated, but that their industries should have been taken over.

I understand that the hon. Lady is connecting high profits with high prices; if not, I do not see the analogy at all. I have read the pamphlet "One Way Only," and I am saying that this is the cry that we on this side are going to have to meet at the General Election, because we are here being given a preview of the election manifesto.

The appeal will be made to the electorate on the basis that prices are high because profits are high, and that, if we could only cut down profits, prices would fall. That is the inference which will be suggested to the electors. I think the hon. Lady will agree that that is the correct inference. Why cannot this be applied to coal, gas, the railways, and, above all, to coke? The basic trouble is largely the high cost of fuel which comes from the nationalised industries. If we could get back to cheaper motive power our costs of production would come down very considerably.

On more than one occasion the hon. Lady has demanded that there should be some protection for the consumer against being fleeced. On others, she has talked about the consumer being rooked. I think it is fair to say that the consumer feels that he is being fleeced over the matter of coal. The hon. Lady should see that the industries controlled by her own party are put right before being so certain that she could put right other industries over which at the moment she has not so much direct control.

The hon. Lady referred to our exports and to how they affected the cost of production. In the trade with which I am associated—the hosiery trade—the Minister is well aware that before the war our exports were less than £1 million a year. Today they are somewhere between £21 million and £25 million a year, and we are being exhorted to increase them because unless we do we shall be in Queer Street.

A few days ago I received a letter from a director of one of the largest merchandising houses in the world which has a turnover of some hundreds of million pounds a year. The writer of the letter lives in America and is a man who came from a Devonshire family and who is a great friend of this country. I will read the letter to the House because I think the Minister should be aware of the angle from which it is written, and because it may correct some of the ideas which the hon. Lady has with regard to the ease with which we are selling our exports abroad. The letter is dated 11th July, and, if the Parliamentary Secretary wishes, I will let him have it after the debate. It says with regard to the American market: Day by day the evidence piles up that the enlargement of industrial capacity in the United States and the tremendous outpouring of consumer goods in the last five years have combined to give us an excess of supply over demand in most lines, except where defence orders are being superimposed on normal demands. The extraordinary buying wave which began with the outbreak of the Korean war a year ago led to the piling up of huge inventories of consumer goods in the hands of consumers, retailers and wholesalers. These inventories are probably larger today than is generally appreciated. Whatever you read about economic trends here in the next few months must he interpreted in the light of the basic relationship of supply to demand. Governmental expenditures are merely postponing and making more severe the inevitable adjustment.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

Yes. This is a letter from a man to whom I have been trying to sell goods and who is friendly towards this country. He is warning us that America today is producing a great deal more than she can consume. Therefore, once the demand created by the Korean war ceases or eases our chances of selling goods in the American market will go down.

The hon. Lady will remember that in the Economic Survey the Government said that the burden of increased exports must fall upon the textile industry, and they appealed to that industry to try to sell mostly in the dollar markets. I warn the Government and the House that it is not going to be easy to maintain our present exports. I think they will be considerably less in the next 12 months, and that if the Korean situation eases it will be almost impossible to sell in America anything but specialised lines. In that respect, therefore, the Economic Survey is so much nonsense.

If that £25 million of exports were thrown back on to the home market, the hon. Lady would then see prices come down more rapidly than either she or the workers would desire. They would come down with a fearful bump. One thing exercising the minds of business men regarding the future is the effect which the cessation of re-armament, both in this country and America, will have upon the production of consumer goods. It is bound to affect employment. Supposing the whole of that export trade were lost to us, the men now producing those goods would experience more difficulty in finding a job.

The hon. Lady, in her quotation from the "Drapers' Record," said that goods were not being delivered at the agreed price, that manufacturers were holding them up until they could get a higher price, and that this was against all accepted standards of commercial probity. In saying that, the hon. Lady makes a case for this side and against herself. She is saying that the exceptional cases which she is citing are against the accepted standards of business probity. Therefore, she is damning and condemning the whole of the business world for a few exceptions.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

First of all, I would point out to the hon. Gentleman that they are not my words, but the words of Mr. Hugh Fraser, who was the President of the Scottish Retail Drapers' Association. It is not unusual to have one section of the business world complaining that another section is doing them in the eye.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I agree that they are not the hon. Lady's words, but they are words which she chose to quote as evidence in support of her case, and, therefore, she fathers or, rather, mothers them. She says that they are regrettable incidents, and no one would agree more than I that it is regrettable there should be cases of profiteering and offences against the accepted standards of business probity. But in every group of men there are bound to be some black sheep, and I suggest to hon. Members opposite that the standards of probity among business men in this country are just as high as those of men in other walks of life.

Finally, the hon. Lady turned to her old cry of price rings and maximum prices. She complained that the consumers were being exploited. I suggest that the only way to prevent the consumer from being exploited is to bring back into industry and trade the cold and biting wind of competition.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

How can that be done in view of the price rings?

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

It is quite easily done. If we can only get our competition back again and if we have our shops with 1 per cent. more goods than are normally required, there will be a 10 per cent. fall in prices.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

Does the hon. Member advise the winding up of trade associations?

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I think trade associations have certain very good functions, just as I think trade unions have certain very good functions, but I think trade associations can do harm in certain respects just as certain aspects of trade unions, carried out illogically, can do harm. It is high time hon. Members opposite stopped talking as if they all grew white wings and we all grew black wings.

Photo of Mr William Ross Mr William Ross , Kilmarnock

In what respects does the hon. Member, with his long experience, want to see these changes made?

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I say that the destruction of price rings of itself will not bring down the prices of which the hon. Lady is complaining. The strongest price ring in the country is the coal price ring. One cannot go to another supplier; one has to take what is sent to one. One cannot complain of the quality, of the price or of the supply. If one does one's supply is cut off. The same applies to gas and electricity. Of all people to complain of price rings surely hon. Gentlemen opposite should be the last.

Then the hon. Lady finished by pleading once more for a subsidy. She wants a subsidy now for children's clothing. Some while ago I read words by some railway representatives to the effect that there was no way out of curing railway troubles without a subsidy. There are men speaking for the mining industry who say that unless prices are allowed to go up again there must be a subsidy if the coal is to be secured. The hon. Lady the Member for Blackburn, East, and some of her hon. Friends are also asking for another subsidy on food. Who is going to pay for all these subsidies?

Hon. Members opposite must make up their minds about them. I say subsidies are no way out of our problem. The ever rising cost of living affects the poorer families more than it does those of us who are more fortunate.

Photo of Mr Harold Davies Mr Harold Davies , Leek

That is the point of subsidies.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

The answer is not subsidies, and I beg all hon. Members not to mislead the people for whom they are responsible by going to the country with this false cry, which is behind the plea of the hon. Lady, that high prices result from high profits, because that is perfectly untrue.

1.44 p.m.

Photo of Mr Michael Foot Mr Michael Foot , Plymouth, Devonport

I did not intend to speak in this debate, but I have been moved to do so by the speech of the hon. Member for Louth (Mr. Osborne), who made a most surprising reply to the speech of my hon. Friend the Member for Blackburn, East (Mrs. Castle). As I understood her, she was saying that some profits were too high and one of the reasons was that too high prices were being charged. The retort of the hon. Member for Louth is to say that perhaps we can find some cases where high prices are not due to high profits and therefore that destroys the argument, but that is an extraordinary piece of logic.

There are, of course, many other reasons why there are high prices both in different industries and in those to which my hon. Friend referred. If the hon. Member had read the pamphlet "One Way Only," to which he referred, a little more carefully, he would have seen that there are many references to other causes of high prices. I will say something about them in a moment. But it is no refutation of the series of precise examples raised by my hon. Friend in particular industries to say that there may be another kind of industry in which the price is high for another kind of reason.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

Is the hon. Member going to say that high prices in some industries are due to this cause where it suits him, but where it does not suit him that they are due to another cause?

Photo of Mr Michael Foot Mr Michael Foot , Plymouth, Devonport

Although we have a long Adjournment I do not know whether we shall succeed in getting the point into the hon. Member's head; but I am sure he will appreciate it if and when it does get there. It is a very simple matter. There can be different reasons for high prices. There is a reason in the textile industry which is different from the reason in the coal industry. Of course it cannot be claimed that the reason for the high price of coal is the profits made by the National Coal Board; but that does not mean to say it cannot be claimed and proved that one of the causes of high prices in the textile industry is the high profits being made. There is no conflict at all.

In the coal industry, as the hon. Member for Louth knows perfectly well. the main reason for the increase in prices of coal is not that we have abolished the cut-throat competition between the different coal producers in the country in the years gone by. The reason is that we have started to pay miners a decent wage and to propose that they should have pensions. And if we are to get the coal in the years to come we shall have to go gradually further in that direction. That will mean higher prices or subsidies. I will say more about subsidies later.

The hon. Member for Louth also attempted to refute the precise proposals made by my hon. Friend the Member for Blackburn, East. He suggested there was some other remedy for dealing with this situation. He had plenty of time to develop that further if he had wanted to do so. But his only remedy was to suggest that we needed the cold and biting wind of competition.

There may be some industries in which greater competition, or rather the introduction of competition, may produce a reduction in prices, or at any rate, prevent the increase of prices. And I hope that when the Government introduces proposals such as the re-sale price maintenance proposal and others we shall have the support of the hon. Member for Louth for proposals which the rest of his party do not support.

If he will look at the general problem of rising prices throughout the world, the predominant cause is certainly not the lack of cold and biting competition. Taking the world as a whole, it is cold and biting competition which to a great degree has been responsible for the rise in prices—the cold and biting competition between a whole series of countries attempting to re-arm at the same time and also to maintain and increase civil consumption at the same time, having no plan whatsoever to deal with this situation and trying to deal with it on the basis of anarchic capitalist principles. Those are the predominant reasons. The hon. Member for Louth shakes his head. Is he opposed to or in favour of the idea of having boards set up in the United States and in association with other countries and ourselves trying to bring order into this process of obtaining raw materials?

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

The hon. Member is not at all fair. He says now it is cold and biting competition that is causing world prices to rise in raw materials. Previously I have heard him say many times—and I thought his hon. Friends always thought so—that the reason was a vast shortage of raw materials and that we should have more competition in the production of those raw materials.

Photo of Mr Michael Foot Mr Michael Foot , Plymouth, Devonport

There is certainly a shortage of many raw materials, taking into account the general demand that is being created, but of course the cold and biting competition between all countries is driving up the prices of those raw materials and adding to the difficulties of the different countries. Therefore, what the British Government have proposed, and what we hope that we shall get other Governments eventually to agree with on settled terms, is that we will do away with some of the cold and biting competition in the purchase of these raw materials, and that we will produce some order into the whole system.

That is the Government's policy. I have not heard any hon. Member opposite oppose it. Of course, we know what they believe in their hearts. They would hate to see a real system of planning in the purchase of these commodities throughout the world, just as we know they oppose systems of planned purchasing throughout the Commonwealth, despite the fact that all the people in the British Commonwealth who produce the goods believe in it. We know that hon. Members opposite are bitterly opposed to those ideas. I understand their reasons.

Of course, if we were to establish in Washington an ordered system whereby all the countries could join together, instead of competing with one another, for the purchase of these raw materials we should injure a great part of the capitalist system throughout the world, which is one reason why it is so difficult to establish these systems. The principle of establishing international commodity boards for doing away with cold biting competition in the purchase of these materials is a denial of the principles on which the hon. Member for Louth was brought up and which he still has the temerity to preach in this House.

I wish to say something further arising out of the speech of my hon. Friend. I think it was a most valuable speech because it introduced some precision and some precise questions, in addition to comments upon the speech of the Chancellor of the Exchequer yesterday. We had a statement from the Chancellor saying that there is to be a considerable extension, or restoration, of price control in different places. Whether that means very much is to be found in the answer which must be given to the speech of my hon. Friend. The general statement has to be translated into operation, and I believe that the speech of my hon. Friend gives a very good guide as to the spirit of the way in which the Government should go about that process.

Of course, neither my hon. Friend the Member for Blackburn nor anyone else who studies the matter can claim that the main cause of rising prices in this country is the matter that she raised. But it is an additional aggravation of the situation. Everyone must agree that the main causes are the world events that have taken place, and in particular the whole programme of Atlantic re-armament upon which the nations are engaged. One of the most extraordinary things about the speech of the Chancellor yesterday is that he seemed to leave this out of account altogether.

The programme which the Chancellor put before the House for dealing with the cost of living question was something of this nature. He proposed a series of extensions of price control to which my hon. Friend has referred, and he proposed dividend limitation; he was strongly in favour of both those proposals. The only surprise about them is that they were not introduced before, and it is particularly strange that we now have financial proposals of this nature introduced into this House before the Finance Bill, which was introduced a few months ago, has actually been put on the Statute Book. It is an extraordinary state of affairs. If there is a case, as I am sure there is, for dividend limitation, that should have been done in the Budget; it might even have been done a good deal earlier. The same applies to the proposals about price control.

I wonder what has changed the mind of the Chancellor. Perhaps he has been reading this pamphlet of which there has been so much talk. I notice that in some of the newspapers this morning it is stated that the Chancellor has taken one good leaf out of that book. But I would point out that there are still many other leaves that he ought to take.

The Chancellor proposed that we should have extended price controls, and that we should have dividend limitation, which is certainly right and just, although no one can claim the economic effects will be very considerable. For the rest, the Chancellor is trusting to luck. He is trusting to his guess that prices will taper off and that the rise will not continue, and therefore he will get by without embarking upon subsidies or any of these further measures which have been suggested.

In saying that, I think the Chancellor revealed an extraordinary outlook on the situation throughout the world. He left out of the whole of his reckoning the huge Atlantic re-armament programme.

At the present time, as I understand it, the expenditure of the United States on military defence is running at the rate of 32 billion dollars a year. In 12 months time it will be up to 68 billion dollars a year. So that the increase from this year to next year on arms expenditure in the United States will be not so very much smaller than the total national income of this country. These are tremendous figures.

The American newspapers state that in one sense re-armament in America has only begun, that it has not yet got fully under way. Therefore, if they go through with their programme we shall have an enormous increase in military expenditure by the United States, which in turn will have further effects on the shortages of raw materials, and which of course will have a far more powerful effect on prices in this country than any other factor whatsoever.

Of course, it is possible that it may not turn out quite so badly as that, because it may be that some people in the United States will have the sense to review their re-armament programme and start to limit it. There are no signs of that yet, but it is possible that sanity may come in dealing with this matter and that the question will be reviewed. But if they go through with their present re-armament programme and do not reduce it, I say that any chance of a real reduction in prices throughout the world or any chance of a decisive, permanent check to price increases is a fantasy, and the Chancellor is basing his policy for dealing with the cost of living upon that fantasy.

Why does he not have a discussion in this House on what we are spending and what will be the real economic consequences of it? That is one of the reasons why some of us have advocated that the major means for dealing with the cost of living situation must be to reconsider the re-armament programme and to cut it to reasonable proportions. I do not say that if we did that in this country alone it would cause any great reduction in the cost of living, because the factor that is most affecting the cost of living is the Atlantic re-armament programme as a whole; but if we started to have a sane approach to our re-armament programme we might have a better chance of getting the Americans to make a sane approach to theirs.

Photo of Mr Michael Foot Mr Michael Foot , Plymouth, Devonport

It is about time that politicians in this country showed some readiness to be plain and open on this subject. For politicians to go around the country and say, "We are in favour of a reduction in the cost of living but we are also in favour of the Atlantic re-armament programme and think it ought to be stepped up a bit further" is absolute rubbish. Any politician who does that is misleading the public, or is attempting to do so, and indeed practically all the politicians in this country at the present are doing exactly that.

The claim of the Tory party throughout the country is that they would cut the cost of living or would check increases in the cost of living without laying one finger on the re-armament programme. Indeed, they often ask for a bigger re-armament programme. The claim of the Chancellor is that we can deal with this problem, and he put forward yesterday his programme to deal with it, but he made no proposal for reconsidering the re-armament programme.

If we look at some of the statements made by trade union leaders we find that they are also trying to get the best of both worlds and are saying "We want a reduction in the cost of living but we are going to vote enthusiastically at the Trades Union Congress for the Government's programme." That cannot go on. It is a deception of the public, and every hon. Member must be able to see it.

Some of us believe that if we examine the whole situation it will be must better and safer for the Western world, even in its dealings with the threat of Communism—because in my view the threat of Communism is not chiefly a military threat; there is a military aspect, but it is not chiefly a military threat—to limit that programme and, by our example here to try to introduce a little sanity into the mad methods which are now being employed on the other side of the Atlantic. This is the only policy for tackling the cost of living. All other suggestions of how we can deal with it while still refusing even to look at the re-armament programme are, in my view, a deception of the public.

2.1 p.m.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

It is almost embarrassing nowadays for a Tory to speak in this House, because he is inevitably pitched into the family quarrel between the assorted gentry below the Gangway and His Majesty's Ministers. I do not want to intervene any more than is strictly necessary today in this internecine strife. All I would say is that while their gallant leader, the right hon. Member for Ebbw Vale (Mr. Bevan) is fraternising with Tito, they are putting up a very gallant fight in his absence. Yesterday we had the right hon. Member for Huyton (Mr. H. Wilson), and so far today we have heard from two representatives of the gallant assembly.

I do not want to go over the rather wide ground which the hon. Member for Plymouth, Devonport (Mr. Foot) covered. because that is an issue rather wide of and extraneous to that raised by the hon. Lady the Member for Blackburn, East (Mrs. Castle). All I would say is this: with his usual rhetoric, and as he always does, he flung accusations against the Tory Party and ascribed to us all kinds of inhibitions which I do not know about but, of which, with probably his greater perception, he is aware.

Certainly, we have not opposed the commodity conferences, but the right hon. Member for Huyton has had some doubt about them and I would remind the hon. Member for Devonport that when commodity conferences were almost being pressed upon this country it was his right hon. Friend the Member for Huyton who said we should not have these conferences and agree upon prices unless we also had a guarantee of minimum prices for a period of years. When the hon. Member talks about our desire not to support commodity conferences he should stick a little closer to the facts.

So far as the issue of military expenditure is concerned, we have, of necessity, to put ourselves in a position where we can negotiate with the Soviet Union from strength. The quicker we get to that position the better it will be for everybody in the free world. It must involve, of necessity, certain difficulties and hardships, but we want to get to that position with the greatest possible rapidity.

Those who take the view of the "One Way Only" group are doing immense damage to the free world because they are attempting to detract from our determination and they are attempting to postpone the time when we can talk to the Soviet Union upon the basis of strength and not from inferiority.

I want, if I may, to turn to the speech of the hon. Lady the Member for Blackburn, East which, I am afraid, I heard only in part. It is fascinating to hear the hon. Lady and her hon. Friends on this question of prices. There are certain facts of economic life which ought to be apparent to anybody who gets as far as the House of Commons.

One of the facts which I want to try to get over to the hon. Lady and to some of her hon. Friends is this: that if we have unemployment at less than 1 per cent., of necessity we are in a stage of incipient inflation. If we are in a stage of incipient inflation, or even more, and if we have a position of full employment, with only 1 per cent. or 2 per cent. unemployed, prices will necessarily be high, and we cannot control that tendency merely by price controls.

The hon. Lady is quite wrong when she says that high prices arise from high profits. I do not deny that sometimes high profits lead to high prices, but it is not true for one moment to say that the basic cause of high prices is high profits. The basic cause of high prices is the relationship between supply and demand, and it naturally follows that if we have everybody employed there is a high demand for goods and services and there will be a high standard of costs.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

Surely the hon. Gentleman is one of those who have been telling the House ever since 1945 that because we have had full employment since 1945 we have had an inflationary pressure since 1945, but the profits I have read to the House today are profits which are a record for the last 20 years, and it is that substantial rise in profits in the last year which I think he must try to explain.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

I think I can explain it. Clearly, in the last eight or nine months there have been circumstances which would enable more substantial profits to be shown, at any rate on paper, but I can explain that quite satisfactorily. I urge the hon. Lady to try to see this basic fact—that if we have a full employment society our costs will of necessity rise, and that is not because of high profits but because at all stages, whether it be the employer or the employee or the merchant, there is no pressure at all to secure economies in working. There is no pressure at all. That is the position.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

The hon. Gentleman said I had no right to be here unless I appreciated his argument. I think he has no right to be here unless he can say why Courtauld's profits doubled in the last year. Unemployment was not halved in the last year. The hon. Gentleman has been saying that the full employment factor has been causing inflationary pressure ever since 1945. How does this cover the fact that last year's profits have doubled?

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

If the hon. Lady will contain herself a little, I will come to that, but I am most anxious that she should get hold of this argument—that we cannot have unemployment down to less than 1 per cent., on the one hand, and have economy of working in industry, on the other hand. What it means is that the boss says, "Costs are going up; let us put 10 per cent. on the bill; it must be paid; they cannot do other than buy the goods." The worker says, "Things are going well; the boss is making a good profit." Thus, the urge to greater effort is diminished. Those conditions must exist in the situation which we face today.

Photo of Mr John Edwards Mr John Edwards , Brighouse and Spenborough

How does the hon. Gentleman explain the fact that in the period of full employment we have had since 1945 we have also have unprecedented increases in productivity? I dispute entirely the idea that full employment is associated with low productivity. Figures do not bear that out. In fact, in my view, there is a close co-relation between full employment and high productivity.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

The hon. Gentleman is confusing two things. He is confusing production at low cost with high rate of production. It is perfectly true that business men who have been in executive positions only in the last 15 years do not know what low cost production is. They may know what high rate production is. They may know the job of getting production at a high rate, but they do not know what low cost production is—and that is precisely the effect of this inflationary pressure and full employment.

What I will say to the hon. Gentleman is that we have maintained a high level of production because there has been since the end of the war a vast amount of capital equipment put into industry, and we are really feeling now some results of that investment, and we are all very happy about the extent of that return.

I want to deal with another argument the hon. Lady put forward. It was slightly extraneous to the main argument. She said that the Chancellor was quite wrong in saying we need not maintain the same volume of consumption we had during this year—because of this £700 million extra.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

The extent of the increase in consumption during this year has not been very heavy. In an economy such as ours 5 per cent. does mean a lot when it is marginal. But we could not knock out more than, say, 7½ per cent., which would cost her right hon. Friend—

Photo of Sir Charles MacAndrew Sir Charles MacAndrew , Bute and North Ayrshire

Order. The hon. and gallant Gentleman the Member for Brixton (Lieut. -Colonel Lipton) must not read a newspaper.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

—the best part of £550 million or £600 million if he were indeed to give in to her request.

One of the most disturbing aspects of this agitation—because we all recognise that it is simply pre-election agitation—is the effect it may have upon those who are making profits very properly out of the export trade. The President of the Board of Trade yesterday rebuked his hon. Friends below the Gangway in very firm tones—and very properly—for this insistence upon the wrong attitude to employers because they make profits, and he pointed out—as may be the case in the instance of the Courtauld company—that the very considerable increase in profits in recent months has been due to better prices in the export field.

If we had made one mistake in our policy since the end of the war it has been in that we have not obtained sufficient for our exports. Too many of our goods, particularly metal goods—and most particularly of all steel—have been sold abroad at prices much lower than they could have obtained. What we ought to do—and I would impress this upon the hon. Lady and her friends—is to sell our exports at the maximum possible prices consistent with the long term interests of the industries concerned.

This kind of reckless talk by the hon. Lady and others below the Gangway discourages manufacturers from taking the profits they can out of the export trade, and does a disservice to the interests of the country. What is the good of the manufacturers going out to take extra profits if, on the one hand, he is basted by the Chancellor of the Exchequer and, on the other hand, incurs the abuse of hon. Gentlemen below the Gangway?

It is quite wrong and most improper, when the terms of trade are going so heavily against us, and it clearly is in our national interest to get the maximum amount for our exports, to condemn people who make profits largely as a result of exports which they are sending out to the various corners of the world in ever increasing fashion.

Now I turn to the question of whether the prices of the goods price controlled are really excessive. This is immediately a grave reflection on the Department of the hon. Gentleman who is to reply to the debate, because it assumes that that Department is either thoroughly incapable in doing its task or that the accountants whom it gets do not know that two and two add up to four. I do not believe that those accountants are incompetent, although I believe it is quite possible that people in business occasionally pull a little wool over their eyes; but I am satisfied that, in the main, they do an efficient job.

Were I think the hon. Lady makes a great mistake is in not realising that manufacturers must work upon replacement costs. In the textile industry there has been a grievance with the Board of Trade in the last six months over this issue. It is not true at all that, as the hon. Lady said, the manufacturers have had a good time out of the changes in the price structure. There have been four months between rapid rises in raw cotton prices and corresponding increases in utility prices. Now what does the President say? He is saying that in the autumn there is to be a reduction in textile prices; yet he knows very well that the raw cotton which is purchased in the intervening period will not be turned into cloth until about March or April. Clearly, the manufacturers will suffer as a consequence.

I hope that the House will not be misled by these arguments, which are really electioneering arguments because right hon. and hon. Gentlemen opposite have got themselves into a frightful mess. They said that things would be cheaper and better when they were in power.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

For instance, the Minister of Transport said in 1947 that the Transport Act would result in cheap transport for everybody. In the Transport Commission's Report for this year there are loud wails because prices cannot be put up quickly enough. Hon. and right hon. Gentlemen opposite are really in a difficulty, and they are seeking to blame everybody except themselves. Clearly, there are inescapable facts in connection with these costs, and it is simply futile to go about blaming everybody because of their rise. It is not true in a general sense that high profits cause high prices.

Let us take an example which is well known to the House, that of cigarettes. That great combine, the Wills' combine, makes a staggering profit, but we all know that if it reduced the price of its cigarettes by a farthing a packet it would eliminate its profit. It is very easy indeed to overrate the effect of prices on profits, and it is very easy, as apparently the hon. Lady does, to underrate the effects of an inflationary pressure upon costs.

In general, monopolies are harmful to the community, not because they necessarily make very big profits, but because they take away the urge to low-cost production, and if we have a system such as we now have which encourages high-cost production and discourages low-cost production we shall have high prices. All of us in this House are concerned with the cost of commodities.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

Will the hon. Gentleman explain to the House why prices are even higher in the United States of America, where there is a quite different system from ours, than they are in this country?

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

I could quite easily do that, but I cannot for one moment see how that affects my argument. Inflationary pressure on costs is just as intense—if not more intense—in the United States as it is here; but that does not detract from my argument, it fortifies it. The United States have got intense inflationary pressure, and that causes these increases in costs. I say it is quite wrong to go about blaming individual manufacturers.

Photo of Mr William Ross Mr William Ross , Kilmarnock

The hon. Gentleman suggested, way back in his speech, that there was inflationary pressure because we had only 1 per cent, of unemployment in this country. Does he say that the position is the same in the United States of America?

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

No. In the United States of America, as the hon. Gentleman knows, or ought to know, the fictional unemployment rate is much higher than it is in this country. It is true to say, on the whole, that the United States are using all their resources in the way of manpower, but the fictional rate is much higher than it is here.

That sustains my argument, that it is inflationary pressure throughout the world that causes high prices; and if we have any attempt to squeeze down the level of prices below a reasonable return for manufacturers we are not going to get goods under the utility scheme. Indeed, that was the anxiety, if I understood it, of the hon. Gentleman's Department not very long ago, and in those circumstances I hope that he will not yield to this ill-informed clamour of those below the Gangway who support the "One Way Only" plea, and try to confuse the issue.

If we are to get lower prices, clearly we must have a bigger world production; we must have, I have no doubt, more understanding between nations, and perhaps less grabbing of raw materials; and we must improve our own efficiency at home. All these things form the only way out. The way out is certainly not in condemning manufacturers for the way they are behaving at the present time.

2.21 p.m.

Photo of Mr Harold Davies Mr Harold Davies , Leek

I listened with interest to the arguments put by the hon. Member for Cheadle (Mr. Shepherd), and I begin by saying that we on this side of the House are not trying to put forward any cheap arguments, and we never have. None of us have said that full employment does not create a problem. Those of us who have taken an interest in this matter know that full well.

Even in 1945, in the literature, pamphlets and economic arguments of the trade union movement, the Co-operative movement and the Labour movement, it was clearly pointed out that one of the problems of full employment was that there would be such a demand on the supply of goods available that the danger would be inflation, and it is untrue for the hon. Member to charge us with a lack of knowledge of this fundamental economic fact.

What we are worried about is not high prices but the standard of living. That is the real point with which we are concerned, together with the maintenance of the standard of living. Therefore, in this debate we are concerned with the apparently excessive prices which seem to be charged for certain commodities which are basic necessities for living today. I remember a famous debate in this House when an hon. Gentleman opposite said, "We are the nation," referring to the shareholders. In a way, the impression has been given, especially by the Aims of Industry Group, that nearly everyone in Britain is a shareholder. That is the impression created by the propaganda of a "property-owning democracy."

I have taken the trouble to check this to try to find out what truth there was in the assertion that the majority of our people were shareholders, and I discovered that 71 per cent. of industrial capital is in the hands of people with £500 and over of shares; 30 per cent. is in the hands of people with about £1,000 of shares, and over half the industrial securities of Britain are in the hands of people with fortunes of £50,000 or more. Out of a population of 30 million adults, there are in Britain 1,125,000 shareholders.

Do we on this side of the House want to punish shareholders? Do we want to punish a person for making an honest profit? Far from it. That has not been the crime that we wish to punish. We do not wish to impose punitive taxation upon people who at any period are making an honest and fair profit. What we are trying to ensure is that in this crisis and transition period, when we hear so much about freedom, democracy and the rights of the people, the burden shall be borne, as far as possible, according to the capacity of people to bear it.

The main contention of those interested in the philosophy of Socialism, and in the arguments put forward in "One Way Only," is that the burden of re-armament is not spread evenly, either between nation and nation in the Atlantic Treaty Organisation, or between people and people in Britain.

The E.C.E. Report, analysing the present Budget, said that one of its assumptions was that it would allow retail prices to mop up increased costs and prevent wages rising to the same extent. Another assumption of the Budget was that the inflation outside the United Kingdom will subside. Now that is a gamble; it may be a dangerous gamble, and it is one of the criticisms we make. That criticism is not made in order to secure cheap publicity. We have tried honestly to face the challenge of our times, to see whether we can get an answer to our problems, without claiming that all the answers are found.

One assumption of the Budget has already been proved wrong, and I should like to illustrate that in a simple way. The economic crisis of 1931 and the present crisis are two entirely different economic phenomena. The economic crisis of 1931 was a crisis in the raw materials production area of the world, when it took five bags of cocoa to buy what one bag of cocoa had previously bought for the industrial areas.

Today the raw materials production areas of the world and the so-called backward areas are in a very strong economic position, and their prices are higher in proportion to industrial prices. Mr. Lawrence Robson, in his presidential address at a cost and works accountant meeting gave an interesting figure. I could give other examples, but I do not want to weary the House. He gave an example of the way in which the terms of trade were against us in relation to the raw materials areas.

For exporting one Jaguar XK120 car, we received the equivalent of 4½ bales of merino wool. In other words, for 3,896 lb. of polished sophisticated motor car, turned out by the engineering skill, capital and entrepreneurs of British enterprise, we got only 1,125 lb. of wool grown by God Almighty on a sheep's back—clipped by man, granted, although that is now being done by machine. Here is a spectacular example of the challenge of our times.

I do not want to make a cheap political "crack," but there are times when I feel that I should like to get hold of some pairs of false teeth free from the National Health Service and present them to some hon. Members opposite so that they can snap back at us more quickly and more intelligently in their interruptions. I have not yet heard or read a constructive approach by hon. Members opposite of how to maintain a re-armament programme of the present extent and at the same time maintain the standard of living—forgetting for the moment the words "prices" and "costs." It cannot be done. Neither side can pretend at the next General Election that we can have a re-armament programme of this size and maintain the present standard of living. Consequently, I believe that some risks have to be taken, and that they are worth taking.

Barclays Bank Review said that the problem of the armed State and the welfare State was causing current consumption to gallop through the world's raw material reserves. Let me give one example. In 1921, the oil consumption of the world was 20 million tons. In 1950, this orthodox old world of ours is consuming 523 million tons of petroleum oil. We have stepped up in one generation the consumption of world oil from 20 million tons to 523 million tons.

The estimated known reserves of sulphur, tin and petroleum are limited. That of sulphur is about 15 years, tin 35 years and petroleum possibly 20 years. An hon. Member below the Gangway said that prices were controlled by supply and demand. I agree. Here is one of the factors that affects the entire problem of world prices.

I agree with the late Foreign Secretary, Mr. Ernest Bevin, when he said, in a great speech of a non-political and economic character, that the time must come when the world must share the raw materials at its disposal, otherwise we should completely undermine our civilisation. We know full well on both sides of the House, when we do not try to make cheap political cracks, that there are factors in rising prices over which no government in power in Great Britain can have direct control unless there is some international system of dealing with raw materials and commodity prices, and therefore we suggest that rather than exacerbate and irritate the international situation by making speeches—I do not care from which side of the House they come—that tend to drive the nations further and further apart, we should continually try to make the type of speech which will bring the nations together and realise the economic destiny of mankind. We must realise that international economic interdependence exists, and unless we work together we shall be destroyed together.

I believe that the Labour Government is right and that all of us are right who are trying to encourage the possibilities of rapprochement between the so called antagonists in the present cold war. If we do not do that, we can visualise a cold war in perpetuity. Economists and politicians in America and Britain talk as if a cold war is something which will last in perpetuity. If that is so, life is going to be what it was in the threadbare 30's for those who exist in the time to come. That will destroy the civil liberties and creative evolution of mankind.

When we are talking about the cost of living and trying to make cheap political cracks, the honest truth which has to be realised is this: That neither political party can lower the cost of living when we envisage a re-armament programme to the extent of which we have already committed ourselves in this House. I believe, therefore, that I and my hon. Friends have the right to try to point out—granted we may be wrong because none of us is omniscient—that this means the destruction of our standard of living and, maybe, will lead us ultimately to war.

Do not throw back at me the argument that by being strong we maintain peace. I am prepared to say that this kind of re-armament is weakness through strength, because if we cannot maintain the cost of living and give our people decent standards of life, and if we cannot maintain civilian production, then what is the good of huge armies if we cannot keep them supplied, the factories ticking over, full employment and an enthusiastic and well-fed people. There are much better defences for democracy and against communism than having a Spartan system of society which when the first shock came would not be able to maintain supplies to keep a war going.

We had yesterday the spectacle of the Chancellor of the Exchequer having to admit that the Budget already brought to the Statute Book has to be altered to meet the exigencies of the present economic situation. A little less economics and more common sense might help this world to deal with some of the intricacies of these international problems. To me this is very simple.

The system of society called capitalism served a purpose, like the feudal system did, but in the late 20th century we cannot bring the economy and philosophy of the 17th, 18th and 19th centuries to bear on these problems. Capitalism showed us what could be done by initiative and enterprise. Now we are struggling for a philosophy of life that can take the best of this and apply it to a world which, in the 20th century, is no bigger than a parish was in the 17th century.

If we do not face these problems all the documents turned out by the economists and all the oratorical statements of the right hon. Member for Woodford (Mr. Churchill) will not answer the challenge of our time. Those who have tried to think these problems out in all honesty and good purpose believe that the one hope of mankind is rapprochement between East and West and the opening up of trade with China, Eastern Europe and other places. That alone will maintain the standards of living and help to reduce costs.

2.38 p.m.

Photo of Mr Henry Smith Mr Henry Smith , Nottingham South

I had no intention of taking part in the debate, but I have listened to so many views from both sides of the House from which I dissent that I feel constrained to intervene. The hon. Member for Cheadle (Mr. Shepherd) has the most engaging quality of being singularly naive, and I propose to turn that to account whenever the opportunity comes.

He argued with some cogency that there was less than 1 per cent. of unemployment. I do not want to misrepresent him, but I understood him to say that, as a consequence of that, there was not so much efficiency as there ought to be, and that production was dearer because there was not the incentive for it to be efficient with the spectre of unemployment no longer before the workers. There is an element of truth in that, but so what? The argument is: Let us have a little unemployment and that will teach the man at the bench to be more efficient. The hon. Member for Cheadle—a Conservative Member—was, by implication, advocating that there should be less employment than there is.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

The hon. Gentleman ought to be aware of what has been said by his own leaders. The right hon. Gentleman who now has the misfortune to be Foreign Secretary said two-and-a-half years ago that what we were suffering from at that time was over-full employment. I hope that the hon. Member will tell the House where he thinks the optimum point of full employment lies. I do not think the optimum point lies at 99.2 per cent. Perhaps now the hon. Gentleman will try to address himself seriously to this matter.

Photo of Mr Henry Smith Mr Henry Smith , Nottingham South

I do not think the hon. Gentleman has defined what he calls the optimum point of full employment. He was careful not to do that. The difference between us is this: that hon. Gentlemen opposite rise in public and point out some of the disadvantages that follow from full employment. There are some, of course, but we on this side know the human tragedy of unemployment and we shall not do anything to lessen the degree of employment if we can help it. Indeed, so long as we are in office there will be no unemployment at all through circumstances we can control.

Photo of Mr Henry Smith Mr Henry Smith , Nottingham South

There may be unemployment due to shortages of materials, but not through circumstances we can control. I read into the speech of the hon. Member for Cheadle this afternoon that steps are desirable to limit full employment to something that will provide the incentive—the incentive being starvation round the corner. If it is not that, it does not mean anything and there was no point in saying what he said.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

Does the hon. Gentleman realise that I was giving the figure of the extent of full employment in this country as an example of the extent of the inflationary pressure? I was merely pointing out what I believe is a quite inescapable economic fact, that we cannot have low cost production and low prices while we have this intense inflationary pressure. I am not advocating for one moment that there should be any increase in unemployment to the point that it involves any social hardship upon any member of the community.

Photo of Mr Henry Smith Mr Henry Smith , Nottingham South

The hon. Member has a singular proneness for missing the big thing and getting hold of the little thing. The little thing is comparative inefficiency, but the big consequence of full employment and this is what my hon. Friends on this side of the House miss—is that which arises from the nature of the full employment. We have full employment when we have a large proportion of the labour force engaged in making capital goods or defence goods as distinct from consumer goods.

My hon. Friend the Member for Plymouth, Devonport (Mr. Foot), and my hon. Friend the Member for Leek (Mr. Harold Davies) stressed what they deemed to be the important influence of the defence programme on the cost of living. They did what the hon. Member for Cheadle does, they lost sight of the mountain and saw only the hill.

Let us consider the defence programme and its effect upon costs and prices. The defence programme this year entails the expenditure of £1,300 million and the capital expenditure programme entails the spending of nearly double that, £2,200 million. Therefore, for every 13 arising from defence 22 arise from the capital programme, so what is the use of my hon. Friends talking about the effect of defence and neglecting the much bigger effect of the capital programme upon the cost of living?

Nobody really goes to the root of these matters. I invite the attention of the House to what I consider a most important cause of high prices; that is, the private taxation levied by employers and business men upon consumers. This private taxation is estimated in the Economic Survey for 1951 at £780 million of undistributed profits. These undistributed profits are what firms collect over and above what they need to meet their costs and pay out to their shareholders a decent dividend. Over and above that, undistributed profits represent £780 million needlessly levied by business people upon the community to maintain their properties, their plant, their factories.

I heard eloquent speeches from the party opposite in the small hours of the morning during the Committee stage of the Finance Bill arguing fluently that firms are entitled to make enough money, not merely to cover their costs and to pay out profits, but to maintain intact their properties. I have never heard anything so preposterous in my life.

If I had my way, no one would set himself up to be an economist and nobody would presume to speak about economic questions unless he had an engineering education. I am not an engineer, but I had the advantage of an engineering education. It taught me to think in terms of real things. The idea of business men expecting that they should go on levying on consumers to maintain their properties intact is intolerable. That is the job of the investor if we are to have a capitalist system at all. And we have it. We are not under socialism now, but under capitalism to the extent of 80 per cent.

There is no such thing as perpetual motion. Science does not recognise it. It is a dream. And there is no such thing as physical productive plant being maintained intact. It cannot be done. It wears out. The idea of levying on consumers to maintain it is preposterous. Let the owners raise more capital. It should be pointed out, too, that £780 million a year of undistributed profits represents 22s. a week on every family in this country because of needlessly high prices which are not even distributed to the shareholders. If we are to have a capitalist system, let somebody take risks. Let somebody contribute money out of his pocket to maintain and expand businesses.

I will give an example of what I mean. There is a works in my division which makes bicycles. Nearly 40 per cent, of their trading surplus is used every year for expanding and modernising plant. It is done out of undistributed profits. It means that people who buy their bicycles not only pay for the bicycle they will own but also for that works which they will not own. I will not draw the conclusion because I do not want to take up too much time but, if we are talking about the cost of living and rising prices, let us put our fingers on the real causes.

When people talk to me about defence I admit that defence adds to it, but it adds not much more than half the amount due to capital expansion. We are here getting down to the bones of the capitalist system. What ought prices to be? Prices ought to be related to the cost of production, but they are not. They are related to quite a different thing—to how much money there happens to be about in the market at a given time. When we get a Labour Government and full employment there is a lot of money about and the business people see that and say. "We will mop it up in high prices." That is the explanation. The remedy is more control and yet more control. I see no other remedy for it.

The whole thing goes deep. There is one difference, and an important difference, between capital expansion and defence. Both are inflationary and they are bound to be so as long as there is this extraordinary rule that the price of a thing shall be what it will fetch; that is to say, it is related to the amount of money about. In the long run capital expansion enables cheaper production to take place, or it would but for the method by which it is financed. Defence does not do that. Expenditure on defence is a dead loss. One might as well employ people—except for security reasons—to make goods to ship out to the middle of the Atlantic and dump them into the depths.

Defence differs from capital expansion in that way, but if we want to get at the truth about the cost of living we have to examine the purpose lying behind the fixation of prices. If prices were fixed to cover the bare current costs of production plus a reasonable profit on invested capital, that would be one thing; but when prices are simply a scramble to get what is going that is quite another thing. I suggest to my hon. Friends on this side of the House that they are doing no service either to this party or to the Labour Government or to the sacred cause of truth when they over-emphasise defence in this context.

I welcome the statements made yesterday by my right hon. Friend the Chancellor of the Exchequer. That is a move in the right direction, but he will not get anything done until he gets hold of this business of the undistributed profits. What he should do is to cancel the Floating Debt pound for pound to the extent that undistributed profits are made.

He could go on doing that for eight years, with no inflation and no injustice to anybody, but with a great gain to the taxpayer: namely, the extent of the interest on the Floating Debt, minus the Income Tax that is paid by the banks. There would be a saving of some £16 million a year at the end of the eight years, £6,000 million of Floating Debt would have been wiped out, nobody would have been robbed of a halfpenny, and all that amount of good would have been done. Above all, the public would have had a lesson in the real meaning of the price system.

2.51 p.m.

Photo of Mr Marcus Lipton Mr Marcus Lipton , Lambeth Brixton

It seems almost superfluous for me to take part in this discussion after hearing the encyclopaedic solution to our economic difficulties and problems propounded by my hon. Friend the Member for Nottingham, South (Mr. Norman Smith). The debate was begun by a speech on price controls, and it is to that topic that I should like to direct myself.

My hon. Friend the Member for Blackburn, East (Mrs. Castle), who introduced the debate, laid stress upon the failure of the Government Departments concerned to restore price controls. That is, in her view and in mine, a contributory factor, although not the only factor, to the increased cost of living which is the paramount worry in the minds of the majority of people next to the main issue of peace or war. I am not getting myself involved into an argument as to whether profits cause high prices—that has been argued by a number of hon. Members—but want to draw the attention of my hon. Friend the Parliamentary Secretary, who is to reply on behalf of the Board of Trade, to one evil consequence that arises from the lack of control or the half-hearted application of it.

It arises in this respect. Take, for example, steel. As a result of the inadequate, belated, or unsatisfactory system now being applied in the allocation and distribution of steel, what is happening? The Government's policy, or lack of policy, in this respect is driving several local authorities in London to making black market purchases at prices over and above the normal prices. I have with me a quotation from a local newspaper which indicates that the Camber-well Borough Council is pressing the Ministry of Local Government and Planning to prepare a scheme for allocating steel for housing, and pressing that some such scheme ought to be put into operation at once.

What is now happening? The Camber-well Council, which has a direct labour building force, is proposing to buy 58 tons of steel at £10 a ton over the normal price. This local authority has been compelled to embark upon this very undesirable practice because, otherwise the whole of their programme, or at any rate one of their housing schemes would come to a standstill and men would have to be stood off.

This local authority, wishing to take the necessary precautions to avoid trouble with the district auditor, asked the Ministry of Local Government and Planning whether they could undertake this extra expenditure of some £580 to buy this steel at more than the regular price. The reply which the Council obtained was that the Ministry had no observations to make. I consider that to be a dereliction of duty on the part of the Government, because it is quite clear to me—and, I think, to many of my hon. Friends—that unless, in cases where the circumstances warrant it, controls, however rigid, are applied, we shall find ourselves in a quite impossible situation.

Reference has been made to what are said to be the desirable results that would ensue from allowing the cold and biting wind of free competition to blow the cobwebs away from our economic life.

But what happens when free competition is allowed full rein? We have cases of the kind I have mentioned, with local authorities being forced into the black market to buy steel at prices very substantially in excess of the price that ought to be paid. That has the further disadvantage that the extra expenditure thus entailed is not covered or disposed of within a week or two. It increases the rent of the houses to be built. It increases the loan charges, because these are, presumably, spread over a period of 60 years, and it represents a very long-term burden upon this and succeeding generations.

That is my main purpose for intervening in the debate, because I want to impress upon my hon. Friend the Parliamentary Secretary that we are now in an economic situation in which, whenever necessary, the most rigid controls should be imposed, accompanied, if necessary, by rationing. If we cannot have the control without the rationing, then we must have the rationing as well. In that way we ensure that the products of industry are not diverted into inessential sources; that the wrong people are not making excess profits at the expense of the community; and that we do not have a state of affairs as is now happening in South London, when builders, rather than lay off or sack their men, are being forced to buy steel at exorbitant prices in the black market.

If that kind of situation is allowed to develop, it will hamstring all the efforts that may be made in other directions by the Government to bring down prices for the advantage of the community as a whole.

2.58 p.m.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

I was very interested in the speech of my hon. Friend the Member for Devonport (Mr. Foot), who seemed rather to imagine that all the economic ills from which we suffer date from the time when my right hon. Friend who represents Leeds, South (Mr. Gaitskell), became Chancellor of the Exchequer.

I remind the House that if the re-armament programme is in itself an evil, it was accepted in its entirety at the present figure by the right hon. Member for Ebbw Vale (Mr. A. Bevan), who on 15th February, speaking on behalf of the Government in the Defence debate, said: That is the reason we do beg that we shall not have all these jeers about the re-armament that we are putting under way. We shall carry it out; we shall fulfil our obligations to our friends and Allies, and at the same time we shall try to prevent such an exacerbation of the world atmosphere as makes it impossible for the nations to come together in peace and harmony and give mankind another breathing space."—[OFFICIAL REPORT, 15th February, 1951; Vol. 484, c. 739–740.] I do not want to review the history of what followed, but if we are having these sort of jeers at the present Chancellor of the Exchequer, that he is re-imposing controls at this stage, I would say that if he has to re-impose controls it is not because of any failure on his part, but because my right hon. Friend the Member for Huyton (Mr. H. Wilson) wanted to make a bonfire of controls, and, as was said by my hon. Friend the Member for Coventry, North (Mr. Edelman), the other day, burned the fingers of the Labour Party into the bargain.

We are entitled to say that no one criticised those actions which were taken at the time. After all, a political situation such as we have had since 1945 cannot be static. There were probably good reasons for dispensing with controls at that time. But if the economic situation has to be watched day by day and month by month, it comes ill from the same people that they should take the Chancellor to task because of the fact that almost before the Finance Bill has passed through all its stages he has to consider yet again what he shall do in the changed economic situation.

Everybody knows that the world situation is changing very quickly, and I should have thought that they would have applauded the speech of the Chancellor of the Exchequer yesterday in which he said that there would be further dividend limitation. As a matter of fact, he gave a warning in his Budget speech that this was likely to be so. Now that that is to happen, I think that most people in the country will say that it is perfectly fair.

There is no difference of opinion between us, whatever part of this House we sit in, that a considerable contributory cause of high prices is the re-armament which springs from the present world situation. No one doubts that at all, but one would imagine from hearing some of the speeches that the will to peace is enough. There is no lack of a will to peace on these benches or in the world. Our only concern is that not only the admirable speeches but indeed the pamphlet, "One Way Only" cannot be read in other places where that would do a lot of good. As a matter of fact, it would have been very apt if someone had been cast in the role of Sidney Carton and it had been called "The Only Way."

I wish to say a word or two, now that the hon. Member for Cheadle (Mr. Shepherd) has returned, about the effect of unemployment on prices. I take it that there is no disagreement with the proposition that we are not considering prices alone. What we are concerned about is the standard of life of the people. We use prices in that connotation. I have no doubt that my hon. Friend the Member for Nottingham, South (Mr. Norman Smith), who has a better knowledge of history than I have, could tell us what the price of a cow was in Nottingham market in about the 11th century. It may have been about 11d. [An HON. MEMBER: "Tenpence."] If that was so, no one would say depressed prices were a good thing when one bears in mind the living standard of the people in those days of serfdom.

Even in more modern times, within the recollection of hon. Members, from 1920 to 1922 the cost of living in this country fell by 31 per cent., but unemployment increased six-fold. I do not know whether the hon. Member for Cheadle thinks that that is a good argument or not for the proposition he was putting before the House.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

I wish that hon. Members would try to get a little more grasp of what I was trying to put forward. I used the unemployment index as an indication of the measure of the inflationary pressure. I could have used many other examples. Clearly we have at present not merely full employment but over-full employment. There are notified on the books of employment exchanges vacancies numbering nearly half a million. We have only 200,000 people who are registered as wanting work, and many of them are probably not physically capable of it. One really must pay attention to what is the optimum point of full employment.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

The optimum point of full employment is obviously 100 per cent. I do not wonder that the hon. Gentleman finds such great difficulty. We on this side have surveyed this matter from the attitude of personal unemployment. If the hon. Gentleman had known the conditions of unemployment which I have experienced in the past, he would appreciate the necessity for 100 per cent. full employment.

If only 1 per cent., 2 per cent. or 3 per cent. unemployment is right for the economic system, hon. Gentlemen must put themselves in the position of the 1 per cent., 2 per cent. or 3 per cent. who are unemployed. This is not a problem of figures. It is a personal problem. It means broken homes with man as a supplicant on his knees instead of a man on his feet. It is the complete incapacity of hon. Gentlemen opposite to look at personal unemployment which makes them so abysmally ignorant in this matter.

Therefore, we have no difficulty when we face our constituents in the country of awakening from their collective memory those conditions of unemployment. In many places, including my own constituency, there is a real physical fear of the right hon. Gentleman the Leader of the Opposition and his hon. Friends getting back into power. That is because of the sheer nonsense always talked by hon. Gentlemen opposite on the subject of unemployment.

I remember the hon. Member for Chippenham (Mr. Eccles) saying that we should have more unemployed now. We asked how many more unemployed there should be. He did not give a figure, but somebody suggested half a million, and someone else commented, "Well, if you like." That is the attitude of hon. Gentlemen opposite. Their spokesmen up and down the country are very cagey about this matter, but they really believe, as the hon. Member for Cheadle believes, that we have got over-full employment.

A Tory spokesman said on the platform recently that we had not got enough elasticity in the social system. By elasticity he meant the pulling of them in and the pushing of them out of jobs at the will of the people who want to employ.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

If, some two and a half years ago, the right hon. Gentleman the Foreign Secretary said that we then had over-full employment—

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

Yes—when in fact we had more unemployed then than we have today, how does the hon. Gentleman justify what he is now saying?

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

Hon. Gentlemen really should not make these statements in the House. I always thought that it was a rule that one had to bring one's authority before one did that sort of thing. Was it said by the present Foreign Secretary?

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

I can only assume that it is a misquotation or that my right hon. Friend was quoting something said from the benches opposite.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I am sorry that I have only just come into the Chamber, but I think that if the hon. Gentleman looks at the OFFICIAL REPORT for 18th August, 1947, he will find that that was the date when that quotation was made. I think the attitude of my hon. Friend the Member for Cheadle (Mr. Shepherd) to the whole question of employment was very well put by my hon. Friend the Member for Hampstead (Mr. H. Brooke) in a debate in 1944, when he said that we on this side of the House thought that anybody who wanted a job should be able to find one, but that does not mean that everybody should remain in the same job all the time.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

I should like to see the quotation. I shall continue to speak for a few minutes, and the Library is at the disposal of the hon. Gentleman. Perhaps we can get the quotation confirmed. It is no use coming in and making a quotation like Datas, the memory man, and expecting me to believe it.

When we consider the question of the level of prices, we come back—because the Tories always take us back—to the question of pre-war prices. If we take even the question of the primary producer and the position of the agricultural worker, everybody knows what happened under the Tories in those days. Everybody knows the acres that went out of cultivation and the position of the depressed land worker. All controls were taken off and, in some counties, they went back to 26s. a week. That will never happen again. Under a Labour Government, our agricultural worker is not only one of our best dollar-savers, but a man whose tastes are catered for and whose wages approximate to those of the people in the towns.

When I hear it suggested that we have taken away from the municipalities the right to run their own electricity and gas undertakings, and that we have nationalised them, and put them on a regional basis, I say that the chief consideration is that it was completely wrong for them to run those undertakings at cheap rates for the townsmen and to ignore the agricultural labourer. We shall never get agricultural labourers to stay on the land until both he and his wife can be assured of the same amenities of urban civilisation as the town worker considers as his right.

I can go to at least one place where, before nationalisation there was an example of municipal Socialism under a good Labour council where, within that authority's boundary, the electricity cost ¾d. per unit, and, outside that boundary and in the area of a private company, it cost 6d. per unit. How can we expect to keep the land workers on the land in such circumstances? The country can no longer rely for cheap food on the bent back of the starving labourer, any more than it can rely on the exploitation that took place in the Colonial Territories. I do not think that that can be argued at all.

I have already pointed out that unemployment was doubled in the period when prices fell by no less than 30 per cent. Most of our troubles started about 1920 or 1921, when there was an attempt to reduce the export price of coal in South Wales.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

In 1921, I said. The trouble is that the hon. Gentleman's interest in politics possibly only sprang up at the time when there was a minority Labour Government in 1929. His hon. Friend the Member for Cheadle was chivvying hon. Members on this side when he suggested that, at the time when we came to this House, we should have a certain modicum of knowledge of the economic facts of life, but the hon. Gentleman seems to have started, presumably, in 1929. I am going to start talking about what happened in 1921.

In 1921, the coalowners of the day decided that it was necessary to reduce the export price of coal by £1 per ton. The South Wales miners were then getting £5 or £6 a week, and the onslaught was made upon wages in an attempt to keep the export market for coal. The wages were slashed almost to £3 per week, and, obviously, with the miners getting such wages, their consumption fell, and that was when the trouble started in 1921. Following that glorious example, after the miners had been battened down, they began with the railwaymen and the engineers, and there was a whole series of wage slashes.

Really, hon. Gentlemen opposite have no honourable record in this House at all, for, even when it was suggested that there should be commissions of inquiry set up or that certain matters should be referred to arbitration, they argued in those days of 1921 as they would never argue today, that these were matters of trade that ought to be free to the play of economic forces. And the whole pattern of wage slashing went on, and then we had a minority Labour Government that came in in 1929. It is no use hon. Gentlemen opposite referring me to books from the Conservative Party Central Office, because I lived through this period.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

The hon. Gentleman does not understand the economic facts of life.

Photo of Sir Beresford Craddock Sir Beresford Craddock , Spelthorne

The hon. Gentleman is very complimentary, but, probably, I remember the crisis of 1929 much better than he does, because I took part in it.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

The year 1929 has a significance for the hon. Gentleman which I fail to recognise. Nobody can argue against the effect of the very much higher wages and the better standard of living on the general price level under a Labour Government. It is always argued that we are, as it were, very much worse off in this country than the people of other countries.

I have in my hand a copy of the "New York Times" of Sunday, 1st April, in which the whole of the front page is devoted to why the cost of living has gone up in the United States and why the price level is rising. The conclusion come to by that newspaper is very much on the lines stated by my right hon. Friend the Chancellor of the Exchequer. It is the impact of buying scarce commodities on the world market, and such things as that. I will let the hon. Gentleman read it. Even at this late hour a private enterprise country such as America is finding herself in a very much worse position than we are.

I am still waiting for the promised quotation to be produced. I know that if I was so sure of the date, I should have found it by now. But the hon. Member is not in his place, and I must not weary the House for very much longer except to refer to an item more specifically related to this debate. This debate has tended to drift into highly speculative fields concerning international price levels, and I wish to bring it back to the more homely subject of fruit and vegetables. I think that a matter about which the Government might rightly be reproached is the marketing of vegetables in the Metropolis.

Before I came to this House, I was on the engineering staff of a large Co-operative Society concerned with the distribution of Food in south and south-east London. From time to time, one had to go in the early morning to a breakdown in Covent Garden or Spitalfields. If a motor lorry broke down in Spitalfields, one wrote it off as a dead loss until lunch time, because it was jammed in by the traffic. After all, one cannot pull down the whole of London to create through roads just to bring down the price of fruit and vegetables.

But I think the time is long past when the central markets for perishable commodities should be taken away from the centre of London. I think here is a field for municipal enterprise, and I hope that hon. Members opposite will join with me in propagating that idea. What we do now is to bring the produce from, among other places, Kent and East Anglia down to the south and right through London and put them into the markets. People go to Spitalfields and Covent Garden to buy them and have to drag them out again, and they are much less fresh than when they came in.

I should have imagined the time was long past for creating, say, four markets, one somewhere round about Bexley, one in the north, one round about Romford, and one on the Middlesex-London boundary towards the north-west, and one at Croydon in the south-west. It should surely be possible to bring all the vegetables into the four markets controlled by municipal enterprise, and thus prevent their being brought to Central London and carted back again to the extremes of the four counties. It would be far more economic in every way, and we should then begin to get at the general question of vegetable prices. This question of vegetable and fruit marketing seems to me to be one of the most persistent difficulties which face the housewife. They cannot understand why a lettuce costs so much on the farm and Is. is put on the price by the time they collect it.

I am still waiting for that quotation that was to be produced from the benches opposite to the effect that my right hon. Friend the Foreign Secretary was supposed to have said we had over-full employment. I know that a noble Lord, a supporter of the Tory Party in another place, has said that. I know that Mr. Higgs who took the place of the late Mr. Austen Chamberlain in his constituency in Birmingham has said that, and that hon. Members opposite have tried to write him off as an unimportant person.

But when he appeared at the Bar of this House to take his seat his principal sponsor was Neville Chamberlain, and he was no mean figure at that time in the Tory Party. I know he is one that tends to be forgotten now, and I can understand the right hon. Gentleman the Member for Woodford (Mr. Churchill) not wishing to remember him at all. But it was Mr. Higgs who said there would be no peace in the old country until there were 11 men doing 10 men's jobs. It was a Conservative Member who said that empty bellies were the only things that would make Britons work.

Those sentiments have been expressed, though not so bluntly by the hon. Member for Cheadle this afternoon. They rose in his subconscious mind, just as they rise in the subconscious minds of the Tory Party, and I give warning that that will be seen if the benches opposite ever get into power. The standard of living is even more important than the cost of living. Those of us who have known long periods of unemployment and the depressed level of the people in this country in the pre-war days believe that the people will remember—and that quotation has never been produced yet.

3.22 p.m.

Photo of Mr William Ross Mr William Ross , Kilmarnock

I hope that my hon. Friend the Member for Leeds, West (Mr. Pannell) will forgive me, but I do not want to follow him along the tracks along which vegetables are brought from various parts of England to London.

I should like to refer to the remarks made by the hon. Member for Cheadle (Mr. Shepherd). We started this very interesting and informative debate with the question of the relation of excessive prices to the cost of living. The hon. Member for Louth (Mr. Osborne), who has left the Chamber, was at great pains to say that that had little or no relevance to the rising cost of living. He proceeded from there to misunderstand completely the case that had been made and he seemed to suggest that this was the only thing with which we were concerned.

We on this side realise there are many ways in which we can attack the cost of living, but today we have high-lighted this way. The profit element is not the only element in the cost of an article. There are the elements of wages, the cost of raw materials and the distributive costs. I think we could all make reasonable suggestions and develop better ideas about bringing down the various costs and securing greater efficiency out of labour.

Today, I wish simply to highlight this specific point. It is all very well for hon. Members opposite to talk, but they cannot deny that the figures quoted by my hon. Friend the Member for Blackburn, East (Mrs. Castle), are true and that profits have been rising enormously. The hon. Member for Louth gave a second new cause for the rise in the cost of living. We have been hearing in weekend speeches and reading in reports of various garden parties that obviously the Tory handout is that the rising cost of living has nothing to do with re-armament at all but is due entirely to devaluation. I was glad, therefore, to listen to the hon. Member for Louth quoting the actual figures of the cost of wool before and after devaluation, and then showing that the effect of re-armament and the reaction of the wool producers to the stockpiling demands were such as to push up the price way beyond the price after devaluation. That, in itself, defeated the argument which has been put forward by the Tories.

Then the hon. Member for Cheadle gave us an entirely new reason for the rising cost of living. He said it was all due to the inflationary pressure of full employment. Those were his words; I took them down. He said that excessive profits had nothing to do with the matter. He must be a very simple-minded chap if he does not follow the logic even of his own argument.

My hon. Friend the Member for Blackburn, East (Mrs. Castle), made it clear that one of her concerns was not just the direct effect that excessive prices had upon costs but also the indirect effect on people employed in industry of company report after company report, during the past year in particular, showing greater and greater profits and distributed profits.

If the hon. Gentleman is so concerned about inflationary pressure, surely one of the worst features of inflationary pressure is the reaction of a man in a factory, whether he is making carpets or boots or anything else, to these new high-level profits. He immediately says, "If they can afford that for the shareholders they can afford to pay me an extra 5s. a week." That is one of the more important factors which my hon. Friend was trying to bring out. We all appreciate that the question of profit is only one element, and probably a comparatively small element, in this matter, but the effect of disregarding the reaction of the employees to the wholesale increase in profits and distributed profits is something which the hon. Gentleman should be much more concerned about.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

The hon. Gentleman must be reasonable in this matter. If he were conducting a manufacturing business and suddenly the cost of his raw materials rose with the prospect, which we now see being borne out, of dropping again, would he or would he not seek to sell at replacement cost at the time the prices rose, or would he face bankruptcy by not doing so and having to bear the enormous capital loss when the cost of materials dropped?

Photo of Mr William Ross Mr William Ross , Kilmarnock

I think there is a certain amount of reason in the hon. Gentleman's argument, but the point is that we have been allowing and over-allowing for that.

I would point out that Mr. Hugh Fraser, the Chairman of the Scottish Drapers Association, is not a man with a wee shop in a back street. Ask people in Glasgow, and they will say that the house of Fraser is buying up practically all the big department stores in Glasgow. He is certainly a man who knows what he is talking about when he draws attention to this practice of deliberately holding up contracted deliveries in order to get the new higher selling prices.

There is no doubt that there is a feeling within the trade and outside among the consumers that some of these practices are unjust, and the practice of asking the Board of Trade for permission to charge increased prices is not justified. I wish the Board of Trade would be a little more severe on this point. The manager of the Co-operative furnishing -department in Kilmarnock has been wondering why the Board of Trade are permitting an increase in maximum prices when a traveller comes along to them and offers to sell them furniture at 15 per cent. discount If a firm can still allow 15 per cent. discount I do not see how they can make a reasonable case for an increase in price. That kind of thing is going on, and there is no doubt that it is having an adverse effect.

In these times when things are so stringent, it is up to manufacturers and retailers to hold their hands a bit. It is not a question of reaction on the part of the trade unions. The actions that have been taken by these manufacturers and others concerned within these price rings are dangerous at the present time.

Hon. Members have played down the question of trade rings; but surely they do not forget that a report was produced by the Lloyd Jacob Committee on dental supplies. It said that these trade rings which were set up to provide a reasonable discipline in the industry, were now working for the purpose of exploiting the consumer. I hope that the Parliamentary Secretary will give us some idea of how they intend to break these price rings, which undoubtedly are exploiting the public, and how the new controls, announced yesterday, will work.

Hon. Members talk about the rise in the price of coal, electricity, and so on, but every day increases are taking place in the cost of items manufactured by private industry—and over those we have absolutely no control. In those cases it is not even necessary for them to justify the increases, and our complaint today is that many of these increases are not justified and that the public are being fleeced by high prices.

Photo of Mr Henry Hynd Mr Henry Hynd , Accrington

Before the Parliamentary Secretary replies to the debate, could we have the alleged quotation from the Hon. Member for Hands-worth (Sir Edward Boyle)?

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

On a point of order. Before you were in the Chair, Sir, I was challenged on a quotation. The hon. Member for Handsworth (Sir Edward Boyle) was challenged to go to the Library and fetch it. I understand that he has brought the authority for it. I do not wish to appear unfair or discourteous to him. If he has produced the document, I respectfully suggest that the Parliamentary Secretary might give way so that the hon. Member can read it.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I must apologise to the House, as I was three days out—it was 21st August, 1947. The right hon. Gentleman was reported in the "Manchester Guardian" as having said the country is in a condition which could probably be described as over-full employment. I have to confess that I have not actually consulted the files of the "Manchester Guardian" on this quotation, but the "Manchester Guardian" quotation has been published for more than a year and if it was a misquotation there has been ample opportunity for any right hon. or hon. Gentleman to correct it.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

I was challenged on this point. Of course, the hon. Gentleman will appreciate that he is quoting it completely out of its context. Incidentally, he is quoting it from a very mendacious document—the handbook of the Tory Central Office, which obviously, in an attempt to secure an advantage, would be prepared to give the quotation out of its context.

I will leave the position at this stage and I suggest that on another occasion we might resume this matter and the quotation might be made from something rather more authoritative.

Photo of Mr William Shepherd Mr William Shepherd , Cheadle

Will the hon. Gentleman now withdraw what he said?

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

No. I do not accept the bible of the Tory Central Office as an authoritative document.

3.35 p.m.

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

We have had a good Friday afternoon economic debate which has wandered all over the place, from a very incisive beginning through Smithsonian-Douglas Social Credit. Some of the economic theories were similar to those of the old lady in my village who keeps a tripe shop and who says she loses money on every pound of tripe she sells, and that it is only by selling the lot that she ever makes a profit.

This is a very serious subject. It is a very easy subject to talk upon because in some aspects it always has a ready, appreciative and sympathetic audience, because everybody wants prices reduced to the lowest possible level. If I may say so, it is as easy a subject to talk about as is the subject of Japanese competition in the constituency of my hon. Friend the Member for Blackburn, East (Mrs. Castle).

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

The hon. Lady made it entertaining.

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

It is an easy subject to talk on, but it is a very different matter when it comes to practical application. When it comes to practical application it becomes difficult, and I will attempt to explain why.

It has been suggested that utility maximum prices are too high. I cannot take responsibility for what has happened to prices overseas; I accept responsibility in the comparatively small field for which I am partly responsible. Utility maximum prices are fixed only after very careful examination of representative costings and trading accounts. We do not accept the highest costing or, indeed, any one costing as the basis for the maximum price. In addition, our accountant adviser examines a sample of trading accounts to see what profits are being made by the various industries in their utility production as a whole.

As I said in the House on 3rd July, We have always, of necessity, to strike a balance between keeping prices down to the maximum possible extent and securing adequate supplies in the shops."—[OFFICIAL REPORT, 3rd July, 1951; Vol. 489, c. 2300.] The hon. Lady was one of the first, not long after I took on this job 15 to 16 months ago, to complain about the shortage of various things in her constituency, such as towels.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

Surely the hon. Gentleman must be incorrect. Sixteen months ago I was Parliamentary Private Secretary to the President of the Board of Trade and unable to open my mouth on the subject.

Photo of Mr William Ross Mr William Ross , Kilmarnock

I should be surprised if the hon. Lady did not open her mouth on the subject.

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

I agree with my hon. Friend the Member for Kilmarnock (Mr. Ross) and I, too, should be very surprised. In any case, if I am wrong, I will withdraw the remark.

But my hon. Friend will accept that many complaints were made about the shortage of goods in the shops. It had to be tackled, and it was tackled. It could be tackled only by striking the balance between keeping prices down to the maximum extent and offering an inducement to get stuff into the shops. At that time we had not the extra cost of, say, cotton or wool because of the Korean war; but goods were in short supply in the shops, so the Board of Trade took action to get goods into the shops.

The action the Board of Trade took in the early summer of last year in getting utility goods into the shops at reasonable prices was a blessing to the ordinary folk of this country who use utility goods, because they were made available in reasonable quantities and at reasonable prices and then the Korean crisis came upon us.

We allow no one to hold us to ransom on prices. I wish those who are in any doubt about our strictness on price control could be present at some of the interviews we have with manufacturers when negotiating prices by argument. We do not claim that price control can prevent price increases in a period of rising raw material prices. That cannot he done, and I challenge any hon. Member to prove the contrary.

We may get a modicum of discipline over prices by assuming also a very rigid production control, and by defining how much the home market is allowed to have, but at the same time, we must say how much is to be exported. Otherwise, there would be unemployment. The programme cannot be changed from week to week or month to month to meet the difficulties of cotton or wool workers, or whoever it may be. There must be care in assessing a pattern of production before making alterations in terms of rigid production control, and also of rationing the home consumer.

We have kept the effects of raw material price increases to the minimum. What would have been the effect of those increases on consumers if there had been no price control at all? That is what the Opposition wanted to take off years ago. The maximum price permitted to a manufacturer is by no means necessarily the price he charges. I hope that our friends in the Press will notice the difference between prices and maximum permitted prices.

It may have been true in the past, during a period of war-time shortages, that the maximum price was also in effect the minimum price, but there is no doubt that that is not now so, because large quantities of utility garments are being sold below maximum permitted prices, and in some cases well below it, which is an indication of the trend.

It is no use my hon. Friend the Member for Blackburn, East in a time of falling prices, suggesting a subsidy on a commodity, and also controls, if within a few weeks you have got to increase the scale of the subsidy to catch up with its fall.

Photo of Sir Arthur Salter Sir Arthur Salter , Ormskirk

If I may say so, I did not understand that. The hon. Gentleman said, "You have to increase the subsidy to catch up with its fall." I am only asking for information. I could not understand.

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

Let me explain what I mean. The argument my hon. Friend is now advancing for subsidies was a good enough argument to advance when the maximum prices of wool were in the region of 340d, for merino wool, and what I meant to say was that we have to decide at what rate we were subsidising. If we were subsidising at a high rate, we should have gradually to scale it down over the months. That would be a terriffic administrative job if we were going to keep close control.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

Surely we have had that administrative difficulty over food for a long time, and it has not been insurmountable.

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

Yes, but we have not had a fall in the price of food to the same extent as in the price of wool since March. I will give examples of prices which are well below the maximum prices permitted A man's suit which can be sold at £14 9s. is selling at £11 15s. in many shops. A woman's coat which could be sold at £14 12s. sells at £8 17s. Men's socks the maximum price of which is 9s., are selling at from 4s. 1d. to 7s. 8d. These examples are taken from a survey which I had made last week, and which proves the trend which I shall indicate in my speech.

I agree that it is possible to draw up a relatively short list of garments that can still be sold fairly constantly at maximum prices. These include the better quality goods—such as underwear, women's outer wear, wool and union raincoats, shirts and winceyette pyjamas. It may be argued that that is a reason for reducing the maximum prices—I agree that there is logic in that suggestion—and that the efficient, low cost producer is making too much profit.

But variations in the cost of utility garments do not always reflect the relative efficiency of the manufacturer. They often indicate the grade or quality of the garment. The utility dress or suit may be made with an eye to the cheapest class of trade, with the minimum of cut, trimming and finish, or it may be made from the same materials by manufacturers employing highly skilled labour, under con- stant supervision, and the most careful cut. The same maximum price applies to both. I am not denying that. It is not surprising that the better quality garment commands a higher price. If we hold the maximum price unduly low we would run the risk of shutting out the high grade manufacturer who stimulates competition in price and quality. There are those who say that we have allowed utility prices to rise too quickly following the world rise in the price of wool and cotton.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

Is not that the perfect case for the restoration of cost control?

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

I shall deal with that because I have an example where it may apply, if the hon. Lady will be patient. As I told the House on 19th July, the actual percentage increase in retail prices has not been really excessive. For ex- ample, the retail prices of some items of outer wear in wool and wool mixtures have risen by 23 per cent. in relation to an increase in cloth prices of 30 to 40 per cent. and a wage increase of 12½ per cent.

The examples I have quoted show that these permitted increases have by no means always been passed on to the consumer. The maximum prices of garments made from wool and wool mixture cloths are based on the price of raw wool in October 1950. It is only within the last month or so that garments at these higher prices have been on sale to the public. Since then wool has risen and fallen again and the rise has been absorbed by the trade, but the consumer has not been affected, and I am more than a little hopeful that, if present tendencies continue, we may see a decline.

I want to stress the point that the last October prices of wool are only just being reflected in the higher priced garments in the shops but, taking garments generally, we find that the average represents the wool prices between March and October last year, not even the October prices. That strengthens the argument about the possible decline.

If the recent decline in raw cotton prices is maintained there will be ground for hope that manufacturers' maximum prices for cotton cloth will be reduced in the early autumn, and that this will be followed by reductions in the manufacturers' prices for clothing. We intend also to adjust the prices of certain house- hold textiles in the next month or two to take account of the fall in prices of cotton waste. The goods concerned are those produced from condenser yarns, such as some terry towels and some furnishing fabrics. Incidentally, the break in cotton waste prices will bring down the price of cotton felt and we propose therefore to reduce the manufacturers' maximum prices shortly for the utility bedding affected.

I want to say to my hon. Friend that the possibility of doing that was entirely due to action by the Board of Trade last November. If I may respectfully say so, we needed a bit of advice then. We know more about the circumstances relating to today, but last November, when we needed it, we were not getting much. When the Indian Government imposed a duty of 50 per cent. on cotton waste, we got the trade together within two days and reached an agreement about lower prices.

If it had not been for the prompt agreement of the trade, which eventually broke the prices of cotton waste, there is no doubt that towels, and the other goods I have mentioned, as well as a good proportion of sanitary towels, would have been 50 per cent. up on the prices that have' been ruling, even at their peak.

We have had some discussion about relaxing control too soon and too freely at the expense of the consumers. Before 1948 there was a list of goods, including utility clothing, whose prices were controlled by some form of cost plus, sometimes with cash ceiling prices as well. This system was much criticised on the grounds that it did not encourage efficiency but did encourage inflation of costs. During 1948 we gradually removed cost plus control for utility goods with a few limited exceptions. The only price control for most utility goods is now by means of cash maximum prices.

Nevertheless, in spite of those objections the Government have decided, as the Chancellor announced yesterday, to reimpose a modified form of cost plus control where appropriate. I am sure that my hon. Friend the Member for Blackburn, East, will not expect me to announce a whole list of commodities—

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

Did the statement come as a complete surprise to my hon. Friend?

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

Certainly not. In the wool industry, without any compulsion or restriction, utility production has reached 86 per cent. of total supplies to the home market and at the height of war-time controls the proportion was not as high as this.

The new and more flexible specifications for utility cotton and rayon cloths were introduced this year to improve utility supplies on the home market and at the same time to remove an obstacle to export. That was a slight relaxation which was done for a specific purpose. Fabrics made for export which, owing to changes in taste or fashion, fall temporarily out of demand abroad, are no longer kept off the home market, and the consumer benefits accordingly.

I want to deal with a very important point regarding carpets, which were mentioned by my hon. Friend. I have two points to make. I told the House on 18th April last that the Carpet Manufacturers' Federation had agreed at my request to withdraw their rule requiring their members to sell at the maximum prices fixed by the Board of Trade. I regret to say that it is clear from complaints we have received that some manufacturers have acted as though the rule was still in effect, and have told their customers that they are not permitted to sell at prices less than the maximum laid down by the Board of Trade.

As I have said, we have come to the conclusion that in appropriate cases, and in consultation with the trades concerned, the present control by maximum prices only should now be supplemented by a modified system of cost-plus control. I am sure the House will agree that, in the circumstances I have described, the carpet industry calls for consideration as an appropriate case for the early introduction of this modified cost-plus method.

I also told the House on 18th April that in view of the big rise in the published profits of certain manufacturers, the maximum prices of carpets would not be increased again until the Board of Trade had conducted a further investigation into costs. Since April, there has been a great change in the wool market, and carpet yarn prices are now substantially below those on which present carpet prices are based. Although some allowance will have to be made for yarn bought at peak prices during the first three months of this year, it seems that we can now reduce maximum prices in line with current prices of carpet yarns and take account of the results of the costing investigation. The Board of Trade will very soon begin discussions with the manufacturers to discuss the extent and timing of these reductions.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn East

Does that apply also to linoleum, which, I think, is governed by the same sort of price ring under rigid trade association rules?

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

I cannot answer on that point today. If my hon. Friend likes to put down a Question next week, we will look at it.

There was some mention about the proportion of cheaper fabrics and clothing in the shops, and it was said that people are asked to pay too much for clothing because they have to buy non-utility goods. In general, this is certainly not the case. As regards hosiery, manufacturers are not allowed to supply more than 25 per cent. of their output to the home market in non-utility goods, but utility has, in fact, consistently accounted for more than 80 per cent. of home market supplies. The proportion of utility in the total production of made-up clothing is determined by the proportion of utility cloth produced.

It being Four o'Clock, the Motion for the Adjournment of the House lapsed, without Question put.

Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Kenneth Robinson.]

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

At present this proportion is 86 per cent. for wool and wool mixture fabrics. In the case of cotton and rayon cloths the proportion is lower, about 67 per cent., and for this reason the cotton and rayon utility scheme committees were asked to consider the matter. Following their recommendations, there is evidence that the proportion is now rising, and I have every expectation that this will be maintained. In the first quarter of this year the proportion of utility to the whole was up by 8 per cent. and yardage was up by 22 per cent., which is even more important.

There has been a lot of talk about profits. The debate has concentrated on that. The House heard from the Chancellor yesterday what we propose to do in that matter. About three months ago I was asked by a trade association for fresh prices on a certain range of commodities. Among the evidence submitted was the contention that the cloth that they used was costing them 10 per cent. more than it need do on account of faults in the cloth.

I did not believe that the percentage could possibly be so much, and I offered to go and see the cloth at the place where it could be seen. I did so the following morning and their contention was true. The figure was over 10 per cent. I looked at the cloth and measured it myself. I did not allow a penny piece in relation to faulty cloth. The moral of that is that the people who are engaged in the manufacture of fabrics can contribute to the reduction of the cost of living by more meticulous care in the craftsmanship which they put into the goods that they produce.

When I put this viewpoint about a week later to a canteen full of people who were making the fabrics they were unanimous in support of the action that I had taken in not allowing the extra cost in respect of faulty workmanship. If management, workers and overlookers alike will take more care in the work they are doing they can themselves contribute to a reduction in the cost of living.

We recognise that prices are high and our great anxiety is that they should be lowered in the shortest possible time. I agree with my hon. Friend the Member for Blackburn, East, in her desire that at a time like this consumers should be discriminating in their purchases. There is no doubt that the consumer can have more effect on prices and quality by exercising good sense when buying than we can hope to achieve by any official system of price and quality control.

That does not mean that we have either neglected or intend to neglect our duties at the Board of Trade. Far from it. As soon as we are satisfied that our maximum prices can be lowered without harming supplies of good quality garments that will be done.

Before I sit down I wish to mention some of the more important goods in the household textile field which, I hope, will be coming down in price very shortly —huckaback towels, some types of cotton sheets, flannelette sheets in addition to that, terry towels and some furnishing fabrics which I have already mentioned.

I hope that I have given some indication of the trend. I deny that the Board of Trade has been slack in any respect in the administration of its responsibility for price control. I hope that the hon. Member has something to be satisfied about as a result of what I have said.