Prices and Price Commission

Petition – in the House of Commons at 12:00 am on 27th July 1979.

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

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Before we begin the Adjournment debates, I should tell the House that it is important that every hon. Member who has been fortunate enough to gain a place in the ballot should keep to time. The first debate is due to end at 12 noon.

11.7 a.m.

Photo of Mr Michael Neubert Mr Michael Neubert , Romford

I take this opportunity, at the outset of the Summer Recess Adjournment debates, to wish you, Mr. Speaker, a restful and refreshing recess. No one serves this House with greater dedication, and no one better deserves a period of relaxation than yourself before the House resumes in the autumn.

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

May I, as Leader of the House, associate myself with the benediction of my hon. Friend the Member for Romford (Mr. Neubert)?

Photo of Mr George Thomas Mr George Thomas , Cardiff West

This is a most extraordinary occasion. I am deeply grateful, especially for the blessing of the Chancellor of the Duchy of Lancaster. I am grateful to the House. I wish everyone a happy recess. I can say that because I shall not be here throughout the whole of the day.

Photo of Mr Michael Neubert Mr Michael Neubert , Romford

In acknowledging my good fortune at being able to initiate the first of the debates that make up the last day of the Session before the Summer Recess, I regret that the issue that I have chosen is of the utmost seriousness, namely, inflation, which is the most important issue of all for many people.

The sombre black clouds that lie ahead on the horizon contrast very un- favourably with the summer sunshine streaming through the windows this morning.

The economic background to this debate is bleak. On the other hand, all of us on the Government side of the House—and, indeed, many millions outside the House—have been tremendously heartened by the demonstration of dynamic decision and determination given by the present Government in the three months since they came into office.

For the first time for many years we have an opportunity to take a new direction in our nation's affairs. As a country, we have suffered over the recent past from being overtaxed, overborrowed and overspent, but within weeks of the new Government taking office we had, on 12 June, a remarkable radical Budget that will enable the country to seize the opportunities that other countries have seized and to raise the level of prosperity to the benefit of all.

However, the policies that are being adopted by the new Government are necessarily unfamiliar to the public. In particular, inflation is to be curbed by the application of strict financial and monetary policies. This strategy needs to be understood in order to succeed. Unhappily, it must be said that the official Opposition are not likely to play very much of a part in achieving that understanding, with the Shadow Chancellor himself virtually inciting many working people to make inflationary wage claims in the next winter's pay round.

Therefore, in introducing the subject, my first task is to consider the immediate background of the past five years and then the even more recent past five or six months. It is common knowledge that in the past five years prices have more than doubled; they have risen by 110 per cent. Food prices have gone up by 120 per cent. Therefore, we have a background of rising inflation. No doubt the public felt that given a change of Government there might be a change in this unfortunate situation, but that has not been seen to be so in the past few weeks, because prices have continued to rise. Given the campaign waged by the Labour Party at the last election—that it had overcome inflation; that the rate was at least stable, although not going down any more—it is important to point out that inflation had actually been rising since last October.

I should like to give the actual retail price index figures for the annual rate of inflation. In October of last year, it was 7·8 per cent.; in November, 8·1 per cent.; in December, 8·4 per cent.; in January, 9·3 per cent.; in February, 9·6 per cent.: in March, 9·8 per cent.; in April, 10·1 per cent.; in May 10·3 per cent. and finally, the last available figure, in June, 11·4 per cent.

From those figures it is quite clear that there was a trend, slow to start but inexorable, in rising prices. Therefore, this problem of a new take-off in our inflation rate was already well established before the change of Government in May. Indeed, if one looks at the whole of the past 12 months, in only one month since June 1978 has inflation gone down, and only then by 0·2 of 1 per cent.

That is the stark, realistic background against which we must consider price rises at present. One of the first actions of the new Government, within a matter of a couple of weeks of taking office, was to announce the abolition of the Price Commission. At the same time, there was a sudden surge of price increases and, not unreasonably, many people will have seen that as cause and effect. In fact, that is not so. I should like to examine the Price Commission's general role before coming to the Price Commission (Amendment) Act, to show why that was not cause and effect.

Over the period of its existence the Price Commission has been understood to have had the purpose of keeping down prices. The very fact that prices have more than doubled in the last five years is at least an indication that it has not succeeded, or, if it has, that it has been only by an insignificant amount compared with the amount by which prices have risen. That is the state of the record in relation to the Price Commission. While inflation was rising rapidly, reaching a peak of 26·9 per cent. in August 1975—a rate that had not been equalled before—at the same time the Price Commission, in its way, was trying to stem that tide. But it could not do so, because the tide of rising prices was motivated by rising costs. There is no avoiding the implications of rising costs on prices. All that the Price Commission could seek to do was to root out excessive profiteering.

It cannot be in the experience of many hon. Members to imagine that one of our major problems is excessive profiteering—quite the reverse. Profitability in British industry and commerce in recent years has been at a derisory, low level. Therefore, the Price Commission had very little scope for acting in order to reduce prices. Where it did have scope, and where it took the opportunity to reduce prices, it was usually at the expense of profits, which, in turn, meant that companies did not have the necessary resources to invest in new equipment and to create new jobs.

On the one hand, for the major part of its activities the Price Commission has had a negligible impact on inflation and, on the other, has had a susceptible impact on some prices to a very small degree, which in itself has been damaging to investment and employment in the long run.

I do not believe that the British public has much confidence in the Price Commission, or that it will mourn its passing, for that reason. To take a homely analogy, the Price Commission is very much like a watchdog put on the chicken run. If at the end of the night the chicken run is found to be empty, and a mass of feathers, the dog can well say that it was on guard but that the fox had obviously been in and taken the chickens. It will not convince many people to suggest, as did the Labour Party, that what is needed is to strengthen the dog. Most people would either get rid of the dog, abandon chicken farming, or have doubts about the effectiveness of the guard system.

In the early part of this year, despite all the factors that I have outlined, which went against the very raison d'etre of the Price Commission, the Labour Government decided to strengthen the Commission by the introduction of the Price Commission (Amendment) Act. The significance of that was that for the first time the Commission had the ability to freeze prices for three months, notwithstanding the fact that this would be a contradiction of the profitability record of the company in question, or of the rising costs that led it to put in the price increase application.

The significance of this was very serious. The Act was fought in this House but eventually enacted. On the one hand, it was an attempt by the Labour Government to mollify the trade unions and to persuade them that something was being done about rising prices when, as I have indicated, inflation was on a rising trend, at a time when they were seeking wage restraint. On the other hand—this has to be said—it cannot have escaped the Labour Government's notice that the ability of the Commission to freeze prices for three months was very useful just at a time when the shadows of an impending election were casting themselves upon the Government Front Bench.

By the enactment of the Price Commission (Amendment) Act, the Commission was given the extra powers which, I emphasise, were to freeze prices, even though costs could be demonstrated 100 per cent. to justify those prices. It is fair to say that the Commission had the discretion to do that, and it took advantage of the power granted in the Act.

The result was that the increasing rapidity of the rising trend in the inflation rate was masked for a matter of weeks. It became apparent only after the general election, with the abolition of the Price Commission and the release of price rises that had been held up. For all that time, and certainly for the months since the Price Commission (Amendment) Act was put on the statute book, the most that the Commission could seek to do was to hold back prices—to defer the inevitable. It could not get to grips with the basic causes of inflation, which lay elsewhere, principally in the Government's economic policy.

In order that my view is not regarded as impossibly partisan and prejudiced, I quote the Governor of the Bank of England, Sir Gordon Richardson, who, on 23 January, in the Financial Times, is reported as saying: the unavoidable consequence of action designed to prevent … excessive cost rises from being passed on in higher prices will be some forced curtailment of profits, production and employment. That was so.

Sir John Methven, the director-general of the CBI, in the Daily Telegraph of 16 May—I acknowledge that he is a more interested party, but none the less a highly respected and authoritative voice of industry—said, in a valedictory report on the Price Commission, that the Commission had depressed industrial profitability by ten times as much as prices. Less money had thus been invested in factories to help provide new jobs and increased output which could again lead to lower costs and prices. That undoubtedly was the effect of the Price Commission, but profitability in this country is so low that there was little scope for cutting back prices that are generated by rising costs.

I should like to examine some of the increases in the cost of the basic essentials of life that occurred in a spate in the month of May, immediately after the general election. It will demonstrate the power of my case that these price rises were justified by rising costs, were held back by the Price Commission—and in particular by the powers conferred on it by the Price Commission (Amendment) Act—and could not be avoided. They should not, therefore, be laid at the door of the new Government, because that undoubtedly would hamper their attempt to change direction, create a new climate and achieve new prosperity for the country.

On 5 May, only two days after the election, the Price Commission granted a further interim price increase of 1p a pint to Whitbread. That made up the full 3p a pint rise originally sought by Whitbread, which it claimed that it needed to maintain its then levels of profit. The fact that the Commission used the powers available to it to defer part of that rise is said to have cost the company £3·8 million, in an industry that, for all the abuse given to it, is currently undertaking a massive programme of reinvestment in new equipment, which is something that all Governments seek to encourage.

On 11 May the Price Commission granted Rank Hovis McDougall and Allied Bakeries an interim rise of 1p on the large standard loaf and ½p on the small standard loaf. The Commission had frozen those prices a week before the general election, after the original claim for price rises of 2p and 1p respectively. The lack of profitability in baking is notorious. Both major companies that dominate the market make the bulk of their profits from flour milling. It is well known from the recent demise of Spillers, the third major plant baker, how low profitability is in baking and how many jobs have been lost as a result during the period of price control. Both companies blame increased costs, such as wages, wrapping materials, fuels and overheads, and who is to doubt them? Consequently, my right hon. Friend, following the announcement of the abolition of the Price Commission, allowed RHM and Allied Bakeries the further rise of 1p and ½p respectively that they sought, making up the full justified increase in the price of bread. That was on 16 May.

On 12 May Bass Charrington was allowed a further interim increase of 1p on a pint of beer by the Commission. That increase again made up virtually the whole of the 3p per pint rise originally sought.

On 18 May there was worse news for British industry, because price rises of 8–6 per cent. for electricity and 8 per cent. for gas were announced to take effect from 1 June. Both those price applications had been stalled by the powers conferred on the Commission, and again it was only a deferment of the inevitable, which cost both those industries a substantial sum of money. In the case of electricity, about £20 million was lost as a result of that temporary deferment of price rises over the period of the general election. The British public should be told the reasons for these increases that were announced so shortly after the general election.

On 24 May the Post Office proposed a 1p increase in the cost of first- and second-class post from the end of July. Those increases were put back for a matter of months following representations that the notice given was too short. They will follow a two-year freeze on postal charges, and are the minimum needed to keep the postal business in the black and meet the Government target of a 2 per cent. return on turnover during 1979–80. Who could complain that a profit on turnover of 2p in the pound was unreasonable? It will also be necessary to cover rising costs and finance the postmen's pay settlement.

On 25 May we had a rise in the price of fuel. Oil went up by around 4½p a gallon, resulting in an increase of 5p to 6p at the pumps. These and subsequent rises were necessary to recover recent substantial increases in the price of crude oil.

Finally, on 26 May a rise in the price of milk of l½p a pint was announced to take effect from 3 June. It was again greeted with an outcry. It was virtually the first decision made by the Minister of Agriculture, Fisheries and Food, and it was made by him because the previous Government had failed to carry out the regular routine review that would have given effect to these price rises at the beginning of April—again before the general election.

Food prices have been rising steadily as a result of the bad winter, and the turmoil in the Middle East—the Iranian revolution—will ensure that there are further price rises to come. I stress again that it is important to the understanding of the new economic policy that these prices be seen for what they are—a consequence of past actions and policy decisions. They are not immediate consequences of the new Government's taking office.

If we look this week at the three public sector monopolies—Post Office, gas and electricity—we find that we again have a crisis of understanding. People will not understand how it is that the Post Office can announce a profit of £375 million, the British Gas Corporation a profit of £360 million and the Electricity Council a profit of £251 million and at the same time give notice that prices will need to go up. Those sums are astronomical and beyond the comprehension of most people, who would imagine that those were profits in excess of anyone's wildest dreams. In fact, they are not. As a percentage of turnover, or by any other standard, they are a relatively small return on the vast amount of public money invested in these industries. If they are to reequip and secure the cost benefits of new equipment, they must be allowed adequate return on their investment on our behalf to ensure a continuing service to the British people.

That brings me to three points of policy relating to price rises, the role of the Price Commission and the retail price index. First, one of the most dramatically brave features of the Budget was a deliberate change from direct to indirect taxation in the form of VAT. That was necessary, in part, to compensate for the change in the levels of direct taxation. It is our intention to reduce taxation in general by a substantial amount, and especially direct taxation. That has the consequence, as this Government have seen, of a sharp immediate rise of 3½ per cent. in the retail price index. That will come in mid-August. That is another reason why we should advance our explanation for that rise when it occurs in the recess.

To my mind, it demonstrates the need for a standard of living index to supplement the present retail price index. That may be thought to be a way of masking the rising trend in inflation, but that is not the case. The RPI will continue to be published and give the bold treatment of the increase in prices. However, a standard of living index will put the VAT increases, which are sharp and once and for all, in the perspective of the tax reductions at all levels.

I was disappointed that in a comment on a proposal of the Institute of Fiscal Studies for what it calls a gross earnings deflator this morning, it should be suggested that because it does not show a remarkable increase in the standard of living, such an index should perhaps not be published by the Government. We cannot always change the rules to ensure the best possible result. We should seek a better understanding of the way in which the economy works. Sometimes it will go against and sometimes it will go in favour of the Government. At least it will not give the misleading impression that prices have gone up as a result of VAT increases without any compensating reduction in taxation.

Second, we must bring out powerfully our policy of reliance on competition as the best guarantee for lower costs and higher efficiency. Competition is an uncomfortable concept that perhaps is not popular with the public, but we have benefited in recent years by the intense competition in some sectors of our economy, notably in retail distribution. The supermarkets have been instrumental in keeping prices of many basic commodities to a low level. When we recognise that their profit level is of the order of 1 to 2 per cent. on turnover, it is again not an unreasonable return on their activity.

Third, we need to stress the need for improved investment and re-equipment. That is necessary not only to keep us in pace with the rest of the industrialised world but also so that we can by that means create more jobs and higher output at a lower cost and bring further reductions in prices, or at least a stabilisation of prices. To go on with old equipment and plant under capacity is bound to lead to high unit costs and increased prices in the shops.

What is needed is a massive programme of popular education—not adult education alone. That cannot start too early. It must start in the schools. That programme will need to explain three paradoxes. The first is that higher output and higher productivity mean more jobs, not fewer. The second is that rising prices are a symptom of inflation, not the disease itself. The third is that profits are the best defence of consumers' interests.

Higher output will make us more competitive in the world markets; higher productivity will also make us more competitive. The growth of output will mean lower unit costs and therefore lower prices in the shops. That will lead to more jobs as more people will be able to afford to buy our goods. Rising prices are inevitably a symptom and not the cause. They are the mechanical indicator of rising costs; they are not the source of inflation, which is economic policy. Profits are ultimately the best defence of consumers' interests. It is only from the resources given to companies by means of their profits that they may reinvest in new equipment and ensure that consumers can take advantage of the technological developments available at a cost in the modern world.

Only when those fundamental but complex truths are fully understood by people in all walks of life shall we be able by our own efforts to reach the levels of prosperity long enjoyed by our near neighbours in Europe. The alternative is absolute decline and real poverty by Western standards. I look to my right hon. Friend the Minister for Consumer Affairs to play her important and unremitting part in the process of popular education and persuasion in the period that lies ahead of us.

Photo of Mr George Thomas Mr George Thomas , Cardiff West

The debate finishes at 12 o'clock. I understand that the Minister wishes to reply at 11.45 a.m.

11.35 a.m.

Photo of Mr Stuart Holland Mr Stuart Holland , Lambeth Vauxhall

The hon. Member for Romford (Mr. Neubert) left several questions unanswered. He left opaque certain issues which otherwise should be quite clear. For instance, he laid great stress, including the points in his summing up, on what he called the three main factors which formed our best defence against inflation, including the competitive process, the claim that price increases reflect cost increases, and the claim that profits are the best defence of consumer interests.

What the hon. Gentleman did not touch on, and what has not been referred to by Ministers when speaking about competition, was the glaring anomaly between the profits of big business and average profits. For example, taking manufacturing as a whole, between 1968 and the beginning of 1977, whereas average real profits in manufacturing industry rose by only 7 per cent. real profits in the top 25 manufacturing companies rose by 70 per cent.—in other words, 10 times more. That hardly suggests that there is a model of competition working in which the costs of big business are greater than those of small enterprises. It indicates the position of monopoly profits of big business.

The hon. Gentleman referred to competition in the retail trade and profit margins which are normally low. But those profit margins, when he refers to 1 per cent. or 2 per cent., are lower than those available in the published evidence of the retail trade. The concentration of monopoly power in the retail trade is marked. While we had more than 3,000 enterprises accounting for the upper half of retail trade in the early 1950s, now fewer than 400 such enterprises account for half of the retail trade. Any consumer knows the vast concentration of power that occurs in that area and the problems to which it gives rise.

The hon. Gentleman referred to other cost factors in inflation. He cited bread. We know that, even though there is a relative degree of dispersion in that market, it was revealed in the mid-1970s that there had been a price cartel in the bread industry involving some 80 enterprises. That was an extensive cartel. It shows how inadequate is the mechanism of alleged competition even in relatively dispersed markets where trade associations, according to Adam Smith, can assure that when two or three producers are gathered together, either for merriment or diversion, they can seek to conspire against the public interest through some contrivance to raise prices.

In an issue of that complexity we need a mechanism such as a price commission to safeguard the interests of the consumer. The hon. Gentleman pays no account, when he refers to cost rises, to the fact that even the Shah of Iran, after the first OPEC oil price increases in 1973–74, made a statement pointing out to the Western world in general, and Heads of Government in particular, that there was a sheer discrepancy of $1 per barrel between the price increase which OPEC had charged and the price which was then being passed on to the consumer by the oil companies. We have to take account of the fact that the domination in that market by seven major producers puts them in a formidable and devastating position of joint monopoly power. That was clearly shown in relation to the major increase in the petrol price which followed the last OPEC price rise. There was a 20p increase on a gallon of petrol in most parts of the country within days of the Government declaring that it would abolish the Price Commission.

Coffee is one of the key commodities which, in the early 1970s, soared in price because of a particularly bad harvest in the dominant producer country, Brazil. Brooke Bond Liebig and Nestlé did not hesitate to pass on that sort of cost increase in their final prices for instant coffee. However, when the coffee price slumped in the mid-1970s there was not a parallel fall in the price of Nescafé, the retail Maxwell House brand or other brands. Because of the new producer sovereignty in big business structures, the new monopoly concentration, there is a new asymmetry in the price mechanism. Prices in no way reflect real cost structures or productivity increases in the manner that was suggested by the hon. Member for Romford or in the manner that the Government have assumed in relation to the Competition Bill.

A further factor to which Ministers have not yet paid attention is the evidence that is coming from the EEC—rather than the Price Commission—that Inflation is rife in the more concentrated sectors of European industry. This is stressed in the introduction to its fifth report on competition policy, which follows a series of studies demonstrating that in the more concentrated industries within the EEC Nine—those industries that are dominated by a few firms—the rate of price inflation, even before the market cost inflation of the early 1970s, in the decade following 1964 was higher where there were fewer firms involved. That contradicts the claim that there is effective price competition.

Another important factor is the domination of international trade by multinational companies and, therefore, our import price structure. Already about 75 to 80 companies account for half our visible export trade. The total volume of production by our business abroad is double the total visible export trade. Almost half the trade undertaken by our biggest companies is between their subsidiaries in different countries. That enables them to charge prices in international trade which are outside the framework of the normal market. On those prices, they are able to charge themselves higher import prices in order to declare higher costs and, therefore, to claim lower profits. In that way, they can claim larger subsidies or the right to pass on higher price increases.

This phenomenon is well marked and attested at international level, for example, by the United Nations study "The Multi-National Corporation in World Development". But that sort of evidence is apparently not even known to the Government. It is staggering that in reply to my written question the Secretary of State for Trade said that the Government had no information on the ratio of foreign production to export trade by our business. That ratio affects the whole area within which our big business can manipulate trade in international prices and thereby inflate import prices and pass on notionally higher rather than real costs within the domestic market.

Unless the Government are aware of these factors, they have no chance of real success in serving either their Back Benchers or the British consumer by pursuing a Competition Bill of the sort that has been introduced. The Government might as well ask the Pied Piper of Hamelin to introduce a Bill on child road safety as to introduce a Bill of this character to protect the consumer.

11.44 a.m.

Photo of Mrs Sally Oppenheim Mrs Sally Oppenheim , Gloucester

I should like to associate myself with the good wishes expressed to you, Mr. Speaker, by the Leader of the House and by my hon. Friend the Member for Romford (Mr. Neubert).

I congratulate my hon. Friend the Member for Romford both on his initiative and good fortune in obtaining the debate and on the initiative that he has taken in drawing our attention to and casting doubt on the many murky areas about the Labour Government's prices record and the veil that has been drawn by Labour Members over what happened just prior to the general election. I also congratulate him on a number of important factors that he brought to the attention of the House in this short but important debate. He has ventilated an issue that needs to be ventilated, and I am only too pleased to reply both to him and, to a limited extent, to the hon. Member for Vauxhall (Mr. Holland).

Labour Members have made a great deal about the price increases that have occurred since the general election. Much as everybody shares their concern about rising prices, price increases were not invented on 3 May of this year. A great many of those increases which have taken place were very much in the pipeline before the general election, as my hon. Friend the Member for Romford has shown—for example, postal charges, rates. rents, oil, petrol, beer, gas, electricity, seasonal food and many more increases that I shall not go into. The increases reflect the effects of world prices which are still working through and the effects of the road hauliers' strike earlier in the year. They were all in the pipeline before the election, but they have not yet worked through into the retail price index.

In addition to those matters, there were the hidden inflationary effects of the monetary expansion that were associated with the closing months of the Labour Government's term of office. That made the level of increase in VAT and interest rates higher than it would otherwise have needed to be. That was the legacy that we inherited from the previous Government. If the Opposition had come to power, given the level of monetary expansion and the spending commitments in their manifesto, they would have had to increase both indirect taxes by more than we have and put up income tax instead of reducing it. If they had not done so, they would have reneged on their manifesto commitments. We shall never know what they would have done, but I guess that it would have been a bit of each, leaving people with considerably less real income in their pockets at the end of the day than we have done.

Because I foresaw those problems, I issued a number of warnings during the election campaign about the rate of price increases in the pipeline that would have to come through after the election. I made clear that that could not be prevented or cured overnight. At the same time, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), the former Secretary of State for Prices and Consumer Protection, knew all these matters but he was confidently predicting that there were no prospects of inflation taking off again. That is the sort of political dishonesty which characterised the previous Government's disastrous record on prices. That is why Labour Members have forfeited all right to give anybody any lectures about the rate of price increases.

Great play has been made by Labour Members of the abolition of the Price Commission on the basis that it could have prevented a number of price increases. I wish to make it clear that the Price Commission never did, and never could, prevent price increases. It could only delay them, as the record clearly shows.

Let me remind the House of that record. Out of 44 investigations since the inception of the new Price Commission in 1977, it was found that in only one case was a price increase, in effect, reduced as opposed to being merely delayed. In the year between August 1977 and August 1978, the first year of the new Price Commission, in 18 out of 24 investigations the entire increase was allowed at the beginning, in the middle, or at the end of the three-months investigation. We can only conclude from that evidence that in the vast majority of cases in that year the increases asked for were fully justified and the investigations were an expensive waste of time and resources.

During that year, 1977 to 1978, in only six cases were price increases even delayed beyond the end of the three months investigation period. As a result in that year of the expenditure of £7½ million, involving the employment of some 500 people and the use of an expensive building, the British taxpayer and consumer received in return a marginal short-term benefit in the prices of cement, plasterboard, some magazine prices, dry batteries, some horticultural products and West Wales coal.

More recently we have had the curious phenomenon of the Price Commission recommending a higher increase in the price of gas and electricity than the industries themselves had asked for. That was the achievement of the body which the right hon. Member for Lanarkshire, North (Mr. Smith) described as the most effective instrument for stopping unjustified price increases". My hon. Friend has rightly drawn attention to the Price Commission amending legislation and to the number of investigations which were begun just before or during the election campaign. During the Second Reading debate on the Bill, I said, in effect, that it would give the Government the opportunity to manipulater prices in the short term for political advantage, if that was what the Government desired to do. The fact that gas, electricity, beer, bread and oil prices were singled out for investigation just prior to or during the election campaign has led a good many people to observe this coincidence and to attribute to these investigations the political motives which I forecast on Second Reading. I sincerely hope that they are wrong, and I would not make any such personal accusations against the Price Commission itself, but one can understand how a good many people gained that impression from what occurred.

So much for the Price Commission. Example after example has shown that competition has a far more salutary effect on keeping prices power and standards higher—

Photo of Mrs Sally Oppenheim Mrs Sally Oppenheim , Gloucester

I shall not give way to the hon. Gentleman, who has already taken up a good deal of time in this debate. I was saying that competition has brought standards higher than any short-term price controls have done.

The hon. Member for Vauxhall—who is too new in the House to know about the courtesies of this place and did not approach my hon. Friend the Member for Romford to ask his permission to take part in this debate—made an interesting contribution. I shall not attempt to follow the tortuous paths of his case. I can only say that, if I did not know already that he was an economics lecturer, I would have so gathered from his contribution. I suggest that the path of the economics lecturer is a very different one from that of the housewife carrying her shopping basket down the high street.

The hon. Gentleman referred to profits in British industry. The most important aspect of the level of profitability is the percentage of profit return on capital employed. That figure throughout British industry is about 4½ per cent. on average, and most companies which earn as little as that would be better off closing down and putting their money on deposit in the bank.

Photo of Mrs Sally Oppenheim Mrs Sally Oppenheim , Gloucester

No, I cannot give way. I must get on with replying to the debate.

Photo of Mrs Sally Oppenheim Mrs Sally Oppenheim , Gloucester

The hon. Member for Vauxhall then dealt with what he calls the concentration of monopoly power in the retail sector. Again, the hon. Gentleman is divorced from reality. If he were a housewife shopping in the high street he would know that the high street war among supermarkets has caused more prices to come down than any Price Commission could ever do.

The hon. Gentleman, as a theorist, then raised the question of the price of coffee. That was a most interesting example because it is the one area in which the Price Commission sought to intervene and brought about a 1p reduction in the price of coffee but in which consumer demand, as a result of one supermarket resisting the purchase of brand leaders, brought down the price of brand leaders not by 1p but by 8p. That was the effect of competition and consumer resistance.

I wish to remind those who sneer at the effects of competition as opposed to short-term price controls of newspaper reports this week showing the scale of some price increases which are currently being implemented in some Iron Curtain countries. Those increases arise from the same economic factors as face the rest of the world but in countries where no competition exists. In Czechoslovakia a 50 per cent. increase has been imposed on fuel prices; food prices in Romania have been increased by up to 112 per cent.; in Hungary food prices have risen on average by 20 per cent. in one go, and bread prices have also risen by a similar amount.

Photo of Mrs Sally Oppenheim Mrs Sally Oppenheim , Gloucester

That is the situation in countries in which the same world conditions exist but where there is no competitive economy. Therefore, price rises in those Iron Curtain countries will be greater than in those countries which enjoy competitive economies.

If the hon. Member for Vauxhall is so keen on competition, he should give a wholehearted welcome to the fact that the Conservative Government, as opposed to what happened under the Labour Government, are dealing with competition policy and are determined to ensure that competition is fair and vigorous. We do not pretend that competition alone can cure inflation overnight, but we claim that a combination of competition policy and our monetary and fiscal policies will be far more effective in combating inflation in the longer term than were the short-term, cosmetic price controls imposed by the Labour Government. The Conservative Government intend to follow those policies with determination and vigour towards the long-term success that we are determined to have.