Prices and Price Commission

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

Alert me about debates like this

Photo of Mr Stuart Holland Mr Stuart Holland , Lambeth Vauxhall 12:00, 27 July 1979

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.