15 SEPTEMBER 1967, Page 2

Paying the price

Last week, this journal conspicuously failed to join in the chorus of abuse heaped on the Government for allowing an increase of 10 per cent or more in electricity prices. Alas, our confidence in the Prime Minister's determination that a government must govern soon proved misplaced. Within a matter of days he had hurriedly back- pedalled, announced that in future all nationalised industries' price increases would be submitted to the Prices and In- comes Board, deferred publication of a scheduled White Paper on the economics of the nationalised industries, and for good measure stamped on a proposed price rise by the Port of London Authority. Last week, this journal conspicuously failed to join in the chorus of abuse heaped on the Government for allowing an increase of 10 per cent or more in electricity prices. Alas, our confidence in the Prime Minister's determination that a government must govern soon proved misplaced. Within a matter of days he had hurriedly back- pedalled, announced that in future all nationalised industries' price increases would be submitted to the Prices and In- comes Board, deferred publication of a scheduled White Paper on the economics of the nationalised industries, and for good measure stamped on a proposed price rise by the Port of London Authority.

In a remark worthy of Lord Butler him- self. Mr James Callaghan the other day characterised the Prime Minister's chief quality as inventiveness, and castigated the press for failing to give due credit to this attribute. The SPECTATOR here and now un- stintingly acknowledges Mr Wilson'S inven- tiveness in devising a new policy for the nationalised and semi-nationalised industries in less than a week. Unfortunately it is an appallingly bad one.

Take, first, the PLA charges. The need for an increase is a direct result of the imple- mentation, after two weary years of nego- tiation, of a scheme for the decasualisation of dock labour. This at last allows dockers a self-respecting status, and _should eventu- ally lead to better industrial relations, an end to many restrictive practices, and an alto- gether more modem and more cificient port. But in the meantime it implies higher dock labour costs which, as the Devlin Report (accepted by the Government) fully recog- nised, can only be recouped by higher charges. If the Government, obsessed by its so-called incomes 'policy, and afraid of popular discontent, is not prepared to accept this simple fact, then its only recourse is to subsidise the docks—and, inevitably, to finance the subsidy out of increased taxation.

In the case of electricity, the price rises derive from the need to finance the indus- try's massive investment programme and at the same time earn the target return on capi- tal laid down following the classic 1961 White Paper, which for the first time estab- lished clear commercial criteria for the nationalised industries. Mr Wilson's sudden decision that in future the PIB must also come in on the act, with an efficiency audit to ensure that no nationalised industry raises its prices when it could in fact cut costs in- stead, is an extraordinary one. In the first place, the Treasury already conducts an in- vestigation of this kind. Secondly, even if —and there is a strong argument for this— it is considered desirable for the audit to be conducted in public rather than in private, this should be entrusted, as Mr Nigel Birch has already argued, to a body that reports to. Parliament rather than to the literally irre- sponsible PIB. Thirdly, Mr Aubrey Jones and his team are not even equipped to con- duct efficiency audits of the nationalised in- dustries. And, finally, it is clear that the PIB would insist on regarding the financial targets themselves as open to question.

This is no mere speculation. The Prices and Incomes Board has, in fact, alteady con- ducted an investigation into electricity prices, in December 1965, and it did just that. Some of its suggestions were sensible enough: it argued, for example, that the target rates of return for new investment should be higher than the target for existing plant, which was made artificially low" in recog- nition of the social service element in rural electrification. On this basis, it would seem that the Pm would recommend bigger price increases still—although it is somewhat obscure how: the Board squared this with another recommendation that prices should be increased 'only for unavoidable increases in costs arising from outside the industry,' whatever that may mean.

The 1961 criteria and targets are certainly not sacrosanct. But if there is a change it is a matter of the utmost public importance, and one for Parliament, and not the Pm. to determine. This is true not least because, in a full employment economy, the proportion of the electricity industry's investment ex- penditure that is not financed out of prices (already well over half) can only be financed out of increased taxation.

No doubt it would all be very cosy if no nationalised prices ever went up at all. Indeed, why stop there? Why not abolish prices for public services altogether? It can be done—provided the public is prepared to tolerate soaring subsidies, mounting taxation, inefficient nationalised industries with all vestige of financial discipline removed, and the most uneconomic misallocation of the nation's resources. If this is the direction in which the incomes policy is leading us, here is yet another reason for scrapping it as soon as possible.