The Economy

Keeping prices down

berek Coombs

The recent by-election results at Ely and FtiPon made it abundantly clear, if it was not clear already, that the soaring price of food is the most important single problem facing the

civernment today. It is of such paramount IMPortance because the economy and industrial well-being of the country ultimately dePend upon our ability so to control costs that a Wage explosion, with its disastrous effects, Will be avoided.

So much, one assumes, is common ground. And in this situation it is widely supposed that the Government has few options; that we are the virtually helpless victims of world Pressures on supply and demand. More partikcularlY, that we are, in any case, constrained L'Y EEC treaty obligations as members of the Community. . Is this necessarily so? I would suggest that it is not. And I would suggest that the Government has far more options than most People either imagine, or are prepared to concede. Admittedly Common Market agricultural policy limits our freedom of manoeuvre: it is designed to guarantee a profitable income for European farmers whose efficiency may often be less than farmers' in this country. EEC entry has not itself caused the food price explosion, that must be made clear. What has happened is that EEC rules (which Might, in other respects, be very helptul to us in this country), tend to limit the Govern freedom of movement on the particular question of food prices. Since then, there is to be a general review nr EEC farm price policies in the autumn, r8I1ould not the Government explore the possinatty of quitting the strait-jacket of the traditional EEC price support system? Prices are high everywhere, and the pound nas diminished in value dramatically, com,,,Pared with other currencies, since it was noated a year ago. But for various reasons — &I:J.0d harvests, for instance — cheaper food Might become available, but this is by no Means certain and really the very best that can be hoped for is that prices will steady. Last year the world suffered genuine shortages, such as the grain crisis, which may not rePeat itself. There have been other factors, 4101 as the speculative stock-piling by Japan, Which has been offering much higher prices for lamb and beef than suit the British houseWife's pocket. With an up-valued yen and an ecOnomic miracle to their credit, it is not surPrising that they can out-bid other countries. , So there have been some real distortions in tne supply and demand for world food which ay take time to level out. During this Period, what can we do?

Assuming, in our present situation, that the Government found the money to lower the cost of food to the housewife, EEC rules would prevent its use in direct subsidies across the board. And I would argue that this situation cannot continue: the EEC rules limit the Government's freedom of action too much: the Government should make so much clear to the Community at the forthcoming Brussels talks.

In the next phase of counter-inflation policy the Government has an overriding need to keep wages under control. It needs to reduce the rate of domestically generated inflation so as to keep exports competitively priced. It needs to allow industry to expand profitably without having to raise its prices: and industry, in its turn, needs to replace outdated plant and machinery and extend factory capacity. None of this is possible without wage restraint. And wage restraint is not possible when prices are soaring. So more manipulation, or control, of food prices is not merely desirable: it is crucial. What are the Government's options? Should there be, for instance, a general subsidy on food? There are difficulties in this course of action for two reasons. First, whatever method the Government might decide upon, it will have to argue the policy past other EEC countries, or get them all to adopt similar schemes. Second, the cost might be so high that a large increase in taxes would be need Co fund it.

However, consider such basic commodities as eggs, potatoes, lamb, mutton. None of these comes within the scope of the EEC pige support mechanism. So subsidies on them are a possibility. It is possible, too, to direct some kind of financial help towards food manufacturers. About half the food we eat comes directly from the farm: or it is imported and not processed further. The other half is manufactured from either home or foreign farm produce, or processed and packaged in this country. The rules for prices during Phase 2 allow the food manufacturing industries to pass on to the customer increases in the cost of raw materials used. The prices of raw materials so used have risen by around 30 per cent in the past year. So, inevitably, the Price Commission is allowing these industries to increase their prices and shop prices reflect the result. The Government could, then, stop these industries being allowed to pass on the cost in creases automatically: and if profits suffer in consequence, those industries could be allowed a reduction in corporation tax. If the manufacturers were fully compensated for their increases in this way the cost to the nation would probably be in the order of £150-E200 million for every 5 per cent rise in shop prices that would otherwise have been necessary.

It is a price that could well be worth paying to stop what, otherwise, seems inevitable: a period of increasing industrial militancy which benefits neither employer nor employee in the long term.

Beyond that there are the more commonly suggested aids: increase in family income supplement: increase in family allowances (or an extension to include the first child): a change of emphasis in Phase 3 with looser guidelines for the lower-paid than for the better-paid: an increase in old age pensions. The newly-announced measures on rent rebates are a step in the right direction. (Food expenditure in pounds per week per person does not vary much with income level: it averages around E2.50. For the person with the lower income, or the larger family, or the old age pensioner, the food bill is a much higher proportion of the weekly budget and here, patently, is the priority area for relief).

Beyond this, it is possible, too, for the Government to set up a food purchasing board which would buy direct from farmers or even manufacturers and hold stocks so as to iron out fluctuations in market prices.

The inevitable question, whatever suggestion one makes for directly controlling food prices, is: Would they like it in Brussels? And the answer is: Probably — almost certainly — not.

But the Government could, and should, draw attention to article 39(IXe) of the Treaty of Rome. For this declares one of the objectives of the common agricultural policy — to "ensure supplies to consumers at reasonable prices."

The Community countries expect us to pay an extra £33 million to support their agriculture, without any sign of reciprocity in the social fund. They cannot have it all ways. The price rises we have experienced are not just unreasonable: they are potentially disastrous. If the reasonable solutions which can be worked out conflict with EEC rules, then EEC rules should be changed. And if the EEC does not like the idea, this must not deter the Government from doing whatever is necessary to protect the British public.

For one indisputable fact overrides all others: It is our future that hangs in the balance at this time, and the consequences of failure are too cataclysmic to be easily contemplated by Government or governed, employer or worker. If action now is not resolute we all lose, and we lose equally.

Derek Coombs is' Conservative MP for Birmingham (Yardley).