The Press WEDNESDAY, MARCH 17, 1948. Against Inflation In Britain

Press, Volume LXXXIV, Issue 25445, 17 March 1948, Page 4

The Press WEDNESDAY, MARCH 17, 1948. Against Inflation In Britain

The announcement that the operation of nearly half of the new British price-freezing orders has been postponed for six weeks will occasion no surprise. They are only temporary expedients, designed to hold back the pressure of inflation until the Federation of British Industries and other organisations work out their own plans for limiting prices and profits; and not even the Government has had any illusions about their shortcomings. Since their publication at the end of last month there has, indeed, been a searching examination of the whole system of price control by regulation; and it has brought to light little to encourage the belief that it will be more satisfactory now than in the past. The new orders extend the price control system to categories of goods that have not, in general, previously been subject to effective control and establish a new basis of price-fixing for many goods, the prices of which have been determined by relation to the 1939 price and subsequent adjustments for changes in the cost of production. Each manufacturer’s prices are limited to the lowest prices charged for similar goods in* December or January, and wholesalers’ and retailers’ margins are fixed at the December level. Where the ceiling method cannot be used—as for new manufactures or goods modified since December and January—prices are limited to the cost of production plus an allowance for profit. For these, it is specifically laid down that wage increases agreed upon after February 4 will be allowable as additional costs of production only if they conform to the principles for wage negotiations laid down in the White Paper on Personal Incomes. Costs, and Prices. Necessary though these interim controls may be to ensure that, in the words of the President of the Board of Trade, “there will be no “ provocative increase in price or “ profits such as would strengthen “the demand for increased wages”, there has been no disposition in Britain to ignore their effects on industrial efficiency. •

The anomalous results of the system are easy to see [said the “Economist 1. Whenever widely different maximum prices, all lawful, exist cheek by jowl for identical goods, the effects upon efficiency and morale are bound to be bad—for the lowest maximum prices govern the firms with the lowest costs, while the highest price is available only for the flrm whose costs are highest. But the evil of this Gilbertian system is greatly aggravated by the percentage “mark-up” system of controlling profits. In these days of physical limitations upon output, that often means that a manufacturer cannot increase his profits unless he inflates his costs. Yet if he refrains from doing so, he actually gives his wholesaler or retailer customers (whose gross profits are likewise governed by a cost percentage) an incentive to take their business to a higher-cost manufacturer.

In announcing its support for the White Paper on Personal Incomes, Costs, and Prices, the Trades Union Congress insisted on “a firm and “ vigorous policy designed not only “to stabilise.but to reduce profits “and prices” and hedged its support with other conditions and reservations. This, as the “Econo“mist” remarked, would appear to imply the stabilisation of a higher level of real wages—“ hardly a “very constructive contribution to “solving the country’s present economic difficulties”. The Government has already suffered one or two serious setbacks in its efforts to peg wages. Both railwaymen and the London bus workers have been granted increases in wages; and although the negotiations were begun in each case long before the White Paper was published, the settlements are bound to be used as precedents for other trades which have wage claims pending. Altogether, the Government has lost a good deal of ground in the first stages of its fight to check inflation.