l
DOCUMENT IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y S G O V E R N M E N T
C P ( 7 3 ) 95
COPY NO
2 O c t o b e r 1973
CABINET
'!,
i;
THE P R O G R A M M E FOR CONTROLLING INFLATION:
DRAFT WHITE P A P E R
STAGE 3
N o t e by t h e S e c r e t a r y of t h e C a b i n e t
1.
B y d i r e c t i o n of t h e P r i m e M i n i s t e r , t h e a t t a c h e d p r o o f of t h e
Stage 3 White P a p e r i s circulated for c o n s i d e r a t i o n by the Cabinet,
2.
The proof d o e s not deal with s o m e m a j o r p o l i c y i s s u e s which w e r e
s t i l l u n d e r c o n s i d e r a t i o n by M i n i s t e r s w h e n the draft w a s s e n t to the
p r i n t e r s on 30 S e p t e m b e r .
3.
It w i l l r e q u i r e a m e n d m e n t t o t a k e a c c o u n t o f s o m e f u r t h e r d e c i s i o n s
on t h e P r i c e C o d e t a k e n b y M i n i s t e r s s i n c e t h e n ,
A note listing these
a m e n d m e n t s , and d e s c r i b i n g if n e c e s s a r y any i m p o r t a n t u n r e s o l v e d i s s u e s ,
will be c i r c u l a t e d s e p a r a t e l y .
Signed
JOHN H U N T
Cabinet Office
2 O c t o b e r 1973
I The Programme for Controlling Inflation: Stage 3 Presented to Parliament by the Chancellor of the
by Command of Her Majesty
October 1973
Exchequer
LONDON
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CONTENTS
Page
Part I: The Governmenfs Proposals
00
The Policies
Prices and profits ...
First-time house purchasers
Rents
Bank charges and profits
Business and Agricultural Rents
Pay
Dividends
Part II:
...
A Consultative Document
Section I:
Section II:
144118
Commentary on Proposed Amendments to the Code
Draft of a revised Price and Pay Code
Introduction
This White Paper is in two parts. The first describes the Governmenfs
main proposals for the next stage of the counter inflation programme and relates
them to the position we have now reached in that programme. In the absence
of an agreed voluntary programme, some of these would need to be reflected
in a revised Price and Pay Code. The second part therefore explains the amend­
ments to the Code which would be necessary and contains a draft of a revised
Code. ^
'. ][. ' " .
n
The Government have already had extensive discussions with the TUC and
CBI in the period of preparation of their proposals for the next stage. Other
organisations have given the Government their views. The Government hope that
further discussions can now take place with, the TUC and CBI on the whole
range of their proposals. There will also now be wide consultation about the
amendments to the Code set out in the second part of this White Paper, in
accordance with the specific statutory requirement. The next step will be for
the Government to seek the approval of Parliament for its proposals.
PART I
THE G O V E R N M E N T S PROPOSALS
1. The objectives of the programme for controlling inflation are unchanged.
They are: to. maintain a high rate of growth and to improve real incomes;
to improve the position 6f the low-paid and pensioners; and to moderate the
rate of cost and price inflation. These objectives are held in common by the
Government, the TUC and the CBI. In the Governments view, it is abundantly
clear that policies to control inflation and to achieve these objectives are still
needed. The Government are therefore bringing forward in this White Paper
proposals for the next stage of the programme.
2. The Government hold to their view that agreed voluntary arrangements
for the control of inflation would be better than statutory measures. They will
continue to seek an effective voluntary agreement with both sides of industry.
The terms of the Counter-Inflation Act 1973 would permit a change to control
based on voluntary agreement at any time. The Government will seek the
highest possible measure of agreement over parts of the field even if full
agreement cannot for the time being be attained.
3. However, agreement over the whole field would, in the Governments
view, require acceptance that there must be restraint, in a form which guarantees
its effectiveness not only on prices but also on increases in pay. We cannot
return to pay settlements giving increases at the rate of 15 per cent or more
of the kind which happened in the autumn of 1972. Of the costs which lead
to price increases and which are within our own control, the biggest is pay.
Accordingly, the Government now present for Stage 3 proposals for restraint
on price and pay increases which are firm and fair.
Stages 1 and 2
4. In Stages 1 and 2 we have succeeded in restraining the domestic causes
of inflation. But we have had to face a surge in world prices of a kind which
has not struck the United Kingdom for over 20 years. World price increases
have pressed on the prices in our shops, both directly and through the sterling
exchange rate. They have turned the terms of trade sharply against us at heavy
cost to the balance of payments, and the effect of this on the exchange rate
has added to the pressure on prices.
5. Nevertheless, the price and pay controls, with the the expansion of produc­
tion, have helped us to avoid piling a full-scale domestic inflation on top of an
imported one. Import prices rose by 24 per cent between November 1972
and August this year. But the wholesale prices of manufactured products sold
on the home market rose by only 4-6 per cent (6-2 per cent excluding the effect
of the VAT changeover). As a result of the restraint we have exercised on pay
increases and the rapid increase in production, we have kept down our costs of
production with benefit to our own price level, and to the prices of our exports.
At the same time, increases in earnings have kept ahead of price increases.
The index of earnings per head increased between November 1972 and July
1973 by 8-1 per cent compared with an increase over the same period in the
retail price index of 6 -1 per cent.
6. Most important of all, Stages 1 and 2 of the counter-inflation programme
have enabled us to continue a high rate of economic growth. We would have had
to cut back growth if pay had continued on the run-away course of the autumn
of 1972. That would have brought the recovery of industrial investment to a
halt, with further long-term damage to national prosperity.
Economic Background to Stage 3
7. I n h i s 1 9 7 3 B u d g e t t h e C h a n c e l l o r o f t h e E x c h e q u e r a i m e d a t a g r o w t h
r a t e o f a b o u t 5 p e r c e n t b e t w e e n t h e s e c o n d h a l f o f 1 9 7 2 a n d t h e first h a l f
o f 1974, w i t h s o m e s l o w i n g d o w n in t h e later part of t h e p e r i o d as t h e e c o n o m y
a p p r o a c h e d f u l l u s e of c a p a c i t y . T h e G o v e r n m e n t e x p e c t t h a t t h i s g r o w t h r a t e
w i l l b e a c h i e v e d arid t h a t g r o w t h w i l l c o n t i n u e d u r i n g 1 9 7 4 a t a r a t e of a b o u t
3 ^ p e r c e n t b r o a d l y in l i n e w i t h t h e l o n g - t e r m r a t e o f g r o w t h o f t h e e c o n o m y ' s
productive potential.
T h e e c o n o m y is e x p a n d i n g at a s u s t a i n a b l e rate, t h e r e
are f a v o u r a b l e opportunities for exports, and the counter-inflation p r o g r a m m e
gives industry confidence that growth can be maintained.
All these factors
f a v o u r a c o n t i n u a t i o n o f t h e rise in i n d u s t r i a l i n v e s t m e n t a n d g i v e a p r o s p e c t o f
p e r m a n e n t i m p r o v e m e n t in t h e capacity of the e c o n o m y .
8. B u t if t h i s i m p r o v e m e n t i s t o b e a c h i e v e d w e s h a l l h a v e t o l e a v e r o o m
during Stage 3 not only f o r the rising investment p l a n n e d by manufacturing
i n d u s t r y b u t a l s o f o r t h e c o n t i n u a t i o n o f t h e rise in e x p o r t v o l u m e r e q u i r e d t o
i m p r o v e t h e b a l a n c e of p a y m e n t s .
The reduction in public
expenditure
a n n o u n c e d b y t h e C h a n c e l l o r o n 2 1 M a y h a d this o b j e c t i v e i n v i e w .
The
G o v e r n m e n t e x p e c t t h a t , p r o v i d e d w e d o n o t suffer f r o m a f u r t h e r s u r g e i n
w o r l d c o m m o d i t y p r i c e s , it w i l l b e p o s s i b l e , c o n s i s t e n t l y w i t h t h e n e e d s of e x p o r t s
a n d i n v e s t m e n t , f o r c o n s u m e r s ' e x p e n d i t u r e t o r i s e in S t a g e 3 a t a r a t e n o t f a r
from the growth in G D P .
9.
Realisation of this d e p e n d s o n the course of w o r l d c o m m o d i t y prices.
A s e x p l a i n e d a b o v e , w e are s u f f e r i n g a c h a r g e o n o u r l i v i n g s t a n d a r d s f r o m t h e
rise i n w o r l d c o m m o d i t y prices d u r i n g Stages 1 a n d 2 w h i c h a s a c o m m u n i t y
w e c a n n o t a v o i d . T h a t b u r d e n h a s still t o b e b o r n e a s m o r e o f o u r o u t p u t h a s
t o g o as e x p o r t s t o p a y for i m p o r t s at h i g h e r prices. T h e full i m p a c t of s o m e
world price increases, especially of w h e a t and other cereals, h a s yet to s h o w
i t s e l f i n o u r d o m e s t i c p r i c e s . H o w e v e r , it s e e m s r e a s o n a b l e t o e x p e c t t h a t t h e
increase in w o r l d prices will n o w s l o w d o w n substantially.
If t h i s h a p p e n s , a n d
if w e k e e p c o n t r o l of t h e d o m e s t i c causes of inflation, w e c a n e x p e c t to see t h e
b e n e f i t o f o u r r e s t r a i n t i n a l o w e r r a t e o f i n c r e a s e i n o u r p r i c e s in S t a g e 3.
T H E POLICIES
10. A g a i n s t t h e b a c k g r o u n d o f t h e c o n s u l t a t i o n s w i t h t h e T U C , t h e C B I
a n d others, o f experience i n Stage 2, and of t h e likely d e v e l o p m e n t of t h e
e c o n o m y in Stage 3, the G o v e r n m e n t p r o p o s e the policies f o r Stage 3 which a r e
summarised below.
Prices and profits
11. T h e G o v e r n m e n f s policies described b e l o w h a v e t w o t h e m e s : they g i v e
a w i d e , a s s u r a n c e t o t h o s e in e m p l o y m e n t a n d their, f a m i l i e s t h a t t h e y c a n
b e safeguarded against excessive price increases; and they give special selective
help t o particular categories i n n e e d :
(a) P r o v i s i o n f o r a s a f e g u a r d - a g a i n s t h i g h p r i c e i n c r e a s e s b y m e a n s o f a
" t h r e s h o l d " s c h e m e u n d e r n a t i o n a l r u l e s is i n c l u d e d in t h e G o v e r n m e n f s
pay proposals.
(b) S t r i c t c o n t r o l o f m a n u f a c t u r i n g a n d retail p r i c e s a n d profits t h r o u g h
Price C o d e will b e maintained.
the
(c) M i l k p r i c e s w i l l b e h e l d a t t h e i r p r e s e n t l e v e l .
T h i s will bring the c o s t
of t h e milk subsidy i n the current financial y e a r t o s o m e £ 7 0 million.
(d) N a t i o n a l i s e d i n d u s t r y p r i c e s , i n c l u d i n g t h o s e f o r e l e c t r i c i t y , g a s , c o a l , f a r e s
a n d posts, will c o n t i n u e t o m a k e a major c o n t r i b u t i o n t o price restraint.
(e) Charges for school meals will be kept at their present level in spite of
increased costs.
(/) A special scheme of assistance for many first-time home buyers will be
introduced; and steps will be taken to secure greater stability in the
flow of mortgage funds.
(g) For rented homes, the further increase in the needs allowance for calcu­
lating rent rebates and allowances announced in July took effect on
1 October.
12. High interest rates have increased substantially the profits of the banking
sector. The Government propose that the interest they pay to the banks on
special deposits should be reduced by over £30 million a year.
Pay
13. The aims of the Governments pay policy for Stage 3 are: to be fair to continue special help for the low paid to provide for greater flexibility in negotiations to protect living standards against a high rate of increases in prices. 14. The Government therefore propose provision for:
(i) Groups to negotiate pay increases up to 7 per cent or, if they prefer,
up to £2-25 a week per head, with an individual maximum of £500
a year.
(ii) A flexibility margin of a further 1 per cent which will be available to
negotiators for use in settlements which remove anomalies and obstacles
to the better use of manpower.
(iii) Scope for extra payments under new efficiency schemes when they
show genuine savings and contribute to stabilising prices.
(iv) Bringing premium payments to those working " unsocial" hours
up to a minimum standard.
(v) Dealing with anomalies created by the standstill.
(vi) Further progress towards equal pay.
(vii) Increases in certain types of London allowance outside the pay limit.
(viii) The threshold safeguard to enable pay to be increased up to 40p a
week if, in Stage 3, the increase in the Retail Price Index reaches 7 per
cent and by up to another 40p a week for every 1 per cent rise above
that level.
(ix) 1 January to be a bank holiday in England and Wales and arrangements
to be made for an additional public holiday in Scotland.
15. In addition, the Government will carry further the consultation with
the TUC and CBI on their proposal for a new body which would help improve
the capacity of industry to raise pay levels for the lower paid.
16. These policies are described in more detail below.
PRICES
Food Prices
17. The Government action will help to
important foods in the coming months.
restrain the prices of
three
18. The Government are holding the retail price of milk steady at 5£p per
pint. The Government propose that the price should continue to be held at
this level for the time being. This will require a subsidy of some £35 million
in the period up to 1 April 1974, bringing the total for the present financial
year to £70 million. The necessary provison will be made in estimates presented
to Parliament.
19. For butter, the United Kingdom alone of EEC countries has introduced
a general subsidy, which is now reducing prices by about 2p per lb, in addition
to the butter token arrangements for social security beneficiaries. For potatoes,
where the crop is expected to be good, the Government will be able, given
adequate supplies, to ensure that the marketing arrangements give the consumer
the benefit of reasonable prices throughout the season.
School Meals
20. The charge for school meals will for the present remain at the level
of 12p, which it has been held since 1971, in spite of increased costs.
Nationalised Industry prices
21. The nationalised industries have helped to keep down prices to the
consumer and to industry for a period of years, covering a much longer period
than Stages 1 and 2 of the counter-inflation programme. Prices of electricity,
gas, coal, fares and postal charges, all of which are important items of house­
hold expenditure have been held well below the levels which would have been
commercially justifiable, making a significant contribution to the reduction of
the price level. The Government have accepted the need to forgo important
trading surpluses and to finance substantial deficits. Over and above the subsidy
which the railway and coal industries would in any case have needed, the
compensation payable for price restraint to the other nationalised industries
is costing upwards of £150 million a year.
22. In the longer term it will certainly be desirable to enable these industries
to restore their profitabilty, so that they can make a greater contribution to
financing their essential investment programmes, which represent a major part
of national industrial investment, and thus reduce their requirements for borrowed
funds. Nevertheless, for the present priority must be given to the restraint of
prices in this sector of industry. The nationalised industries will continue to
be subject to the requirements of the Price Code. There will be some
clarification of the provisions on the containment of deficits, and an anomaly
which has arisen on gas and electricity two-part tariffs will be rectified; but,
apart from this, the provisions of the Code relating to the nationalised industries
will remain substantially as in Stage 2. As a result, a number of important
nationalised industries which have had limited price increases in Stage 2 will
not be seeking further increases for some time, and the Government will be
prepared to continue to meet their essential financial requirements. The position
of the gas industry, which has had no price increase since January 1972, will
require special consideration, while the Code does not of course apply to those
products whose prices are determined by the coal and steel industries within
the framework of the ECSC regime.
Manufacturers' and Retailers' Prices
23. A strict control of manufacturers' and retailers' prices through the Price
Code will be maintained in Stage 3. Since the Code limits the extent to which
cost increases may be passed on as price increases, it is likely in general to
have a heavier impact on manufacturers in Stage 3 than in Stage 2, because
the scope for reducing costs through fuller utilisation of existing plant will be
more limited. Nevertheless the control of cost increases which may be reflected
in prices, and the control of profit margins, will be retained and in certain
respects strengthened.
Control of Profit Margins
24.
S u b d i v i s i o n o f e n t e r p r i s e s h a s b e e n u s e d in s o m e c a s e s t o a v o i d t h e
r e s t r a i n t o f t h e profit m a r g i n c o n t r o l a n d e x t e n d t h e s c o p e f o r p r i c e i n c r e a s e s .
T h e G o v e r n m e n t p r o p o s e that s u b d i v i s i o n f o r profit m a r g i n c o n t r o l s h o u l d b e
d i s c o n t i n u e d , e x c e p t w h e r e t h e r e w a s b e f o r e 3 0 A p r i l ; 1973 a s e p a r a t e m a n a g e ­
m e n t and accounting unit reporting to the m a i n board. Except in these cases
t h e r e f o r e m a r g i n s w i l l i n g e n e r a l b e c a l c u l a t e d for t h e w h o l e e n t e r p r i s e o r g r o u p .
Investment
25.
T h e G o v e r n m e n t propose three changes in the C o d e w h i c h h a v e a
b e a r i n g o n i n v e s t m e n t . T h e first is a s p e c i a l relief f o r capital i n t e n s i v e c o m p a n i e s
w h i c h h a v e u n d e r t a k e n major n e w i n v e s t m e n t but where the n e w p l a n t w a s
s u b s t a n t i a l l y u n d e r - u t i l i s e d at t h e b a s e d a t e .
T h e s e c o n d p e r m i t s firms e a r n i n g
p r o f i t s r e p r e s e n t i n g l e s s t h a n a five p e r c e n t return o n c a p i t a l t o i n c r e a s e
p r i c e s , w i t h o u t r e s t r i c t i o n t o a l l o w a b l e c o s t i n c r e a s e s , s o as t o . r e a c h t h a t l e v e l
o f r e t u r n . T h e third a m e n d m e n t m a k e s it c l e a r t h a t i n o r d e r to q u a l i f y f o r t h e
s p e c i a l relief i n f a v o u r o f i n v e s t m e n t i n p a r a g r a p h 63 o f t h e C o d e , a firm m u s t
s t a t e e x p e n d i t u r e o n t h e i n v e s t m e n t w i t h i n 12 m o n t h s o f t h e d a t e o f t h e p r i c e
i n c r e a s e o r o f the m o d i f i c a t i o n o f t h e profit m a r g i n l i m i t , but n e e d n o t c o m p l e t e
the investment.
D e t a i l s o f t h e s e r e l a x a t i o n s a r e g i v e n i n P a r t II o f t h i s W h i t e
Paper;
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Wider notification of price increases
26. T h e G o v e r n m e n t propose t o take steps to enforce the C o d e m o r e
s t r i c t l y i n r e l a t i o n t o C a t e g o r y 2 c o m p a n i e s a n d a n o r d e r will b e m a d e r e q u i r i n g
s u c h c o m p a n i e s t o r e p o r t price i n c r e a s e s i n S t a g e 3 a s t h e y a r e m a d e .
It w i l l
n o t a p p l y t o c o m p a n i e s i n d i s t r i b u t i o n a n d c o n s t r u c t i o n w h e r e t h e r e is a t
present n o pre-notification.
T h e c o m p a n i e s to which the order applies will not
be required t o get approval f r o m the C o m m i s s i o n before m a k i n g the increase,
b u t p r i c e s w i l l b e r o l l e d b a c k if t h e C o m m i s s i o n find t h e y a r e i n c o n s i s t e n t w i t h
the Code.
N e w orders will also be m a d e classifying the i n f o r m a t i o n required
f r o m c o m p a n i e s w h i c h a r e affected b y t h e r e s t r i c t i o n s i n p a r a g r a p h 2 7 o r w i l l
b e s u b m i t t i n g q u a r t e r l y r e p o r t s f o r a p e r i o d f a l l i n g p a r t l y in S t a g e 2 a n d
p a r t l y i n S t a g e 3.
First-time house purchasers
;
2 7 . T h e G o v e r n m e n t is p r o p o s i n g t o t h e B u i l d i n g S o c i e t i e s A s s o c i a t i o n a n d
to other m o r t g a g e lenders, with a v i e w to early legislation, a s c h e m e of assistance
t o t h o s e a b o u t t o p u r c h a s e a h o u s e f o r t h e first t i m e .
L o a n s will b e m a d e b y
t h e G o v e r n m e n t t o r e d u c e the c o s t t o q u a l i f y i n g first-time p u r c h a s e r s o f t h e i r
m o r t g a g e i n t h e first y e a r t o 8 £ p e r c e n t , w i t h a p r o g r e s s i o n t o t h e f u l l r a t e
c h a r g e a b l e u n d e r t h e m o r t g a g e o v e r a p e r i o d o f five y e a r s .
2 8 . T h e G o v e r n m e n t p r o p o s e t o m a k e the l o a n s a v a i l a b l e t o
first-time
p u r c h a s e r s t o w h o m the l e n d e r is p r e p a r e d t o g r a n t a m o r t g a g e , if their i n c o m e
a n d the p u r c h a s e price a r e w i t h i n t h e l i m i t s s p e c i f i e d b e l o w .
T h o s e eligible
for p a r t i a l a s s i s t a n c e will r e c e i v e l o a n s a t h a l f rate.
Income
SE of England
(i) F u l l a s s i s t a n c e
(ii)Parial
Remainder of Great
Britain
(i) F u l l
(50%)
assistance
assistance
(ii) Parial ( 5 0 % )
assistance
U p to £3,000
House
price
U p to £9,500
£3,000-
£9,500­
£3,500
£11,000
U p to £ 2 , 3 0 0
U p to £7,000
£2,300-
£7,000­
£2,800
£9,000 ,
29. T h e G o v e r n m e n t have also c o m p l e t e d discussions with representatives of
the Building Societies A s s o c i a t i o n o n stabilising m o r t g a g e finance.
Subject
t o a c c e p t a n c e b y t h e C o u n c i l o f the A s s o c i a t i o n a J o i n t A d v i s o r y C o m m i t t e e
c o n s i s t i n g of G o v e r n m e n t a n d A s s o c i a t i o n r e p r e s e n t a t i v e s w i l l b e s e t u p f o r t h w i t h .
T h e C o m m i t t e e will r e g u l a r l y p r o v i d e t h e C o u n c i l o f t h e A s s o c i a t i o n w i t h a n
analysis o f the current situation o f the societies. T h e y will also provide fore­
c a s t s o f w h a t w o u l d b e a p p r o p r i a t e l e v e l s o f i n v e s t m e n t in the b u i l d i n g
s o c i e t i e s , a n d o f l e n d i n g b y t h e m , t o a c h i e v e the a g r e e d o b j e c t i v e s o f s u p p o r t i n g
t h e g r o w t h o f o w n e r o c c u p a t i o n w i t h a r e a s o n a b l e c h o i c e for; p u r c h a s e r s ,
maintaining a high a n d stable level of h o u s e b u i l d i n g and ensuring that h o u s e
p r i c e s d o n o t i n c r e a s e a t a n u n r e a s o n a b l e rate.
T h e C o u n c i l will be ready t o
r e c o m m e n d t o m e m b e r s o c i e t i e s a m o r e f l e x i b l e u s e o f i n t e r e s t rates a n d
liquidity, and selective lending policies designed to a c h i e v e the agreed objectives.
Rents
3 0 . T h e s e c o n d i n c r e a s e t h i s y e a r i n the n e e d s a l l o w a n c e for c a l c u l a t i n g
rent rebates a n d a l l o w a n c e s for tenants in b o t h t h e public a n d t h e private
s e c t o r w a s a n n o u n c e d i n J u l y a n d t o o k effect o n O c t o b e r 1.
This increase
w a s £ 2 - 5 0 for a married tenant plus 25p for e a c h d e p e n d e n t child, a n d £ 1 - 5 0
for a single tenant.
T h e effect o f the t w o i n c r e a s e s in t h e n e e d s a l l o w a n c e
d u r i n g 1973 is that a m a r r i e d t e n a n t w i t h t w o c h i l d r e n l i v i n g in a c o u n c i l
h o u s e with an average rent w h o s e i n c o m e before S t a g e 2 w a s £35 a w e e k a n d
w h o received t h e average pay increase under Stage 2, will normally pay o n l y
lOp m o r e rent b y t h e e n d o f O c t o b e r 1973 t h a n h e w a s p a y i n g in M a r c h 1 9 7 3 ,
e v e n a f t e r the r e n t o f h i s d w e l l i n g h a s b e e n i n c r e a s e d .
If t h e t e n a n f s i n c o m e
before Stage 2 had b e e n £25 a week, h e w o u l d n o r m a l l y after his Stage 2
p a y i n c r e a s e p a y 4 8 p l e s s r e n t a t t h e e n d of O c t o b e r 1 9 7 3 t h a n a t the e n d
o f M a r c h 1973.
Bank charges and profits
31. N o n - i n t e r e s t business (fees, c o m m i s s i o n s , charges etc.) will c o n t i n u e to be
controlled under the C o d e as in Stage 2.
N e w a r r a n g e m e n t s will, h o w e v e r ,
a p p l y in r e s p e c t of i n t e r e s t e a r n i n g b u s i n e s s . B e c a u s e o f t h e s p e c i a l c o n d i t i o n s
c r e a t e d b y h i g h i n t e r e s t rates a n d the g r o w t h o f t h e b a n k s ' r e s o u r c e s t h e
G o v e r n m e n t p r o p o s e that during Stage 3 n o interest s h o u l d be paid on that
p r o p o r t i o n o f e a c h b a n k ' s s p e c i a l d e p o s i t s w h i c h c o r r e s p o n d s to the p r o p o r t i o n
w h i c h their c u r r e n t a c c o u n t s r e p r e s e n t o f their t o t a l s t e r l i n g d e p o s i t s .
The
r e d u c t i o n in i n t e r e s t p a y m e n t s , a t p r e s e n t rates, w i l l b e o v e r £ 3 0 m i l l i o n i n a
full y e a r .
In t h e c a s e o f other financial institutions, the present arrangements
for interest earning b u s i n e s s will c o n t i n u e to apply.
Business and Agricultural Rents
32.
B u s i n e s s rents h a v e b e e n subject to a standstill in Stages 1 and 2 :
a n d e a r l i e r W h i t e P a p e r s referred t o the G o v e r n m e n t s i n t e n t i o n t o c o n s i d e r in
the course of Stage 2 their longer term policy f o r business rents. T h e G o v e r n ­
m e n t h a v e c o n c l u d e d t h a t it is n o t p r a c t i c a b l e or d e s i r a b l e t o i n t r o d u c e l o n g - t e r m
c o n t r o l o f b u s i n e s s r e n t s . T h e p r e s e n t s t a n d s t i l l w i l l b e c o n t i n u e d u n t i l the e n d
o f M a y 1974, a n d d u r i n g t h e e n s u i n g 12 m o n t h s r e n t s a f f e c t e d b y the standstill
will b e p e r m i t t e d t o r i s e , b y s u c c e s s i v e g r o u p s i n t u r n o n a first-in-first-out
b a s i s , t o t h e m a r k e t l e v e l as it w a s a t 5 N o v e m b e r , 1 9 7 2 . C o n s u l t a t i o n s o v e r
the methods o f phasing t o be adopted will take place with professional and
o t h e r interests c o n c e r n e d .
T h e r e will be s o m e r e l a x a t i o n of the standstill o n
a g r i c u l t u r a l r e n t s w h e n S t a g e 3 b e g i n s to a s s i s t l a n d l o r d s i n m e e t i n g t h e i n c r e a s e d
c o s t s o f their m a i n t e n a n c e o b l i g a t i o n s . R e p r e s e n t a t i v e s o f l a n d l o r d s a n d t e n a n t s
will t h e n b e i n v i t e d t o d i s c u s s a r r a n g e m e n t s for e s t a b l i s h i n g t h e r e a f t e r a p r o p e r
level o f a g r i c u l t u r a l r e n t s .
Operation of Price Code changes
33. It would not be right, now that the Governments proposals for Stage 3
are known, for price increases to be made in the interval between publication of
this White Paper and the date on which the revised Code takes effect, with the
intention of anticipating the revised Code and establishing a new price level
to continue in operation well into Stage 3. The Government therefore propose
that, apart from the exceptions mentioned below, it would be open to the Price
Commission to roll back price increases made after the date of publication of
this White Paper if necessary after the operative date of Stage 3 to the level
Which would be justified by the Stage 3 Code.
The exceptions would b e :
(i) price increases approved by the Price Commission but not implemented
before the date of publication;
(ii) increases approved by the Commission after the date of publication on
the basis of applications received before publication. These would be
dealt with in accordance with the Stage 2 Code.
The necessary provisions would be included in the Stage 3 Code.
PAY
34. The overall objective of the Governments policy for pay is to reduce
the rate of cost and price inflation and to improve the prospects of sustained
further growth in real earnings. To achieve this objective the Government have
formulated proposals which are both fair and as flexible as is consistent with
containing the costs which lead to price increases.
35. In the interests of fairness, the Government propose to make special
provision to help the low paid and women workers and to remove anomalies
identified by the Pay Board; and to see that their policies apply to everyone.
36. To be flexible, the Government propose to give negotiators a choice of
pay limit and to give them greater scope over and above the pay limit in two
important ways—by setting aside a further 1 per cent of the pay bill for this
purpose, and by providing for extra payments under schemes which demonstrably
improve efficiency and reduce costs.
37. The choice of pay limit described below, plus the margin for flexibility,
Will allow increases in the pay bill of rather less than 9 per cent on average
and within this negotiators will be able to give increases at higher rates to the
low paid. In proposing a limit at this level, the Government have taken account
of the prospect that the growth in earnings is likely to be significantly higher
(perhaps by 2 per cent) because of increases over and above the pay limit for
such things as anomalies, equal pay and overtime.
38. The Government have also taken into account the increase in incomes
arising from a higher level of employment. More people will benefit because
the Governments policies for continued expansion, which the pay proposals are
designed to underpin, are likely to increase employment by perhaps 250,000
people as firms increase their manpower to raise production.
39. The proposed new pay arrangements will therefore allow on average
higher increases than in Stage 2. The Government consider that they strike a
fair balance between the control of inflation and the need for pay increases to
protect living standards during Stage 3. A higher figure would add unacceptably
to cost inflation and so produce the very price increases that the counter-inflation
programme is intended to prevent.
40. However, the Government recognise the public anxiety about the possible
effect on prices at home of any future increases in the world prices of com­
modities that we have to import. They therefore propose to provide a safe­
guard, and the proposals below include arrangements for threshold agreements
under which additional payments could be made if there were an excessive
increase in prices. Such arrangements run the risk of adding to domestic inflation
if import prices rise unexpectedly fast. But the Government think it right, in the
interests of fairness, to accept this risk for the next 12 months in the (special)
circumstances of Stage 3.
41.
The details of the Government*s proposals on pay are set out below.
.
..
Ij. i
-..f
The Pay Limit
42. The next stage of policy will run from 7 November, 1973 until the
autumn of 1974. During that period negotiators and others concerned with
pay determination will have a choice of pay limits.
43. Under the first alternative the maximum amount by which the average
pay bill per head of the group may be increased in a 12 month period will be
seven per cent of the average pay bill per head of the group for the preceding
12 month period.
44. Under the second alternative the pay limit would be a straight cash
sum of £2-25 per week per head of the group.
45. It is important to recognise that these are limits and not entitlements,
whether, for the group or for individuals within it. It is for negotiators to
determine the appropriate increase and conditions of settlement within the
limit and to decide on the distribution within the group, whichever form of
pay limit is chosen.
Fairness
For
the
low
paid
46. The Government continue to believe that the low paid should get
special treatment and expects negotiators and others concerned with settlements
to have regard to this. Of the alternative forms of pay limit, the straight cash
limit of £2-25 is particularly helpful to the lower paid because it gives them
proportionately more than better paid employees.
The proposal that
compensation under threshold agreements should be paid on a flat cash rate,
regardless of the level of income, will also give greater assistance to the low
paid. Furthermore, the draft Code provides for further progress towards equal
pay and for holiday and hours to be improved up to specified minimum
standards outside the pay limit. Again, these proposals are of particular
benefit to the less privileged in our industrial society. The Government have
also placed before the TUC and CBI a proposal to set up a body to improve
the capacity of industries to raise pay levels for the lower paid and await their
views.
By eliminating
anomalies
47. The Governments proposals are founded on the principle that the pay
arrangements should be applied fairly. The TUC and CBI are being consulted
on the Pay Board report on anomalies created by the standstill, and subject to
those consultations, the Government propose to enable action to be taken in
Stage 3 to deal with anomalies created by.the standstill on the basis recommended
by the Pay board. The draft Code provides for this to be done, with staging
of the increases for the higher paid, and would enable similar treatment to be
given to civil servants covered by pay research due in 1974. The Government
are now giving urgent consideration, as the Board recommended, to the future
of the pay research system within the context of the counter-inflation programme.
48. In addition, further progress in removing or alleviating other anomalies
in pay structures will be facilitated by the one per cent flexibility margin which
can be added to the pay limit for this purpose.
. 4 9 . Following the report on standstill anomalies the Pay Board is due to
provide a further report to the Government by the end of this year on other
problems of pay relativities which may arise both within and between groups of
employees. The Government intend to have further consultations with both
sides of industry on the basis of that report.
//(
operation
50. The Pay board will continue their basic job of scrutinising settlements
notified to them and all settlements involving increases under the new anomaly
provisions and under the provisions for new efficiency payments schemes will
have to be notified to the Board for prior approval. The Board are already
stepping up their spot checks on the implementation both of the larger settle­
ments already notified to them and of the smaller settlements which are outside
the notification categories. The Government are considering with the Board
whether additional notification requirements in certain areas, such as the
construction industry, would assist them in this task.
Flexibility for Efficiency
.,. 51. Within the overall objective of holding down prices, the Government
wish to encourage the maximum flexibility in negotiations on pay to secure the
better use of manpower and productive resources generally. By expressing the
pay limit as an addition to the pay bill for the group of employees concerned,
the Government are continuing to leave scope for negotiation and for flexibility
in applying the overall sum to the circumstances of particular workers. But there
are three important new provisions which are intended to afford greater scope
for negotiators and others concerned with pay determination to secure the more
efficient management of our productive resources on which the achievement of
a higher rate of growth depends.
11
52. First, in addition to the pay limit, there will be a special flexibility
margin of 1 per cent of the pay bill for the group. This can be used to raise
pay in settlements which make improvements leading to greater efficiency and
which resolve anomalies and other problems. Negotiators and others concerned
with pay determination will be free to use the margin in ways they consider
most appropriate to their particular case, within the broad scope defined in the
Code.
. .53. Secondly, the Government propose that in Stage 3 there should be pro­
vision for,, agreements which increase efficiency.
These efficiency payment
schemes will be subject to very strict criteria in order to ensure that they make
a definite contribution to price stabilisation, and extra payments under them
will not become due until genuine savings have been achieved. Every such
scheme will need prior approval by the Pay Board. Before approving payment
under a scheme, the Board will require evidence from three months' operation
that the savings have been achieved. To allow preparation to be made for
proper scrutiny of such schemes, the Code provision would not come into force
until 1 January, 1974.
5,4; Finally, the Government propose that payments outside the pay limit
should be allowed in order to bring premium payments to those who work
" unsocial hours
at night or during weekends—up to a minimum standard.
This provision s h o u l d h e l p e n c o u r a g e the introduction and m a i n t e n a n c e
shift w o r k i n g f o r t h e f u l l e r u t i l i s a t i o n o f e x i s t i n g p l a n t a n d e n a b l e s o u r c e s
labour t o be tapped w h i c h are n o t available in n o r m a l w o r k i n g hours.
of
of
Safeguards against a higher rate of price increases
55. A l t h o u g h u n f o r e s e e a b l e increases in i m p o r t costs outside the G o v e r n ­
m e n f s c o n t r o l h a v e p u s h e d u p p r i c e s d u r i n g S t a g e 2 , t h e r e are g o o d r e a s o n s f o r
believing that the rate o f increases in prices generally, will s l o w d o w n I during
S t a g e 3 . H o w e v e r , t h e G o v e r n m e n t p r o p o s e t h a t the d r a f t C o d e s h o u l d p r o v i d e
for the negotiation o f threshold agreements to h e l p safeguard e m p l o y e e s ' standard
of living against a h i g h rate of price increases during Stage 3.
56. T h e base d a t e for the purpose of these a g r e e m e n t s w o u l d be the d a t e of
p u b l i c a t i o n o f t h e R e t a i l P r i c e I n d e x ( R P I ) figure f o r O c t o b e r 1 9 7 3 a n d t h e a g r e e ­
m e n t s w o u l d r u n f o r 12 m o n t h s f r o m t h a t d a t e .
They would allow payments
o f u p t o 4 0 p t o b e m a d e if t h e R P I r e a c h e d 7 p e r c e n t a b o v e t h e b a s e
figure
a n d a f u r t h e r p a y m e n t o f u p t o 4 0 p f o r e v e r y p e r c e n t a g e p o i n t rise i n t h e R P I
a b o v e t h a t d u r i n g t h e c u r r e n c y of t h e a g r e e m e n t . P a y m e n t s w o u l d b e o u t s i d e
the p a y l i m i t a n d w o u l d b e t r e a t e d a s s p e c i a l s u p p l e m e n t s o n a n i n d i v i d u a l
basis w h i c h w o u l d n o t c o u n t for calculating o v e r t i m e or other premia.
Where
a g r e e m e n t s w e r e n e g o t i a t e d in a c c o r d a n c e w i t h t h e C o d e , f u l l c o m p e n s a t i o n
w o u l d be payable t o full-time employees and p r o rata t o part-time employees
w o r k i n g 21 h o u r s o r m o r e a w e e k .
5 7 . T h e G o v e r n m e n t a r e a s k i n g t h e P a y B o a r d t o c a r r y o u t a r e v i e w of
a l l o w a n c e s d e s i g n e d t o c o m p e n s a t e f o r the a d d i t i o n a l c o s t o f a c c o m m o d a t i o n
a n d t r a v e l i n L o n d o n c o m p a r e d w i t h t h e rest o f t h e c o u n t r y . T h i s w i l l i n c l u d e
reviewing the formula r e c o m m e n d e d b y the N a t i o n a l B o a r d for Prices a n d
I n c o m e s ( N B P I ) i n 1967.
M e a n w h i l e , i n the c o n t e x t o f t h e o t h e r p r o p o s a l s for
S t a g e 3 t h e G o v e r n m e n t b e l i e v e t h a t i t is r i g h t t o p r o v i d e f o r i n c r e a s e s in
L o n d o n a l l o w a n c e s to b e m a d e outside the p a y limit for t h o s e w h o w e r e
receiving t h e m b e f o r e 6 N o v e m b e r , 1972, on the basis of t h e N B P I formula, and
for police. T h e draft C o d e accordingly provides for such increases to be m a d e
outside the limit provided that they are made o n t h e basis o f that formula.
Share Option and Share Incentive Schemes
5 8 . T h e F i n a n c e A c t 1 9 7 3 p r o v i d e s f o r t h e i n t r o d u c t i o n o f a n e w k i n d of
s h a r e s a v i n g s s c h e m e . E m p l o y e e s i n a c o m p a n y o p e r a t i n g s u c h a s c h e m e w i l l be
able to purchase shares in their employing c o m p a n y on advantageous terms,
p a y i n g f o r a n y shares t h e y c h o o s e t o b u y w i t h t h e p r o c e e d s of a S a v e as Y o u
Earn contract.
It i s a r e q u i r e m e n t o f the F i n a n c e A c t 1973 t h a t t h e S h a r e
S a v i n g s S c h e m e s h o u l d b e a v a i l a b l e o n t h e s a m e t e r m s t o all e m p l o y e e s o f t h e
C o m p a n y w h o qualify by a g e a n d service, and that the a m o u n t applied s h o u l d be
limited t o w h a t can be saved through S A Y E contracts under the terms of the
S A Y E S c h e m e . T h e G o v e r n m e n t propose that these s c h e m e s should be allowed
to operate without restriction in Stage 3 and a r r a n g e m e n t s will b e m a d e to
enable s u c h s c h e m e s to b e i m p l e m e n t e d from 1 D e c e m b e r , 1973. T h e present
restrictions o n the operation of other share o p t i o n and share incentive schemes
will continue.
An additional public holiday
59. W e are n o w the o n l y country in the E u r o p e a n E c o n o m i c C o m m u n i t y
w h e r e 1 J a n u a r y is n o t a p u b l i c h o l i d a y . T h e G o v e r n m e n t i n t e n d t h e r e f o r e t h a t
1 January should b e m a d e a bank holiday in E n g l a n d and W a l e s and that
a r r a n g e m e n t s s h o u l d b e m a d e f o r a n a d d i t i o n a l p u b l i c h o l i d a y in S c o t l a n d .
The
cost of this w o u l d n o t c o u n t against t h e p a y limit.
Dividends
60. Dividends will continue to be controlled in Stage 3. As in Stage 2,
United Kingdom companies will not be permitted without the consent of the
Treasury to declare dividends which exceed in total by more than 5 per cent
the amount declared in respect of the previous account year. There will be some
minor modifications in the administration of control designed to remove
anomalies and codify existing practice. Among these one new rule gives the
Treasury some latitude on the dividend level where a company has to raise new
capital. Two others are aimed at removing the difficulties which current controls
cause where a company never declared a dividend in the past, or where a com­
pany is almost entirely owned, but not quite, by a parent to which the controls
apply. The Treasury will issue separately a note of guidance on these changes.
PART II AMENDMENTS TO THE PRICE AND PAY CODE A CONSULTATIVE DOCUMENT This part of the White Paper is prepared in a form designed to assist the
statutory consultations on amendments to the Pay and Price Code which the
Government are required to undertake by Section 2 of the Counter Inflation Act
1973. It is in two Sections. Section I is a commentary on proposed amend­
ments to the Code, Section II is a complete draft of the Price and Pay Code
revised so as to include the amendments in heavy type.
Section I : Commentary on amendments
PRICES
Paragraph
6 (vi): International giro and remittance services are put in the
same position as the other international postal and telecommunications services.
Paragraph
6 (x): This adds taxi fares in Scotland to the list of exemptions.
Like taxi fares in England and Wales which are already exempt under this
subparagraph, these fares are subject to Ministerial control.
Paragraph
9A : This clarifies the basis on which the Code will apply to
price increases in milk for manufacture.
Paragraph
13 : This makes it clear that the amendments in paragraphs 50-62
mean that subdivision for net profit margin control will be allowed on a more
restricted basis than for price control.
Paragraph
14: Notwithstanding the amendment proposed to paragraphs 53
and 54 which provides for subdivision for profit margin control purposes, this
leaves it open t o an enterprise with mixed activities, i.e. activities subject to
different control regimes (e.g. manufacturing and distribution) to treat these
parts separately for both price and profit margin control.
Paragraph
15: Consequential on the changes made in paragraph 13. The
additional sentence clarifies the position of Co-operatives, partnerships and sole
traders under the Code.
Paragraph
18: This makes it clear that the requirement to reduce prices
applies in the case of distributors where they exceed or are likely to exceed their
gross percentage margin.
Paragraph
19: The base date for allowable cost increases is moved forward
to 30 April, 1973 (the beginning of Stage 2), except where there has been no
price increase on a product since the Stage 2 base date of 30 September, 1973.
In this case cost increases first incurred since that date can be taken into
account in the first price increases in Stage 3.
Paragraph
20: The additional sentence makes it clear that the limitation in
paragraph 16 (which restricts the permitted price increase by reference to the
increase in total costs per unit) is overridden where the price increase includes
an element for the retrospective recovery of costs under this paragraph.
Paragraphs
21
and
22:
Consequential on the change of the base date in
paragraph 19.
Paragraph
25 (i):
Consequential on the change of the base date in para­
graph 19.
Paragraph
25 (ii) (/): Commission processing and similar arrangements are
added to the list of allowable cost increases.
17
144118
B
Paragraph
26:
C o n s e q u e n t i a l o n the r e v i s i o n o f t h e P a y C o d e , t o e n s u r e
that pay increases w h i c h w e r e consistent with the p a y policy, whether the Stage 2
o r S t a g e 3 , i n f o r c e a t t h e t i m e t h e y w e r e m a d e , w i l l be a l l o w a b l e c o s t i n c r e a s e s ,
s u b j e c t t o the p r o d u c t i v i t y d e d u c t i o n u n d e r p a r a g r a p h 2 9 .
Paragraph
27:
C o n s e q u e n t i a l o n t h e r e v i s i o n o f t h e P a y C o d e to e n s u r e t h a t
p a y i n c r e a s e s w h i c h w e r e c o n s i s t e n t w i t h t h e S t a g e 2 C o d e a t the t i m e t h e y
w e r e m a d e will c o n t i n u e to be allowable c o s t increases in Stage 3.
Paragraph
29:
This w o u l d enable the Price C o m m i s s i o n to authorise a
p r o d u c t i v i t y d e d u c t i o n o f l e s s t h a n 5 0 per c e n t i n p a r t i c u l a r c a s e s b y r e f e r e n c e
to criteria relating to the productivity record of both the industry a n d the
p a r t i c u l a r e n t e r p r i s e c h a n g e s i n t h e s a l e s o r t h e i n d u s t r y a n d the i m p a c t o f
capital i n v e s t m e n t o n productivity.
Paragraph
31:
T h i s m a k e s it c l e a r that t h e rules for allocating c o s t s a p p l y
t o t h e c a l c u l a t i o n o f t o t a l c o s t i n c r e a s e s as w e l l a s o f a l l o w a b l e c o s t i n c r e a s e s .
Subhead
before
paragraph
34:
T h e c h a n g e i n h e a d i n g is i n t e n d e d t o c l a r i f y
the fact that p a r a g r a p h s 3 4 - 3 7 c a n be applied w h e r e sectors include b o t h large
and small enterprises.
Paragraph
34:
In appropriate circumstances the C o m m i s s i o n w o u l d be able
t o a n n o u n c e a v e r a g e c o s t ( a n d h e n c e price) r e d u c t i o n s f o r a s e c t o r i n c l u d i n g
small enterprises as well as average cost increases.
Paragraphs
3 5 , 3 6 and
37:
Consequential o n the a m e n d m e n t o f paragraph 34.
Paragraph
44:
T h e existing paragraph 4 4 provides that w h e r e manufacturers
w h o are d e p e n d e n t o n r a w m a t e r i a l s w h i c h f l u c t u a t e f r e q u e n t l y i n p r i c e a n t i c i p a t e
f u t u r e e s t i m a t e d c o s t i n c r e a s e s , t h e y m u s t h o l d the p r i c e s o d e t e r m i n e d f o r s i x
months.
T h e a m e n d m e n t relaxes this requirement b y substituting three m o n t h s
for six m o n t h s i n the light o f recent rapid m o v e m e n t s in raw m a t e r i a l prices.
Paragraph
4 6 : T h i s c l a r i f i e s t h e i n t e n t i o n o f p a r a g r a p h 46 b y p u t t i n g
specific t e r m s t h e r e q u i r e m e n t t o m a k e t h e p r o d u c t i v i t y deduction.
into
Paragraph
4 6 A : T h i s p a r a g r a p h is i n t e n d e d t o m a k e it c l e a r t h a t t h e p r o d u c ­
tivity d e d u c t i o n i n t h e C o d e a p p l i e s t o p r i m e c o s t c o n t r a c t s .
Paragraph
47:
existing C o d e .
This
new
paragraph
clarifies
the
rule
on
discounts
in
the
Paragraph
4 8 : Consequential o n the treatment of discounts i n paragraph 47.
It m a k e s no c h a n g e of p o l i c y in relation t o paragraphs 47 a n d 4 8 o f the
Stage 2 Code.
Paragraph
4 8 A : This exempts test-marketing for a limited period from the
normal rules u n d e r the C o d e : the " test price " need not be regarded as a base
p r i c e t o w h i c h f u t u r e p r i c e c h a n g e s m u s t be r e l a t e d .
Paragraph
4 9 : T h e a m e n d m e n t i n s u b p a r a g r a p h (ii) clarifies t h e t r e a t m e n t
of l o s s - m a k i n g c o m p a n i e s b y p r o v i d i n g that t h e restriction of price i n c r e a s e s in
p a r a g r a p h 16 ( b y r e f e r e n c e t o i n c r e a s e s in t o t a l c o s t p e r u n i t ) d o e s n o t a p p l y
t o t h e e x t e n t t h a t it w o u l d c a u s e t h e e n t e r p r i s e t o o p e r a t e a t a l o s s .
The
a d d i t i o n a l s e n t e n c e m a k e s it c l e a r t h a t t h i s p a r a g r a p h e x e m p t s e n t e r p r i s e s m a k i n g
a l o s s , o r at r i s k o f d o i n g s o , o n l y f r o m t h e p r i c e c o n t r o l s in the C o d e a n d
n o t f r o m the net profit m a r g i n controls.
Paragraph
5 0 : C o n s e q u e n t i a l o n t h e a m e n d m e n t s to paragraph 5 3 - 4
restrict s u b d i v i s i o n f o r n e t p r o f i t m a r g i n c o n t r o l .
Paragraph
5 2 : W h e r e a n e x c e s s i n S t a g e 2 o v e r the S t a g e 2 r e f e r e n c e
b e c o m e s apparent i n Stage 3, only t h e excess over the Stage 2 reference
n e e d b e offset.
which
level
level
Paragraphs
5 3 and 5 4 : T h e s e a m e n d e d p a r a g r a p h s restrict s u b d i v i s i o n f o r
net profit m a r g i n p u r p o s e s .
T h e y impose m o r e stringent conditions o n the
extent t o w h i c h enterprises m a y apply the reference level other than, o n a g r o u p
basis.
I t will still b e p o s s i b l e u n d e r p a r a g r a p h 14 f o r a g r o u p t o h a v e m o r e
t h a n o n e r e f e r e n c e l e v e l w h e r e its a c t i v i t i e s f a l l u n d e r different c o n t r o l r e g i m e s .
M a y a l s o a p p l y t o t h e p r o v i s i o n s f o r relief f o r l o w p r o f i t s i n p a r a g r a p h s 6 1 - 6 2 .
Paragraph
5 8 : T h i s m a k e s the p r o f i t m a r g i n c o n t r o l s m o r e effective.
Treat­
ing years of loss as years of n o t r a d i n g a l l o w s the net profit m a r g i n reference
l e v e l to b e r a i s e d artificially o r m a k e s it i m p o s s i b l e t o c a l c u l a t e a r e f e r e n c e l e v e l .
Paragraph
. modification
6 0 : A n a m a l g a m a t e d e n t e r p r i s e m a y t a k e a d v a n t a g e of t h e
o f t h e profit m a r g i n r e f e r e n c e l e v e l p e r m i t t e d b y this p a r a g r a p h .
Paragraph
61 : T h e relief f o r e n t e r p r i s e s w i t h l o w p r o f i t s i s e x t e n d e d t o g i v e
e x e m p t i o n f r o m p r i c e a n d g r o s s p e r c e n t a g e m a r g i n c o n t r o l as w e l l a s f r o m
net profit m a r g i n c o n t r o l .
Paragraph
6 3 : T h i s clarifies the a p p l i c a t i o n o f t h e criteria i n t h i s p a r a g r a p h ,
in p a r t i c u l a r , t h e f a c t t h a t t h e q u a l i f y i n g i n v e s t m e n t d o e s n o t h a v e t o c o m e o n
s t r e a m w i t h i n a s p e c i f i e d p e r i o d but t h a t t h e e x p e n d i t u r e o n the i n v e s t m e n t w h i c h
w a s the o c c a s i o n o f t h e p r i c e i n c r e a s e o r r e l a x a t i o n of p r o f i t m a r g i n c o n t r o l s
m u s t b e g i n w i t h i n 12 m o n t h s .
It m o r e c l o s e l y reflects t h e t i m e s c a l e o f i n v e s t ­
m e n t decisions.
T h i s is a n e w p r o v i s i o n t o d e a l w i t h c a p i t a l - i n t e n s i v e
Paragraph
63 A:
industries w h i c h h a d a b n o r m a l l y h i g h unit costs at the b a s e date because! o f a
m a j o r investment that had not y e t c o m e o n stream.
Paragraph
6 7 : T h e gross percentage m a r g i n control applies t o all h o m e sales,
i n c l u d e s s a l e s o f p r o d u c t s e x e m p t e d f r o m t h e C o d e b y p a r a g r a p h 6.
Paragraph
7 0 : T h e a d d i t i o n a l s e n t e n c e m a k e s it c l e a r t h a t t h i s p a r a g r a p h
exempts enterprises making a loss o n l y from the gross percentage margin controls
a n d n o t f r o m t h e n e t profit m a r g i n c o n t r o l .
Paragraph
71 : T h e a m e n d m e n t s m a k e it c l e a r t h a t w h e n d i s t r i b u t o r s e x c e e d
their gross percentage margin reference level, or are likely t o d o so, they s h o u l d
t a k e the s a m e a c t i o n t o r e d u c e p r i c e s a s w h e n t h e i r n e t p r o f i t m a r g i n r e f e r e n c e
l e v e l is e x c e e d e d .
T h e additional phrase in brackets provides that where a n
e x c e s s in S t a g e 2 o v e r t h e S t a g e 2 r e f e r e n c e l e v e l b e c o m e s a p p a r e n t in S t a g e 3 ,
o n l y t h e e x c e s s o v e r t h e S t a g e 2 r e f e r e n c e level n e e d b e offset.
Paragraph
72:
Paragraph
75 (i): This
the e n d o f the paragraph,
being "in deficit".
They
w h i c h the p r o v i s i o n o f t h e
s u b p a r a g r a p h , together w i t h the a d d i t i o n a l s e n t e n c e at
clarifies w h a t is m e a n t for a n a t i o n a l i s e d industry b y
reflect current policy. T h e y a l s o define the units t o
paragraph will apply.
Paragraph
75 (ii): T h e e x t e n t to w h i c h a nationalised industry m a y benefit
u n d e r the p r o v i s i o n s d e a l i n g w i t h l o s s - m a k i n g e n t e r p r i s e s i n the p r i v a t e s e c t o r is
clarified.
Paragraph
75 (iii): Consequential on the
e x t e n d i n g the relief for l o w profit enterprises.
appropriate for the nationalised-industries.
amendment t o paragraphs 6 1 - 6 2
T h e l o w profit t e s t w o u l d n o t b e
Paragraph
ISA:
T h i s n e w p a r a g r a p h i s i n t e n d e d t o m a k e it p o s s i b l e t o a p p l y
t h e C o d e t o m u l t i - p a r t tariffs i n t h e g a s a n d e l e c t r i c i t y i n d u s t r i e s w h e r e t h e
s t r u c t u r e o f t h e tariffs i s s u c h t h a t a s s a l e s i n c r e a s e , a v e r a g e r e v e n u e p e r u n i t
falls.
It a l s o m a k e s p r o v i s i o n f o r t h e s t a t u t o r y r e q u i r e m e n t o n t h e s e i n d u s t r i e s
to m e e t peak demand.
Paragraph
7 9 : T h i s clarifies t h e a p p l i c a t i o n o f p a r a g r a p h 75 t o t h e s e t r a d i n g
e n t e r p r i s e s , m a n y o f w h o m h a v e h a d n o i n c r e a s e d u r i n g S t a g e 2.
1
Paragraph
8 0 : T h i s clarifies t h e d i s t i n c t i o n b e t w e e n n a t i o n a l i s e d i n d u s t r i e s a n d
other public sector trading enterprises.
Paragraph
144118
8 9 : Consequential o n t h e inclusion of paragraph 4 6 A .
Paragraph
100A: This new paragraph is. intended to ensure , that where
applications are received by the C o m m i s s i o n before publication o f this W h i t e
P a p e r c o n t a i n i n g t h e G o v e r n m e n t s p r o p o s a l s f o r S t a g e 3, t h e C o m m i s s i o n w i l l
c o n s i d e r t h e m u n d e r t h e S t a g e 2 r u l e s e v e n if t h e d e c i s i o n i s g i v e n a f t e r t h e
operative date of Stage 3.
Paragraphs
1 0 0 B + C : These n e w paragraphs are intended t o ensure that
price increases are n o t m a d e in the interval b e t w e e n the p u b l i c a t i o n of this
W h i t e P a p e r a n d t h e d a t e o n w h i c h a r e v i s e d C o d e t a k e s effect w i t h t h e i n t e n t i o n
o f a n t i c i p a t i n g the revised C o d e a n d establishing a n e w price level b e f o r e S t a g e 3.
It d o e s this b y p r o v i d i n g that in S t a g e 3 s u c h anticipatory i n c r e a s e s s h o u l d be
r e d u c e d to the level w h i c h w o u l d be justified, under the S t a g e 3 C o d e .
These
p a r a g r a p h s w o u l d n o t a p p l y t o i n c r e a s e s i m p l e m e n t e d after p u b l i c a t i o n o f t h i s
W h i t e P a p e r w h e r e either the increase h a d b e e n a p p r o v e d b y the C o m m i s s i o n
following a n application received by t h e m before publication of this White
P a p e r or w h e r e a price increase b y an enterprise n o t required t o p r e - n o t i f y h a d
been publicly a n n o u n c e d before then.
Paragraph
1 0 0 D ; T h i s a m e n d m e n t e n a b l e s unjustified p r i c e i n c r e a s e s w h i c h
were m a d e during Stage 2 but w h i c h d o n o t c o m e t o the C o m m i s s i o n ^ notice
until after t h e start of Stage 3 to b e r e d u c e d a c c o r d i n g to the Stage 2 rules.
In
t h e a b s e n c e o f t h i s p r o v i s i o n a n u n j u s t i f i e d p r i c e i n c r e a s e m a d e in S t a g e 2 c o u l d
b e c o m e the " b a s e p r i c e " f o r f u r t h e r i n c r e a s e s i n S t a g e 3 .
:
Iftinsmwj
nmi$w **
. wiim
xh \
Paragraph
101 ( i i ) : T h i s p r i n c i p l e h a s b e e n e x p a n d e d i n a c c o r d a n c e w i t h t h e
n e w provisions in the C o d e for the r e m e d y i n g of anomalies.
PAY . '
I
:
:
Paragraph
101 ( v ) : T h i s p r i n c i p l e h a s b e e n a d d e d t o e m p h a s i s e t h e i m p o r t ­
a n c e o f t h e n e w p r o v i s i o n s f o r e n c o u r a g i n g the better u s e o f
productive
r e s o u r c e s , n o t a b l y t h e p r o v i s i o n s f o r e f f i c i e n c y s c h e m e s a n d t h e flexibility m a r g i n .
Paragraph
107 (iii): This a m e n d m e n t a l l o w s increases w h i c h d o n o t c o u n t
a g a i n s t t h e p a y l i m i t t o b e p a i d l e s s t h a n 12 m o n t h s a f t e r t h e g r o u p l a s t
r e c e i v e d a p r i n c i p a l i n c r e a s e , s u b j e c t in s o m e c a s e s t o t h e s p e c i a l r u l e s o n t i m i n g
set out in later paragraphs.
Paragraph
been added.
1 0 8 : N e w types of increase w h i c h are n o t principal i n c r e a s e s h a v e
Paragraph
109
sets
out
the. new
pay
limit.
It
gives
negotiators
and others c o n c e r n e d with p a y d e t e r m i n a t i o n a choice in t h e case o f e a c h
g r o u p b e t w e e n 7 p e r c e n t o f t h e . a v e r a g e p a y bill p e r h e a d o f t h e g r o u p f o r
t h e p r e c e d i n g 12 m o n t h s a n d £ 2 - 2 5 p e r w e e k p e r h e a d .
. Paragraph
1 0 9 A : This amendment allows groups w h o d o not negotiate but
have settlements for another group automatically applied to them t o continue to
d o s o i n respect of settlements f o r the other g r o u p within t h e p a y limit under
this C o d e .
Paragraph
1 1 1 : T h e date has b e e n revised as necessary a n d the last sentence
o f t h e p r e v i o u s C o d e d r o p p e d as t h e c i r c u m s t a n c e s w i l l n o l o n g e r a r i s e .
Paragraph
1 1 3 : T h i s a m e n d m e n t b r i n g s u p t o d a t e the r e q u i r e m e n t s of. p a r a ­
graph 1 1 3 i n t h e p r e v i o u s C p . d e .
Paragraph
1 1 7 : T h i s a m e n d m e n t is t o m a k e c l e a r h o w t h e p a y l i m i t
be applied as a m o n t h l y or weekly increase.
Paragraph
118A:
should
T h i s refers t o t h e n e w o p t i o n o f a s t r a i g h t c a s h p a y l i m i t .
Paragraph
118B a l l o w s fees f o r o c c a s i o n a l work, w h i c h m a y h a v e n o t been
r e v i e w e d for s o m e time, t o be increased b y t h e equivalent of t h e pay limit applied
a t a n a n n u a l r a t e f o r t h e p e r i o d s i n c e t h e y w e r e last i n c r e a s e d u p t o a m a x i m u m
of three years.
Paragraph
1 2 0 : A definition o f standard working hours h a s been added.
Paragraphs
1 2 0 A - D c o m p l e m e n t the existing provisions o n hours and holidays
in p a r a g r a p h s 1 2 5 a n d 1 2 7 b y a l l o w i n g i m p r o v e m e n t s o u t s i d e t h e p a y l i m i t i n
terms of e m p l o y m e n t relating to night a n d weekend working where these are
b e l o w the standard applying i n industry generally;
1 2 1 : Increases within the n e w flexibility m a r g i n (except n e w
Paragraph
p e r s o n a l i n c r e m e n t s ) a r e e x c l u d e d f r o m t h e i n d i v i d u a l p a y l i m i t , w h i c h is r a i s e d
to,£5Q0.
i i 0 k ^ ; x k \
i-iriil/ov
m*
w
B h
r
:J^fli \ix\p:)i\
Paragraphs
1 2 1 A and B a l l o w t h e p a y l i m i t t o b e i n c r e a s e d b y 1 p e r c e n t
w h e r e n e g o t i a t o r s n e e d a m a r g i n o f f l e x i b i l i t y t o r e a c h a g r e e m e n t (i) o n c h a n g e s
in p a y a n d . grading structures o r systems of p a y m e n t . designed t o increase
e f f i c i e n c y o r r e m e d y a n o m a l i e s o r (ii) o n i m p r o v e m e n t s i n h o l i d a y s , h o l i d a y p a y
or sick p a y .
ii
; .
Paragraph
123: T h e s p e c i a l p r o v i s i o n f o r p r o g r e s s t o w a r d s e q u a l p a y t o b e
m a d e o u t s i d e t h e p a y l i m i t h a s b e e n e x t e n d e d t o m a k e c l e a r t h a t it a p p l i e s t o
c a s e s w h e r e w o m e n ' s jobs, t h o u g h different f r o m t h o s e of m e n , h a v e b e e n g i v e n
a h e q u a l v a l u e t o m e n ' s j o b s u n d e r a j o b e v a l u a t i o n s c h e m e w h i c h ! satisfies t h e
specified c o n d i t i o n s .
Paragraph
1 2 5 : T h e a m e n d m e n t m a k e s clear that t h e : c o n c e s s i o n d o e s n o t
apply w h e r e there h a s been an agreement in the past to consolidate overtime
payments into a higher basic w a g e for a longer working week.
127 (i): T h e increase from six t o seven occasional or public
Paragraph
holidays a l l o w s f o r the addition of 1 January (or i n Scotland an alternative
r
1
-day): ;;ilqin?;fniiq spctJ gom! mphltfoWn
: !
terl i
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;.! .',
vOfrj) U^y\py\^V. ^
Paragraph
121A p r o v i d e s t h a t t h e e x t r a c o s t o f a h o l i d a y o n 1 J a n u a r y w i l l
^not c o u n t a g a i n s t t h e p a y l i m i t e v e n f o r t h o s e w h o a l r e a d y h a v e s e v e n o r m o r e
occasional or public holidays.
Paragraph
1 2 8 : This a m e n d m e n t sets o u t the m e t h o d for determining the
c o s t o f i n c r e a s e s i n h o l i d a y s w h e r e t h i s is r e q u i r e d t o b e c o u n t e d a g a i n s t t h e p a y
limit.
.;
Paragraph
lttA:
A l l o w s p a y m e n t outside the p a y . limit of allowances for
temporary w o r k during the currency o f t h e revised C o d e b y , those involved in
t h e s t a t u t o r y r e o r g a n i s a t i o n o f l o c a l g o v e r n m e n t i.e. L o c a l A u t h o r i t y C h i e f
E x e c u t i v e s a n d C h i e f Officers a n d e q u i v a l e n t g r a d e s i n t h e N H S a n d p o l i c e .
1 3 7 : This paragraph h a s been amended to apply to schemes
Paragraph
w h i c h benefit redundant w o r k e r s w h o are redeployed w i t h i n t h e s a m e enterprise
as well a s t h o s e w h o are dismissed, p r o v i d e d in either c a s e that t h e s c h e m e
requires at least a year's c o n t i n u o u s service.
1 3 8 : T h i s a m e n d m e n t clarifies t h e p o s i t i o n w h e r e t h e t e r m s o f
Paragraph
profit s h a r i n g s c h e m e s o p e r a t i n g o n o r b e f o r e 6 N o v e m b e r , 1 9 7 2 , a r e n o t i n
writing.
1 3 9 : T h e a d d i t i o n a l first s e n t e n c e e n a b l e s s h a r e s a v i n g s s c h e m e s
Paragraph
of t h e kind a n n o u n c e d i n t h e 1973 B u d g e t t o proceed outside t h e requirements
of t h e C o d e . T h e provisions relating t o other types o f share option a n d share
incentive schemes are unchanged.
Enables increases in L o n d o n allowances conforming to
Paragraph
141 A :
N B P I R e p o r t N o . 4 4 a n d p o l i c e p a y differentials f o r L o n d o n t o b e p a i d o u t s i d e
the p a y limit.
1 4 2 ( i i ) : T h e a m e n d m e n t is t o m a k e c l e a r t h a t r e i m b u r s e m e n t o f
Paragraph
r e m o v a l e x p e n s e s should b e treated in t h e s a m e w a y as expenses incurred in the
course of employment.
Paragraph
142 (iii):
This addition covers rent allowances paid to those, for
e x a m p l e p o l i c e m e n w h o a r e r e q u i r e d t o l i v e i n p a r t i c u l a r l o c a t i o n s a s p a r t o f their
conditions o f service.
Paragraphs
143 and 144: These amendments clarify the way in which the
pay limit should be applied where settlements or pay determinations are con­
cluded at more than one level.
Paragraph
146: This amendment will facilitate monitoring of earnings from
existing payment by results schemes by providing that as from July 1974 increased
earnings arising from increased output will be outside the pay limit only under
schemes providing adequate management control information.
Paragraph
147:
This up dates the corresponding provision in the previous
Code.
Paragraphs
148-9: The amendments make clear that where the new schemes
introduced under these limited arrangements (which also applied under the
previous Code) are schemes of payment by results, the provisions of paragraph
146 apply.
Paragraphs
149A and B : Provide for the negotiation and introduction of
efficiency schemes under strictly controlled conditions which will ensure that
additional payments, limited to 50 per cent above what is allowable within the
pay limit, are made only after a minimum trial period of three months has
demonstrated to the satisfaction of the Pay Board that the savings outweigh
the costs by at least as much again as the cost of the pay increases, and make
a definite contribution to cost reduction. It will also be a condition that the
employer should maintain full and detailed control information to enable the
Pay Board to monitor, in such ways as may be appropriate, the continuing
operation of the scheme.
Paragraphs
150
and
151:
These amendments bring these paragraphs up to
date.
Paragraph
152A: Provides transitional arrangements for settlements relating
to a date prior to, but not implemented before, the coming into operation of
the revised Code.
Paragraph
152B: Allows payments to be made under threshold agreements,
as described in Part I.
Paragraphs
152C to K :
described in Part I.
Provide
for the remedying of
anomalies
as
SECTION II Draft of a revised Price and Pay Code
1. T h e C o d e h a s a d u a l f u n c t i o n .
First, the P r i c e C o m m i s s i o n a n d P a y
Board a r e required to exercise their powers so as t o ensure that it is imple­
mented.
S e c o n d l y , all t h o s e c o n c e r n e d with t h e d e t e r m i n a t i o n o f p r i c e s a n d p a y
s h o u l d h a v e r e g a r d t o it.
2 . T h e C o d e is t h e r e f o r e a d d r e s s e d b o t h t o t h e C o m m i s s i o n a n d t h e B o a r d
Part I deals
and to all t h o s e c o n c e r n e d with price a n d p a y d e t e r m i n a t i o n .
w i t h p r i c e s a n d P a r t II w i t h p a y .
Part I—Prices
General Principles
3 .
T h e general principles relating t o prices are:
.1
(i) t o l i m i t t h e e x t e n t t o w h i c h prices m a y b e i n c r e a s e d o h a c c o u n t o f
i n c r e a s e d c o s t s , a n d t o s e c u r e r e d u c t i o n s as a result !of r e d u c e d c o s t s ;
(ii) t o r e i n f o r c e t h e c o n t r o l o f prices b y a c o n t r o l
safeguarding investment;
o n profit margins
while
(iii) t o r e i n f o r c e t h e e f f e c t s o f c o m p e t i t i o n , a n d t o s e c u r e i t s f u l l b e n e f i t s i n
t h e general level o f prices.
Field of Application
(
4.
W i t h t h e e x c e p t i o n s s p e c i f i e d i n p a r a g r a p h s 5 t o 10 b e l o w , t h e p r i c e s o f
g o o d s a n d s e r v i c e s s u p p l i e d to t h e U n i t e d K i n g d o m h o m e m a r k e t a r e w i t h i n
the s c o p e o f t h e c o n t r o l .
5. T h e p r i c e s o f g o o d s a n d s e r v i c e s e x p o r t e d ( w h e t h e r d i r e c t l y o r t h r o u g h
an a g e n t o r m e r c h a n t ) a r e n o t c o n t r o l l e d .
6.
T h e following are n o t controlled:
(i) p r i c e s p a i d o n first s a l e i n t o t h e U n i t e d K i n g d o m o f i m p o r t e d g o o d s a n d
services;
(ii) p r i c e s o f g o o d s a n d s e r v i c e s w h e r e t h e a p p l i c a t i o n o f t h e c o n t r o l w o u l d
For
b e inconsistent with an international agreement or arrangement.
this p u r p o s e , an international agreement or a r r a n g e m e n t is o n e between
states o r organisations of states, not between firms;
(iii) p r i c e s a t s a l e s b y a u c t i o n , w h e r e s u c h sales a r e a n o r m a l p r a c t i c e i n t h e
particular trade;
( i v ) p r i c e s o f g o o d s a t t h e p o i n t o f s a l e o n a c o m m o d i t y m a r k e t i n t h e
U n i t e d K i n g d o m s u c h as t h e L o n d o n M e t a l E x c h a n g e o r p r i c e s d i r e c t l y
determined by reference t o such markets;
( v ) p r i c e s o f s e c o n d - h a n d g o o d s (other t h a n s e c o n d - h a n d
b y distributors);
road vehicles
sold
( v i ) c h a r g e s f o r t h e c a r r i a g e o f g o o d s or p a s s e n g e r s o n i n t e r n a t i o n a l
j o u r n e y s ; c h a r g e s f o r air n a v i g a t i o n , l a n d i n g a n d r e l a t e d s e r v i c e s a n d
ship, passenger a n d g o o d s dues, provided t h a t t h e y relate w h o l l y or
m a i n l y t o s u c h traffic; c h a r g e s f o r i n t e r n a t i o n a l m a i l , G i r o and remittance
services a n d t e l e c o m m u n i c a t i o n s e r v i c e s ;
( v i i ) p r i c e s o f e t h i c a l m e d i c i n e s s u p p l i e d t o t h e U n i t e d K i n g d o m m a r k e t t o
t h e e x t e n t that r e g u l a t i o n o f their p r i c e s i s w i t h i n t h e s c o p e o f a n y
a g r e e m e n t relating t o those prices m a d e b e t w e e n t h e Secretary o f State
for Social Services and representatives o f m a n u f a c t u r e r s o f those
medicines; but only s o long as such an agreement is in force;
(viii) prices in contracts with the Secretary of State for Defence for warlike
stores and services which are within the agreement between Her
Majesty's Government and industry governing the pricing of, and control
of profit from non-competitive contracts. These prices will be subject
to the controls provided in that agreement;
(ix) insurance premiums, which will be subject to restriction by the Secretary
of State for Trade and Industry;
(x) taxi fares, where subject to control by the Home Secretary or the
Secretary of State for Scotland ;
(xi) prices determined by a statutory body which, as a result of an order
made under section 8 of the Counter-Inflation Act 1973, is required to
apply the Code to the determination of those prices;
(xii) subscriptions and certain prices charged by non-profit-making organis­
ations as in paragraphs 98 to 100.
Application
to Food,
Farming
and
Forestry
Products
7. The prices of manufactured food and drink, like those of manufactured
products generally, are within the scope of the control as are those of semi­
processed foodstuffs such as butter, cheese, sugar and quick-frozen vegetables.
8. The prices paid to United Kingdom producers or producers' organisations
or to overseas suppliers for fresh foods and similar products, which are
subject to fluctuations on world and United Kingdom markets because of
seasonal factors or changes in the relationship between supply and demand,
are not controlled. This applies in particular to meat, including bacon and
poultry, fish, eggs, fruit and vegetables. However, enterprises which resell these
products whether home-produced or imported, at any subsequent stage will be
subject to control.
9. The retail price of milk for liquid consumption and the margins of milk
distributors will continue to be subject to the existing controls by the Minister
of Agriculture, Fisheries and Food and the Secretary of State for Scotland.
So long as these controls apply, the price of milk for liquid consumption will
not be subject to the Code.
9A. The prices of milk for manufacture will, however, be subject to the
following requirements.
Except where the Milk Marketing Boards incur
additional allowable cost increases in marketing the m i l k : —
(i) the price of milk for butter and skimmed milk powder may not be
increased above current levels (adjusted as necessary to reflect changes
in the intervention prices); and
(ii) for other milk products, the price of milk may not be increased above
the prices of milk for butter and skimmed milk powder (adjusted by
not more than the average premium received by the Boards for milk
for the product concerned over the butter and skimmed milk prices
in the year ending 30 April, 1973).
10. What is said in paragraph 8 in relation to prices paid for fresh foods
applies also to prices of other primary products of animal or vegetable origin
which are subject to similar fluctuations.
Charges
11. Reference in the Code to prices include references to charges, unless
there is explicit provision to the contrary.
G o o d s . a n d Services
12. References in the Code to goods include references to services, unless
there is explicit provision to the contrary.
Definition of Enterprise for the purposes of the C o d e .
13. F o r t h e p u r p o s e s o f the C o d e other than for net profit margin control
set out in paragraphs 5 0 - 6 2 a n e n t e r p r i s e m e a n s e i t h e r a n e n t e r p r i s e a s a w h o l e
or a s e p a r a t e c o n s t i t u e n t c o m p a n y o r s u b - d i v i s i o n p r o v i d e d that i n t h e latter
case separate accounts for such sub-divisions::—
r
(i) a r e o r c a n b e m a d e a v a i l a b l e f o r a l l r e l e v a n t p e r i o d s ;
;
(ii) a r e n o t m a t e r i a l l y d i s t o r t e d b y t r a n s a c t i o n s c o n d u c t e d o t h e r w i s e t h a n o n
a r m ' s l e n g t h t e r m s ;
'"
;
(iii) w o u l d , if c o m b i n e d w i t h o n e a n o t h e r a n d w i t h t h e a c c o u n t s o f a l l o t h e r
activities o r transactions of the enterprise, p r o d u c e results c o n s i s t e n t with
those s h o w n b y the accounts of the enterprise taken a s , a ,whole. ,
14. W h e r e t h e a c t i v i t i e s o f an e n t e r p r i s e a r e n o t c o n f i n e d t o m a n u f a c t u r i n g ,
distribution, or t h e provision of services, but include m o r e than o n e o f these,
e a c h o f - t h e s e a c t i v i t i e s m a y b e t r e a t e d s e p a r a t e l y for all the purposes of the Code
including the calculation of net profit margins under paragraphs 5 0 - 6 2 p r o v i d e d
t h a t a d e q u a t e a c c o u n t s s a t i s f y i n g p a r a g r a p h 13 a r e o r c a n b e m a d e a v a i l a b l e
for e a c h of t h e m .
W h e r e these activities are n o t treated separately, the m a i n
activity of t h e enterprise will d e t e r m i n e w h e t h e r the provisions o f t h e C o d e
r e l a t i n g t o m a n u f a c t u r i n g , d i s t r i b u t i o n o r s e r v i c e s apply..
i.
15. A n y r e f e r e n c e i n t h e C o d e t o a n e n t e r p r i s e i n c l u d e s a r e f e r e n c e t o a n
activity of a n enterprise which is t o be treated separately under paragraph 14.
A reference t o an enterprise includes a reference t o a co-operative, a partnership
or to an individual carrying o n a business.
Costs and Prices
16. P r i c e s w h i c h a r e w i t h i n t h e c o n t r o l m a y n o t b e i n c r e a s e d u n l e s s t h e r e
N o increase m a y exceed the
is a n i n c r e a s e i n t o t a l c o s t s p e r u n i t o f o u t p u t .
increase in total costs p e r unit.
17.
W h e r e there is a n increase i n total costs p e r unit, only certain increases
referred t o i n t h e C o d e a s " a l l o w a b l e c o s t i n c r e a s e s " , m a y b e t a k e n . i n t o
account in arriving a t the permitted price increase, a n d they will b e subject
to a productivity deduction.
Price
Reduction
18. P r i c e s s h o u l d b e r e d u c e d w h e n e v e r p o s s i b l e .
W h e r e t h e r e is a fall
i n r a w m a t e r i a l p r i c e s o r o t h e r a l l o w a b l e c o s t s , this s h o u l d b e f u l l y r e f l e c t e d
i n price r e d u c t i o n s .
R e d u c t i o n s are h o w e v e r n o t required to e x c e e d t h e . f a l l in
t o t a l c o s t s p e r u n i t o f o u t p u t . In a d d i t i o n p r i c e s s h o u l d b e r e d u c e d a s r e q u i r e d
i n p a r a g r a p h s 5 0 a n d 71 w h e r e a n e n t e r p r i s e e x c e e d s , o r is l i k e l y t o e x c e e d ,
its profit m a r g i n r e f e r e n c e l e v e l , or in the case of a distributor, its gross percentage
margin.
Base
Date
mubmt\
19. T h e s t a r t i n g p o i n t f o r the c a l c u l a t i o n o f p e r m i t t e d p r i c e i n c r e a s e s is
t h e l e v e l o f c o s t s p e r u n i t o f o u t p u t at 3 0 A p r i l , 19.73. In c a l c u l a t i n g p e r m i t t e d
p r i c e i n c r e a s e s , c o s t i n c r e a s e s first i n c u r r e d after 30 April 1973, m a y b e t a k e n
into account, t o t h e extent that they h a v e n o t already been reflected in prices.
Where the price of a particular product has not been increased since 30
September 1972, cost increases first incurred after that date m a y b e taken into
account and that date should be substituted for 30 April in paragraphs 2 1 and
25 below.
H o w e v e r , e x c e p t as in paragraph 2 0 , t h e permitted price increase
m a y not include a n y element of retrospective recovery of costs incurred before
t h e d a t e o n w h i c h t h e p r i c e i n c r e a s e t a k e s effect.
v ii (ij
2 0 . A p e r m i t t e d p r i c e i n c r e a s e m a d e after 3 0 A p r i l , 1 9 7 3 , m a y i n c l u d e a n
e l e m e n t o f recovery o f costs incurred between 30 April, 1973, and t h e date o f
the permitted price increase provided that: —
(i) the amount included in respect of such costs does not exceed what
would be necessary to recover the costs over a period of 12 months
beginning with the date of implementation of the permitted price increase;
and
(ii) in the calculation of any subsequent price increase under the Code,
the " selling price " referred to in paragraph 21 (iii) should exclude any
element which represents a recovery of costs under this paragraph.
Where a price increase includes such an clement of recovery of costs, the
increase may exceed the increase in total costs per unit by the amount necessary
to permit the recovery of those costs.
Calculation of Permitted Price Increase
21. The maximum permitted price increase should be arrived at as follows:
(i) calculate the change in total costs per unit and allowable cost increases
per unit (as reduced by the productivity deduction) between the base
date and the date of the price increase; cost increases which have already
been reflected in prices should be excluded;
(ii) express allowable cost increases per unit as a percentage of total costs
per unit at the base date;
(iii) apply the resulting percentage to the selling price at the base date in
order to establish the new permitted price level.
In (i), (ii) and (iii) above, "base d a t e " means 30 April, 1973, or at the option
of the enterprise, the date of any subsequent price increase.
22. The calculation of the level of costs per unit referred to in paragraph
21 (i) should be based on the levels of pay and other costs ruling at 30 April,
or at the date of the subsequent price increase if used as the base date, and on
the level of output over the most recent representative period completed by that
date (e.g. the previous quarter) for which adequate records are available. Similarly
the calculation of costs per unit at the date of the price increase may take account,
in accordance with the normal practice of the enterprise, of increases in raw
material prices and other allowable cost increases up to the date of the price
increase and should reflect the output level achieved in the most recent repre­
sentative period (e.g. the quarter preceding the date of the price increase).
23. The levels of unit costs calculated in this way will not necessarily be
the same as the average figures recorded for the whole of the period chosen,
e.g. if pay or other costs changed during the period. If output in the period
was materially affected by abnormal factors such as holidays, an appropriate
adjustment should be made. If this is impossible, the previous normal operating
period should be chosen with appropriate adjustments to allow for changes in
the level of pay or other costs.
24. Where price increases are being made not on a single product but on
a range of related products (under paragraph 38 or 39) the procedure in
paragraphs 21 to 23 still applies. But in this case the group of related
products should be considered as a single product; the costs per unit can be
expressed either as costs per unit of volume of output or if a volume measure
is impracticable as costs per £ of sales value. Where the calculated permitted
percentage price increase is not applied uniformly to the whole range of products,
the weighted average percentage price increase made on the selling prices of
the products within the group may not exceed this percentage.
Allowable Cost Increases
25. Subject to the following paragraphs, a cost increase may be regarded
as an allowable cost increase for the purpose of paragraph 17 if: —
(i) it was first incurred after 30 April 1973; and
(ii) it was incurred for one of the f o l l o w i n g : ­
(a) labour;
(b) materials, components, fuel and power;
(c) r e n t o f p r e m i s e s o r r a t e s ;
(d) i n t e r e s t c h a r g e s , a s d e f i n e d i n p a r a g r a p h 2 8 ;
(e) c e r t a i n b o u g h t - i n s e r v i c e s , t h a t i s : t r a n s p o r t , h i r e o f e q u i p m e n t ,
insurance, storage, m a i n t e n a n c e a n d engineering services n o t o f a
capital nature;
(/) commission processing and other payments f o r operations on materials
or components incorporated into the product where there is no
change of title; a n d
(iii) it h a s n o t a l r e a d y b e e n r e f l e c t e d i n p r i c e s .
with the Code
Pay not consistent
26.
C o s t increases arising f r o m increases in p a y (as defined i n p a r a g r a p h 103)
after 6 N o v e m b e r 1 9 7 2 a r e a l l o w a b l e c o s t i n c r e a s e s o n l y t o t h e e x t e n t that, a s
appropriate: —
(i) t h e y w e r e c o n s i s t e n t w i t h t h e p o l i c i e s s e t o u t i n t h e W h i t e P a p e r s
C m n d . 5125 a n d C m n d . 5205 ( a n d d o n o t contravene a n order o r
notice, under t h e Counter-Inflation ( T e m p o r a r y Provisions) A c t , 1972);
(ii) a s r e g a r d s t h e p e r i o d c o m m e n c i n g o n 1 A p r i l 1 9 7 3 , t h e y were consistent
with the provisions of the Code in force at the time of the pay increase
(and d o n o t c o n t r a v e n e art o r d e r o r n o t i c e u n d e r t h e C o u n t e r - I n f l a t i o n
Act 1973).
27.
E x a m p l e s of cost increases w h i c h are n o t allowable cost increases because
they a r e inconsistent with the C o d e are: —
(i) a n y p a r t o f a p a y i n c r e a s e w h i c h e x c e e d s t h e p a y limit; o r
(ii) a n y p a r t o f i n c r e a s e s i n p a y u n d e r s e t t l e m e n t s m a d e a t l o c a l o r p l a n t
level w h i c h , w h e n a g g r e g a t e d w i t h i n c r e a s e s u n d e r a n a t i o n a l a g r e e m e n t ,
e x c e e d s the p a y limit for t h e g r o u p c o n c e r n e d ; a n d
(iii) a n y p a r t o f i n c r e a s e s i n e a r n i n g s a r i s i n g f r o m p i e c e w o r k o r o t h e r p a y ­
m e n t b y results s c h e m e s w h i c h e x c e e d s t h e p a y limit, u n l e s s t h e i n c r e a s e
i s o r was s p e c i f i c a l l y e x e m p t e d f r o m t h e p a y limit b y P a r t I i o f t h e
Code.
Interest
Charges
28.
Increases i n interest charges p a y a b l e by a n enterprise a r e a l l o w a b l e cost
increases, unless the charges or t h e increases in them : —
(i) r e p r e s e n t a d i s t r i b u t i o n o f profits r a t h e r t h a n a t r u e i n t e r e s t c h a r g e ; o r
(ii) w h e r e t h e y a r i s e o n l o a n s b e t w e e n r e l a t e d u n d e r t a k i n g s , r e l a t e t o l o a n s
w h i c h a r e n o t strictly r e q u i r e d f o r t h e b u s i n e s s , o r r e p r e s e n t i n t e r e s t i n
e x c e s s o f t h a t w h i c h w o u l d be c h a r g e d i n a t r a n s a c t i o n a t a r m ' s l e n g t h ; o r
(iii) r e p r e s e n t i n t e r e s t w h i c h w o u l d p r o p e r l y b e r e g a r d e d a s c a p i t a l
t u r e i n t h e p e r i o d i n w h i c h i t is i n c u r r e d .
Productivity
expendi­
Deduction
2 9 . I n o r d e r t o e n s u r e that t h e b e n e f i t s o f i n c r e a s e d p r o d u c t i v i t y a r e p a s s e d
on t o t h e consumer, a deduction should be m a d e from allowable cost increases
w h i c h a r e t o b e p a s s e d o n as p r i c e i n c r e a s e s . E n t e r p r i s e s a r e r e q u i r e d t o a b s o r b
50 p e r c e n t o f a l l o w a b l e c o s t i n c r e a s e s a r i s i n g f r o m i n c r e a s e s i n l a b o u r c o s t s ,
with t h e exclusions listed i n paragraph 3 0 , u n l e s s : —
(i) t h e s h a r e o f l a b o u r c o s t s a s a w h o l e i n t h e i r total c o s t s e x c e e d s 3 5 p e r
cent.
In that c a s e enterprises a r e required t o absorb only a n a m o u n t
e q u a l t o t h e p e r c e n t a g e o f total c o s t s w h i c h w o u l d a p p l y if: l a b o u r c o s t s
represented 35 p e r cent o f total costs, or
(ii) the Price Commission are satisfied that a lower productivity deduction
w o u l d be justified which would reflect:—
(a) the record of growth or labour productivity of t h e industry con­
cerned, and of the particular enterprise;
(b) past or estimated future changes in the volume of the industrv's
sales affecting the opportunities for increasing productivity; and
(c) the likely impact on the productivity of the enterprise of any relevant
capital investment undertaken or committed.
30. The deduction for productivity under paragraph 29 need not be applied
to increases in: —
employers' national insurance contributions; training costs; the cost of
improvements under paragraph 123 (equal pay), paragraph 134 (recognised
terms and conditions), paragraph 135 (pensions) and paragraph' 137
(redundancy and incapacity benefits).
A llocation
of Costs
to Controlled
Prices
31. Allocation of costs to particular controlled goods or services for the
calculation of allowable costs increase or increases i n total costs may be necessary
where an enterprise :—
(i) sells in both home and overseas markets; or
(ii) makes sales at home, some of which are within and some outside the
scope of the control; or
(iii) makes sales of different products or groups of products which are
within the control, and has to divide costs between them for the purposes
of the Code.
Where such an enterprise: —
(a) has made allocations which represent a fair division of costs in its circum­
stances, over part or all of the field; and
(b) has done so on a consistent basis,
it should continue to use this basis for all calculations relevant to the Code.
In other cases enterprises may make such allocations by dividing costs in
proportion to the value of sales in each area, or on any other basis which
represents good accounting practice, provided that it adheres to the chosen basis
for all calculations relevant to the Code.
Stocks
32. In calculating the cost of current production or sales, enterprises may
need to include an element for stocks of raw materials, of components or of
finished goods, used for production or sales. When making such calculations
in order to arrive at costs per unit of output and at any allowable cost
increases, enterprises should adhere to the practice they have followed consistently
for the treatment of such costs for pricing purposes.
Transfer
Prices
- 33. Where the Price Commission are satisfied that prices, either of purchases
or of sales, which an enterprise proposes to regard as a basis for the calculation
of allowable cost increases or of net profit margins, differ from what they
would be if the goods or services had been transferred on an ann's length basis,
they may substitute modified cost increases or profit margins which in their
judgment fairly reflect what would be appropriate on that basis.
Costs
'
:
of Sectors including small
enterprises
34. Where the Commission are satisfied that: —
(i) significant reductions or increases in allowable costs have occurred or
are about to occur in a sector of industry or commerce which includes a
considerable number of small enterprises, especially those providing
services; and
(ii) the information available to them indicates that these changes in costs
are likely to be of broadly the same order for a substantial number of
such enterprises,' in respect either of some or all of the goods or services
ly
­
which they supply, ;
:
the Commission may calculate average allowable cost increases or reductions
for the relevant goods or services. In the case of cost increases, these increases
should then be taken as the allowable cost increases for the relevant goods or
services; in the case of cost reductions, the Commission may specify reductions
under paragraph 18 in the prices of the relevant goods or services which should
then be made by all the enterprises concerned.
35. In calculating average allowable cost changes under paragraph 34 the
Commission will take account of :-—
- (i) all relevant information available to them on cost changes for the goods
or services concerned, including information supplied by any trade
. association or other body which they consider is representative of the
enterprises concerned; and
.
(ii) any other relevant provisions of the Code.
.'!.
:
36. The Commission will publish information about.' any average allowable
cost changes which they have determined under paragraphs 34 and 35 together
with an indication of any price changes which they regard as justified or required
under the Code on the basis of those average allowable cost changes.
37. Where the allowable cost changes of a particular enterprise differ from
those published by the Commission under paragraph 36, that enterprise may
apply the normal provisions of the Code relating to allowable cost increases or
price reductions. It will be the responsibility of the enterprise to satisfy the
Commission if required that this was justified.
Product Costs and Allowable Cost Increases
" Single
Product"
Enterprises
38; Where an enterprise makes a single product or a single range of products
the calculations required by the Code may be carried out by reference to the
costs and prices of that enterprise as a whole.
Multi-Product
Enterprises
: Related
Products
39. This paragraph applies to enterprises making a variety Of products.
Where:
(i) allowable cost increases arise on one or more of a range of related
products; and
(ii) a price increase in respect of them is permissible under the Code, the
enterprise need not relate the price increase for individual products
within the range closely to the cost increase for each product, provided
(a) it has been established practice to treat the range of products in this way;
: and ' ' ' '
" -"
(b) the average increase in price, weighted by the value of sales in a recent
"period, will not exceed the sum of what the Code would permit on the
products affected by the cost increases.
:
40. In cases not covered by paragraphs 38 and 39 the calculations required
by the Code should be made by reference to individual products.
41. In paragraphs 38, 39 and 40 " p r o d u c t s " include services.
Anticipation
of Cost
Increases
42. Prices may not be increased in anticipation of cost increases, except
as described in paragraphs 43 to 45. However:
(i) an enterprise may determine and announce a price increase consistent
with the Code which takes account of future allowable cost increases
which are already known as to both date and amount, provided that the
price increase is not implemented befOrethe allowable cost increases are
incurred; and
- $
(ii) an enterprise required to pre-notify an intended price increase to the
Commission may seek the agreement of the Commission to a price
increase consistent with the Code which takes account of such known
future cost increases, subject to the same proviso as in (i).
43. Where:
(i) a future allowable cost increase is already known, as to both date and
amount; and
(ii) it is proposed to quote a price for supply on demand which will not
be increased for at least six months from the date on which it takes effect,
an enterprise may average the future allowable cost increase over the period
of not less than six months for which it quotes the price in arriving at a price
increase for that period, provided that: ;
(a) the total amount raised will not be increased by the averaging; and
(b) the averaging is in accordance with a well-established practice in the trade
concerned.
44. Paragraph 43 (i) may be read as applying to an estimated future cost
increase if:
(i) it relates to a raw material which fluctuates frequently and unpredictably
in price; and
(ii) the use of estimates of such cost increases is a well-established practice
of the trade; and
(iii) in framing the estimates the enterprise adheres to the methods it has
consistently used for the treatment of such costs for pricing purposes.
The other conditions of paragraph 43 apply but with reference to three months
substituted for the references to six months.
45. This paragraph applies to tenders to the extent that they are at fixed
prices. In framing such tenders, those concerned should have regard to the
Code, but where tenders are the custom of the trade
(i) competitive tenders may provide for estimated future cost increases,
(ii) non-competitive tenders may provide for estimated future cost increases
if the contract is to run for at least six months from the date on which
work is to begin.
Escalation
and
Variation
of Price
Clauses
46. Where a price increase is made under an escalation or variation of price
clause the productivity deduction specified in paragraph 29 should be applied
to the element relating to labour cost increases, and no price increase should be
made in respect of a labour cost increase which was not consistent with the
Code. But if the application of the productivity deduction causes or increases
a loss on a particular contract, taken as a whole, the terms of the escalation or
variation of price clauses may be applied to the extent necessary to avoid the
loss, or the increase in it. In addition to new contracts, this paragraph applies
to existing contracts and to increase in prices under those contracts, to the
extent that they relate to cost increases after 6 November 1972.
Prime
cost
and
cost
reimbursement
contracts
4 6 A , Where a claim for payment by a contractor under any form of prime
cost or cost reimbursement arrangement includes an element for increased labour
cost levels since the start of the contract or (if later) 6 November 1972, the
claim for this element should be made and settled in accordance with the
following provisions:
(i) the increases in labour cost levels must have been consistent with the
Code;
(ii) the productivity deduction specified in paragraph 29 must be applied.
B u t if the application of the productivity deduction causes or increases a loss
o n a particular contract, taken as a whole, the terms of the contract may be
applied to the extent necessary t o avoid the loss, or the increase in it. This
paragraph applies to new and existing contracts.
Discounts
47. T h e withdrawal or reduction of a discount, including a discount t o a
particular customer, is equivalent for the purposes of the Code to an increase
in the price.
Quantity
or quality
change
and new
products
48. A change in the quantity or quality of goods is equivalent for the
purposes of the Code to a change in the price. Quality change in goods or
services, quantity change in sales units, or artificial creation of new products
should n o t b e used as a means of avoiding the requirements of the Code. Where
the Commission form the opinion that this has been done, they m a y seek price
reductions, o r disallow or reduce price increases.
48A. However, where a new product is marketed at the retail level on an
experimental and restricted basis for a period of not more than six months the
price charged by the manufacturer need not be treated for the purposes of
the Code as establishing a price for the product.
Losses
49. This paragraph applies to enterprises which are making a loss, or are
under the Code at risk of doing so:
(i) where an enterprise is making a loss, it may increase prices to cover its
costs;
(ii) the provisions relating to allowable cost increases and t o increases in
total costs (including the productivity deduction) need not be applied to
the extent that they would cause the enterprise to operate at a loss ;
Price increases m a y not b e made under this paragraph if they cause the profit
margin reference level referred to in paragraph SO to b e exceeded.
Prices and Profit Margins
50. Prices should be determined so as to secure that net profit margins, as
defined in paragraph 51, do not exceed the average level of the best two of
the last five years of account of the unit t o which net profit margin control applies
ending not later than 30 April 1973, (the " reference level").
51. " Net profit margin" means the margin of net profit expressed as a
percentage of sales or turnover. " Net profit" means the net profit, determined
in accordance with generally accepted accounting principles consistently applied
by the enterprise concerned, which arises from trading operations within the
control after taking into account all expenses of conducting and financing them,
including depreciation and interest on borrowed money, with the exclusions
listed in paragraph 28, but before deducting Corporation Tax or Income Tax.
Action
where
Profit
Margin
is likely
to be
exceeded
52. Where:
(i) the reference level has been exceeded; or
(ii) in the light of interim accounts or other evidence, the reference level
is likely to be exceeded, after taking account of seasonal and other
distorting factors,
abatements in allowable cost increases or price reductions should be made.
The abatements or reductions should be sufficient to eliminate the; actual or
anticipated excess over the reference level as soon as reasonably possible, and
to offset any excess which has already arisen in a period subsequent to 30 April
1973, though for the purposes of any period before 1 November 1973, the
reference level shall be taken t o be " the reference level" as defined in paragraph
SO of the Counter-Inflation (Prices and Pay Code Order) 1973.
Unit
for
Profit
Margins
53. In calculating the net profit margin under paragraph 50, the unit for
profit margin control shall be either:­
(i) the enterprise as' a whole ; or
(ii) a separate activity, as defined in paragraph 1 4 ; or
(iii) a unit of the enterprise, being a separate constituent company or sub­
division, provided that the Price Commission are satisfied t h a t :
, (a) the unit reports direct to the main board of the enterprise as a whole ;
and . .. . /3sk:l!p
lull .. sgnSifc) ii ol .-
. ;
( 6 ) it was the practice of the enterprise before 30 April 1973, t o treat
the unit separately for management and accounting purposes (except
where the enterprise has undergone substantial reconstruction since
that d a t e ) ; and
(c) the accounts of the unit, if combined with o n e and other, can be
reconciled with those of the enterprise as a w h o l e ; and are not
materially distorted by transactions conducted otherwise than on
arms-length terms.
'
54. F o r the purpose of paragraph 53 (i), where ,the enterprise is a company,
(i) " the enterprise as a whole " means the company or (where the company
is a member of a group) all the companies in the group ; and
(ii) " company " includes any body corporate; and
(iii) " g r o u p " means the person (including a company) having control of a
company together with all companies directly or indirectly controlled by
him but does not include any person or company not carrying o n business
in the United Kingdom.
Allocation
of
Profits
to
Controlled
Prices
55. Allocation of profits between prices within the control and those
which are not may be necessary for the calculation of net profit margins.
The requirements of paragraph 31 apply to such allocations of profits as they
do to allocations of costs.
Profit
Margins
and Indirect
Taxes
56. In making comparisons between net profit margins as a percentage
of sales and the reference level, due account must be taken of the effect on
margins of changes in indirect tax on goods and services sold, so that the
comparison is not materially distorted. The comparison with earlier years
should be made on a basis which excludes purchase tax from sales in the
period up to the end of: March 1973 and excludes VAT from 1 April, 1973
onwards. Where excise duties have been included in the sales figures these duties
should be included throughout, adjusted as necessary to take account of the
partial replacement of excise duties by VAT.
57. Where an enterprise does not already have accounts showing separately
the purchase tax element in the turnover of previous years, or which permit
the precise calculation of the amount of excise duty abatement from records
of duty paid, such elements should be estimated on the basis of the best
available information. Where total purchase tax can be ascertained from
purchase invoices this total can be deducted from tax inclusive sales. Where
such purchase invoices are not available, the purchase tax element may be
estimated by applying to the value of purchases of goods charged to different
rates of purchase tax appropriate factors derived from those rates. The Price
Commission will publish information on the application of estimating methods
for this purpose.
Modified
Base
Period
for
Profit.
Margin
Calculation
58. Where an enterprise has traded for less than five complete years of
account, or has traded at a loss in one o r more of the last five years, the
reference level for paragraph 50 may be calculated as follows:
(i) if there have been four years of trading, the average of the best two;
if three or two years, the best year;
(ii) if there have been less than two years of trading the limitation on
profit margins will not apply;
(iii) any year in which an enterprise made a loss may be treated as equivalent
to a year of no profit and sub-paragraphs (i) and (ii) may be applied
accordingly.
59. For a new enterprise formed from a reconstruction or amalgamation
of existing enterprises the reference level will be calculated as defined in
paragraph 50 by using the aggregate net trading profits of the constituent enter­
prises expressed as a percentage of their aggregate sales. The same principles
may be applied to an amalgamation of partnerships.
j,
60. Where the Commission are satisfied that the reference level of an enter­
prise, calculated as in paragraphs 50, 58 or 59 requires modification, for example
because of a susbstantial reconstruction of the enterprise during the base period,
or a substantial change in the character of its business, they may agree or stipulate
a modified reference level which in their judgment gives effect to the principles
of paragraphs 50 to 59 and paragraphs 61 and 62. In applying this paragraph,
the Commission should as far as possible have regard to the profit history of
the main parts of the business which now make up the enterprise; including the
profits of any substantial parts of the business acquired or added to the enterprise
during the base period, and excluding any such parts which have been disposed
of or discontinued.
Relief
for
Low
Profits
61. Where the Commission are satisfied that the net profit margin as defined
in paragraphs 50-54, 58 or 59 represents a return on capital of less than 5 per
1
cent, the limitations i n the Code o n increases i n total costs a n d in allowable
costs and on gross percentage and net profit margins need n o t be applied so as
t o restrict the return below 5 per cent. In such cases the net profit margin
which would correspond t o the net profit needed to produce a return of 5 per
cent o n capital may b e treated as the reference level. " Capital" means the
net assets employed excluding any part of them which is represented by bor­
rowings the interest on which is deducted in arriving at net profit as defined in
paragraph 51.
62. At the option of the enterprise paragraph 61 may be read as referring
to a net profit margin of 1 per cent on turnover rather than to a 5 per cent
return on capital.
.,,
y
o'jo52 oriJ Hi; i'i :oi":o: s
Investment
1
j ; \:) y^-jo vO n:V3Vi j2d ton^niMiU) ota^^D^."
...
. /- bohoq - as
r
63. Where the Commission are satisfied that in a particular case it is
necessary in order to encourage or ensure investment to modify the application
of the limits on allowable cost increases or on profit margins, they may permit
some departure from those limits. In deciding whether, and to what extent,
to permit such a departure the Commission should have regard to the following
criteria: .vao , i i;ib r;lJjIwofh: !)") !ni)fs!.'n nvf) ;'i U, ?noi^o- a'fiflf
i2
(i) Where there is satisfactory evidence that if this is done expenditure o n
;
r
!
:
the investment will begin within 12 months of the date of the price being
increased or the profit margin limit being modified; and
(ii) either the application of the limits would:—
(a) deprive the enterprise of funds essential for investment which it
could not reasonably be expected, or would not be able, to raise in
some other way; or
; .
144118
c
(b) r e d u c e t h e p r o s p e c t i v e r a t e o f r e t u r n o n t h e i n v e s t m e n t t o a l e v e l
w h i c h w o u l d d e t e r t h e e n t e r p r i s e f r o m u n d e r t a k i n g it;
(iii) or t h e r e i s s a t i s f a c t o r y e v i d e n c e t h a t t h e e n t e r p r i s e h a d a b s o r b e d c o s t
i n c r e a s e s t o a n e x c e p t i o n a l d e g r e e a s a r e s u l t of v o l u n t a r y p r i c e r e s t r a i n t
a n d i n c o n s e q u e n c e h a d s i g n i f i c a n t l y r e d u c e d p r o f i t m a r g i n s i n t h e 12
months ending 30 September 1972.
63A.
When the Price Commission are satisfied that in an industry where
capital (as defined in paragraph 61) represents more than 40 per cent of turnover
the following conditions apply :
(i) n e w plant has c o m e into operation since 1 January 1 9 7 1 ; and
(ii) the output from this plant accounts for more than 25 per cent of
total turnover of the enterprise; and
the
(iii) the capacity utilisation of t h e plant was less than 50 per cent at the base
date but has since risen to m o r e than 7 5 per cent
the Commission m a y , on application f r o m the enterprise, modify the calculation
of allowable and total costs per unit at the base date, b y substituting the figures
for unit costs that in the C o m m i s s i o n ^ view w o u l d have applied at that t i m e
if the plant had been operating at 66f per cent of capacity.
Particular Sectors
64. T h e paragraphs w h i c h f o l l o w deal w i t h the application o f this Part o f
t h e C o d e t o c e r t a i n i m p o r t a n t sectors. U n l e s s t h e r e is e x p r e s s p r o v i s i o n t o t h e
c o n t r a r y i n t h o s e p a r a g r a p h s , however, p a r a g r a p h s 3 t o 6 3 m u s t b e t a k e n a s
applying t o all enterprises.
Manufacturing and M i n i n g
6 5 .
P a r a g r a p h s 3 t o 6 3 a b o v e a p p l y i n their e n t i r e t y .
Distribution
66. I n t h e determination o f prices for sales within the U n i t e d K i n g d o m ,
w h o l e s a l e r s , retailers a n d other enterprises e n g a g e d i n distribution s h o u l d e n s u r e
that their gross percentage margins d o n o t exceed the level o f the gross percentage
margin i n either:
(i) t h e l a s t c o m p l e t e a c c o u n t y e a r
3 0 April, 1973; or
of the enterprise
ending
o n or
before
(ii) a 1 2 - m o n t h p e r i o d e n d i n g b e t w e e n 3 0 O c t o b e r , 1 9 7 2 , a n d 3 0 A p r i l , 1 9 7 3 ,
f o r which separate accounts a r e or can be m a d e available,
less in either case a n appropriate reduction f o r t h e abolition o f S E T . W h e r e a n
enterprise h a s not traded long e n o u g h t o establish a gross percentage m a r g i n
u n d e r (i) o r (ii), t h e m a r g i n f o r a c o m p l e t e q u a r t e r ' s t r a d i n g b e f o r e 30 A p r i l
will apply.
67. F o r all t h e purposes o f the C o d e " g r o s s percentage m a r g i n " m e a n s
t h e aggregate difference b e t w e e n t h e cost t o t h e distributor o f all the g o o d s
h e s e l l s i n a p e r i o d a n d t h e v a l u e o f h i s s a l e s in the h o m e market of those g o o d s
in that period, expressed a s a percentage o f t h e sales value.
T h e difference
should b e calculated according t o t h e normal accounting practice consistently
applied b y t h e enterprise. I n arriving at sales a n d costs o f sales, indirect t a x e s
s h o u l d b e treated o n t h e s a m e basis a s for calculating n e t profit m a r g i n s i n
paragraph 56.
68. T h e provisions of t h e C o d e relating t o allowable cost increases d o n o t
apply t o distribution.
Distributors'
Stocks
6 9 . I n m o s t c a s e s prices determined b y d i s t r i b u t i v e enterprises w i l l h a v e t o
t a k e account of t h e c o s t o f g o o d s used f r o m s t o c k f o r s a l e .
Such enterprises
s h o u l d adhere t o t h e p r a c t i c e t h e y h a v e f o l l o w e d c o n s i s t e n t l y for pricing purposes
i n a r r i v i n g a t s u c h c o s t s a n d a t t h e relevant g r o s s p e r c e n t a g e margins.
Distributors
making
a
loss
7 0 . W h e r e a n enterprise e n g a g e d i n distribution is m a k i n g a loss, it m a y
increase prices t o cover its costs, notwithstanding the limitation o n gross
Price increases m a y n o t b e m a d e under this paragraph
percentage margins.
if they cause the profit margin reference level referred to in paragraph 50 t o
b e exceeded.
Profit
margins
in
distribution
7 1 . W h e r e a d i s t r i b u t o r ^ n e t profit m a r g i n as defined in paragraphs 5 0 - 5 1
a n d 5 8 - 6 0 or gross percentage margin as defined in paragraphs 66 and 67 h a s
exceeded the level allowed under this Code, or w h e r e i n t h e light o f i n t e r i m
a c c o u n t s o r other e v i d e n c e that level is likely, after t a k i n g a c c o u n t of s e a s o n a l
o r other distorting factors, t o b e exceeded, price reductions should b e m a d e .
T h e r e d u c t i o n s s h o u l d b e sufficient t o e l i m i n a t e t h e a c t u a l o r a n t i c i p a t e d e x c e s s
o v e r t h e permitted l e v e l a s s o o n a s r e a s o n a b l y p o s s i b l e , a n d t o offset a n y e x c e s s
w h i c h h a s a l r e a d y a r i s e n i n a p e r i o d s u b s e q u e n t t o ' 3 0 A p r i l 1 9 7 3 (though f o r
t h e purposes of a n y period before 1 N o v e m b e r 1973, the reference level shall
b e taken to b e " t h e reference l e v e l " as defined in paragraph 50 of the CounterR e d u c t i o n s are h o w e v e r n o t
Inflation (Price a n d P a y Code) Order 1973).
required i n respect o f a n y e x c e s s arising in t h e p e r i b d u p t o 3 0 April 1973.
72.
Agriculture
in
73.
Part I of t h e C o d e d o e s n o t apply t o agricultural enterprises e n g a g e d
Where such
i n t h e production a n d sale of unprocessed agricultural p r o d u c e .
e n t e r p r i s e s a r e e n g a g e d i n m a n u f a c t u r i n g o r p r o c e s s i n g , h o w e v e r , their p r i c e s a r e
c o n t r o l l e d b y r e f e r e n c e t o a l l o w a b l e cost increases a n d n e t profit margins.
Where
t h e y a r e e n g a g e d i n distribution, their prices a r e c o n t r o l l e d b y reference t o g r o s s
p e r c e n t a g e m a r g i n s a n d n e t profit m a r g i n s .
Nationalised Industries
7 4 . P a r a g r a p h s 7 5 t o 7 7 a p p l y t o t h e f o l l o w i n g n a t i o n a l i s e d i n d u s t r i e s : —
National Coal Board
Electricity Council
A r e a Electricity Boards
Central Electricity Generating B o a r d
N o r t h of Scotland Hydro-Electric Board
S o u t h of Scotland Electricity B o a r d
N o r t h e r n Ireland Electricity Service
British G a s Corporation
British Steel Corporation
P o s t Office
British
British
British
British
British
Airways Board
Airports Authority
Railways Board
Transport Docks Board
Waterways Board
75.
P a r t I o f t h e C o d e a p p l i e s t o t h e n a t i o n a l i s e d i n d u s t r i e s listed i n para­
g r a p h 74, a c c o r d i n g t o t h e n a t u r e o f t h e b u s i n e s s o f t h e i n d u s t r y , a s i t applies
t o private sector undertakings. H o w e v e r :
(i) a n a t i o n a l i s e d i n d u s t r y w h e n i n d e f i c i t on controlled activities m a y n o t
apply paragraph 4 9 (i). I n t h e s e c i r c u m s t a n c e s i t m a y n o t i n c r e a s e prices
by m o r e t h a n a l l o w a b l e c o s t i n c r e a s e s , calculated without any deduction
under paragraph 2 9 , e x c e p t
(a) in the case of a proposal to increase prices f r o m a date after 31
March 1974, or
(fe) in the case o f a proposal t o increase prices f r o m a date after 3 1
December 1 9 7 3 (where this is the end of the industry's normal
accounting year),
t o t h e e x t e n t n e c e s s a r y to a v o i d a n i n c r e a s e i n i t s deficit o n those activities in
the accounting year in question compared with in t h e case of (a) the level in
1973-74 or, in the case of (b) the level in 1973. A nationalised industry m a y
apply this sub-paragraph separately to the deficits of subdivisions as defined in
paragraphs 14 o r 53 (iii) even if the industry as a w h o l e is n o t in deficit;
(ii) as with a private sector enterprise, where an industry is
the provisions relating t o allowable cost increases and
increases (including the productivity deduction) need not
the extent that they would cause the industry to operate
(iii) paragraphs 6 1 - 6 3 w i l l n o t a p p l y t o a n a t i o n a l i s e d
not i n deficit,
t o total cost
be applied to
at a l o s s ;
industry.
In (i) and (ii) above, a nationalised industry is i n deficit if it incurred a
deficit o n revenue account in the previous accounting year, after providing
for interest and depreciation calculated in accordance with the accounting
principles consistently applied by the industry concerned.
7 5 A . If the operation of a system of multi-part tariffs in the gas and elec­
tricity supply industries has reduced average revenue per unit the following
provisions apply. Where since the base date the average revenue per unit
has fallen faster than average costs per unit, tariffs may be increased by the
amount necessary to restore the cash margin per unit o f output t o the level which
applied at the base date. T h e calculation of allowable cost increases for these
industries should have regard t o the likely maximum demand imposed o n them
by their statutory obligations t o meet such demand.
76.
W h e r e the responsible M i n i s t e r notifies the C o m m i s s i o n that a price
increase resulting from the application o f paragraph 75 w o u l d have a n unac­
c e p t a b l e effect o n t h e g e n e r a l level o f prices, t h e C o m m i s s i o n will l i m i t t h e
p e r m i t t e d p r i c e i n c r e a s e t o t h e a m o u n t s p e c i f i e d as a c c e p t a b l e b y t h e M i n i s t e r ,
b u t n o t s o a s t o r e d u c e t h e i n c r e a s e b e l o w w h a t is n e e d e d t o reflect t h e a l l o w a b l e
c o s t increases o f the industry.
77.
T h e a p p l i c a t i o n , o f t h e C o d e is s u b j e c t t o p a r a g r a p h 7 8 i n t h e c a s e o f
the N a t i o n a l C o a l B o a r d a n d t h e British Steel Corporation.
I n the c a s e of t h e
P o s t Office a n d t h o s e i n d u s t r i e s c o n c e r n e d w i t h a i r a n d s e a t r a n s p o r t , it is
subject t o t h e e x c l u s i o n f r o m c o n t r o l u n d e r p a r a g r a p h 6 o f charges f o r inter­
T h e prices o f subsidiary companies of nationalised industries,
n a t i o n a l traffic.
including subsidiaries of t h e N a t i o n a l B u s C o m p a n y , N a t i o n a l Freight Corporation
and t h e Scottish Transport G r o u p , are g o v e r n e d b y paragraph 8 0 (ii). T h e
prices charged for electricity b y A r e a Electricity B o a r d s a n d t h e Scottish
B o a r d s will b e subject to t h e p r o v i s i o n s o f t h e C o d e a p p l y i n g t o manufacturers.
Coal
and
Steel
78.
Prices charged b y p r o d u c e r s f o r c o a l , c o a l - b a s e d s o l i d fuels, a n d m o s t
i r o n , a n d steel products are o u t s i d e t h e s c o p e of t h e c o n t r o l b y virtue o f
p a r a g r a p h 6 (ii)T h e y a r e subject t o international obligations through United
Prices of
K i n g d o m m e m b e r s h i p o f t h e E u r o p e a n Coal a n d S t e e l C o m m u n i t y .
n o n - E C S C i r o n a n d steel p r o d u c t s a r e c o n t r o l l e d like t h o s e o f other m a n u f a c t u r e d
p r o d u c t s . E n t e r p r i s e s w h i c h p r o d u c e b o t h E C S C a n d n o n - E C S C i r o n a n d steel
Prices of coal
products will b e subject to price control o n t h e latter only.
m e r c h a n t s a n d i r o n a n d steel m e r c h a n t s i n t h e U n i t e d K i n g d o m w i l l b e s u b j e c t
t o t h e c o n t r o l o n g r o s s p e r c e n t a g e m a r g i n s a n d n e t profit m a r g i n s a p p l i e d t o
w h o l e s a l i n g a n d retailing enterprises;'
1
Other" Public
Sector
Trading
Enterprises
.79.
T h e C o m m i s s i o n will a p p l y t o proposals for price increases w h i c h a r e
referred t o t h e m by G o v e r n m e n t D e p a r t m e n t s e n g a g e d i n s u b s t a n t i a l trading
operations the same principles as t o proposals by t h e nationalised industries,
except that in the case of a proposal to increase prices before 30 March 1974,
and where there has been no price increase since 30 April 1973, the restriction
on price increases under paragraph 75 (i) shall apply to the deficit level in the
year 1972-73.
80. The Code applies to the prices of the following enterprises, according
to the nature of the business of the undertaking, as it applies to the prices of
private sector enterprises:
(i) trading services of local authorities, local authority joint boards, public
utility undertakings and other similar public sector undertakings (not
being a nationalised industry listed in paragraph 74); and
(ii) companies registered under the Companies Acts which are wholly or
partly owned by Her Majesty's Government or by a nationalised industry.
Water
Undertakings
81. Statutory water undertakers, whether public or private, are subject to
limitations on deficits, on surpluses or profits, on profit distributions and on
borrowing. They are also required by statute to provide an adequate supply of
water. Their water rates and charges are already controlled to a large extent
through these limitations. They will be required to comply with the principles
of the Code and in particular with the paragraphs relating to allowable cost
increases, but not so as to conflict with their statutory obligations.
Services
82. In general, paragraphs 3 to 63 of the Code apply to the prices of service
enterprises as they apply to those of manufacturers, so that the system of
allowable cost increases and the limitation on net profit margins as a percentage
of sales or turnover apply to them. There will be an offset to allowable cost
increases as a result of the abolition of Selective Emloyment Tax for service
enterprises where this has hitherto been paid without refund. Paragraphs 34
to 36 permit the Price Commission to calculate average allowable cost increases
for certain small service enterprises where the circumstances are appropriate.
Paragraph 62 would permit service enterprises with low profits to calculate their
reference level for the limit on net profit margins by reference either to turnover
or capital employed. The following paragraphs deal with the application of the
Code to some particular service sectors, and explain any modifications of the
general principles which apply to them.
Banks,
Finance
Houses
and
Similar
Enterprises
83. Most banks, finance houses and similar financial enterprises are engaged
partly in business for which the charge is a rate of interest and partly business
for which the charge is of a different nature. Interest charges are not within the
control. The other charges of these enterprises are subject to control. It will
therefore be necessary to allocate costs and profits between the two classes of
business for the purpose of the control on non-interest charges. Paragraph 31
applies.
84. For the purposes of the Code the enterprises described in paragraph 83
may treat as goods and services exported:
(i) transactions in sterling with any person or body corporate resident outside
the United Kingdom ; and
(ii) dealings in foreign currencies.
85. The provisions of the Code relating to allowable cost increases and
to the limitation on net profit margins, defined in the case of these enterprises
as in paragraphs 87 and 88, apply to their non-interest charges. These include
rates are charged
commissions, fees and all similar charges. Where ad valorem
and these rates are charged generally, they must be treated as maxima.
Enterprises will, however, be free to adjust their rates to match the credit
status of a client provided such adjustments are in accordance with normal
144118 D
practice in such cases. In calculating charges these enterprises should take fully
into account all factors including customers' balances which enter the costing
of the class of transaction for which the charge is made. They should treat
changes in those factors as the basis for increases or reductions in the charges
in accordance with the Code.
86. The provisions of the Code will apply in full to charges in hire
purchase, conditional sale and plant and machinery leasing agreements. Changes
in the monthly Finance Houses Base Rate may be taken as the measure of
increases or reductions in interest costs for the calculation of allowable cost
increases, provided that rate is used consistently for all the purposes of the
Code.
87. For the purposes of paragraph 50 " net profit margin " means :
(i) in the case of enterprises undertaking hire purchase, conditional sale
or plant and machinery leasing contracts, where either the greater part
of the business of the enterprise consists of such contracts, or separate
accounts can be produced for such contracts, net income from charges
for this business less associated costs, including overheads, expressed
as a proportion of average resources employed.
(ii) in the case of all other enterprises of the kind described in paragraph
83 net income from charges (that is, gross income less costs, including
associated overheads) expressed as a percentage of gross income (that is,
total income from the transactions concerned).
88. In comparing net profit margins, as denned in paragraph 87, with the
reference level, account should be taken of the total profitability of the non­
interest business of the enterprise concerned in determining the permitted level
of charges.
Construction
89. In determining prices for construction contracts enterprises should have
regard to the Code as it applies to manufacturing enterprises. Of particular
relevance to construction are paragraph 45, which applies to tenders for con­
struction work to the extent that they are at fixed prices, paragraph 46, which
applies to variation of price clauses in construction contracts and paragraph 46A,
which applies to prime cost and cost reimbursement arrangements.
Transport
90. The Code applies to transport undertakings as it does to other service
enterprises. Charges for international freight and passenger traffic are outside
the control under paragraph 6 (vi). Charges of nationalised transport under­
takings, passenger transport authorities, local authority transport undertakings
and transport companies owned by nationalised indusries and their subsidiaries
are governed by paragraphs 74-77 and 80.
91. Charges of private road haulage undertakings are subject to the
provisions relating to allowable cost increases and to the limitations on net
profit margins.
Vehicle
Sales
and
Services
92. Charges for repair, maintenance and servicing of vehicles are subject
to the provisions relating to allowable cost increases and to the limitation
on net profit margins. The prices of vehicles sold by distributors, whether
new or second-hand, are subject to the limitations on gross percentage margins
and on net profit margins. Paragraph 14 applies to enterprises which both
sell and maintain vehicles.
Hotels
and
Catering
Enterprises
93. What is said in paragraph 82 applies to these enterprises also, in
respect both of charges for food and drink and for accommodation.
Professional
or other
Services
94. Fees and charges for professional or other services by firms or by
individuals who are self-employed are governed as prices by Part I. In general,
what is said in paragraph 82 applies to them. The pay of professional staff
who are employees is however governed by Part II, as is the remuneration from
public funds of doctors and dentists.
95. Where scales or rates of charges of general application, whether
calculated per item, at an hourly rate or ad valorem, are in use in a profession
under instructions or advice issued by a professional organisation, those scales
or rates must be treated as maxima and may not be increased without the
agreement of the Commission. Where rates above scale have normally been
agreed and have become normal charges, such rates need not be reduced but
the margin by which such rates exceed the scale may not be increased. The
Commission will apply the provisions relating to allowable cost increases to
increases in scales or rates and those provisions will also apply to increases in
fees calculated on a time basis.
96. Where there are no scales or rates of general application, the rates or
scales charged for a professional service may not be increased except to reflect
increases in allowable costs. Increases in labour costs under paragraph 25 (ii) (a)
may not include any element in respect of proprietors' or partners', as distinct
from employees', time.
97. The limitation on net profit margins will apply to profits of firms
or individuals providing professional or other services irrespective of the
method by which fees are determined. Where the number of partners in a
professional practice has changed as a result of the substitution of a partner
for an employee, or of an employee for a partner, the reference level may be
recalculated by reference to the changed number of partners. Paragraph 59.
Non-Pro
fit-making
Organisations
98. Subscriptions charged by organisations which:
(i) exist for religious, charitable, educational, representational or recreational
purposes; and
(ii) are non-profit-making; and
(iii) do not carry on a trade or business as their main activity, will not be
controlled.
99. The Code will not apply to
the tests in paragraph 98, or by
behalf of that organisation, if they
purposes of the organisation, and
petition with trading enterprises.
prices charged by an organisation satisfying
any properly authorised person acting on
are charged in order to raise funds for the
involve no substantial or continuing corn­
100. Except where they are outside the control under paragraph 99, prices
charged in any trading activity carried on by an organisation which meets the
requirements of paragraph 98 are governed by the Code, unless the customers
of the trading activity are confined to members of the organisation.
Transitional and related provisions
100A.
Where, as respects a proposed increase in a price or charge which
w a s notified to, and received at the offices of, the Commission before 3.30 pan.
o n 8 October 1973, the Commission have not given their decision before 1
N o v e m b e r 1973, the Commission shall, for the purpose of giving their decision
o n the proposed increase, continue to implement the Code set out in the
Counter-Inflation (Price and Pay Code) Order 1973.
100B. Subject to paragraph 100C, where an increase in a price or charge has
been implemented after 3.30 p.m. o n 8 October 1973, and the increase (although
permissible under the Code set out in the Counter-Inflation (Price and Pay
Code) Order 1973) would not be permissible under this Code, the price or
charge should be reduced accordingly.
39
144118
D2
100C. Paragraph 1O0B does n o t apply t o :
(i) an increase which has been approved b y the Commission and of which,
prior notification was received at the offices of the Commission before
. 3.30 p.m. o n 8 October 1 9 7 3 ; or
(ii) a specified increase in the price of a specified product which was fully
in accordance with the provisions of the Code set o u t in the CounterInflation (Price and Pay Code) Order 1973, although it did not require
prior notification to the Commission and which w a s announced publicly
by the enterprise in question (even though not implemented) before
3.30 p.m. o n 8 October 1973.
100D. Where an increase in a price o r charge
(i) was implemented after 30 April 1973, and before
October 1 9 7 3 ; a n d
3.30 p.in. o n 8
(ii) was not permissible under the Code set o u t in the Counter-Inflation
(Price and Pay Code) Order 1973, the price or charge in question should
be reduced to t h e level that would have been permitted under that Code,
and this lower price should then be taken as the " selling price at the
base d a t e " in calculating any price increase permitted under paragraph
21 of this Code on account of subsequent cost increases.
Part II-Pay
General Principles
101. The general principles relating to pay are: —
(i) to limit the rate of increase in pay in money terms to a level more in line
with the growth of national output, so as progressively to reduce the rate
of cost and price inflation and improve the prospects of sustained faster
growth in real earnings;
(ii) to apply the limit fairly, irrespective of the form of any increase or the method
of determining it, while providing for the remedying of anomalies;
. - (iii) to facilitate an improvement in the relative position of the low paid;
(iv) to leave to those who normally determine pay decisions on the amount,
form and distribution of increases within the limit;
(v) to encourage the better use of productive resources.
Field of Application
102. Part I I of the Code applies t o : —
(i) all pay including wages and salaries at whatever level, allowances, pay­
ments by results, payments in kind, fringe benefits and lump sums;
(ii) all methods of determining pay whether at national, local, plant or any
other level; and whether determined by collective bargaining, by arbitra­
tion, by statutory wage fixing bodies, on an individual basis, or by other
means; and
(iii) all types of employment (except self-employment covered in Part I); and
to both full-time and part-time employees in whatever size of under­
.
';;
taking.
All those concerned with the determination of pay should have regard to the
Code.
;
103. Throughout the Code " p a y " means remuneration (except self-employ­
ment incomes covered in Part I ) , including other terms and conditions of
employment,
;
' ' ," '
104. References throughout the Code to "settlement" include references to
the determination of pay by any method.
105.
W h e r e the C o d e refers t o a g r o u p , the g r o u p will n o r m a l l y b e the s a m e
a s t h a t u s e d f o r t h e p u r p o s e , o f d e t e r m i n i n g p a y i n t h e p r e c e d i n g 12 m o n t h s .
It
w i l l , h o w e v e r , r e m a i n o p e n t o t h o s e c o n c e r n e d t o v a r y the c o m p o s i t i o n of t h e i r
groups.
W h e r e p a y is fixed o n a n i n d i v i d u a l b a s i s , t h e C o d e a p p l i e s t o t h e
i n d i v i d u a l as t o t h e g r o u p .
Intervals between Increases
106.
N o g r o u p m a y receive a n increase in pay under a settlement m a d e
a f t e r 6 N o v e m b e r , 1 9 7 2 , l e s s t h a n 12;--months a f t e r the g r o u p l a s t r e c e i v e d a
principal increase.
107.
P a r a g r a p h 106 d o e s n o t a p p l y w h e r e : —
(i) a n e a r l i e r d a t e f o r s u c h a n i n c r e a s e w a s s p e c i f i e d ( o t h e r t h a n b y r e f e r e n c e
t o c h a n g e s in i n d i c e s or rates o f p a y f o r o t h e r g r o u p s ) i n a p r e v i o u s
settlement m a d e before 6 N o v e m b e r , 1972; or
(ii) t h e l a s t i n c r e a s e w a s d e f e r r e d a s a r e s u l t of the s t a n d s t i l l u n d e r t h e
W h i t e P a p e r ( C m n d . 5 1 2 5 ) , in w h i c h c a s e the 12 m o n t h s m a y c o u n t
f r o m the date f r o m w h i c h the last increase w o u l d h a v e operated but f o r
t h e standstill;
(iii) t h e i n c r e a s e d o e s not count a g a i n s t t h e p a y limit or is covered by p a r a g r a p h 1 2 1 A ;
( s o m e o f t h e s e increases a r e , h o w e v e r , subject to special rules a b o u t timing
s e t out in t h e relevant paragraphs o f t h e C o d e ) .
108.
P a y i n c r e a s e s w h i c h c o n s i s t s o l e l y o f o n e o r m o r e i m p r o v e m e n t s o f the k i n d
d e s c r i b e d in p a r a g r a p h s 123 ( e q u a l p a y ) , 1 2 5 ( h o u r s ) , 127 ( h o l i d a y s ) , 1 4 9 A (efficiency
p a y m e n t s s c h e m e s ) or 1 5 2 C ( a n o m a l i e s ) a r e n o t principal i n c r e a s e s for t h e p u r p o s e o f
p a r a g r a p h 106.
The Pay
Limit
109.
T h e pay limit for a g r o u p represents the m a x i m u m a m o u n t b y w h i c h
t h e a v e r a g e p a y bill p e r h e a d o f the g r o u p m a y be i n c r e a s e d i n a 1 2 - m o n t h
period.
..- T h i s a m o u n t is either 7 per cent o f the a v e r a g e p a y bill per h e a d of the g r o u p for the
preceding 1 2 - m o n t h period or £ 2 ' 2 5 per w e e k per head. N e g o t i a t i o n s a n d others
c o n c e r n e d with p a y determination m a y c h o o s e which o f these limits t o apply t o the g r o u p .
109A.
W h e r e before 6 N o v e m b e r 1 9 7 2 a g r o u p h a s regularly received b y a u t o m a t i c
a p p l i c a t i o n a n d without further n e g o t i a t i o n , the s a m e absolute a m o u n t o r the s a m e
p e r c e n t a g e i n c r e a s e a s o n e other c l e a r l y identified g r o u p , it m a y receive (in p l a c e o f a n y
i n c r e a s e w h i c h c o u n t s a g a i n s t the p a y limit in i t s c a s e ) the s a m e a b s o l u t e o r p e r c e n t a g e
i n c r e a s e a s that other group receive under t h e p r o v i s i o n s of this C o d e within t h e p a y limit.
109B.
A p r e c i s e m e t h o d of c a l c u l a t i o n is s e t o u t i n p a r a g r a p h 117.
If
insufficient i n f o r m a t i o n is a v a i l a b l e for t h i s , t h e b e s t a v a i l a b l e a l t e r n a t i v e m e t h o d
s h o u l d b e u s e d ; e x a m p l e s a r e g i v e n in p a r a g r a p h 118. T h o s e c o n c e r n e d w i l l b e
r e s p o n s i b l e f o r s a t i s f y i n g t h e P a y B o a r d , if r e q u i r e d , t h a t t h e m e t h o d u s e d i s t h e
best available.
.110.
S u b j e c t t o t h e i n d i v i d u a l l i m i t i n p a r a g r a p h 1 2 1 , it w i l l
negotiators a n d others concerned with p a y determination to decide o n the
a n d distribution o f increases within the p a y limit, and on t h e division
i n c r e a s e s in w a g e s o r s a l a r i e s a n d i m p r o v e m e n t s i n o t h e r c o n d i t i o n s o f
T h e y s h o u l d , h o w e v e r , h a v e full r e g a r d t o t h e o b j e c t i v e o f i m p r o v i n g t h e
position of the l o w paid.
be for
amount
between
service.
relative
111.
T h e p a y l i m i t a p p l i e s to t h e 12 m o n t h s f o l l o w i n g t h e first i n c r e a s e after
6 November 1 9 7 3 w h i c h counts against the p a y limit.
112.
T h e p a y l i m i t a p p l i e s t o the t o t a l o f all p a y i n c r e a s e s f o r t h e g r o u p ,
o t h e r t h a n t h o s e s p e c i f i c a l l y e x e m p t e d b y o t h e r p a r a g r a p h s of t h i s C o d e , i n
r e s p e c t of: t h e 1 2 - m o n t h p e r i o d i n q u e s t i o n , i r r e s p e c t i v e o f w h e t h e r t h e y are p a i d
during t h a t p e r i o d o r at a later date.
113. N o payment should be made after 6 November 1973 in respect of periods before
that date if the effect would be to circumvent the requirements of the White Papers
Cmnd. 5125 (A Programme for Controlling Inflation: The First Stage), Cmnd. 5205 (A
Programme for Controlling Inflation: The Second Stage), and The Counter-Inflation
(Price and P a y Code) Order 1973. Any such payments will count against the pay
limit to the extent that they have not already been offset against the pay limit applying
in the period before 7 November 1973.
114. In calculating the average pay bill per h e a d ;
(i) the number in the group should be taken as the average over the preced­
ing 12 months;
(ii) the pay bill should include the cost of all forms of pay, increases in
which count against the pay limit, and should be adjusted to offset the
effect of absences from work due to absenteeism, sickness, short time
working or to stoppages from any other cause.
(iii) Part-time workers should be counted according to the proportion which
their hours bear to the standard hours of the group. (They should
be counted on the same basis in calculating the sum of £2-25 per head
of the group).
115. Employers' contributions in respect of their employees for national
insurance, Selective Employment Tax, pensions schemes and redundancy pay­
ment schemes and (subject to paragraphs 119 and 120) the cost of overtime
hours actually worked should be excluded from the pay bill and increases in
them will not count against the pay limit.
116. Subject only to the exceptions specified in the Code, the cost of all
increases in pay, including improvements in terms and conditions of employment
other than wages and salaries, must be taken into account in determining
whether the total cost of a settlement is within the pay limit.
Calculation of the Pay Limit
117. A precise calculation of the pay limit of seven per cent should be
made as follows:
(i) determine under paragraph 105 the group to be covered by the settle­
ment;
(ii) ascertain the total pay bill for that group over the 12 months preceding
the operative date;
(iii) deduct payments for non-contractual overtime working, and employers'
contributions in respect of their employees for pensions and redundancy
payments schemes, national insurance and SET; and adjust to offset
the effect of absences from work;
(iv) divide by the average number of workers in the group over the 12 months
preceding the operative date.
This gives the average pay bill per head over the previous year, less overtime.
Next:
(v) take seven per cent of that and divide by 52 for a weekly basis or
12 for a monthly basis.
This gives the maximum increase in the weekly or monthly pay bill per head allowable
within the pay limit for the group for the next 1 2 months.
118. It may not always be necessary to carry out this calculation in full.
For example:
(i) where rates of pay are equal, or nearly equal, to earnings (excluding
overtime), it may be convenient to calculate the pay limit by adding
seven per cent or £2-25 to rates. The cost of any other improvements
in pay which count against the pay limit would then need to be
calculated separately and the new rate reduced commensurately;
(ii) in other cases it may be possible to base the calculation on a typical
sample period of e.g. one month or one quarter or on typical sample
periods for different parts of the year.
118A. Where the alternative pay limit of £ 2 - 2 5 per head is chosen the maximum
increase in the weekly pay bill allowable within the pay limit for the group is calculated
simply by multiplying £2-25 by the number currently in the group.
118B. Where an individual undertakes occasional work for the equivalent of not
more than 3 0 days a year the rate of remuneration for such work may be increased
outside the pay limit by up to 7 per cent applied at an annual rate to the period since
the rate was last increased, up to a maximum of three years.
Overtime, Shift, Night, Rest D a y and Weekend Working
119. All payments for work done in normal working hours within the meaning
of Schedule 2 to the Contracts of Employment Act 1972 (which broadly includes any
hours paid at overtime rates which the employee is required to work under the terms
of his contract) should be included in the pay bill. The effect on such payments
of any improvement in pay will count against the pay limit, save as provided in
paragraphs 120A to 120D below.
120. If there is any widening of the percentage differential between the rate of
pay for work done outside normal working hours (for example overtime, rest day or
weekend working) and the effective rate of pay for standard hours (for example, if the
overtime multiplier is increased from time-and-a-third to time-and-a-half), the
additional cost will count against the pay limit, save as provided in paragraphs 120A
to 120D below. For this purpose standard working hours are those recognised either
by collective agreement or by custom and practice as being those beyond which overtime
payments at premium rates are made. In calculating the cost it should be assumed
that the amount of such working in the 12 months from the operative date of the
settlement will be at least as much as in the preceding 12 months.
120A. Premium rates for time worked between certain hours and at weekends may,
however, be introduced or increased outside the pay limit with effect from the date of a
principal increase for the group concerned subject to paragraphs 120B, C and D .
Payments or increases under paragraphs 120B and 120C may not be added to basic
rates on which overtime is calculated.
120B. Premium payments (other than overtime payments) may be introduced or
increased outside the pay limit for any hours worked on Saturday or Sunday or between
8 p.m. and 6 a.m. on other days subject to the conditions in paragraph 120D and provided
that:­
(i) the hours in question do not attract overtime payments at premium rates for
the workers concerned;
(ii) those concerned have standard working hours as defined in paragraph 120,
spread over a six or seven-day week; or work on shifts involving regular weekend
rostering as part of their standard working hours; and
(iii) the average hourly rate of premium payment, including the new or increased
payments, in each of the periods mentioned above does not exceed the equivalent
of one-fifth of the appropriate basic time rate for hours outside such periods
for the workers concerned.
120C. Premium payments for any hours worked between 8 p.m. and 6 a.m. on any
day including Saturday and Sunday may be introduced or increased (additional to any
overtime payable) subject to the conditions in paragraph 120D and provided that the
average hourly rate of premium payment (including the new or increased payments but
excluding premium payments for overtime) does not exceed the equivalent of one-fifth
of the appropriate basic time rate for hours outside such periods for the workers concerned.
120D. For the purpose of calculating the payment or increase permissible under
paragraphs 120B and 1 2 0 C : ­
(i) all existing premia (including shift premia but in cases falling under paragraph 120
excluding overtime premia) payable in respect of the qualifying hours must be
included in calculating the average hourly rate of premium payment, whether
they are separately identified or have been consolidated into basic rates since
6 November 1972.
(ii) Where an existing shift premium covers work outside as well a s within the
. - qualifying hours, or where a variable premium is.paid for hours within the
qualifying hours, the existing hourly premium should be calculated: by. dividing
the total premia by the number o f qualifying hours involved.
Individual P a y Limit
121. Increases subject to the pay limit should not exceed £500 a, year for
any individual. If the individual works part time this limit should be reduced
according to the proportion his hours bear to the standard hours of the group.
The following do not count against the £500 individual pay limit:
(i) increases which do not count against the pay limit for the group ; and
(ii) increases contained within the flexibility margin in paragraph 121A unless
these take the form of personal increments not covered by paragraph 129.
Flexibility Margin
121 A. Where the terms of a settlement include one or more of the features specified
below, the pay limit applicable to the settlement may be increased by 1 per cent of the
average pay bill per head of the group covered by the settlement for the preceding
12-month period or by the cost of such features whichever is the less. Groups which
are separate for the purposes of paragraph 109 may be combined for this purpose. The
features are:—
(i) changes in pay or grading structures or in systems of payment designed to remedy
anomalies or secure specific improvements in efficiency;
(ii) improvements in holidays which count against the pay limit, where this would
not increase the total holidays for the group concerned (subject to the same
exclusions as in paragraph 127) to more than the equivalent of four weeks a
year; the cost of such improvements to be calculated as in paragraph 128;
(iii) the introduction or improvement of holiday pay;
(iv) the introduction or improvement of sick pay schemes.
1211$. The changes or improvements referred to in paragraph 121A may not be
implemented with effect from an earlier date than the first principal increase after the
coming into operation of this Code for those benefiting under the settlement, unless they
implement in whole or in part a settlement reached before 1 April 1973, and the cost
does not exceed the 1 per cent margin.
Other Improvements in Pay and Conditions
Equal Pay
122. Orderly progress towards achievement of the requirements of the Equal
Pay Act 1970 may be made outside the pay limit on the basis set out in para­
graphs 123 and 124.
123. Subject to paragraph 124 an increase for this purpose is outside the pay
limit to the extent that by the end of 1974 it reduces by up to one-half:­
(i) any differential between men's and women's rates which existed at 7 November
1973 relating to work of the same or broadly similar nature and which is
required by the Equal Pay Act to be eliminated by 29 December 1975; or
(ii) any differential between women's rates existing at 7 November 1973 and the
pay for the grade in which they are placed by job evaluation complying with the
following criteria:—
(a) The method of job evaluation used and the rules of application are specified
in writing and have been agreed in advance with the employees concerned
or their representatives.
(6) The rules specify the form of job description to be used a s the basis for
evaluation; provide for the evaluation within an agreed specified period
of all new jobs within the area covered by the scheme, and for the re-evaluation
of changed jobs within a similar period; and provide for appeals by
employees against values given t o their jobs.
(e) The process of evaluation is distinct from the related process of determining
pay.
124. N o increase outside the pay limit is allowable under paragraph 123 if any
other increase affecting the group concerned has the effect of widening in percentage
terms the differentials to which paragraph 123 refers.
Hours
125. Reductions in standard working hours may be made outside the pay limit
if they reduce standard working hours to not less than 40 hours a week, net of meal
breaks. This does not apply where standard working hours have at any time been
increased by agreement to more than 40 a week.
126. Reductions in standard working hours other than as provided for in
paragraph 125 count against the pay limit. The true cost should be set against
the pay limit but the cost should not be treated as less than proportional to the
reduction (so that for example a reduction of one hour in 40 should be treated
as equivalent to not less than a 24- per cent increase in pay) except where the
Board is satisfied in the light of the evidence that the true cost is less.
Holidays
127. Improvements in holidays do not count against the pay limit unless they
increase the total holidays for any group to more than the equivalent of three
weeks a year excluding:
(i) up to seven occasional or public holidays
(ii) rest days taken in lieu of weekends and overtime
(iii) rest days granted before 6 November, 1972, in lieu of a shorter working
week.
127A. The cost of the additional holiday oil 1 January (or an alternative date
where 1 January is already observed as a holiday) does not count against the pay limit.
128.
Improvements in holidays other than as provided for in paragraph 127
count against the pay limit. The true cost should be set against the pay limit but the
cost should not be treated as less than proportional to the increase (so that for example
an increase of one day per year should be treated as equivalent to not less than a 0 - 4 per
cent increase in pay) except where the Pay Board is satisfied in the light of the evidence
that the true cost is less.
Personal Increments
129. Except as in paragraph 130, where personal increments:
(i) are part of a pre-determined range or scale; and
(ii) conform to defined principles and practice which before 6 November,
1972, governed the exercise of any management discretion in individual
cases; and
(iii) do not exceed those paid in similar circumstances in previous years by
more than results directly from any improvement to the range or scale
which has been made within the pay limit and counted against it,
any net addition to the annual pay bill per head for the group concerned will
not count against the pay limit. Increments which satisfy these conditions do
not count against the limit of £500 a year for the individual.
130. The following count against the pay limit and against the individual
limit of £500:
(i) improvements in the ranges or scales in incremental systems covered by
paragraph 129;
.
(ii) any net addition to the annual pay bill of a group resulting from the
... ^payment of types of personal increment other than those in paragraph
, 1 2 9 ; and
(iii) any element in personal increments which relates to factors not personal
to the individual concerned, such as cost of living increases or company
profits (other than under a profit-sharing scheme as it existed before
6 November, 1972).
131. Increases c o m m e n s u r a t e with greater responsibility m a y be given outside
the p a y l i m i t t o i n d i v i d u a l s w h o a r e p r o m o t e d o r t h e l e v e l o f w h o s e w o r k is
r e a s s e s s e d b y t h e a p p l i c a t i o n of p r o c e d u r e s a n d c r i t e r i a e s t a b l i s h e d b e f o r e
6 N o v e m b e r , 1 9 7 2 . W h e r e t h i s test is n o t satisfied a n y i n c r e a s e in p a y c o u n t s
against t h e p a y limit and against the individual limit of £ 5 0 0 .
Artificial
regrading a n d c h a n g e s of j o b specification s h o u l d n o t be u s e d as a m e a n s o f
a v o i d i n g t h e p r o v i s i o n s o f the C o d e .
Recruitment and N e w
Work
132. N e w recruits to existing jobs should not be paid m o r e than those they
r e p l a c e o r m o r e t h a n t h e rate p a i d c u r r e n t l y b y t h e e m p l o y e r c o n c e r n e d f o r t h e
s a m e job.
1 3 3 . T h e rate f o r n e w w o r k s h o u l d n o t b e m o r e t h a n t h e c u r r e n t r a t e p a i d
for t h e s a m e or m o s t nearly similar w o r k b y the s a m e o r other e m p l o y e r s . W h e r e
r a t e s v a r y i n d i f f e r e n t l o c a l i t i e s , t h e rate p a i d s h o u l d n o t b e m o r e t h a n t h e r a t e
in t h e s a m e l o c a l i t y .
133A.
W h e r e before the s t a t u t o r y r e o r g a n i s a t i o n of public s e r v i c e s o n 1 April 1 9 7 4
( 1 6 M a y 1 9 7 5 for l o c a l government in S c o t l a n d ) a n individual t e m p o r a r i l y u n d e r t a k e s
w o r k appertaining t o the e s t a b l i s h m e n t a n d functions of a new a u t h o r i t y or a u t h o r i t i e s
which:
(i) i s a d d i t i o n a l t o and w i d e r in s c o p e t h a n his c o n t i n u i n g w o r k with his current
employer;
(ii) i n v o l v e s additional hours ( n o t
r e s p o n s i b i l i t y , and,
subject
to o v e r t i m e
payment)
or
additional
(iii) c o n t i n u e s for a period n o t less t h a n three m o n t h s .
p a y m e n t m a y b e m a d e for s u c h w o r k after 6 N o v e m b e r 1 9 7 3 , a n d during the period
c o n c e r n e d o u t s i d e the p a y limit at r a t e s which d o n o t e x c e e d t h o s e a l l o w a b l e for n e w
w o r k in a c c o r d a n c e with paragraph 1 3 3 .
R e c o g n i s e d T e r m s and Conditions
134. T h e c o s t o f i n c r e a s e s t o m e e t t h e p u r p o s e s of S e c t i o n 8 o f t h e T e r m s
a n d C o n d i t i o n s o f E m p l o y m e n t A c t 1 9 5 9 , the R o a d H a u l a g e W a g e s A c t 1 9 3 8
a n d s i m i l a r l e g i s l a t i o n , a n d the F a i r W a g e s R e s o l u t i o n o f 1 9 4 6 w i l l n o t c o u n t
against the pay limit.
Pensions
135. N e w o r i m p r o v e d b e n e f i t s u n d e r o c c u p a t i o n a l p e n s i o n o r d e a t h b e n e f i t
s c h e m e s w h i c h are tax a p p r o v e d , or u n d e r c o m p a r a b l e s c h e m e s not requiring
t a x a p p r o v a l , a n d a n y r e i m b u r s e m e n t o f a c o r r e s p o n d i n g i n c r e a s e in e m p l o y e e
c o n t r i b u t i o n s m a y , u n l e s s p a r a g r a p h 1 3 6 a p p l i e s , b e g i v e n o u t s i d e the p a y l i m i t .
136. W h e r e a c h a n g e i n a p e n s i o n s c h e m e h a s t h e effect o f i n c r e a s i n g the
p a y , n e t o f a n y p e n s i o n c o n t r i b u t i o n o f a s u b s t a n t i a l p r o p o r t i o n o f the g r o u p o f
e m p l o y e e s covered by the scheme, that increase counts against the pay limit
unless: —
(i) a r e v a l u a t i o n of t h e s c h e m e , m a d e in a c c o r d a n c e w i t h g e n e r a l l y a c c e p t e d
p r i n c i p l e s f o r s u c h r e v a l u a t i o n s , h a s s h o w n a s u r p l u s in r e s p e c t o f t h o s e
receiving the increase, the value of w h i c h equals or exceeds
the
increase; or
( i i ) t h e r e h a s b e e n a c o r r e s p o n d i n g r e d u c t i o n
the increase; or
in b e n e f i t s t o t h o s e
(iii) t h e c h a n g e h a d b e e n p r o p o s e d b e f o r e 6 N o v e m b e r , 1 9 7 2 .
.
receiving
Redundancy Payments
137.
/
New or improved benefits under schemes which
(i) provide payments to employees who, because of redundancy in the circumstances
described in (a) and (b) of S I (2) of the Redundancy Payments Act 1965 leave an
employees service or are redeployed, and
(ii) require a minimum of at least 52 weeks continuous service as a condition of such
payments,
are outside the pay limit, as are benefits which become payable after six months of
incapacity.
Profit-sharing Schemes
138.
P a y m e n t s u n d e r t h e written t e r m s o f p r o f i t - s h a r i n g s c h e m e s a s t h e y s t o o d
o n o r b e f o r e 6 N o v e m b e r 1972, w i l l n o t c o u n t a g a i n s t t h e p a y l i m i t . Where the terms
are not written, payments should not exceed what has customarily been paid. A n y
o t h e r p a y m e n t s o r benefits u n d e r s u c h s c h e m e s m u s t b e c o u n t e d a g a i n s t t h e p a y
limit.
Share Option and Share Incentive Schemes
139.
The provisions of the Code do not apply to the operation of a savings-related
share option or share incentive scheme under the scope of Schedule 8 to the Finance A c t
1973 and approved by the Inland Revenue. I n a d d i t i o n if t h e rate at w h i c h o p t i o n s o r
s h a r e s h a d b e e n a c q u i r e d b y i n d i v i d u a l p a r t i c i p a n t s u n d e r a share o p t i o n o r s h a r e
i n c e n t i v e s c h e m e o p e r a t i n g o n o r b e f o r e 6 N o v e m b e r 1972, w a s fixed or r e l a t e d
d i r e c t l y , w i t h o u t m a n a g e r i a l d i s c r e t i o n , t o q u a n t i f i e d criteria b y a p r e - d e t e r m i n e d
f o r m u l a t h e o p e r a t i o n o f t h a t s c h e m e o n t h e t e r m s r u l i n g b e f o r e that d a t e is o u t s i d e
the p a y limit.
139A. E x c e p t a s i n p a r a g r a p h 139 n o o p t i o n s m a y b e g r a n t e d u n d e r s h a r e
o p t i o n s c h e m e s or shares issued under share incentive schemes! T h e terms o f
s c h e m e s u n d e r w h i c h s h a r e s a l r e a d y i s s u e d a r e still s u b j e c t t o r e s t r i c t i o n s , o r
options already granted remain unexercised, m a y not b e improved.
140.
T h e acquisition of shares through a n y arrangements, n o t involving
options, b y which e m p l o y e r s facilitate the purchase of shares by e m p l o y e e s is
o u t s i d e t h e p a y limit p r o v i d e d t h a t :
(i) t h e s h a r e s a r e p u r c h a s e d at a price e q u a l t o t h e i r m a r k e t v a l u e ( t h e
m a r k e t value being assessed without regard t o a n y restrictions a t t a c h e d
t o t h e s h a r e s , o r t o t h e e m p l o y e e ^ r i g h t s as a s h a r e h o l d e r , w h i c h d o n o t
a t t a c h t o all s h a r e s o f t h e s a m e c l a s s , o r t o t h e r i g h t s o f all s h a r e h o l d e r s ) ;
and
(ii) t h e r e are n o r e l a t e d l o a n s or d e f e r r e d p a y m e n t a r r a n g e m e n t s ,
OTHER
BENEFITS
141.
T h e cost o f a n y n e w benefits a n d o f a n y i m p r o v e m e n t or e x t e n s i o n
of e x i s t i n g benefits o r o t h e r t e r m s a n d c o n d i t i o n s o f s e r v i c e w i l l c o u n t a g a i n s t
the p a y limit unless specifically e x e m p t e d in t h e C o d e . T h e s e benefits i n c l u d e :
B e n e f i t s i n c a s h o r k i n d , i n c l u d i n g t h e p r o v i s i o n o f c a r s p a r t l y o r w h o l l y
f o r p r i v a t e u s e , l i v i n g a c c o m m o d a t i o n at l e s s t h a n e c o n o m i c c o s t , e t c .
L o a n s a t b e l o w m a r k e t r a t e , e.g. f o r h o u s e p u r c h a s e
L u n c h or other m e a l v o u c h e r s
Seasonal and holiday bonuses
Responsibility allowances
Geographical allowances other than London allowances covered by paragraph 141A
Overtime and shift premia
Stand-by payments
L a y off a n d s i c k p a y
141A. Improvements to an allowance or differential rate of pay designed to
compensate for the additional cost of accommodation and travel in London compared
with the resit of the country may be increased outside the pay limit provided that the
47
ii
allowance or differential was being paid on or before 6 November 1972, on the basis
of the formula given in Cmnd. 3436 ( N B P I Report N o . 44 of 1967) and that any increase
is made on the same basis. Improvements to police pay differentials for London may
be made outside the pay limit on the basis of the same formula.
142. Re-imbursement to an employee of the following expenses does not count
against the pay limit:
, (i) expenses incurred in the performance of the duties on which he is employed;
(ii) expenses incurred in a removal of his home which is necessary for the purpose
of his transfer by his employer.
(iii) The current costs of providing himself with unfurnished living accommodation
in a location which is subject to the direction or consent of the employer, where
such reimbursement is made in accordance with procedures, criteria and standards
under conditions of service established on or before 6 November 1972 (but
excluding conditions of service providing for direct reimbursement of interest
charges).
When these expenses are reimbursed by fixed allowances these may be increased
outside the pay limit, provided that the increase can be fully justified by
reference to the relevant costs.
PARTICULAR METHODS A N D SYSTEMS OF PAYMENT
National, Local and Plant Increases
143. Where settlements or pay determinations for a particular group are
concluded at more than one level (for example a settlement at national or industry
level is supplemented by settlements at local or plant level) the pay limit will apply
for the 12 months beginning with the first increase since 6 November 1972, which counts
against the pay limit. The maximum increase in the weekly or monthly pay bill per
head allowable within the pay limit for the group for that 12 months should be as in
paragraph 117. Paragraph 106 applies separately to each level of settlement.
144. When local or plant negotiations take place before national negotiations
the recommended method of achieving the purpose of paragraph 143 is by including
in the local or plant settlements an off-setting provision precluding employers from
making subsequent payments as a.result of a national agreement which would result
in a total increase in the pay of the group concerned in excess of the pay limit. Those
undertaking national negotiations should have regard to the requirement that any
increase settled nationally if not offset as above should be taken into account in any
subsequent local or plant negotiation so as to ensure that the maximum increase in the
weekly or monthly pay bill per head of any group concerned does not exceed the pay
limit for that group.
Efficiency Payments (including Payment by Results) and Restructuring Schemes
145. Except where specific provision is made in paragraphs 146-149B
increases in pay under efficiency payments (including payment by results) and
restructuring schemes will count against the pay limit. In the case of payment
by results schemes this applies to increased payments arising from changes in
base fate, conversion rate or other calculator, piecework prices or times, the
fixed element or from any other changes in the terms.
Existing Schemes
146. Increases in pay under a scheme of payment by results, including piecework
and commission payments, or under an arrangement linked to such a scheme will not
count against the pay limit where they arise, under the terms of a scheme which was in
operation before 6 November 1972 or brought into operation under the provisions of
paragraph 149, from.the direct and measurable contributions by the employees to
increased output. After 1 July 1974, this provision will apply only where the operation
of the scheme is kept under review by the control information specified in paragraph
149A (vi).
147.. F o r t h o s e c o v e r e d b y s c h e m e s o f p a y m e n t b y results, w h o , d o n o t . benefit
f r o m a g e n e r a l p a y increase, t h e 1 2 - m o n t h p e r i o d referred t o in p a r a g r a p h 1 0 9 will b e
the 1 2 m o n t h s from 1 April in any year.
1 4 8 . F o r t h o s e c o v e r e d b y s c h e m e s o f p a y m e n t b y r e s u l t s w h o " a l s o benefit
f r o m a general increase w h i c h c o u n t s against t h e p a y limit, a c c o u n t must b e
t a k e n in c a l c u l a t i n g the a m o u n t available f o r t h e general increase o f a n y increase
u n d e r t h e s c h e m e w h i c h c o u n t s a g a i n s t t h e p a y l i m i t . F o r t h i s p u r p o s e it m u s t
be a s s u m e d that increases in p a y w h i c h c o u n t against the p a y limit arising under
t h e s c h e m e d u r i n g t h e 1 2 m o n t h s f o l l o w i n g t h e g e n e r a l i n c r e a s e w i l l b e at l e a s t
as great in percentage terms a s i n t h e p r e c e d i n g 12 months;
Programmes agreed and partially implemented before 6 November 1972.
1 4 9 . W h e r e ' : ,
'
'
(i) t h e r e w a s o n 6 N o v e m b e r , 1 9 7 2 , a n a g r e e m e n t ' t o i m p l e m e n t a; p r o g r a m m e
of productivity (including p a y m e n t b y results) Jschemes, o r a restructuring,
f o r s p e c i f i e d g r o u p s o f e m p l o y e e s i n w h i c h / t h e a m o u n t o f p a y or t h e
p r e c i s e m e t h o d b y w h i c h i t w a s t o b e c a l c u l a t e d w a s c l e a r l y "specified,
l e a v i n g o n l y the practical details o f application o f t h e s c h e m e t o particular
g r o u p s t o b e settled; a n d
( i i ) t h e e m p l o y e r o r g r o u p o f e m p l o y e r s c o v e r e d b y t h e a g r e e m e n t h a d o n
6 N o v e m b e r , 1972, already i m p l e m e n t e d t h e p r o g r a m m e in respect o f
some of the employees concerned,
i m p l e m e n t a t i o n o f t h e p r o g r a m m e i n r e s p e c t o f t h e specified g r o u p s m a y p r o c e e d .
R e s u l t a n t i n c r e a s e s i n p a y will n o t c o u n t a g a i n s t t h e p a y limit, provided those arising
from payment by results schemes meet the requirement of paragraph 146.
New Schemes
1 4 9 A . Increases in pay resulting from a new efficiency payment scheme or^a
restructuring scheme will n o t count against the pay limit provided that the
scheme meets the following criteria:
(i) after meeting all costs and charges incurred by the employer in installing
the scheme (including increased capital charges determined in accordance
with generally accepted accounting principles consistently employed by
h i m and pay increases to all employees benefiting from the scheme,
whether directly or consequentially), the net savings arising from t h e
scheme are,
(a) sufficient to reduce unit total costs and unit labour costs below the level
they would be but for the introduction of the scheme, and
(6) at least equal to the cost of the pay increases under the scheme;
( i i ) the P a y Board is informed before the scheme is brought into operation;
(iii) no increase is payable before the net savings have been achieved and in any case
not until after the results of the first three months running of the scheme have
been submitted to the P a y Board for checking and the Board's approval given
for payment to be made with effect from the date of operation of the scheme;
(iv) the additional payments under the scheme do not exceed 50 per cent of the
increase which is allowable within the pay limit to those benefiting from the
scheme;
(v) the additional payments under the scheme are to be correspondingly reduced if
standards or targets specified in the scheme are not met;
(vi) the operation of the scheme is kept under review through regular management
control information. The control information must, as a minimum clearly
indicate changes in output per man hour, earnings, unit labour costs: and unit
total costs relative to a typical-earlier reference period and must ensure that
output for payment purposes is correctly recorded;
(vii) the scheme is based on properly measured work standards or targets, not
merely on past performance, and these standards or targets where
appropriate:
(a) take account of the improvement in performance which experience o f doing a
particular job brings; and
(b) are regularly checked and revised when methods change to ensure that
consistency is maintained.
149B.
A n e w s c h e m e w h i c h satisfies t h e p r o v i s i o n s o f p a r a g r a p h 149A may be
brought into operation only with effect from the same date as the first principal increase
after 7 November 1973, for those benefiting directly from the scheme, unless that date
is 1 July 1974, or any date after 31 December 1973.
S E T T L E M E N T S R E A C H E D BEFORE 6 N O V E M B E R 1972
150.
Settlements reached, but n o t implemented, o n o r before 6 N o v e m b e r 1 9 7 2 ,
w h i c h p r o v i d e f o r s p e c i f i e d i n c r e a s e s o n s p e c i f i e d d a t e s on or after 6 November 1973
( a n d n o t b y reference t o c h a n g e s i n i n d i c e s or o t h e r rates o f p a y ) m a y b e i m p l e m e n t e d
in full f r o m their d u e date o r dates. They will count against the pay limit unless they
are increases of a kind which do not count against the pay limit under other paragraphs
of this Code.
151. Where an increase under a settlement of the kind referred to in paragraph 150
is a principal increase the pay limit will apply to the 12 months following that increase,
except where the increase falls within the period of a previous pay limit for the group
and is counted against it. W h e r e t h e total c o s t o f t h e s e t t l e m e n t w i t h i n t h a t 1 2 m o n t h s
e q u a l s o r e x c e e d s t h e p a y l i m i t it m a y n o t b e a d d e d t o , u n l e s s in w a y s w h i c h d o n o t
c o u n t a g a i n s t t h e p a y limit.
N E W L O N G - T E R M AGREEMENTS
152.
S e t t l e m e n t s m a y be m a d e p r o v i d i n g f o r s t a g e d i n c r e a s e s a t n o t less
than 12-month intervals w h i c h are consistent with the C o d e but implementation
o f t h e l a t e r s t a g e s w i l l b e s u b j e c t t o t h e p r o v i s i o n s o f t h e C o d e at t h e t i m e .
152A. Any increase m a y be paid which could, consistently with the require­
ments of the Counter-Inflation (Price and P a y Code) Order 1973, be paid with
the effect from a date before 7 November 1973.
THRESHOLD AGREEMENTS
1 5 2 B . Payments under threshold agreements may be made outside the pay limit and
will not count against the individual pay limit provided the following conditions are
satisfied:
(i) the base figure for the purpose of the agreement is the Retail Price Index
(RPI) figure for October 1973;
(ii) the agreement runs for not more than 12 months from the date of publication
of the RPI figure for October 1973;
,- (iii) after the date of publication of the R P I figure which is 7 per cent above
.: the base figure for the purpose of the agreement, a pay increase of not
more than 40p a week is given, with a further increase of not more than
40p a week for every subsequent full 1 per cent rise in the R P I during
the currency of the agreement;
(iv) payments are treated as special supplements on an individual basis and are not
included in the base rate for overtime or other premia;
(v) each payment of up to 40p a week is paid in full only to full-time employees
and to part-time employees working 21 hours or more a week pro rata.
ANOMALIES
1 5 2 C . Subject in all cases to approval by the Pay Board, increases may be given
outside the pay limit as necessary in order to correct anomalies satisfying the relevant
criteria set out in paragraphs 152D, 152F, 152G or 152H. Such increases may be
backdated to 7 November 1973 but not earlier.
152D. In order to qualify as an anomaly on the basis of a link:
(a) the link must have been broken by the standstill; and
(b) but for the standstill, the link must have determined the pay of the group concerned.
In order to satisfy this condition:
(i) there must be evidence of that link and clear identification of the pay group
being followed; and
(ii) the effect of the link on the pay of the group concerned must have been known
(even if not formally agreed) before 6 November 1972 or have been predictable
within a narrow range;
and where applicable:
(iii) where the link is not embodied in a formal agreement and there are separate
negotiations, there must be evidence that all concerned intended that the
outcome would be in accordance with (ii).
These requirements apply to links both between groups and between grades within the
same or different groups.
1 5 2 E . When a link which meets the conditions in paragraph 152D is restored with a
group which had negotiated before the standstill a long-term settlement providing for
one or more pay increases or improvements in conditions after the end of the standstill,
the linked group may apply such increases or improvements:
(i) on 7 November 1973, where they were effective between the end of the standstill
and 6 November 1973;
(ii) on the operative date of the increase or improvement of the group being followed,
where this is later than 6 November 1973.
1 5 2 F . In order to qualify as an anomaly on the basis of a formal procedure:
(a) the formal procedure must have been set aside by the standstill; and
(b) but for the standstill the formal procedure must have determined the pay of the
group concerned. In order to satisfy this condition:
(i) there must be a process agreed between the parties for determining the field
of comparisons which cannot be changed during the course of a particular
pay review; and
(ii) there must be agreed rules governing the translation of external rates into
agreed internal levels of pay such that it is possible to infer the outcome
from the external evidence within a narrow range. The procedure must
determine the actual levels of pay and not merely use outside evidence, for
example published wages or earnings indices, to gauge the size of increases.
1 5 2 G . Where there is a formal procedure, satisfying the conditions in sub-paragraphs
152F (b) (i) and (ii) above, which was in operation before the standstill, had a review date
after the end of the standstill and includes within its current review a period before the
standstill, any increase which may be due at the first review following the standstill
may be paid in full on the first due date after 6 November 1973 in place of an increase
under paragraph 109.
152H. Where a new anomaly is
in accordance with the provisions
consequential anomaly may also be
provided that it meets conditions (i)
created when a link or formal procedure is restored
of paragraphs 152D, 152F or 152G above, the
treated as an anomaly arising from the standstill
to (iii) of paragraph 152D above.
1521. Increases designed to remedy an anomaly must:
(i) be limited to what the link or formal procedure would have given if the link or
formal procedure had been allowed to operate at the first operative date after
6 November 1972;
(ii) take full account of all relevant details of the settlement or procedure being
followed and of benefits received by the linked group since 6 November 1972
in so far as these are relevant to the benefits accruing from the restoration of the
link or formal procedure; and
(iii) for those whose basic pay exceeds £5,000 per annum, be staged and paid in two
equal amounts, subject to such modifications as the Pay Board may approve
in order to prevent this provision creating serious anomalies in the pay structure
of the group concerned. The first payment may be made with effect from a date
not earlier than 7 November 1973, and the second not earlier than 12 months
after the first payment.
1S2J. For the purpose of calculating the pay limit for the next increase after the
remedy of an anomaly, the calculations required by paragraph 109 may take account
of increases in the pay bill expressed as an annual rate, resulting from the remedy of
the anomaly.
1 5 2 K . In determining increases remedying anomalies negotiators should have
regard to the objective, set out in paragraph 110, of improving the relative position of
the low-paid and to the desirability, therefore, of not reversing any redistribution of
income from higher paid to lower paid employees resulting from increases since
6 November 1972.
Part III-General
153. W h e r e the particular p r o v i s i o n s of the C o d e c a n n o t b e directly a p p l i e d
t o particular cases or s e c t o r s w i t h o u t modification, t h e Price C o m m i s s i o n and
t h e P a y B o a r d will, in e x e r c i s i n g their functions, apply t h o s e p r o v i s i o n s with such
a d a p t a t i o n s o r m o d i f i c a t i o n s a s a p p e a r t o t h e m t o be n e c e s s a r y t o g i v e e f f e c t t o
the principles and objectives of the Code.
Printed in England by Her Majesty's Stationery Office
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Dd.
ISBN
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