IflS D O C U M E N T 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
GOVERNMENT
C ( 7 4 ) 130
OA
C O P Y NO
7 November
1974
CABINET
REVIEW OF THE P R I C E
CONSULTATIVE
CODE:
DOCUMENT
II
N o t e b y t h e S e c r e t a r y of S t a t e f o r P r i c e s a n d
Consumer Protection
n
I c i r c u l a t e f o r the i n f o r m a t i o n o f m y c o l l e a g u e s a c o p y o f t h e
C o n s u l t a t i v e D o c u m e n t on the R e v i e w o f the P r i c e Code, i n the
in which i t has been sent for
printing.
S W
D e p a r t m e n t of P r i c e s and C o n s u m e r
7 November
Protection
U
1974
SECRET
form
0
u
A Consultative Document Presented to Parliament by the f
by Command of Her Majesty
f
LONDON
HER MAJESTY'S
STATIONERY
net
Cmnd.
OFFICE
COMOTS
PART I :
General
PART I I $ Amendments t o t h e Code
Section I :
Commentary on Amendments Section I I :
Draft
Appendices
: t
o f a r e v i s e d B r i c e Code The I n v e s t m e n t R e l i e f
2.. N o t i f i c a t i o n
Scheme
and I n f o r m a t i o n
Orders
PART
I
GENERAL
1
The S e c r e t a r y
under
This
followed
the Government
soon a f t e r
of
Protection
the P r i c e
two b r o a d m e a s u r e s
-
to s t r e n g t h e n
the
introduced
initiation
introduction
o f a new P r i c e s
2
The measures
t o s t r e n g t h e n t h e P r i c e Code w h i c h ,
came i n t o e f f e c t
begun
by
of
the e x i s t i n g P r i c e
and the
consultations,
Code,
A c t 1973, was to b e
taking o f f i c e
on p r o p o s a l s
and Consumer
a major r e v i e w
the C o u n t e r - I n f l a t i o n
immediately.
consultations
for Prices
197k t h a t
announced on 11 J u l y
established
or State
Code
Bill.
early
i n May,
included
after
the
following? ­
a)
The f r e q u e n c y w i t h wnich m a n u f a c t u r e r s
in s e r v i c e
industries
was l i m i t e d
was
b)
c o u l d make p r i c e
in p r i n c i p l e
e a c h t h r e e months,
to n o t
although
The p e r m i s s i b l e
the need f o r
o t h e r than
margirls
smaller
from
6 May.
upon them b y . t h e
administration,
reductions
The r e p r i c i n g
frequently
The P r i c e s
9 July,
p r o v i d e d powers
Act,
for
these powers s u b s i d i e s
butter,
bread,
and,
for
food
on shop s h e l v e s
which^received
to pay food
certain
have b e e n
cheese,
of
goods
were
conferred
introduced
bought
restricted.
the R o y a l A s s e n t
subsidies
and t o
other n e c e s s i t i e s .
introduced
household
where a p p r o p r i a t e ,
non­
distributors.
b y the h o u s e w i f e was
3
f o o d and
previous
of
On 1 A p r i l
under p o w e r s
maximum p r i c e s
exceptions
traders,
the P r i c e Commission h a d ,
similar
on m i l k ,
increases
more than once, I n
gross percentage
r e d u c e d b y 10$ w i t h e f f e c t
prices f o r
those
recognised;
food d i s t r i b u t o r s ,
c)
and
or
flour
margins
on
fix
Under
increased
and
tea,
are being
and
proscribed
A v o l u n t a r y agreement
was a l s o c o n c l u d e d w i t h the r e t a i l
manufacturers
margins,
under which t h e y a g r e e d t o s e l l
and o t h e r e s s e n t i a l
Act
following
the 10% r e d u c t i o n
and food
items a t f a v o u r a b l e
a l s o p r o v i d e d p o w e r to a b o l i s h
done on 26 J u l y u n d e r
Board)
Order
the s t a t u t o r y
as
the " P r i c e
k
of b a s i c
prices.
the C o u n t e r - I n f l a t i o n
c o n t r o l on wages
gross
The P r i d e s
(Abolition
of Pay
w i t h the removal
thereby
what had h i t h e r t o been
and P a y C o d e " became t h e " P r i c e
for Prices
known
Code".
I n l a u n c h i n g t h e fundamental r e v i e w of the P r i c e
the S e c r e t a r y o f S t a t e
foods
t h e P a y Board^ and t h i s was
197U ($1 197k No 1 2 1 8 ) ;
of
a list
in
trades
Code,
and Consumer P r o t e c t i o n
said:­
be directed,
"The r e v i e w w i l l
changes
efficiency
on which o u r f u t u r e
depend,
and p r o d u c t i v e
particular
and, secondly,
industries
of S t a t e
document was b e i n g
Confederation
possible
investment
employment and w e a l t h as a
anomalies which experience
The S e c r e t a r y
to
i n t h e Code which would e n c o u r a g e the
industrial
nation
first,
to d i f f i c u l t i e s
has i d e n t i f i e d
or s e c t o r s
added t h a t
in
o f t h e economy."
f o r t h e p r e s e n t no
i s s u e d but views were
of B r i t i s h I n d u s t r y ,
or
invited
consultative
from t h e
the T r a d e s Union
Congress,
t h e R e t a i l C o n s o r t i u m and o t h e r r e p r e s e n t a t i v e b o d i e s ,
as
from
the P r i c e Commission, n a t i o n a l i s e d
consumer
organisations.
union o r r e p r e s e n t a t i v e
viewSj and s t e p s w e r e
w i d e l y known.
A great
individual firms
5
The Government
this
many r e p r e s e n t a t i v e
have o f f e r e d
the l a t e s t
have c o n s i d e r e d
proposals
economic
which r e l a t e s
The more i m p o r t a n t
paragraphs,
assessment.
while Part
II
under
o r g a n i s a t i o n s and
are d i s c u s s e d
provides
the p r o p o s a l s .
Code
That p a r t
which s h o u l d b e
in the
light
o r the Government s
1
i s i n this
generally
document.
in the
a commentary on a l l the
p r o p o s e d amendments and a r e v i s e d t e x t
would appear
offer
i n v i t a t i o n was
the a c t i o n
to t h e P r i c e Code
changes
to
trade
t h e Government v i e w s and s u g g e s t i o n s .
t a k e n b o t h i n the B u d g e t and on the P r i c e
of
t h a t any f i r m ,
was most welcome
t a k e n to s e e t h a t
well
i n d u s t r i e s , and
I t was made c l e a r
organisation
as
o f the Code a s i t
following
The Government b e l i e v e
6
new P r i c e Code s h o u l d e n t e r
The i n t e r v e n t i o n
meant t h a t
envisaged
that
the
of
into
it
is desirable
effect
as
the General E l e c t i o n
the o p e r a t i o n
in
that
consultations
soon a s
has
programme.
possible.
later
They i n t e n d ,
required by Section
2 of
the
Counter
1973 s h o u l d be c o n d u c t e d a s
quickly as
practicable;
and f o l l o w i n g
of views
views
or
expressed by representative
trade
unions.
new Code O r d e r ,
/[
shortly
Section
2 of
after
that
the a b o l i t i o n
erosion
of
of
of
control
margins
severity
Secretary of State
intention
continue
price
In
that
increases
margins
made i t
to
plain
and t o r e q u i r e
State
has r e i t e r a t e d
an e f f e c t i v e
price
and p r o f i t
and
greater
job
and t h a t
that
that
At the
efficiency
opportunities
over
all
since
only
SFCKET upon
review,
the
Government's
should
then,
possible.
the
emphasized
i s an e s s e n t i a l
resources,
that
support
the Government
depend on i n d u s t r y ' s
detailed
wherever
t h i s v i e w and
use o f
price
unjustifiable
reductions
same time
in the
the
of
of
the
and t h e P r i c e C o d e
control
the
conditions,
the l e v e l
i t was the
control
the
of
removal
have proposed
price
of
that
following
economic
the c o m p l e t e
t h a t have taken p l a c e
the S o c i a l C o n t r a c t .
the
t i m e , and w h i c h w o u l d
In launching
0
an e f f e c t i v e
the c o n s u l t a t i o n s
with
t ? a d e and commerce
s h o u l d b e abandoned
the P r i c e Commission
to p r o v i d e
Secretary
industry,
s h o u l d b e abandoned and r e l i a n c e p l a c e d
of p r o f i t
into
requires
employment and t o
o r g a n i s a t i o n s and f i r m s
control
it
in prospective
As an a l t e r n a t i v e
the
in
the Code up to t h e p r e s e n t
investment.
control
A c t 1973*
the
early
t h a t has occurred as a r e s u l t
t h r e a t s both to
cost
as
firms
Parliament.
poses serious
control,
make
in a c c o r d a n c e
the P a y B o a r d and the P a y Code:
continue with g r e a t e r
further
individual
they w i l l
made b u t ,
and f i r m s
the p r i c e
of p r o f i t
operation
is
the C o u n t e r - I n f l a t i o n
Many o r g a n i s a t i o n s
have u r g e d
or
The new P r i c e Code can come
the O r d e r
a p p r o v a l of b o t h Houses
7
isr
and the n e c e s s a r y a s s o c i a t e d O r d e r s ,
i n December a s p o s s i b l e .
force
organisations,
than
therefore,
I n f l a t i o n Act
consideration
the
unavoidably
o r the new Code w i l l b e
the o r i g i n a l
that
higher
capacity
to
recognise
exports
and
willingness
to
invest
v i g o u r w i t h which i t
The P r i c e Code
Investment
8
profit
control
t o market
competitive
opportunities.
t o meet
change p r o p o s e d
from
available
selected
these
requirements.
i n the Code i s
the f u l l
to
forms.
firms
effect
capital
t h e home market p r o v i d e d
that
of
therefore
the
cost
which u n d e r t a k e
Companies w i l l
firmly budgeted
of
and ,in the
Relief
a new r e l i e f
certain
17j£
responds
must b e a d a p t e d
A principal
provide
and i n n o v a t e
this
to
investment
is
plant
and
will
apply
to
all
and d i s t r i b u t i o n
to n a t i o n a l i s e d
industries
any case
subject
9
is
It
should be
require
below
(where
t o Government
clearly
followed
essential
that
relief
given f o r
The Code w i l l
investment
therefore
w h i c h :.
increases
has
allowed
in
review) .
programme must h o l d b a c k
other p r i c e
b u t not
i n v e s t m e n t programmes a r e
by i n v e s t m e n t .
that any f i r m
its
services
for
for
The r e l i e f
in m a n u f a c t u r i n g ,
in
recover
on i n v e s t m e n t
machinery or i n d u s t r i a l b u i l d i n g s .
firms
and
investment
be e n t i t l e d
expenditure
to
to
under
the necessary
the C o d e ;
fallen
extent
and f o r
on
the,,
, ,
at r e g u l a r
larger
firms
t o check
so t h a t
10
t h e P r i c e Commission w i l l
the p r o g r e s s
the r e l i e f
The
the Code to
of
the p r i c e
permit,
control
investment,
The P r o d u c t i v i t . y
11
will
be f u l l y
materials.
operation.
consumption
Moreover,
than increases
further
easements
is necessary tq encourage
or
maintained.
consider
no l o n g e r e x i s t ,
production and
basis,
under p a r a g r a p h 70
Deduction
p r o d u c t i v i t y was g e n e r a l l y
conditions
this
programme
accountable.
on a s e l e c t i v e
where
information
1
the P r i c e Commission
are being
The Government
must remain i n
of
with
e a c h company s
investment a g a i n s t
e x i s t i n g powers
of
ensure
of
be provided
intervals
In
the p r o d u c t i v i t y
1973 i t was
increasing
to h i g h e r
of
set
fast.
particularly
now t h a t
in t h e c o s t
that
increases
materials,
But
while
costs
at
of
deduction
50%,
when
these
we a d j u s t
energy
and
our
other
in l a b o u r
costs,
will
a larger .
form
rather
element i n t o t a l c o s t s , t h e p r a c t
the p r o d u c t i v i t y
d e d u c t i o n i s becoming much more s e v e r e .
A f i x e d percentage
p r o d u c t i v i t y d e d u c t i o n on t h e b a s i s o f u n i t c o s t s t h e r e f o r e has
a l a r g e r p r o p o r t i o n a t e e f f e c t on most f i r m s p r o f i t s than was the
case l a s t y e a r .
1
12.
The Government c o n s i d e r t h a t t h e p r o d u c t i v i t y d e d u c t i o n s h o u l d
be b o t h l o w e r and more s e l e c t i v e than a t p r e s e n t .
They t h e r e f o r e
p r o p o s e t h a t i t should be r e d u c e d t o a maximum o f 35/o v/h c h would
a p p l y o n l y t o t h e most c a p i t a l - i n t e n s i v e p r o d u c t s and p r o c e s s e s .
The s t a n d a r d r a t e would be 2Cfo a n d , as i n t h e p r e s e n t Code, t h i s
would b e t a p e r e d down t o a f i g u r e o f l e s s than 10;o f o r the most
l a b o u r - i n t e n s i v e p r o d u c t s and p r o c e s s e s . These changes w i l l a p p l y
to l a b o u r c o s t i n c r e a s e s f i r s t i n c u r r e d ' on o r a f t e r 1 November 1974.
13.
The Government would be p r e p a r e d t o c o n s i d e r an a l t e r n a t i v e
approach i f t h i s p r o v e d a c c e p t a b l e to b o t h s i d e s o f i n d u s t r y which
would have t h e same a v e r a g e e f f e c t but which would be composed
o f a l o w e r and a h i g h e r r a t e o f p r o d u c t i v i t y d e d u c t i o n .
The r a t e s
would depend upon the s i z e o f i n c r e a s e s i n u n i t l a b o u r c o s t s ; f o r
example, t h e r a t e o f d e d u c t i o n c o u l d be e x p r e s s e d as the a v e r a g e
o f a l o w e r p r o d u c t i v i t y d e d u c t i o n on i n c r e a s e s i n u n i t l a b o u r
c o s t s up t o a c e r t a i n p e r c e n t a g e and a h i g h e r p r o d u c t i v i t y d e d u c t i o n
on a l l u n i t l a b o u r c o s t i n c r e a s e s a b o v e t h a t p e r c e n t a g e .
Distribution
1L.
A S n o t e d i n p a r a g r a p h 8, i t i s p r o p o s e d t h a t t h e i n v e s t m e n t
r e l i e f s h o u l d e x t e n d t o d i s t r i b u t o r s on t h e same t e r m s as f o r
manufacturing and s e r v i c e i n d u s t r i e s i n the f o r m o f an a d d i t i o n
t o g r o s s and n e t m a r g i n s .
'
15.
I n many c a s e s d i s t r i b u t o r s a r e o p e r a t i n g b e l o w the s a f e g u a r d
l e v e l s e t l a s t May by t h e Government a t
o f net p r o f i t margin:
reference l e v e l s .
I n such cases t h e Government p r o p o s e t o a l l o w
d i s t r i b u t o r s t o widen t h e i r g r o s s margins t o t h e e x t e n t n e c e s s a r y
to a c h i e v e t h e 75/i l e v e l o f net p r o f i t , where market c o n d i t i o n s
allow.
A t p r e s e n t t h e y cannot do t h i s i f t h i s would cause them
t o e x c e e d 100;* o f g r o s s margin:
t h e Government propose t o a l l o w
g r o s s m a r g i n s i n such c i r c u m s t a n c e s t o be i n c r e a s e d t o a s t r i c t l y
l i m i t e d d e g r e e , up t o 103,0.
Safeguards
l6.
The Government c o n s i d e r t h a t the c u r r e n t s a f e g u a r d for",
manufacturing and s e r v i c e e n t e r p r i s e s a g a i n s t e r o s i o n of p r o f i t s
i n p a r a g r a p h 34 o f the Code should be amended t o d e a l w i t h e r o s i o n
o f p r o f i t on p r o d u c t r a n g e s or i n d i v i d u a l p r o d u c t s r a t h e r than on
t h e n e t p r o f i t margin o f the e n t e r p r i s e as a w h o l e .
Moreover, i t
w i l l n o t be n e c e s s a r y f o r a f i r m t o d e m o n s t r a t e , b e f o r e i t can
i n v o k e t h e s a f e g u a r d , t h a t the e r o s i o n o f p r o f i t has been caused
s o l e l y by t h e o p e r a t i o n o f the C o d e .
In other
words,
the safeguard
will
apply
whatever
the c a u s e
of the erosion, j
.
These
changes w i l l make t h e s a f e g u a r d s .much e a s i e r t o wotrie and much more r e a d i l y
a v a i l a b l e than i f companies had t o d e m o n s t r a t e , a s under t h e p r e s e n t e n t e r p r i s e ­
b a s e d p a r a g r a p h 34, t h a t r e d u c t i o n s i n margins on p a r t i c u l a r p r o d u c t s or r a n g e s hi
.caused a 10$ e r o s i o n i n t h e n e t p r o f i t margins" o f t h e e n t e r p r i s e as a w h o l e .
It
i s t h e r e f o r e proposed t h a t t h e d e g r o e o f e r o s i o n
[
at
w h i c h t h e new s a f e g u a r d
and t o t a l
cost
third, r e l a t e d
30 A p r i l
profit
t o the n e t p r o f i t
For those
erosion
30 - A p r i l
during
1973,
i s further
,
i)
to o v e r r i d e
firms
which
allowable
be not o n e - t e n t h
suffered
but one:
at
considerable
the p r e v i o u s G o v e r n m e n t ' s wage and p r i c e
the a l t e r n a t i v e
net p r o f i t
proposed
margins
o r 30 September
base date
in c e r t a i n p r e s c r i b e d
at
1972
circumstances.
that
a s a minimum p r o d u c t p r i c e s
to be raised
the
margin on the p r o d u c t
and thus had u n r e p r e s e n t a t i v e
w i l l be a v a i l a b l e
It
operate
o f t h e Code s h o u l d
constraints
1973*
standstill
will
to c o v e r
should b e
cost plus
a 2$
allowed
profit
margin;
ii)
the minimum r e t u r n b e l o w which an e n t e r p r i s e
a whole
i s not c o n s t r a i n e d by the r u l e s
Code s h o u l d b e r a i s e d
' 10,%'
iii)
it
of
have
of t u r n o v e r
Industry
Prices
t o make a s i g n i f i c a n t
level,
the p r i c e s
sector
that n a t i o n a l i s e d
of
1972,
safeguard
profit
o r 1972/3,
provisions
margins,
investment
to contain
restrained
year;
in t h e Code d e s i g n e d
to give r e l i e f
do n o t p r o t e c t
more s e v e r e l y
such p r i c e
to the l e v e l
and t h e
provides
increases
of
that
general
to l i m i t reductions
f o r low p r o f i t s
any of
than
- and they a r e the
deficit
accounting
industries
The p r e s e n t Code
in d e f i c i t
their
to t h e r e d u c t i o n
the n a t i o n a l i s e d
industries.
industries
contribution
s h o u l d b e p e r m i t t e d a t t h e most
as are necessary
in t h e i r
from
0
those of p r i v a t e
-
as a
should b e r a i s e d
f o r a number of y e a r s b e e n
majority
safeguard
to 2f ( p a r a g r a p h 69) .
In order
the p r i c e
to
( p a r a g r a p h 68 of t h e C o d e ) ;
percentage
Nationalised
o f the
from 8% on n e t a s s e t s
the e q u i v a l e n t l o w p r o f i t
li$
as
and t o
the i n d u s t r i e s .
in
encourage
However,
given
the i m p o r t a n c e
have n o t
or t h e i r p r i c e s
in p r a c t i c e been a b l e
were open to
them u n d e r
made i n c r e a s i n g l y
financed
18
to
growing d e f i c i t s
deficits
taken
household
However,
expenditure
0
f i n a n c i n g become l e s s
acceptable
therefore,
increases by n a t i o n a l i s e d
i n c r e a s e s w o u l d not b e
policy.
there' would b e l i t t l e
Governments
as p o s s i b l e
objective
accompanying p u b l i c
to t h e i r
requirements.
contribute
19
Price Code,
industries
or
of
industry).
the p r i v a t e
sector,,
increase p r i c e s
provisions
certain
In
of n a t i o n a l i s e d
as
either
(at
kind
the
the
eliminated,
contribution
their
borrowing
also
use o f
energy.
under the new
nationalised
for
them t o e a r n
2% on t h e i r
of
respects
industries,
to
of
turnover
the
that
t h e y cannot
The
therefore,
the
t h e i r power
criteria
a
the
sector.
appropriate
strict
such
this
and
i n many c a s e s ,
to r e t a i n
price
counter
comparable t o
as the p r i v a t e
under the
higher
industries
the option
i s not
F o r example,
which would not be
justified
as
important
industries
frequently
the
The
towards
as a
that,
for
of
deficit
on f u e l w o u l d
sufficient
certain
s e c t o r and the Government p r o p o s e
back p r i c e s
surplus
i n the Code f o r n a t i o n a l i s e d
features
are
term t o economy i n t h e
r e t u r n on n e t a s s e t s
particular
of
the
thereby reducing
i n 1975/76, d e f i n e d
part
of
deficits,
on s u b s i d i e s ,
increases
services
c a s e s where
making any p r o g r e s s
subsidies
the
continues.
flexibility
the Government p r o p o s e
t o make p r i c e
10$
position
of
for
w i t h the n e e d s
t h e r e s h o u l d be p r o v i s i o n
modest s u r p l u s
have
governments
scope f o r
in those
making a t r a d i n g
longer
Accordingly,
it
giving
in which t h e i r
The r e m o v a l
in the
the l o n g e r
o f r e t u r n i n g a s many or
i n v e s t m e n t programmes,
financing
consequences of
increased
expenditure
they a r e
the
inconsistent
to a p o s i t i o n
and in w h i c h
t h e y have
are a s i g n i f i c a n t
industries
chance of
in
the c h a r g e s
a need f o r
Without
and
successive
together,
industries
inflation
as
w h i c h the Government
in t h i s way,
w h i c h have r e s u l t e d ,
that,
see,
industries
t o make even such i n c r e a s e s
provided by n a t i o n a l i s e d
Government
the
subsidies.
In r e s t r a i n i n g p r i c e s
have r e c o g n i s e d
consumer,
the Code a n d , a s a , r e s u l t ,
substantial
through
the
private
to
the Code
cut
have
to
the l e v e l s w h i c h would be p e r m i t t e d b y t h e a l l o w a b l e
formula
alone.
In these
Commission w i l l
be
justified
the C o d e ,
under
w h i c h would b e
deciding
industries
of
to c a l c u l a t e b o t h
required
what p r i c e
for Ministers
to
strike
in p r i c e s
So
The main f e a t u r e s
rules w i l l
correct
necessary.,
of
action
28)
to c o s t
provision
for
(paragraphs
v)
existing
-
in
of
the
rate
shortage
71A o f
margin
made
to
last
rules
revised,
where
enabling
of
supply
the d r a f t
to
incurred
any
is
Code)
of a l l o w a b l e
the a d d i t i o n s
of
the c a s e o f
costs
the l i s t
on or
the s p e e d i e r
recovery
and a n t i c i p a t e d
cost
will
after
rule
26B);
(paragraph
a tightening
up of
the a p p l i c a t i o n
(paragraph
safeguard p r o v i s i o n
application
of increases
22 and U 6 ) ; in the a p p l i c a t i o n
of
of
the
of
the Code
52); clauses
in
3-month
to
17);
relating
to
the p r o d u c t i v i t y d e d u c t i o n
variation-of-price
(paragraph
necessary
the S e c r e t a r y
minor easements
a revised
be
are:-
taken
to t h e l i s t
mixed e n t e r p r i s e s
vi)
the
use b y
increases
retrospective
iv)
In
197U:
1 November
iii)
will
the Code was
changes
to be
threatened(paragraph
apply
the maximum
c o s t and p r o f i t
in e x c e p t i o n a l c i r c u m s t a n c e s ,
minor a d d i t i o n s
increase
t o b e made.
made i t
since
a new r e s e r v e power f o r
(paragraph
and
Amendments have" b e e n
p r o d u c t where a s e v e r e
ii)
were
the a l l o w a b l e
and to c l a r i f y
appropriate
Price
consumer.
The more i m p o r t a n t
State
the
and t h e need t o keep down t h e
changed c i r c u m s t a n c e s
anomalies
costs,
should be
remain u n c h a n g e d .
for
of
a b a l a n c e between r e s t o r a t i o n
to the
proposals
A)
a surplus
increase
Other
to
if
the r o l e
the minimum p r i c e
ie a l l o w a b l e
to p r o f i t a b i l i t y
increase
provide
circumstances
costs
contracts
the
to
vii)
exemption
from
categories
of
6(xiv)
viii)
the Code f o r
the
and ( x v )
clarification
103);
of howr d e p r e c i a t i o n and
should b e c a l c u l a t e d
Code ( p a r a g r a p h s
21
(paragraphs
self-employed
and
specific
certain
for
the purpose
28 and
A c o n s i d e r a b l e number of
capital
of
the
68).
changes^will also
be made t o
a s s o c i a t e d N o t i f i c a t i o n and I n f o r m a t i o n O r d e r s which e n a b l e
P r i c e Commission t o examine p r o p o s e d p r i c e
monitor the o b s e r v a n c e
of
the C o d e .
proposed i s t h a t C a t e g o r y I I I
to k e e p r e c o r d s
to b e r e q u i r e d
of
to i d e n t i f y
The Commission p r o p o s e d
" The major
firms,
their price
increases
in i t s
change which
and p r o f i t
t o the P r i c e
quarterly
e s p e c i a l l y t h o s e w h i c h a r e or
ov/n s e c t o r s o f
industry
and commerce.
t o g e t h e r w i t h a p r o p o s e d amendment
22
of C i v i l
As s t a t e d
the P r i c e Code i n t o
to
these
importance
period
monitor
firms,
in
their
d e s c r i b e d a t Appendix
to the Counter
are
Commission.
This! and the o t h e r
A v i a t i o n A c t 1971)
in paragraph
margins,
staff
the Code b y
considerable
changes i n t h e s e O r d e r s a r e b r i e f l y
(Modification
of
is
obliged
report!; f o r the
1 Karch-31 May 197U* i n o r d e r to e n a b l e i t s r e g i o n a l
more comprehensively the o b s e r v a n c e
the
and t o
which a r e a t p r e s e n t
themselves
this
increases
the
main
2,
Inflation
Order.
6,
o p e r a t i o n as
early
p r a c t i c a b l e and i t
is
be communicated t o
them b y 27 November
in December ap
is
hoped that v i e w s and r e p r e s e n t a t i o n s
197U.
can
PART
II
AMENDMENTS TO THE PRICE CODE
Ehis p a r t o f t h e C o n s u l t a t i v e Document i s p r e p a r e d i n a form i n t e n d e d t o
assist
the s t a t u t o r y c o n s u l t a t i o n s on amendments t o t h e P r i c e Code w h i c h t h e Government
are r e q u i r e d t o u n d e r t a k e b y S e c t i o n 2 o f t h e C o u n t e r - I n f l a t i o n A c t 1973*
Section I
i s a commentary on p r o p o s e d amendments t o t h e Code; S e c t i o n I I
complete d r a f t
heavy t y p e .
of
is a
t h e P r i c e Code r e v i s e d s o as t o ; i n c l u d e t h e amendments i n
The p a r a g r a p h numbers o f
t h e e x i s t i n g Code h a v e b e e n r e t a i n e d ,
a d d i t i o n a l p a r a g r a p h s have been i n c l u d e d i n heavy t y p e as eg p a r a g r a p h ^ A .
e x i s t i n g Code i s c o n t a i n e d i n t h e C o u n t e r - I n f l a t i o n
( P r i c e and Pay C o d e )
Order 1973 - S I 1973 No 1785 - a s amended b y S I (197*0 Nos 661,
and
The
(No
785 and
2)
1218.
In t h e r e v i s e d Code t h e s e amending O r d e r s w i l l be c o n s o l i d a t e d . 11
SECTION I - COMMENTARY ON AMENDMENTS
Paragraph 3 ( i i ) ;
The o b j e c t i v e o f e n c o u r a g i n g i n v e s t m e n t
is specifically
included i n t h e g e n e r a l p r i n c i p l e s o f t h e Code, i n o r d e r t o emphasise
i n t e n t i o n b e h i n d t h e G o v e r n m e n t ' s p r o p o s a l t o i n t r o d u c e an a u t o m a t i c
the
investment
relief.
Paragraph 6 ( v i i i ) ;
The e x e m p t i o n f o r Goverment. c o n t r a c t s f o r w a r l i k e
and s e r v i c e s i s e x t e n d e d t o a l l
c o n t r a c t s which a r e c o v e r e d b y , and s u b j e c t
the c o n t r o l s p r o v i d e d i n , t h e p r o f i t
Government and i n d u s t r y
The e f f e c t
will
the M i n i s t r y
of n o n - c o m p e t i t i v e
from c o n t r o l c o n t r a c t s f o r n o n - w a r l i k e
contracts.
stores
o f Defence and c e r t a i n equipment f o r the P r o p e r t y S e r v i c e s
and t h e Department o f H e a l t h and S o c i a l
Paragraph 6 * ( i x ) :
Paragraph 6 ( x i v ) ;
A drafting
for
Agency
Security.
amendment.
Payments from t h e N a t i o n a l H e a l t h S e r v i c e f o r
agency
a c t i v i t i e s c a r r i e d o u t by c h e m i s t s , o p t i c i a n s and m e d i c a l a p p l i a n c e
are t o be e x c l u d e d from c o n t r o l .
c o n t r o l l e d by t h e Government.
to
f o r m u l a arrangements a g r e e d i n 1968 between
in r e l a t i o n t o the pricing
be t o e x c l u d e
stores
T h e i r remuneration i s a l r e a d y
contractors
effectively
The a p p l i c a t i o n o f t h e c o n t r o l t o t h e
other
commercial a c t i v i t i e s o f c h e m i s t s , o p t i c i a n s and m e d i c a l a p p l i a n c e
w i l l remain unchanged.
contractors
The r e f e r e n c e t o t h e e x c l u s i o n from c o n t r o l o f
charges
t o t h e NHS by d o c t o r s and d e n t i s t s has been t r a n s f e r r e d from p a r a g r a p h 10j$
of t h e present Code.
Paragraph 6 ( x v ) :
Payments b y t h e P o s t O f f i c e t o sub p o s t m a s t e r s a r e t o be
e x c l u d e d from c o n t r o l f o r t h e same r e a s o n , t h a t r e m u n e r a t i o n i s
under p u b l i c
control.
Paragraph 7,t
foodstuffs
effectively
Sugar i s d e l e t e d from t h e i l l u s t r a t i v e l i s t
subject t o control,
notification
8.
t h i s y e a r and i s now exempted f r o m t h e Code c o n t r o l s .
The amendment makes i t
clear that distributors'
margins on t h e
s a l e o f l i q u i d m i l k a r e n o t c o n t r o l l e d under t h e Code, because t h e y
effectively
control
Raw b e e t sugar f o r f u r t h e r r e f i n i n g was exempitifrom p r e ­
earlier
Paragraph 9 '*
semi-processed
because raw b e e t sugar i s -exempted from
under t h e amendment t o paragraph
Paragraph 8 ( i i ) i
of
are
c o n t r o l l e d under t h e powers t o r e g u l a t e m i l k p r i c e s .
Paragraph 10;
The b a s e l e v e l s f o r t h e p r i c e o f milk f o r t h e manufacture
of
b u t t e r and skim m i l k powder a r e more p r e c i s e l y d e f i n e d , and t h e premia used i n
t h e c a l c u l a t i o n o f t h e p r i c e s o f m i l k f o r t h e manufacture o f o t h e r p r o d u c t s a r e
t o b e i n c r e a s e d b y h a l f o f t h e d i f f e r e n c e b e t w e e n t h e p r e s e n t cash premia and
t h e premia which would have been produced by m a i n t a i n i n g t h e p r e m i a i n t h e
same p e r c e n t a g e t e r m s a s a p p l i e d i n t h e y e a r ending JO A p r i l
a l l o w the M i l k M a r k e t i n g Boards more f l e x i b i l i t y
Paragraph 1g:
o f t h e Code.
1973*
t o d e a l w i t h market
This
will
distortions.
The amendments a r e c o n s e q u e n t i a l on t h e changes t o o t h e r p a r t s
Paragraph 17?
manufacturing,
E n t e r p r i s e s which carry out more than one a c t i v i t y ,
s e r v i c e and d i s t r i b u t i o n ,
ie
w i l l " b e r e q u i r e d t o t r e a t each
activity
of t h e i r b u s i n e s s s e p a r a t e l y f o r Code p u r p o s e s , u n l e s s s e p a r a t e a c c o u n t ^
satisfying
p a r a g r a p h 14 o f
t h e Code cannot b e made a v a i l a b l e f o r
This i s t o e n s u r e t h a t , w h e r e v e r p o s s i b l e ,
each o f
t h e a c t i v i t i e s o f mixed
enterprises
are s u b j e c t t o t h e Code r u l e s most a p p r o p r i a t e t o them; d i f f i c u l t i e s
a r i s e n i n t h e p a s t where i t has been n e c e s s a r y ,
m i n o r i t y manufacturing
f o r example, t o c o n t r o l
the
of
"
The amendment iB i n t e n d e d t o make c l e a r i
the p e r c e n t a g e , not t h e c a s h ,
that i t
i n c r e a s e i n t o t a l c o s t s which mayinot b e
by t h e p e r c e n t a g e i n c r e a s e i n p r i c e .
Paragraph 19A:
have
a c t i v i t i e s o f a d i s t r i b u t i o n e n t e r p r i s e on t h e b a s i s
gross p e r c e n t a g e margins.
Paragraph 18:
them.
Up change i n p r a c t i c e
is
is
exceeded
involved.
Food s u b s i d y payments under t h e P r i c e s A c t a r e t o be t r e a t e d ,
by e n t e r p r i s e s who r e c e i v e them a s p a r t o f t h e i r r e t u r n from t h e m a r k e t .
reflects the fact
that
f o o d s u b s i d y payments a r e made t o r e d u c e o r
This
avoid
p r i c e i n c r e a s e s under t h e Code which would o t h e r w i s e b e r e c o v e r e d from t h e
market.
The new p r o v i s i o n a p p l i e s o n l y t o e n t e r p r i s e s which a c t u a l l y
subsidy payments and n o t t o
sequent s t a g e s o f
Paragraph 20s
receive
e n t e r p r i s e s which s e l l s u b s i d i s e d f o o d s a t
sub­
distribution.
The method o f c a l c u l a t i o n o f p r i c e r e d u c t i o n s i s s p e c i f i e d
being t h e m i r r o r - i m a g e o f t h e 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 i n l i n e w i t h t h e P r i c e C o m m i s s i o n s c u r r e n t
Paragraph 22i
this
practice.
The major change t o t h e r e t r o s p e c t i v e r e c o v e r y r u l e s i s
the p e r i o d o f recoupment
as
i s s h o r t e n e d from 12 months t o a minimum o f
that
6 months.
This t a k e s a c c o u n t o f t h e i n c r e a s e d i n f l a t i o n a r y p r e s s u r e s s i n c e t h e p r e s e n t
introduced
Code was . A
and o f t h e e f f e c t o f t h e 3-month r u l e i n p u t t i n g g r e a t e r
emphasis on r e t r o s p e c t i v e recoupment.
The d r a f t i n g o f t h e r u l e s has a l s o been
changed t o make c l e a r t h a t c o s t i n c r e a s e s i n c u r r e d b e f o r e t h e d a t e o f
p r e v i o u s p r i c e i n c r e a s e may be t a k e n i n t o account i f
been f u l l y
t h e y have n o t
the
already
recovered in p r i c e s .
Paragraph
The t h r e e month r u l e i s amended i n t h r e e w a y s ; f i r s t l y ,
e x e m p t i o n s which a r e a t p r e s e n t based on t h e p r o p o r t i o n o f
( t o g e t h e r w i t h , f u e l and p o w e r ) i n t o t a l
c o s t s are i n f u t u r e
p r o p o r t i o n r e p r e s e n t e d by a l l m a t e r i a l s ,
fuel
and p o w e r ;
"raw
1
materials
t o be based on t h e
secondly,
the
t h a t a product cannot be i n c r e a s e d i n p r i c e w i t h i n 3 months o f a p r i c e
r e l a t e d product i s not t o be r e t a i n e d ;
increase
on
that f i t s
i n b e t t e r with
their
The 3-roonth r u l e w i l l n o t apply t o p r i c e i n c r e a s e s under
accounting period?.
t h e investment r e l i e f
Paragraph 28;
requirement
and t h i r d l y e n t e r p r i s e s a r e p e r m i t t e d
t o t a k e 13 weeks r a t h e r t h a n 3 months i f
P a r a g r a p h 27 i
the
p r o v i s i o n i n paragraph
A technical transitional
69A.
provision.
S e v e r a l minor a d d i t i o n s a r e made t o t h e l i s t
of allowable
costs.
They t a k e account o f r e p r e s e n t a t i o n s r e c e i v e d from i n d u s t r i e s which b e c a u s e
of
t h e n a t u r e o f t h e i r b u s i n e s s have a h i g h e r than a v e r a g e s h a r e o f
costs.
non-allowable
They a l s o remove t h e element o f d i s c r i m i n a t i o n a g a i n s t s m a l l e r
firms
which r e s u l t e d from d i s a l l o w i n g c e r t a i n b o u g h t - i n s e r v i c e s which may be p r o v i d e d
b y d i r e c t l y - e m p l o y e d l a b o u r o r equipment i n l a r g e r f i r m s .
In addition,
contributions
allowable costs.
a r e t o be i n c l u d e d in- t h e c a t e g o r y
a d d i t i o n s t o the l i s t
i n c u r r e d on or a f t e r
definition
of a l l o w a b l e c o s t s w i l l
1 November 1974.
of
fully
apply t o c o s t
The Government
increases
editorial
first
propose t o amend t h e
o f a l l o w a b l e d e p r e c i a t i o n t o s p e c i f y more p r e c i s e l y t h e b a s i s on
which d e p r e c i a t i o n
i s t o ba c a l c u l a t e d f o r t h e purposes o f t h e Code.
.amendment makes i t c l e a r t h a t an h i s t o r i c
cost
The
The
b a s i s s h o u l d be u s e d , b u t account may be t a k e n o f r e v a l u a t i o n of a s s e t s which t o o k
p l a c e i n a c c o u n t s f o r f i n a n c i a l y e a r s ending on o r b e f o r e 30 September
In t h i s context i t
i s n o t t h e Government s c u r r e n t i n t e n t i o n t o - - a l l o w
1
v a l u a t i o n w i t h i n the l i f e
prices
t o be i n c r e a s e d .
o f the c o u n t e r - i n f l a t i o n
The a m p l i f i c a t i o n s
of
programme t o
197?.
re­
enable
" g e n e r a l l y accepted
accounting
p r i n c i p l e s " under t h i s p a r a g r a p h a p p l i e s a l s o t o p a r a g r a p h s 58 ( d e f i n i t i o n
net p r o f i t
m a r g i n ) and 63 ( d e f i n i t i o n
P a r a g r a p h 32:
Part
The e f f e c t
I on d i f f e r e n t
ofihhe
of
capital).
proposals set
out
i n p a r a g r a p h s 11-12 of
t y p e s o f p r o d u c t s or p r o d u c t r a n g e s i s i l l u s t r a t e d
the t a b l e below ( r a t e s rounded t o t h e n e a r e s t w h o l e n u m b e r ) :
Labour c o s t s as share
of t o t a l costs
of
in
u
Productivity Deduction 35$'
5/o
10fo
15 - 35%
20-/0.
.16^
1
P a r a g r a p h 33.
50%
14%
60%
12$
70$
10$
80$
'9$
D e f i c i e n c y payments t o p e n s i o n funds a r e to be
;
i n c t h e category of f u l l y
allowable
labour c o s t s not subject
to t h e
included
productivity
deduction.
r?ara^-rar)h 34;
The new s a f e g u a r d a g a i n s t l o w p r o f i t
and p r o f i t
a p r o d u c t b a s i s r e p l a c e s p a r a g r a p h s 34 and 56 o f t h e p r e s e n t Code.
differences
(a)
e r o s i o n on
The main
are:­
The s a f e g u a r d w i l l a p p l y
to a r a n g e o f products o r a e r v i o e s ( o r
individual
p r o d u c t s or s e r v i c e s where an e n t e r p r i s e has n o r m a l l y t r e a t e d i t s
i n d i v i d u a l l y f o r t h e purpose o f c a l c u l a t i n g
r a t h e r than t o t h e e n t e r p r i s e
(b)
A f i r m w i l l be a b l e ,
i t s permitted price
2% p r o f i t
30 A p r i l
f o r each p r o d u c t o r r a n g e o f p r o d u c t s ,
margin o r t o a c h i e v e a p r o f i t
1973
It
to
e i t h e r t o cover c o s t s
two t h i r d s
margin o f
A
with
o f t h e margin on
( o r o f t h e margin on 30 September 1972 i f b e t w e e n t h o s e
two d a t e s t h e p r o f i t
(c)
increases)
as a w h o l e .
increase i t s p r i c e s t o the extent necessary,
a d d i t i o n a l
products
margin f e l l
by 25$ or m o r e ) .
w i l l no l o n g e r be n e c e s s a r y t o d e m o n s t r a t e t h a t t h e e r o s i o n o f
p r o f i t h a s b e e n caused s o l e l y b y t h e o p e r a t i o n o f t h e C o d e .
(d)
The a l l o w a b l e c o s t s p r o v i s i o n s
productivity
d e d u c t i o n ( p a r a g r a p h 32) and t h e t o t a l c o s t
( p a r a g r a p h 18) w i l l
However,
( p a r a g r a p h 28 o f t h e C o d e ) ,
absorbed a l l
constraint
a l l be o v e r r i d d e n by t h e o p e r a t i o n o f the
once i t has been i n v o k e d , t h e s a f e g u a r d w i l l
the'
safeguard.
be assumed t o h a v e
the a v a i l a b l e allowable cost increases f o r the product
s e r v i c e concerned.
Only any element f o r t h e new i n v e s t m e n t
relief
( p a r a g r a p h 69A) w i l l b e r e g a r d e d a s a d d i t i o n a l t o a p e r m i t t e d
i n c r e a s e under t h e s a f e g u a r d p r o v i s i o n .
or
price
As under t h e p r e s e n t Code,
the
new s a f e g u a r d may n o t b e i n v o k e d b y an e n t e r p r i s e which i s e x c e e d i n g ,
i s l i k e l y t o exceed,
(e)
date,
i t s p r o f i t margin r e f e r e n c e
The b a s e d a t e f o r t h e p r o f i t - e r o s i o n
r a t h e r than a r e p r e s e n t a t i v e p e r i o d ,
for the calculation of
the p r o f i t
or
level.
safeguard i s t o be a
although the l e v e l
single
of
output
margin a t t h a t d a t e should b e based on
a r e p r e s e n t a t i v e p e r i o d as p r o v i d e d i n p a r a g r a p h s 2k and 25 o f t h e C o d e .
(f)
I n o r d e r t o g i v e t h e P r i c e Commission adequate t i m e t o
initial
a p p l i c a t i o n s f o r t h e use o f
t h i s safeguard,
any
examine
pre-notifying
SECRET f i r m w i s h i n g t o a p p l y t h e new p r o v i s i o n f o r t h e f i r s t
time w i l l
be
r e q u i r e d t o g i v e 56 r a t h e r t h a n 28 d a y s ' n o t i c e t o t h e Commission.
Paragraph *&A:
average o f
The c h a r g i n g o f a common p r i c e ,
c a l c u l a t e d as a w e i g h t e d
individual permitted price increases,
i s to be allowed f o r
p r i s e s which a r e p a r t i e s t o common p r i c e a g r e e m e n t s upheld by t h e
enter­
Restrictive
P r a c t i c e s C o u r t . T h i s w i l l e n a b l e t h e common p r i c e agreement f o r cement t o be
maintained, i n t h e l i g h t o f t h e C o u r t ' s d e c i s i o n i n January t h i s y e a r r e a f f i r m i n g
i t s jsanction o f t h i s a g r e e m e n t .
I n d i v i d u a l companies w i l l n o t , h o w e v e r , be
permitted t o e x c e e d t h e i r p r o f i t margin r e f e r e n c e l e v e l s , and a l l t h e f i r m s
concerned w i l l
be s u b j e c t
t o th9 p r e - n o t i f i c a ^ i o n
1
"
:
'
**
requirement.
The a v e r a g i n g o f
individual
permitted p r i c e i n c r e a s e s w i l l n o t i n c l u d e any p r i c e i n c r e a s e i n r e s p e c t
investment r e l i e f
( p a r a g r a p h 6 9 A ) , as t h e r e l i e f
products, eg t h o s e w i t h i n a common p r i c e
Paragraph hSi
does n o t r e l a t e t o
of
particular
agreement.
The p e r i o d o v e r which a n t i c i p a t i o n o f known c o s t
increases
may be s p r e a d i s reduced from a minimum o f 6 months t o a minimum o f 3 months,
and t h e p e r i o d o v e r which t h e new p r i c e must b e quoted v/ithout f u r t h e r
is s i m i l a r l y
Paragraph k7s
increase
reduced.
I n l i n e w i t h t h e change p r o p o s e d t o t h e 3-mpnth r u l e
26B) t o remove t h e d i s t i n c t i o n b e t w e e n " r a w '
(paragraph
m a t e r i a l s and p t h e r m a t e r i a l s ,
I
the f a c i l i t y
t o a n t i c i p a t e e s t i m a t e d c o s t i n c r e a s e s i s e x t e n d e d from raw
m a t e r i a l s t o any m a t e r i a l s which f l u c t u a t e
f r e q u e n t l y and u n p r e d i c t a b l y
in
price.
Paragraph
A drafting
change i s p r o p o s e d i n o r d e r t o make c l e a r how t h e
productivity deduction operates i n v a r i a t i o n - o f - p r i c e
Paragraph 30:
Paragraph 32:
difficult
clauses.
A d r a f t i n g , amendment.
The p r e s e n t s a f e g u a r d which a p p l i e s t o c o n t r a c t s has p r o v e d
t o o p e r a t e p r i m a r i l y because i t
r e q u i r e s that the a p p l i c a t i o n o f
the
p r o d u c t i v i t y d e d u c t i o n t o a p a r t i c u l a r c o n t r a c t would cause an e n t e r p r i s e
a whole t o f a l l
b e l o w 90$ o f
i t s base p r o f i t
i s t h e r e f o r e p r o p o s e d which s t i l l
margin.
r e l a t e s to the p r o f i t
a s a w h o l e but which exempts v a r i a t i o n - o f - p r i c e
d e d u c t i o n whenever t h i s p r o f i t
P a r a g r a p h 56s
P a r a g r a p h 59i
A new form o f
safeguard
margin of* t h e
c l a u s e s from t h e
as
enterprise
productivity
two-thirds margin f a l l s b e l o w
o f the r e f e r e n c e
level. T h i s paragraph has been a b s o r b e d i n t o t h e r e v i s e d paragraph 34.
The s e n t e n c e r e f e r r i n g
^
t o r e f e r e n c e l e v e l s under p r e v i o u s Codes
II
i s now redundant and h a s b e e n d e l e t e d ;
P a r a g r a p h 65?
t h i s amendment a l s o a p p l i e s t o p a r a g r a p h 79i
Amendments a r e made t o remove p o t e n t i a l c o n f l i c t
between
this
p a r a g r a p h and p a r a g r a p h 57* which p r o v i d e s t h a t t h e r e f e r e n c e p e r i o d ends no
l a t e r than 30 A p r i l
P a r a g r a p h 66A;
1973.
The new p r o v i s i o n makes i t
r e c o n s t r u c t i o n o r amalgamation o f
clear that,
enterprises,
as i n t h e c a s e
a c q u i s i t i o n s and d i s p o s a l s made
by companies which do n o t amount t o r e c o n s t r u c t i o n o r amalgamation o f
s h o u l d b e t a k e n i n t o account i n c a l c u l a t i n g p r o f i t
current p r o f i t
acquisition of
sub-division of
margin r e f e r e n c e l e v e l s
and
with
calculation.
T h i s removes an anomaly i n t h e p r e s e n t Code, whereby
a new company a f t e r 29 A p r i l
1973 a p p e a r s t o p r e v e n t
the
any
t h e a c q u i r i n g company f o r p r o f i t
p a r a g r a p h 60 o f t h e C o d e .
c o n t r o l p u r p o s e s under
. or low p r o f i t - m a k i n g
The i n c e n t i v e t o t u r n round loss-making/(companies
i s i n c r e a s e d by p r o v i d i n g t h a t
t h e l o s s e s o f a company a c q u i r e d a f t e r 29 A p r i l
1973 no l o n g e r h a v e t o b e t a k e n i n t o t h e p r o f i t
b u t may b e r e p l a c e d f o r
the purposes o f
margin r e f e r e n c e l e v e l
calculation
t h e c a l c u l a t i o n by t h e minimum r e t u r n
a v a i l a b l e under p a r a g r a p h s 68 o r 69 o f t h e C o d e .
P a r a g r a p h 67;
enterprises
m a r g i n s ; no money b o r r o w e d o r i n t e r e s t p a i d I n c o n n e c t i o n
an a c q i i s i t i o n s h o u l d b e i n c l u d e d i n t h e
P a r a g r a p h 66B;
of
C o n s e q u e n t i a l on t h e new p a r a g r a p h s 66A and 66B.
SECRET
Fara^raph 6*8;
B e a r i n g i n mind the
,
increased r a t e . o f
inflation
since
the
f i g u r e o f 8$ was f i x e d a s t h e minimum r e t u r n on c a p i t a l under t h e Code, b u t
taking account a l s o o f t h e s u b s t a n t i a l changes p r o p o s e d f o r o t h e r
provisions
of t h e Code ( p a r t i c u l a r l y t h e p r o d u c t - b a s e d s a f e g u a r d i n p a r a g r a p h jM
which
should r e d u c e t h e need f o r e n t e r p r i s e s t o h a v e r e c o u r s e t o t h i s s a f e g u a r d ,
Government propose t o r a i s e t h e minimum r e t u r n on c a p i t a l
The d e f i n i t i o n
Paragraph 69:
I
of c a p i t a l
i s amended as i n d i c a t e d f i n t h e commentary on p a r a g r a p h 2 8 ,
propose t o r a i s e t h e minimum r e t u r n on t u r n o v e r ,
which may b e s u b s t i t u t e d
the minimum r e t u r n on c a p i t a l a t t h e o p t i o n o f t h e e n t e r p r i s e ,
Paragraphs 6 £ A * * ^ p a r a t e
Paragraph 70s
for
t o 2%.
from 1 ^
n o t e on t h e d e t a i l s o f t h e p r o p o s e d i n v e s t m e n t
relief
1.
Beneficiaries
of
investment r e l i e f
debarred from a p p l y i n g t o t h e Commission f o r
in s p e c i a l c a s e s which s a t i s f y
the c r i t e r i a
under p a r a g r a p h 69A a r e n o t
further r e l i e f
under p a r a g r a p h
70
i n t h i s p a r a g r a p h , but t h e Commission
w i l l be o b l i g e d t o have r e g a r d t o t h e amount o f r e l i e f
paragraph
t h e Government
u
*
scheme i s a t Appendix
\Q%
from % t o
C o r r e s p o n d i n g t o t h e amendment t o p a r a g r a p h 68,
-
the
obtainable
under
69A.
Paragraph 71A:
^
n
e
w
P
o
w
e
r
i
s
proposed f o r the S e c r e t a r y o f S t a t e f o r
and Consumer P r o t e c t i o n t o c e r t i f y
i n r e l a t i o n t o any p r o d u c t t h a t ,
Prices
where a
severe s h o r t a g e o f s u p p l y o r s e r i o u s t h r e a t o f such s h o r t a g e e x i s t s and t h r e a t e n s
to cause s i g n i f i c a n t
damage t o t h e i n t e r e s t s o f i n d u s t r y o r consumers.,
i n c r e a s e s may t a k e p l a c e up t o a s p e c i f i e d l e v e l
cost r u l e s o f t h e Code.
i r r e s p e c t i v e of the
price
allowable
The c e r t i f i c a t e may a l s o p r o v i d e f o r t h e p r o f i t
c o n t r o l t o be o v e r r i d d e n i f
margin
necessary.
I Paragraph Ik:
D i s t r i b u t i o n e n t e r p r i s e s which had c o m p l e t e d l e s s than a q u a r t e r ' s
trading by 30 A p r i l 1973 but which can produce s e p a r a t e a c c o u n t s f o r a 12-month
period ending n o t l a t e r than 31 March 1974 a r e t o be brought w i t h i n the c o n t r o l
on g r o s s p e r c e n t a g e m a r g i n s .
D i s t r i b u t o r s who a r e at p r e s e n t s u b j e c t t o c o n t r o l
-on the b a s i s o f a s i n g l e q u a r t e r ' s f i g u r e s up t o 30 A p r i l 1973 w i l l thus be a b l e
to e s t a b l i s h g r o s s margins on t h e b a s i s o f a y e a r ' s r e s u l t s .
Paragraph 7U3; ^ The d i s t r i b u t o r s ' s a f e g u a r d i s amended t o a l l o w g r o s s m a r g i n s t o
rice above 100/i - though not above 10.^5 - o f t h e margin s p e c i f i e d i n
q SECRET
paragraph 7 ^ ( i ) i
t o a l l o w net p r o f i t
m a r g i n s t o r e a c h 75% o f n e t
reference
levels.
P a r a g r a p h 78.
T h i s amendment i s c o n s e q u e n t i a l on t h e changes made t o
s a f e g u a r d s f o r m a n u f a c t u r e r s and s e r v i c e
enterprises.
Any u n i t o f
the
a distribution
e n t e r p r i s e which i s t r e a t e d s e p a r a t e l y under p a r a g r a p h s 14 and 17 o f t h e Code
f o r g r o s s margin c o n t r o l p u r p o s e s w i l l b e p e r m i t t e d ,
i t s costs,
t o o b t a i n a r e t u r n o f 2% on t u r n o v e r ,
margin r e f e r e n c e l e v e l
Paragraph
79:
P a r a g r a p h 8?:
of
o f t h e changes i s t o r e p l a c e t h e d e f i c i t
profit
containment
i n d u s t r i e s with p r o v i s i o n s
broadly
safeguards applying t o t h e p r i v a t e s e c t o r ,
allowing f o r the d i f f e r e n t
after
way i n which 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 a r e
They c o n t i n u e t o b e s u b j e c t
paragraph
p r o v i d e d that the net
59.
p r o v i s i o n s which a p p l y t o t h e n a t i o n a l i s e d
s i m i l a r to the l o w - p r o f i t
covering
the e n t e r p r i s e i s not l i k e l y t o be exceeded.
See paragraph
The e f f e c t
in addition to
t o the M i n i s t e r i a l powers of
intervention
financed.
in
85.
P a r a g r a p h 83A:
P a r a g r a p h 84
This i s a purely technical addition.
and 84A:
and t a k e s account o f
P a r a g r a p h 85?
The p r o v i s i o n on m u l t i - p a r t
fuel
adjustment c l a u s e p r i c e
s
tariffs
y e a r t o be continued i n l a t e r
changes f o l l o w i n g
a price increase j u s t i f i e d
T h e s e p r o v i s i o n s have b e e n made n e c e s s a r y b y t h e
of
of British Rail
following
P a r a g r a p h 89: L o c a l a u t h o r i t y t r a d i n g
c o n t r o l , but l o c a l
revisions
i n one
years.
P a r a g r a p h 86A:
the finances
clarified
increases.
The amendments h e r e a r e c o n s e q u e n t i a l
t o p a r a g r a p h 83, b u t i n c l u d e p r o v i s i o n s f o r
has b e e n
reconstruction
the passage of t h e Railways Act
s e r v i c e s a r e t o remain s u b j e c t
a u t h o r i t i e s are t o be g i v e n f l e x i b i l i t y
to price
to Tfationalise
c h a r g e s t o t a k e account o f t h e l o c a l government r e - o r g a n i s a t i o n v/hich t o o k
i n England and W a l e s
­
' 10
197^*
'
their
effect
or. 1 A p r i l
1974.
Charges f o r
parking
on-street
and i n l o c a l
with the e x c e p t i o n o f t h e s h o r t - s t a y c h a r g e s , ( l e s s than
r e g u l a r shoppers
in o f f - s t r e e t
c a r p a r k s , a r e t o be
from p r i c e c o n t r o l i n o r d e r t o a s s i s t
management p r o b l e m s .
margin c o n t r o l ,
'
Y
Paragraph 90s
:
:
parks,
4 h o u r s ) w h i c h most
affect
freed
authorities in dealing with
traffic
1
L o c a l a u t h o r i t i e s a r e no l o n g e r t o b e s u b j e c t t o
which c a n n o t b e e f f e c t i v e l y
unsubsidised t r a d i n g
a u t h o r i t y car
applied t o the r e l a t i v e l y
profit
few
services.
- 0?
'
' ''
In the l i g h t
'
: :
'
;
'
0 fl: ,"\
of re-organisation
England and Wales as a r e s u l t o f t h e Water Act
' 00: ?. :' '' .
,;
of t h e w a t e r i n d u s t r y
in
1973* t h e new r e g i o n a l w a t e r
a u t h o r i t i e s and s t a t u t o r y w a t e r u n d e r t a k e r s a r e t o b e s u b j e c t t o t h e
overriding
r u l e o f c o m p l i a n c e w i t h t h e i r s t a t u t o r y o b l i g a t i o n s , which may i n c l u d e
d i r e c t i o n s g i v e n by M i n i s t e r s under t h e Water A c t
1973.
The r o l e o f
P r i c e Commission w i l l b e t o m o n i t o r t h a t c h a r g e s f o r w a t e r ,
the
s e w e r a g e and o t h e r
water s e r v i c e s do not e x c e e d t h e l e v e l which i s r e q u i r e d t o comply w i t h t h o s e
obligations.
S i m i l a r r u l e s w i l l a p p l y t o metered w a t e r c h a r g e s i n
Scotland.
Other c h a r g e s f o r w a t e r s e r v i c e s i n S c o t l a n d and N o r t h e r n I r e l a n d a r e not
subject t o c o n t r o l as t h e y a r e f i n a n c e d
towards t h e r e s t r u c t u r i n g
out of l o c a l
or n a t i o n a l
taxation.
o f c h a r g e s a r e t o be p e r m i t t e d w i t h i n t h e
Moves
overall
limits
imposed by t h e Code.
Paragraph 9 1 :
Drafting
Paragraph 93A*
Tax v a r i a t i o n c l a u s e s i n equipment l e a s i n g a g r e e m e n t s
amendments.
provide
for v a r i a t i o n s o f r e n t a l upwards o r downwards i n r e s p o n s e t o t a x c h a n g e s ,
such changes can a f f e c t
v e r y s u b s t a n t i a l l y t h e b a l a n c e Of t h e a g r e e m e n t s .
clauses a r e now t o be a l l o w e d t o o p e r a t e when c o r p o r a t i o n t a x i s
provided t h a t t h e r e t u r n t o t h e l e s s o r on h i s c a p i t a l
no g r e a t e r t h a n i t would h a v e b e e n i f
Paragraph 99;
Paragraph 103:
as
Consequential
increased,
e x p e n d i t u r e becomes
t h e r a t e o f t a x had remained t h e same.
on t h e a d d i t i o n o f p a r a g r a p h
86A.
The c o n t r o l h a s a p p l i e d i n an anomalous manner t o s m a l l
men, such a s v/indow-cleaners and j o b b i n g g a r d e n e r s ,
revenue i s m o s t l y used f o r t h e l i v i n g
These
and o t h e r s whose
trades­
total
expenses o f t h e m s e l v e s and t h e i r
families.
In effect t h e i r l e v e l of
i n c r e a s e i n r e m u n e r a t i o n h a s been s e t by t h e
p e r c e n t a g e i n c r e a s e i n t h e i r b u s i n e s s expenses',' which b e i n g r e l a t i v e l y
small
can v a r y by l a r g e p e r c e n t a g e s and f o r some c o n s i d e r a b l e p e r i o d s may n o t v a r y .
at a l l .
The Government t h e r e f o r e p r o p o s e t o exempt from t h e Code
p e r s o n s whose b u s i n e s s e x p e n s e s do not e x c e e d 1C$ o f t h e i r
r e f e r e n c e t o the remuneration o f
t o paragraph 6 ( x i v ) .
self-employed
. . ^. .v
d o c t o r s and d e n t i s t s has b e e n
.
The
transferred
1
SECTION I I
-
DRAFT OF A REVISED PT?Tffr n o n n
1. The Code has a dual function. First, the Price Commission are
required to exercise their powers so as to ensure thai it is implemented.'
Secondly, al! those concerned with the determination of prices and charges
should have regard to i t
2. The Code is therefore addressed both to the Commission and to all
those concerned with price and charge determination. i'i
General Principles
3. The general principles relating to prices are: —
(i) to limit the extent to which prices may be increased on account
of increased costs, and to secure reductions as a result of reduced
costs;
(ii) to reinforce the control of prices by a control on profit margins
while safeguarding and e n c o u r a g i n g i n v e s t m e n t ; .
(iii) to reinforce the effects if competition, and to secure its full
benefits in the general level of prices. ., ,
Field of.Application
4. With the exceptions specified in paragraphs 5 to 11 below, the
prices of goods and services supplied to the United Kingdom home market
are within the scope of the control.
5. The prices of goods and services exported (wheiner "directly or"
through an agent or merchant) are not controlled.
6. The following are not controlled:­
prices paid on first sale into the United Kingdom of imported
goods and services;
(ii) prices of goods and services where the application of the con­
trol would be inconsistent with an international agreement or
arrangement. For this purpose, an international agreement or
arrangement is one between states or organisations of states,
not between firms; (Hi) prices at sales by auction, where such sales are a normal prac­
tice in the particular trade; (iv) prices of goods at the point of sale on a commodity market in
the United Kingdom such as the London Metal Exchange or
prices directly determined by reference to such markets; (v) prices of second-hand goods (other than second-hand road
vehicles sold by distributors); (vi) charges for the carriage of goods or passengers on international
journeys; charges for air navigation, landing and related scr­
vices and ship, passenger and goods dues, provided that they
relate wholly or mainly to such traffic; charges for international
mail. Giro, remittance and telecommunication services; (vii) prices of ethical medicines supplied to the United Kingdom
market to the extent that regulation of their prices is within
the scope of any agreement relating to those prices' made
between the Secretary of State for Social Services and reprc­
-sentatives of manufacturers of those medicines; but only so
long as such an agreement is in force;
1
(viii) prices inOovermient contracts f o r Warlike and o t h e r stores ana 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 a/K subject to restriction by the Secretary of State for Trade; " "
(x) taxi fares, where subject to control by the Home Secretary or the Secretary of State for Scotland; (xi) charges payable to returning officers in connection with Parlia­
mentary elections, determined under the Representation of the People Act 1949; (xii) 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; (xiii) subscriptions and certain prices charged by non-profit-making organisations as in paragraphs 107 to 109,' ( x i v ) c h a r g e s f o r s e r v i c e s t o the N a t i o n a l Health S e r v i c e by d o c t o r s , - rtonfc
d i s p e n s i n g p h a r m a c i s t s , d i s p e n s i n g and o p t h t h a l m i c o p t i c i a n s
and m e d i c a l a p p l i a n c e c o n t r a c t o r s ;
( x v ) c h a r g e s f o r s e r v i c e s t o the P o s t O f f i c e by. s u b - p o s t m a s t e r s .
i
A pplication to food, farming and forestry products
7. The prices of manufactured food and drink, like those of manu­
factured products generally, are within the scope of the control as are
those of semi processed foodstuffs such as butter, cheese
and quick­
frozen vegetables.
8(0 The prices paid to United Kingdom producers or producers' organisa­
tions 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 coultry, "sh, eggs, fesit and vegetables. However " e n t e r p r i s e s
which resell tli??e piexlucts, whether home-produced or imported,- at any
subsequent stage will he subject to control.
( i i ) 1'ho p r i c o -for t h e s a l e of r-wr b o e t
r o f i n i n g i s not c o n t r o l l e d .
su/pr- f o r f u r t h e r .
0
SEC! !vE i
T H E
9.
M I L K
BY
R E T A I L
T H E
M I N I S T E R
STATE
FOR
F O R
L I Q U I D
T H E
THE
IN
T H E
F O R
B O A R D
A N D
BE
M I L K
T H E
B O A R D
O F
I N
T H E
T H E
P R I C E
OF
"
B Y
TO
ARE
TO
,
M A Y
A T
R E F L E C T
T H E
M A N U I N C R E A S E D
P E R M I S S I B L E
T H E
P R O D U C T
L A T E R
SUM
U N D E R
O F ; -
B Y
T H E
C O N C E R N E D
I N
A N D
A P P L Y I N G
TO
T H E
S U B P A R A G R A P H
W H I C H
T H E
A B O V E
. ( I )
A V E R A G E
B E A R S
P R E -
T O
T H E
T H E
P R I C E
B U T T E R
8RTIN
SIMILAR
A N D
30
OF
T H E
S K I M M E D
F O R
POW-..
1973*
A P R I L
RELATION
M I L K
M I L K
TO
PRICES
PRODUCTS
PAID
OF ANIMAL
FOR
OR
FRESH
VEGETABLE
FLUCTUATIONS.
Charges
12.
REFERENCES
THERE I S E X P L I C I T
I N THE
PROVISION
C O D E TO P R I C E S I N C L U D E
TO
THE
REFERENCES TO C H A R G E S ,
UNLESS
CONTRARY.
Goods and services
13.
REFERENCES
SERVICES, U N L E S S
Definition
14.
0?
WITH
OF T H E C O D E
IN
( I )
( I I )
THE
EXCEPTIONS
ENTERPRISE
SUCH
ARC
OR
ARC
\
CAN
ALL
RESULT';
BE
MADE
MATERIALLY
IF
ON
OR
PRODUCTS
TO T H E
INCLUDE
REFERENCES
TO
CONTRARY.
ENTERPRISE
DISTORTED
LENGTH
WITH
ACTIVITIES
CONSISTENT
TAKEN
AS
PROVIDED
AVAILABLE
ARNFS
OR
WITH
A
PARAGRAPH
ENTERPRISE
15,
FOR
AS A WHOLE
THAT I N
THE
PURPOSES
OR A
SEPARATE
T H E LATTER C A S E
SEPARATE
—
COMBINED
OTHER
IN
EITHER A N
OR SUB-DIVISION
THAN
WOULD,
OF
GOODS
DESCRIBED
MEANS
SUB-DIVISIONS:
NOT
WISE
( I I I )
TO
PROVISION
ENTERPRISE
AN
FOR
CODE
IS EXPLICIT
CONSTITUENT C O M P A N Y
ACCOUNTS
THE
THERE
L I Q U I D
A N D
R E C E I V E D
I N " " ( A )
C A S E
PARAGRAPH
SUBJECT
TO
BE
P R I C E
U N D E R
FOODS A P P L I E S A L S O T O P R I C E S O F O T H E R P R I M A R Y
ORIGIN W H I C H
-
T O
M I L K ;
Y E A R
IN
O F
M I L K
M A R K -
POWDER
F O R
M I L K ;
F O U N D
E N D I N G
T H E
SAID
F O F
O F
R O R
P R E V A I L I N G
N O T
H A L F
T H E
'.
D E R
I N
M I L K
P R I C E
T H ^ M A N U -
P R I C E S ) ;
M A Y
P E R C E N T A G E
E I T H O R
S E C R E T A R Y
T H E
O F
C O N T R O L S
I N C R E A S E S
M I L K
M I L K
A N D
O F
O F
IS
I L I L K
N E C E S S A R Y
M A X I M U M
T H E " M A N U F A C T U R E
W H A T
A S
O F
OF
R E F E R R E D
B E I N G R " I N
11.
A
F O R
L E V E L
P R E M I U M
P R I C E
AMOUNT
RNIUM"
T H E
A B O V E
P E R M I S S I B L E
A B O V E
ON
S U B J E C T
C O S T
S K I M M E D
S A L E
R E S P E C T
9 Y . 3 I L ?
A N D - T H E
A P P L Y ,
P R O D U C T S
BE
W H E R E
M I L K
P R O D U C T S
A V E R A G E
A N
O F
A N D
T H E
S U N
M A R G I N S
11
O T H E R
T H E
( B J
A N D - ' F O O D
T H E
E X I S T I N G
C O D E .
O F
A L L O W A B L E
A B O V E
S U B - P A R A G R A P H ( I )
P R I C N
E X C E P T
A N D
T H E
M A R G I N S
T H E
I N T E R V E N T I O N
F O R
OF
( A )
T O
T O
C O N T R O L S
H O W E V E R ,
( A D J U S T E D
T H E
P R I C E
A B O Y 9
T H E S E
M A N U F A C T U R E
S A L E
B U T T E R
I N
F A C T U R E
S U B J E C T
F I S H E R I E S
A S
W I L L ,
T H E
1973
C H A N G E S
T H E
F O R
I N C R E A S E D
A P R I L
C O N S U M P T I O N
B E
.
O F
B E
T O
D I S T R I B U T O R S '
A D D I T I O N A L
P R I C E
F A C T U R E
L I Q U I D
S U B J E C T
F O R
M I L K : ­
N O T
M A X I M U M
L O N G
R E Q U I R E M E N T S .
T H E
( I I )
S O
K I N G D O M
I N C U R S
50
F O R
C O N T I N U E
A G R I C U L T U R E ,
N O T
U N I T E D
MARKEU I N G
( I )
O F
W I L L
F O L L O W I N G
ETING
M I L K
C O N S U M P T I O N
P R I C E S
S A L E . I N
O F
W I L L
S C O T L A N D .
C O N S U M P T I O N
10.
P R I C E
D I S T R I B U T O R S
FOR
BY
ALL
RELEVANT
PERIODS;
TRANSACTIONS
CONDUCTED
OTHER-
TERMS;
ONE
ANOTHER
TRANSACTIONS
THOSE
WHOLE.
SHOWN
AND
OF
THE
BY
WITH
THE
ENTERPRISE',
THE
ACCOUNTS
ACCOUNTS
PRODUCE
OF
THE
T H E
Y E A R
E N D I N G
3
Q
A P R I L
1973.
15. T h e definition la paragraph 14 docs not apply where tin: unit for net profit margin control, as defined in paragraphs 60 and 61, is the relc­
vant one. Accordingly, the definition in paragraph 14 docs not apply in para­
g r a p h s 52., 57 t o 69,.dSW^l%nd 715 or, w h e r e t h e y d e a l w i t h n e t p r o f i t m a r g i n s , i n p a r a g r a p h s 20, ^ t , khA, 70* 7.1 A, 78 and 795 or i n o t h e r p a r a g r a p h s w h i c h r e f e r t o t h e s e . 16. A reference to an enterprise includes a reference to a co-operative, a partnership or to an individual carrying on a business. Mixed enterprises
17. Where the activities of an enterprise are not confined to manu­
facturing, distribution, or the provision of services, but include more iharr­
one of these, each of these activitiesmusfcbe treated separately for
thp
p u r p o s e 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 and r r o s s p e r c e n t a g e m a r g i n a u n l e s s s e p a r 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 14 c a n n o t b e made a v a i l a b l e f o r e a c h o f thern.
if/here t h e s e a c t i v i t i e s a r e n o t t r e a t e d s e p a r a t e l y , t h e main a c t i v i t y of the e n t e r p r i s e w i l l determine whether the p r o v i s i o n s o f t h e Code 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 or services apply. Costs and Prices 18. Prices which are within the control may not be increased unless . there is an increase in total costs per unit of output.
ITo p r i c e may b e i n c r e a s e d b y a g r e a t e r p e r c e n t a g e t h a n t h e p e r ­
c e n t a g e i n c r e a s e i n t o t a l c o s t s , per, u n i t o f o u t p u t . 19. Where there is an increase in total costs per unit, only those increases defined in the Code as "allowable cost increases" may be taken into account in arriving at the permitted price increase, and they will be subject to a productivity deduction where appropriate. 19A. An e n t e r p r i s e w h i c h r e c e i v e s a s u b s i d y on any f o o d u n d e r '
s e c t i o n 1 o f t h e P r i c e s A c t 1 9 7 4 must t r e a t t h e s u b s i d y a s n a r t
-thQ.P
i t r e c e i v e s f o r t h a t f o o d o r f o r any p r o d u c t i n w h i c h
t h a t f o o d i s an i n ^ r e d i g n t .
r i G 3
Price reductions
n
^0.
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 . V/hore
t h e r e i s a n e t r e d u c t i o n i n a l l o w a b l e c o s t s per u n i t of
o u t p u t , p r i c e s s h o u l d be r e d u c e d by an amount e q u a l t o ; .
any p e r c e n t a g e r e d u c t i o n i n a l l o w a b l e c o s t s c a l c u l a t e d
i n a s i m i l a r manner t o - t h a t p r e s c r i b e d f o r 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 u n d e r , p a r a g r a p h 23..
Reductions arc however n o f r c q u i r e d to exceed the p e r c e n t a g e
tall in total costs per unit of output. In addition prices should 06 reduced
as required in paragraphs 59 and 79 where, in the case of a distributor,
its gross percentage margin, and in the case of any enterprise, its profit
margin reference level is exceeded, or is likely to be exceeded.
Base date
21. T h e starting point for the calculation of perm it led price increases
is the level of costs per unit of output at 30 April 1973. In calculating pcr­
mittcd price increases, cost increases first incurred after 30 A p r i l 1973
may be taken into account, to the extent that they have not already been
reflected in prices. Where the price of a particular product or of a range
of related products has not been increased since 30 September 1972, that
(late may, a t the option of tiie enterprise, be substituted for 30 April 1973 in
paragraphs 23 and 28 below. However, except as in paragraph 22, the
permitted price increase may not include any element of retrospective
recovery of costs incurred before the date on which, the price increase
itikes effect.
of
22,
A p e r m i t t e d p r i c e i n c r e a s e may i n c l u d e r e c o v e r y i n
fash terms Of c o s t
i n c r e a s e s f i r s t i n c u r r e d between JO
Ipril 1 9 7 3 and t h e d a t e o f 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 ,
fprovided t h a t : ( i ) t h e amount i n c l u d e d f o r such c o s t s i s such as
t o recover the c o s t s over a period of not les3
than 5 months b e g i n n i n g w i t h t h e d a t e o f i m p l ementation of the permitted p r i c e i n c r e a s e ;
(ii) the costs were allowable cost increases under the provisions of
the Code in force at the time they were incurred; and
(iii) in the calculation of any subsequent price increase under the
Code, the " selling price" referred to in paragraph 23(iii)
should exclude any element which represents a recovery of
i
costs under this paragraph.
!i
The n r e m i t t e d p r i c e i n c r e a s e may t a k e f u l l account o f c o s t i n c r e a s e s which have not
-ir^-^anp. .
ib?cn f u l l y r e o o y e r e d b e f o r e the d - t g nf £He. p^ine.
Wncre the permmea oasc uate is 30 September VJI'L, cost increases first
incurred after that date may be taken into account in determining the
permitted price increase, but retrospective recovery of such cost increases
must be limited to costs incurred in the period between 30 April 1973 and
the date of the price increase. A price increase which includes an element'
of recovery of costs under this paragraph 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
23. 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 date" means 30 April 1973, or at the
option of the enterprise, the date of any subsequent price increase.
24. The calculation of the level of costs per unit referred to in para­
graph 23(5) should be based on the levels of pay and other costs ruling
at the base date and on the level of output over the most recent repre­
sentativc period completed by that elate (eg the previous quarter) for
which adequate' records are available. Similarly the calculation of costs
per unit at the dale 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 representa­
tive period (eg the quarter preceding the date of the price increase).
25. The level:; of unit costs calculated in this v/ay will not necessarily
bo the same as the average figures recorded for the whole of the period
chosen, eg 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 adjust­
metis to allow for changes in the level of pay 00 other costs.
'
26. Where price increases are being made not on a single product but on n range of related products (under paragraphs 42 or 43) the procedure in paragraphs 23 to 25 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, 26A (i) Where after 25 March 1974 an indirect tax has been increased,
m addition not exceeding the cash amount of the increase borne by the
vendor may be made to the prices permitted by other provisions of the-.
Code for goods bearing the increased tax. Where an indirect tax is reduced
the reduction must be fully reflected in prices.
i,
(ii) This paragraph applies also to the effects of changes in the coverage
of indirect taxes.
(iii) In calculating maximum permitted price increases after 25 Marc! -. .
1974, the figures for total costs per unit and the selling price at the base
date must exclude any additions or reductions under this paragraph.
(iv) V A T is not regarded as part of the price for calculating prices and
price increases for manufacturing and service enterprises, and this paragraph
does not affect the treatment of V A T for this purpose.
' Frequency of price increases
26B. A price to which the provisions on allowable cost increases npply maj not be increased within 3 months ov, a t t h e Option o f t h e e n t e r - '
- n r i s e , w i t h i n ' i 3 weeks o f i t s l a s t i n c r e a s e , u n l e s s : ­
(i) the price increase permitted by the Code is ai least 10 per cent; or
:.
z
1
(ii) the costs of
- materials, fuel and power in the product account for at "j
least 75 per cent of total costs at the time of the price increase; or
\ I (iii) the price increase permittee! by the Code is at least 5 per cent and the costs; ; - ­
of.. materials, fuel and power account for at least 50 per cent of total
costs at the time of the price increase; or
; '
(iv) the price increase is permitted under paragraph 34 (profit margin safeguard). .. the second sentence of paragraph 53 (special offers^ paragraphs, 63 or 69
(
low profit.:.) or paragraphs..o^As" 7 0 or..ll..,(.inyestment) applyL
N
26C. In applying paragraph 26B price increases under paragraph 26A attributable solely to increases in indirect taxes should be disregarded.'
I
I
Transitional Provisions
\
2 7 . "/here an i n c r e a s e i n a p r i c e or charge was implemented w h i l e
the Code' s e t out' i n t h e C o u n t e r - I n f l a t i o n ( p r i c e and Pay C o d e )
Order 1 9 7 3 or t h e Code 3et o u t . i n the C o u n t e r - I n f l a t i o n ( P r i c e
and Pay Code) ( N o . 2 ) Order 1 9 7 3 as amended v/as i n f o r c e and was
not perriijss&bla un'.'.'or wnicHayar or' those Codes waa f o r t h e , time
b e i n g i n f o r c e , t h e p r i c e or charge i n q u e s t i o n should be
reduced t o t h e l e v e l t h a t would have been p e r m i t t e d under t h e
a p p r o p r i a t e Code and t h i s l o w e r p r i c e should then be taken a s '
the " s e l l i n g p r i c e at the base d a t e " i n c a l c u l a t i n g any p r i c e
i n c r e a s e p e r m i t t e d under paragraph 2 3 o f t h i s Code on account
of subsequent c o s t i n c r e a s e s .
,UlovrabIe Cost increases
3S
28. Subject to the following paragraphs, a cost increase may be regarded
an allowable cost increase for the purpose of paragraph 19 if: —
(i) it was first incurred after 30 April 1973; and
(ii) it was incurred for one of the following: —
(a) labour;
( b ) m a t e r i a l s , components, consumable stores and
s u p p l i e s , f u e l and power;
( c ) r e n t o f n r e m i s e s , r a t e s , payment f o r l i c e n c e s
o v e r o r i n r e s p e c t ui l a n d ;
( d ) i n t e r e s t c h a r g e s , as d e f i n e d i n paragraph 31*
and d e p r e c i a t i o n , c a l c u l c a t e d i n a c c o r d a n c e
w i t h g e n e r a l l y accepted accounting p r i n c i p l e s
c o n s i s t e n t l y a p p l i e d by the e n t e r p r i s e c o n ­
c e r n e d , but based on the h i s t o r i c c o s t o f t h e i
assets except that
w h e r e , i n annual a c c o u n t s
f o r a y e a r ended on or b e f o r e 3,0 September
1 9 7 2 * the e n t e r p r i s e has r e v a l u e d an a s s e t
J,
the v a l u e may be based on t h e v a l u e o f t h e i^- .
a s s e t shown i n t h o s e a c c o u n t s ;
( e ) c e r t a i n b o u g h t - i n s e r v i c e s , n o t o f a c a p i t a l
nature, that i s : transport, h i r e of equip­
ment, i n s u r a n c e , s t o r a g e , p o s t a g e , m a i n t e n ­
a n c e , t e l e p h o n e and e n g i n e e r i n g s e r v i c e s ,
r e s e a r c h and d e v e l o p m e n t , s e c u r i t y s e r v i c e s , ,
computer s e r v i c e s , e d i t o r i a l c o n t r i b u t i o n s !
( f ) commission p r o c e s s i n g and o t h e r s u b - c o n t r a c t e d ;
o p e r a t i o n s on m a t e r i a l s or components i n c o r ­
porated i n t o the product;
( g ) f e e s f o r p r o f e s s i o n a l s e r v i c e s , payments by
the Post O f f i c e t o sub-postmasters;
( h ) r o y a l t i e s ; and
i t has n o t a l r e a d y been r e f l e c t e d i n p r i c e s .
i
i
(iii)
Ms paragraph d o e s n o t a p p l y t o c o s t s i n c r e a s e s i f t h e y
:ere f i r s t i n c u r r e d on the f o l l o w i n g b e f o r e 1 November
i
payment f o r l i c e n c e s o v e r and in r e s p e c t o f l a n d ;
b o u g h t - i n r e s e a r c h and d e v e l o p m e n t , computer s e r ­
v i c e s , security service's'^Veditorial contributions^
and i t e m s r e f e r r e d t o i n sub-paragraphs (g)arOl(h)T
Interest charges
31. Increases i n interest charges payable by an enterprise are allowable cost increases, unless the charges or the increases in. them: — (i) represent a distribution of profits rather than a true interest
charge; or
(ii) where they arise on loans between related undertakings, relate,
to loans which are not strictly required for the business or
represent interest in excess of that which would be charged in
a transaction at arm's length; or
(iii) represent interest which would properly be regarded as capital
expenditure in the period in which it is incurred.
Productivity
Deduction
32(i) I n o r d e r t o ensure t h a t 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 passed on t o t h e consumer, a d e d u c t i o n should be made from allowable cost increases.
E n t e r p r i s e s are r e q u i r e d t o absorb 2 p % 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 from i n c r e a s e s i n l a b o u r c o s t s ( e x c l u d i n g the l a b o u r c o s t s l i s t e d i n paragraph 33) e x c e p t t h a t : (fk)
where the s h a r e o f l a b o u r c o s t s
i n t o t a l c o s t s e x c e e d s 35$
II
e n t e r p r i s e s are r e q u i r e d t o a b s o r b
an amount e q u a l t o the p e r c e n t a g e
o f t o t a l c o s t s w h i c h would a p p l y i f
l a b o u r c o s t s r e p r e s e n t e d 35$ o f t o t a l
costs;
(fa.)
where the s h a r e o f l a b o u r c o s t s i n t o t a l
c o s t s i s l e s i i than 1
enterprises are
r e q u i r e d t o absorb an amount e q u a l t o the
p e r c e n t a g e o f t o t a l c o s t s which would
-
I
IBM
. . .-
I
. I
apply i f labour costs
total costs;
(ii)
The r a t e
of p r o d u c t i v i t y
I
t
f
r e p r e s e n t e d l5'o o f
deduction s h a l l
in
no c a s e e x c e e d 35$*
( i i i ) Where, h o w e v e r , t h e i n c r e a s e in l a b o u r c o s t s
was f i r s t i n c u r r i d b e f o r e 1 November 1 9 7 4 ? .
t h i s paragraph s h a l l have e f f e c t with, t h e "
s u b s t i t u t i o n o f 5tyfr f o r 2 p i n s u b p a r a g r a p h ( i )
and f o r
i n subparagraph ( i i ) *
Q
i
S E G R EI ' -33. The deduction for productivity under paragraph 32 need not be
applied to increases in or arising f r o m : ­
:
(i) employers' national insurance contributions;
(ii) training costs;
(iii) the cost of improvements in respect of progress towards the
achievement of the requirements of the Equal Pay Act 1970,\
(iy) the cost of improvements to meet the purposes of section 8 of the.
Terms and Conditions of Employment Act 1959, . the, Road
11 Haulage Wages Act 1938 , and similar legislation, and the Fair
Wages Resolution of 1946;
(v) new or improved benefits under occupational pension or death
, benefit schemes which, arc tax approved, or underncomparablc
schemes not requiring l?x approval, -e.r.y d e f i c i e n c y n a v ­
" a e n t s t o such schemes and any reimbursement o f a.
corresponding increase :n employee contributions. However wnere
a chance in a pension scheme has the effect of increasing the pay,
net of any pension contribution, of a substantial proportion of the
group of employees covered by the scheme, that increase shall be
subject to the productivity deduction unless:—
1
t
(a) a revaluation of the scheme, made in accordance with
generally accepted principles for such revaluations, has
shown a surplus in respect of those receiving the increase,
the value of which equals or exceeds the increase; or
(b) there has been a corresponding reduction in benefits to those
receiving the increase; or
(c) the change had been proposed before 6 November 1972;
(vi) new or improved benefits under schemes which:-
.' ­
(a) provide payments to employees who leave an employees
service or arc redeployed to a job with lower earnings
because of redundancy in the circumstances described in (a)
and (b) of section 1(2) of the Redundancy Payments Act
1965, , and
(/;) require a minimum of at least 52 weeks continuous service
as a condition of such payments.
Benefits which become payable after six months of incapacity arc
similarly not subject to the productivity deduction."
Iff ifiiti S.:i'E"JR.rd
low p r o f i t s
fc.FJIR.5t
or erosion of
-profit
margins on p r o d u c t s
( e x c l u d i n g any i n c r e a s e under paragraph
3 4 ( i),
V.here the p r i c e o f a p r o d u c t ^ d o e s not
a f f o r d a margin o v e r t o t a l c o s t s per u n i t
o f ^ o u t p u t c a l c u l a t e d under ( i i ) and (iii)
'h l t
e n t e r p r i s e may i n c r e a s e the p r i c e
o f the product c o n c e r n e d t o the e x t e n t
r e q u i r e d t o g i v e such a margin, but any
i n c r e a s e under t h i s p a r a g r a p h s h a l l be
l i m i t e d so f a r as i s n e c e s s a r y t o ensure
t h a t the. r e f e r e n c e l e v e l i s not e x c e e d e d .
F u r t h e r m o r e , once an i n c r e a s e has been made
under t h i s paragraph no f u r t h e r i n c r e a s e
s h a l l a t any time be made i n r e s p e c t o f
c o s t i n c r e a s e s i n c u r r e d b e f o r e t h i s i n c r e a s e
was made under any p r o v i s i o n o f tfio"""Code*
e
( i i ) '
o w a
n
The margin r e f e r r e d t o i n ( i ) above i s ,
the o p t i o n o f the e n t e r p r i s e ­
at ( a )
2 per cent;
or
( b )
two-thirds
o f t h e margin a t 3 0 A p r i l
1 9 7 3 , o r at 3 0 September 1 9 7 2 where the
margin has d e c l i n e d by one q u a r t e r o r
more between 3 0 September 1 9 7 2 and
30 April 1 9 7 3 . ­
­
( i i i )
( i v )
F o r t h e purpose o f t h i s paragraph the c a l c u l a t i o n
o f t o t a l c o s t s p e r u n i t o f output should be based
on the l e v e l s o f pay and o t h e r c o s t s a t t h e
r e l e v a n t d a t e s and the l e v e l of output o v e r t h e
most r e c e n t r e p r e s e n t a t i v e p e r i o d completed by
these dates.
£ T h i s paragraph has e f f e c t i n r e l a t i o n t o a range
o f p r o d u c t s w i t h i n t h e meaning o f paragraph 26
as i t has e f f e c t i n r e l a t i o n t o a s i n g l e product',
and a product s h a l l n o t be t r e a t e d as a , s i n g l e
p r o d u c t f o r the p u r p o s e s o f t h i s paragraph if i t
lias n o r m a l l y been t r e a t e a ^ a s " one o f a range o f
r e l a t e d ' products"'*f or"""uhe c a l c u l a t i o n o f p e r m i t t e d
price increases since 3 0 A p r i l 1 9 7 3 .
69A)
.
Allocation of costs to controlled prices
SECRET
35. Allocation of costs to particular controlled goods or services for the
calculation of allowable cost increases or increases in 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 circumstances, over part cr all of the field; and
(b) has don? 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 cf sales in each area, or on any other basis which
represents good accounting practice, provided that it adheres to the chosen
baris for all calculations relevant to the Code.
Stocks
36. In calculating the cost of current production or soles, 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
37. Where the Commission arc satisfied that prices, either of purchases
or of sales, which an enterprise proposes to regard as a basis for the calcula­
tion 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 arm's
lengih basis, they may substitute modified cost increases or profit margins
which in their judgement fairly reflect what would be appropriate on that
basis.
Costs of sectors including small enterprises
38. 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 com­
merce 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 sub­
stantial number of such enterprises, in respect either of some or
all of the goods or services which they supply,
the Commission, after consulting any body or persons which they regard
as representative of enterprises affected and after taking into account infor­
mation supplied by them, 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 20 in the prices of the relevant
goods or services which should then be made by all the enterprises concerned.
39. In calculating average allowable cost changes under paragraph 38 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
(is) any other relevant provisions of the tSeifcp CT
40. The Commission will publish information about any average allowable
cost chances which they have determined under paragraphs "38 and 39
together with an indication of any price changes which thev regard as justified
or required under the Code on the basis of those average allowable cost
changes. 41. V/hcre the allowable cost changes of a particular enterprise differ
from those published by the Commission under paragraph 40, 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
42. Where an enterprise makes a single product or a single range of
products die 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
43. 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 ranee 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 (/)) 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. 44. In cases not covered by paragraphs 42 and 43 the calculations
required by the Code should be made by reference to individual products.
Common P r i c i n g Agreements upheld by t h e R e s t r i c t i v e
P r a c t i c e s Court
hhA. ( i ) Where a number o f e n t e r p r i s e s a r e p a r t i e s i n a
common p r i d i n g j a g r e e m e n t which has been d e c l a r e d
by the R e s t r i c t i y e P r a c t i c e s Court t o be not c o n ­
t r a r y t o J h e p u o l i o ' i n i e r e 8 t * '-they may^inejrejfiSi:
p r i c e s , f o r p r p j n g j s, t o which t h e agreement- a p p l i e s
by the a v e r a g e ( w e i g h t e d by v a l u e o f s a l e s i n a
r e c e n t r e p r e s e n t a t i v e p e r i o d ) o f the i n c r e a s e s
P t h e r w i s e ' , p e r m i t t e d " by" t h e * C o d e " " ( e x o o p t paragraph 69A) t o each e n t c r p r i
which i s p a r t y t o the agreement n o t w i t h s t a n d i n g t h a t , i n t h e case o f any e n t e r p r i s e , t h e i n ­
crease exceeds i t s permitted p r i c e i n c r e a s e . Cost i n c r e a s e s r e f l e c t e d i n p r i c e i n c r e a s e s implemented under t h i s p a r a g r a p h may n o t be t a k e n in t o a c e bunfc..in e a l c u l a t i p g any subs ;edueht p r i c e i n c r e a s e s Under any p r o v i s i o n o f the 6 o d e . ( i i ) The w e i g h t e d a v e r a g e i n c r e a s e p e r m i t t e d under sub­
paragraph ( i ) should not b e ^ a p p l i e d where the p r o f i t margin r e f e r e n c e l e v e l o f any o f the; e n t e r ­
" p r i s e s concerned i s e x c e e d e d ^ e r , -"in. t h e l i g h t o f i n t e r i m a c c o u n t s or o t h e r e v i d e n c e ^ i s l i k e l y t o be^excoeded. / ;
-
( i i i ) I f o t h i n g i n t h i s . p a r a g r a p h s h a l l p r o h i b i t any
e n t e r p r i s e which i s p a r t y t o the agreement ­
from -imple;:,o:-'ti.r..r; an' i n c r e a s e d p r i c e undor paragraph &9A. Anticipation of cost increases
45. Prices may net be increased in anticipation of cost increases, except
as described in paragraphs 46 to 48. However: —
(i) an enterprise may determine and announce a price increase
consistent with the Code which takes account o!; future'allowable
cost increases which are already known as to both date and
amount, provided that the price increase is not implemented
before the allowable cost increases are incurred; and
(ii) an enterprise required to pre-hotvfy an intended price increase lo
i
the Commission may se.;-.k 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).'' '
"\
' ./ /
;
46. 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 3 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 3, 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.
s
47. Paragraph 46(i) may be read as applying to an estimated future cost
increase if:— '
(i) it relates to a
material which fluctuates frequently and un­
predictably 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.
48. 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 ou which work is to begin.
/
Escalation and variation of price clauses
49. Price increases made under an escalation or variation of price clause
may reflect cost increases for items listed in paragraph 23(ii), .
^
t o t h e e x t e n t t h a t t h i s i s p e r m i t t e d under the c o n t r a c t , a n d t h e
p r o d u c t i v i t y d e d u c t i o n s p e c i f i e d i n paragraph- "52, i s a p p l i e d t o a n y
l a b o u r c o s t i n c r e a s e incurred.."""
iMiTtlie^
application oi ti:e prouiictsvny 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 flic increase in it. In addition to new contracts, this paragraph applies to
existing contracts and to increases in prices under those contracts, to the
extent that ihey relate to cost increases after 6 November 1972.
x
49A. Price increases under an escalation cr variation of price clause should
be taKiT. into account in applying paragraph 26B only if they are prc-notiflabli
to the Commission under an order under section 5 of the Counter-Inflation Ac
1973. .
Prime cost and cost reimbursement contracts
50. 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 eoMruct or since 6 November 1972,
whichever i s t h e l a t e r , the p r o d u c t i v i t y deduction
s p e c i f i e d i n paragraph 3 2 must be a p p l i e d .
But i f t h e
a p p l i c a t i o n o f the _
productivity deduction causes or increases a loss on a particular contract, taken as a whole, the terms of the contract may be applied to the extent necessary to avoid the loss, or the increase in it. This Paragraph applies to new and existing contracts. 51. Paragraph 50 does not apply where the terms of a prime cost or cost reimbursement arrangement ensure that the benefit of economies in the use of labour pass directly to the client. For non-competitive contracts of this type placed after 1 November 1973 the contractor may not quote a rate of fee which is higher than that which he has charged since 30 April 1973 for the same service or a similar one. 5 2 . V/hgrp, in the case o f a c o n t r a c t t o which paragraph :h9 a p p l i e s , , , t h s n e t n r o f i t margin ( ^ - e l u d i n g the a m m ^ ^ n f ^ i v i y ' foorgase
in the reference l e v e l permitted underparagraph 6 9 4 J. . , p f , t h s ^ u n i t f o r n r o f i t margirTg o n t r o l "as d e f i n e d " i n ^ paragraphs 50 and 6*1 i s more thvn o n e - t h i r d
bo l o w t h e r o f o r o n c e l e v e l , t h e Productivity d e d u c t i o n need n o t J I B a p p j ^ e d f o r so l o n g as t h e n e t p r o f i t margin remains b e l o w ­
this, f i g u r e . .
'
' -' Discounts and rebates ;
T
53. The withdrawal or reduction of a discount or rebate, including a
discount or rebate to a particular customer, is equivalent for the purposes
of the Code to an increase in the price. This docs not apply, however,' to a
discount or rebate directly related to the promotion of one or more
products or services for a limited period or in a limited area. Quantity or quality change and new products
54. A change in the quantity or quality o f goods is equivalent for the
purposes of tho Code to a change in the price. Quality change in g o o d s or
services, quantity change in sales units, or artificial creation of new products
should not be u s e d as a means of avoiding the requirements of the Code.
Where the Commission form the opinion that \\m has been done, they may
seek price reductions, or disallow or reduce price increases. 55. However, where a new product is marketed o:i an experimental and restricted Imis for a period o f not more than twelve months, the price charged, by die mmmfaclurer heed not be treated for die purposes of the Cocie as establishing a pric;: for the product. Prices and Profit Margins
57. Prices should be determined so as to secure that net profit margins,
as defined in paragraph 58, do not exceed the average level of the best two
of the last live years of account of the unit to which net profit margin
control applies ending not later than 30 April 1973.(the," reference level"),
58. " Net profit margin " means the margin of net profit expressed as a
percentage of sales or turnover. " Net profit" means the net profit, detcr­
mincd 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 jintcrest as
defined in paragraphs 28 and 31, but before deducting corporation tax or
income tax.
. ,
Action where profit margin is likely to be exceeded
59.
Where:­
(i) the reference level has been exceeded; or
(ii) in the light of interim accounts or other evidence, is likely to
be exceeded,
abatements in allowable cost increases or price reductions should be made;
provided that in either case account has been taken of seasonal and other
distorting factors. The abatements or reductions should be sufficient to
eliminate the actual or expected 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. . . .
Unit for profit margins
. . .
60. In calculating the net profit margin under paragraph 57, the unit
for profit margin control shall be cither:—
'
(i) the enterprise as a whole; or
'
(ii) an activity treated separately under paragraph 17; or
(iii) a unit of an enterprise, being a separate constituent cornpony or
subdivision, provided that the Commission are satisfied that:
(a) the unit constituted, before 30 April 1973, and still con­
stitutes, a separate unit immediately below the level of the
main Board of the enterprise as a whole for management,
operational and accounting purposes. In applying the test
in this sub-paragraph the Commission may disregard an
intermediate non-trading company; and
(b) the accounts of all such units, if combined with one another,
can be reconciled with those of the enterprise as a whole;
and are not materially distorted by transactions conducted
otherwise than on arm's length terms.
:
:
The same unit should then be adhered to for all the purposes of the Code
to which the net profit margin is relevant.
61. For the purpose of paragraph 60, where the enterprise is a company,
" the enterprise as a whole " means the company or (where the company is
a member of a group) all the companies in the group, but includes only
members of the group carrying on business in the United Kingdom; and in
this paragraph: —
(i) company " includes any body corporate; and
(ii) " 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.
*
A llocation of profits to controlled prices
62. Allocation of profits between prices within the control and those
which arc not may be necessary for the calculation of net profit margins.
The requirements of paragraph 35 apply to such allocations of profits as they
do to allocations of costs.
r
c
r
n
C
T
Profit margins and indirect taxes
63. 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 V A T from 1 April 1973
oawa;-ds. Where customs and 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 V A T
"*
and of other changes in those duties. Where indirect taxes have been
increased after 25 March 1974, a deduction should be made from the value
of sales corresponding to the cash value of the extra tax borne by the
eoods sold: conversely, where indirect taxes have been reduced after
; 25 March 1974, a corresponding addition should be made to the value of ' sales.
. .
. "
. ,i 64. 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.
Modified base period for profit margin calculation
65.. V/here an e n t e r p r i s e has t r a d e d f o r l e s s than f i v e com­
p l s t e y e a r s of account uo t o 30 A p r i l 1 9 7 3 ; or has t r a d e d
at a l o s s i n one or more o f t h o s e y e a r s , the r e f e r e n c e l e v e l
f o r paragraph 5 7 may be c a l c u l a t e d as f o l l o w s : ­
( i ) i f t h e r e have been f o u r y e a r s o f t r a d i n g up t o 3,1,
October 1 9 7 3 ? t h e a v e r a g e o f t h e best t w o ; - i f
t h r e e or two y e a r s , t h e best y e a r ;
( i i ) i f t h e r e have been l e s s than two y e a r s o f t r a d ­
i n g up t o 3 1 October 1 9 7 3 ? t h e l i m i t a t i o n on p r o ­
f i t margins w i l l not a p p l y ;
(iii) any year in which an enterprise made a loss may be treated as
equivalent to a year of no trading and sub-paragraphs (i) and
(ii) may be applied accordingly^
66. For a new enterprise formed from a reconstruction or amalgamation
of existing enterprises the reference level will be calculated as defined in
paragraph 57 by using the aggregate net trading profits of the constituent
enterprises expressed as a percentage of their aggregate sales. The same
principles may be applied to an amalgamation of partnerships.
66A. - VThere the membership of a r r o u p oT compari i e s changes
hy. the a c q u i s i t i o n o f a new member comnany or the d i s p o s a l
of an e x i s t i n g member co.mn.any, t h e n , in c a l c u l a t i n g n e t
profit marrins and r e f o r e r . c n l e v e l ? in r e l a t i o n t o ' t h e .
£roup and i t s members a f t e r the a c q u i s i t i o n or d i s p o s a l ,
the s a l e s and n r o f i t s o f t h e member a c q u i r e d ( b e f o r e and
after the a c q u i s i t i o n ) s V . l ! be included and the s a l e s and
p r o f i t s o f t h e member d i s n o s g g o f ( b e f o r e and a f t e r t h e
disposal,J s h a l l be e x c l u d e d , and no account s h a l l be taken
in the case of an a c o u i r i t i o n o f money borrowed or i n t e r ­
est paid i n c o n n e c t i o n w i t h the a c q u i s i t i o n .
66B. ( i ) V/here t h e membership o f a -group o f companies e^Wv^ea
by t h e a c q u i s i t i o n ' o f a new member company
. a f t e r 2 9 A p r i l 1973;­
( a ; t h e words " c o n s t i t u t e d , b e f o r e 3
April
1 9 7 3 ? and s t i l l " .
in paragraph
S J ( i i i ; w i l l not a n n l y i n r e l a t i o n t o the
new member company; and
( b ) t h e new.member company may be integrated­
i n t o a u n i t f o r p r o f i t margin c o n t r o l which
has.been, or could have been e s t a b l i s h e d
under naramranh 6 0 ( i ) , ( i i ) or ( i i i ) . ?.o \or\ff
a s t h e c o n d i t i o n s o f paragraph 6 0 ( i i ) o r . ;
( i i i ) c o n t i n u e t o be met, where applic?'-fble*'.
0
f
( i i ) I f the new member company i s i n t e g r a t e d " i n t o such a u n i t : ­
( a ) t h e r e f e r e n c e l e v e l o f t h e u n i t w i l l be
c a l c u l a t e d f o r the purposes o f paragraph 5 7 ,
by u s i n g t h e a m r a ^ a t e n e t t r a d i n g nrb.fi.ts,
o f t h e new member and of the remainder of the,
u n i t e x p r e s s e d as a p e r c e n t a g e o f t h e i r ag/£r
r e b a t e s a l e a i and.
( b ) i f para^ranh 63 o r $9 was a p p l i c a b l e t o
t h e nnv? member company b e f o r e the i n t e g r a t i o n ) ,
t h e new member company's c o n t r i b u t i o n t o t h e
u n i t ' s r e f e r e n c e l e v e l may be c a l c u l a t e d as
i f paragraph 68 or 69 s t i l l a p p l i e d .
( i i i ) In c a l c u l a t i n g t h e n e t p r o f i t margin or--th.e. r e f e r e n c e l e v e l o f t h e r?ev. member company or .
o f such a u n i t , no account a h n l l be taker, o f money borrowed or i n t e r e s t naid in c o n n e c t i o n w i t h the a c q u i s i t i o n o f the new member corop­
*
any.
r
!
I
( l v j T h i s p a r a g r a p h w i l l n o t apply u n l e s s
( a ) t h e a c q u i s i t i o n o f the nev.' member com­
pany i s the r e s u l t o f a t r a n s a c t i o n at ar-Bilg, l e e c h ; and ( b j t h e nev.' member company e x i s t e d o u t s i d e the group be e r e the t r a n s a c t i o n . 67. Where the Commission are satisfied that the reference, level of an
enterprise, calculated as in paragraphs 57-61,^^ ^ ^ ^ ^ / ^ " r e ^ u i r e s modifi­
cation. for example because of
(i) a substantial reconstruction of the enterprise during, the base
period; or
(ii) a substantial change in the character of the business; or
(iii) a substantial change in the ratio between the value of net fixed
assets (other than land and buildings) and the value of sales,
arising from investment which has enabled the enterprise either
(a) to undertake an earlier stage of production of goods or
services; or
(b) to achieve substantial savings in labour costs per unit of
output,
they may permit some departure from that reference level. In deciding
whether, and to what extent, to permit such a departure the Commission
should have regard, as appropriate, to the principles referred to in paragraph
66 and, for example, to the profit history of the main parts of the business
which now make up the enterprise; the profits of any -substantial parts of
the business acquired or added to the enterprise during the base period,
excluding any such parts which have been disposed of or discontinued; die
change in the relative importance of different elements of the business;
the extent of the change in the ratio between the value of net fixed assets and
sales referred to in sub-paragraph (iii).
Relief for low profits
68.
v; here t h e Commission a r e s a t i s f i e d t h a t the n e t
- p r o f i t margin c a l c u l a t e d as d e s c r i b e d i n . c.r;.i-;.r;-.phs
^7--'"'-M'-^j 6£L&. cr
r e p r e s e n t s a r e t u r n on c a p i t a l
12
p e r c e n t , trio r e s t r i c t i o n s on ­
of l e s s than
r
:
p r i c e i n c r e a s e s and. on g r o s s p e r c e n t a g e
and. n e t p r o f i t
margins
s h a l l not b e a p p l i e d s o as t o r e s t r i c t the
r e t u r n below
IQ ' o e r c e n t .
I n such c a s e s the n e t
p r o f i t margin which would b e n e e d e d t o produce a r e t u r n
10 p e r cent on c a p i t a l may b e t r e a t e d as t h e
of ^
reference l e v e l .
Yfliere i n t h e e a r l i e r o f t h e t w o b e s t
y e a r s r e f e r r e d t o i n p a r a g r a p h 57 t h e n e t p r o f i t margin
on c a p i t a l o f l e s s than
10
represented a return
per c e n t , a f i g u r e e q u i v a l e n t t o a
10 p e r cent r a t e
o f r e t u r n may b e used f o r t h a t y e a r i n c a l c u l a t i n g t h e
reference l e v e l .
" C a p i t a l " means t h e n e t a s s e t s employed
e x c l u d i n g any p a r t o f them which i s r e p r e s e n t e d by
b o r r o w i n g s t h e i n t e r e s t on w h i c h i s d e d u c t e d i n a r r i v i n g
a t uez p r o f i t as d e f i n e d i n p a r a g r a p h 5,-3., The v a l u e o f t h e
a s s e t s concerned s h a l l be determined, i n a c c o r d a n c e w i t h
gen o r a l l y " a c c e n t e d acentntiru-; r x r i n c i o l e a c o n s i s t e n t l y
a l l i e d ij/,,.the e n t e r p r i s e mrt ^should he bused on the
h i s t o r i c ' c o s t s o f the a s s e t s e x c e p t t h a t
v m e r e j i n annual
a c c o u n t s f o r a y o u r ended o n j x r b e f o r e .50 September 19,72^
the e n t e r p r i s e has ruvalue;t an a s s e t
zhc v a l u e may be
based on tiio v a l u e , o f t h e assent ^shown i n 1 h o s e a c c o u n t s .
1
6 9 . A t t h e o p t i o n of t h e e n t e r p r i s e p a r a g r a p h 6 8 may be r e a d a s r e f e r r i n g t o a net p r o f i t margin o f j£ p e r
cent on t u r n o v e r r a t h e r than a;
10 p e r "cent r e t u r n on c a p i t a l . . Belief f o r
Investment
69A
E n t e r p r i s e s may i n c r e a s e n e t
profit
margin reference l e v e l s , the l e v e l s of
g r o s s p e r c e n t a g e m a r g i n s and p r i c e s / by
reference to t h e i r estimated
capital
e x p e n d i t u r e on i n v e s t m e n t i n t h e U n i t e d
Kingdom, in accordance w i t h the p r o v i s i o n s
of t h i s
paragraph.
(i)
In
this
paragraph
and
in
paragraph
69B
­
means t h e
" e x p e n d i t u r e on
investment
estimated capital expenditure (revised
from
t i m e t o t i m e a s c i r c u m s t a n c e s may r e q u i r e )
a p p r o v e d i n t h e c a s e o f a c o m p a n y by t h e
b o a r d o f d i r e c t o r s , i n t h e r e l i e f y e a r on
n g w j j r s e c o T t d l f a n d p l a n t and m a c h i n e r y
( e x c e p t r o a d v e h i c l e s ) and on t h e
construction
QjLJLQdust-rial b u i l d i n g s l e s s the d i s p o s a l
value
o f anv such a s s e t s d i s p o s e d o f i n t h e
relief
y e a r , p r o v i d e d t h a t e x p e n d i t u r e r e l a t i n g
to
products of which the p r i c e i s not
controlled
s h a l l be l e f t o u t o f a c c o u n t and t h a t ,
where
t h e e s t i m a t e d e x p e n d i t u r e c a n n o t be a p p r o p r i a t e d
t o each a c t i v i t y within^ the meaning of
paragraph
17 o r b e t w e e n c o n t r o l l e d and u n c o n t r o l l e d
1 1
p r o d u c t s ^ , i t s h a l l be a p p o r t i o n e d i n
proportion
tp-the... t u r n o v e r s of a l l the a c t i v i t i e s
concerned
i n t h e y e a r " o f a c c o u n t e n d e d not, m o r e t h a n 1 2
months b e f o T e the b e g i n n i n g of the r e l i e f
year;
" t h e r e l i e f y e a r " m e a n s a p e r i o d
c h o s e n by t h e e n t e r p r i s e
­
( a )
in
the
case
of
12
months
11
­
( i )
of a manufacturer or provider
of
services required to g i v e
notice
t o t h e C o m m i s s i o n o f an 1 n c r e a . s e d
PXJ-cejor c h a r g e p u r s u a n t t o an o r d e r
under s e c t i o n 5 of the C o u n t e r I n f l a t i o n Act 1973:
and
( i i )
of a d i s t r i b u t o r required t o
furnish
J2ommissi.on
p e r i o d ! c a l returns to the
p u r s u a n t t o an o r d e r u n d e r s e c t i o n 15
of that Act;
­
b e g i n n i n g n o t e a r l i e r t h a n 56 d a y s ? f t e r
the
e n t e r p r i s e c o n c e r n e d has Informed the Commission
t h n t i t - i n t e n d s t o a p p l y t h i s p a r a g r a p h ; and
( b )
1
i n t h e c a s e of any o t h e r e n t e r p r i s e ,
beginning
n o t e a r l i e r t h a n t h e d a t e on w h i c h t h i s C o d e
comes i n t o
force;
^ r e l e v a n t p x p e n d i t u r g '' m e a n s a n a m o u n t
(revised
f r o m t i m e "t'o t i m e ""to t a k e a c c o u n t o f
revision
o f e x p e n d i t u r e o n i n v e s t m e n t ) b e i n g jji^T, o f
the
e x p e n d i t u r e on i n v e s t m e n t ;
"turnover", in r e l a t i o n to the r e l i e f
year, m e a n s t h e t u r n o v e r , w h i c h " may r e a s o n a b l y b e . e x p e c t e d t o be a c h i e v e d i n t h e r e l i e f
year, r e v i s e d from time t o time" a s c i r c u m s t a n c e s ­
may r e q u i r e . ( i i ) T h e permitted increases in net profit' margin
reference l e v e l s , the levels of gross
p e r c e n t a g e m a r g i n s and p r i c e s s h a l l b e ' ­
c a l c u l a t e d i n accordance with the following,,
p r o v i s i o n s o f t h i s p a r a g r a p h . An e n t e r p r i s e
­
( a )
may, f o r t h e r e l i e f y e a r ,
treat
the net p r o f i t margin
reference
l e v e l a s i n c r e a s e d by t h e a d d i t i o n
o f a f i g u r e found by e x p r e s s i n g the.
r e l e v a n t e x p e n d i t u r e as a percentage
of
turnover;
( b )
in respect of i t s distribution .
a c t i v i t i e s , may,, JPor t h e r e l i e f
year, treat the l e v e l of the gross
percentage margin ascertained under
p a r a g r a p h 74- a s i n c r e a s e d b y t h e
a d d i t i o n o f a f i g u r e found by e x p r e s s i n g
the r e l e v a n t e x p e n d i t u r e as a p e r c e n t a g e
of turnover;
and
(c)
*"
i n r e s p e c t o f i t s m a n u f a c t u r i n g and
s e r v i c e a c t i v i t i e s , may i n c r e a s e a n y
price within control f o r a period of
12 m o n t h s b e g i n n i n g i n t h e r e l i e f
y e a r b y a n amount t h e a d d i t i o n a l
yield
from which, taken with the a d d i t i o n a l
y i e l d from a l l o t h e r s u c h
increases,
w i l l n o t exceed^^the r e l e v a n t e x p e n d i t u £ e j
and
-
t h e t o t a l i n c r e a s e u n d e r t h i s head,
p r i c e f o r any " i n d i v i d u a l , p r o d u c t
".sha.Ll n o t e x c e e d a p e r c e n t a g e e q u a l . .
t o t h r e e t i m e s t h e i n c r e a s e in t h e
net p r o f i t margin r e f e r e n c e
level
under t h i s subparagraph.
"
^
IrTthe
r"
(iii^If
the a p p l i c a t i o n of subparagraph ( i i ) has n o t c a u s e d the r e l e v a n t e x p e n d i t u r e^^tro^tfe" r e c o v e r e d i n s a l e s , an e n t e r p r i s e f o r s o l o n g a s may b e n e c e s s " a " f y " ­
( a )
may, i n r e s p e c t o f i t s m a n u f a c t u r i n g and
s e r v i c e a c t i v i t i e s , t r e a t tTTe r e f e r e n c e ,
l e v e l as i n c r e a s e d by a n a m o u n t
sufficient
t o p e r m i t a p r i c e c a l c u T . a " t e 7 T uriTIFr p a r a g r a p h
( i i ) ( c F " t o remain i n f o r c e u n t i l t h e r e l e v a n t
e x p e n d i t u r e has been r e c o v e r e d ;
( b )
may, i n r e s p e c t o f i t s d i s t r i b u t i o n
activities,
t r e a t the r e f e r e n c e l e v e l a n d thie l e v e l o f t h e
gross percentage margin ascertained
under
p a r a g r a p h 7 4 a s i n c r e a s e d h y j a n^ furiou n t
sufficient
to p e r m i t t h e r e c o v e r y o f a n y
part of t h e r e l e v a n t expenditure which has
not been r e c o v e r e d .
'"
:
(iv)
I n v e s t m e n t exj^ndlijture i n r e s j ^ e c t ^ o f which t h e
" e H T e r p r i s e " h a s b e n e f i t t e d u n d e r p a r o g r a p h 70 o r .
any p r o v i s i o n which i t r e p l a c e s " may not b e
I n c l u d e d in t h e c a l c u l a t i o n q f r e l e v a n t
expenditure
.XQ- .,.ij)g.Jjjirj)pses of t h i s p a r a g r a p h .
­
-
r
-
( v )
19B. ( i )
( i i )
Increases in p r i c e s under t h i s
paragraph
must be d i s r e g a r d e d i n d e t e r m i n i n g
"
i n c r e a s e s i n any p r i c e u n d e r any
other
p r o v i s i o n of t h i s Code
%
I f r e l i e f under paragraph 69A i s
likely
to exceed the r e l e v a n t e x p e n d i t u r e H r e l i e f
"'
under p a r a g r a p h 69A s h a l l c e a s e o r s h a l l
be r e d u c e d t o t h e e x t e n t n e c e s s a r y
to
e n s u r e t h a t no more t h a n t h e
relevant
e x p e n d i t u r e i s r e c o v e r e d by i t s
operation.
I f r e l i e f under paragraph 69A has exceeded
the relevant expenditure then,
notwithstanding
any o t h e r p r o v i s i o n s o f t h e C o d e , n e t
profit
margin r e f e r e n c e l e v e l s , the l e v e l s of gross
p e r c e n t a g e m a r g i n s and p r i c e s s h a l l e a c h be
r e d u c e d by an amount n e c e s s a r y t o e n s u r e t h a t .
no more t h a n t h e amount o f t h e
relevant
expenditure is
recovered.
StEC fv 1
70. Where the Commission arc satisfied that in a particular case it is
necessary in order to encourage or ensure investment to modify the applica­
tion of the provisions relating to allowable cost increases or to increases in
total costs or to profit margins, they may permit some modification of any
of those pievijlions^ j \
in d e c i d i n g w h e t h e r , and t o whal y^LwnL, Lo permit such
a departure the Commission should have regard to the following criteria:­
(i) whether there is satisfactory evidence that if this is done expen­
diture on the investment will begin within 12 months of the date
of the price being increased or the profit margin limit being
modified; and
(ii) whether
(w) the application of the limits would 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 would reduce the prospective rate of return on the *
investment to a level which would deter the enterprise from
undertaking it; or
(b) there is satisfactory evidence that the enterprise had absorbed
cost increases to an exceptional degree a;, a result of voluntary
price restraint and in consequence had significantly reduced
profit margins in the 12 mouths en/ling 30 September 1972* o ^ A
\ n i , ; t n e e x t e n t t o wnicn p r i c e s , grusa ^ a r u t f i i o o s o
n a r g m s and net p r o f i t margin r e f e r e n c e l e v e l s
are modified
by the a p p l i c a t i o n
of
paragraph 69A*
71. Where the Commission are satisfied that:-" ".
(i) an enterprise as defined in paragraphs (50 and 61 has net
tangible fixed assets, excluding land and buildings, per.employee
Which exceed £2,000 per head; and
(ii) has a plant or gipup of plants and facilities, employed in the
manufacture of a group of related - prod nets, which had a fixed
asset value at original cost of at least 110m; arid
(iii) that the capacity of this plant or group of plants was seriously
under-used over the most recent representative period before 30
September 1972 or before the base date, as defined in paragraphs
21 and 23; and
"
(iv) that the rate of utilisation has since risen by 121 percentage
^ points;
the Commission may, on application from die enterprise, modify the calcrria­
tion of allowable and total costs per unit at the base date by substituting
the figures for unit costs that, in the Commissions view, would have replied,
at that time if the plant had been operating at the average rate of capacity
use which applied over the most recent representative period before the date
of the application. Where, however, an enterprise has already received
approval under this paragraph for a price increase after 1 November 1973,
the date of that price increase shall be substituted for 30 September 1972*
or the base date in sub-paragraph (iii).
'""
r
C
L
Shortage o f S u p p l i e s
'' '
71A.
w h e r e , h a y i n g r e g a r d t o t h e need t o a l l e v i a t e t h e s h o r t a g e or
t h r e a t e n e d s h o r t a g e r e f e r r e d t o below, t h e S e c r e t a r y o f S t a t e has
c e r t i f f e d in r e l a t i o n t o any product o r commodity t h a t : ­
( i ) t h e r e i s a , s e y e r e ^ h p j d ^ g ^ o f l s u p p l i e s in t h e d o m e s t i c
market o r . s e r i o u s t h r e a t of such s h o r t a g e , ' and
.
( i i . )
. s i g n i f i c a n t damage i s b e i n g t h e r e b y caused or
t h r e a t e n e d t o the i n t e r e s t s o f p a r t i c u l a r i n d u s t r i e s ­
or of consumers i n t h e U n i t e d Kingdom;
t h e n , f o r so l o n g as the c e r t i f i c a t e " r e m a i n s in f o r c e , such
d e p a r t u r e s from t h e p r o v i s i o n s o f t h e C o d e r e l a t i n g t o a l l o w a b l e
c o s t i n c r e a s e s , i n c r e a s e s in tot.nl c o n t s and n e t p r o f i t margins
s h a l l b e ' p e r m i t t e d by the dommission as the S e c r e t a r y " o f S t a t e
1
particular Sectors
72. The paragraphs which follow deal with the application of this Part
of the Code to certain important sectors. Unless there is express provision
to the contrary in those paragraphs, however, paragraphs 3 to 71 must be
taken as applying to all enterprises.'
Manufacturing and Mining
73.
Paragraphs 3 to 71 above apply in their entirety.
Distribution
74: (i) In the determination of prices for sales within the United Kingdom,
wholesalers, retailers and other enterprises engaged in distribution should ensure
that their gross percentage margins do not exceed the proportion specified in
sub-paragraph (ii) of the level of the gross percentage margin in cither
(a) the last complete account year of the enterprise ending on or before
30 April 1973; or
(b) a. 12-month period ending between 30 October 1972 and 30 April 1973
for which separate accounts are or can be made available
less in either case an appropriate reduction for the abolition of SET. Where an
enterprise has not trailed long enough to establish a gross percentage margin ;
under (a) or (6), t h e r e s h a l l be s u b s t i t u t e d the margin f o r a 12-month p e r i o d e n d i n g not
l a t e r than 31 March 1 9 7 4 f o r which s e p a r a t e a c c o u n t s a r e or c a n ' b e made a v a i l a b l e .
(ii) The proportion of the gross percentage margin referred to in sub­
paragraph (i) will be
(c) 100 per cent for any^^geriod before 6 May 1974;
(b) 90 per cent for any peijocron or alter 6 May 1974.
(iii) A figure of 100 per cent and not 90 per cent will however apply from 6 May
1974 to
(a) distributors engaged mainly in retailing with total annual sales of less than
£250,000;
(b) other distributors with total annual sales of less than £500,000;­
(c) all sales of goods exempted from restrictions on resale price maintenance
by an order under section 5 of the Resale I riccs Act 1964. .
J
7'!A. Where indirect taxes have been increased after 25 March 1974,
an'addition not exceeding the cash amount of the increase may be made
to prices charged by distributors. Where indirect taxes are reduced,
the reduction must be fully reflected in prices. The cash amount of the
increase or reduction need not however be applied precisely to the goods
bearitui the indirect taxes.
Safeguard for
net profit margins
74B. Where the application of the figure of 90 per cent in paragraph 74 (ii) (b)
would --educe the net profit margin of the enterprise as defined in paragraphs 60
and 61 t o a l e v e l more than one-hnn.r-hor b e l o w t h e
reference l e v e l , t h e f i g u r e may be i n c r e a s e d
(though n o t above 10*3 per c e n t ) t o the e x t e n t
necessary t o l i m i t that r e d u c t i o n t o o n e - q u a r t e r ,
I?o i n c r e a s e under paragraph 69A s h T l be taken
into account in a p - i l y i n " t h i s p a r a g r a p h .
75. For all the purposes of the Code "gross percentage margin" means
the aggregate difference between the cost to the distributor of all the goods
he sells in the home market in a period and the value of his sales of those
foods in that period, expressed as a percentage of the sales value. The
difference should be calculated according to the normal accounting practice
consistently applied by the enterprise In arriving at sales and costs of sales,
indirect taxes should be treated on the same basis as for calculating net
profit margins in paragraph 63. In particular the cash value of increases^
in indirect taxes after '25 March 1974 should be deducted from both sale s
snd costs of s?les in arriving at current gross percentage ^margins. Similarly
cash equivalent of any tax reductions should be added'to costs and sales.
the
76. The provisions of the Code relating to allc&ECMMpJt increases do
rot apply to distribution.
Distributors' stocks
77. In most cases prices determined by distributive enterprises will have to take account of the cost of goods used from stock for sale. Such enter­
prises should adhere to ihe practice they have followed consistently for pricing purposes in arriving at such costs and at the relevant gross percentage margins.,.
. . .
Repricing
77A. (i) Retailors should not increase the prices of goods that arc or have been displayed for sale by reference to increases in replacement costs, even if such price increases would otherwise be permitted by the Code. (ii) This paragraph does not apply:
(a) to goods on which tiic average rate of annual stockturn is less than 10; or
(b) to price increases directly resulting from the withdrawal of special offers; or
(c) to goods exempted from restrictions on resale price maintenance by'an order under section 5 of the Resale Prices Act 1954; or (d) where the commission are satisfied, after consulting representative bodies, that the effect on prices of applying the paragraph would be contrary to consumers' interests. Distributors
making l o w p r o f i t s
'. il
73. An e n t e r p r i s e engaged i n d i s t r i b u t i o n may i n c r e a s e
p r i c e s t o cotter i t s t o t a l c o s t s p l u s a margin
( e x c l u d i n g any i n c r e a s e under paragraph 69AT" of 2 per
c e n t , n o t w i t h s t a n d i n g the l i m i t a t i o n on g r o s s
percentage margins. Price increases may not be made under this paragraph
if they cause the profit margin reference level referred to in paragraphs 57
to f9 to be exceeded.
Action where gross or net percentage margins are likely to be exceeded
79.
Where:­
(i) a distributors net profit margin or gross percentage margin has
exceeded the level allowed under this Code; or.
(ii) where in the light of interim accounts or other evidence, that
level is likely to be exceeded,
price reductions should be made; provided that in either case account has
been taken of seasonal and other distorting factors. The reduction should
be sufficient to eliminate the actual or expected excess over the permitted
level as soon as reasonably possible, and to offset any excess which has
already arisen in a period subsequent to 30 April 1973. .'
Variation of gross percentage margins
SO. (i) Where in the judgment of the Commission the conditions in
sub-paragraph (iii) are met, they shall:
(a) consult any body or person whom they regard as representative of enter­
prises affected and take into account ali relevant information supplied by
them;
. -,
(b) consider whether the proportion of the gross percentage margin specified
in paragraph 74 (ii) ( i ) should be varied accordingly whether by way of
reduction or increase;
(c) after consultation with the bodies or persons referred to in sub-paragraph
(a) inform them of any variation in gross percentage margins which they'
consider appropriate in the light of the conditions in sub-paragraph (iii)
and notify this to any enterprise.
:i
(
(ii) Where a variation in gross percentage margins is notified under this,
paragraph, paragraph 74 (ii)(i) shall be modified accordingly in its application.to that enterprise.
1
(iii) The conditions referred to in sub-paragraph (i) are that as a result of
chances in value of turnover or operating costs for any enterprise or group ofi
enterprises, the gross percentage margin control in paragraph 74 affects net
profit margins in a way that is substantially different from the general position in
distribution, or which loads to wide-spread application of the safeguard in
paragraph 741).
Agriculture
81. Part I of the Code dees not apply to agricultural enterprises engaged
in the production and sale cf unprocessed agricultural produce Where such
enterprises arc engaged in manufacturing or preceding, however, their
prices are controlled by reference to allowable cost increases and net profit
margins. Where they are engaged in distribution, their prices arc controlled
by reference to gross percentage nun-gins and net profit margins.
SICKET lionaliscd Industries
J2. Paragraphs 83 to 86 apply to the following nationalised industries: -
i
L
National Coal Board
nicctricity Council
Area Electricity Boards
Central Electricity Generating Board
North of Scotland Hydro-Electric Board
South of Scotland Electricity Board . A
Northern Ireland Electricity Service
British Gas Corporation
British Steel Corporation
Post Office
British Airways Board
British Airports Authority
British Railways Board
British Transport Docks Board
British Waterways Board
1
.,
\\
83.fl),
T h e p r o v i s i o n s o f t h e C o d e , e x c e p t p a r a g r a p h s 3 4 arid 68
" t o / T T a p p l y t o "the c o n t r o l l e d a c t i v i t i e s o f t h e
nationalised
L n d u s t r i ^ s j - i s t e d in paragraph 82, according to the nature of the
b u s i n e s s , . o , f ^ t h e , ^
apply to private s e c t o r undertakings
T h i s p a r a g r a p h and
p a r a g r a p h s 8 3 A t o 8"7"""apply
In a d d i t i o n .
""*"*
(
)
a
In p a r t i c u l a r ,
a n a t i o n a l i s e d industry which i s not
i n d e f i c i t on c o n t r o l l e d a c t i v i t i e s may i n c r e a s e
p r i c e s i n a c c o r d a n c e w i t h t h o s e p r o v i s i o n s f the Code.
n
(b)
r
( )
—
c
However, a n a t i o n a l i s e d i n d u s t r y which i s i n
deficit
-qg^corjt^
may i n c r e a s e p r i c e s
in
accordance with those provisions, calculated "without
any d e d u c t i o n u n d e r p a r a g r a p h 3 2 .
A n a t i o n a l i s e d industry, whether or not i t i s in
d e f i c i t on c o n t r o l l e d a c t i v i t i e s , may, i n a d d i t i o n
to
any i n c r e a s e u n d e r s u b - p a r a g r a p h ( a ) o r ( b ) a b o v e and
p a r a g r a p h 84A b e l o w , i n c r e a s e p r i c e s on c o n t r o l l e d
a c t i v i t i e s by any f u r t h e r amount n e c e s s a r y t o e n s u r e
that s u f f i c i e n t revenue i s received w i t h i n the period
f r o m t h e d a t e on w h i c h t h e i n c r e a s e d p r i c e t a k e s
e f f e c t t o the end of t h e a c c o u n t i r g y e a r i n q u e s t i o n t o p r o v i d e
on c o n t r o i l e d a c t i v i t i e s over the whole o f t h a t y e a r a s u r p l u s
o f 2 per c e n t , c a l c u l a t e d on t u r n o v e r on t h o s e a c t i v i t i e s i n
t h a t y e a r , or, at t h e o p t i o n of the i n d u s t r y c o n c e r n e d , a r e t u r n
oifM0 per cent on n e t a s s e t s employed in c o n ^ o l L ^ J \ ^ l Y J : t A *
a l l o w a n c e brurg made in e i t h e r case for- any change ir. the volume
of" s a l e s which may r e a s o n a b l y be expected, t o r e s u l t from i n e s ^ a s e d
p r i c e s and f o r any e s t i m a t e d c o c t i n c r e a s e s d u r i n g t h e remainder
of t h a t y e a r .
I n t h e case of any c o n f l i c t between t h e p r o v i s ­
j o n s of t h i s sub-paragraph and t h o s e o f paragraphs 5 7 t o 3 9 j
t h i s sub-paragraph ;. s h a l l - p r e v a i l .
c
r
e s
9
A n a t i o n a l i s e d i n d u s t r y may a p p l y sub-paragraphs ( a ) t o ( c ) s e p a r a t e l y t o a
separate a c t i v i t y as d e f i n e d in paragraph 17 or t o a s e p a r a t e u n i t as d e f i n e d
in paragraph 60 ( i i i ) whether o r n o t t h e i n d u s t r y " £3 in d e f i c i t .
( O )
For the purpose
( a )
Subject
( i )
( i i )
of
of
:­
paragraph 8 6 A : ­
a nationalised industry is in d e f i c i t i f i t
incurW
a d e f i c i t on r e v e n u e a c c o u n t i n t h e p r e v i o u s
a c c o u n t i n g y e a r a f t e r p r o v i d i n g f o r i n t e r e s t and
depreciation; . ' - ­
in calculating
Q
( b )
paragraph
to the provisions
p y
deducted
( i i i )
this
v
l
s
l
o
n
r
o
a surplus
all
trading
costs,
i n t e r e s t arid" a e p r e h T a r J f o h
revenue;
r
from
and
s h a i l " he
d e p r e c i a t i o n f o r t h e p u r p o s e s o f ( i ) and ( i i ) above
includes provision f o r the writing o f f o f displaced
p l a n t and d e f e r r e d c h a r g e s , and s h a l l be c a l c u l a t e d (
a c c o r d a n c e w i t h^jaccoimyjnyg^^
i s ten t ly
a p p l i e d by the i n d u s t r y concerned ( i n c l u d i n g t h e
supplementary p r o v i s i o n f o r d e p r e c i a t i o n a t replace?
m e r i t c o s t made b y t h e P o s t O f f i c e
andJiTritish
T r a n s p o r t Docks B o a r d ) .
r e t u r n on n e t a s s e t s s h a l l be c a l c u l a t e d
by.,.-e pr
n e t r e v e n u e a s a p e r c e n t a g e o i p f s s e t s , whmre ­
X
( i )
P F I
QING
" n e t r e v e n u e " means r e v e n u e i n t h e a c c o u n t i n g
y e a r l^jyjrlch t h e p r i c e increase , . t a k e s p f f e e t ­
e s s t r a d i n g c o s t s and a f t e r p r o v i d i n g f o r
( d e p r e c i a t i o n — £ c ^ c i u d i n ^ sunnler.3nta'yy p r o v i s i o n
-for d e p r e c i a t i o n at replacement o o s t j o u t b e f o r e t a k i n g .
Recount o f i n t e r e s t and t a x a t i o n ; and
1
(li)"net
assets"
m
e
a
n
s
t
h
Q
n
e
t
b
Q
o
k
y
a
l
u
e
p
f
t o t a l - a s s e t s
. less
current
l a b i l i t i e s a t t h e e n d o f t h e i n d u s t r y ' s account-in
year preceding the accounting year in question.
1
( c )
n o a c c o u n t s h a l l b e t a k e n o f Government c o m p e n s a t i o ' n
or grants taken dir^cITy^to revenue account.
S3A.
I n d e t e r m i n i n g s a l e s v a l u e f o r t h e purpose of paragraph 26,
no account s h a l l , i n the case of a n a t i o n a l i s e d i n d u s t r y , b e taken
of
Government
84-.
compensation or g r a n t s taken
The c a l c u l a t i o n of permitted t a r i f f
and e l e c t r i c i t y
directly
t o revenue
account,
i n c r e a s e s i n the gas
supply i n d u s t r i e s s h o u l d be made h a v i n g r e g a r d
to the l i k e l y demand and consumption i n the l i g h t of
their
s t a t u t o r y o b l i g a t i o n to meet t h a t demand,
84A.
(1)
I f the o p e r a t i o n o f a system o f m u l t i - p a r t t a r i f f s i n
the gas and e l e c t r i c i t y
revenue per u n i t ,
supply i n d u s t r i e s reduces the average
the f o l l o w i n g a d d i t i o n a l p r o v i s i o n s
apply.
I n t h i s paragraph, " r e v e n u e " means average revenue p e r u n i t
and " c o s t s " means average c o s t s per u n i t .
(\Z)
Where,
s i n c e the base date
­
(a) revenue has f a l l e n more than c o s t s ,
prices
may be
i n c r e a s e d by an amount s u f f i c i e n t to r e s t o r e the average
c a s h margin per
unit
at the base d a t e ;
(b) revenue has f a l l e n and c o s t s have r i s e n , p r i c e s may
be i n c r e a s e d to the e x t e n t needed to r e s t o r e revenue to
the l e v e l a t the base d a t e and a l s o by a l l o w a b l e
increases;
cost
and
( c ) p r i c e s have been i n c r e a s e d and revenue has r i s e n
by l e s s than c o s t s have r i s e n , p r i c e s may be i n c r e a s e d
t o the e x t e n t needed to produce a.revenue which
is
e q u i v a l e n t to the revenue a t the base d a t e p l u s
allowable
cjDsJ^increases^ i n c u r r e d s i n c e the base date
(including
any c o s t i n c r e a s e s a l r e a d y r e f l e c t e d i n p r i c e s but
excluding
those which are to be
reflected
in future
p r i c e i n c r e a s e s to be made under any f o r m u l a which a l l o w s
f o r i n c r e a s e s i n the i n d u s t r y ' s p r i c e s on account of
variation in
costSjCRET
85.
'7herc t h e r e s p o n s i b l e I l i n i s t e r n o t i f i e s the Commission t h a t a p r i c e
i n c r e a s e r e s u l t i n g from t h e a p p l i c a t i o n of' p a r a g r a p h 83 would have an u n ­
a c c e p t a b l e e f f e c t on t h e g e n e r a l l e v e l o f p r i c e s , the Commission w i l l 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 amount s p e c i f i e d a s a c c e p t a b l e b y " t h e
I l i n i s t e r , but not s o a s t o reduce t h e i n c r e a s e below what i s p e r m i t t e d by
.paragraph 8 3 ( i ) ( a ) or ( i ) ( b ) as a p p r o p r i a t e , o r , p a r a g r a p h s 8J+''and " 8 l r A ' . ' "
"Furthermorei any i n c r e a s e p e r m i t t e d under paragraph S 3 ( i ) . c ) ^ r e s t r i c t e d
. i f t h a t be,,.t.he,.,.case.,,,.jmder^^^
be ohargnd a f t e r , the find­
o f j b h e a c c o u n t i n g y e a r i n w h i c h i t i s f i r s t c h a r g e r ] . but_t.hR r e s n o n s i b l e
Minister:­
"TO
y ? from t i m e t o t i m e , d i r e c t t h a t t h e i n c r e a s e s h a l l a f t e r
the""end o f "that a c c o u n t i n g y e a r , be r e d u c e d by such amount or
amounts as he s h a l l s p e c i f y ; and
( i i ) may d i r e c t t h a t t h e i n c r e a s e s h a l l be e x t i n g u i s h e d on such a
.
dat ^ ^ e y
J - L j T l L i h ^ . acft o " " * i n g y
- be s h a l l s p e c i f y .
1
1
:
m a
f i n r
n
R
application of the Code h subject to paragraph 87 in the case of
die National Coal Board and the British Steel Corporation. In the case of the
1'osi Office and those industries concerned with air and sea transport, ii is
subject to the exclusion from control under paragraph 6 of charges for -inter­
national traffic. The prices of subsidiary companies of nationalised industries
including subsidiaries of the National Bus Company, National Freighi Cor­
porrdon and the,Scottish Transport Group, are governed bv oaragranh b"9i,ii)
The prices charged for electricity by Area Electricity Boards and "the" Scottish
Boards, v d ) be subject r the provisions of the Code applying
manufa.--1 ottti
8 6
T
h
e
0
l 0
*
'
8$A V/here t h e f i n a n c e s
o f a n a t i o n a l i s e d i n d u s t r y a r e , as a r e s u l t of
any s t a t u t e , r e - c o n s t r u c t e d i n or a f t e r 19.74? t h e f o l l o w i n g . . p r o v i s i o n s
apply;-,
(f.) where the base d a t e f o r the purpose o f c a l c u l a t i n g the
a l l o w a b l e c o s t i n c r e a s e s o f the i n d u s t r y p r e c e d e s t h e
r e - c o n s t rucTToh and""the d a t e o f i m p l e m e n t a t i o n of the i n c r e a s e d
p r i o e " " f o T l o w s t h e r e - c o n s t r u c t i o n , i t s h a l l be assumed f o r t b e
purposes o f the c a l c u l a t i o n t h a t the r e - c o n s t r u c t i o n had t a k e n
^^:.^-SP.^A^....^X^^X9.^
i n t o e f f e c t ; and
the d a t e on which i t
actually
came
(jj) any changes a r i s i n g from the r e - c o n s t r u c t i o n in the a c c o u n t i n g
p r a c t i c e s o f t h e i n d u s t r y o r i n t h e . v a l u e o f i t s a s s e t s and.
1 i a b i l i t i e s s h a l l be taknn i n t o account in c a l c u l a t i o n s under
t h i s Code. .
Coal and steel
87. Prices charged by producers for coal, cord-based solid fuels, and most
iron and steel products are outside the scope of the control by virtue of
paragraph 6(ii). They are subject to international obligations through United
Kingdom membership of the European Coal and Steel Community. Prices of
non-ECSC iron iuid strsl products are controlled like those of other manu­
faciured products. Knit rprises which produce both ECSC and noh-ECSC iron
and steel products will be subject to price control on the latter only. Prices
of coal merchants and iron and steel merchants in the United Kingdom will
/ be subject to-the control on gross percentage margins and net profit margins
applied to wholesaling and retailing enterprises.
Other public sector trading enterprises
88. The Commission will apply to proposals for price increases which
are REFCI red to them by Government Departments engaged in substantial
trading operations the same principles as to proposals by the nationalised
industries.
K9/f)Thc Code applies to the prices or the following enterprises, accord­
lug to the nature of the business of the -undertaking, as it applies to the
prices of private sector enterprises,:---­
*
a
(a)
trading
Parking,
services,
(
t'includingor o f f - s t r e e t p a r k i n g where the
? J u t
n o
on-street
charges
are
p e r i o d s of 4 hours o r m o r e ) o f
local
authorities, local authority joint boards,
public
u t i l i t y u n d e r t a k i n g s and o t h e r s i m i l a r p u b l i c
sector
undertakings (not being a n a t i o n a l i s e d industry l i s t e d ­
i n p a r a g r a p h 8 2 o r an u n d e r t a k i n g t o which p a r a g r a p n y r e l a t e s ) ; and
f
( b )
o
r
companies r e g i s t e r e d
are wholly or partly
o r by a n a t i o n a l i s e d
under the Companies A c t which
owned by H e r M a j e s t y " s
Government
industry;
except that the n e t p r o f r e m a r g i n c o n t r o l
t r a d i n g s e r v i c e s " o f 1oca1 a u t h o r ! t i e s
tale
does
not
apply
to
the
(U).
The c h a r g e s f o r l o c a l a u t h o r i t y " t r a d i n g s e r v i c e s s h a l l be
calculated with regard to the established accounting practices of
the e n t e r p r i s e concerned^aiid t o c H a n g ^ i I h ^ t h p ^ e ; " p r a c t i c e s
resulting
from. . r e o r g a n i s a t i o n . .
Lo.(^te;au.th6ir4yie3: m a y - a d j u s t t h e i r c h a r g e s t a k e n
w i t h i n t h e o v e r a l l l e v e l s p e r m i t t e d by t h e C o d e t o t a k e a c c o u n t o f
t h e s t e p s w h i c h " t T t e y may t a k e T o w a r d s t h e r e s T r W C u F i H n g " o f
charges
within
their
areas.
Water U n d e r t a k i n g s
90(i) 7/ater ^ u j t h o r i t i e s and w a t e r u n d e r t a k e r s i n England and" V/ales
must comply w i t h t h e i r o b l i g a t i o n s under s t a t u t e ( i n c l u d i n g , i n
the case o f a company, any agreement between a w a t e r a u t h o r i t y
and the company under s e c t i o n 1 2 o f t h e ';,'ater Act 1 9 7 3 ) but
shall have r e g a r d t o t h e p r i n c i p l e s of the Code and s h a l l n o t
nake c h a r g e s w h i c h , t."ken "as a w h o l e , are l i k e l y t o r e s u l t i n
a higher revenue in any a c c o u n t i n g y e a r tlvan i £ r e q u i r e d t o
comply w i t h t h e s e o b l i g a t i o n s .
( i i ) Subpr.ragraph ( i ) " a p p l i e s t o r e g i o n a l ' w a t e r . b o a r ds o r - , t o water a u t h o r i t i e s i n S c o t l a n d ast i t a p p l i e s t o w a t e r a u t h o r i j t i e s in England and V.'ales, but i n r e l a t i o n only t o v/atofe s u p p l i e d
by
meter. -
( i i i ) The p r i n c i p l e s s e t . o u t i n paragraph 3 9 ( i i ) above a p p l y also-" t o the e n t e r p r i s e s c o v e r e d by t h i s paragraph. Services
91. In general, paragraphs 3 to 70 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 Employment. Tax for service enterprises where this
paid without refund. Parapi;:phi, 33 to 40 permit the Commission to calculate average allow­
able cost changes for certain small service enterprises where the citcurhstances are appropriate. Paragraph 69 would permit services enterprises with low profits to calculate their reference levels for the limit on net profit margins by reference cither to turnover or capital employed. '. : . . . . . .
paragraphs 92 to
deal with the application of the Code to some particular scrvir:. sectors, and explain any modifications of the general principles which apply to thcni. 106
Banks, finance houses and similar enterprises
92. Most banks, finance houses and similar financial enterprises, arc. encaged partly in business for which the charge is a rate of interest and partly in 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 profiis between the. two classes of business for the purpose of the control on lion-interest charges. Paragraph 3? applies. 93. For the-purposes of the Code the enterprises described in para­
graph 92 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.
94. The provisions of the Code relating to allowable cost increases anc to the limitation on net profit margins, defined in the case of these enter­
prises as in paragraphs 96 and 97, apply to their non-interest charges. These" include commissions, fees and all similar charges. Where ad valorem rates are charged 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 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. 95. 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.
;$
95A. In t h e c a s e of an a g r e e m e n t ' f o r the l e a s i n g o f any
eouipment on which t he l e s s o r ' s c a p i t a l e x p e n d i t u r e i s more
than £ 5 , 0 0 0 , inaneas e s in r e n t a l s may be made under a f o r m u l a ,
s p e c i f i e d in the a g r l e m e h t , p r o v i d i n g f o r v a r i a t i o n o f r e n t a l s
on account o f change s i n the r a t e o f c o r p o r a t i o n t a x t o t h e
e x t e n t that the r a t e o f r e t u r n t o t h e l e s s o r on h i s c a p i t a l
e x p e n d i t u r e net o f c o r p o r a t i o n t a x i s n o t g r e a t e r than i t would
have been i f the r a t e o f c o r p o r a t i o n t a x had^remained at t h a t
i n f o r c e . at t h e . . d a t e , o f the agreement o r , i f the formula
s p e c i f i e s another date f o r that p u r p o s e a t that d a t e .
t
96.
For the purposes of paragraph 57 " net profit margin" means: —
(i) in the case of enterprises undertaking hire purchase, conditional
sale or piant 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 92 net income from charges (that is, gross income
less costs, including associated overheads) expressed as a per­
cenlagc of gross income (that is, total income from the
transactions concerned).
97. In comparing net profit margins, as defined in paragraph 96, 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.
3
Construction
l a
S-i L.
11
, ,
98. 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 48, which applies .to tenders for construction work to the extent that they are at fixed prices, and. paragraphs 49 to 52, which apply to variation of price clauses, prime cost r.ml coALreimburscment arrangements. Transport
- 99. The Code applies to transport undertakings as it docs to other
1 service enterprises. Charges for international freight and passenger traffic
I are outside the control under paragraph 6(vi). Charges of nationalised
]transport undertakings, passenger transport authorities, local authority
I transport undertakings and transport companies owned by ^nationalised
I industries and their subsidiaries are governed by paragraphs 82^8(5Aand 89.
: 100. Charges of private road haulage undertakings are subject to the
I provisions relating to allowable cost increases and to the limitations on net
I profit margins.
Mehide sales and services
I 101. Charges for repair, maintenance and servicing of vehicles are
Isubject to the provisions relating to allowable cost increases and to the
^limitation on net profit margins. The prices of vehicles sold by distributors,
Iwhcther new or second-hand, are subject to the limitations on gross
jlpcrcentage margins and on net profit margins. Paragraph 17 applies to
jcnlerprises which both sell and maintain vehicles.
Hotels and catering enterprises
I 102. What is said in paragraph 91 applies to these enterprises also, in
Ircspect both of charges for food and drink and for accommodation.
wto\essional or other services I 103. Fees and charges for professional or other services by firms or by
Individuals who nrc self-employed are governed as prices by the Code,
Except where t h e d i s b u r s e m e n t s or e x p e n s e s ' w h o l l y and' " '"
I x c i u s i v e i y l a i d out or expended f o r t h e purposes of t h e
enterprise concerned do not e x c e e d 10 per c e n t of t h e j r o f i t s or g a i n s of t h a t e n t e r p r i s e . 1 104. Where scales or rates of charges ot general application, whether
calculated per item, at an hourly rate or ad- valorem, arc 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 net be increased
gvithout the agreement of the Commission. Where rates above scale have
lornially been agreed and have become normal charges, such rates need
It'! be reduced but the margin by which such rates exceed the scalp may
lot be increased. The Commission will apply the provisions relating to
fclojvablc cost increases to increases in scaies or rates. Those provisions
Jvil also apply to increases in fees or charges calculated on a time basis,
pcept that the productivity deduction in paragraph 32 need not be applied
Ivhcre the fee or charge reflects only the labour cost of any employees' time.
I 135. Where there arc no scales or rates of general application, the rates
lr scales charged for a professional service may not be increased except to
lifiect increases in allowable costs. Increases in labour costs under para­
graph 2S(ii)((v) may not include any element in respect of proprietors' or
winners', as distinct from employees', time.
105. The limitation on net profit margins will apply to profit:; of linns
or individuals providing professional or other services irrespective of the
method by which fees arc 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 partner^.
Paragraph 66 applies to amalgamations of partnerships. In applying the
provisions relating to allowable cost increases to scales or rates of charges,
the Commission will have regard to profit margins in the profession
generally and will apply paragraphs 34, 59 and 68-69 as necessary.
Non-profit-making organisations
107.
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 thcinmain activity, will
not be controlled.
108. The Code will not apply to prices charged by an organisation
satisfying the tests in paragraph 107, or by any properly authorised person
acting on behalf of that organisation, if they are charged in order to raise
funds for the purposes of the organisation, and involve no substantial or
continuing competition with trading enterprises.
109. Except where they are outside the control under paragraph 108,
prices charged in any trading activity carried on by an organisation which
meets the requirements of paragraph 107 are governed by the Code, unless
,the customers of the trading activity are confined to members of the
organisation.
Where the particular provisions of the Code cannot be directly"
applied to particular cases or sectors without modification, the '..
Com­
mission : —
.
. - will, in exercising their functions, apply those
provisions with such adaptations or modifications as appear to-them to be
necessary to give effect to the principles and objectives of the Code.
SECRET *
THE
INVESTMENT
nufacturing
and
Service
Qualifying
1
The
RELIEF
^£SS^LL
in
SCHEME
Sectors
permits
their
of
their
of
12 m o n t h s
on
enterprises
profit
estimated
margins
capital
new and
(excluding
vehicles)
buildings,
but
in
and
on
excluding
prices
expenditure
secondhand
and
these
the
plant
to
companies.
activities
precisely
plant,
the
year
of
2
T
a forward
and
on
account
he
the
be
and
proportion
cash
the
over
received
of
total
of
the
from
of
the
the
the
relief
of
of
the
the
Any
plant,
relate
this
cannot
be
investment
in
be
Board
amounts
completed
17^$
from
^ased
last
control.
12 m o n t h s
scheme.
disposal
by
must
will
be
of
in."
total
in
will
industrial
acquisition
where
of
turnover
approved
of
.
buildings
was w i t h i n
a period
introduction
but
apportionment
expenditure
spent
control;
period
machinery
expenditure
industrial
that
amount
qualify,
to
proportion
construction
expenditure
the
established,
qualifying
to
within
machinery
upon
To
sectors
a
in
'
existing
Expenditure ­
scheme
reflect
.
of
of
a
the
the
date
enterprise
following
expected
machinery
and
to
be
industrial
b u i l d i n g s d u r i n g t h e s a m e p e r i o d w i l l be d e d u c t e d
from
oualifying
e x p e n d i t u r e under the scheme;
but amounts r e l a t i n g t o
the
A
sale,
as
another
Price
3
a
concern,
enterprise
Increases
Prices
prjOfits
going
by
need
of
parts
of
the
not
be
deducted.
increased
to
the
enterprise
to
may
be
the
amount
of
the
extent
relief.
necessary
Price
to
increases
increase
will
not
be
restricted
of
the
price
a
to
products
qualifying
any
one
The
price
of
any
individual
not
it
may
not
forms
be
increase
in
net
investment
the
12
months
deciding
low
Net
in
Net
profit
of
(beginning
referred
will
or
at
to
in
date
should
be
taken
of
1
the
level
be
for
profit
levels
the
in
consequence,
account
in
safeguards
be
invoked.
Levels
may
to
bje
increased
the
of
cash
the
Code
forecast
Cash
with
estimated
of
takes
12
qualifying
amount
of
tnrnover
investment
relief
at
l'7%%
of
of
Thus
a
to
£120m a n d
£10m.
qualifying
...£1.75m
expenditure
Addition
of
reference
reference
level
level
of
8%
1.7.5
months
effect)
above.
estimated
to
amount
Example:
Enterprise
of
The
forward-period
revised
calculated
a period
on
may
percentage
the
) ,
^
Code
equivalent
in
will
into
Reference
a
average
permitted
not,
not
as
relief
reference
apply
or
products,
the
the
months.
after
paragraph
by
12
profit
whether
implementation.
reference
enterprise
any
times
than
Margin
calculated
excessive
investment
will
of
erosion
Profit
avoid
increase
p r o v i s i o n s of
margin
the
it
relief
less
additional
relief,
turnover
the
profit
accommodate
the
in
three
date
the
increases
whether
Increases
of
the
price
that
the
subject
related
profit: margin
relief
from
recouped
under
of
represented
assumption
amount
price
against
the
to
product,
range
than
is
be
of
more
(which
on
a
increased
by
direct
product:­
of
increase
total
4
part
the
However,
on
Any
These
investment.
are
increases
provisions
b
which
SECRET , Implementation; Category I and II Enterprises.
5
Before benefiting from this relief - ie before reference
levels may be increased, 02? prices may be increased, or
both - manufacturing and service enterprises in these
Categories will be required to give the Price Commission
56 days notice of the total cash amount of relief claimed,
supported by evidence of Board approval of the planned
qualifying investment; and of the manner in which it is
1
proposed to apply this either in adjusting reference levels
or in making the first price increases-under the; scheme, or
both.
Subsequent price increases under the scheme will be
subject, for enterprises in these Categories, to 28 days
prenotification.
The information required is set out in
more detail in Secbion C below.
Implementation; Other Categories 6
Enterprises below Category II are not required to prenotify or report increases in reference levels, or price increases under this scheme; and such increases may be implemented as soon as the scheme comes into effect. . Category III enterprises availing themselves of the relief will however be required to keep appropriate records which officials of the Price Commission will have power to inspect. Implementation: Genera]/ 7
Price increases under the scheme will not be subject to the "three month rule" in paragraph 26B of the Code. 8
The scheme only permits the cash amount of the relief to be recovered.
Price increases permitted under the SECRIT
scheme
which
are
cannot
increased
B
Distribution
9
therefore
to
attract
be
regarded
further
subsequently
as
profit
under
separate
margins
sucharges/
if
prices
other.provisions
of
the
to
net
are
Code.
Enterprises
The
profit
Such
provisions
margins
set
apply
enterprises
gross
following
example:
above
equally
may
permitted
out
also
to
make
percentage
with
forecast
Cash
to
their
calculated
Addition
to
of
as
gross
relief
£
20
investment
of
£
2
17%% o f
at
in
the
million
million
W
£350,000
percentage
the
(£350,000
x
l
o
-
x
1
0
(£20TOS7
.of
expenditure
74- o f
paragraph
turnover
estimated
qualifying
amount
qualifying
a
an a d d i t i o n
enterprises.
(I
Enterprise
Thus,
relating
distribution
margins,
Example:
and
and
margin
as
ascertained
Code
A
r
0
permitted
under
1
1
X
gross
percentage
margin
-
7
7 5
/
^
2 0 ^ may
of
'
0
rise
21.75$.
to
10
Category
claim
for
putting
the
distributors
relief
their
effect.
relief
II
to
revised
Category
will
the
be
officials
III
the
for
all
Price
net
be
and/or
to
Price
required
Commission
gross
distributors
required
of
will
keep
56
submit
days
before
profit
availing
appropriate
Commission
to
will
margins
themselves
records
have
a
into
of
the
which
power
to
inspect.
C
Monitoring
Procedures
11
Initially,
all
for
net
margin
the
scheme
profit
information
will
to
be
the
Enterprises
Category
I
purposes
required
Price
to
and
II
enterprises
wishing
to
furnish
the
Commission:­
as, d e f i n e d
participate
following
in
a
Name
and
address
of
unit
for
profit
margin
control
b
Statements
i
of:-
expenditure
construction
buildings
and
the
method
sales
each
c
Estimates
of
of
the
and
evidence
of
also
Cash
amount
be
qualifying
Claimed
and,
for
addition
used
of
relief
in
of
account,
and
the
divided
6 months
and
Estimates
during
to
the
claimed,
net
of
period
between
the
supported
of
the
the
by
receipts
same
net
based
control
profit
claimed
on
proceeds
calculating
distributors,
period
of
during
thel
17%%
disposals,
the
period
investment
margin
reference
addition
to
relief,
level
gross
margin.
the
prenotifying
relief
also
following
years
assets
within
addition
to
between
activities;
relates,
expenditure
enterprises
(see
such
the
sales
percentage
allocation
required,
of
12 m o n t h s
it
approval^
of
industrial
expenditure
periods
Board
will
Estimated
previous
which
second
disposals
of
In
to
of
control;
qualifying
from
of
the
three
of
of
uncontrolled
within
12 m o n t h s
first
12
and
r
machinery(excluding
the
in
f
plant,
and
i i
e
on
vehicles)
controlled
d
^
above,
price
paragraph JI
manufacturers
increases
above)
information:-
SSCKST
and
based
should
on
provide
service
investment
the
i
a
description
b
Date
c
Forecast
from
13
At
be
the
to
to
carry
relief
year.
I
or
II
enterprise
submit
yield
a
of
or
range
proposed
from
intervals
required
Category
the
amount
^enterprises
intention
in
product
of
products
price
the
price
the
course
increase
increase
12
over
months
implementation.
regular
Category
will
and
of
I
benefitting
to
out
submitted
their
Six
the
margin
relief
the
Commission
date
purposes
year,
investment
programme
benefits
Commission
the
the
Price
months / a f t e r
profit
to
the
first
of
from
re-affirm
enterprise
for
report
in
on
from
will
containing
of
relief
their
investment!
which
the
be
a
relief,
required
the
g
to
following
information:­
a
Actual
the
first
b
Actual
6
months.
c
in
expenditure
(and
disposals)
in
6 months.
sales
Amounts
scheme
d
qualifying
within
recouped
the
Estimated
the
the
control
f:i*om p r i c e
first
6
during
increases
the
first
under
the
months.
qualifying
expenditure
(revised
as
necessary)
i n / s e c o n d -6- m o n t h s .
e
Estimated
during
f
the
sales
second
Estimated
made,
for
full
g
A
of
relief
any
increases
the
control
recoupment
from
that
they
12 m o n t h s
from
the
taken,
eg
that
by
of
the
price
with
date
or
of
as
be
or
price
in
necessary';
by
increases
operation
implementation,
excess
proposals
reductions
otherwise
the
remain
shortfall
together
would
(revised
months.
assuming
calculation
excess,
6
future
already
the
within
for
in
the
amount
correcting
foregoing
permissible.
price
SECRET Items
14
(c)
At
the
6-monthly
to
be
and
(f)
end
report
above
of
the
do
not
relief
described
in
apply
year,
to
the
paragraph
repeated.
"//
-7-
SECRET distributors.
procedure
13
above
for
will
the
need
Appendix 2
G L F I O A T I O W AIM I I I F C R I I A T I O I T OTEDERS
These Orders impose o b l i g a t i o n s on companies t o p r e n o t i f y p r i c e i n c r e a s e s ,
i make r e g u l a r r e p o r t s t o t h e P r i c e Commission o r t o keep s p e c i f i e d r e c o r d s ,
icording t o the s i z e and a c t i v i t y o f t h e company c o n c e r n e d .
The P r i c e Commission
thereby a b l e t o o b t a i n t h e i n f o r m a t i o n n e c e s s a r y t o examine p r o p o s e d p r i c e
creases and t o m o n i t o r t h e o b s e r v a n c e o f the C o d e .
The Government do n o t p r o p o s e t o make any major change t o t h e s t r u c t u r e o f
e - n o t i f i c a t i o n j r e p o r t i n g and r e c o r d k e e p i n g which has been b u i l t up o v e r
3 l i f e of price controls.
H o w e v e r a c o n s i d e r a b l e number o f amendments t o
j Orders w i l l be r e q u i r e d i n consequence o f t h e p r o p o s e d changes t o t h e C o d e ,
a d d i t i o n , f i v e s i g n i f i c a n t changes a r e t o b e made t o t h e O r d e r s w h i c h dc n o t
Llow d i r e c t l y from t h e p r o p o s e d amendments t o t h e C o d e . They a r e a s f o l l o w s
9
(a)
Identification
Category I I I
of
Category I I I
firms
f i r m s a r e d e f i n e d i n t h e I n f o r m a t i o n Order ( S I
1973/1787)
as:­
y e a r o f account o f £1m-£5rn
a
manufacturers w i t h s a l e s i n t h e l a s t
b
distributors with sales of
c
providers of
s e r v i c e s with sales of
d
providers of
c o n s t r u c t i o n s e r v i c e s w i t h s a l e s o f £1m-£5m
e
providers of professional
f
banks, f i n a n c e houses and s i m i l a r e n t e r p r i s e s w i t h o u t s t a n d i n g
b a l a n c e s o f more than £10m b u t w i t h g r o s s s t e r l i n g d e p o s i t s o f
£200m o r l e s s .
u
£250,000-£10m £250,000-£5m
services with sales of
£100,000-£500,000
They a r e at p r e s e n t r e q u i r e d t o keep r e c o r d s i n c l u d i n g t h e i n f o r m a t i o n
s p e c i f i e d i n P a r t I o f the Schedule t o t h e I n f o r m a t i o n O r d e r .
The Government
i n t e n d t o r e q u i r e t h a t b e f o r e 1 February 1975, a l l C a t e g o r y I I I f i r m s s h o u l d
'send t o the P r i c e Commission a r e t u r n g i v i n g p a r t i c u l a r s o f t h e i r name and
a d d r e s s , the name and a d d r e s s of any s u b s i d i a r y and the s a l e s i n t h e l a t e s t
c o m p l e t e y e a r o f account f o r each a c t i v i t y , i n c l u d i n g t h o s e o f any s u b s i d i a r i e s ,
The i n f o r m a t i o n r e q u i r e d w i l l be
. -. .
the minimum n e c e s s a r y t o e n a b l e t h e r e g i o n a l s t a f f o f t h e P r i c e Commission
t o d i r e c t t h e i r m o n i t o r i n g a c t i v i t i e s more t o w a r d s the k e y a r e a s i n t h i s
very important s e c t i o n o f i n d u s t r y .
(b)
Exemption o f minor a c t i v i t i e s
from
pre-notification
A r t i c l e 6 o f t h e N o t i f i c a t i o n Order ( S I 1973/1786) p r o v i d e s f o r t h e
exemption from p r e - n o t i f i c a t i o n o f t h e minor and s e p a r a t e a c t i v i t i e s o f
pre-notifying firms.
A t p r e s e n t t h e maximum v a l u e f o r each exempted
a c t i v i t y i s s e t at £3m f o r C a t e g o r y I f i r m s ( m a n u f a c t u r e r s w i t h annual
s a l e s o f o v e r £30m and s e r v i c e e n t e r p r i s e s w i t h annual s a l e s o f o v e r £20m)
but a t o n l y £500,000 f o r C a t e g o r y I I f i r m s ( m a n u f a c t u r e r s w i t h s a l e s o f
£5m-£50m and s e r v i c e e n t e r p r i s e s w i t h s a l e s o f £5-£20m).
Thus t h e r e
i s a v e r y pronounced d i f f e r e n c e i n t h e p o s i t i o n under t h i s A r t i c l e b e t w e e n ,
f o r example, m a n u f a c t u r e r s w i t h s a l e s o f £51m and £^9m. The Government
i n t e n d t o e v e n o u t t h i s d i s p a r i t y by a l l o w i n g t h e e x e m p t i o n f o r minor a c t i v i t i e s
o f C a t e g o r y I I c o m p a n i e s , under t h e c o n d i t i o n s c u r r e n t l y s p e c i f i e d i n t h e
N o t i f i c a t i o n Order, p r o v i d e d t h a t t h e v a l u e o f each a c t i v i t y does n o t e x c e e d
10$ o f the t o t a l s a l e s o f t h e e n t e r p r i s e .
(c)
Exemptions
f o r s a l e s w i t h i n a group o f
companies
Under A r t i c l e 9 o f t h e N o t i f i c a t i o n Order s a l e s w i t h i n a g r o u p o f companies a r e a t p r e s e n t exempt from the o b l i g a t i o n t o p r e - n o t i f y p r i c e i n c r e a s e s . H i e Government i n t e n d t o r e d u c e t h e s c o p e o f t h i s e x e m p t i o n t o p r e v e n t a manufacturer from e s c a p i n g from t h e r e q u i r e m e n t t o p r e - n o t i f y
p r i c e i n c r e a s e s b y means o f s e t t i n g up a d i s t r i b u t i o n company w i t h i n t h e
group.
The exemption i s t h e r e f o r e t o b e l i m i t e d t o s a l e s w i t h i n a g r o u p
where b o t h buyer and s e l l e r a r e m a n u f a c t u r e r s o r p r o v i d e r s o f s e r v i c e s .
( d )
R e c l a s s i f i c a t i o n o f s c r a p p r o c e s s o r s and s m a l l bakehouses I n r e s p o n s e to r e p r e s e n t a t i o n s from t h e t r a d e a s s o c i a t i o n s c o n c e r n e d ,
t h e Government p r o p o s e t o change the c l a s s i f i c a t i o n , f o r p r i c e c o n t r o l
p u r p o s e s , o f s c r a p p r o c e s s o r s and o f b a k e r s m a n u f a c t u r i n g i n s m a l l bakehouses
attached to r e t a i l establishments.
B o t h c a t e g o r i e s w i l l be t r a n s f e r r e d
from t h e d i s t r i b u t i o n t o t h e manufacturing s e c t o r , and t h e Code r u l e s f o r
manufacturers w i l l a p p l y .
( e )
Local
authorities
W h i l s t t h e Code a p p l i e s g e n e r a l l y t o t h e " t r a d i n g s e r v i c e s " o f l o c a l
a u t h o r i t i e s , i t has teaa p r o v e d d i f f i c u l t t o d e f i n e more p r e c i s e l y t h e services
f o r which l o c a l a u t h o r i t i e s s h o u l d be o b l i g e d t o p r e - n o t i f y p r i c e i n c r e a s e s
. and make r e g u l a r r e p o r t s t o t h e P r i c e Commission.
Different authorities
may p r o v i d e d i f f e r e n t r a n g e s o f s e r v i c e s and may have d i f f e r e n t v i e w s o f
t h e d e g r e e t o which t h e s e s e r v i c e s s h o u l d b e o p e r a t e d on commercial l i n e s .
T a k i n g account o f t h e need t o a v o i d i m p o s i n g u n n e c e s s a r y a d m i n i s t r a t i v e
burdens on l o c a l a u t h o r i t i e s , t h e Government t h e r e f o r e p r o p o s e t h a t t h e
o b l i g a t i o n s o f l o c a l a u t h o r i t i e s under t h e N o t i f i c a t i o n and I n f o r m a t i o n
Orders should be c o n f i n e d t o t h e k e e p i n g o f the a p p r o p r i a t e r e c o r d s , by
a u t h o r i t i e s down by d i s t r i c t c o u n c i l l e v e l , f o r any s e r v i c e c o v e r e d by t h e
Orders which i s p r o v i d e d by t h e a u t h o r i t y c o n c e r n e d .
The P r i c e Commission
w i l l b e f r e e t o u n d e r t a k e i n s p e c t i o n s o f t h e s e r e c o r d s and t o i n v e s t i g a t e
c o m p l a i n t s about c h a r g e s f o r any o f t h e s e s e r v i c e s which i t c o n s i d e r s t o
be o p e r a t e d as t r a d i n g s e r v i c e s by t h e l o c a l a u t h o r i t y c o n c e r n e d .
COUNTER-DIFLATION (MODIFICATION OF C I V I L AVIATIOIT ACT 1971 ) ORDER
An Order was made on 26 A p r i l 1973 which m o d i f i e d t h e C i v i l A v i a t i o n
Act
1971 i n such a way as t o r e q u i r e t h e C i v i l A v i a t i o n A u t h o r i t y t o have r e g a r d
to
t h e P r i c e Code i n d e t e r m i n i n g c h a r g e s "for c a r r i a g e b y a i r w i t h i n t h e U n i t e d
Kingdom.
The A u t h o r i t y p r e s c r i b e s a common t a r i f f
s e r v i c e s on a r o u t e .
other a i r l i n e s ,
a nationalised
Some r o u t e s a r e s e r v e d
industry,
i s t o beftmtriaimramended:
Cmnd 1(899.
operating
b o t h by B r i t i s h Airv/ays and by
and a p o t e n t i a l problem l a y i n t h e f a c t
that B r i t i s h Airways,
was n o t r e q u i r e d t o o b s e r v e t h e same p r o v i s i o n s i n
P r i c e Code as were p r i v a t e s e c t o r a i r l i n e s .
provisions of
for all airlines
the Authority w i l l
the
To a v o i d t h i s anomaly t h e Order ,.
i n f u t u r e have r e g a r d t o
as
the
t h e Code but s u b j e c t t o t h e c r i t e r i a s e t out i n P o l i c y Guidance