CAB129-45 — Page 569

:

Page 569

13. Trades to be Covered by the Legislation. In paragraph 43 of the draft I have left open the possibility of exempting some trades from the legislation if a good enough case can be made for this. For example, we shall, I am sure, have to give a full hearing to those trades where "after-sales service is important. Again, in some of the building material trades, where the goods are not sold" over the counter," there might be, I understand, special difficulties about the practical application of the proposed provisions and these will have to be examined with the trades in consultation with the Ministry of Works. I do not say that we shall find any particular claims for exemption acceptable, and I appreciate the danger of weakening the legislation if exemption is made too easy. I am sure, however, that we cannot avoid further consultations with particular trades before the Bill is drafted and I think it would be wise to make a virtue of necessity and give this indication in the White Paper. I strongly recommend, therefore, that paragraph 43 of the draft be retained:

14. The “Loss-Leader” Issue. Finally, there is the question how the draft White Paper should deal with the "loss-leader" argument and in this connection we must bear in mind the probable reactions to our proposals as a whole. Briefly the picture, as I see it, is as follows. The independent traders who deal extensively in branded goods and some manufacturers-in particular those whose total sales depend more on the number of outlets than on price-will be dead against us. Most other classes of interested persons are divided and would come various parts of the way with us. Many manufacturers who now take part in price maintenance schemes would probably be relieved if the law insulated them effectively from distributors' pressure. As the recent correspondence in the Daily Telegraph shows, the official Opposition is divided and several wish to see an end of collective enforce- ment. The Union of Shop, Distributive and Allied Workers (U.S.D.A.W.) is also against collective enforcement and discrimination against Co-ops., but wants individual producers to have some effective means of maintaining their own resale prices. To them the security and prosperity of the employers generally is the best guarantee of favourable treatment of wage claims and they do not want resale price maintenance wholly abolished. Many of the big chain stores would welcome competition and the Co-ops., of course, will in general support us.

15. The one thing that may unite these various elements in opposition to our proposals is the feeling that they will give a licence to extreme kinds of price- cutting. This feeling will certainly be fully exploited by the leading price-maintenance bodies and not only U.S.D.A.W. and the wobbling elements in the opposition but many of the chain-store people and many managers and assistants of Co-op. stores will share it.

16. My colleagues have already decided that the "loss-leader" argument as such does not justify any elaborate qualification of our proposals and the reasons for that decision are set out in paragraphs 23-28 of the draft White Papers. I feel, however, that we ought not to rule out entirely the possibility of making some provision against the "loss-leader." I have been looking at the legislation covering this topic in several of the United States and it seems to me that one device used there might perhaps be dropped here without compromising our objectives. Some States have laws which in effect prohibit sales by retailers at prices below their purchase price plus some token mark-up (e.g., 5 per cent.) to cover the barest minimum of costs (but no profit) of distribution. A provision of this kind in our own legislation might have the effect of preventing the extreme kind of price-cut, which excites such horror even in people who would otherwise support us, while still giving ample scope for the competitive price-reductions which we seek to encourage.

17. I do not, however, want at this stage to commit myself to any such provision. There are a number of difficulties about it which would have to be solved. Moreover, I would not say that it should necessarily be included in the legislation as an immediate and general prohibition. There might be an enabling power to introduce such a provision by Order, either generally or in particular trades, if experience showed that, contrary to our expectations, extreme price- cutting was occurring. Alternatively, if we finally decided on a non-discrimina- tion " provision, we might so frame it that the remedy against discrimination would not Begebtainable587 a trader who sold below the level age cose plus&he token mark-up. I am merely suggesting at this stage that the possibility ought to be

5 Page 570 of 587

Page 570 properly examined and that there might later on be advantage in having some such provision up our sleeves.

..

18. It is for this reason that I have drafted the last part of paragraph 28 of the White Paper and also paragraph 44 in such a way that this type of provision might be thrown in the ring, if the reception our proposals get suggests that this might be expedient and if it proves practicable. I hope my colleagues will agree to retain these passages.

Summary

19. In this memorandum I have advanced various propositions to which I invite the assent of my colleagues:-

(a) We should not introduce a new name for the practice into the White Paper itself and should accept the conventional White Paper tone in which it has been drafted.

(b) We should accept the present balance between our economic arguments

and our objections to a private system of law.

(c) We should not be more explicit in the White Paper on the "retail-price fixing" and "discrimination" issues and should defer final decisions on these points until we reach the stage when legislation can be drafted. (d) We should indicate (in the terms of paragraph 43) our willingness to con-

sider special claims for exemption.

(e) We should indicate (in the terms of paragraphs 28 and 44) that some statutory means of restraining extremes of price-cutting without com- promising our main objectives will be examined, if it proves necessary.

20. On this basis I ask my colleagues to approve the draft White Paper for presentation to Parliament. In doing so, however, I must say that I do not share any great enthusiasm which may be felt about these proposals. In part they run contrary to the express and unanimous conclusions of the Lloyd Jacob Committee which we set up for the express purpose of studying this problem. They will give rise to pointed retaliatory criticisms of Trade Union restrictive and closed shop practices and of the methods used for their enforcement. They will not, as far as I can ascertain, reduce the cost-of-living index or check its rise by more than a fraction of one point. I doubt whether they will confirm a single existing inclina- tion to "Vote Labour "-they may cause increased antagonism amongst small shop- keepers. If they are (as they may be) the only proposal we can make for reducing the cost of living, they will cause disappointment. In short, they are, I am afraid, rather small beer.

Board of Trade, S.W. 1,

29th May, 1951.

H. S.