HC Deb 04 February 1948 vol 446 cc1821-9
The Prime Minister (Mr. Attlee)

I will, with your permission, Mr. Speaker, make a statement on personal incomes, costs and prices. I am sorry it is a rather long statement.

The nation's economic welfare depends largely upon our ability to make and sell the exports necessary to buy the imports we need to feed our people and keep our industry going. Our costs of production are of vital importance and they depend to a considerable extent on the amount which industry has to pay in profits, salaries and wages. These in turn in the form of individual incomes affect the total volume of money available in relation to the quantity of goods.

As regards costs of production, it was pointed out in the "Statement on the Economic Considerations affecting relations between Employers and Workers" (Cmd. 7018) issued in January, 1947, with the endorsement of the National Joint Advisory Council, that if costs of production and in consequence prices rise in relation to world prices, it may make it impossible for us to pay our way in the world and buy all the imports we need. We shall all suffer as a result and it is therefore the duty of everyone to play his or her part in averting the danger.

The Government have taken many steps already to prevent the development of a dangerous inflationary situation. High direct taxation on personal incomes and on distributed profits has curtailed the amount of profits available for spending and has thus helped to check the danger of inflation from personal incomes derived from investments, rents and profits. The same restraining influence has been applied to lower earned incomes by the introduction of P.A.Y.E. tax and by the increase of indirect taxation. This influence has to some extent been countered by the continuance of Exchequer subsidies for certain commodities, notably the principal foodstuffs, though it must be noted that the subsidies have helped to keep down the cost of living and so the demand for increased wages. But if personal incomes are allowed to rise continuously none of these measures against inflation can be effective.

The danger of inflation is ever present and will be accentuated by the drive to achieve a balance of payments, which will reduce the total volume of goods available on the home market. Moreover, experience has shown that, when it comes to a race between rising prices and personal incomes, prices will always win in the long run, so that conditions become progressively worse for the holders of all personal incomes but particularly for wage earners.

It is essential, therefore, that there should be no further general increase in the level of personal incomes without at least a corresponding increase in the volume of production. Unless we are prepared to check any such tendency we shall find ourselves unable to fulfil our export task owing to the rise in costs, which will also be reflected in rising prices on the home market.

The last hundred years have seen the growth of certain traditional or customary relationships between personal incomes—including wages and salaries—in different occupations. These have no necessary relevance to modern conditions. The relation which different personal incomes bear to one another must no longer be determined by this historical development of the past, but by the urgent needs of the present. In the changed world of today and with our present economic difficulties these old relationships of income must, where necessary, be adapted to conform to the national interest. Relative income levels must be such as to encourage the movement of labour to those industries where it is most needed, and should not, as in some cases they still do, tempt it in a contrary direction.

The Government accordingly feel bound to set out the following general considerations as a guide to all those whose deliberations and actions contribute to the settlement of the amount of personal incomes, from whatever source.

It is not desirable for the Government to interfere directly with the income of individuals otherwise than by taxation. To go further would mean that the Government would be forced itself to assess and regulate all personal incomes according to some scale which would have to be determined. This would be an incursion by the Government into what has hitherto been regarded as a field of free contract between individuals and organisations.

In the view of the Government it is essential that there should be the strictest adherence to the terms of collective agreements. One of the main advantages of a system of collective bargaining is that it tends to ensure that wage and salary movements take place in an orderly manner and with due regard to the general as distinct from the individual interest. Departure from the agreed conditions by individual employers, whether public authorities or private concerns, will inevitably constitute a grave danger to the stability of the system of collective bargaining, and may well lead to competitive bargaining, and this to general but unjustifiable increases in wages and salaries and to serious inflation. The value of the system of collective bargaining and the justification for its maintenance at the present time rest upon the assumption that the terms of collective agreements will be observed loyally by all employers and workers, and the Government cannot stress too highly the importance which they attach to this principle.

In present conditions, and until more goods and services are available for the home market, there is no justification for any general increase of individual money incomes. Such an increase will merely raise costs of production, without making more goods available, and so can only have an inflationary effect. Unless accompanied by a substantial increase in production, it would drive up prices and charges, adversely affect pensioners, children and other recipients of social services benefits, increase the money cost of our exports and so reduce their saleability, and by black market pressure make it almost impossible to operate the controls necessary in view of the continuing scarcity of supplies and man-power.

It does not follow that it would be right to stabilise all incomes as they stand today. There may well be cases in which increases in wages or salaries would be justified from a national point of view, for example where it is essential in the national interest to man up a particular undermanned industry and it is clear that only an increase in wages will attract the necessary labour. It does, however, follow that each claim for an increase in wages or salaries must be considered on its national merits and not on the basis of maintaining a former relativity between different occupations and industries.

It will be observed from these principles that there is no justification at the present time for any rise in incomes from profits, rent, or other like sources and that rises in wages or salaries should only be asked for and agreed upon in the exceptional cases mentioned above. On the other hand, if at some future time there should be a marked rise in the cost of living the level of those personal incomes which as a result became inadequate would need reconsideration.

In order to avoid the undesirable necessity for any interference with the existing methods of free negotiation and contract the Government must press upon all those engaged in negotiations or decisions which might result in an increase in wages or other personal incomes to keep these principles firmly before them, and not to depart from them. The Government will themselves observe these principles in any negotiations in which they are directly concerned.

In these circumstances the Government have decided and wish it to be clearly understood that, if, notwithstanding these considerations, remuneration is increased in any class of employment, whether an private industry or under a public authority, there can be no presumption, whatever may have been the practice in the past, that the resulting costs will be taken into account in settling controlled prices, charges or margins or other financial matters requiring Government action. Each case will have to be considered on its merits in relation to the principles enunciated above.

To sum up, if general increases in profits, salaries or wages take place without more goods being made available, no one can obtain any real benefit except the black market operator; the rest of the community has to endure the dislocation and hardship which inevitably accompanies inflation. The alternatives now before us are therefore either a general agreement by the people to act together upon sound and public spirited lines or a serious and prolonged set-back in our economic reconstruction accompanied by a persistent low standard of living.

Mr. Eden

The right hon. Gentleman's statement has covered a very wide field. May I ask if the statement implies any new departure in Government policy? In other words, is any action contemplated in relation to the statement, or is it just a formal restatement of previous Ministerial announcements?

The Prime Minister

There is a very clear indication in the penultimate paragraph in regard to the question of increases being put on wages, salaries and costs. The Government are not prepared to say that they are all going to be met straightaway from Government sources. There has been a certain incentive in these matters, because people have not cared, thinking that the cost was going to be passed straight on.

Mr. O'Brien

In view of the vital importance and the serious implications of the right hon. Gentleman's statement, will he inform the House whether he has had any joint consultations with the T.U.C. and the employers' associations on this matter?

The Prime Minister

There have been consultations in regard to wages, profits and the rest with both sides of the industry. Of course, the actual document which I have been reading to the House has naturally come first to the House of Commons.

Mr. Molson

In view of the statement that the Prime Minister has made today, can he elaborate the answer which he gave to me on 23rd January, when I asked what machinery there was for consultation between different Departments, [...] order that one Minister might not approve an increase—as for example the Postmaster-General approving an increase of pay in the case of his Department, without the Chancellor of the Exchequer knowing what was happening? Is there any machinery by which the policy of the Government is to be made effective throughout the Departments?

The Prime Minister

A matter of that kind is always discussed with the Chancellor of the Exchequer and with other Ministers. These matters are not dealt with individually by Ministers, but they come before committees of the Government, and then, if necessary, before the Cabinet.

Mr. Gallacher

Is the Prime Minister aware that in most of the industries, particularly in the heavy industries, the workers, as a result of the many appeals that have been made, are putting all their energies into production, while they see profits soaring? Are they now to be told that they cannot get any betterment of their position unless they make still more profits?

The Prime Minister

No, Sir, that is quite contrary to what I have just said.

Mr. Turton

Are these principles to be applied in the case of the February schedule of agricultural prices, and if so, will the right hon. Gentleman consider amending the Agriculture Act recently passed?

The Prime Minister

That does not arise out of this statement.

Mr. Harry Wallace

Will the pronouncement the right hon. Gentleman has made be discussed with representatives of the T.U.C. and the Employers Federation?

The Prime Minister

Yes, Sir. We are having continual discussions with both the T.U.C. and the representatives of the employers, both on the Joint Committee and separately. We naturally wish these talks to continue, and are always ready to discuss any matters with them.

Mr. Henderson Stewart

In view of the importance the Government and the Prime Minister attach to the new sanction contained in the penultimate paragraph, is the House to be given an opportunity, after reflection, to discuss this important statement?

Mr. H. Morrison

We shall be prepared to consider that. It will not be long before there must be a Debate on the general economic situation and on the Budget in the ordinary way. It is for consideration whether this matter should be discussed in the light of the general discussion then, or whether we should make some special arrangements for a Debate. I should be quite happy for this to be discussed through the usual channels.

Mr. S. O. Davies

In view of the fact that employers generally will welcome the statement of the Prime Minister regarding the pegging down of wages, cannot the right hon. Gentleman be a little more explicit as to what policy the Government propose to adopt to peg down profits?

The Prime Minister

If the hon. Member will read the statement he will see that I have dealt with that matter. This is not a one-sided paper. It deals with profits, rents, wages, and all the rest of it.

Mr. C. S. Taylor

Can the Prime Minister say what positive action will result from this statement?

The Prime Minister

I cannot repeat what I have already said.

Mr. Cobb

Will the Prime Minister agree that in order to make this important statement effective, it is necessary to get it discussed in the workshops of the country? In order to do this we want an extension of the works councils. Does he think that industry and the trade unions know how to set up these councils, and does not further advice need to be given to industry on this matter? Would not the most effective way of doing this be to strengthen the regional organisations?

The Prime Minister

The principal object of making this statement is that it should be discussed in the workshops and everywhere else, in order that people may get a full grip of the situation. The specific point raised by the hon. Member hardly arises out of this statement.

Sir Arthur Salter

Will the right hon. Gentleman take adequate steps to see that the wages of the nationalised industries do not get out of balance with the wages in other industries, in view of the fact that there is no comparable sanction?

The Prime Minister

That is a matter for discussion between the trade unions and those responsible for the nationalised industries. It is a matter for collective bargaining, and we have laid down the general principles to be adopted.

Mr. Norman Bower

Can the Prime Minister say whether this statement means that the Government will now try to work out in conjunction with the trade unions a scientific, differential wages policy as a means of attracting labour into the most essential and undermanned industries?

The Prime Minister

We are trying to work out a general policy with regard to this matter. I do not know whether there is an exact scientific method of dealing with it.

Mr. Piratin

Is the Prime Minister aware that the demand for increased wages arises from the increased cost of living, and, as each week the prices of food and other commodities are increased by different Ministers, what guarantee can he give to the House that this will now cease, if he wants wage increases to stop?

The Prime Minister

These matters react on each other.

Mr. Speaker

Am I right in thinking that this statement is being issued as a White Paper?

The Prime Minister

Yes, Sir.

Mr. Speaker

Would it not save a lot of questions if we waited until the White Paper was issued?

Mr. Chetwynd

If there is no satisfactory response to my right hon. Friend's appeal either to keep wages stable or to lower prices and profits, will he consider taking very drastic action as soon as that situation arises?

The Prime Minister

That is a hypothetical question.

Mr. David Eccles

Will not the right hon. Gentleman agree that we shall not get voluntary co-operation for this scheme unless it is dramatised to the people? The real point is that the people do not understand how precarious is the balance of payments. Will the Prime Minister take some steps to bring home to everybody the dependence of this country upon the Marshall Plan, and will he make a real effort to show people how bad is our overseas situation?

The Prime Minister

I should have thought that that had been put across, and I find that most people are beginning to understand it. We must certainly not let up in our efforts to make every person understand the situation.

Lieut.-Commander Braithwaite

Does that mean that we are now around recovery corner?

Mr. Harold Davies

Is my right hon. Friend aware that both sides of the House appreciate the excellent patriotism of the trade union movement in Britain in this aftermath of the war in staying its hand in demands for higher wages, and will he consider following up the suggestion of dramatising this and making use of the B.B.C. to explain the real position of a wages policy in relation to profits and prices? Will he also assure the undermanned and underpaid industries that their position will be adequately considered by the Government and by the industries concerned?

The Prime Minister

We are, of course, very appreciative of the line taken by the responsible trade unions in this matter. As to the second point, we intend to do our best to get this across to the people in every possible way, including the use of the B.B.C. On the third point, we are very conscious of the importance of the undermanned industries.

Mr. Drayson

The Prime Minister said that wage earnings would be particularly hit by the increase in prices and by inflation, but mill he bear in mind that the old age pensioners and others with small fixed incomes will suffer the most?

The Prime Minister

Perhaps the hon. Member will wait until he has read the White Paper. There is a certain balance in it, and he will find all those points are covered.

Mr. Osborne

In view of the great urgency of this statement and the need to get the real co-operation of the T.U.C. to make it work, has the right hon. Gentleman any hope that they will respond to the appeals made today, seeing that for three months they have been discussing the problem and have come to no decision?

The Prime Minister

The hon. Gentleman does not seem to be trying to be helpful.