§ 4.28 p.m
§ Debate resumed.
§ LORD ABERDARE
My Lords, I am sure that the noble Lord had his priorities absolutely right when he interrupted me. He has ensured that I should thank him for a second time and indeed I do so willingly because he is doing a great deal of work this afternoon. We are grateful to him for introducing the Order, which he put very lucidly and clearly, though I cannot say that it is an Order that we welcome—in fact he will not expect me to do so. The fact is that we have on various occasions in the past debated the whole subject of the pay and incomes policy of the Government, and the noble Lord will know as well as I do that our views differ on this matter. Here we are with an Order which effectively brings an end to Stage 3 of our previous counter-inflation policy and introduces a new Government policy based on the so-called social compact.
Certainly one must recognise that the Government have done all that they can be expected to do to fulfil that compact. Every action that they have taken since they have been in power has been very largely guided by a desire to meet the wishes of the trade unions. They certainly cannot be accused of not having fulfilled their part of the compact. Indeed, if a voluntary policy of this sort would work then we would be the first to welcome it, but I must say that in present 1255 circumstances I should be very surprised if it did.
The T.U.C., as the noble Lord also said, are certainly doing their best to help the Government in implementing the social compact with their eight-point guidelines. I too had read a report in The Times and saw that the C.B.I. was equally in favour of accepting the guidelines put forward by the T.U.C. But the question really is: will the individual unions be able to stick to the compact and to the guidelines given by the T.U.C? Here is where one sees already ominous signs of what may happen in the future. The noble Lord mentioned the importance of private sector settlements, and one has only to look at the tape this afternoon to see that the Shell refinery dispute continues. Very large offers have been made but, as I understand the situation, one refinery having refused to agree, others are now going back on their agreements and the whole situation looks as if once more it will be a free-for-all.
If there is one bit of news on the industrial front which I should like to welcome, it is that there seems to be a good prospect that the hospital technicians may be willing to accept the offer which has been made to them. I am sure we all agree this is good and we all welcome it. But it is still at the price of a 20 per cent. increase, and I imagine that that is an increase on top of the Stage 3 increase and the threshold agreement increases which they will have had already. They are a deserving lot of people and we certainly need them very badly in the Health Service, but I am merely pointing out that these are high rates of increase.
In the background, there have been even more militant noises from the miners and many of the other large unions, particularly those working in the public sector, which wield tremendous power. Sad to say, the general impression is getting about that political action brings economic results. This is most unfortunate. There is a feeling that militancy pays and we have seen people working in occupations which normally do not engage in any form of industrial action taking such action, merely because they have seen it pay in other cases and so they feel that this is the way forward. I 1256 fear that the Government must accept some, if not the major part, of the blame for this situation. They have not shown sufficient firmness in the face of militancy, and this has weakened the position of the more responsible and less militant unions.
The noble Lord spoke, quite rightly, of having to avoid a wages explosion. But the situation is pretty grim at the moment. Figures published yesterday by the Department of Employment show that wages rates rose between April and May by 2.9 per cent. and between May and June by 30 per cent. If this continues at the same rate, wages will be 42.6 per cent. higher by June 1975—and that I would describe as a wages explosion.
§ LORD WALSTON
My Lords, may I interrupt the noble Lord for one moment, if he will allow me? Can he tell us how much of that increase is due to the effect of the threshold agreements, and how much is due to other causes?
§ LORD ABERDARE
My Lords, I think it is two-thirds of that amount which is due to threshold agreements; but those threshold agreements are only keeping pace with the rise in the cost of living. Meantime, prices are continuing to rise and it is people who are living on fixed incomes who are suffering so badly. The ship seems to be sinking beneath the waves of inflation, and yet here are the Government pulling out the bung and abolishing the Pay Board. Can this really be sensible at this time? The problem of inflation is so very difficult and so very important that we surely need every weapon in our armoury to fight it. I should have thought that even within the ambit of a voluntary wages policy there was a place for a Pay Board, and there could be a place for a pay code. But to do away with everything and put nothing in its place does not seem to me to be the right way of handling the matter at this moment.
We all want to see an end to inflation and it may well be—as the noble Lord, Lord Harris of Greenwich, put to me very strongly the other day—that it is right to attempt to return to a voluntary policy of determining wages. What I am arguing is that even if this is so it is a pity to destroy a Pay Board and a pay code, both of which could have continued 1257 under a voluntary policy. There is a great deal to be said for the continuity of institutions. It is valuable to continue with what one has, even if it has to be modified, and it would have been possible to keep a Pay Board which would continue to act in the way it has very usefully acted on the matters referred to it—matters such as relativities, London weighting and so forth—and to give advice. Equally, the code could have been adopted and could have comprised the T.U.C.'s eight points. I see a glint in the noble Lord's eye. He is probably going to say to me: "It was you who abolished the Prices and Incomes Board."
§ LORD ABERDARE
My Lords, I acknowledge that and I think, looking back, that it was a mistake. I do not know whether or not my personal view is shared by my noble friends. Noble Lords opposite certainly thought it was a mistake, but I regret they are now compounding that mistake by acting in the same way.
§ LORD SHEPHERD
My Lords, will the noble Lord agree that the Prices and Incomes Board was a Board to which matters could be referred, but upon which, at the end of the day, any decision had to be taken by Parliament, and therefore Parliament took responsibility? But the Pay Board, as such, acted as a sort of High Court, imposing its rigid decision on a work force without Parliament having any control whatever. Will the noble Lord agree that that is the difference between the two?
§ LORD ABERDARE
My Lords, the noble Lord is no doubt a greater expert on the legislation than I am, but, as I understand it, the Pay Board was set up to give advice and to help in any way it could. It would have been possible to retain the Pay Board as an advisory body under a voluntary policy. But what worries me is this. If the social compact does not work—let us hope that it does and that we get back to a voluntary system—the Government will have restricted themselves as regards alternatives. They will either have to allow inflation to run away or they will have to impose a very severe deflation or freeze. There will be 1258 no middle way through such a dilemma. All the complicated and delicate mechanism which existed within the Pay Board, which could have been used to find a middle way, will be destroyed by this Order and it will be impossible to bring it back quickly into action again. I think this represents a difficulty and a danger, and this is why it is unfortunate that the Pay Board is to go.
I was hoping that the noble Lord might tell us what the Government's policy on wage settlements after Stage 3 was to be. I read in the Financial Times this morning:The very least the Government must do is to spell out clearly that there is no scope for increases in real incomes over the next year.I therefore welcomed what the noble Lord said on this matter. I thought he made a very firm statement, and he was certainly right to say that, so far from there being no scope for increases in real incomes next year, we shall be very fortunate if we can avoid a fall in real incomes.
If there was one matter which the noble Lord mentioned which I also welcomed warmly, it was that the noble Lord, Lord Diamond, is to undertake the chairmanship of the Royal Commission on the Distribution of Income and Wealth. The noble Lord has a great deal of respect in this House. One regrets very much that he has to give up his post as Deputy Chairman of Committees, but I am sure there could be no better Chairman for the Royal Commission. I should like to pay tribute to the Pay Board and its Chairman, Sir Frank Figgures. It is never easy to administer a statutory wage policy and yet the Pay Board managed remarkably well through Stage 2, and even through much of Stage 3. Moreover, they tackled other problems referred to them, such as the Relativities Report and the London Weighting Report for which we should be grateful to them.
Although we will not oppose this Order, because it is clearly one of the main planks of the Government's policy, we deplore it. We think that it is a mistake. We all have one object in view; that is, to curb inflation. We all agree that the growth of incomes must be limited by our national productivity. We all prefer a voluntary policy for wage settlements but, unfortunately, we have all been forced to try different expedients. 1259 All we say now is, by all means let us try to see whether a voluntary system would work, but we think it unfortunate and unnecessary to destroy an institution which is capable of helping towards that end.
§ BARONESS SEEAR
My Lords, I will be brief, for much that needs to be said will be better said in the economic debate next week. First, I should like to apologise to the noble Lord the Leader of the House for not bringing in my seat when he began his speech, as I was detained elsewhere. Before turning to the Order, we are extremely interested to hear of the appointment of the Conciliation and Arbitration Service and are delighted to hear of the establishment of the Royal Commission under the chairmanship of the noble Lord, Lord Diamond. I can only echo what has already been said; there can be no doubt that a more knowledgeable and suitable person could not have been found for this job. It is a job which badly needs doing, for there is a great deal of mythology about wealth and income in this country which needs to be enlightened; and facts may make discussions about these problems a great deal more satisfactory than such discussions have been in the past. Not least, they will explode the idea that a redistribution of wealth or income, however desirable in other ways this may be, will do very much to help in the problem of dealing with levels of pay lower down the line.
We on these Benches have been highly critical of the Pay Board as an institution, and of the procedures under Stage 3. We believe that it was excessively centralised and excessively detailed. It led to a great deal of bureaucratic activity which we are better without. By instinct, we should like to see a free system of collective bargaining. One appreciates the difficulties in which the noble Lord the Leader of the House finds himself, but the problem of inflation is so stark and so serious that to expose ourselves at the moment, without any system of adequate controls, to be put on our trust in a voluntary system, however much we may want to see it work in the face of all experience to the contrary, seems an improvident act of the first order.
To continue price controls while having no effective controls over incomes is 1260 creating a position which is practically impossible for large sectors of industry. At the moment, as your Lordships know, there are two extremely difficult problems facing many parts of industry: lack of investment and a very serious cash flow problem. If prices are held down and pay goes up and up, both those problems must inevitably become more serious. The Trades Union Congress, I am sure in good faith, have said they want to restrict pay increases to keep pace with the rising cost of living, and have told their members—not a moment to soon, and, indeed, many moments too late—that an increase in pay above that level is unreasonable. Even to keep up with the present standard of living, threshold agreements are in themselves extremely inflationary. This has to be said again and again. For the really low paid, provision must be made; but this country is now faced with economic problems of an extent which were not anticipated when these regulations were brought in.
To say that everybody can expect to maintain their standard of living is to encourage people to live in cloud cuckoo land, which is an extremely irresponsible thing to do. As if that were not enough, we are relying on totally voluntary machinery to see that even that inadequate objective is maintained. There is a social compact; the T.U.C. have said they will attempt to keep pay increases down to the level of cost of living increase rises. But supposing they do not? We in this House must put that question. I have already said that threshold payments are far too inflationary; and a Government really determined to govern and to look after the interests of the country and tackle the major problem of inflation must, sooner or later, face the issue of the threshold payments. Accepting that we are working within that framework, inadequate though I believe it to be, what will the Government do when those pay increases are exceeded when increases are given above the levels of the threshold agreements?
We in the Liberal Party have been urging that there should be an inflation tax. Will the Government explore the possibility of this operating in circumstances when the advice of the T.U.C. is ignored and in which concerns, pressured by the unions or for whatever other reason, give way to pay increases which are above the 1261 threshold agreements? The country have a right to be assured that the Government have some policy as to what they will do when the threshold agreements are exceeded. An inflation tax would be one way of dealing with the problem.
There is another way which might be easier. It is not a policy which has been widely supported but it needs consideration at the moment. The T.U.C. have said that the twelve months' period for pay increases should be the normal period and they would discourage any shorter period—for what that is worth. One way of dealing with excessive claims is to extend the period of time between one pay increase and another. If a particular bargaining group exceeded the threshold limit, would it not be possible to insist that there should not be an additional payment until a longer period than twelve months had passed, so that the extra payment, which was an excessive pay increase, was spread over a longer period of time? At least these are two possible weapons the Government could use.
It is essential that the Government should tell the country what they propose for when the promise to keep within the threshold agreement is breached, let alone what they intend to do when threshold payments are made which are greatly in excess of what the country can afford without a horrifying increase in inflation. We are getting into the habit of living with ever-increasing inflation as if it is something which will go away if we do not do anything about it. This is a crisis of major proportions. To talk as if we can leave the handling of pay to voluntary agreements, which we hope will be honoured—although past experience shows they will not—can only be described as irresponsible.
§ 4.50 p.m.
§ LORD WINTERBOTTOM
My Lords, I hope that your Lordships will not think I am being melodramatic when I say that we are standing beside an open grave in which we are about to inter a valuable organism. I am not mourning the demise of the Pay Board so much from the point of view of its function of fixing wages and salaries; I am mourning its departure because of its role—a potential role which has hardly yet been put fully to the test—of acting as arbiter between the conflicting 1262 interests of various groups within organisations. I myself, as someone involved in industry, believe that free collective bargaining is the best way of arranging wage rates and salary rates. The period of Phases 1, 2 and 3 produced distortions which were very difficult to overcome and created quite unnecessary turbulence within companies when individuals who had to raise their standard of living left for other jobs when they would not have done so if they could have negotiated rises between themselves and existing management.
However, my Lords, freedom means responsibility. One basic law which must never be forgotten is that no one has any rights unless someone else exercises his or her responsibilities. The trade unions have no rights unless they exercise their responsibilities. If the social contract can be made to work, so much the better; we would all welcome it. It is of course the best way of running our affairs. I believe that a majority in the Labour movement and a majority in the trade union movement want it to work. But there is a minority that does not, and within that minority is another minority which would like to smash the whole machine. We must not forget that. But whatever we say about it, even if we could make free collective bargaining work properly, it does not settle those problems that arise when there is conflict between groups within organisations as to their relative position in the organisation. This is why I regret the departure of the Pay Board. It did two useful jobs. It laid down a relativity position for miners; it laid down, I understand, the London allowance. There is a vast area in which an independent arbiter could work if its role was accepted and it had power to enforce its rulings. This is really the only point I wish to put to my noble friend who is winding up to-day. What is going to take the place of the Pay Board as an arbiter of conflicts within industries? We have this new Conciliation and Arbitration Service. Will it be performing this function? Will it have power to enforce its rulings? We have heard that we are about to have a Royal Commission. But God help us all if we wait on the decisions of a Royal Commission! It is a very stately thing, a very splendid thing. But we have to get through the coming winter, we have to 1263 get through the coming year, and I do not see a Royal Commission reporting within two or three years from now.
As to the kind of areas I am thinking about, first let us take the railway system. Three unions are involved, with ASLEF fighting to maintain its position although there are railway drivers within the National Union of Railwaymen. The position within the railways is totally nonsensical. There should be some organisation—the Pay Board or some other—which, after a study of relativities, work study and the rest (the kind of techniques used to produce the military salary), will lay down a ruling on the actual relative value of the driver, the clerk, the railway cleaner, everybody concerned over the whole gamut of operations within the railway system, all of whom must perform properly if the system is to work, and then make the ruling stick. This is even more important in the National Health Service. Every group that works in the National Health Service is essential. That is the basis of society. Wherever we find ourselves we must do our job, and if we do not do it then society breaks down. It is no good for Mr. Clive Jenkins to say that the consultants are money-grubbing. Let us be honest. We are all money-grubbers. I am money-grubbing at the moment. We are all money-grubbing. We could all live like millionaires, but the hard fact of life is that there must be an impartial referee who can say:"Your job compared with other jobs is worth this. Your job compared with other jobs is worth that. "As I said earlier, if we are to have arbitration we must at the end of the day have power of enforcement. I know that this is a difficult and tricky subject.
One of the main problems in our society to-day is that people do not welcome discipline of any kind. The rule of law becomes less and less important and people are depending more and more on the power of their own right arm in order to get what they want. People should think where, ultimately, the real power in this country lies. The strong right arm lies a long way away from some of the people who are trying to grasp power at the moment. I am afraid that, unless whoever has to take on the terrible responsibility of reconciling the conflicting demands which exist within our society 1264 at the moment is willing to stand firm in the most difficult circumstances, then individuals such as I myself will start drifting away from the Party and going elsewhere. The departure of Mr. Mayhew and the noble Baroness, Lady Stocks, is not without its significance. They are individuals, but they are the first swallows in a migration which may become a very large one.
Therefore, I should like my noble friend Lord Shepherd to let us know what powers he sees any body which is going to tackle this problem in the future can have to ensure that conflicts within organisations are resolved and do not destroy those organisations. I am afraid that we are not going to enter the age of Aquarius, but we are going to enter the second Iron Age, and only wise policies rigorously enforced under rule of law will, I believe, enable a sytem of democracy to survive.
§ 4.57 p.m.
§ LORD ORR-EWING
My Lords, it is an honour to follow the noble Lord, Lord Winterbottom. I agree with very much that he has said. I should like to add my congratulations on the appointment of the noble Lord, Lord Diamond, to the Royal Commission. I can think of no more clear-minded servant of another place, and now of this House, than Lord Diamond. It has been my privilege over some 20 years to join him in the Lords and Commons ski team. Having seen his very gallant performance on skis, I can only hope that he will recommend that taxes go down just as fast as he himself does when he has skis on his feet. I add my views to those of the noble Lord, Lord Winterbottom, the noble Baroness, LADY Seear, and my own Front Bench. At this moment the abolition of the Pay Board seems both improvident and foolish. It is one facet of a counter-inflation policy which has performed, and could perform, a useful function.
All Governments, rightly so, are somewhat reluctant to become directly involved with pay negotiations. I do not think they should do this task; they are not set up to do it. This is why the previous Government contrived a Prices Board, a Pay Board and a Code. The Pay Board can do something which the specialist commissions and inquiries which we set up cannot do. It looked intensely at the question of relativities, and that was much 1265 better done by such a body than by a Royal Commission or by a specialist organisation. We serve from this House. The noble Earl, Lord Halsbury, is looking into the question of nurses' pay. The noble Lord, Lord Houghton of Sowerby, who has so recently joined us here, is looking into teachers' pay. If we abolish the Pay Board we do not have a body which can take a more general view. The work done by the Pay Board on relativities was useful. To some extent it discouraged leap-frogging. Individual inquiries so often come forward with a recommendation for a generous settlement, but somehow it is not within their terms of reference to take account of the repercussions that that settlement can have thoroughout the whole of our economy. I think that the Pay Board had referred to it in its very early days as,the criteria and methods which should determine the pay of the Science Groups in the Civil Service.This has long been a problem and it is just the kind of problem with which the Pay Board could deal. As noble Lords have reminded us, it looked also into London weighting.
My Lords, nobody, doubts now that wage claims are the single biggest factor in adding to inflation. I am bound to say that this was not said quite so loud and clear during February, and I was pleased when Mr. Healey said at Durham on June 1:There are at least some signs that the price of our imported raw materials may level off in the months ahead".So what happens to wages is the key to controlling inflation in the coming years. In to-day's copy of The Times, Mrs. Shirley Williams made it clear that in four or five months the main stimulus to inflation would come from incomes rather than from commodity prices. And it was repeated by the Government Front Bench to-day. Therefore, on all scores we recognise now that this is where the danger lies, and I am bound to say that the type of wage claims which are now being submitted, pressed or granted underline the dangers.
In the private sector we have seen 55,000 electrical contracting workers being offered, with effect from January 1, 1975, a 41 per cent. increase in their basic pay. The oil tanker drivers have negotiated a deal with Shell-Mex and 1266 B.P. which is worth nearly a £30 million increase immediately Stage 3 ends. In the public sector ASLEF have claimed a 30 per cent. wage increase and the National Union of Mineworkers Conference has just narrowly rejected a 35 per cent. claim backed up by industrial action. But they want in November—that is, eight months after the last increase—something between 30 and 40 per cent. One has to remember that a similiar increase was given only last March. So much, therefore, for the social contract. In parenthesis may I say that it is a" social contract "although my noble friend kept calling it a "compact"
May I return to page 9 of the Labour Manifesto. At the bottom of that page it saysThis is the essence of the new social contract which the Labour Party has discussed at length and agreed with the T.U.C.".So do not let us have any flannelling about this. It is a contract; it was thought of as a contract; and it is a contract which we are talking about. Therefore despite the asurance that there were going to be wage claims only once every year, at the moment the National Union of Mine-workers, for reasons which we understand, are claiming that theirs should date from the beginning of November—just before the start of the cold season.
Any Government who peg prices and abolish restraint on wages or rely only upon the contract are taking the gravest possible risks with the future of British industry and British commerce. This action is even more surprising, because not only is it suspending the Pay Board but it is abolishing it and making sure that no future Government, or even the present Government if they are re-elected, can make use of the Pay Board, should an emergency arise. They are throwing out all possibility of flexibility and they will have only one possibility. That is to say, in the face of desperate wage claims they will have only one alternative—a pay freeze. It seems to me that that is an undesirable alternative while the Pay Board is in existence.
The effect of this Order is not only to abolish the Pay Board but to abolish the power in the Counter Inflation Act to re-establish a pay board and to promulgate a code for the guidance of that pay board. Fresh main legislation would thus be required, and everybody knows how long this would take to go through 1267 two Houses of Parliament, whatever Government introduced it. The Government have thus stripped away their reserve powers to act on wages in an emergency by any other means than one—a wage freeze. If we had achieved at this moment the social contract and if it looked as if it were abided by and respected by all and sundry, then I could understand it; but I cannot help feeling that the Government have given away everything that the T.U.C. wished, although they have not yet got a confirmed social contract in return.
I, like the T.U.C. and the C.B.I., have always wished the social contract well. Ever since 1969, when the Government of the day were forced to abolish In Place of Strife, successive Governments have been struggling with this problem. None of us has yet found a successful conclusion. Therefore I wish the social contract well. However, I wonder whether we can achieve the result that we all desire by giving everything away first and then hoping that we shall obtain an honourable settlement and something which will be binding in exchange. Therefore it is worth reviewing just what this Government have done in their efforts to obtain T.U.C. co-operation.
They have increased taxation by £1,400 million, so that everybody with above average responsibilities and above average initiative or above average energy has to pay more tax. They have increased corporation tax. They have introduced advanced corporation tax. This is surprising, because the whole of British industry will clearly be short of investment funds in the future. In the face of the present inflation, the cash flow problems of almost every firm are really alarming. Therefore it seems to me slightly contradictory to urge British industry to invest more in future capital equipment and at the same time to deprive them of the funds with which they would invest. Fourthly, they have levied higher national insurance upon all firms and upon all industry. They have instituted a temporary rent freeze and they have introduced a limit of £500 million on food subsidies. Then, in accordance with T.U.C. demands, they have tried to refund £10 million of tax to them. They have abolished the Industrial Relations Act. They have amended the law to help picketing, and I hope 1268 that we have now got something rather better than the original. They have announced in this House "majority public participation", which we call nationalisation of North Sea oil and gas, and last of all they have abolished the Pay Board.
My Lords, it was Lord Kennet, a Labour Minister in the last Labour Government, who unfortunately is not often in our House to-day, who pointed out in the Sunday Times on January 6, 1974, that88 per cent. of the votes of the Labour Party Conference are cast by Trade Union Leaders. About 85 per cent. of the money for the Labour Party's Central Organisation comes from the trade unions".Nobody would have worried unduly about that a decade or two decades ago when the trade unions were dominated by Labour leaders of stature, character and intense loyalty to our country. Now, however, the position is different and one cannot help noticing the emergence of strong, militant, Left-Wing leaders in so many unions which are important to British industry. Therefore I feel that we are doing away to-day with one further breakwater, one further body which could have helped to contain inflation.
It seems to me that in the next few weeks or months that this minority Government will continue to rule, it is a pity not to leave this instrument available to us. It is a pity not to leave it there so that perhaps at some time in the future it may be made use of. May I add that the electorate are intensely bored by the vision of one Party undoing everything that the previous Government did, and in this respect I think that they are undoing it unnecessarily and imprudently.
§ 5.9 p.m.
§ BARONESS WOOTTON OF ABINGER
My Lords, I apologise for intervening without notice. I overlooked the fact that there was to be a pre-arranged list of speakers on this Motion. As many of my noble friends know, I am slightly less optimistic about the future of the voluntary policy than is the official doctrine of my Party. Nevertheless, I am very happy to take part in the funeral obsequies of the Pay Board. I had thought of buying a wreath to lay upon the coffin, but my noble friend Lord Shinwell advised me that I could find better uses for my money.
1269 My Lords, I welcome the demise of the Pay Board because it was uniquely designed to get the worst of both worlds. In most of its functions it had a strictly legalistic function in which it had no discretion whatever. It had to look at agreements and see that they conformed to the letter with a code which was not of its own making. It performed that function with great energy and covered an enormous number of agreements and certainly it cannot be faulted in the way in which it discharges that function. Suddenly, at the end of the year, it was moved from no discretion to total discretion. Its advice was asked on one or two subjects and then it was given the duty of finding a solution to the miners' dispute, a problem which had defeated everybody and which had caused the dissolution of Parliament. Such was the confidence placed in the discretion of the Pay Board—which had never previously exercised any discretion—that the then Prime Minister expressed his willingness in advance to accept whatever decision the Board might arrive at. That seems to me to be a combination of the worst of both worlds.
The noble Lord, Lord Aberdare, referred in passing to the Prices and Incomes Board and I should like to point out a fundamental distinction between the Prices and Incomes Board and the Pay Board. The Prices and Incomes Board had a discretion, but it was a discretion that was controlled by certain rules laid down in advance. No such rules governed the discretion of the Pay Board once it was given its head; mind you, it used its head very well and arrived at the only decision that would have been politically possible, but that is another story.
The Pay Board was allowed to go up to a prescribed figure, but to make four exceptions. To put it briefly, there were exceptions where workers made special contributions to productivity; exceptions in cases where the wages did not provide a reasonable standard of living; exceptions in cases where they were not being paid as much as people doing similar work and, fourthly, exceptions in cases where it was necessary to redirect manpower in the national interest. These may or may not have been the right criteria, but they were criteria. In my view, there would be no future for any 1270 kind of wages policy unless we had some criteria, whether the policy was voluntary or whether it was statutory. My Lords, I hope we shall never resurrect the Pay Board but we might one day find ourselves resurrecting something very like the Prices and Incomes Board.
§ 5.13 p.m.
§ LORD ROBBINS
My Lords, I apologise for not having put my name down to speak. I came to this debate not meaning to speak, but the weighty pronouncement of the noble Lord the Leader of the House leads me to beg for two or three minutes in which to indulge some further reflection.
I am bound to confess that in the abstract the prospect of the operations of the Pay Board in the past have never filled me with great enthusiasm. I used to listen to a great many of my friends—and I have many of them in the Labour Movement—assuring me that the policy of full employment would not work if there were not some statutory control of prices and incomes. How often have I sat in this Chamber and heard the noble Lord, Lord Balogh, expatiating in terms to that effect. I myself have always been sceptical. I have looked at the verdict of history—and after all there is a good deal of history in the background of attempts of this sort in different countries, and so far as I can see they have always in the end broken down. Our own experience in that respect simply confirms that impression.
But I ask myself still: what purpose ought one to have in mind in considering the operations of this body; and if that purpose is not being fulfilled, what are the alternatives? So far as I can see, it would be perfectly futile to expect that an inflation of the order of magnitude that we are undergoing at the present time could possibly be cured by the operation of a prices and incomes policy—to use a slightly broader term—just like that. It is an extremely feeble instrument with which to cope with the powerful forces which are disrupting economic society here and in many other parts of the world at the present time.
However, I think that given good will and general acceptance, a pay policy at any rate might have the function of arresting the increase of unemployment. If a Government are 1271 determined to tackle high inflation (if not hyper-inflation) by the only means by which it can be fundamentally eventually controlled—namely, by a tighter control on aggregate expenditure, either through the monetary or the fiscal weapon—then the existence of a pay policy, the existence of a policy which will prevent associations of producers putting up their demands at a time at which the rate of increase of aggregate expenditure is being reduced, would mean that there was less of a depression than otherwise would be the case.
For that reason when the last Government introduced their policies regarding pay, although I was always gloomily sceptical I was prepared to pay lip service to the desirability of making the attempt. I do not know of any case in history where an inflation of the order of magnitude that we are suffering at the moment has been eventually arrested without causing a certain amount of depression. It seems to me that if the brakes were put on, as it was desirable that they should be put on, then the existence of such a policy might mitigate the difficulties.
The last Government certainly did not do that. The last Government pursued utterly contradictory policies. They attempted to control prices and incomes directly, but at the same time they let the volume of aggregate expenditure go rip. While it was ridiculous to hope that the gross national product should increase by more than 6 per cent., let us say, in the last twelve months of the Conservative Government, the credit base, the famous "M3", was increasing by something of the order of magniture of 25 per cent. No prices and incomes policy in the world will arrest disaster if the volume of purchasing power released by such an increase in the credit base meets a diminutive increase in the value of production of that order of magnitude. So we got, and are getting and will get for the next few months at any rate, a continuation of a most disturbing rate of inflation.
I have no particular love for the policies pursued by the present Chancellor of the Exchequer but, credit where credit is due, either the Chancellor of the Exchequer or the Bank of England have succeeded in reducing the rate of interest of the 1272 credit base. Whereas under the last Government the credit base was increasing by a rate of something like 25 per cent. per annum, it has now been reduced to something more like 16 per cent. per annum. A very sharp reduction, a very sharp application of the brakes, if I may say so; an application which I should expect to find in the months to come if he persists in it (which I suspect he will not) accompanied by some diminution of economic activity and eventually perhaps by some diminution of the increase in prices.
§ LORD ORR-EWING
My Lords, may I interrupt the noble Lord for a moment? He is always so fair, but surely it would be right to say that some of the marked reduction in M3 is as a result of the actions taken by the Chancellor of the Exchequer at the end of last year. These things always take much longer to react than successive Chancellors hope and believe.
§ LORD ROBBINS
My Lords, sitting as I do absolutely firmly fixed to this particular Bench, I am not in the least unwilling to give some credit to Mr. Barber for his belated reversal of policy in that respect. I certainly concede the policy of Mr. Healey has been eased by what was done by his predecessor then. However, that does not relieve his predecessor of all condemnation for what had happened before that.
My Lords, what is going to happen in the future? This is the important point, and the point which, after all, is raised acutely in the Statement by the noble Lord, Lord Shepherd. The rate of increase of aggregate expenditure has been substantially reduced. Now, supposing that this gives rise, as it certainly will give rise, to some diminution of industrial activity, to the emergence of some unemployment; and supposing at the same time, the Pay Board having been dissolved, there are claims here and there for rates of increase incompatible with the norm laid down by the noble Lord, Lord Shepherd. In that case, I submit that if the present policy of monetary and fiscal restraint is adhered to, there will be more unemployment than there would have been otherwise.
What are our defences against that? Noble Lords on all sides have talked about a social contract, or a social compact. As I sat here, I must say I was 1273 mystified. I have been away in different parts of the world from time to time during this Session, and I wondered whether I had missed the issue of some important White Paper. Then I recalled an article which I read in Private Eye the other day, about the discovery of the social contract in a bookshop in Reading by an old lady turning over a parcel of secondhand books. I wondered whether there does in fact exist a contract in any intelligible sense of the world, if it is used in a constitutional or other stricter meaning. So far as I can see, "social compact" (which in all good faith and with convincing rhetoric is referred to by the noble Lords, Lord Shepherd and Lord Aberdare, on the other side) is simply a pious hope that everyone will behave nicely, and that somehow or other a more decent form of society will be evolved. This is a hope which I share.
Meanwhile, and I ask the foregiveness or noble Lords for speaking longer than I had intended, what are you going to do if the austerity in aggregate expenditure continues and there is a slackening in the volume of employment? What are you going to do if at the same time some trade unions infringe the norm which has been laid down by the noble Lord, Lord Shepherd? Are you going to see more unemployment, or are you going to reverse the fiscal engines again, and land us still further in the international mess which overhangs the Western world at the present time to a degree few of us in this Chamber, I fear, fully realise?
§ 5.25 p.m.
§ VISCOUNT ECCLES
My Lords, I do not wish to keep the House for more than a few moments, but I should like to give a rather different reason why I hope the Government will think again about abolishing the Pay Board. As inflation has continued in this country, what has happened in many industries and certainly in large parts of the nationalised industries, in Government agencies and no doubt in the Civil Service is that relativities between skilled men and the lower grades have got so out of balance that we are now losing our skilled men to jobs which have very much higher rates of pay, but rates which we simply cannot pay. I will give your Lordships a number of instances.
In the British library world, there are men of the highest skill. We are not 1274 allowed to pay them more than £36 a week. At the same time, we are allowed to pay, and do pay, £32 and £33 a week for totally unskilled young persons coming in to serve as warders. It may be all very well to say that the lower paid worker ought to have more than he had in the past, but if one squeezes the differential to that extent, men who have given twenty to thirty years to learning a skill will go off into the building trade. I have very much in mind two men who are getting £60 a week on demolition sites although they have no training whatsoever for demolition, and these are two men who are in key positions in their skill, and in bodies of several hundred. This sort of thing is going on all over the country.
I ask the Government, what sort of machinery have we got, if the Pay Board disappears, where some of these relativities can be examined and put right? It is a hopeless doctrine that we simply allow leap-frogging to take place over and over again, so that every time the lower paid grades get £30 plus, we then have to give £15 to £20 a week more to the skilled men in order just to keep them where they are. In the last six months, inflation has gone on so fast that we are faced now with what some people say is revolution; but it is not revolution, it is disintegration. Disintegration is occurring in many of the key industries and firms in this country, because the balance between their skilled workers and semi-skilled workers, let us say, is now collapsing and men cannot be replaced. I do not see how they can be replaced. There are no training places. There are not enough means by which we can get, for instance, skilled book-binders. We cannot create skilled book-binders. But if they get double in money by going on to a construction site, who are we to blame them? We must have some form of machinery. I do not think this is a political question—whereby we can keep the balance between skilled and unskilled men something like it used to be. Otherwise, disintegration will take place at an ever-faster rate.
§ 5.30 p.m.
§ LORD SHEPHERD
My Lords, the noble Baroness, LADY Seear, who was in her place a few moments ago, referred to the debate that we shall have on 1275 Tuesday week on the economic situation, a debate that we customarily take at this time of the year when the Finance Bill comes from another place. That is a Bill of which, on occasions, we take a particular view, but on which, over many years now, we have adopted the custom of merely passing it. But that is an opportunity when we can debate the situation, and we shall also be able to debate in the light of a Statement which I hope my right honourable friend the Chancellor of the Exchequer will be making in another place on one day next week. I have to be careful as to which day it is. I am not sure what Statement has been made in another place earlier this afternoon. But we shall then be able to deal with some of the matters, particularly those about which the noble Lord, Lord Robbins, spoke this afternoon. Since I will have the misfortune of having to wind up that debate, and I have been warned it is more likely to be the July blood-letting for Oppositions of either Party, I shall read with very great care what he has said this afternoon in order to be in a better position to reply to him in that debate.
We can all have one understanding, that this country is facing perhaps its gravest of economic problems and difficulties for very many years. On the other hand, I would not take the view that the position is as critical as some, particularly writers in the Press, tend to make it. But inflation running at its present level, and what it may be running at at the end of the year—and here I would agree with the noble Lord, Lord Robbins, in a speech he made here many months ago—will place intolerable strains on the whole fabric of our society.
When this Government came into Office we were confronted with one of the consequences of a statutory pay policy. We took Office with the miners on strike and this country coming to a complete dead halt. If it had not been for the previous Prime Minister deciding to give full discretion to the Pay Board and making it an obligation to accept in full whatever it decided, even this Government, bound by the legislation that was ruling at the time, would not have been able to negotiate out of that difficulty and get the miners back to work and get industry 1276 back into full swing. If there was any lesson to be learned of the rigidity and the inefficiency and the danger of a statutory policy such as the one that had been adopted by the previous Administration, I suggest that the coal industry dispute was a classic example.
My Lords, I would agree to some extent with the noble Lord, Lord Orr-Ewing, and my noble friend Lord Winterbottom, that there are some union leaders who are more militant than the traditional leaders of the trade union movement immediately after the war. The noble Lord, Lord Orr-Ewing, mentioned the great patriots of Deakin and Bevin and many others. But I think it is very unfair, in the way in which the noble Lord Lord Orr-Ewing, spoke, to suggest that the present leaders of our great trade union movement are less patriotic, have less interest in the welfare of this nation than the men whom we have been acclaiming as the great trade union leaders immediately after the war. I would say to the noble Lord, Lord Orr-Ewing, that the workmen of this country, the trade unionists of this country, have got more at risk in the economic future of this country than the capitalist, the owner of capital. The workman cannot take his one asset out of this country and find a safe haven in Jersey or Zurich; he has to stay here, for good or bad; whereas the man with capital, an asset, can take it, as he has taken it. I would say to the noble Lord, Lord Orr-Ewing, that when I see the amount of capital to-day invested in property in Brussels and Paris and New York and Montreal, I feel that if only part of that had remained in this country the investment that the noble Lord, Lord Orr-Ewing, has talked about so many times as being required for industry would well have been made.
I do not want to get into an argumentative stance to-night; I suspect that I will be there on Tuesday week, and I do not want to fire the shots that I have in my locker. But at least can we accept that we are in a difficult situation, that the pay policy of the previous Administration had collapsed and something had to be done. What could be done? The continuation was not possible, and so we followed the policy that we had preached and preached when we sat on the other side of the House for three and a half years, and which hardly ever was really 1277 listened to. We said we would go for a policy of conciliation and not confrontation.
When we took office, or even prior to that, we sat down with our friends at the T.U.C., and with my noble friend Lord Feather who was then leading for the trade union movement, and we sought to work out an economic policy, a social contract: not a contract which was written out in any legalistic terms, but a contract that was an understanding between two sides of one movement, seeking for something that could at the end bring us out of our difficulties. What was it? On the trade union side they said: "If you are the Government, will you do this and this and this?", and they spelled it out, and it was in our Manifesto. True, we may not have got most of the votes, but I believe most people in this country would accept that side of the contract that the T.U.C. asked of us. We then said to the T.U.C.: "If we do this, will you deliver?" They have undertaken to do all that is within their power to deliver. I have no doubt at all that they will do their best.
I have no doubt at all that in the first few months after the removal of the Pay Board we shall go through a difficult time, we shall see some rather unpleasant wage settlements. We have seen one or two in recent weeks, but when one examines them one finds that most of those are as a consequence of anomalies. I think particularly of the medical hospital technicians, whose wage claim, I believe, was accepted but was caught by the pay policy. Nobody will deny that that section of the community is entitled to a major increase.
There will be difficult times ahead, and I accept that the Government are undertaking a degree of risk here. But I have to say to the House that I do not believe a statutory wage policy is possible in today's political and economic climate. We have got to find another way, and that is what we are seeking to do, in co-operation with the T.U.C., and, I hope, with the C.B.I. I have to be frank. The noble Baroness, LADY Seear, asked what happens if we fail. I hope we shall not have to anticipate failure, because I must admit that I would not know how to answer the question put to me by the noble Baroness, LADY Seear. I think we have got to pursue the policy that the 1278 Government have adopted and hope that we shall get the co-operation of both sides in private and public industry, whether it is employer or workpeople, so that within the next 12 months we can certainly keep the increase in wage limits to no more than compensating for cost of living rises. If we can retain that situation for 12 or 18 months, or two years—the longer the better, if people's patience will hold—then I believe we shall create the framework to use as a springboard for far better achievements than we have had in the past.
§ LORD WINTERBOTTOM
My Lords, before my noble friend sits down, could he say anything about relativities?
§ LORD SHEPHERD
My Lords, I think that my noble friend will find that this can be dealt with within the Conciliation and Arbitration Service. I am fairly sure of that, but I will write and confirm it for the noble Lord.
§ On Question, Motion agreed to.