§ 3. 48 p.m.
§ The LORD PRIVY SEAL (Lord Shepherd)
My Lords, with the permission of the House, I will repeat a Statement now being made in another place by my right honourable friend the Chancellor of the Exchequer. His words are as follows:
"With your permission, Mr. Speaker, I should like to report to the House on the outcome of the discussions between the Government and the TUC on pay and on the wider operation of the social contract during the year from the beginning of next August. The House will already have heard about the conclusion reached by the General Council of the TUC at their meeting this morning.
"In my Budget speech I said that, in order to end next year with an inflation rate at least in line with our foreign competitors, we should aim at a further halving of our inflation rate by December 1977; and that this would require that in the next pay round the nation's money wage bill should rise by under half as much as it is likely to rise in this pay round.
"I went on to say that the tax reliefs I was describing were based on the assumption that the pay limit in the next round would be in the area of 3 per cent., but that much would depend on the way in which the new policy was structured.
"Early this morning the Government reached agreement with TUC representatives on recommendations they would make to the TUC General Council to implement the Government' s counter-inflation policy in the twelve months beginning on 1st August 1976. The General Council have now endorsed these recommendations by a very large majority and will commend them to a Special Conference called for 16th June.
553 "On pay, the Government's discussions with the TUC concentrated on two main questions. They were the structure of a new pay limit for the year from 1st August 1976; and the level of the limit and its impact on the nation's pay bill. On structure, the discussions produced an increasingly strict and tight form of limit, reducing progressively the risk of extra earnings increases through exceptions or leakage.
"On the level of the limit, both sides were concerned to reach a conclusion which met the Government' s counter-inflation requirements; which protected the low paid but at the same time gave more room for differentials than the £6 limit; and which, above all, would command the support of the trade union movement at all levels; there is no basis on which any incomes policy is likely to succeed in practice other than the understanding and support of those on the shop floor.
"The result was a pay limit which, if approved by the TUC Special Conference, can be expected to add on average about 4½ per cent. to wages and salaries. This increase of about 4½ per cent. is well under half the increase represented by the £6 limit. That limit was equivalent to about 10½ per cent. and the effect of equal pay and certain transitional provisions was to add upwards of I per cent. to that.
"The new limit permits a maximum weekly increase of £4 and a minimum of £2.50, with a 5 per cent. limit on increases for those in the middle band of earnings. The effect of the low upper limit is to reduce the impact of the new agreement on the pay bill to about 4½ percent. I attach the highest importance to the clear and straightforward structure of this new pay limit. It was widely expected that there would be more exceptions and complexities in this second year of the policy, and I myself assumed that this would be so at the time of the Budget.
"In fact the structure of the new limit is in some respects even simpler than it has been for the £6. We do not on this occasion have to provide for large equal pay increases or transitional exceptions outside the pay limit, which in the current year have added appreciably to the pay bill. Next, there is no 554 question of consolidating pay increases under the £6 policy into basic rates: this alone could have added as much as 2 per cent. to the total pay bill.
"No special exceptions are proposed for productivity bargains. There is no loophole for rectifying what people may see as anomalies. The calculation of pay increases during the year from 1st August is quite unambiguous, and avoids the uncertainties of the pay bill for a group. The increase will take the form of a supplement to the pay of the individual, calculated week by week or month by month as 5 per cent. of his total earnings, subject to a floor of £2. 50 and a ceiling of £4, which will apply to incomes at all levels above £80 a week.
"Apart from the changed form of the limit, the rules for the £6 limit will continue to apply, subject to a minor exception to permit the negotiation of occupational pension schemes up to the level required by law to permit contracting out of the State scheme, which the Government announced last July.
"This 4½ per cent. level of pay increase is likely to be below that in practically all the Western developed countries this year; even the Germans, with their excellent record, are seeing a rate of increase of about 5½ per cent.
"The Government regard these proposals, like the £6 proposals before them, as a thoroughly responsible and statesmanlike response by the TUC to the needs of the counter-inflation programme.
"The recent discussions have not been confined to pay alone. The TUC have naturally stressed the vital importance of keeping the rise in prices to the minimum during the period of the new pay policy. Price controls must not be swept aside while an incomes policy is in operation. The Government therefore believe that price controls on both profits and costs must continue at this time but that the price control regime must be so modified as to encourage investment and jobs in our economy. My right honourable friend will be discussing current price controls and the essential changes that we believe must be made to ensure 555 economic growth with the CBI, the TUC and all other interested parties. As soon as these discussions have been concluded, a further Statement will be made to the House and a Consultative Document will be issued in the normal way.
"In order to contain the effect of price increases on those with growing families, I propose not to proceed with next September's 5p increase in school meal charges. This will cost £35 million in the current year. It is something to which the TUC representatives attached great importance in our talks.
"The TUC have of course been equally concerned with jobs and training. As recent surveys have shown, demand from exports and investment is now expected to increase rapidly and the prospects for employment are much brighter in consequence. Since the last TUC Annual Congress I have brought forward four separate sets of selective measures, in September, December and February and again in my recent Budget, to improve the prospects for employment, both directly, as through the introduction and improvement of the Temporary Employment Subsidy, and indirectly, for example through the additional expenditure on industry schemes and to extend facilities for industrial training.
"The full effect of these measures has not yet come through but we estimate that over 100, 000 people already have jobs or training places as a result of them. I now propose to allocate an additional £15 million for training and job creation by the Manpower Services Commission.
"The additional expenditure of £50 million will be charged against the contingency reserve and will not add to the expenditure totals announced in the Public Expenditure White Paper.
"The Government are satisfied that the new agreement, if approved by the TUC Special Conference, will, as I have explained, meet the requirements of the counter-inflation policy. When that has happened, they will recommend to Parliament the enactment in full of the conditional tax reliefs specified in the Budget."
My Lords, that concludes the Statement.
§ 3.58 p.m.
§ Lord CARRINGTON
My Lords, I think it is arguable, and perhaps even more than arguable, in commenting on this Statement, for which we are grateful to the noble Lord the Leader of the House, that the country really cannot afford an increase of incomes at all. If we look around at our competitors and compare their situation to ours, it certainly is not very reassuring. Though, of course, 4½per cent. is a great deal better than nothing, it is not as good as the 3 per cent. which the Government themselves said was all that they felt could be afforded. Nevertheless, it is much better than nothing. At the same time, one ought to remember that the difficulties are of the Government's making. In March 1974, as a result of their Election promises, which I think were foolish, and as a result of abandoning the Conservative Government's incomes policy, wage settlements were sometimes running at nearly 30 per cent. Nobody can say that the £6 a week, and now the 4½ per cent., is not a great deal better than that.
I hope very much, too, that the noble Lord the Leader of the House can elaborate a little—although perhaps it is not fair to ask him to do so—on what seems to be a contradictory statement in what he has said about the need to keep price controls, and, at the same time, to get rid of them. One thing is absolutely certain, that if business and industry in this country are not allowed to make a good and sufficient profit then we shall not get investment; they will not get their cash flow and we shall not get the resurgence of business interest in this country.
May I ask the noble Lord the Leader of the House one or two questions. First, may I ask him whether the £2.50 is going to be a right, as the £6 limit grew up to be? Secondly, may I ask him whether, as I take it to be, although there is no mention of it in the Statement, the tax concessions will take place? If that is so, could the noble Lord tell the House what the 4½ per cent., plus the tax concession, means in terms of net demand on the economy? Thirdly, may I ask the noble Lord whether any consideration at all has been given by the Government to the problems which this agreement will bring to middle management—and not just to middle management, but to skilled craftsmen? There 557 are other people working in this country who are not members of trade unions and they have to be considered as well. There is no doubt that that class of person has suffered a considerable decline in his real standard of life over the last few years while those who have been earning less have, in point of fact, had an increase in their standard of life. I think that the noble Lord will know of the frustration, the demoralisation and, indeed, the determination of some of those whom we can least afford to lose, to leave this country if there is no light at the end of what has been for them a very unpleasant tunnel.
Lastly, I would say this to the noble Lord. I think that the people of this country are becoming very confused about the economic situation. I do not necessarily lay the blame for that entirely at the Government's door. One morning we hear on the radio a statement from the retailers that in two years' time everything is going to be all right; the next morning we have a statement from some Cambridge economist that doom is around the corner. Everything is contradicted from one day to the next. I think that the people of this country are becoming thoroughly bewildered about the economic situation. I hope very much that this agreement, which I welcome, will not be taken by the Government and by the Chancellor of the Exchequer as an excuse for euphoria about the economy, because it deals only with part of the trouble. Not least, the agreement does not deal with the enormous borrowing requirements of the Government. Therefore, while welcoming this agreement I hope that we can keep a sense of proportion about what difficulties lie ahead.
§ 4.3 p.m.
§ Lord BYERS
My Lords, from these Benches I, too, should like to express a welcome to this agreement, particularly if it ends the uncertainty about this country which has prevailed both here and abroad since the Budget speech, which left so much in the air. May I put three questions to the noble Lord the Leader of the House. First, can the noble Lord say by how much this new formula is likely to reduce inflation? Secondly, can the noble Lord say how it is proposed to ensure that public expenditure is contained within the 558 £50 million and whether that figure includes expenditure on pay in local government? Thirdly, there was reference in the Statement to occupational pensions, and I wonder whether the noble Lord the Leader of the House could clarify that point. Ts this a new exemption or is it, as I think it is, a restatement of the existing position, in which nothing can be negotiated which exceeds the minimum required to contract out? Nothing more than that can be given. If this is so, do the Government recognise that these restrictions will make it virtually impossible to implement in April 1978 the new Pensions Act, to the detriment of many millions of workers, most of whom are in the manual and female categories? I hope that the Government will look again at the matter because we are getting too close to the December 1977 date by which all the decisions must be made by employers.
§ 4.4 p.m.
§ Lord SHEPHERD
My Lords, I am very grateful to the noble Lord, Lord Byers, for the welcome he has given to the contents of this Statement and also, although rather belatedly, at the very end, for the welcome given to it by the noble Lord, Lord Carrington. I take the view that the agreement that has been reached with the Government by the TUC negotiating team is a major advance not only for dealing with inflation but, I believe, in the long term for dealing with the way in which we conduct negotiations on pay and general conditions. These negotiations have been conducted under the constraints and the threat of the consequences of inflation. When one considers that in July of last year the pay bill was increasing at an annual rate of 29 per cent. and that now the TUC have given an undertaking to the Government that they will try to persuade their members to accept a pay policy of 4½ per cent., this is indeed remarkable and very great credit is, I think, due to the TUC negotiating team. Clearly anything is better than nothing, but this is a very major advance.
Turning to price controls, clearly these need to be retained but modified and, as the Statement says, it is the Government's intention to undertake immediate discussions with the CBI, the TUC and any other interested organisation to find 559 out what changes should be made—particularly, as the Statement says, in order to deal with investment. I agree with the noble Lord, Lord Carrington, that without profit there can be no investment. That point, therefore, must be very much in the minds of those who are looking into the matter.
Under the £6 procedure, the lower limit of £2. 50 is not a right but the lower limit. It may be that some companies will not be able to afford it but this is something which the unions, or the workers' representatives, will have to negotiate with their own employers.
So far as the tax concessions and their consequences upon the national demand are concerned, in his Budget Statement the Chancellor of the Exchequer said that if one made these concessions the consequences would be marginal. The Chancellor's Statement was based upon 3 per cent., but for reasons which one could go into—it is a very complex discussion—the difference between the 3 per cent. and the 4½ per cent. now proposed is not so great as would appear, because on the 3 per cent. basis we were considering a policy where the constraints and the limitations might well have been less. Therefore, I take the view that the demand on the economy still remains marginal or, perhaps, less marginal than it was when the Chancellor of the Exchequer made his Statement.
With regard to middle management, I agree with the noble Lord, Lord Carrington, that they in particular have been affected not only by this pay policy but by that of the noble Lord's own Government. This is one of the greatest difficulties in seeking a national policy during our present economic constraints and I fully appreciate the very great hardship, frustration and, in some cases, downright despair that has been caused. But when one is seeking a policy of this sort in these conditions, one of the greatest dangers is to seek to create exceptions—because where does one draw the line? The Government will shortly need to consider and discuss the way in which we can ensure that we have the right middle management in both the private and the public sector. The noble Lord, Lord Carrington, said that when he reads the newspapers and listens to the media he is confused about what is the present economic situation 560 of this country and what its prospects are.
§ Lord SHEPHERD
My Lords, the noble Lord, Lord Carrington, is certain about what it is, and he may be one of the very few exceptions in your Lordships' House. I must say that I am confused when I read the Press and listen to the media. They do not seem to say the same thing from one day to the next. I will say only this to the noble Lord. I believe that we have made some progress during the last nine and twelve months. We see exports beginning to move forward—and heaven knows! the pound is so undervalued that here is a heaven-sent opportunity for industry really to exploit the export market. I think we have now a real opportunity, if we are prepared to seize it, but I would assure the noble Lord, Lord Carrington, that there is no sense of euphoria in the Government. There is a realisation that although some progress has been made down the right road, the road is still very long for us and we shall only reach the end of it if we genuinely believe in ourselves and have the determination to fulfil these policies. I believe that what the TUC have offered today is a realisation by the TUC—the representatives of the workers of this country—that they too recognise what is at stake and they are determined to see the country through.
The noble Lord, Lord Byers, asked about pensions. This is really a restatement of the present position and we are not anticipating any change, certainly not at this moment. The noble Lord also asked me two other questions: first, about the Contingency Fund—the extra £50 million. I assure the House that the Government are firmly bound by the White Paper proposals on public expenditure and that this sum of £50 million will be taken out of the Contingency Fund and therefore must be at the expense of any other claims that there may be upon it. We do not intend to see the Contingency Fund exceeded. With regard to the first question put by the noble Lord, I do not have the details. It is a complex matter but I will write to him within the next day and provide him with that information.
§ Baroness WOOTTON of ABINGER
My Lords, can my noble Leader tell me 561 this? The £6 limit stopped dead at a salary of £8,500—is there any equivalent ceiling to the present proposals?
§ Lord SHEPHERD
No, my Lords. The limit of £8,500 is abolished but any increases will be contained within the £4 upper limit.
§ Lord LEE of NEWTON
My Lords, is my noble friend aware that some of us would wish to congratulate both the Government and the TUC negotiators on their very statesmanlike answer to the problems which they faced? Is he further aware that unless we can make this a productivity, prices and income arrangement, any increase will be inflationary and will not in fact reduce the levels of inflation at which this is aimed? Will he therefore say whether we are each year to subject ourselves to the kind of agonies which we have had in the last few weeks, while speculators play ducks and drakes with the pound on the pretext that they do not know whether or not an agreement will be made? Will the noble Lord agree that it would be far better if we were now to accept the need for a permanent incomes policy rather than go on with the kind of nonsense we have had to endure recently?
Further, will the noble Lord say whether the 4½ per cent. will he paid on the standard working week or on all hours worked? In other words, in industries which are working on overtime will the overtime rate be enhanced as well as the standard work week, which we know is to be improved? The long period of collective bargaining based on economic power has produced a mal-distribution of income throughout industry and it will not be sufficient for long simply to have a standard percentage increase; rather would it be better if we could allocate certain sums of money to each industry within which they could do their negotiating. I think that would help to iron out the mal-distribution which we now see in so many of our industries.
§ Lord SHEPHERD
My Lords, I very much agree with my noble friend on the question of productivity. A pay policy of this sort clearly does not produce a stimulus for improvement in productivity, although I might suggest to my noble friend that the risk to jobs today, which is very much in people' s minds, is in itself a stimulus, or ought to be a stimulus, to productivity.
562 In regard to the question of overtime, this agreement would mean that if an individual with his basic pay plus overtime was to exceed (shall we say?) £80 a week, then the limit of £4 immediately applies. Overtime is included in the general income to which this limit will be applicable.
As to the future, I am sufficiently—if I may use the term—an old-fashioned Socialist to believe that one cannot seek to plan the national economy in terms of investment and other fields without having some plan for pay, which is a major part of the cost of industry. However, I am sure my noble friend will recognise that a second year of pay policy is always harder to achieve than the first year. I hope that the TUC and the CBI and the Government, through the NEDDY would, once we have this policy well entrenched and fully supported, give consideration as to what it should be for the next year and what should be permanent. But this is a matter which I suggest we need to approach with a little delicacy, recognising the different conflicting views which exist not only within the trade union movement but also within management and throughout industry. I personally believe that one day we shall have to go to a more sensible way of achieving pay settlements than the continual friction that we have had in the past.
§ Lord ANNAN
My Lords, I have listened with admiration to the explanation given by the noble Lord the Leader of the House as to how the figure of 4½ per cent. is very like the figure of 3 per cent. which was originally adumbrated by the Chancellor, but what I failed to hear is this. In the pre-Budget deliberations of the Treasury, when the Chancellor fixed a figure of 3 per cent., he no doubt had in mind a stable pound, but since that time the pound has declined by some 8 or 9 per cent. This figure surely is in addition to inflation and it is for this reason that one doubts whether the settlement of 4½ per cent. is in fact identical with 3 per cent. I wonder whether the noble Lord can explain this?
§ Lord SHEPHERD
My Lords, this is something which we could clearly debate, although a debate on the Floor of the House on a technical and complex matter is not necessarily the way in which we can achieve agreement. I could explain to 563 the noble Lord on another occasion that the figure is not as far removed as is believed. It is true that the loss in the value of the pound in recent months must be a contributory factor to inflation in the coming 12 months. It is a great credit to the TUC negotiators that they were prepared to recommend this settlement in the light of the pressures and the problems which are going to be placed on their members in the next 12 months.
§ Viscount ECCLES
My Lords, I welcome the Statement; however I have one question to put. The noble Lord the Leader of the House said there would be no exceptions. Does this mean that those who are on salaries with an incremental scale cannot get those increments and the 4½ per cent.? If that is so, it is extremely unfair as between the private and public sectors, the public sector being largely on incremental scales.
§ Lord SHEPHERD
My Lords, I can give a very snap answer. I do not believe that incrementals are excluded, but I should like to check on it and I will write to the noble Viscount, Lord Eccles. I would only say to him that in all cases there are anomalies and hardships, as we heard at Question Time yesterday.
§ Lord ROBERTHALL
My Lords, the Government are to be congratulated on this settlement, which is much better than seemed possible a short time ago. I should also like to congratulate the noble Lord the Leader of the House on telling us that the Government are not in a state of euphoria. The difficulty about the economic situation is that it has been very bad indeed. A year ago we were on the brink of disaster. The situation is now much better than it was. So everybody is inclined, when the team wins a match, to throw their hats in the air and forget about the relegation which was so near. The more the right honourable gentleman, the Chancellor of the Exchequer, and members of the Government go on pointing out how far we are from being out of the wood, the more hope we have later on. I congratulate them.
§ Lord SHEPHERD
My Lords, may I say that the only time I shall have any euphoria is when this country is like Liverpool, top of the League. Until that 564 moment, there will be no sense of euphoria. But being serious for a moment, we have made some progress. We are far from safe, but I believe that at least the ship is being pointed in the right direction. My Lords, 35 minutes for an important Statement is, perhaps, right, but I think we might now be encouraged to move on to the debate.
§ Viscount MASSEREENE and FERRARD
My Lords, may I ask just one question? Would the noble Lord the Leader of the House agree that, if inflation is to be conquered, the sensible way to do it would be to tie any wage rise to any increase in the gross national product? For instance, if the gross national product is 3 per cent., then the wage rise would be 3 per cent.; if the GNP were 5 per cent., the wage rise would be 5 per cent. Surely that is the only rational way to defeat inflation.
§ Lord SHEPHERD
My Lords, rational, but not necessarily realistic. People have to live; people still have to buy things. Therefore, we must seek the right balance between those legitimate demands and what the nation, in effect, can afford.