PAY IN THE PUBLIC SECTOR

HL Deb 15 February 1978 vol 388 cc1455-502

4.27 p.m.

Lord McCARTHY rose to call attention to the need for changes in existing arrangements for dealing with questions of pay in the public sector; and to move for Papers. The noble Lord said: My Lords, if one puts down a Motion of this kind I suppose one is expected to try to do three things: first, to say something about the existing arrangements for pay in the public sector and something about their defects; secondly, to say why some, at least, of the alternatives now being canvassed for changing the existing arrangements are, in my opinion, not appropriate; and, having decimated the countryside, to put forward a few proposals of one's own. The central fact about the system of pay determination in the public sector in this country is that it is vast, it is complex and it is contradictory. It is vast in that it covers over 7 million workers, probably over 50 per cent. of trade unionists. It is complex in that it is conducted in probably more than 100 separate negotiating units, with probably 100 or more individual trade unions, from the vast 2 million-strong Transport and General Workers' Union to the tiny Society of Remedial Gymnasts. And it is contradictory because it is based on three different principles. I want to say something about those three different principles and how they contradict each other.

The three different principles are, the application of the old doctrine of fair comparison by independent pay reviews, the results of old-fashioned collective bargaining backed nowadays increasingly by the threat of strike action, and in contemporary terms it is influenced disproportionately, I believe, by the need for the Government, as they see it, to set an example in the public sector in the field of incomes policy. So it is an amalgam of three different principles, and those three different principles are all likely to lead to different levels of settlement at different times. It is useful if you are using the doctrine of fair comparison to get a good independent pay review, especially if you get it at a time when the Government are not imposing a rather rigid incomes policy. It is not very useful to do this if you do not get good external comparisons and if you do it in the middle of a period of tough incomes policy. And if you cannot get pay review, or you are unlikely to get pay review, or pay review comes out in a bad way for you, and you do not have much industrial power, then you tend to lag behind, as several groups in the public sector have done in recent years.

This mixture of different principles applying to different groups of workers has led to growing complaints among public sector workers and their unions, of inequity and unfairness. It has led to growing frustration on the management side in the public sector; to feelings of the erosion of managerial responsibility in nationalised industries, in the National Health Service and elsewhere. From time to time, of course, as we know to our cost, it erupts in one public sector strike after another at considerable inconvenience to the public; and already, as we know, it has led to the dispatch of at least one Government.

Of course, to state the problem is not to say that it is easy to resolve. Indeed, I want to argue this afternoon that most of the obvious alternatives that are canvassed for solving these problems will not serve, especially when they are based upon the concentration and advancement of one of these principles to the exclusion, of other principles. It is now becoming fashionable in some circles to argue that the way out of the problem in the public sector is the resurrection, expansion and development of the principle of fair comparisons under the establishment of a super independent pay review body, a kind of relativities board or commission—a sort of "son of the pay board" of the type suggested by the previous Conservative Government. I admit that there are a number of superficially attractive reasons why this might be a good idea. It is true that where independent pay review, based upon external comparisons, has in the past been accepted by the workers involved—for example, in the non-industrial Civil Service, in the Civil Service pay research unit or in respect of the doctors' and dentists' review body—it has, on the whole, been found to be compatible with a virtual rejection of industrial action.

Historically, groups that have had systematic, external independent pay review have, on the whole, not used and not felt that they needed to use, industrial action. Therefore, it may seem to be superficially attractive to spread this sytem across the public sector generally. Often other groups in the public sector who have been denied independent pay review, have gone on strike or have threatened to go on strike, precisely in order to obtain some form, if not of systematic independent pay review, of pay review on an ad hoc basis. The teachers did that to get the services of the noble Lord, Lord Houghton of Sowerby. The nurses did it to get the Halsbury decisions; and, of course, the miners did it to get the use of the noble and learned Lord, Lord Wilberforce. Indeed, one might say that the third reason for the extension of independent pay review is that it is becoming used as an excellent form of part-time employment for the distinguished Members of this House who take part in the inquiries!

However, I do not think that those reasons, even the last one, really stand up if one looks at the four arguments—and I think that they are better arguments—against the rapid extension of traditional pay review now being suggested in some circles. The first point to make is that outside a narrow range of occupations—I do not think it is sufficiently appreciated how narrow that range is—it is not easy to find precise, acceptable, external comparators in private industry for what many groups do in the public sector. That, if I may say so, now that the dust has settled, was our problem in respect of the firemen's pay review: it was extremely difficult to find precise external comparators. It has always been the problem in respect of many groups in the public sector—for example, it has been the historical problem of the poor old postmen who have been insulted by various pay reviews and been told that their nearest comparison is the lad who delivers the newspapers. I suspect that it will be one of the problems of the pay review body now dealing with police pay, because over a very wide area it is not possible to find precise, acceptable, external comparators. That is my first case against the rapid extension of systematic pay review.

Secondly, even where external comparisons can be found, and even where they are acceptable, their importation into the rest of the public sector frequently disturbs important internal relativities. One could give many examples of that. The most obvious example, I think, is the effect of the doctors' pay review body on the comparative differentials of other members of the management team in the National Health Service, where it regularly disturbs internal relativities.

Thirdly, and probably more importantly in the long run, the notion of systematic pay review is not really acceptable to many trade unions today as an alternative to collective bargaining; especially it is not acceptable as an alternative to collective bargaining backed by industrial action. The fact is that among the majority of trade unions organising in the nationalised sector, and many now even in the public service area of the public sector, ad hoc pay review is seen as a complement, as a supplement, or as a way in which to establish the kind of claim which, if necessary, one can back up with industrial action. It is not seen as a systematic alternative to the normal processes of collective bargaining.

So far I have commented only on the trade union side. However, these kind of criticisms can also be made of the management side, because there are many people on the management side who are prepared to say that they do not believe that systematic pay review is their alternative method of pay determination, often because they would like to increase the relationship between pay and performance in the public sector. They would like to use pay in the public sector in order to get workers in the public sector to become more acceptable to the kind of changes that management wants to introduce. I do not think that on the trade union side or on the side of management itself, there is a great deal of support for this notion.

Therefore we come to the second alternative which is frequently canvassed. It is canvassed sometimes on the Opposition side and it is being canvassed too, I think, by certain public sector trade union leaders. It is that the whole of the public sector, or increasingly the public sector, should go back to systems of collective bargaining, and that "free collective bargaining", whatever that may mean, should in fact be the dominant method of pay determination in the public sector.

I think that the best way of replying to that suggestion is to use the words of a greater authority than I on this subject—the words of the present chairman of the Trades Union Congress, Mr. David Basnett, who is the General-Secretary of the General and Municipal Workers' Union. In a most remarkable and courageous article in The Sunday Times the other day he said that this kind of free collective bargaining, as it is often envisaged, in which the Government will, in some way, retreat from the bargaining table and cease to influence the level of settlement which can be negotiated and leave it to the parties—because that is what people often mean by that phrase—has never really existed, certainly not in the public service sector, and is unlikely to exist in the foreseeable future either in the public service sector or, indeed, in the nationalised part of the public sector.

It is unlikely to exist precisely because we know that there is a sense in which the rate of increase of pay in the public sector is now the single most important element in the rate of increase in public expenditure—at least, it is the major single constraint. Any Government which are concerned with the rate of increase in public expenditure and the rate of public investment in both the public sector and the private sector, are unlikely to give trade unions and employers in the public sector any kind of blank cheque. That, as I understand it, is what Mr. David Basnett was saying, and I think that it is profoundly true.

Therefore, I should like to turn to the alternatives which David Basnett placed before us in his own contribution to this debate. As I see it his central proposal was that there should develop on the trade union side a widening of bargaining structure, particularly on the public service side of public sector bargaining. He was calling for the TUC to form a public service sector negotiating committee. The implication of what he said was, I believe, that that committee should talk directly to the Government in an attempt to fix a number of things. For example, he mentioned the possible synchronisation of pay dates, the establishment of permanent rather than ad hoc review bodies where required, a review of existing pay structures and a review of procedures for resolving disputes.

I believe that the matter implicit behind all this, and which Mr. Basnett did not mention—perhaps he did not mention it because he thought that he had gone quite far enough for a trade union leader—was that if we had this kind of direct negotiating committee, it would be difficult to see how it would not be talking about the rate of increase in pay in the public sector in a particular bargaining period. However, I think he did not mention that because he felt that he had stuck his neck out quite far enough.

I want to make three points about these extremely interesting proposals, largely, I hope, in order to start the debate. First, I find certain aspects of these suggestions too radical. In other respects I find certain aspects of these suggestions not radical enough. Finally, and most important of all, it seems to me that they place too undue an emphasis on the importance of change on the trade union side—which is a very courageous thing for a trade union leader to do and I think that we should welcome it—and not enough emphasis on the importance of change on the management side, and particularly on the part of Government themselves.

I think that these suggestions are too radical, because my experience has been that it is, in fact, extremely difficult to get trade unions to change existing bargaining structures. Recently, I spent 14 or 15 months in the National Health Service undertaking a review of pay determination and other aspects of industrial relations in that Service. I should very much have liked to suggest a concentration of bargaining units in the form of a strengthening of the general Whitley Council in the National Health Service. The plain fact is that the nine functional councils in the Health Service accurately—or not so accurately in some cases—reflect the respective strengths of the organisations on the trade union side of the bargaining table. That is why they are there and that is why they will continue. To think that we shall get a radical merging of bargaining structures with the number of trade unions that now exist simply in the public service sector is, I think, too radical for me.

Secondly, they are not radical enough because David Basnett's proposals concentrate on the public service sector. For the reasons that I have already given—and I do not want to bore the House by going over ground that I have already covered—I do not see an essential difference in the relationship between the Government and management in the public sector and that between the public service sector and the rest. From the point of view of relationship with Government, I believe that these two are essentially the same. But most important of all, they place too much emphasis on the union side of the bargaining table; they let management off scot-free. I do not suggest that Mr. Basnett wanted to do that; he was talking to trade unionists about trade unions.

However, I want to turn the search-light on to the management side. These notions ought to be explored; the ideas that he suggested should be explored on the management side. I should like to say a little on how I see the Government's rôle in bargaining in the public sector today. It seems to me that at the moment the Government are the ghost at the bargaining table. They are the invisible presence that never tells the bargainers what they can do until they do what the Government do not want them to do, when the Government shrieks for them to stop. Not only are the Government merely a ghost at the bargaining table, they are a multiplicity—a collectivity—of spooks.

There are three important reasons for this which we should understand. The first is, of course, that on public sector pay the Government work through a veritable multiplicity of agencies. I have mentioned a collectivity of spooks. First, there are all the sponsoring Departments—and how many there are! There is Environment, the DHSS, Industry, Education and Science, Defence, Transport, the Home Office and so on. All have their individual interests and concerns; all are spiriting around the bargaining table. Behind them, or perhaps on their left or right, there is the co-ordinating trio—the unholy trinity—the mandarins of the Treasury, the old sweats of St. James's Square, and Mr. Hattersley's young men. That is not to mention, of course, the occasional forays into public sector pay criteria of the phantoms from the CSD, the Think Tank, and the Prime Minister's private office. All these spooks around the bargaining table contribute to the sense of unreality and confusion on the management side as to where exactly pay criteria are being formulated.

However, the problem is not only that. The problem is that this multiplicity of spooks on the Government side is matched by a multiplicity of management sides. As I have said, there are nine functional councils in the National Health Service; almost as many different councils in local government, the men in Belgrave Square; 20 or 30 public boards from the Coal Board through to British Shipbuilders, and so on.

Thirdly, and finally in terms of what makes this so difficult, the Government themselves have not really thought clearly about their rôle in public sector pay determination. I believe that that is the most important of all the factors, and that the key to reform lies, not in a relativities board, not in a return to old style so-called free collective bargaining, but in an acceptance by the Government of their rôle in relation to public sector pay.

If I may, I should like to take an analogy from private industry. As I see it, in relation to the public sector in general and to public sector pay in particular, the Government are like the directors of a giant holding company which appoints, and should fire if necessary, the leading members of executive management; it should, like any good holding company, fix the broad objectives for the organisation and, above all, ensure that those particular objectives conform with the objectives of the business as a whole, in this case the interests of the public sector.

If the Government could see that and could follow the consequences through, I believe that a number of things would follow in the pay field. First, the Government would see that somewhere inside the Government themselves or inside the Cabinet there would have to be a general discussion across Departments, transcending Departmental specialities, of appropriate pay criteria. They would then have to discuss with the Government, and decide as they saw fit, the role of external pay review and the relationship of external pay review with internal relativities. Also, in any given year, they would have to fix for themselves their notions of what were appropriate pay targets and pay criteria for the public sector as a whole.

Then, like a good holding company, they would have to go out and discuss their ideas and proposals quite openly with executive management in the public sector. Of course, that would mean that executive management in the public sector would also have to be organised. Sometimes it seems to me that one of the most remarkable defects in our industrial relations institutions at the moment is that there is no employers' organisation for public sector management—they never come together. To have the odd seat up there with the CBI or, as I think happens, for the chairmen of the boards of nationalised industries to take themselves out to lunch once a month, is not a substitute, in the present situation, for an effective employers' organisation to discuss with Government pay and other criteria.

I do not know whether, if one did this, one would in fact want to see the Government at the bargaining table. As long as they had a visible presence on the management side, and were known to be there on the management side, you do not need to have everybody there when you are negotiating. There is something about negotiating which is essentially a representative institution. Therefore, I do not think that that is essential, but it is essential for the Government to become visible on the management side of the policy formulating process.

Let me finally say something about incomes policy. There are three points in fact about the relationship between what I have been saying and incomes policy. I am not suggesting this as a way of imposing a more draconian incomes policy. I think that the reorganisation, demystification, and materialisation really of the role of Government in the pay sector is required irrespective of the attitude one takes towards incomes policy.

As I say, I am certainly not advancing this as a way of making incomes policy more effective. Indeed, for what it is worth, what I am saying could be said to be suggesting the reverse. I am profoundly convinced that most pay explosions in the past, though it may not always seem like it, have been rooted in the private sector, not the public sector, and that the more the Government get involved with the details of formulating pay targets in the public sector, and the less they are able to play their ghostly game, the more likely it is that they will come to terms with these essential facts. That is why I, for example, cannot join in the condemnation of the Government's sometimes struggling attempts to control the private sector at the present time. If you know a better way of doing it, put it forward. In the meantime, do not criticise people who are doing their best.

What I would say finally is that I am advancing my proposals not as a definitive solution to this complex problem, but in the hope that we can begin a debate, based upon the very courageous and farsighted ideas that David Basnett advanced, to, as the Motion says, try to improve existing arrangements for pay in the public sector. My Lords, I beg to move for Papers.

5.3 p.m.

The Earl of GOWRIE

My Lords, last week, we debated how the windfall of North Sea oil might be deployed, and this week we are debating, albeit in a shortened and less general way, our attitudes towards wages and incomes, particularly in the public sector. It seems to me that both issues strike at the heart of our political economy, and strike a blow, too, against the notion that debates in this House are too specialised, or too interested. Having heard the very remarkable speech by the noble Lord, Lord McCarthy, and one with which, somewhat to my surprise, I found myself on many points in agreement, I really must start by repeating again my request in last week's debate that we should have a full economic Minister in this House—that is to say, a Minister who has departmental responsibilities in one of the major economic Ministries, whether it is Trade or Industry, the Treasury or the Department of Employment. I say that to the noble and learned Lord, Lord McCluskey, as I said it last week to the noble Baroness, Lady Birk, without a breath of personal criticism against him or against the brief that I anticipate he will deliver at the end of the debate. We have an informed level of economic thinking and debate in this House which really is wasted unless we have a Minister with the ear of economic Secretaries of State dealing with the debates at the end. We are grateful, of course to the noble Lord, Lord McCarthy, who has thought long and hard on incomes policy issues, for giving us the chance to think about them and try to work out the political directions—which is really only to say the practical directions—in which our attitudes to incomes are taking us.

I meant originally to thank the noble Lord for giving us the chance to try to clarify our position on this central—perhaps indeed the central—national economic problem, but I am afraid that all that may really be possible is the chance to clarify our confusion in the hope that, by so doing, we become slightly less confused. It seems to me that what used to be called the Establishment—and I mean by this term a rather loose confederation of all those with some power; all those who hold the political and economic reins in their hands—suffers considerable confusion about pay issues. I include all the principal political Parties, the trades unions, certainly, and also those who would influence on both sides of the workforce/managerial divide.

I think that the noble Lord, Lord McCarthy, pinpointed some of the ambiguities, ambivalences, and confusions that exist in the public sector. I myself, therefore, want to approach this short debate with considerable modesty and some anxiety. I think that we agreed last week that Britain has at long last a real opportunity to shake off her chronic economic weakness and enjoy again not perhaps great strength so much as ordinary, decent health—and what more can any of us, as individuals, ask for? But I also believe—and this is where I think the two debates are linked—that continued confusion on pay issues could snatch that opportunity from us just as surely as if we were to suffer some malign seismic upheaval which dried up the North Sea oil.

The noble Lord was quite right to concentrate on the public sector, because that is where incomes policies—the involvement of Government in the determination of wages—are born, raised and die. The history of the British economy since the war—and many would argue that the seeds were sown far earlier—is surely the history of the enormous growth of the service over the manufacturing industries. Not all these services, thank heavens, are in the public domain. Many of them are keeping our currency and employment levels afloat by earning our living abroad through invisible exports. It has always seemed to me that we are a decayed industrial power living off our still vigorous financial powers—the export of financial services like banking, insurance, and so forth.

Nevertheless, the vast majority of services are now in the public domain. Then again, as the noble Lord told us, the public domain is not confined to services. Partly because of politics and the large Labour victory in 1945, and partly because of the industrial decline which I mentioned, manufacturing industry after manufacturing industry has become a charge on the State, and a responsibility of the State. So what goes on inside the public sector now overwhelmingly influences what goes on outside it. We are therefore stuck with attitudes to an incomes policy of some sort, and we are forced to try to clarify our confusion towards it, whether we like it or not or whether we really want to or not.

I am of course a Conservative, and, as you would expect, I deeply regret this disproportionate growth of the public domain. I blame many, indeed most, of our economic ills upon it. I even blame my own Party and the Churchill and Eden Governments between 1951 and 1956 for not stopping the rot; for seeking (and, it must be said, with the most honourable intentions) continuity, consensus and common ground, and for not trying on any significant scale to undo the policies of 1945. I blame them in this even as I praise them for slowing down the shift in the economy sufficiently to ensure those 13 years of relatively prosperous Tory rule and, by contemporary standards relative price and employment stability.

However, in public life just as in our private lives, we are landed with the consequences of our past actions. The useful thing, therefore, is to acknowledge what has happened and to ask the question, Where do we go from here? The noble Lord, Lord McCarthy, would say that we should move towards the institutionalising of some sort of permanent incomes policy. Taking his cue from Mr. David Basnett, he appreciates, as I do, that incomes policies are an inevitable fact of life in the public services.

Last year Mr. Basnett urged the TUC, of which he is now chairman, to form a new public services committee bringing together all unions with members in local and national Government. The noble Lord said something about that. This committee, if I understand Mr. Basnett aright, would hold an annual conference and its objectives—which Mr. Basnett again himself acknowledged would cause considerable disagreement and difficulty—would include the synchronisation of pay dates, the establishment of permanent review bodies to provide yearly comparisons with the private sector, regular reviews of public service pay, allowances to be made for local factors and local bargaining and suchlike general issues.

Now we all know that Mr. Basnett is experienced and is prone to talk sense. He certainly has bitter experience of the limits of free collective bargaining in the public sector as well as bitter experience of the way that during periods of wage control policies Governments of both Parties bear down first on their own employees. The firemen's strike offered an agonising instance of this; there really were arguments on both sides, on the Government side and on the firemen's side. But as the noble Lord has told us, Mr. Basnett is also a political realist and exactly a month ago, well after his Sunday Times article, he was also quoted in the same newspaper as stating categorically that there would be no Phase IV. He went on: Talk about a further agreed wages policy ignores the reality of the current situation, the experience of the past few years and the need to establish a new economic consensus. The trade union movement is determined to return to free collective bargaining". Just as he was courageous in his article, so he has hardly been ambiguous in making that clear. The point I am making is that, in default of this new economic consensus, to borrow a phrase from him, even a moderate supporter of the Government like Mr. Basnett himself does not think that a continuing incomes policy is on. My view is that if the present Government go into a General Election with a wage control policy of any detail whatever, they will lose the election through Labour abstentions alone.

I believe, therefore, that there are severe political restraints, not just on Conservative Governments but on Labour Governments, in what can be achieved in this field. Over the past 10 or 12 years both Governments have tried to establish wage controls by fair means, as I would argue the last Government's statutory policy was at least fair, or by foul, as I would argue the present Government's policy is foul. In this context I quote what my noble friend Lord Boyd-Carpenter said in our debate last week, and I quote him because I cannot better him: I beg the Government to get back to the position where either you must have—if you must have; and it is for them to judge—a compulsory wages policy backed by law and by the decision of Parliament, or you must have a free and collective system. But to move secretly behind the backs of the companies, and sometimes without informing them, is an exercise in arbitrary power which is repulsive to the British people. And it is arbitrary power, one sees from the arbitrary way it is used. It is not used on everybody. It is used on small companies".—[Official Report, 8/2/78; col. 1064.] That point was made less elegantly but just as trenchantly by Miss Linda Lee-Potter in the Daily Mail, who said: If you are triumphantly successful through hard graft and philanthropically want to share the benefits with your employees, the Government crucify you. If you go bust through incompetence and are faced with firing your staff, they frequently put their avuncular arm round you, bail you out with our money and call it the compassionate face of Socialism". I believe therefore that the present means of imposing a wages policy are not fair now and are in any case doomed, fair or foul, either because the Government themselves will fall or because the unions will not co-operate with either Party in making continued controls stick. That applies to the public sector most of all.

Leaving aside the political question whether one happens to support the Government and wants to see them continue in office, which I of course do not, what are the implications of an impending breakdown in wage control policies for our economy and particularly for the public sector which, because of its size, crucially affects and is affected by such policies? In answering this question a great deal depends on whether one agrees with the Government that phase 3 of their incomes policy has been effective in counter-inflationary terms. I would argue that it has not. If one believes that the guidelines—now in some curious way they are no longer guidelines but have been translated by Mr. Hattersley into rules—of 10 per cent. are effective, then presumably one must also make sure that they are being applied. But they are not being applied, since they are hedged about with qualifications such as make them virtually meaningless.

The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey)

My Lords, perhaps the noble Earl will give way for a moment and take that moment to look at the Question we are discussing and ask himself whether he thinks he is in order in his present remarks when the subject of the Question is: To call attention to the need for changes in existing arrangements for dealing with questions of pay in the public sector".

The EARL of GOWRIE

My Lords, how on earth can one argue the need for changes, as I would do, without making some remarks about the present system, which I think is extremely bad? I was arguing that these limits are not being applied in the present system because they are hedged about with so many qualifications as to make them meaningless or at best very ambiguous to those who have to suffer them. For instance, there was the famous victory over the firemen. After all those cold nights around the brazier we were told that the firemen were forced to settle for 10 per cent. In fact, it was not 10 per cent.; it was nearer perhaps 24 per cent., since there was a reduction in hours of working, in short a reduction in productivity, at a cost estimated by officials—not by us but by officials—as being between 8 per cent, and 14 per cent.

There was the immense boost to the Government's morale of the miners' settlement. I am ungrudgingly delighted that, in this icy weather especially, the miners are not on strike and I am quite prepared to congratulate anyone, even the Government, on this score. But do not let us pretend that the miners got 10 per cent. There has been an official productivity deal, and this even though official, and I mean Departmental, figures again demonstrate a decline in productivity over the year. If we are to clarify our confusion on these matters we must not make-believe. I am not saying that the miners should not have been paid what they were paid or that they were wrong to listen to Mr. Gormley. I am just saying that they were not fooled by 10 per cent, and nor should we be.

Then again, the Government have conceded that they are storing up wage expectations by deferring settlements in part until the next wage rounds. Who licensed the Government to do that? What will be the effect of that arrangement when it is exported, so to speak, to the private sector? Who on earth believes that these arbitrary and ad hoc arrangements have a chance of getting inflation to a rate which, while it may continue to be morally and psychologically damaging—unfair, in other words—is at least livable within the sense that it is roughly along the same lines as the inflation rates of our major industrial competitors? Again, these rates are not 10 per cent. but about half of that. We are effectively presented with an export tax, if you like.

At this stage in debates we are asked what we would do, and, on the whole, I think, we try to give a consistent answer. We would do what the Government will in fact do because they will have to do it; because, through bitter experience, on both sides, we have all learned that there is only one thing to be done. We have to make it clear what the nation can afford and what the Government have in the kitty, and leave it to the directly interested parties to see to its distribution. I am certainly in agreement with the noble Lord, Lord McCarthy, when he talks of "a multiplicity of spooks", but I would go a little further. I think the confusion which the multiplicity of agencies in the public sector creates is in fact exported to the private sector, and is very damaging there. In saying that we must make this clear, that we must of course allow ourselves powers in Government, which all Governments must take, to protect those who are too weak or too little organised to protect themselves. We will use all the methods directly at our disposal to try to educate people in cause and effect in an economy.

In The Times this morning the noble Lord, Lord Roberthall, who is a much stronger champion of incomes policies than I am—I am sceptical about their efficacy—wrote that price control imposed to try to get the TUC to agree to wage restraint, conceals from the public the effect of particular settlements on prices". He went on: It would be more instructive if prices, especially of nationalised industries, were increased with the utmost publicity at the same time as a new settlement of wages is announced. All this is only saying that we do not realise how dangerously we are drifting". What we on this side would try to do in the nationalised industries and elsewhere is to start the long, slow and exhausting process of breaking down the great inflationary expectations which centralised control of wages, as against the centralised determination of moneys available, inevitably engenders.

In our economic policy document last autumn, we complained that the recent pattern had become all too familiar. Concern about rates of inflation or balance of payments, and their implications for employment, prompts Governments to impose controls on the level of wage settlements. Then, two or three years later, the controls prove untenable and there are powerful voices demanding a return to free collective bargaining. They become more numerous and more pressing. The pay limits are then lifted or broken, differentials have to be re-established again, and the whole thing is a recipe for ever higher inflation and higher unemployment. It undermines the position of unions and employers, and destroys their capacity for responsible collective bargaining. Above all, it draws Government directly into the operation of the economy in a way which does very little for the authority of Government—and Governments of both sides are more unpopular now, probably, than they have ever been—or for the standing of our currency or our products abroad.

So we want, modestly and slowly, to try to start an orderly withdrawal of Government from areas, not where they do not have direct concern (of course where they have concern) but where their direct intervention only exacerbates difficulties. For all the differences between us, my Lords, I detected in the speech of the noble Lord, Lord McCarthy, the glimmer of some kind of agreement on these lines which might be the start of a new economic consensus of the kind which Mr. David Basnett thought was necessary. I hope the debate this afternoon has gone a small way to promote it.

5.15 p.m.

Baroness WOOTTON of ABINGER

My Lords, when the Government guidelines in the present phase were first introduced they were certainly intended to be guidelines, and they were intended to give a flexibility to wage bargaining—a flexibility greater than we had had before, under the previous phases—and, at the same time, to circumscribe free collective bargaining. They were defined, in one way, fairly precisely. There was to be an average increase of not more than 10 per cent. of actual earnings—not just base rates; base rates would have to be lower; 10 per cent. of actual earnings—but it was never clear (at least to me) over what area the average was to be spread; and it makes a great deal of difference in the public sector whether it relates only to the Health Service or whether it relates to other branches of the Civil Service, or whether, in private industry, it relates to a whole industry, to a company, to a firm, or even to a plant.

I am wholeheartedly in sympathy with my noble friend behind me when he deplores the chaotic state of the bargaining organisation in the public sector—and, he might add (I am sure he would add), the private sector as well. The first thing we have to do is to clear that up; but it is not much good clearing that up unless we know by what kind of limitations on freedom of collective bargaining a more sensible structure is to be restricted. These guidelines, which were intended to give flexibility, have ended up by becoming incredibly rigid. I am reminded of a day when I was teaching in the university and when, in a mood of self-abnegation, my colleagues and myself decided to ask our students to grade our lectures. We suggested they should grade them as "Good", "Average" and "Poor". Students, contrary to what is widely believed, are often very polite. After a week or two they came back and said, "We are sorry, but we cannot call any of your lectures 'Poor'; we would much rather say 'Very good', 'Good' and 'Average'." We said, "If you want to have it that way we cannot stop you, but we did hope at some time that we were going to give you a course in statistics, and this might be rather an obstacle to it".

In fact, of course, flexibility has crept into these very rigid guidelines, as the noble Earl, Lord Gowrie, said just now. Various people, under various kinds of stretching of the lines, have succeeded in getting more than any simple person would think they permitted. The firemen have, within the public service. The miners have made a very noble gesture, but they have got what is said to be a self-financing productivity deal, which would indeed be within the guidelines so long as it is self-financing.

Lord ORR-EWING

My Lords, would the noble Baroness give way? Is not this the point as to the miners' deal—and we are following the noble Baroness most closely and sympathetically: they took the 100 per cent. productivity of a previous time, they reduced it to 75 per cent. and were then given a bonus for any increase above the 75 per cent.? Therefore, is it not genuinely self-financing?

Baroness WOOTTON of ABINGER

My Lords, without going into the details of the miners' case it is quite clear that the definition of a self-financing productivity deal is extremely difficult. When it was included in the regulations under the Pay Board it required, if I remember rightly, more than a whole page of the regulations in order to explain what it was not, rather than what it was. It is fairly easy to turn a productivity deal down and it is rather difficult to produce one which is impeccable.

Now, flexibility is creeping into the public sector, and, of course, flexibility has also crept into the private sector. The fact that there is said to be a "white list" and a "black list" begins to suggest that there may possibly be an average between them, and that the average is getting into its proper place. Here, if I may be permitted a brief digression, I cannot see what all the fuss is about over the Government putting into contracts that they give to private firms clauses relating to the wages which are paid. Governments have been doing this—noble Lords must have forgotten—for practically the whole of this century, if not longer. Every contract which the Government give to a private firm contains a clause about wages. It is a rather different one from what is now being suggested: it contains a clause that there must be fair wages paid; and "fair wages" mean the wages paid by reputable employers in a similar line of business. That is the standard and it has been the standard for a very long time. I do not see, therefore, why there is all this fuss about the introduction of this kind of reference to wages in Government contracts and why it should be considered a sign of the authoritarian and dictatorial action of a Labour Government. It has been carried out by other Governments.

Lord MOTTISTONE

My Lords, if the noble Baroness will allow me to intervene, surely these particular sanctions and clauses are really very much more rigid than anybody has exercised before. For example, one of the clauses says that firms must comply with any Command Paper which relates to pay both now or in the future—a Paper which has not yet been written—and the judgment as to whether these rules in the Command Paper have been followed is in the hands of the Secretary of State for Employment against whom there is no appeal. That, surely, in commercial terms is much more rigid than any contract would normally be.

Baroness WOOTTON of ABINGER

My Lords, I fail to see that they are more rigid than are the fair wages contracts. What were fair wages at one time are very different from what the Government now put into contracts. If we are going to have any kind of restriction on free collective bargaining within the public and private sectors, there must be some kind of norm. If there is a norm, there must be some kind of definition so that one should know what the 10 per cent. means and so on. And there must be some criteria for exceptions.

I think that my noble friend Lord McCarthy slid over the question of who is to decide the criteria and what they are to be. There must be criteria. We have had criteria under statutory wage policies in the past. We had criteria under the Pay Board; and under the old Prices and Incomes Board there were criteria which are not necessarily appropriate now. We had criteria: the norm which in those days—and it is not much more than 10 years ago—was somewhere between nought and 3 per cent. or 3½ per cent. and which said that exceptions could be made in the case of a self-financing productivity deal; also in the case of very low pay; also in the case of shortage of manpower and in the case of people doing similar work and not being paid the same. I do not think that those are necessarily applicable at the present time, but we must look at them, or get somebody to look at them, and decide what kind of limitation should be set on collective bargaining.

I think that this—and I agree with my noble friend Lord McCarthy—is a matter which should be considered by the unions and management in conjunction with Government. It is arguable that there should be an independent board to which doubtful cases should be referred; but I think it could be done by a Government definition. But there is no use in talking of free collective bargaining if you do not say where it stops being free. This is why I ask that we should have clear, definite criteria.

I would deprecate some of the criteria used. Some, for instance, are impossible of fulfilment. Some claims made now are that certain groups, in the public service in particular, should always be in the top half of the wages league table. This is being copied widely. Well, mathematically, it is impossible for everybody to be in the top half. Some of us are in the top docile, the top ten. This is a matter for tripartite consideration, but it is no good leaving it vague. It must be defined in terms which anybody can say fall within definite criteria.

The two things that we must not do are these. First, we must not try to get back to the league table of some defined or undefined period of the past. This is a great temptation. Every bargaining group within and outside the public sector says, "We have fallen down in the league table". I would ask, "Who has gone up?" For if somebody has gone down, then somebody must have gone up. You cannot have a table without a top; although we do now have a class structure without a top and there is now nobody above the middle classes. You cannot go on like this. That is a mathematical impossibility.

There is nothing to be said, in the public or private sectors, for going back to a system which was the deposit of a series of historical accidents. It was not justified by any kind of principle or policy, and people have always tried to alter it. Now we are trying to alter the changes that have come about as a result of having had a wages policy over the past few years.

The other thing that I think we should not do—and here again I agree with my noble friend Lord McCarthy—is that we must not in the public services work on internal comparisons. Accurate comparisons are almost impossible and they also lead to very unfortunate leapfrogging. Internal comparisons are not a good basis.

I shall not define the criteria. I shall ask the Government, taking as an example the old criteria of the PIB, to think out new ones applicable to the public service and which, if applied there, would certainly spill over into the private sector as well. Also what I think we must not do is to mortgage the future. It was a very unhappy decision that mortgaged the future in the case of the firemen by promising a permanent place in the table. These promises cannot be fulfilled; nobody can guarantee that they should have a relative place and should be exempted from any future kind of pay policy. That promise is incapable of fulfilment and I am sorry that it was made. Any promises that are given to any group at any time that they will have a certain relativity are wrong, because relativity with other groups is not the right criterion. It implies going back—or going forwards, if you like—to a new relationship. It is not the relationship between different groups that matters so much as the absolute figure of what people are getting.

What we should do in the public sector is to have a simplified bargaining structure and that structure should work, subject to certain defined criteria within the guidelines, which set the extreme limits within which collective bargaining will operate with the understanding of the unions.

5.29 p.m.

Lord ROCHESTER

My Lords, I should like to start by thanking the noble Lord, Lord McCarthy, for having introduced this timely debate. In my view, the personal intitiative to which he and the noble Earl, Lord Gowrie, referred, which was taken recently by Mr. David Basnett, the chairman of the TUC, in calling for the establishment of long-term procedures for a pay determination in the public services, was highly significant, coming as it did from so senior a union leader. It follows an equally important proposal made by the CBI last June relating to pay determination generally.

Your Lordships will forgive me if I say that we on these Benches have for long advocated that there should be improved methods of pay determination. Indeed, I think it can be fairly said that, of all political Parties, the Liberal Party have been alone in advocating this in recent years. However, in my experience of trying to help in solving complex industrial problems, often of more importance than taking a lead is to offer support to others when they make a move in the right direction. Mr. Basnett's initiative was confined to the public services and the Motion moved today by the noble Lord, Lord McCarthy, has widened the issue to cover the public sector as a whole. Therefore, neither goes as far as we would like, but nevertheless I should like to welcome both as positively as I can.

Looking back on the recent dispute in the firemen's service—and here I very much agree with what the noble Earl, Lord Gowrie, and the noble Baroness, Lady Wootton of Abinger, have just said—in my view it was settled on a basis which gave a number of hostages to fortune, and in particular has raised the question why that service should have been singled out for special treatment both in levels of future pay and as to the guarantee of those levels. Surely in the, public services at least, where Government act directly as employer or, in the case of bodies such as local authorities, exercise a considerable influence over the employer, there should be more consistency of treatment in pay determination.

If your Lordships will bear with me, I should like to extend the debate by advocating the need for changes in existing arrangements relating to the private sector as well, for the reason that, so far as I see it, the one sector cannot be altogether isolated from the other. For example, there are occupations where there is an obvious overlap; I think of lorry drivers as one instance. However, what I shall have to say in most cases has as much application to the public as to the private sector.

Taking the field as a whole, there are, first, the advocates of a return to so-called free collective bargaining, but in my view—this is something which the noble Lord, Lord Lee of Newton, has said more than once in your Lordships' House—in that situation, too, many of the spoils go to those with industrial muscle. Even if reliance is then placed on monetary policy alone to curb and keep that situation in control the resultant level of unemployment might well prove higher than our democratic society could tolerate. The alternative is a statutory policy, and here I must speak only for myself. Taking full account of the expediencies to which the Government have recently been driven in trying to enforce their pay guidelines without full statutory backing, there does not seem to me to be that degree of consensus which is needed if a statutory policy is to be politically feasible. More than that, I doubt very much if such a policy would in practice prove flexible enough to restore the differentials for skill and responsibility which have been so seriously compressed and even eliminated in the last two or three years, even when allowance is made for those reductions in direct taxation which many of your Lordships would agree should be made in the forthcoming Budget.

Should there prove to be no other way of keeping inflation under continuing control there would have to be a statutory policy, but I see this very much as an instrument of last resort. If it were necessary, it is all the more important that the Government should first be seen to have engaged in the widest possible industrial consultation and political debate. In my view the Government should take the lead—and here I find myself in agreement with the noble Lord, Lord McCarthy—but they should do so by going further than he suggested: by initiating as soon as possible discussions aimed at establishing agreed long-term procedures for the determination of wages and salaries generally.

In this short debate I shall not weary your Lordships by repeating all the views as to the form those procedures might take, which I expressed in the debate on the gracious Speech last November. Indeed, I believe that one of the main causes of our present industrial and economic trouble is that individuals, sectional interests and political Parties are more ready to give expression to their own pet remedies than they are to listen to the views of other people. I am sure that on the question of pay policy it is important at this stage that we should not take up positions that are too rigid or precise, but rather aim to mark out common ground on which we can build together. In this connection, from my industrial experience it is clear to me that if we really want to help to solve so intractable a problem as pay determination, rather than merely strike attitudes upon it, we must involve and seek to make accountable all those bodies which have a stake in the problem.

That means it cannot simply be left to the Government and the trade unions to sort out; employers must be included too. If they are left out in the cold, surely when there is a change of Government there will simply be a backlash and industry and the economy generally will once more suffer. Moreover, unless employers are fully involved it seems to me that there cannot be that active collaboration between employers and employees which is needed if our industrial performance and productivity are to improve sufficiently to keep us internationally competitive.

As I see it, the National Economic Development Council is already in being as an existing tripartite forum if it is needed for this purpose. Further, because in our democracy the sovereignty of Parliament must be sustained, or rather restored, it follows that representatives of employers and of trade unions who deliberate on these matters must somehow become involved in an accompanying process of political debate, perhaps through the mechanism of a Select Committee.

For the long term I should like to see the Government of the day, in consultation with the TUC and the CBI and aided by some competent independent body which would be acceptable to the opposition Parties, engaging in a process of factual economic analysis, with a view to determining, first, how much the nation can afford in terms of wages and salary increases and, secondly, broadly how such an amount might be distributed—not shirking the very vexed question of claims for special treatment for particular industries.

I should like to see a situation in which bargaining units in the various industria sectors later synchronised negotiations on the distribution of amounts available to them, taking account of the need for acceptable differentials in each unit. One only has to talk like this to appreciate the immensity of such a task. To begin with, it is clearly already too late for any such arrangements to take effect immediately after the current phase of pay policy ends in less than six months' time. So what then happens is bound to be determined once more largely on an ad hoc basis.

I suggest that whatever is done in the short term should be at least capable of development in this way in the longer term. That criterion can be met, at least partly, by the suggestion that the noble Lord, Lord McCarthy, put forward this afternoon, as I understand it, that the Government should themselves take the lead in seeking to initiate changes in the existing arrangements for dealing with questions of pay in the public sector. At least in the public services it should be possible to effect some changes within a relatively short time. In my view therefore, though we may differ in detail, Lord McCarthy's Motion is greatly to be welcomed as a first step—he did not see it like this, but I do—in the right general direction.

In conclusion, I should like to affirm, with such authority as first-hand experience of negotiating with trade unions gives me, that in my view this problem of pay determination in both public and private sectors will be solved only in the way I have sought to suggest—when those involved in the problem are prepared to identify it more closely and to confront it together.

5.43 p.m.

Lord BALOGH

My Lords, it is my turn to congratulate and thank my noble friend Lord McCarthy for initiating this debate. This is an extremely good time because, as we have seen, we have once more suffered a grave setback in our international economic position. Therefore I do not want to discuss the detailed arrangement and the changes necessary in the public sector wage bargaining, so much as the general situation and the general place of wage bargaining in the public sector. I have agreed more than I usually do with noble Lords who have spoken in this debate, even though some sit on the opposite side of the House. That perhaps shows a weakening of my powers rather than the goodness of their case.

The very fact that the State, as my noble friend Lord McCarthy has explained, is such a large and varied employer of so many classes of people makes it impossible—and here I agree with Lord Rochester—to have a different system of wage bargaining and wage determination in the public as compared with the private sector; the interfaces are so numerous. The movement between the two sectors is so great, at both managerial and other levels, that an artificial division would not work and would have to be given up.

Therefore one has to look at the problem of what policies are necessary in order to be able to push forward re-industrialisation. The country has been suffering very badly in that respect for a number of years. Much the most important problem before us is in the phrase "free collective bargaining". It is not really free, because obviously it is in a framework of full employment. Therefore it is not a question of the freedom of the individual employer and employee, but decisions about monetary and economic policy in general which determine the background, and therefore the essence, of the bargain.

If one says, "Let us return to collective bargaining", and as the Leader of the Opposition in another place said, "Let us have a restrictive monetary and fiscal policy", then the two together mean that what the right honourable lady wants is to control impersonally, indirectly and maybe unknowingly, wage levels and wage bargaining by unemployment. There is no question about this. We have never been shown, either by the "guru" Friedman and the "sub-gurus"—who exist in this country rather ailingly—or by anyone how the supply of money can determine wage bargains. It is possible, of course, I can imagine a situation which has nothing to do with real life, a model of the economic situation, in which there are strong psychological connections with various numbers—be it interest rates or other things—and the very fact of changes in these numbers will get you, my Lords, exactly where you want to be. But surely this is an entirely surrealist model, a Dufy model of the British situation.

In my opinion, much the most important problem which we are facing is that of differentials. That is where the rub is, because in this country there are differentials between the representative trade unions. This is a frightful problem and it does not exist to the same extent in other countries; certainly not in America where, except for the construction industry, you have industrial trade unions rather than skill trade unions. In this country even the general unions are splintered; that is to say, no one speaks for the whole but each individual speaks for a part. In combination with the differentials, that causes the leapfrogging to which the noble Baroness, Lady Wootton, referred; and I completely agree with her analysis.

It is not easy to educate people to accept changes in differentials—which means not merely differentials, of course—because differentials are to many skilled workmen what millions meant to the American nouveau riche in the 1870s. They did not want a million because they wanted to spend it—they tried but they could not; but, my Lords, to be a millionaire was to be like a Duke. If one has 10 million one is maybe an Archduke, and if one has only 1 million, one is an Earl—I hope the noble Earl has got it.

The EARL of GOWRIE

My Lords, if the noble Lord would not mind my interrupting, perhaps it would be a less expensive solution to create more Dukes.

Lord BALOGH

My Lords, yes, certainly: I should be impressed. On these occasions when we have these discussions, whether the subject be oil, unemployment or wage bargaining, we get the old tune from the other side: if only incentives were given. But incentives have nothing to do with differentials. They have nothing to do with incentives for the workmen; incentives are for the upper class, and wage controls are for the lower classes. This is one of the great social problems that we are facing when we try to change attitudes and therefore to change possible instruments of policies in this country.

The other side say they could easily limit the situation by indirect control. I think it is interesting that nobody's memory seems to reach back to 1970. The noble Earl, Lord Gowrie, may be too young to remember, but there are older gentlemen in this House who really ought to remember. We tried unemployment in 1970, with sharp cuts and so on. Then, of course, everybody became terrified. Polls went wrong and the by-elections went wrong, and then suddenly we changed. Then Britain tried to get on with the business through measures directly weakening the bargaining power of trade unions—that was the Industrial Relations Act. It completely failed.

So what can one say? One can only say that it would be nice if the sort of institutions which were mentioned by the noble Baroness, Lady Wootton, and the noble Lord, Lord Rochester, could be brought into being. There are difficulties about that, too, because there are no two economists who predict the future in a similar way. Therefore when you say, "Let us see how much money is available for the country next year", that is a formidable undertaking. The present Government, with a statistical and economic service which is as good as any we have ever had in this country, have made awful howlers in estimating the PSBR, not to mention other things. So that is in itself very difficult. But suppose there are these super-economists who can predict accurately what will happen in the near future. Then you have to come to a decision about how money should be distributed. There we have the same situation—though it would be a better situation because it would be a central one and not a fractional one, and therefore the leapfrogging factor would perhaps be less acutely present than if we continued the present situation.

I myself think that, on the whole, Aubrey Jones' Prices and Incomes Board did a marvellous job, especially in educating people on how the economy works. It was a great pity that the Tories abolished it; and I find it even more incomprehensible that we did not restore it—because slowly, slowly, one began to know that the economists were talking foolishness when they said that prices were determined by marginal costs. They are not, and in the various industries various types of price determination are present. That ought, of course, to influence at any rate the private sector, not the public sector—or rather, not the public service sector, because there is no surplus there that can be taxed away or whatever.

That is one of the problems which I think my noble friend Lord McCarthy did not mention. The problem of the public sector is that there is not the sort of profit-wage situation that exists in the non-public service sector. The nationalised industries at the moment are in the odd situation of being like Mohammed's corpse—between heaven and earth—because they do not quite belong there and they do not quite belong here either.

I think Mr. Basnett's paper, which I read with great joy and great admiration, is really so important. One ought to have the TUC itself do this sort of job. Of course, it has to be done with the co-operation of, and intense negotiations with, the State; but I do not believe that, for the moment or for some time to come, it will be at all possible to have an independent board, because everybody would be suspicious. And to my mind, the pre-history is such that those suspicions can be well understood.

I think that a statutory incomes policy at this moment would be unacceptable to so large a portion of the organised working population as not to be attempted. It seems to me that in the end we shall have to have a permanent incomes policy. One of the terrible things which has happened in the world is that economists have been refusing to look at the world as it is but rather as it appears in their models. Their models are perfectly competitive, but, in reality, what one has is a monopolistic situation, and in such a situation an inflationary spiral is almost inevitable. It seems to me that this can be cured only by a slow accustoming of people to the fact that incomes policy is not an emergency measure and is not a lifeboat; it is the hull of the boat itself.

This Government have carried out an extremely interesting and important experiment with this kind of free collective bargaining and, like my noble friend Lady Wootton, I do not understand this pother into which even the noble Earl—who does not usually fall into pothers—has fallen, about the Government putting these clauses into contracts. What on earth can induce employers, including the Government, not to grant excessive wage rises, if there is not something—either unemployment in monetary policy, or some other pressure factor—which keeps the lid on? The lid would come off, if this were not there. It is all very well to say that it has not worked; but imagine, my Lords, what would have happened if the Government had not resisted increases in wages. There would have been a leapfrogging, as we saw in 1972–73.

The Earl of GOWRIE

My Lords, I am grateful to the noble Lord for giving way. May I make a brief and serious intervention this time? Our real objection is not so much to the existence of the clause, as to the fact that powers taken by the Government for other purposes were used, without consultation or Parliamentary authorisation, to change the character of contracts.

Lord BALOGH

That is a very good answer, my Lords, but I cannot accept it. I do not believe that the failure of the third stage—if it can be called a failure—had anything to do with the problem of our foreign balance, though the import penetration has shown a steady and extremely disturbing trend. To sum up what I want to say, unless it is freely accepted that a permanent incomes policy, preferably administered by the trade unions, is an absolute necessity, it seems to me that we shall eat up the oil as we have puffed away the gas. Then, the euphoria which I criticised in this House last week will turn into an excessive gloom.

6.3 p.m.

Lord HOUGHTON of SOWERBY

My Lords, we all congratulate my noble friend Lord McCarthy on the breadth of his speech, and on the constructive ideas that he put into it. I think that a number of speeches by noble Lords since then rank with his for a merit rating, and should be studied by a number of people outside this House who are concerned on either side with fixing pay in the public sector. It is not suprising that there is a temptation, which several noble Lords fell for, to mix the present situation with a discussion on what are really the future arrangements for fixing public service pay. The noble Earl, Lord Gowrie, began with his confusions, which he quickly left behind and got on a beam which brought him safely home to his political base; and he became critical of the Government's present actions in an extremely complex and delicate situation. It ought to be said that this position is not of the Government's choosing. This is not what they would have wished to do. It flows from the inability of the Trades Union Congress to reach any kind of accommodation with the Government on what should be the basis of this phase of pay restraint.

Last autumn, the Congress of the TUC decided prematurely, so it seems to me, on an orderly return to free collective bargaining. The Government, in their judgment, felt unable to accept that in the literal terms intended. So that, although they laid down what was clearly stated to be a set of voluntary guidelines, it has almost become the subject of statutory authority. When my noble friend Lady Wootton said that she was in difficulties in knowing whether the 10 per cent. applied to an industry, a firm or an area, I recalled that the Chancellor of the Exchequer made it clear that the 10 per cent. applied to the nation as a whole, and to the nation's wage bill as a whole, which makes it still more difficult to apply in any kind of comprehensible terms when dealing with certain sections of industry, whether in the public sector or outside. But I shall make a few remarks, and only a few, on the assumption that this phase must pass.

It simply must pass, because I cannot see any hope for our industrial recovery in the longer term in conditions which cease to relate the fixing of remuneration to some assessment of the value of services rendered. Some attempt must be made to do that before long, because we know that in the last few years pay increases have had little or nothing to do with increased productivity, with the added value of work done or, indeed, with the capacity of an employer to pay the money. Pay increases have been like a declaration of a national employment bonus paid out of borrowings, or out of the artificial creation of paper money, and this has all to do with inflation. But, as I say, that is no way to go on, and the sooner we can get out of that the healthier our economy and our industry will become. However, the problem of fixing pay in the public sector will still remain, and this debate is really on the assumption that that phase is passed and we are in a position to look at the future of pay in the public sector.

The first point to make about the public sector is that it is likely to grow bigger, rather than smaller. I do not believe that under any Government in the future the public sector will contract. I think it is bound to expand. That means that at least 30 per cent. of the total workforce of the country will be in the direct or indirect employment of public enterprise or of Government, centrally or locally. At the present time, there are three big groups in the public sector with over 1 million employees; one is education, another is the National Health Service and the third is local government.

However, there are some elements in the whole range of public service which have a greater influence upon the whole than their numbers alone would justify; I think that the mine workers represent one clement and the Civil Service represent another, for two entirely different reasons. But I agree with my noble friend Lord McCarthy that, if we get too ambitious in trying to find solutions to this enormous and complex problem, we shall probably finish with no solutions at all. We have to guard against the constant belief that, for every comprehensive and complex problem, there is some kind of umbrella that can be put over the lot, and that underneath it we shall be able to sort out the difficulty in good order and discipline, to the satisfaction of all concerned. That is not true. Indeed, some sections of the public service have already decided which way they want to go.

The Civil Service certainly have decided that they want restoration of the principle of fair comparison as laid down in the Priestley Report of 1955. They want to return to that principle, for the simple reason that over the years before pay restraint was imposed upon the public sector it worked reasonably well. Indeed, the Government have assured the Civil Service that they will return to this principle in 1979. The only subject of current discussion is the machinery for overlooking the application of this principle.

The Pay Research Unit, which is now to be translated into a Pay Research Board, is to come under the control of independent persons. A discussion took place in your Lordships' House quite a long time ago on the need for the Pay Research Unit rather than civil servants to monitor the application of the principle of fair comparison. It was believed that since the Pay Research Unit was composed entirely of civil servants they were looking at fair comparisons with an interest of their own. I do not believe for a moment that this was true, but a new form of board is to be established for the purpose.

My noble friend Lord McCarthy offered certain criticisms and voiced certain difficulties regarding fair comparisons, and I accept what he said about them. It is not possible all the time to find the external comparisons to bring to bear upon sectors of the public service. I found this to be true when I was dealing with teachers' pay. We wanted to look at people of comparable educational attainments and training and where they got to in industry. We wanted to find out what kind of careers they had, and where we could expect to find an honours graduate after, say, 10 years' service in industry in relation to where he or she might expect to be after 10 years' service in the teaching profession. We encountered great difficulty in tracing higher educational level entrants into industry to find out what their career expectations were.

If one goes to all of the seminars on industrial pay, one will hear a great deal about pay but not so much about career expectations which, for reasons related to the nature of business, cannot be laid down so clearly and firmly as in a salaried public service. Nevertheless, there are considerable external pay comparisons which can be brought to bear in a very large number of cases, although in some cases one obviously cannot bring such comparisons to bear.

On one occasion I went to India to advise the Central Pay Commission on the application of the principles of fair comparison. Their difficulty was that the public sector was far bigger than the relevant private sector, so they did not have available that kind of fair comparison. Nevertheless, they had to do what review bodies in this country have to do when looking at particularly difficult sections of the public service—for example, the police.

The firemen are another example. What is the analogue of the police officer outside the police service? Where do we find the fireman outside the police service? We might ask: where do we find the inspector of taxes? But comparisons can be made which are more relevant to an inspector of taxes than to a police officer. Then judgment has to be exercised by reference to other criteria: what kind of police force do we want, what is to be its position in society, how highly do we value its integrity and its intelligence and how highly do we value its ability? Many factors have to come into the ultimate judgment.

So far as the Civil Service are concerned, with which my whole life has been connected, their path is fairly clear. They want to return as soon as possible to the system of fair comparison. This is not to say that an attempt should not be made to reach wider agreement on the guiding principles for the fixing of pay in the public sector. I refer in this connection to the speech of my noble friend Lady Wootton of Abinger. Whether a public service pay commission, to give guidance on the principles of fixing pay over the whole range of the public service, would be of any value I find arguable, but nevertheless it is an idea that is worthy of some thought.

I do not believe that Mr. Basnett's proposals are going to provide the solution which he probably thinks they would. There are many difficulties about them, to which my noble friend Lord McCarthy referred. I do not wish to prejudge anybody's consideration of constructive ideas to meet this situation. There are bound to be difficulties about all of them. I do not believe that it would be a satisfactory solution to separate the industrial section of the public sector and provide arm's length negotiation on pay and conditions while bringing the rest of the public service close to Government for direct negotiation with Government. We have to be more certain than we are of the position of the public sector in the economy generally.

In conclusion, I believe that we want better understanding by workers in the public sector of the fact that they are working for the public and not for private enterprise. Those who are in the public sector, who expect to have, and are given, consideration in relation to security of tenure, superannuation and other conditions of service and who are subject to the conditions given by the best employers in the land, have an obligation to accept, in cases of dispute, the judgment of a tribunal or review body which is appointed to exercise the judgment of the public on its behalf. We must get that kind of discipline into relations between workers in the public sector, the Government and the public. There is no point in having a public sector which merely behaves as though it were part of the private sector. I regard that as one of the most important features of the whole situation.

If that principle is not observed, I fear that we shall have what I believe is a most grievous form of industrial action; namely, a strike against the public. One cannot ruin the Government; one cannot ruin a nationalised industry. Therefore one is striking against the public to convince the Government that it is time in the public interest to give way. That is a form of industrial action which I find is extremely distasteful. I believe that side of the matter ought to be faced quite frankly and, if necessary, brutally. We are now in a position to speak quite frankly to workers, just as we speak frankly to employers and just as we speak frankly, and sometimes not very respectfully, to Government. We are all in this, and we might just as well have a debate that is open, frank, and plain-speaking on all sides.

6.19 p.m.

Lord MOTTISTONE

My Lords, I must ask for your Lordships' forgiveness for not putting down my name earlier to speak in the debate. I was not sure that I should be able to get back from a meeting of the CBI Council which took place this afternoon, but happily I was able to hear all but one minute of the speech made by the noble Lord, Lord McCarthy, which I found most interesting. Indeed, it encouraged me to take part in the debate in order to take up two points. One which the noble Lord, Lord Houghton, has covered at such length really makes my speech almost superfluous, so I shall not detain your Lordships long. It is that it seems to me that the public service—not so much the public sector—must have measures of comparison, somehow, somewhere. I am talking about that part of the public sector which is not in any sense profitably employed. The productive part of the public sector is another matter. I suppose one could tackle that in a way which is more akin to private enterprise, but I do not want to enter into that argument at the moment.

Having myself in an earlier job been director of training board, in the days before the training boards were funded by the State, and starting this off from scratch, I have practical experience of where to start your pay scale—this is, right from the very beginning. You must make a comparison with something. You make a comparison perhaps with the Civil Service, but you find that that is not quite right, so you have to make a comparison somewhere else. You find yourself when you are engaging training officers looking to the advertisements in the Personnel Management magazine. You find that for your junior staff you read the Manchester Evening News. You have to make comparisons.

It may be that you are doing it for one small organisation separately, and it may be this is a way through, but I should have thought that in large sections of the public service you cannot do it on an individual basis. You cannot very well have every separate school looking at its own local newspaper to see how much to pay its schoolmasters. It cannot be done that way. You have to have something central and it has to be done by some body. I am not going to detain your Lordships with the time to decide what sort of body it should be, but it has got to be some sort of external body.

When it comes to something like the firemen, which the noble Lord, Lord McCarthy, mentioned as being difficult, one might have some sort of guidance from what happened to the Services when they were put on military salary, when what was called the X-factor was introduced. You could perhaps do that for the fireman and for the policeman. It certainly needs studying. But it also needs to be taken into account that the Services' salary has become very distorted as a result of the various pay restraints which have taken place during the last few years; the pay restraints being of an across-the-board nature, they tended, as your Lordships know very well, to cut down on differentials, not only differentials between different grades within a particular sector but also differentials between one sector and another. So the Services, instead of being where they were when the military salary was introduced, are now somewhere quite different, and it is going to be very difficult to put them back where they ought to be, once one has decided where they ought to be. It is difficult, but I am sure there has to be some sort of comparison body.

The only other point I wish to make, very briefly, is this. Suggestions were made, I think particularly by the noble Lord, Lord Rochester, that there is merit in having a decision made about the basic limit—perhaps not pay limit; perhaps it is an economic limit—by a sort of triumvirate of the CBI, the TUC and the Government of the day. All I would say about that is that one must remember that the TUC does not represent all trade unionists and not all working people are trade unionists; the CBI does not by any means represent all the private or even public enterprise businesses; and in some respects the Government does not represent all the citizens, particularly if they are a minority Government. I make no Party point; practically every Government are a minority Government. Therefore, it is not entirely wise to rely on this sort of NEDO concept as being the total answer. All I would do is to throw to your Lordships the suggestion that that is not really a complete solution.

Lord ROCHESTER

My Lords, may I say very quickly to the noble Lord that if he studies my speech carefully he will see that, in addition to that point, I made the point that such a tripartite body should be aided by the kind of very independent body of which he was speaking earlier.

Lord MOTTISTONE

My Lords, I ask your Lordships' forgiveness if I got it wrong. However, I think these are the most important points. The public service must have some sort of guidance from somewhere, as the noble Lord, Lord Houghton, explained so clearly to us, and there must be some guidance, I would suggest—and I am not sure that my noble friend Lord Gowrie would go with me on this—from the Government in some way. What the machinery should be I would not know, but I cannot believe it is right for the Government to sit back and watch things happen in an entirely free sort of way when they are themselves in the position of a major employer. Therefore, I would hope that we shall gradually grope towards a solution.

I would hope, incidentally, that in doing so the Government would see fit to walk back on some of the draconian measures with which they are now threatening us. I should perhaps mention in passing that the CBI Council this afternoon gave tremendous support to its President and Director-General in the various actions that they are taking to try and convince the Government that they are going too far. I would hope very much that we might reach a position where this sort of subject has a great deal more steam taken out of it than the Government's present actions are tending to create.

6.27 p.m.

Lord McCLUSKEY

My Lords, may I begin by joining others in thanking my noble friend Lord McCarthy for giving us the opportunity to debate this important question today. The House is certainly indebted to him for exploring this complex problem—though it is perhaps better to say "complex problems"—and bringing to this debate his immense skill and experience in industrial relations matters and pay bargaining machinery.

There is a second preliminary point I want to deal with. The noble Earl, Lord Gowrie, began by referring again to the absence from the Government Front Bench of a full economics Minister. It is not for me to make any comment upon that, other than to say that I acknowledge, as he said, that there is here in this House a very informed level of debate about matters of this kind. I would say to him that this debate is not going to be wasted and ignored; the Government will certainly take note of it. The House may suffer from the inadequacy of my reply, but the Government will certainly benefit from the study of this debate. I would say to the noble Earl that my regret is that he saw fit to introduce rather specific criticisms into a debate about general matters, and made points partly of a political character about the Government's present pay policy. That to some extent disfigures the debate and robs it of some of its value when it comes to be studied by the Government in relation to the long-term question.

I acknowledge that Parliament and the country are particularly concerned at the present time with pay policy in the short term. It is entirely right that we in this House should be invited by my noble friend Lord McCarthy to stand back and try to take a longer view of these problems, to which today's debate has shown there is no simple and instant easy answer. I want to emphasise the long view, because it would be a pity if the long view were to be distorted by current battles and passions aroused over particular short-term incomes policies where the justice is often felt to be rough. I think my noble friend Lord McCarthy was at pains to draw a clear distinction between arrangements for dealing with the question of pay in the public sector, on the one hand, and incomes policy, on the other. I hope that nothing that has been said by others will blur that clear distinction.

As noble Lords are well aware, this House is not the only forum in which the problems and inadequacies of wage determination in the public services and public sector are being debated. My noble friend Lord McCarthy and others joined in the discussion which was initiated by Mr. David Basnett, the General Secretary of the General and Municipal Workers' Union, in an important and stimulating article in the Sunday Times last December to which much reference has been made. I agree entirely with my noble friend Lord McCarthy in the tribute he paid to the courage that it took to write some of the things that Mr. Basnett wrote in that article. My noble friend Lord Houghton of Sowerby referred to "the solution" proposed by Mr. Basnett. I think that that is perhaps going a little further than Mr. Basnett himself went. Indeed, I have looked at the article and he said: I would like to propose an outline strategy". The whole debate conducted in the Sunday Times, here and elsewhere demonstrates that, while everyone appreciates that there are problems, there is a wide variety of view as to the character of the problems, the degree of their intractability and, above all, the prescriptions for their solution. Of course the Government must take note of the various diagnoses and the suggested cures and give consideration to them. Several noble Lords and my noble friend Lady Wootton of Abinger referred to the fact that the Government should try to think out new criteria. My noble friend Lord Rochester called upon the Government to take a lead and that was echoed a moment ago by the noble Lord, Lord Mottistone.

However, many of those who are most closely involved now in the day-to-day reality of these matters would urge that one of the problems in this field is that the Government become too closely involved both in the negotiating machinery generally and in particular negotiations. So they, at least, would surely agree with me that when it comes to allocating responsibilities for action the Government must not seek to bear the sole responsibility: there is also considerable scope for action by the negotiators themselves. It is surely right and better that the initiative should come, if possible, from somewhere other than the Government.

Therefore, in response to my noble friend Lady Wootton, and the others to whom I have referred, may I draw attention once again to what Mr. Basnett said because I think it is entirely apt. In advocating his new approach or strategy, he wrote: the initiative must come from the trade union side". That perhaps recognises as well as anything can—my noble friend Lord Balogh made this point—that although the Government may have a central rôle and, indeed, does have a central rôle, others can take initiatives and can pursue and propose solutions to existing problems whether they are local or general. As my noble friend Lord Balogh said, the TUC must do this job itself. That is not an expression of the Government's view, but an indication of a point with which I would entirely agree; that is, that if the initiative comes from outside, the Government, accepting their responsibilities and not shirking them, must be happier to see the initiative coming from the parties actually involved. One of the great difficulties in any discussion of the public sector is that we are not speaking of one uniform, homogeneous entity. I wish to emphasise three particular complications which affect pay determination and pay bargaining in the public sector.

The first of these is that the role of the Government varies considerably from one part of the public sector to another. In some areas, as has been said, the Government are the direct employer. That is so in the case of the traditional civil servant, whether he is Sir Ian Bancroft or a Whitehall messenger or an employee in a Royal Ordnance Factory or a Naval dockyard. The non-industrial Civil Service and the industrial Civil Service are large groups by any standards. Together they total about three-quarters of a million people. On the other hand, there are nationalised industries where the influence of Ministers is more akin to the kind of influence that Ministers may have in the private sector. In those cases the Government are not the employer and not the paymaster, but they have in relation to the nationalised industries, a real interest, and represent a real public interest in the financial performance of these nationalised industries.

Between these two extremes there exists a wide range of indirect relationships, in which the Government may be represented on the management team of negotiators, as with the Burnham arrangements for teachers, but more often the Government keep at arm's length. However, somewhere in this range we find the local authorities and the National Health Service. My noble friend Lord McCarthy has a particular interest as regards the National Health Service because of his review to which he referred. Perhaps I might briefly refer to that review as I think it would assist the House and serve to illustrate the complexity of the problems that arise even in one single segment of the public sector. I refer to what the noble Lord brings out and to what was referred to a moment ago by my noble friend Lord Houghton of Sowerby.

The National Health Service had at the time of that study in 1976 1 million employees including domestic staff, porters, nurses, pharmacists, doctors and dentists. There were some 43 different staff organisations and nine active councils including the General Council. It had been looked at in part by permanent and by ad hoc review bodies and, of course, over a period of time there had emerged a great many perceived problems in the operation of the whole machinery, its delays and results. So that particular segment illustrates many of the problems.

It serves also to introduce the second complication to which I wish to refer. There are high-paid employees and low-paid employees. There are skilled and unskilled workers. There are white-collar workers and blue-collar workers. More to the point—and this point has already been made—there are some occupations which can be found equally in the private sector (for example, drivers, engineers, pharmacists and typists) so that comparisons can fairly readily be made from one sector to another. However, there are also some occupations which have no real equivalent in the private sector (the Armed Forces are an obvious example; top civil servants perhaps; and the police to whom reference has already been made), so there can be, and indeed there are, problems in finding appropriate principles for the determination of pay. Whether or not it is possible to find some greater or lesser degree of comparability with others outside the public sector, the problems of comparability or relativities within such a wide range of disparate skills and occupations are enormous. Whatever criticisms can be made of the existing arrangements in general or in particular, they have largely evolved out of real situations and I should not wish to underestimate the difficulty of exchanging existing arrangements, whatever their imperfections, for some system or systems which is or are theoretically more extensive, efficient or responsive but have not yet been proved in practice.

In any event, a very important principle is applicable here and it is one which can be found in the opening chapter of the study of my noble friend Lord McCarthy in relation to the Whitley Council machinery, but it is a general point. He said: Since the Whitley Council machinery was originally established by voluntary agreement it was clear that any changes in that machinery would also have to be achieved by agreement". Neither the Government nor anyone else can hope to introduce successful and worthwhile arrangements for dealing with these questions without the agreement and consent of those most intimately involved.

The third complication with which I wish to deal—and it arises particularly where comparisons with the private sector are valid—is that there are fluctuations in earnings overtime in the private sector, where changes in demand, output and overtime and success and failure generally can be significant factors in determining remuneration. In comparing occupations in the private and public sectors somewhat different relationships can be found at different stages of the economic cycle, and it may be difficult to agree that a single relationship is the right one. Thus, if the arrangements result in public sector employees catching up with rises in the private sector, the necessary delays can result in real or apparent injustices, and indeed one man's catching-up can appear to be another man's losing ground.

I have deliberately emphasised the complexity of pay bargaining in the public sector because this helps to explain why there are so many different arrangements: the reason is that there is a myriad of different circumstances to be taken into account and different comparisons to be made. Indeed, no one could sensibly want to discard the existing arrangements, however diverse, and however imperfect, without it being clear that they would be replaced by something better which would be acceptable to those concerned. So again I emphasise that consent is the essential ingredient of successful change.

In spite of the present diversity, the Government seek to maintain one underlying principle in their attitude to pay in the public sector. There is absolutely no wish on the part of Ministers to discriminate against public sector employees by holding down their pay below the levels obtaining in the private sector. This is, however, a narrow tightrope to walk, because if the public sector was thought to be moving ahead of the private sector, there would be dissatisfaction and inflationary pay claims from that direction. The Government's aim is therefore an even-handed approach which both sectors can accept as fair.

I did not intend to make any observations about the current pay policy situation and, indeed, I do not have a lot of time. I do not propose to try to answer all the points that were made in this debate. I wanted, if possible, to confine myself, with a Scots lawyer's sense of relevancy, to the subject matter of the debate. However, as some points were made, let me seek to make one or two brief replies.

First, as the noble Lord, Lord Rochester, from the Liberal Benches said, and indeed others echoed, I accept that the question of public sector pay cannot sensibly be divorced altogether from the question of private sector pay. There is an interaction; it works both ways. If the Government can—as, indeed, they can—insist upon a strict application of, for example, Phase 3 guidelines in the public sector, then they owe a duty to those in the public sector who conform to those guidelines—whether directly employed, as in the Civil Service, or not directly employed, for example, local authority manual workers—to use their best endeavours to see that those in the private sector are not given unrestricted opportunity to ignore the policy in reaching their own wage settlements. That is the principle which lies behind the actions which the Government have taken in the whole application of this policy.

I did not want to say anything about the firemen, but some inaccurate points were made and it is necessary for me to put the matter right. The firemen will receive a 10 per cent. pay rise only in the current pay round which runs for them from November 1977 to November 1978. Discussions are taking place with the employing local authorities about a future—and I emphasise the word "future"—reduction in working hours, not in the current pay round. These discussions will cover not only a reduction in hours but also improved and more productive working methods.

I would remind the noble Earl, Lord Gowrie, who made the point inaccurately, that for a fireman the working week is 48 hours. It is considerably longer than is normal in most other occupations. The forward commitment on level of pay establishes for the fireman a reasonable status—something that this essential public service worker has not always enjoyed in the past.

The Earl of GOWRIE

My Lords, I am grateful to the noble and learned Lord for giving way. My point was not about the hours of the firemen or what they should work. No doubt they are overworked; I would be the first to admit that. My point was that these things should be taken into consideration when we are assessing percentiles.

Lord McCLUSKEY

My Lords, the noble Earl made it quite clear in his presentation of this point that he was suggesting that the firemen had not settled for 10 per cent. but for something more within the current year. That is not so. If the noble Earl wants to withdraw what he said, I shall be happy to give way to him, but the matter of hours is something that does not arise during the current year. I repeat that that is the position and the noble Earl was wrong.

A few moments ago I was speaking about the principle that the Government will not allow discrimination between the public sector and the private sector in order to allow the private sector to get ahead of public sector employees. Regrettably, the application of that principle may from time to time have to vary in particular economic circumstances. I give the one example which is perhaps the clearest. In the desperately difficult situation in July 1975, for example, the need was to find the best way to share out the burden of the attack on inflation. Sacrifices had to be made and there was no possibility of producing other than a broad brush policy.

The guidelines which were then formulated by the TUC formed the basis for a single policy equally applicable to both the public and the private sectors. The universal acceptance of those guidelines showed that that was, indeed, an approach which, in those circumstances, could be accepted as even-handed. I would add, to come back to the current situation, that the reward for this pay restraint since that time will be shown when the February figures fall to be published next month. They will show a rate of inflation down to single figures.

Your Lordships will not expect me to announce today any commitments for the future. As I have already said, we are partly through a current pay round, but the Government will certainly be discussing with the TUC and with others what happens beyond the current policy. The one commitment that I can certainly give is that we shall consider very carefully what has been said today and also in the broader debate outside this Chamber. The Government welcome this broad and constructive debate. Some extremely thoughtful and useful ideas have been put forward, and I hope that my noble friend Lord McCarthy will feel, as I certainly do, that this debate has been well worthwhile. I also hope that if I sit down at this moment I shall allow him a few minutes to reply at the end of this short debate.

6.47 p.m.

Lord McCARTHY

My Lords, I have listened with great care to this most interesting debate. Many interesting points have been made, especially in the last speech, to which I am afraid I do not have much time to reply. I have made a list of many such points to which I should like to reply. I have listed the remarks made by noble Lords alphabetically, from my noble friend Lord Balogh to my noble friend Lady Wootton of Abinger. However, I am told that time's winged chariot is not on my side and that unless I sit down in a few minutes and suitably withdraw my Motion I shall be counted out.

Therefore, I simply want to make two general points arising out of the way in which I think the debate has gone. I hope that noble Lords will take that as some kind of answer. First, I was not trying to start a debate about incomes policy as such; that is to say, about whether or not the Government should announce and seek to implement norms and criteria for the economy in general. Some people might have wished that I was, but I was not; I was talking about the public sector, although, of course, there are implications.

I sought to argue—and I am glad to see that on the whole there has been a great deal of support for this—that there is a case in the public sector for a little ghost—laying on the management side, for a little materialisation of the Government and the Government's rôle on the management side. The only thing that I would say about the last speech is that, of course, one of the reasons why I focussed upon that aspect was because it seems to me that that is the way in which one can move without the need to get every single union to consent and agree to every minor change in bargaining structure. One of the great reasons why one keeps banging away at managers to make management change is because one does not have to obtain consent if policies are changed by management. One can then come out and seek to negotiate what one has agreed.

That is all I want to say on this debate. It has been a very interesting one. I should like to thank all noble Lords who have participated, and especially those who have stopped to listen. My Lords, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.