HL Deb 15 November 1978 vol 396 cc739-52


1.The Government and the TUC agree that the fundamental objective of economic policy in 1978–79 is to keep the annual rate of inflation at not more than the present level, and indeed to bring it down further, as a contribution to their aim to reduce unemployment, promote growth and improve real living standards. Policies affecting costs, incomes, investment, the exchange rate and fiscal and monetary developments must be related to this objective.

2.The Government, in consultation with the TUC and the CBI, will strengthen the Price Commission, review the safeguard clauses with the aim of extending the discretion of the Price Commission, and secure the maximum practicable interval between price increases. The TUC believes that there is a legitimate function for the Price Commission in examining all elements of proposed price increases, including raw material, labour and capital costs, without discrimination between the production and distribution stages; and that, as indicated in the TUC guidance attached, employers should give public commitments on prices as part of collective agreements.

3.The Government and the TUC agree that negotiators should focus on the need to secure the maximum efficiency in the use of resources and the containment of unit costs. This will help ensure that the agreed inflation objective is attained, at the same time improving competitiveness, increasing job security, enabling expansion of investment and employment, and providing the basis for higher living standards for work-people, including reductions in working hours. For these purposes negotiators must have regard to the need to produce a balanced allocation of benefits between workers, investment and consumers.

4.The TUC will continue to play its part in the industrial strategy with the aim of securing major improvements in the way industrial assets are used. The TUC will continue to give maximum publicity and encouragement on the industrial strategy to its members.

5.The Government reaffirms its position as stated in the White Paper Winning the Battle Against Inflation including the maximum level of settlements consistent with the agreed objective and discretionary action, where necessary, to support it.

6.The TUC remains committed to voluntary collective bargaining, and believes that adherence to its guidance to negotiators, as set out in the attached Annex, will result in settlements consistent with the agreed objectives set out in paragraph 1. It also believes that the threat or the use of sanctions in these circumstances is neither necessary nor desirable.

7.Consideration has been given to the TUC guidance and to the special problems of low pay and certain public services. The Government welcomes the emphasis in the TUC guidance to negotiators on the price consequences of individual settlements. In considering discretionary action the Government will take into account the price consequences of that settlement as one relevant factor.

8.On low pay, a major objective is to ensure that workers receive the appropriate terms and conditions of employment, which will involve continued use of the Fair Wages Resolution and Schedule 11 of the Employment Protection Act.

9.The Government will arrange an urgent examination of the existing arrangements—both legislative and administrative—governing wages councils to ensure that there are effective means of carrying out the dual role of improving low pay and encouraging the development of normal collective bargaining in these industries, including the publication of annual reviews of progress towards these objectives. The examination will also cover ways of facilitating the transformation of wages councils into statutory joint industrial councils as envisaged in Section 90 of the Employment Protection Act, and methods of ensuring that wages councils take full account of low pay objectives appropriate to them. The Government will meanwhile draw these considerations to the notice of wages councils. Ways in which the servicing arrangements of wages councils can be improved will be a subject for a separate examination.

10.The Government and the TUC believe that in some areas of the public sector, other than those engaged in trading, there is a greater role for comparability in determining pay. The precise areas and methods will be a matter for negotiation between the employers and unions concerned, but the guiding principle should be the achievement of comparable earnings for comparable work. The Government and the TUC recognise that the establishment of levels of pay by such methods does not provide any automatic basis for increases for groups not part of the exercise. Where these general principles have been appropriately observed the Government will be prepared to see settlements implemented subject to agreement on staging.

11.Progress towards the agreed objectives and any action which may from time to time be needed will be discussed at monthly meetings between Ministers and representatives of the TUC, which will cover all relevant economic issues.

12.For the future, the Government and the TUC will make arrangements for annual discussion of the whole range of social and economic matters which are their common concern, including a common understanding on the prospects for pay and prices.

Dated: 14th November 1978.



1. As part of the understanding on prices and collective bargaining reached between the TUC and the Government on 14th November (copy to be attached) it was agreed (see clause 7) that trade unions should explore ways of reducing or stabilising prices both in the process of bargaining and during the currency of agreements, and give guidance to affiliated unions on this.

Prices and Collective Bargaining

2. In the light of the agreement between the TUC and the Government that the fundamental objective of economic policy in 1978–79 is to keep the annual rate of inflation at or below the present level, as an integral part of the policy to reduce unemployment, promote growth and improve living standards, the TUC General Council wish to draw certain points to the attention of negotiators.

3. The General Council will not "vet" claims, act as watchdogs in the process of negotiations, or scrutinise settlements. They believe on the contrary that negotiators should themselves accept the specific responsibility both in the framing of claims and in the process of negotiation, to ensure that the guidance both in spirit and in letter is fully respected.

Framing of Claims

4. Unions should seek the maximum efficiency in the use of resources and have regard to the need to produce a balanced allocation of benefits between workers, investment and the consumer. To this end:

  1. (i) when framing claims, both in the private sector and in nationalised industries, unions should consider the impact of their proposals on prices;
  2. (ii) they should seek stability in the price of the product wherever possible, and in all cases have regard to the impact on the overall price level, recognising the need to keep inflation from rising above the present level;
  3. (iii) increased productivity and better utilisation of capital equipment should always be considered as a means of combining the objectives of price stability, improved competitiveness and higher living standardss for workpeople;
  4. (iv) where firms are in a strong market position, they should be pressed to expand output and investment, rather than increase prices to the consumer;
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  6. (v) a longer timescale than one year in many cases may be the correct strategy for dealing with some of the points outlined above.

5. Negotiators should embody in agreements commitments by employers about price intentions, these to constitute a yardstick against which future action can be judged.

Information Disclosure in Negotiations

6. In the course of negotiations:

  1. (i) employers should be pressed to disclose the whole of the structure of costs in the enterprise, namely material costs and capital costs as well as labour costs, the latter comprising all grades including the remuneration and fringe benefits of senior executives and directors;
  2. (ii) unions should be prepared to take full account of the information disclosed when considering a proper level of settlement;
  3. (iii) unions are not, however, expected to accept unilateral statements by employers on the effect of pay adjustments on prices unless they are prepared to demonstrate this in detail;
  4. (iv) unions should not be satisfied with the minimum information needed to meet statutory requirements, particularly where employers cite wider issues of future plans and job security in responding to claims.

Review by TUC and Government

7. The TUC and the Government will meet each month and will review the operation of the above guidelines as part of the overall surveillance of the operation of the joint understanding and the need for the rate of inflation to be kept to the present level or below.

Dated: 14th November 1978.

4.1 p.m.

The Earl of GOWRIE

My Lords, I am grateful to the noble Baroness for repeating that Statement and also to the Government for their courtesy in letting me have a copy of the document a few moments before the Statement was made in another place. It is indeed a sombre document, and there can be no elation on any side of the House that it has had to be repeated today. The failure of the General Council of the TUC to ratify an agreement reached between the TUC's Economic Committee and the Government is no disaster in itself, because the document now not signed or ratified was at best purely cosmetic and at worst positively harmful, in that signed and endorsed nonsense is surely worse than no nonsense at all.

The Chancellor spoke of five weeks' intensive discussions with the Economic Committee, and yet conceded that even if the document had been signed—and I am quoting the words which the noble Baroness repeated— The Government were unable to discover a satisfactory substitute for the policy they set out in the White Paper last July"; that is to say, the 5 per cent. limits on settlements and the sanctions on firms which break or are forced to break those limits. I must say that we have some sympathy for the union leaders who refused to sign a document which showed no agreement on the basic principle at all.

The Statement is sombre because it shows that all those terrifying extensions of union power which were issued in by Mr. Foot—and the Lord President was privy to these intensive discussions—and endorsed by recent Parliaments were all for nothing. We have sold great chunks of liberty and Parliamentary sovereignty—for what? Not even an agreement to disagree.

The Government have declared in the Statement that the special relationship is dead and that instead they will fall back on the 5 per cent. policy. They claim that this is endorsed—and again I am quoting the words that the noble Baroness repeated— by the great majority of the British people". Why not, then, bring this policy before the British Parliament? The Statement says that the Government remain committed to the 5 per cent. policy. Will the noble Baroness say whether the 5 per cent. figure is a guideline—that is to say, a sober assessment of the average rate of settlement of increase which the Government feel the country can afford—or whether it is an absolute limit in the public sector which the Government will absolutely apply, resorting to sanctions on private firms if they try to offer their employees any more?

It is in our view intolerable if the dubiously constitutional policy, the 5 per cent. policy, in no way endorsed by Parliament, should simply be a smokescreen behind which the Government can hide while they wrestle with the undeniably nasty times which lie ahead for their own employees. I have put this in the form of a question to the noble Baroness; I have asked her whether it is a guideline or an absolute limit. The fact is that last Sunday on television and last month at the Mansion House the Chancellor made it absolutely clear that fiscal and monetary controls were the only sanctions open to modern Governments against the monopoly powers enjoyed by competing unions. It is quite wrong, therefore, for the Government to pretend that there is an alternative policy, or to attack those on this side of the House who have come to the same sad conclusion—and I stress "sad conclusion"—as a result of remarkably similar experiences.

Finally, if the Government want an incomes policy let them bring one before Parliament, as my right honourable friend Mr. Heath had the courage to do, so that all of us, employers or labour unions alike, know where we are and what we have to expect. The recent indecision and uncertainty is infinitely damaging, and I would argue is in itself a reason why wages and prices are liable to increase.


My Lords, would the noble Lord the Leader of the House be kind enough—

Several noble Lords

Order, Order!

The LORD PRIVY SEAL (Lord Peart)

My Lords, we must hear the point of order.


there is no point of order, my Lords.


My Lords, would the Leader of the House be kind enough to explain how any noble Lord can subsequently phrase an interrogative using the same technique and the same manner as the spokesman for the Conservative Party; or is it that we are all equal, only some are more equal than others when expressing themselves in interrogation form?


My Lords, may I say in reply to that—and I quote from Standing Orders: Ministerial statements are made for the information of the House, and, although brief comments and questions for clarification are allowed, such statements should not be made the occasion for an immediate debate, unless the House so order". But I would hope that noble Lords would ask questions of the Minister.

4.7 p.m.


My Lords, I shall endeavour to make my comments brief and my questions specific. We, too, from these Benches, would like to thank the noble Baroness for repeating this Statement. In circumstances where there is this evident disparity between the Government's 5 per cent. guideline and the TUC's insistence on a return to free collective bargaining, we are really not surprised at the absence of agreement. My noble friends and I are in broad support of the Government's current policy, inasmuch as this amounts to what is in our view the inescapable responsibility of any Government to intervene in this field; but we are also clear that any sanctions to enforce such a policy must have the authority of Parliament, and those now before us we deplore because they do not have that essential backing.

There is one phrase in the statement that I should very much like to welcome, if I may, briefly, and that is where the Government invite the CBI to meet them from time to time in pursuit of their objective to defeat inflation, and go on to say: And this would make an important contribution to the success of the wider ranging annual discussion of the prospect for pay and prices, the first of which is planned for next year". I hope it will be early next year, for in my view there is need to establish as soon as possible agreed procedures in the long-term for the determination of wages and salaries generally.

Now I come to my two questions. What steps, if any, do the Government intend to take to make their policy more flexible so as to permit restoration, at least in part, of those differentials for responsibility and skill which have been so seriously eroded in the last few years? Secondly, in view of the difficulties which we will no doubt encounter during the coming winter in the public sector, will the Government consider setting up a single independent body instead of, as has been the case so often in the recent past, a number of such bodies to determine the pay and conditions of people employed in certain key occupations which are vital to the support of life?

Baroness BIRK

My Lords, perhaps I may reply now to the two Front Bench speakers. The noble Earl, Lord Gowrie, I think quite rightly, said that this was a sombre Statement; and I was pleased to let him have his literary and stylish fun at its expense. He said that the special relationship is dead. The facts are that really nothing has changed. We have never pretended that the unions saw eye to eye with the Government on the question of the 5 per cent., certainly at this stage. Nevertheless, about a year ago nobody believed that there would be any settlements remotely within the area around 10 per cent., but a great many settlements—the majority of them—in fact took place there. What is important is what happens to the individual settlements as they arise.

The noble Earl asked me whether the 5 per cent. was a guideline or an absolute limit on the public sector but not on the private firms. I am certain that the noble Earl has read the White Paper, but if he re-reads it he will see that it is there made absolutely clear that the 5 per cent. is a figure for the total earnings increase in any group, whether in the public or the private sector. I see that the noble Earl is shaking his head, but there is of course flexibility allowed in realistic productivity deals, where there can be an increase. There is no doubt regarding the Government's policy; this has been laid before both Houses, and it was fully debated in another place last summer.

The noble Lord, Lord Rochester, raised the question of sanctions, which he also raised in the recent economic debate. He also raised a question about the sanctions being approved by Parliament. They were approved by Parliament in debates last February. They are entirely lawful, and there has to be a genuine discretion which the Government—in fact any Government—can exercise if they are running the economy of the country. We have agreed to discuss the operation of the contract clauses with the CBI. The noble Lord also welcomed the regular meetings with the CBI.

I believe that there is an under-estimation of the flexibility in the present policy, because, with the kitty principle within 5 per cent. as well as the self-financing productivity schemes, and special treatment in carefully defined cases, the pay policy is not so rigid as has been described.

I turn to the noble Lord's final point about one body. Here in general terms there is Neddy, which is a body which combines the three parties—the Government, TUC and CBI; but I gather that the noble Lord is not talking about that. However, if he is talking about a body for payment within different industries, as has previously been mentioned, then I do not think that this is the moment to go into detail on that, and I should like to write to him on it if I may.

4.13 p.m.


My Lords, is the Minister aware that in practice the accident of the missing five members of the General Council yesterday probably makes no practical difference at all to what is now likely to happen? Therefore, we should not weep too much about that. Secondly, is she aware of what I regard as a much more serious defect in the whole approach; namely, that productivity should be the name of the game—and not stability, much less rigidity, which is what the Government seems to be presenting to the TUC and the CBI, and which no trade union leader would ever expect, since his members do not put him there to sustain stability or rigidity? I have just had the great joy of meeting again with George Woodcock, and I should like, finally, to ask the Minister whether she would seriously suggest to the Chancellor that, in the new talks and consultations he and other Ministers are to have with the TUC and the CBI, he should rescue the Woodcock and Brown version of 1965, entitled The Productivity Prices and Incomes Policy, which I still think was much nearer the objective than the present policy?

Baroness BIRK

My Lords, I shall bring to the notice of my right honourable friend the last point made by my noble friend Lord George-Brown. He is perfectly right that the Statement I read was on pay policy. As my right honourable friend said in the Statement, the talks will be continuing with the TUC on a whole range of other matters, and my noble friend is absolutely right that productivity is about the most important of these. So, although the Statement is concerned with pay, that is certainly not the be-all and end-all of our economic policy. I agree with my noble friend that productivity is certainly one of the most important matters today, and it is in order to improve productivity and to bring down inflation that the Government are standing by their 5 per cent. pay policy.


My Lords, is the noble Baroness aware that the portents for this winter and beyond are so grave that merely to have the Statement underwritten by Parliament is not enough? The differences and the consequences are so great that, if it is to be sustained, it must be underwritten by the authority of the nation through a General Election. Is the noble Baroness aware that there is a situation in which the two authoritative sides—the Government and industry, represented by both employers and employees—are at odds, and there is a very different point of view put forward by both sides, each with equal authority? It needs the nation as a whole to give its decision. The stance of the two main Parties shows the difference which would enable the nation to give a decision. What is now being presented is cosmetic. It is covering over a situation which is dragging the country into ruin from which we may not be able to recover. This is a time when, if democracy is to work, the nation itself should be allowed to give its decision.

Baroness BIRK

My Lords, I am sure that my right honourable friend and honourable friends in another place—where they are voted for, and where they have a vote—will be very interested in the noble Lord's suggestion. He may want to recall the result of the recent by-election as well as the outcome of the most recent opinion polls.


My Lords, can the noble Baroness say what the Government propose to do to deal with what many of us see as the real difficulty of the 5 per cent. limit—namely, that it tends to be applied, and has been applied in the past few months, at the same time to both profitable undertakings which could well afford a larger increase and wholly unprofitable ones which cannot afford 5 per cent? Can the noble Baroness say whether the Government appreciate that this is a problem, and if they do, what are they going to do about it?

Baroness BIRK

My Lords, the noble Lord is absolutely right—it is a problem. It is also true that a certain number of firms have already settled within the 5 per cent., and I think that more will be doing so in the future. The only positive and long-term answer to this problem was contained in the point raised by my noble friend Lord George-Brown: it is increased productivity all round and increased efficiency, not only on the part of the workers, but on the part of management as well. I assure the noble Lord that this is not a matter of which we are unaware, nor one which we do not acknowledge.


My Lords, is the noble Baroness aware that the problem which faces the nation is of infinite complexity, and that we certainly cannot throw much light upon it upon the basis of questions and answers today? Will she bear in mind that those of us, including myself, who try to understand the problem have a very deep sympathy with the trade union movement which has to carry the can, as it were, for the difficulties of the ordinary chap who, with his family, is faced with the economic consequences of inflation? The problem arises fundamentally because there is a confusion. The Government are concerned, rightly, with the effects. The trade union movement is deeply concerned with the causes, which are creating chaos throughout industry and bringing about the destruction of differentials. There is also the inability to produce competent middle management, without which this country cannot flourish. This is tied up with productivity and, unless the problem is understood and tackled, our difficulties will never be lessened; indeed, we must go from bad to worse.

Baroness BIRK

My Lords, my noble friend has put his finger on the problem in the first part of his remarks. It is perfectly true that the trade union leaders must be concerned with their members, and with their members' living conditions and other problems. At the same time, the Government must be concerned to keep down inflation, and this is the reason for their fairly rigid pay guidelines. The message we are trying to get across—the message the Government must get across—is that, if those guidelines are burst through to a great extent, all that can result is increased inflation so that anything people get by way of increased wages will be entirely eroded by increased prices. That is the dichotomy.


My Lords, have the Government asked the TUC what alternatives they would put in the place of the maintenance of the kind of incomes policy suggested, whether they have asked the TUC to study the position in the countries where free collective bargaining with flexibility works with much less inflation than in this country, and whether they would consider suggesting a code of practice for immediate introduction if they do not like the incomes policy and the kind of system operating in those countries?

Baroness BIRK

My Lords, it is extremely difficult to reply in question and answer session like this to the last point made by the noble Viscount, Lord Trench-ard, which was an interesting one but which raised a subject requiring a fairly long debate. I also believe that comparisons between countries are extremely difficult if a great many things are not taken into account; like compared very superficially with like can lead one to very misleading conclusions.

The Government are satisfied that in the economic situation in which we find ourselves—which is the result not only of national events but of international ones as well—now is not the moment to have a system of free collective bargaining. Governments do not go out of their way to make themselves unpopular with part of their own movement—which the trade union movement is—just for the hell of it. It is because it is essential to the fight against inflation that we should follow this policy, and I do not think I can go further with a comparison with other countries other than to say that at the moment the Government believe that a pay policy combined with monetary and fiscal policies is the only way to deal with the economy of the country, and that the less attention is paid to the pay policy, the more rigid and difficult will be the other parts of the policy which will have to be brought in. The Government are trying desperately to avoid that because it can only lead to greater unemployment, more restrictions and more difficulties for everybody.


My Lords, may I ask the Minister—


I think we must get on, my Lords. The noble Viscount has asked a question.


My Lords, will my noble friend bear in mind that some of us on this side of the House are astounded when we hear the noble Earl, Lord Gowrie say that the social contract has been all for naught? In fact, the social contract has played a notable part in bringing down the inflation rate from over 25 per cent. to 8 per cent., and it has been a contract in which the trade unions have played an honourable part. There has been a voluntary pay agreement and, while we on this side regret that it has not been possible to carry it further forward this year, to hear a speaker for the Opposition describe it as all for naught seems to me utterly ridiculous.

Baroness BIRK

I am extremely grateful to my noble friend Lord Jacobson for that comment, my Lords, and of course he is absolutely right. I wrote down "social contract" and underlined it, but I fear that in my reply to the noble Earl I did not mention it. At the time, it would have been thought inconceivable that we could have had three years, going into a fourth year, with a social contract which has worked and where the trade unions have shown an incredible amount of restraint. I am extremely grateful to my noble friend for saying that aloud.


My Lords, may I ask my noble friend how often the experiment of putting an incomes policy on and off has to be repeated until people realise that an incomes policy is an essential part of managing a modern economy with concentrated power, without inflation and with full employment? May I add, however, that interest rates are also an income—and not only an income but also an element of cost—so we shall therefore have to be very careful indeed to ensure that what is gained by discouraging investment is not countervailed by an increase in prices due to the increase in interest rates?

Baroness BIRK

Yes, my Lords, my noble friend is absolutely right.