The Budget: Effect on Wage Claims (Hansard, 14 April 1988)

§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, the forecast issued by the Chancellor at the time of the Budget was for inflation to remain low. With the reductions in income tax announced in the Budget Statement, the increase in earnings required to compensate fully for inflation is likely to be around 2 per cent. at the end of 1988. Wage bargainers should recognise this favourable prospect in their negotiations.

§ Lord Dean of Beswick
My Lords, I am grateful to the Minister for that reply. However, does he not agree that the measures outlined in the Budget will make the application of the Government's policies more difficult? Although the tax rebates or tax deductions for some individuals will be in excess of £10,000 a week, at the same time, according to the Minister's Answer, the Government intend to continue to exhort people at the lowest end of the wage scale—those who are on very minimal and low rates—to keep their wage claims as low as possible. Is that not a contradiction? Will it not exacerbate still further the divide between the two groups of people?

§ Lord Young of Graffham
My Lords, I regret that on this occasion I cannot agree with the noble Lord. The Government exhort people to have regard to the level of wage claims on the basis that those claims should in fact be earned. Over the past year or so, the underlying level of average earnings has gone up by some 8½ per cent. whereas inflation stands at some 3.3 per cent. So all have had a real increase of over 5 per cent. in their standard of living. Happily, productivity has improved during that period to such an extent that unit wage costs have only increased by 1.3 per cent. And last year, we actually earned the increases that we paid to ourselves.

§ Lord Nugent of Guildford
My Lords, does my noble friend not agree that both the reduction in the standard rate of tax of 2p in the pound and the increase in the basic tax threshold of £300 for the married man will be substantial financial incentives to all wage and salary earners to keep their demands low?

§ Lord Young of Graffham
My Lords, I am sure that if one lesson has been learned over the course of this decade, it is the general realisation that wage 1138 increases have to be earned and not simply paid for. I hope that that lesson will continue to be borne in mind.

§ Lord Peston
My Lords, would the Minister care to comment on the fact that the very low paid and those on social security have marginal rates of tax in the order of 97 per cent.? Does he not think that at some time there should be tax reforms which offer some incentives to those people?

§ Lord Young of Graffham
My Lords, I agree with the noble Lord. The whole purpose of the review of social services payments now being undertaken is to get rid of, or to eliminate, as many of those marginal rates of tax as possible.

Lord Bruce of Donington
My Lords, the Minister quoted a figure for wage or salary increases earned by those who actually produce the goods and services. Is he aware that a recently published report has disclosed that those who belong to middle management received salary increases of some 12 per cent. and that those in the higher reaches of management had salary increases many times the multiple of those accorded to ordinary wage earners? Does he agree that by the exercise of a degree of moral probity it might be a good step if the so-called creators of wealth limited their increases to those that they recommend for ordinary working people?

§ Lord Young of Graffham
My Lords, the noble Lord must begin to recognise that the philosophies that lie behind his question were the cause of our decline in the 1960s and 1970s. It is only since we started to realise that we must first create the wealth before we can look at the distribution of it that we have seen the resurgence of the United Kingdom's economy. The actual average earnings percentage increase among all persons in the manufacturing sector was 8.4 per cent. and in the services sector 9.1 per cent. Both contribute to the creation of wealth.

§ Lord Molloy
My Lords, does the Minister not agree that it does the country no good when ordinary people learn that some folk are a few thousand pounds a week, or a month, better off while other folk much lower down the scale get no assistance whatever? Is he aware that it does nothing at all for the moral fibre of this nation?

§ Lord Young of Graffham
My Lords, once again I fear that I cannot agree with the noble Lord. I suspect that if he were to go out and ask people today, he would find that they recognise very clearly that the right kind of successful effort deserves a proper reward. The general satisfaction with the way that the economy as a whole has been performing has rarely been higher than it is today.

§ Lord Dean of Beswick
My Lords, bearing in mind that the Question relates to wage settlements, does the Minister recall that following negotiations a few weeks ago between Ford management and workers in which the full-time officers of the trade unions agreed to a settlement, that settlement was then overwhelmingly rejected by the workforce and further negotiations had to take place? Is the Minister 1139 aware that the substantial changes at the top of the scale in the Budget may make it more difficult in the near future for trade union negotiators who strike bargains at national level to sell them to the shop floor workers?

§ Lord Young of Graffham
My Lords, I assume that the noble Lord, Lord Dean of Beswick, was not referring to the union negotiations with Ford at Dundee but to those in the south at Dagenham. I am sure that the noble Lord recollects, as I do, that the negotiations were about whether they would have a three-year or two-year agreement. Rates of pay did not figure prominently in the rejection.