The r;;;

Spectator

44:1

Incomes policy: reinforcing failure The headlong and uncritical rush towards a comprehensive, and probably statutory, incomes policy continues. Mr Heath pronounces a voluntary policy to be a national necessity, and hints at compulsion if he does not get his Way. Mr Maudling, hitherto critical, leaps to his leader's support in the Sunday Express. Professor Nicholas Kaldor, once Mr Wilson's economic adviser, greets the latest Heath initiative "with admiration ". A poll of City opinion finds four-fifths of City executives regarding an incomes policy as a sine qua non for economic development. Is this any time, then, for the Prime Minister to regard or remember his own words, spoken at Carshalton on July 8, 1967?

If by an incomes policy is meant a general educational programme demonstrating the relationship between incomes, productivity and prices, this is something we can all support. . . . If it means the Government pursuing a policy of relating incomes and prices to productivity in those spheres where it has a direct responsibility, that too is practicable and desirable. Over a period of time these may make a marginal but nevertheless valuable impact on the economy as a whole.

But if by an incomes and prices policy is meant Government control over all incomes and prices, disguised as a voluntary effort but in fact under threat of Order in Council and therefore compulsory, then is not only impracticable but unfair, undesirable, and an unjustifiable infringement of the freedom of the individual.

Yet this is the precipice towards the edge of which Mr Heath has been walking for some weeks.

The strongest practical case against an incomes policy of the kind now being envisaged is that it has been tried before, by the Labour government, and it has failed before. On December 16, 1964, the Government, the TUC and CBI issued a joint Declaration of Intent pledging all three parties to keep wages, salaries and other earnings in line with increases in productivity and efficiency. A few months later the Prices and Incomes Board — which Mr Heath swept out of existence on assuming power — was set up. Little or nothing happened, and Mr George Brown began to threaten to enact legislation requiring early warning to be given of intended price or wage increases. During the general election campaign of 1966 the utter failure of the Government's attempt was most acutely summarised in Mr Heath's dwn emphasis on the nine-fiveone ratio between earnings, prices and production. The then Leader of the Opposition's case that what were required were measures to boost produc'tion rather than restrain wages seemed to be supported by the then Prime Minister on March 10, 1966: I do not think you can ever legislate for wage increases and no party is setting out to do that . . . once you have a law prescribing wages I think you are on a very slippery slope. It would be repugnant I think to all parties in this country. . . . As to the idea of freezing all wage claims, salary claims, I suppose, dividends and rents?. . . I think this would be monstrously unfair.

Thus far, however, it could be argued — and by some it was — that where both parties had gone wrong was in the halfheartedness of their measures. Any such illusion was quickly dispelled.

In July 1966 there was a serious economic crisis. Steps were immediately taken by the Government to impose a wages freeze lasting six months, to be followed by a period of severe restraint for a further six months. Still—on July 20—Mr Wilson insisted that no "elaborate statutory controls" were intended. Ten days later such controls were introduced, as Part IV of a Bill already before Parliament. From the date of the passage of that Bill into law — August 12, 1966—to the date of its expiry — almost a year later—fifteen freeze orders, only one of which related to prices, were passed in Parliament; and the Conservative opposition opposed every one, partly because they believed the orders would be ineffective, partly because, as Mr Heath said in the debate on the Prices and Incomes Act, they would lead to "increasing restrictions on personal liberty." And the ineffectiveness of the policy was shown by the fact that, in 1968, after trade union opposition and successive resolutions at the Labour Party Conference had forced the Government to abandon some of the harshest provisions of its 1966 legislation, the highest increase in weekly wages since the index was begun in 1956 was recorded.

The rest of this melancholy history is quickly told. A further Prices and Incomes Act — of 1968 — would, Mr Jenkins told the House in his Budget speech of 1969, be allowed to lapse at the end of that year: instead, the Governinent would legislate to control industrial relations. In December 1969 Part II of the 1966 Act was nonetheless renewed. In 1970 — election year — most of the structure surrounding the legislative attempt to restrain incomes had collapsed, including the Industrial Relations Bill. That year saw the bursting of the dam of restraint and, while it is not unreasonable to argue that the Labour government was anxious to be generous to wage demands because an election was approaching, any such generosity was nonetheless an attempt to temper the wind to the shorn lamb: resistance would have been impossible. Knowing this, and realising the utter failure of the incomes policy system to achieve its end of a better balance between wages, prices and productivity, the Conservative Party announced in its election manifesto: Our theme is to replace Labour's restrictions with Conservative incentive. We utterly reject the philosophy of compulsory wage control. We want instead to get production up and encourage everyone to give of their best.

The Conservative Government has now taken up the search for a voluntary incomes policy. In every expectation that the search will fail, with hints and winks it moves towards a compulsory policy. It must be wondered if the mandarins of Conservative Central Office now feel any tinge of shame at a series of publications they produced during the life of the Wilson administration, containing quotations from Mr Wilson and his colleagues, and given the generic title, Words for Eating. Yet, it is not the evident and increasing appetite of the Government for its own words that should give rise to distress, so much as the blatantly evident fact that the policy which may be announced at any moment is one that has already been tried, and h'as already failed. That is the tragedy: the epitaph seems about to be written to another bold attempt to break out of the Vicious circle of stop and go.

All this would be untrue only if the terms of the voluntary policy which Mr Heath has announced — and which is bound to form the backbone of any statutory policy — were in some radical Way different from the policies of Mr Wilson in earlier years; and if circumstances were different. Circumstances are different only in the sense that the Heath administration now enjoys worse relations with the trade unions than the Wilson administration did at almost any moment of its ,time in office; and this is in part at any rate due to a bungled and nugatory attempt to legislate on industrial relations, an attempt such as Mr Jenkins at one time thought was essential to solving the nation's economic difficulties.

It is also true, however, to say that the economic principles of the Heath pdlity are, in one very important respect, different from those of Mr Wilson — but it is a difference that gives little extra reason to hope for success; and no reason at all to hope for the kind Of freedom and independence which the policies of the Quiet Revolution once held out. The essential difference lies in Mr Heath's proposal for flat-rate rather than percentage increases in incomes under the policy of general restraint. Mr Powell has referred to this difference as "the only novelty" of the new plan, but he has failed to appreciate its significance. The significance lies in the fact that such flatrate money increases could ensure both that small earners benefit more than large and that any increase will be real rather than nominal.

Such a principle of social justice would appear to have an instant attraction. But its consequences must be spelled out. As Professor KaldOr has immediately seen, the absence from the Heath proposals of any ideas for controlling benefits deriving from the ownership of property — rents, dividends, capital gains and even profits generally — Will make impossible the kind of general economic context in which alone a policy partly based, through the flat-rate principle, on helping the lower paid worker, can be successful. The idea of the flatrate increase represents a rather pathetic and muddled attempt on the part of the Government to help the lower paid, and perhaps to gain some credit with the trade unions for so doing, while at the same time restraining incomes generally. But, without other controls on dividends, profits, rents and other forms of property earnings it cannot work, because the absence of control over unearned incomes will cause real profits, and thus prices, to rise at a far more rapid rate than real incomes. Nor can it in fact gain the support of the trade union movement. If such extra controls were adopted, of course, the last nail would have been driven into the coffin of private enterprise: and there would still be no guarantee that the nation as a whole would become more prosperous. Either, therefore, the Heath Government is setting out on a policy which., however initially successful it may be, can lead only to the same result as before (and Mr Heath may recall his own warning about returning a Labour government in 1970, to the effect that if the nation got the same men and the same meaSures, they would .get the same disaster) or, at sOme point in the cycle, Mr Heath in order to prevent history repeating itself as farcical tragedy will impose the extra controls the logic of his new policy requires. He will then have adopted the policy for a socialised economy propounded by the Labour Party at Blackpool last week.

Speaking at his own party conference Mr Wilson said that the Heath administration could not hope for the co-operation of the trade union movement in any attempt to restrain in comes, because of their "free market policies," and he went on to say that the minimum conditions for success in the talks the Government are currently having with the TUC and the CBI were acceptance by the Government of the TUC proposals for a related system of wages and price control, as well as the exercise by the Government of Control over strategic prices, and of the remuneration of top people, as well as of rents and dividends, the restoration of the Consumer Council, the repeal of flood levies, the dropping of the Housing Finance Acts; the control of land prices and property speculation, the repeal or the steriliding of the Industrial Relations Act, and a moratorium on the Value Added Tax.

Conservatives might readily agree that this is an impossible Programme, one which the present Prime Minister would never, could never, adopt. But the steps prescribed by Mr Wilson are the logical implications of what Mr Heath has already proposed: without them, his is a half-baked policy of sOcialisation, bound, as such, to fail. With them, his policies would have as much chance of success as any highly socialist policy. And it is worth remembering, in remarking on the extent to which Mr Wilson's reCommendations are far more complete than those of Mr Heath, that we have commonly found in this country that, when a government begins half-heartedly to follow policies recommended in a far more thorough-going fashion by the opposition, that government is often on the way to electoral defeat.

What influences have brought the Heath Government to such a pass, given the boldness of their initial declarations of intent to create a free and, prosperous society? Perhaps the most important was a failure of nerve at the very beginning of the. life of the Government, a failure of nerve to be compared only to the failure of nerve of the Labour government in the closing months of 1964 when, unable to handle with daring and confidence the problems of a fluctuating foreign exchange situation, Mr Callaghan and his colleagues allowed speculation in sterling to get out of hand — encouraged it to do so by their own evident panic — and created a sterling crisis that plagued them to the end of their days. Just so did Mr Heath and his colleagues lack the courage, in the weeks following their election victory of 1970, to implement the attack on prices through cuts in indirect taxation which had been suggested as a cure for inflation in the famous "at a stroke" statement of June 16, 1970. Once that moment of history had been missed, problems began to pile up. Relations with the unions became worse, not merely because of the crudity of Mr Heath's diplomacy, but because of their resentment at the Government's determination both to legislate on industrial relations and to hold down wages in the public sector, without tackling inflation in the way they had promised they would — through cuts in indirect taxation.

-Other consequences have followed that initial failure. Once the central elements in the competitive policies he had once supported had been abandoned, Mr Heath found it increasingly necessary to reinforce failure. In particular, his faith in a COMpetitive economy having been first Shaken and then undermined, he adopted the policies of generalised subsidy contained in the Industry Bill, policies designed to subsidise faltering industries, not in order to make them more competitive, but simply in order to stop them going out of business. Once the provisions of that Bill were announced, the Tory flirtation with a free economy, and the Tory conviction that a free economy, could produce an enlightened and compassionate society through the generation of wealth, were over and dead respectively. We were back at square one, trying to tackle inflation by attacking the symptom of inflationary wages, rather than the disease itself. In all this sorry mess there is only one grain of comfort for Conservatives: the policies for a free economy on which the present Government came to power, policies which at one time seized the heart of the Conservative Party, did not fail. They were never tried.

The question is, where do we go from here? A curious feature of the present situation is the existence of ample evidence that Mr Heath and his Colleagues understand and regret their failure of nerve in 1970, and that they are following the path of compulsion and socialisation as a matter of expediency rather than principle, because they feel they mu'st, rather than because they Want to. In their hearts they still know that the polidies of the 1970 manifesto are the right policies for them.

For all the enlightened and principled things this Government has done or is about to do — like the HouSing Finance Act this year and the Pensions Bill next year — it has failed, and is being seen to have failed, in its central task of managing the economy. It has failed to be true to itself; and the increasingly eager pursuit of the mirage of an incomes policy does little more than offer the prospect of again reinforcing failure. Without successful economic management everything else is useless. The prospects for that national renewal to Which Mr Heath once dedicated him'self are not bright: they will not become brighter if he proceeds along his present rOad.