Political Commentary

Prelude to Stage Three

John Grigg

Between now and the end of the summer the Government will be playing for a Stage Three incomes policy, upon which its own credibility and the country's credit depend. The game will be long and hazardous, but much has been learnt since Mr Heath's Stage Three exploded in his face in 1973, and the Government itself seems to have learnt from its own costly mistake last year, when Mr Healey proclaithed a rigid formula which he was unable to stick to in negotiation. This in turn contributed to the collapse of the pound, one effect of which has been to push prices up and so increase trade union hostility to wage restraint.

Mr Heath's experience is relevant to the Government's present task only because common to both are the problems and tensions peculiar to a third year of incomes policy. In other respects the situations differ, and the differences favour the Government. Mr Heath was largely the victim of politically motivated action by the miners' leaders,. who did not put his Stage Three offer to their members but instead called a go-slow. Moreover, in 1973 Mr Heath had to deal with a weak and irresponsible Opposition.

Yet it has to be said that the 1973 Stage Three package suffered from being promulgated by the Government rather than negotiated with the TUC, and that it had the further disadvantage of being statutory. The present Government is seeking another agreement for which the TUC itself will be responsible, and is leaving the question as open as possible until the end of July, after the unions' annual conferences.

True, Mr Healey has said that wage settlements this year should be in singlefigure percentages, but in doing so has merely been quoting the TUC, which says in its Economic Review 1977 (published in February): 'Experience as recently as 1974-75 has shown that a policy of relating pay to prices as a general target lacks sufficient definition. . the intention (now) is to be in a single figure inflation position rather than allow the situation to deteriorate as it did two years ago. A "single figure" pay-price equation is not only the same in the short term for living standards as a "double figure" one but is incomparably better designed to protect living standards over a 2-3 year period because of its impact on the exchange rate and on the possibility of economic growth.'

In other words, the TUC is advising its affiliates not to try to match inflation with equivalent pay rises, but to settle for less in order to bring the rate of inflation down. And the Chancellor has made the TUC's message his own. Everybody knows, however, that Stage Three has to be more flexible and less egalitarian than its predecessors, or it would never work even if it could be agreed. How is greater flexibility to be achieved? One suggested way would be to agree a 5 per cent increase across the board, leaving 4-5 per cent to be obtained and distributed by individual unions, through negotiations either at national or at plant level. There would still, even then, be scope for some further increases in the form of productivity deals — self-financing, if genuine.

The snag about this ,approach,,which in theory has much to commend it, is that the looser part of the agreement, and more especially the productivity deals, would be very hard to police without statutory bodies of the kind that Government and unions. have anathematised. Whatever emerges is likely to be untidy and fallible, but at least preferable to an uncontrolled scramble.

Progress so far has been better than expected. The Cabinet, if not the Parliamentary Labour Party, seems to be united on the issue, and attempts to repudiate incomes policy have been defeated at the Scottish and Welsh TUC conferences, and at the conference of USDAW. Jack Jones has warned against 'wads of confetti money' and, as I write, Hugh Scanlon is trying to resist demands for a free-for-all within the AUEW.

Mr Callaghan's hope is that, despite all the difficulties, he will somehow reach agreement with the TUC at the end of July, and that all the unions that matter will then fall into line, however grudgingly. The agreement would come into operation in August, pending endorsement by the TUC at its conference in September.

His trump cards are the well-founded fear , of higher unemployment, as the only practical alternative to wage restraint, and the much less well-founded fear of a Thatcher government. He must feel that, in the last resort, he can count upon Labour solidarity and anti-Tory prejudice to see him through.

Meanwhile he has received a gleam of enCouragement from a most improbable quarter the electorate. Painful and humiliating as was the loss of Ashfield, holding Grimsby more than compensated for it. Most by-elections, like local elections, are unreliable indicators of what would happen in a national contest, because the turn-out in them is relatively low. But now and again a by-election poll is high enough to make it nationally significant. It was so at Workington last November, and it was so at Grimsby last week.

Whereas the turn-out at Ash field was 15 per cent down on that at the last general

election, the Grimsby poll was slightly tip. Grimsby polled on the scale of a general election, as did Workington, but there is one important difference between the tw° seats, which may explain the dramatically different results. Workington was thought to be more or less safe for Labour, whereas at Grimsby every Labour voter knew that he or she had to turn out and vote for the party or the seat would be lost. Many Labour voters are clearly in a mood to record their disaffection by abstaining, or even voting Tory, in situations where they feel free to do so, but it would be premature to interpret this as a lasting change °f allegiance. Grimsby has demonstrated the strength of Labour voters' residual loyaltY to their party, which should put Tories on their guard against complacency. Wirs Thatcher will not have failed to note that Labour held this seat against the odds eve,„11 in her native Lincolnshire, and in a wee" when she was allowed to dominate the air' as Mr Callaghan did in Stechford week' In her Nationwide interview on the Tuesday (I did not unfortunately see the follow-up programme two days later) she was calm and authoritative throughout, but particularly good at the end when she should, i f answered twoavoid giving long briefly. Politicians answers on television, because they tend t° bore the audience and to give an impressid,as of evasiveness. One of Mrs Thatellerd longest answers was on incomes polieY, a

„ ft was a case in point she

Instead of replying in a few words that s was, of course, a supporter of itte°ffleid. policy, but hoped that in future it wouto emphasise productivity, give due reward o responsibility and skill, and not be tied irrelevant socialist policies, she answered it length and apparently to the effect that '11's future nationally negotiated pay dee should be replaced by plant bargaining.

It may not have been her intention u

tu, suggest that she would cut the TUC out e the process, but viewers and the TUC.,; could be forgiven for drawing the o conclusion. This was apity, pposiste although there may well be scope heeaure for plant bargaining the basis of any votical°7. incomes policy must be a firm understand. ing between the national leadership of trade unions and the Government of the daY For the Tories, it would be intellige tactics to embarrass the TUC by rerninau! it of the supposed independence and no'', partisanship of its role, rather than to see' to be trying to drive a wedge between ..,traectie unionists and their national leaders. mu:01, political capital could be made of the &It it privately conceded in TUC circles, th,,,e was really Edward Heath who inventedato"o social contract, during the Cheqiers Downing Street talks in 1972. 'Social contract' as a phrase ma, arid been discredited by some Of its recent,_ perverse, political implications, but 101) Party idea it should not be made taboo in the

de laY Party simply because it was pronlot the last Tory prime minister.