The case for incomes policy

Kenneth Lewis

Not having an incomes policy is nonetheless an incomes policy: it simply means 'Get what you can'. There are those who are against any guidelines, any restraint. They believe in a free for all. Yet many of those who take this line will say that the £6 a week across the board has been too much and adds to inflation.

Since the last war we have had a succession of incomes policies. Sir Stafford Cripps asked for a hair-shirt of restraint during the 1945-51 Labour government. During the Conservative thirteen years there were wise men appointed to give guidelines and a whole series of stops and goes as well as tribunals to look at particular wage demands in both the nationalised and the private sectors. These disputes were usually over two or three per cent difference; happy days! The second Labour Government in 1964 introduced a voluntary incomes policy and then because the union leaders privately asked for compulsion—in public they would not admit it—George Brown introduced last-minute statutory provisions. The unions wanted the statutory provisions because it enabled them to go to the shop floor and say: 'Not our fault that we have to advise you to settle for less: blame the Government : don't ask us to break the law'.

The Heath administration came in determined not to have an incomes policy. It was blown on course. Growing inflation forced action. We had Stage I and Stage II: both were successful in providing restraint. The railwaymen and then the miners blew Stage III off course. Harold Wilson came in and tried to still the gale with a Social Contract. Not an incomes policy—just words. He proved that no second man has been able to still a gale with words. Inflation roared ahead. Then we got the Jones/ Healey £6 a week. Michael Foot went along with it, although he had always been against a statutory incomes policy. He did so because the statute was a stand-off. And, any sanctions were against the employers. What comes next will be different—but one thing is certain, the onus will still be on the employers. What are the lessons?

It must, of course, be assumed that there is a figure of unemployment so high that no incomes policy would be necessary. As in the 'thirties. Maybe two million; certainly three million. But such a figure of unemployment would indeed bring the bloody revolution. No one would accept it. What we now know is that 1,500,000 does not cause any great violent reaction. Indeed, violent industrial strike reaction was greater when we had full employment. There can be no doubt that the present unemployment figure has restrained the unions and helped the Government to secure agreement on incomes with reasonable voluntary cooperation. And quite a lot of people have had to settle for less than £6 a week.

It is certain that a low unemployment figure, arising from going for growth and too big a push on the money supply to get that growth, is disaster. It felled the Heath Government.

But who wants increasing high unemployment ? We want prosperity! Even if we get the prosperity we hope for, it is doubtful whether unemployment will come down much below 800,000 again. Yet if we succeed in this we will still need some incomes policy; otherwise the prosperitY will disappear again in another round of worse inflation.

An incomes policy cannot, of course, be separate from an industrial relations policy. Indeed, those who are against an incomes policy of any kind would say that having one creates 'conflict. Certainly, incomes negotiation creates tension: sometimes conflict. But this can apply to many separate wage negotiations. And since the Government through the public services and the nationalised industries employs many hundreds of thousands of people, even without an overall incomes policy, there can still be conflict. There is no suggestion that all nationalised industries are to be denationalised. An incomes policy in the state sector is necessary anyway. And because it is so big an employer of labou'r, any settlements in this sector must affect the private sector.

As part of any successful incomes policy, industrial relations have to be improved. There has to be the carrot as well as the stick. The choice between more men on the dole and extravagant pay rises for those employed, or reasonable rises and fuller employment is not a happy choice to offer. But it is realistic. The unions already have the message. That message came upwards from the shop floor and not from the general secretaries down. In recent years governments have been engaged in negotiation, particularly in the nationalised sector, from a position of weakness. At least,. for the future it can be hoped that equilibrium will return.

In such a situation talking between groups is easier. And it is important that there is continuous dialogue. A finance director talks finance; a sales director talks sales; an industrial relations director must talk industrial relations right down the line. An office desk exercise is useless. So also in government. The Chancellor of the Exchequer discusses his budget; the Foreign Secretary his diplomatic situations; the Minister of Employment must get to know the poker game by constant discussion. This must be so, since, at the end of the day, an incomes policy has to be generally accepted.

Even if an incomes policy is generally accepted and supported, there will still be the rogue elephants. No scheme is likely to Prove perfect or be wholly acceptable to all. There will be times when the rogue elephants have to be taken on. But if there has been a continual dialogue in advance then it will also be anticipated in advance just Which area the trouble is likely to come from. And that is important.

A voluntary incomes policy is always best; a statutory policy, preferably a freeze, can only be short-term. But to get a voluntary policy, a government has the obligation to make it clear that breakaways will bring the threat of sanctions of some sort. There can be no doubt that in the field of taxation, subsidies to industry including the nationalised industries, government orders to industry, there is plenty of scope to threaten sanctions. And so far as the unions themselves are concerned, once there is overall agreement on who is to get what, and in what form, there is much to be said for refusing to pay social security strike pay to those who break away. This could be quite separate from the general issue of Whether or not social security payments Should be made available in the case of all strikes. At any rate, in support of any generally accepted voluntary agreement, the threat of financial sanctions is better than bringing in the courts of law and individual or union fining.

Since the possibility of not having some form of incomes policy in the near future is Probably less likely than that of having one, allowance must be made for differential rises to take account of skill and productivity. Except in a time of crisis, flat rates increases cannot be justified. Nor do they help to get production moving. The country needs incentive for all. Skill must be rewarded. Good productivity should be recognised and paid for.

Unfortunately, except in the case of the small employer or the self-employed, separate individuals cannot gain special bonus payments for merit. This is a pity. But it is a fact. Large-scale union negotiation makes the recognition of individual Merit on the shop floor impossible. So, Productivity pluses have to be negotiated across the board. This is best done factory by factory. A worker's interest in the success of his own area of work is a good stimulant to the effort of himself and his fellow workers. The period of the £6 a week straight increase has run its course. Into the next phase must be built not only differentials but incentives.

This country not only has to get control of inflation but it has to pay off a great deal of debt. For a year or two circumstances will not allow us to take all of the results of success for our own benefit. Yet some of that success, if it comes, has to be shared out so as to encourage everyone who is involved to do better. A free for all and the devil take the hindmost will not achieve the consistent progress we need.

Our present plight is a direct result of a previous incomes policy being broken by the miners, and by Harold Wilson then going soft. The Government failed to hold the line on extravagant wage and salary rises, in the public sector in particular, and, afterwards, generally. Do we want this to happen again ? Can we afford that it should happen again? Do we want price rises, following uncontrolled wage rises, to esca

late in the next three oifour years as they have done in the last three or four? And would we get foreign banking support if we allowed it to happen ? How else do we restrain these things except through an incomes policy of some sort ?

Our future as a country economically depends upon agreement and not just giveaway in the pay field. There are mines to walk through in this field. But that is no justification for not seeking to circumvent them. And the alternative could be an inflation bomb which will blow us all up!

Nicholas Ridley, MP, will put the case against an incomes policy in The Spectator next week.