THE ECONOMY
Mr David Nickson takes his besom to the Atlantic
JOCK BRUCE-GARDYNE
Am I imagining things, or is there a tiny hint of desperation about the calls from Ministers to the Captains of the CBI to 'take a grip' upon their sharply rising unit labour costs? It would not be altogether surprising if there were. Else- where around the globe, as the annual rate of price increases tumbles towards zero, wages follow suit. Last year in Germany and Japan unit labour costs did not rise at all. In France they rose by just one per cent, and in the United States by two. Even in chronically inflationary Italy they only went up by 4 per cent. In Britain, and in Britain alone, pay increases tear merrily along at 71/2 per cent, and with output per person actually falling in the first quarter of 1986 for the first time in six years, unit costs were up by almost nine per cent. 'The country', Lord Young told us last weekend, 'has never had as good a time as it has today,' and much thanks he got for his pains. The more important question though, is how long, Lord Young, can it last?
The reasons for the singular persistence of real earnings growth are matters for conjecture. Personally I wonder if our long chase after the ignis fatuus of an 'incomes policy' throughout the Sixties and the Seventies doesn't have a good deal to do with it. We all became acclimatised to the weird idea that pay had nothing to do with performance, supply and demand, or even ability to honour the cheques: that it was all a matter of 'fairness'.
Moreover, important relics of the locust years survive. Even when we did get round belatedly to parting with Professor Clegg, the police and the armed forces continued to enjoy their annual pay review bodies to make sure they kept up with — or rather a bit ahead of — the Joneses. The lesser civil servants did indeed lose theirs, and it has not (as yet) returned. But doctors and dentists were luckier, and in due course the nurses were similarly endowed.
Admittedly these assorted arbiters are nowadays enjoined to take account of the primary yardstick of ability to recruit and retain suitably qualified personnel. But a glance at the latest batch of recommenda- tions soon shows what they think of that. It is perhaps best encapsulated in the verdict of Lord Plowden and his panel for the `top people' — judges, flag officers, and senior Whitehall mandarins. Last year they caused much heartburn by getting these grandees upgraded by between 12 and 17 per cent, essentially on the interesting grounds that a slimmer civil service meant fewer 'glittering prizes' for the 'high flyers' in the middle ranks. As a result, we were told, the 'high flyers' were easy pray for recruiters from the private sector. You and I might conclude that that was just what was needed to get supply and demand for the highest ranks into better balance. Lord Plowden and Co had better ideas. By increasing the prizes at the top of the tree, they advised us, those lower down would be consoled for their poor prospects of ever winning them. This year they have noted sorrowfully that it doesn't seem to have worked: the 'high flyers' are still drifting off. So more of the same, they reckon, should not come amiss.
The Government was understandably not prepared to face another row over 'top people' like the one last year, and so the Chancellor decreed that three per cent, just enough to preserve the value of last year's award, was quite enough, and wrote round to his backbenchers with a sugges- tion that they should draw the attention of their grassroots to the example.
Yet even this example, on closer inspec- tion, is not exactly the one that Ministers would like the private sector to be drawing. The new President of the CBI, Mr David Nickson of Scottish and Newcastle, has been quick to do his duty, saying that he would like to see 'an end to the annual pay round' altogether. Britain's competitors were 'paying nothing', apart from `performance-related' increases. 'It is a very blunt message and I will go on bashing it home as hard as I can'. Scottish and Newcastle may reckon to have set the pace with a two-year pay deal (although that is hardly 'paying nothing'). But Mrs Parting- ton's efforts to repel the Atlantic with her besom were child's play by comparison with Mr Nickson's task.
In these circumstances ministerial anxie- ty to do some massage on the earnings figures is understandable. But it will take a lot of massage to make much of an impression. Back in the bad old days before Mr Kenneth Baker had gone into cable and sterling M3 was all the rage, the answer would have been straightforward. With 'real' money growth gathering momentum at some 13 per cent (faster than it ever did in 1979-80) the Bank of England's Mr Eddie George would have been told to pop his head out of the window and signal two per cent on interest rates. The pound would have leapt, and Sir John Harvey-Jones of ICI would have started biting the carpet in public once again. But he would have been sternly told to put his own house in order. Nowadays NatWest (having judiciously scooped the pool with its £700 million rights issue first) cuts its base rate instead, and the other clearers swiftly follow suit, with Mr George's gaze averted. And Mr Kenneth Baker flips in a bid for an extra £3 billion for the local authorities before dashing off to Education and flipping in another bid for an extra £1 billion for the clamorous gownsmen from there.
So perhaps we should not be too sur- prised that indexed gilts are showing signs of awakening, after four years of slumber. Back in the early 1980s, when they were first introduced, the Bank of England suffered nightmare visions of all the sheikhs of Araby making tracks to London and driving up the pound to breathless heights in their rush to take advantage of such 'hostages to fortune'. Needless to say they never came: indexed gilts languished on the sidelines. For Whitehall, as is Whitehall's wont, had finally yielded to the pressures to use a form of funding appropriate to a hyper-inflationary age just as hyper-inflation was seen to be passing. Now, with domestic prices nearer to stabil- ity than they have been for twenty years, these despised inflation-hedging instru- ments seem to be coming back into fashion. The perversity of markets? Or do the markets know a thing or two? At any rate Mr Lawson could do worse than take advantage of the fashion by feeding this new-found appetite with some juicy offerings of new indexed stock. It is, after all, the cheapest form of funding available (until redemption day arises -- which will be somebody else's problem): Or would that smack of 'over-funding which the Chancellor last year promised to eschew? And if it did, would that really be so very wicked?
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