(SEC RET) THIS D O C U M E N T IS THE P R O P E R T Y OF HER BRITANNIC M A J E S T Y ' S
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12 June
GOVERNMENT
COPY NO:
6
58
1975
CABINET
D E V E L O P M E N T OF THE SOCIAL C O N T R A C T ON P A Y Memorandum
b y the S e c r e t a r y of State for
Employment
I have p u r s u e d m y p r i v a t e d i s c u s s i o n s w i t h the TUC on the d e v e l o p m e n t of the p a y g u i d e l i n e s and o f f i c i a l s h a v e completed the attached examination of the p r o b l e m s to be faced in applying the g u i d e l i n e s in the next p a y r o u n d .
I set out below m y v i e w s o n the p r o b l e m s and the line we should n o w t a k e . TUC MOVES 2
The T U C E c o n o m i c Committee have r e c e n t l y agreed o n the n e e d for
more w i d e s p r e a d u n i o n commitment to the p a y g u i d e l i n e s - k e e p i n g
settlements m u c h c l o s e r to the rise in the cost o f living and r e f r a i n i n g
from reopening s e t t l e m e n t s or b a s i n g claims on the i n c r e a s e s g i v e n to
low paid g r o u p s and other s p e c i a l c a s e s .
T h e y h a v e also r e c o g n i s e d
the i n f l a t i o n a r y danger of too great an i n c r e a s e in the l o w p a y t a r g e t
for the n e x t r o u n d .
3
This e x p r e s s i o n of v i e w is w e l c o m e .
It w i l l h e l p in the e f f o r t s
we must c o n t i n u e to m a k e to try to close this round w i t h at least some
major s e t t l e m e n t s w e l l u n d e r 3 0 per cent.
It w i l l be u s e f u l also in
influencing u n i o n c o n f e r e n c e s to support the social contract and
refrain from commitments to u n r e a s o n a b l e p a y d e m a n d s , an i n f l u e n c e
we must again t r y to exert o n the N U M C o n f e r e n c e in July.
4
The TUC staff n o w h a v e to p r o d u c e a draft statement of TUC p o l i c y
for consideration b y the E c o n o m i c Committee at t h e i r m e e t i n g o n
II June, endorsement b y the General C o u n c i l l a t e r that m o n t h and
contribution
submission to C o n g r e s s in September.
W e h a v e to m a k e o u r
over the. next few w e e k s to influence the content of that document and
the attitude u n i o n l e a d e r s take towards i t .
PROBLEMS OF THE N E X T P A Y R O U N D 5
In considering that c o n t r i b u t i o n w e must h a v e in m i n d t h e l i k e l y
pattern and p r o b l e m s o f the next p a y r o u n d .
These are analysed i n
the Annex i n r e l a t i o n to the TUC g u i d e l i n e s .
The k e y p o i n t s are
SECRET iae
RpA.
ana
iux ciax
s e t t l e m e n t s
(i) T h e p a y round w i l l start w i t h the R P I 25 p e r cent above
a year e a r l i e r .
If the i n i t i a l settlements reflect this, the
links and o t h e r r e l a t i o n s h i p s b e t w e e n groups w i l l m a k e it
e x t r e m e l y difficult to get pay levels to move down w i t h the
expected decline in the R P I through the round.
It seems
i n c o n c e i v a b l e that we could b r o c k nil these links, m a n y of
them r e - a f f i r m e d u n d e r the T o r y statutory-policy;
(ii) T h e m a j o r public sector settlements in the A u t u m n for
the r e l a t i v e l y low p a i d local a u t h o r i t y m a n u a l s and N H S
a n c i l l a r i e s must t h e r e f o r e be kept w e l l b e l o w the 25 per cent
RPI figure if that is not to become the' "going r a t e " .
This
e m p h a s i s e s the i m p o r t a n c e of not having the low pay target
raised above £ 3 5 - 3 6 .
(iii)
The "maintenance o f real i n c o m e s " g u i d e l i n e w i l l
t h e r e f o r e need careful i n t e r p r e t a t i o n .
A forward looking
a p p r o a c h with straight i n d e x a t i o n for everybody on a quarterly
basis xvould t h e o r e t i c a l l y be tne soundest arrangement and,
r i g o r o u s l y followed, should bring price i n f l a t i o n down to i
single figures by the summer o f 1 9 7 6 .
But it i n v o l v e s asking
people to forgo any c o m p e n s a t i o n for the unprecedentedly^large
p r i c e rises since t h e last settlement and r i s k s becoming Just
the f l o o r for n e g o t i a t i o n .
A n o t h e r p o s s i b i l i t y is a specific
norm for the whole o f the round, p e r h a p s r e l a t e d to the expected
average movement in the R P I o v e r the period.
A 15 p e r c e n t ,
norm (or its cash o r m i x e d c a s h / p e r c e n t a g e e q u i v a l e n t ) should
bring price i n f l a t i o n by the end of the next, pay round down to
1 2 - 1 5 p e r c e n t a l t h o u g h there could be enormous p r o b l e m s in
g e t t i n g ' t h e early groups - to accept this w h e n p r i c e s h a d risen
25 per cent since their last settlement".
^ ,.
:
(iv) We shall need to d i s c o u r a g e additions to a cost of living g u i d e l i n e in the name o f p r o d u c t i v i t y o r restructuring,
and resist r e d u c t i o n s in h o u r s . The M i n e r s
^
- ...
..
(v)- W h a t e v e r line is f o l l o w e d on a guideline., r e l a t e d to price m o v e m e n t s , there w i l l be d i f f i c u l t y with p a r t i c u l a r g r o u p s . A n o t h e r "special c a s e " for the miners will tend to carry
e l e c t r i c i t y and the r a i l w a y s w i t h them,.and lift pay expectations generally.
- - --,
1
;
C6 m p a r a b i 1 i t y
(vi)
T h e n next A p r i l we snail come to a number of groups whose e x p e c t a t i o n s are r e l a t e d not so m u c h to p r i c e s as to the moveinen in o t h e r people's e a r n i n g s , w h e t h e r as a m a t t e r of procedure (eg the Civil Service and R e v i e w Body g r o u p s ) or as the result of h a v i n g their, r e l a t i v i t i e s r e c e n t l y r e - e s t a b l i s h e d (eg
t e a c h e r s and n u r s e s ) .
The i n f l u e n c e of c o m p a r a b i l i t y could also w o r k through a r b i t r a t i o n , whether- in these or o t n e r cases. 2
e^sea leases
l a r a
Higher
incomes
\
I
J
(vii) Our d e c i s i o n on policy towards h i g h e r i n c o m e s , to be taken after the report expected in July from the R o y a l C o m m i s s i o n
on the D i s t r i b u t i o n of Income and Wealth, could affect the climate in w h i c h the n e w round o p e n s .
So too w i l l d e c i s i o n s on the T S R B report on M P s ' pay expected in June and on t h e i r further report o n M i n i s t e r s ' pay expected in the Autumn.
These­
decisions will of course bear on our response to the r e p o r t s due next April from the Review B o d i e s . 6
I p r o p o s e to discuss these problems with TUC leaders p r i v a t e l y
so that they w i l l h a v e them in mind in considering i n t e r p r e t a t i o n of ,
the guidelines to improve their impact on p r i c e i n f l a t i o n .
I doubt
whether they will u n d e r t a k e general amendment of the g u i d e l i n e s and
they may m a i n t a i n that the R P I difficulty requires direct a c t i o n by
the Government to hold prices down.
But it is important to see
whether we can get some agreed view on m a i n t a i n i n g real i n c o m e s w h i c h
w i l l
yield lower pay s e t t l e m e n t s :
to keep t h e
low pay target to
£35/36;
to urge and assist the TUC to secure more general and firm
support for the guidelines w i t n i n the movement;
and to get the
General Council to exert more concerted i n f l u e n c e in advance o f key
pay negotiations like the m i n e r s .
GOVERNMENT
INVOLVEMENT.
' .
-
­
7
I u n d e r s t a n d that the CBI may put to u s , after their C o u n c i l meeting on; 21 May, a p r o p o s a l that the Government should sponsor, in conjunction w i t h the TUC and CBI, the development of a three year, voluntary policy to extinguish inflation.
T h e i r ideas may w e l l encompass a norm for the next pay round linked to a price i n f l a t i o n target, w i t h d e t a i l e d g u i d a n c e and a r r a n g e m e n t s for m o n i t o r i n g and periodic review. 8
A central agreement of this kind w o u l d t h e o r e t i c a l l y be h i g h l y
desirable,, but it is evident from the T U C s p o s i t i o n w i t h its
membership that it w o u l d not want the added difficulty of a s s o c i a t i o n
with the e m p l o y e r s ' o r g a n i s a t i o n in a policy o f pay r e s t r a i n t .
Nonetheless, I do not think that we can just leave the v o l u n t a r y
policy to the T U C in the next round and there are elements in the
CBI approach w h i c h t h e ; G o v e r n m e n t might pick up, b o t h through its
responsibility for the m a n a g e m e n t of the economy and in i t s - r o l e s
as employer and as f i n a n c i e r of the public sector.
­
,!
1
9
Under the first head, there might be a case for issuing this
summer a p u b l i c statement of the G o v e r n m e n t ' s v i e w of where the T U C s
Pay guidelines, could lead us economically over t h e next year.
This
might possibly encosipass announcement of a price inflation target
for t h e next round to w h i c h t h e TUC guidelines would be r e l a t e d
within the context of the expected development of the economy,
spelling out t h e c o n s e q u e n c e s if the guidelines are not r e s p e c t e d .
This would support the guidelines by providing an explicit G o v e r n m e n t
view of the social and economic importance of compliance to w h i c h !'
union leaders, employers and people generally could attach t h e m s e l v e s .
3 .
'. .
'
10
U n d e r the second head, we m i g h t state in advance that tne
G o v e r n m e n t w i l l not a u t o m a t i c a l l y s u b s i d i s e e x c e s s i v e p a y increases in the p u b l i c sector, including the p u b l i c s e r v i c e s .
I recognise the risks that we r e c e n t l y discussed ( E C ( 7 5 ) ? t h M e e t i n g M i n u t e s ) ,
but some r i s k of conflict is u n f o r t u n a t e l y inherent in any attempt to get. firm a d h e r e n c e to an incomes p o l i c y .
If we m a i n t a i n a v o l u n t a r y p o l i c y on the present linos, the consequences of its b r e a t h must be seen to come home to roost in the public sector. The c o n s e q u e n c e s m a y well be extremely awkward in p a r t i c u l a r cases, but it is the most direct expression, b o t h for the w o r k f o r c e and for the p u b l i c generally, of the i n e l u c t a b l e r e l a t i o n s h i p b e t w e e n excessive pay i n c r e a s e s and the level of p r i c e s , employment and services. -
11
If m y c o l l e a g u e s agree, I think we should sound the T U C
p r i v a t e l y on b o t h these ideas f o r r e i n f o r c e m e n t of. their guidelines.. THE P R O S P E C T S
OF
SUCCESS
12
There is o p p o s i t i o n w i t h i n the u n i o n m o v e m e n t to any restraint
o n p a y even w i t h i n the context of the social contract and we cannot
look at the m o m e n t for m o r e than a m a j o r i t y endorsement even of the
existing g u i d e l i n e s at Congress in September.
On the other hand.,
there is also evident c o n c e r n among u n i o n l e a d e r s about the need
to bring down the rate of pay i n c r e a s e s .
This is p l a i n , for instance
in the TGWU s u g g e s t i o n of a flat rate cash i n c r e a s e for everybody in
the next r o u n d .
W h e t h e r this w o u l d h e l p or not o b v i o u s l y depends on
the figure and w h e t h e r it b e c o m e s a limit or a f l o o r . . And the whole
concept m a y f o u n d e r on o p p o s i t i o n from. those u n i o n groups who .are
a l r e a d y seeking to reverse the c o m p r e s s i o n of p e r c e n t a g e differen­
tials in recent y e a r s , n o t a b l y by the ^iOp threshold p a y m e n t s .
But
the open d i s c u s s i o n of a specific pay limit r e p r e s e n t s a departure
in T U C thinking W h i c h m a y open the w a y to a t i g h t e r i n t e r p r e t a t i o n
and a p p l i c a t i o n of the g u i d e l i n e s .
:
13
I a m . s u r e that we must try to get that and, in my view, it will
n e e d b o t h a g r e a t e r commitment by the T U C to i n f l u e n c e individual
cases and a s u p p o r t i n g i n v o l v e m e n t by the Government on .tiie above
lines.
E v e n so, there can be no a s s u r a n c e that tne g u i d e l i n e s will...
succeed in the next round:
the context w i l l be easier than last
y e a r to the extent that s t a t u t o r y a n o m a l i e s w i l l h a v e been removed,
but h a r d e r to the extent that price i n f l a t i o n w i l l bo half as high
again and p e o p l e will h a v e become a c c u s t o m e d to pay increases in
the r e g i o n of 3 0 per cent,
l'i
U n d e r the current g u i d e l i n e s we m i g h t still expect earnings to
rise by n e a r l y 2 5 per I" cent b e t w e e n July 1 9 7 5 and the summer of 1 9 ? 6
b u t ' t h e rate of price i n c r e a s e s to ease o f f from 2 5 per cent in the
third q u a r t e r o f 1 9 7 5 to' something in the r e g i o n of 1 5 - 1 7 per cent ,
by the summer of 1 9 7 6 . , ,
In d i s c u s s i n g the next r o u n d ' s p r o b l e m s
w i t h the T U C , I w o u l d be looking for an a p p l i c a t i o n o f the guidelines
w h i c h w o u l d o f f e r an improvement on that.
[ COULD W E DO
BETTER? 15
Much m o r e ambitious targets can be set, but I doubt w h e t h e r
they could be held for long, involving as they would a sharp ­
reduction in real incomes * What can be achieved through incomes policy is limited largely by what w o u l d secure the a c q u i e s c e n c e , open or tacit, of u n i o n m e m b e r s h i p . l6
To my m i n d these
options : considerations
rule out
the obvious
other (i) At one extreme lies abandonment of an open incomes p o l i c y in favour of a covert d e - e s c a l a t i o n line of the Tory kind in 1970-72*.
W h a t e v e r that has to commend it in terms of r e l i e v i n g r e s p o n s i b l e u n i o n l e a d e r s h i p from tne risk of being o u t f l a n k e d in defence of a v o l u n t a r y pay policy, it would to my m i n d be quite i n d e f e n s i b l e f o r vis . as a Government and appear as an abdication of the social contract approach.,
It must be doubt­
ful w h e t h e r o t h e r public sector employers would put up w i t h covert p r e s s u r e s that they would regard as discriminatory. 1
(ii) A much tougher v o l u n t a r y p o l i c y is not available from the T U C and tougher guidelines advanced by the Government a l o n e would h a v e no b e t t e r chance of v o l u n t a r y acceptance,
The T U C would be bound to d i s o w n them in favour of its own and we w o u l d be left treading this v o l u n t a r y p a t h w i t h employers' and, even so, subject to charges of public sector discrimination.
:
(iii)
E v e n if we w e r e m i n d e d to repeat past mistakes by r e - i n t r o d u c i n g s t a t u t o r y pay controls,, they, could prove short­
lived in the face of the same resistance that the TUC g u i d e l i n e s are m e e t i n g .
Indeed, that resistance might be all the k e e n e r to statutory controls w h i c h w o u l d inevitably be cutting real incomes d r a s t i c a l l y o v e r the next year,,
Broken statutory controls w o u l d leave us w i t h an even w o r s e p o s i t i o n beyond, CONCLUSIONS 17
The most viable p o l i c y is still that offered by c o - o p e r a t i o n
with the TUC.
Unless we can reach agreement with them on a common
approach in development of their g u i d e l i n e s , they will stumble into
Congress w i t h a v i e w i n c r e a s i n g l y divergent from Government and in
grave danger of a f r a g m e n t a t i o n of u n i o n opinion w h i c h will p r e v e n t
any united T U C v i e w emerging at all.
That w i l l give us an even
weaker p o s i t i o n in t x i o next pay round than we have had in t h i s .
18
In my v i e w the most promising
line
is
(i) for me to continue private discussions with TUC leaders so as to influence the statement on guidelines which emerges from the June Economic Committee,
I shall put to them the problems of the next round as we see them and. urge them to consider means by w h i c h these problems can be tackled;
explore
the p o s s i b i l i t i e s of interpreting the cost of living g u i d e l i n e so as to keep down the level of initial settlements, or of replacing it by a s p e c i f i c : f i g u r e ;
and make plain the G o v e r n m e n t ' s need for firmer adherence in the next round and for r e s u l t s compatible w i t h our economic r e q u i r e m e n t s ; (ii)
We s h o u l d h a v e a n o p e n d i s c u s s i o n w i t h t h e TUC - a ."
m e e t i n g w i t h t h e E c o n o m i c C o m m i t t e e o r t h e NEDC 6 - a b o u t t h e
s o c i a l c o n t r a c t and t h e r e l a t i o n s h i p of pay t o o u r o t h e r
p o l i c i e s i n o r d e r to i n f l u e n c e the g e n e r a l i t y of u n i o n l e a d e r ­
s h i p t o s u p p o r t t h e g u i d e l i n e s when t h e p o l i c y
statement.goes
tq t h e G e n e r a l C o u n c i l towards t h e end of J u n e ;
(iii)
We s h o u l d b e r e a d y t o m e e t t h e CBI s i m i l a r l y i f
they
p u t f o r w a r d t h e i r own s t a b i l i s a t i o n p r o g r a m m e .
We c o u l d
welcome t h e i r c o u n t e r i n f l a t i o n aims and s u p p o r t f o r t h e
v o l u n t a r y approach, b u t w i t h o u t commitment to a t t e m p t i n g a
t r i p a r t i t e pay p o l i c y ;
*
'
;(iv)
S u b j e c t t o s u c h m e e t i n g s a n d c o n s u l t a t i o n w i t h t h e TUC,
we s h o u l d c o n s i d e r a G o v e r n m e n t p r o n o u n c e m e n t / W h i t e P a p e r i n
J u n e / J u l y on pay, p r i c e s and economic p r o s p e c t s a l o n g t h e l i n e s
T h i s would, e s t a b l i s h a c l e a r a n d
of p a r a g r a p h 9 above.
p o s i t i v e Government p o s i t i o n , i n c l u d i n g t h e Government a t t i t u d e
to the f i n a n c i n g of any e x c e s s i v e pay i n c r e a s e s i n tne p u b l i c
sector in the next round.
Such n * pronouncement might
follow'
a d i s c u s s i o n i n NEDC a t t h e b e g i n n i n g o f J u l y o f t h e g e n e r a l
economic s i t u a t i o n and p r o s p e c t s o v e r t h e n e x t y e a r wnich
, . w o u l d t o s o m e e x t e n t m e e t t h e CBI p o s i t i o n a n d p i c k u p t h e
Prime M i n i s t e r ' s r e c e n t suggestion that the t h r e e p a r t i e s
;. ; , s h o u l d c o m e t o g e t h e r t o c o n s i d e r p r o b l e m s o f e c o n o m i c m a n a g e m e n t
, a n n u a l l y and to r e v i e w them p e r i o d i c a l l y .
:
:
19
I i n v i t e my c o l l e a g u e s t o e n d o r s e t h i s a p p r o a c h .
Meanwhile, I
s h a l l p u r s u e my p r i v a t e d i s c u s s i o n s w i t h t h e TUC o n t h e l i n e s s : e t
o u t . . a b o v e . . We . c a n c o n s i d e r o u r p o s i t i o n a g a i n i n t h e l i g h t o f - t h e
p o l i c y document t h a t emerges from t h e Economic Committee i n mid- :
June.
O f f i c i a l s s h o u l d m e a n w h i l e be a s k e d to. c o n s i d e r t h e c o n t e n t
of a p o s s i b l e Government pronouncement as a s e t t i n g f o r a firm
a p p l i c a t i o n of the guidelines in the next round.
M
D e p a r t m e n t ox
1 2 June 1 9 7 5
Employment
SV72
6
F
THE PAY P R O S P E C T IN THE N E X T
Report b y the Department
Summary and
Conclusions
of
ROUND Employment 1
This report, prepared by the Department of Employment w i t h
the assistance of o f f i c i a l s o f the o t h e r Departments m a i n l y
concerned, looks at the probable course of the next pay round on
the assumption that the- TUC guidelines are maintained.
Following
are the main points w h i c h emerge.
Remainder of this
Round 2 *' Up to the end of July, assuming no m a j o r I n d u s t r i a l or
economic crisis, i?.o significant change is expected in the g e n e r a l
pattern of pay s e t t l e m e n t s .
The y e a r - o n - y e a r RPI increase is
expected to jump to over 23 per cent w i t h the May figure published
in mid-Utuae,and to go h i g h e r still in m i d - J u l y .
The year-on-year
wage, rate figure is likely to remain o v e r 30 per cent, m a i n l y
because of the i m p l e m e n t a t i o n in M a y of the first stage of t h e
1975 n a t i o n a l engineering agreement, i n i t i a l l y o f f s e t t i n g t h e
gradual elimination of Stage 3 threshold payments from the figures
over the coming m o n t h s .
The y e a r - o n - y e a r average earnings figure
is likely to continue in the high
20s.
3
Several important groups w i l l be r e a c h i n g settlements
(including a r b i t r a t i o n s ) of around 30 per cent or more eg e l e c t r i ­
cal power engineers, merchant seamen, the industrial C i v i l S e r v i c e
and probalOy r a i l w a y s .
There is still likely however to be a'wide
range in the level of settlements w i t h some important groups s u c h
as local authority n o n - m a n u a l s , B r i t i s h S t e e l m a n u a l s , the c h e m i c a l
industry and some Post Office groups in the m i d - 2 0 s and some
smaller groups at lower f i g u r e s .
-
Re-opening of Existing
i i
Settlements
k
The postmen's n e w threshold w i l l almost certainly be t r i g g e r e d
in June and m o n t h l y t h e r e a f t e r .
London Transport w o r k e r s w i l l
receive the first payment under their quarterly indexing a r r a n g e ­
ment in July.
There w i l l be increasing pressure o v e r the coming
months for similar threshold a r r a n g e m e n t s or other forms of
re-opening of existing s e t t l e m e n t s on cost of living grounds b y the
coalminers, firemen, local a u t h o r i t y m a n u a l w o r k e r s , NHS a n c i l l a r i e s
and o t h e r s .
The present line is that s u c h pressures for r e - o p e n i n g
should be resisted, certainly u n t i l prices have eroded the t o t a l
value of the existing s e t t l e m e n t .
- 7 ­
Higher
Incomes
5
M i n i s t e r s a r e due to take d e c i s i o n s later this summer,
in t h e light o f the report e x p e c t e d i n July from the B o y a l
C o m m i s s i o n 021 t h e D i s t r i b u t i o n of Income and W e a l t h , on t h e i r
p o l i c y on h i g h e r i n c o m e s g e n e r a l l y .
T h e s e decisions could have
an important i n f l u e n c e on the c l i m a t e in w h i c h the i n i t i a l
n e g o t i a t i o n s in t h e h e w r o u n d t a k e p l a c e .
So too could decisions
on the report on the p a y and a l l o w a n c e s of Members of Parliament
which.'is e x p e c t e d from the T o p S a l a r i e s R e v i e w Body in June and
t h e i r f u r h e r report on M i n i s t e r s
pay, P e e r s ' a l l o w a n c e s , and
M e m b e r s ' p e n s i o n s expected in t h e autumn..
1
Early Settlements
in the N e w
Round 6
Apart from police, who are a l r e a d y n e a r a settlement in the
h i g h 20s for i m p l e m e n t a t i o n on 1 S e p t e m b e r , and any unpredic**
t a b l e h a p p e n i n g s s i m i l a r to t h e -40 p e r cent Scottish r o a d ihaulage
s e t t l e m e n t last autumn, the first m a j o r g r o u p to settle in the
n e w round w i l l be the l o c a l a u t h o r i t y m a n u a l s , w i t h effect ;from
1
November.
T h i s s e t t l e m e n t e f f e c t i v e l y s e t s the l e v e l - f o r the
o p e n i n g s t a g e s of the round t h r o u g h the direct link w i t h N H S
v
a n c i l l a r i e s and its effect on the
w a t e r supply and gas industries
w h o last y e a r insisted on m a i n t a i n i n g t h e i r t r a d i t i o n a l . ''
r e l a t i v i t y , in b r e a c h o f the, g u i d e l i n e s , and w o u l d u n d o u b t e d l y
do so a g a i n .
-- ­
7
On p r e s e n t form t h e l o c a l a u t h o r i t y m a n u a l s are u n l i k e l y to
s e t t l e m u c h b e l o w 3 0 p e ^ cent.
"Depending on the extent to which
the T U C ?.r;ir p a y target o f £ 3 0 is r e v i s e d b y C o n g r e s s in September,
it could be higher.-. T h i s i s b e c a u s e they w i l l be n e g o t i a t i n g
against t h e y e a r - o n - y e a r R P I f i g u r e of o v e r 2 5 per cent.
They
are v e r y u n l i k e l y to offset that element w h i c h a r i s e s from the
A p r i l Budget i n c r e a s e s .
On t o p of t-his w i l l be the p r o b a b l e
3 to 4 per cent cost' o f " t h e i r r e s t r u c t u r i n g claim w h i c h is at
present at a r b i t r a t i o n .
8
This g r o u p c o n t a i n s many at or n e a r the T U C target minimum
rate of £ 3 0 per w e e k , and they w i l l expect to h e k e p t i n l i n e w i t i i
a n y r e v i s i o n of i t .
If t h e t a r g e t w e r e revised m e r e l y i n
l i n e
w i t h p r i c e i n f l a t i o n , ie t o . ' £ 3 5 / £ 3 6 ,
extra cost w o u l d be
involved,
But C o n g r e s s may d e c i d e to go for a round figure of
£ 4 0 , a s k e e p i n g p a c e w i t h t h e r i s e i n t h e general level of e a r n i n g
For the local a u t h o r i t y m a n u a l s to meet this and maintain, above it
the n e w l y - e s t a b l i s h e d d i f f e r e n t i a l s for h i g h e r g r a d e s , w o u l d add a n o t h e r 5 " o r 6 per cent,
T h i s t o o w o u l d feed t h r o u g h to the
;r elated, groups.....
;. '
n
SECRET
"
o
9
There m a y also be pressure at C o n g r e s s to reaffirm resolutions carried in earlier years calling for a general reduction in hours below 40, as a m e a n s of w o r k sharing.
T h o u g h this could for m a n y groups be c o n c e d e d without loss of output in current economic circumstances, each h o u r s reduction w o u l d add some k per cent to labour costs w h e n the r e v i v a l of economic activity n e c e s s i t a t e d making good, the r e d u c t i o n - b y working overtime at premium r a t e s . 1
Coalminers 10 The high settlement level set by the local authority m a n u a l s and related groups would be likely, as this year, to be g i v e n fresh impetus by n e g o t i a t i o n s for c o a l m i n e r s .
T h e y could indeed bring themselves into the early part of the round, p a r t i c u l a r l y if they fail to get a n e w threshold arrangement in the inteiim, by pressing for the November settlement date to w h i c h W i l b e r f o r c e in 1 9 7 2 suggested they could return.
T h i s might not much reduce the level of the settlement and the a n n u a l rate w o u l d be v e r y h i g h . If they are held to March, it seems v e r y unlikely, despite the . first signs of the h o p e d - f o r decline in the y e a r - o n - y e a r RPI figure w h i c h should by then be coming apparent, that they will accept a settlement much lower than t h e y have achieved in each of the last 2 y e a r s , ie in excess of 30 per cent.
This will undoubtedly be followed in electricity supply (also taking t h e i r cue partly from the gas m a n u a l s ! a n d there will be strong pressures for a similar settlement on the r a i l w a y s . -
'White Collar groups
settling
in April 11
In April there w o u l d be settlements for a number of v e r y large white collar g r o u p s , all of whose claims will be based less on the RPI than on comparability.
These include the n o n - i n d u s t r i a l Civil Service, the groups covered by the Review B o d i e s , and teachers and nurses who w i l l be seeking to maintain the relative, positions established by the Halsbury and Houghton r e v i e w s . Since the a n a l o g u e s and indices w i t h w h i c h they are drawing t h e i r comparisons w i l l be those established in the latter part of the current round a level of settlement in the high 20s is to be expected.
. i t
^
Other Groups
- ' 12
Other groups settling in the latter part of the round, including local n e g o t i a t i o n s in engineering and construction 'within their long term n a t i o n a l a g r e e m e n t s , may be more influenced
by. the continued reduction in the y e a r - o n - y e a r RPI figure, and
perhaps by the h i g h level of unemployment.
But it seems likely
that the h i g h levels of settlement for the earlier groups will tend
to keep the g e n e r a l level of expectations higher than would be
warranted on a strict cost of living approach.
Others besides local
authority manuals will claim rest rue t u r i n g to restore differentials
eroded by flat c a s h increases in earlier rounds.
Claims for
additional efficiency payments may be pressed, more than in this
round as cost cif living becomes a less obvious justification, yet
the prospects of getting real, improvements in output per man hour
in conditions of heavy unemployment cannot be rated high.
SECRET Conclusions 13.
The key p r o b l e m s l i k e l y to arise in the next
c o n t i n u a t i o n of e x i s t i n g p o l i c i e s a r e : ­
round
under
- the h i g h y e a r - O N - y e a r RPI f i g u r e s against w h i c h n e g o t i a t i o n s
will be taking p l a c e in tho third and f o u r t h q u a r t e r s of 1975
- the d a n g e r T H A T C o n g r e s s w i l l raise the TUC l o w P A Y
by an even h i g h e r p e r c e n t a g e , to say i,kO,
and that
d i f f e r e n t i a l s W I L L be m a i n t a i n e d above this f i g u r e ;
target
- p r e s s u r e s at C o n g r e s s for g e n e r a l
r e d u c t i o n in work, h o u r s
b e l o w 4 0 as a m e a n s of "work sharing"
- claims for a d d i t i o n a l
or s t r u c t u r i n g ; i n c r e a s e s o n grounds of
productivity - the E X T E N T T O W H I C H l e v e l s of settlement set early in the
round W I L L B E P E R P E T U A T E D by d e t e r m i n a t i o n T O p r e s e r v e e x i s t i n g links A N D r e l a t i v i t i e s b e t w e e n groups, aac by the
g e n e r a l concept of the "going rate", w i t h a r b i t r a t i o n as a
possible mechanism;
- the effect on the n e g o t i a t i n g -climate t h r o u g h the autumn and w i n t e r of n e g o t i a t i o n s for c o a l m i n e r s and the direct effect of their s e t t l e m e n t on e l e c t r i c i t y w o r k e r s and railwaymen; - the large groups of w h i t e c o l l a r w o r k e r s due for
I N
A p r i l O N T H E B A S I S O F m o r e or L E S S p r e c i s e l y "
comparability;
settlements
D E F I N E D
T
- p r e s s u r e s for a m o r e active r o l e by G o v e r n m e n t a n d / o r by the TUC and the CBI in m o n i t o r i n g n e g o t i a t i o n s and settlements, and exerting p r e s s u r e to secure a h i g h e r degree o f conformity w i t h the p o l i c y . The f o l l o w i n g p a r a g r a p h s set out the o p t i o n s for h a n d l i n g
p r o b l e m s w i t h i n the f r a m e w o r k of existing p o l i c y . i
I n i t i a l l y H i g h RPI
these
Levels Ik,
The p r o b l e m w i l l be to p e r s u a d e those settling early in the N E W
round to A C C E P T L E S S than F U L L c o m p e n s a t i o n F O R the i n c r e a s e s in
p r i c e s w h i c h H A V E O C C U R R E D since t h e i r last
S E T T L E M E N T ( O T H E R
T H A N
o f f - s e t t i n g A N Y I N T E R I M cost O F L I V I N G c o m p e n s a t i o n w h i c h they may have R E C E I V E D ) .
The s o l u t i o n o f f e r i n g T H E m o s t R A P I D reduction I N
the rate O F I N F L A T I O N ( S H O R T O F a n a b s o l u t e f r e e z e ) I S undoubtedly
straight i n d e x a t i o n , I O S E T T L E M E N T S G I V I N G N O immediate
I N C R E A S E I N
p a y but p r o v i d i n g F O R eg q u a r t e r l y I N C R E A S E S I N l i n e W I T H
S U B S E Q U E N T
price increases.
This can be p r e s e n t e d as I N line w i t h the T U C ' S
" a l t e r n a t i v e approach" u n d e r the cost o f l i v i n g g u i d e l i n e .
But, as
e x p e r i e n c e w i t h that a p p r o a c h I N this r o u n d shows, i n d e x a t i o n is
u n l i k e l y to be a c c e p t a b l e to n e g o t i a t o r s u n d e r a v o l u n t a r y poliqy
u n l e s s it is on top O F c o m p e n s a t i o n f o r the p r i c e i n c r e a s e s which
h a v e already O C C U R R E D since the last settlement, w h i c h i s
T H E
M O S T
E X P E N S I V E .
dangers I N G E T T
with negotiated
S O L U T I O N
I N G
O F
I N D E X E D
increases
A L L ,
1 - S O R E O V O R
increases A
subsequently
S
T H E R E
A R E
permanent
on t o p . A
longer-TERM
arrangement,
EGRET; 15.
A n o t h e r option, w i t h a better chance of acceptance though still
difficult, w o u l d be a fixed norm at something less than the g o i n g
rate of i n c r e a s e in the R P I - say 1 5 p e r cent.
It would be p o s s i b l e
t o provide a cash under-pinning, of say £ 7 . 5 0 , which would p r o v i d e
full price c o m p e n s a t i o n for those on £ 3 0 or less, or a cash n o r m
alone.
But these cash v a r i a n t s pose difficulties, first because
in many cases d i f f e r e n t i a l s -will undoubtedly be m a i n t a i n e d (or sooner
or later r e s t o r e d ) on top of the cash figure and secondly because
t h e cash figure w o u l d give more than f u l l compensation to those
settling l a t e r in the round against l o w e r R P I figures,
16.
It w o u l d be difficult to persuade p e o p l e to take a 1 5 p e r cent,
increase in pay a f t e r 2 5 p e r cent increase in p r i c e s .
It m i g h t be
presented a s t h e b e s t way of maintaining real incomes in the long
run, t h r o u g h the eventual benefit to p r i c e s .
But to support this it
might be n e c e s s a r y to underwrite the expected fall in the rate of
price i n c r e a s e s by conceding new threshold arrangements to be
triggered i f p r i c e s r o s e by more t h a n 15 per cent during the currency
of t h e p a r t i c u l a r settlement.
While a n y threshold arrangement is a
hostage to economic, fortune, a n d to some extent p r e - e m p t s the scope
f o r n e g o t i a t i o n in the following round, arrangements o f this kind,,
at a suitably h i g h figure and related to individual settlement dates
and w i t h c o m p e n s a t i o n on a percentage b a s i s , would be much less
inflationary or distorting to the n o r m a l pattern of n e g o t i a t i o n
and d i f f e r e n t i a l s than the Stage 3 threshold a r r a n g e m e n t s .
-­
17.
An a l t e r n a t i v e to thresholds as an additional "sweetner" to a
fixed norm of a r o u n d 1 5 p e r cent, but more costly, w o u l d be a
staged settlement p r o v i d i n g for a specified further increase
within l e s s t h a n 1 2 m o n t h s .
Unlike t h r e s h o l d s this would have to
be paid even t h o u g h the h o p e d - f o r reduction in the rate of price
increase w e r e a c h i e v e d , and it would create higher expectations
f o r the n e x t r o u n d .
i i ' ,': L o w ' P a y
"
18.
It w i l l b o essential to resist the raising of the low pay:
target from £ 3 0 to £ 4 0 since maintenance of differentials and
relativities w o u l d raj)idly establish
this 3 3 ? increase as the
General "going r a t e " .
If Congress w e r e to adopt it, then the
Government w o u l d h a v e to emphasise in stronger terms than .
last year that i t represented a target and indicate that p r o g r e s s
in the n e x t r o u n d should be limited to keeping pace with, the
increase in t h e R P I o r ( i f this were a d o p t e d ) t h e 1 5 p e r cent n o r m .
Since r e l a t i o n to t h e R P I w o u l d produce different figures for
groups settling at different times it. would, in any case be b e t t e r
f o r t h e TUC (or i f n e c e s s a r y t h e G o v e r n m e n t ) t o specify the n e w
target as £ 3 5 ( a n increase of just u n d e r 1 7 p e r c e n t ) .
iii
hours
19o
I t is p o s s i b l e that Congress m a y re-affirm existing
resolutions calling for negotiations toward the general i n t r o d u c t i o n
of a 3 5 h o u r w e e k .
Hie Government w i l l w i s h to discourage such
moves.
If this target is re-affirmed they might take a similar
l i n e to t h a t suggested above on low p a y indicating t h a t in the
Government's v i e w p r o g r e s s i n t h i s r o u n d s h o u l d be l i m i t e d t o
bringing those f e w groups w h o s o h o u r s a r e s t i l l over k.0 d o w n t o
t h i s figure.
(iv) P r o d u c t i v i t y
and
restructuring
20.
The l o w e r the l e v e l o f the norm, w h a t e v e r i t s form, the greate
the p r e s s u r e for- a d d i t i o n a l i n c r e a s e s on grounds of r e s t r u c t u r i n g
(especially to restore
c i f f e r e n t i a l s ) or p r o d u c t i v i t y .
P r o d u c t i v i t y deals can be h i g h l y inflationary, even if self­
financing in tlie long term, because of r e p e r c u s s i o n s on o t h e r
groups and should t h e r e f o r e not be g e n e r a l l y e n c o u r a g e d as aiaeans
of getting extra pay.
C-v) Links and Rj?.ativities and the Role of
Arbitration 2 1 . . E x p e r i e n c e in the current round, and indeed o v e r m a n y years,
shows that any g e n e r a l m o v e to b r e a k existing links and relativitie
is u n l i k e l y to be s u c c e s s f u l .
These and more g e n e r a l i s e d
comparability a r g u m e n t s m i g h t w e l l be sustained if p r e s s e d to
arbitration.
R a t h e r than attempt to break such links as w o u l d be
required by d e - e s c a l a t i n g the level of settlements t h r o u g h the
round in line w i t h the h o p e d - f o r reduction in the rate of price
increase, it seems b e t t e r to seek to avoid these p r o b l e m s b y
e s t a b l i s h i n g an a c c e p t a b l e general n o r m w h i c h can be a p p l i e d \
throughout the round.
22There h a s lately been a m o v e to a r b i t r a t i o n in important cases
like the r a i l w a y s , t e a c h e r s and the local a u t h o r i t y m a n u a l s ­
r e s t r u c t u r i n g claim.
There may be greater recourse to arbitration
in the n e x t round, p a r t i c u l a r l y if the current a r b i t r a t i o n s
satisfy the u n i o n s .
T h i s could p o s e awkward p r o b l e m s in the public
sector i f the G o v e r n m e n t w e r e seeking to resist s e t t l e m e n t s above
the cost o f l i v i n g . o r a fixed norm, eg by a p p l y i n g . f i n a n c i a l
sanctions.
(vi) M i n e r s 23.
There is a c o n s i d e r a b l e risk that any success in starting off
the round at air a c c e p t a b l y low going rate of settlement, w o u l d be
seriously damaged by a h i g h settlement for coalminers, w h e t h e r ,in
the a u t u m n or early i n 1 9 7 6 .
It w o u l d i n e v i t a b l y extend to
electricity w o r k e r s and p r o b a b l y to r a i l w a y m e n and to a l e s s e r .
extent o t h e r g r o u p s .
The options are either to resist a h i g h .
claim, m a k i n g the.most of the p r o g r e s s achieved by m i n e r s over -the
past 3 or 4". y e a r s w i t h the resulting erosion o f the competitive
advantage of ccri ever o i l even at the n e w p r i c e s ; or to seek.in
some way to i s o l a t e m i n e r s as a special case.
This w o u l d m e a n
p r e v e n t i n g the flow t h r o u g h to electricity w o r k e r s , w h i c h scarcely
seems p o s s i b l e , or to r a i l w a y m a n .
(vii) W h i t e C o l l a r C o m p a r a b i l i t y
in April ,.
2k.
A f t e r the m i n e r s , the next threat to m a i n t e n a n c e of a lower
g o i n g r a t e " e s t a b l i s h e d e a r l i e r in the round would be the claims,
b a s e d to a g r e a t e r o r l e s s e r extent on comparability, for the
large w h i t e c o l l a r g r o u p s settling i n April.
These i n c l u d e the
n o n - i n d u s t r i a l C i v i l Service ( P R U ) , n u r s e s (referring b a c k to
K a l s b u r y ) , t e a c h e r s (referring b a c k to H o u g h t o n ) and those covered
by the R e v i e w B o d i e s .
A g a i n the o p t i o n s are to seek to isolate
such groups by g e n e r a l r e c o g n i t i o n that the p r o c e d u r e s involved
represent fair "catching up" -on i n c r e a s e s a l r e a d y guinea by
,r
SECRET analogous w o r k e r s , or to limit the i n c r e a s e s payable in the next r o u n d to the general n o r m .
Apart from the obvious dangers of i n d u s t r i a l a c t i o n in the latter course it b u i l d s up a debit balance w h i c h c r e a t e s g r e a t e r d i f f i c u l t i e s next time round.
(The
higher i n c o m e g r o u p s covered by the Review' B o d i e s would of. course be subject to G o v e r n m e n t d e c i s i o n s on h i g h e r incomes generally to be reached in the light of the report expected from the R o y a l Commission tiiis J u l y ) . (viji )
Monitoring
25
It is b e c o m i n g d i f f i c u l t for the G o v e r n m e n t to refuse to give
information a b o u t the "going r a t e " of s e t t l e m e n t s of which it h a s
knowledge.
In fact its i n f o r m a t i o n is fairly extensive though not
entirely r e p r e s e n t a t i v e .
It is for c o n s i d e r a t i o n whether the
Government, or c o n c e i v a b l y the TUC and CBI, should openly u n d e r t a k e
monitoring of a l l s e t t l e m e n t s covering 1,000
or m o r e w o r k e r s on a
voluntary oasis and be p r e p a r e d to m a k e public a running tally from
time to time of the level o f settlements and any special f e a t u r e s .
It would, h o w e v e r , r e m a i n i n a p p r o p r i a t e for the Government - to
categorise, s e t t l e m e n t s as to those w i t h i n or w i t h o u t the ,guidelines
laid down by the T U C .
The m a i n argument against a more open
monitoring system is the increased p r e s s u r e to w h i c h it gives rise
on the G o v e r n m e n t (or for that m a t t e r on the TUC and the C B I ) to
make this c a t e g o r i s a t i o n and to take action in cases where the
policy h a s b e e n b l a t a n t l y d i s r e g a r d e d .
The i n d i c a t i o n s are that
neither the TUC n o r the C B I would w e l c o m e this role either- for
themselves or (in the case of the T U C ) for the G o v e r n m e n t .
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