SECRET.
168
(THIS JjpCUMENT IS THE PROPERTY O F HER BRITANNIC MAJ.ESTY'S GOVERNMENT)
C O P Y N O . 11
C. (61) 128
3rd A u g u s t , 1961
CABINET
THE. " P A U S E " A N D I N C R E A S E S
IN. J A G g J A N p S A L A R I E S
M e m o r a n d u m by tlae^CJiancellor^of Jthe,j3x^heguer
1.
The G o v e r n m e n t has asked f o r a £jause in the i n c r e a s e s of w a g e s
and s a l a r i e s g e n e r a l l y . We have said that in those a r e a s f o r which we
a r e d i r e c t l y r e s p o n s i b l e we intend to d i s c h a r g e our duty to g i v e a l e a d ip.
r e s t r a i n t , and that (subject to m e e t i n g c o m m i t m e n t s a l r e a d y e n t e r e d into)
we shall a c h i e v e a pause in our own capacity as an e m p l o y e r . W e have ;
asked that the same p o l i c y shall be adopted e l s e w h e r e in the public s e c t o r
and a l s o in the p r i v a t e s e c t o r , in the confident expectation that if we do .
our p a r t other e m p l o y e r s w i l l not be b a c k w a r d iP- doing t h e i r s .
2,
The p u r p o s e of this pause i s dual; to g i v e a breathing space f o r
p r o d u c t i v i t y to catch up and to m a r k the beginning of a l o n g - t e r m p o l i c y f o r
ensuring a s e n s i b l e relationship between i n c r e a s e s in i n c o m e s of a l l s o r t s
and i n c r e a s e s in p r o d u c t i v i t y .
3.
The length of the pause has not been defined and it is i m p o l i t i c
to define it p r e c i s e l y . What I had in mind was that t h e r e should be no
wage i n c r e a s e s until the productivity r e c o r d f o r 1961 could be e x a m i n e d ,
and not then unless the r e c o r d w a r r a n t e d t h e m . By that t i m e , I would
hope to have m a d e some p r o g r e s s o v e r methods of c a r r y i n g out the
purpose set o u t a a p a r a g r a p h 2.
4.
Unless w e can s e c u r e the pause in the e m p l o y m e n t s w e d i r e c t l y
control, in £particular the C i v i l S e r v i c e (non-industrial and i n d u s t r i a l )
and the National Health S e r v i c e , we cannot e x p e c t that it w i l l be s e c u r e d
e l s e w h e r e . It is t h e r e f o r e n e c e s s a r y to decide what needs to be done
to ensure that we do a c h i e v e a pause w h e r e v/e a r e d i r e c t l y r e s p o n s i b l e .
We cannot a s s u m e that it w i l l be a c h i e v e d by exhortation. N o r e l i a n c e can
b e p l a c e d on the unions e x e r c i s i n g r e s t r a i n t and the r o o t question i s , what
should be done about the a r b i t r a t i o n a r r a n g e m e n t s which n o r m a l l y apply
in these f i e l d s . N o r e l i a n c e can be p l a c e d on a r b i t r a t o r s securing the pause
f o r u s : indeed it can be a r g u e d that it would be harmful t o the future of
the a r b i t r a t i o n m a c h i n e r y (which we must a s s u m e to be p a r t of the l o n g - ,
t e r m -policy) f o r a r b i t r a t o r s now to appear to be the t o o l s of the Govern-­
rnent. M o r e o v e r unless we can take s o m e steps to c o n t r o l a r b i t r a t i o n we
shall be in £anger of d i s c r i m i n a t i n g against those who have no right to go to
a r b i t r a t i o n : that i s , not only the t e a c h e r s but a l s o , f o r e x a m p l e , the
A r m e d F o r c e s . T h e Appendix to this p a p e r d e s c r i b e s the a r b i t r a t i o n
a r r a n g e m e n t s in the C i v i l S e r v i c e and the National Health S e r v i c e and
shows how far control." esc. a r b i t r a t i o n would i n v o l v e b r e a c h e s of a g r e e m e n t s
made o r undertakings g i v e n by the G o v e r n m e n t of the day. It w i l l be seen
that t e c h n i c a l l y the National Health S e r v i c e position i s not quite on a l l
fours with that of the C i v i l S e r v i c e . Eut I think t h e r e i s no doubt that w e
should t r e a t the National Health S e r v i c e in this r e s p e c t in the same way
as we t r e a t the C i v i l S e r v i c e , and that v/e a r e in a p o s i t i o n t o do s o .
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5.
Three possible courses have been suggested:­
(i)
To continue to allow access to arbitration, to wait and see what happens, being prepared but not saying so in advance, to reject awards or to defer putting them into effect; (ii)
To suspend arbitration (and negotiations) for a period. (iii) To allow the negotiating machinery to continue to function, leading in some cases to negotiated settlements with unspecified forward dates; and to announce that while access to arbitration will continue the Government intends to control the timing, and if necessaiy the stages, of the implementation of any increases awarded. All these courses will provoke a storm.
be secured without a storm. In fact the pause cannot 6.
Course (i) would rouse it is said the wrath hot only of the unions, but also of the arbitrators. The Government would be accused of duplicity, for if it allows the existing machinery to work apparently as usual, it v/ill be assumed that the Government intends that the arrangements stand in their entirety. 7.
Course (ii) - the suspension of arbitration would certainly secure
the pause. It would m e a n announcing the suspension of the Whitley
Agreement on Arbitration in the Civil Service. It would be regarded
as introducing not a pause but a complete freeze, a term with unfortunate
connotations and one which we have been at pains to avoid. Even in
the days of the Labour Governments wage freeze there was no interference
with arbitration.
If arbitration were suspended it would follow that negotiations (unless any were regarded as existing commitments) v/ould be suspended too. F r o m the Official Side's point of view there would be no point in such negotiations and in any event the staff representatives would almost certainly refuse to negotiate. If negotiations were suspended in the arbitrable sector it would follow that there could be no negotiations in those ". areas where arbitration is not applicable - in particular the forthcoming Review of the Pay of the A r m e d Forces v/ould have to be suspended. It would be intolerable to conduct such a review if there were a freeze elsewhere. There v/ould be great unrest and maybe strikes, even in the Civil Service. It is likely that no only would the unions be incensed, but the arbitrators too. If this were so there v/ould be serious danger of long-term damage to the machinery. Moreover when arbitration was permitted again there would be an unmanageable flood of claims fought with great bitterness and arbitrated on by disgruntled arbitrators. 8.
Course (iii) - the continued function of the machinery subject only
to the removal of operative date from the scope of arbitration - would also
be a breach of existing agreements and understandings. But it has the
advantage of maintaining the machinery intact; and as compared with
course (i) it has the advantage of honesty - both the unions and the arbitrators
would know -where they stood. It a l s o has the advantage of f l e x i b i l i t y
and would p e r m i t the i m m e d i a t e inaplemeptation of a w a r d s on c a s e s which
it was d e c i d e d c a m e into the c a t e g o r y of existing c o m m i t m e n t s . It
would s e e m to be m o r e in a c c o r d a n c e v/ith the idea of a pause - as distinct
f r o m a f r e e s e - and might be m o r e acceptable to public opinion g e n e r a l l y
than the c o m p l e t e suspension of a r b i t r a t i o n .
It has of c o u r s e the disadvantage that we should be building up
a batch of p o s t - d a t e d cheques.
But in m y v i e w this is a l e s s s e r i o u s
disadvantage than the disadvantage under c o u r s e ( i i ) of build up a backlog
of c l a i m s and negotiations t h e m s e l v e s .
9.
An e a r l y d e c i s i o n is r e q u i r e d a s , m e a n w h i l e , no a n s w e r s can
be g i v e n to the i n c r e a s i n g l y insistent questions of the. unions and c u r r e n t
negotiations a r e being conducted in an a t m o s p h e r e of c o m p l e t e u n r e a l i t y .
10.
If c o u r s e ( i i i ) w e r e adopted f o r the C i v i l S e r v i c e , then the M i n i s t e r
of Labour would be able m o r e e a s i l y to take the same l i n e , as he p r o p o s e s
to do, with W a g e s B o a r d s and W a g e s Councils.
11. L o c a l authorities and the nationalised industries m i g h t be p e r ­
suaded t o f o l l o w suit.
12.
I should perhaps say a w o r d about c o m m i t m e n t s a l r e a d y e n t e r e d
into which, in m y statement, I said should be m e t . The c l e a r e s t c a s e s
a r e v/here pay s e t t l e m e n t s have a l r e a d y been r e a c h e d in negotiation or
w h e r e t h e r e have been a r b i t r a t i o n p r o c e e d i n g s and a w a r d s have a l r e a d y
been m a d e or a r e awaited. A n e x a m p l e i s the r e c e n t a w a r d to p r o f e s s i o n a l
P o s t Office E n g i n e e r s with r e t r o s p e c t i o n t o 1st August, 1958, costing
£1. 5 m i l l i o n s this y e a r . Another i s the awaited a w a r d on P o s t O f f i c e
sales r e p r e s e n t a t i v e s . A l l these must be i m p l e m e n t e d forthwith with
w h a t e v e r o p e r a t i v e date has b e e n a g r e e d or a w a r d e d . ' I would a l s o r e g a r d
as a c o m m i t m e n t a c a s e w h e r e an o f f e r has been made and r e j e c t e d and a
c l a i m i s on its way to a r b i t r a t i o n . Such a x a s e i s the offer of 5-g p e r cent
f r o m 1st January l a s t which has been made to the P o s t O f f i c e E n g i n e e r i n g
Union. ( T h i s Union r e p r e s e n t s the n o n - p r o f e s s i o n a l e n g i n e e r i n g w o r k e r s . )
In m y v i e w this c a s e , on which t e r m s of r e f e r e n c e have been a g r e e d but
not yet f o r w a r d e d to the M i n i s t r y of -Labour should now go t o a r b i t r a t i o n
and any a w a r d up to the o f f e r e d S\ p e r cent should be put into e f f e c t
i m m e d i a t e l y . If the a w a r d e x c e e d s 5j p e r cent t h e r e w i l l b e no G o v e r n m e n t
c o m m i t m e n t in r e s p e c t of the e x c e s s and its i m p l e m e n t a t i o n should,
s t r i c t l y speaking, be d e f e r r e d during the pause; but this a s p e c t and the
t e r m s on which the P o s t m a s t e r - G e n e r a l should announce his a g r e e m e n t
t o go to a r b i t r a t i o n despite the need f o r a pause n e e d v e r y c a r e f u l and
separate consideration. .
13.
T h e r e m a y be other negotiations which should be r e g a r d e d
as c o m m i t m e n t s and d e c i s i o n s w i l l have to be taken on t h e m as they
c o m e up. We a r e l i k e l y in this connection to be f a c e d with a v e r y
difficult p r o b l e m o v e r the t h r e e s c i e n t i f i c c l a s s e s of the C i v i l S e r v i c e .
N e g o t i a t i o n s a r e now going on on the P a y R e s e a r c h Unit s u r v e y of these
c l a s s e s which is the last big s u r v e y of the f i r s t round of i n v e s t i g a t i o n s
by the Unit f o l l o w i n g the P r i e s t l e y R e p o r t . I shall have to c o n s i d e r v e r y
would know -where they stood. It also has the advantage of -flexibility
and would permit the immediate implementation of awards on cases which
it was decided came into the category of existing commitments. It
would seem to be more in accordance with the idea of a pause - as distinct
from a freeze - and might be more acceptable to public opinion generally
than the complete suspension of arbitration.
It has of course the disadvantage that we 6 h o u l d be building up
a batch of post-dated cheques.
But in my view this is a less serious
disadvantage than the disadvantage under course (ii) of build up a backlog
of claims and negotiations themselves.
9.
An early decision is required as, meanwhile, no answers can
be given to the increasingly insistent questions of the. unions and current
negotiations are being conducted in an atmosphere of complete unreality.
10. If course (iii) were adopted for the Civil Service, then the Minister
of Labour would be able more easily to take the same line, as he proposes
to do, with Wages Boards and Wages Councils.
11. Local authorities and the nationalised industries might be per­
suaded to follow suit.
12. I should perhaps say a word about commitments already entered
into which, in my statement, I said should be met. The clearest cases
are where pay settlements have already been reached in negotiation or
where there have been arbitration proceedings and awards have already
been made or are awaited. An example is the recent award to professional
Post Office Engineers with retrospection to 1st August, 195C, costing
£1. 5 millions this year. Another is the awaited award on Fost Office
sales representatives. All these must be implemented forthwith, with
whatever operative date has been agreed or awarded. ' I would also regard
as a commitment a case where an offer has been made and rejected and a
claim is on its way to arbitration. Such a Tease is the offer of Zj per cent
from 1st January last which has been made to the Fost Cffice Engineering
Union. (This Union represents the non-professional engineering workers.)
In my view this case, on which terms of reference have been agreed but
not yet forwarded to the Ministry of Labour should now go to arbitration
and any award up to the offered 5f per cent should be put into effect
immediately. If the award exceeds 5^ per cent there will be no Government
commitment in respect of the excess and its implementation should,
strictly speaking, be deferred during the pause; but this aspect and the
terms on which the Postmaster-General should announce his agreement
to go to arbitration despite the need for a pause need very careful and
separate consideration.
13.
There may be other negotiations which should be regarded
as commitments and decisions will have to be taken on them as they
come up. We are likely in this connection to be faced with a very
difficult problem over the three scientific classes of the Civil Service.
Negotiations are now going on on the Pay Research Unit survey of these
classes which is the last big survey of the first round of investigations
by the Unit following the Friestley Report. I shall have to consider very
carefully to what extent the Government are committed to make offers
of increased pay on the basis of the survey. Another difficult issue will
arise over pay claims by Government industrial staff where it will be
argued that the Government is committed inter alia to a review of certain
rates in October to bring them in to line with rates paid outside.
14. Decisions are urgently required as it is important that there
should be an early announcement of the Government s intentions. As
Parliament is about to rise, the Governmenfs decisions would be best
promulgated by letters addressed to the various bodies which represent
the Civil Service staffs and the National Health Service in pay negotia­
tionc. The letters would at the same time be released to the P r e s s .
Steps would also have to be taken to bring the Governmenfs decisions
specifically to the attention of the nationalised corporations and local
authorities and to seek their agreement to the adoption of similar policies.
1
S . Li.
Treasury Chambers, G. W. 1.
%&& August, 19 ol
APPENDDC
ARBITRATION IN THE PUBLIC SECTOR
The Non-Industrial Civil Service
1.
Under a Whitley Council Agreement of 1925 there is provision for compulsory arbitration on the pay of grades up to a certain level, at present those with scales not exceeding about £2,400 a year. In 1925 the Government also gave a pledge tnat "subject to the over-riding authority of Parliament" it would give effect to the awards of the Civil Service Arbitration Tribunal. 2.
Two of the alternative courses suggested in this paper are that
the Government should decide either:­
(i)
To suspend arbitration, or
(ii)
In effect to announce that for the time being the operative
date of any increases in pay awarded by the Tribunal will not be arbitrable.
3.
There is
suspension of this
would undoubtedly
repudiation of the
no provision in the Agreement it self, or elsewhere, for system of compulsory arbitration; and the Staff Side regard a decision to suspend arbitration an a unilateral Agreement. 4. 1 If the Government decided, for a time, that the operative date
of any pay increases should cease to be arbitrable the Staff Side would
undoubtedly regard this as a unilateral variation, and perhaps
repudiation, of the Agreement. But this course of action would no doubt
be less repugnant to the Staff Side than a complete suspension of arbitration,
and it could be argued that it did not amount to a repudiation of the basis
on which the Government of the day originally authorised the 1925 Agreement
The Government has always reserved to itself the right to refuse arbitration
"on grounds of policy". Over the years this reserved power has been
invoiced on only five occasions - in relation to claims for equal pay for wome
family allowances, cost of living bonuses, and (in war-time) balance of civi
pay - on the grounds that these were matters on which the Government had
already announced its decision, or was considering as a matter of high
Government policy. These were refusals to arbitrate at all and could not
be held to constitute direct precedents for a refusal to arbitrate on the
operative date of any pay increases. Eut it could be maintained that as the
Government have decided as a matter of high Government policy that there
had to be "a pause" in increases of wages and salaries it was entirely
right that they should use the power which they had reserved to themselves
to decide that a particular aspect of wage and salary claims should be
for the time being inarbitrable.
National Health Service
The National Health Service (Amendment) Act of 1949 provides that
any difference or dispute about pay or conditions of service of persons
employed or engaged in the provision of service under the Acts shall be
a dispute within the meaning of the Industrial Courts Act, 1919. This moans
that the consent of both sides of the Health Service \7hitley Councils is
required before there can. be arbitration. Thus there is no right to
compulsory arbitration though in practice consent has' not been withheld
by the management sides unless public policy is involved. Also the
Minister can reject a Whitley Agreement based upon an arbitration
award. But since the management sides include only a minority of
Ministry officials, they could, if they were not amenable to persuasion
by the Minister, allow the staff sides to go to arbitration, whether the
Minister liked it or not; and a rejection by the Minister, for the first
time, of an arbitration award -would undoubtedly create a great storm.
August, 1961
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