THIS DOCUMENT IS THE PROPERTY OF HER BRITANNIC MAJESTVS GOVERNMENT
j[ 0
The circulation of this paper has been strictly limited.
It is issued for the personal use of
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C(66) 114
18th July, 1966
CABINET
THE ECONOMIC SITUATION
Note by the S e c r e t a r y of the Cabinet
By d i r e c t i o n of the P r i m e M i n i s t e r I c i r c u l a t e , f o r the
c o n s i d e r a t i o n of the Cabinet, the attached m e m o r a n d u m , p r e p a r e d
by o f f i c i a l s , on a p r i c e s and i n c o m e s standstill.
(Signed)
Cabinet O f f i c e , S, W. 1.
18th July, 1966
BURKE TREND
9
A T R I C E S AND INCOMES STANDSTILL
N o t e by^ O f f i c i a l s
I t h a s b e e n s u g g e s t e d t h a t , as one o f a s e r i e s o f measures
t o meet t h e i m m e d i a t e e c o n o m i c s i t u a t i o n t h e Government m i g h t
d e c l a r e a f r e e z e (which might b e s t be o f f i c i a l l y c a l l e d a
" s t a n d s t i l l " ) on i n c r e a s e s i n p r i c e s and i n c o m e s f o r a
specified period.
2.
E x p e r i e n c e d u r i n g and s i n c e t h e War s u g g e s t s t h a t v e r y
l i t t l e r e l i a n c e c o u l d b e p l a c e d on l e g a l e n f o r c e m e n t f o r t h i s
purpose.
No s a t i s f a c t o r y and a c c e p t a b l e way was f o u n d d u r i n g
t h e War o f c o n t r o l l i n g d i r e c t l y i n c r e a s e s i n p a y .
Early
a t t e m p t s a t p r i c e c o n t r o l i n 1939/UO had l i t t l e s u c c e s s u n t i l
r i c e c o n t r o l was l i n k e d w i t h e l a b o r a t e c o n t r o l s o v e r q u a l i t y
the U t i l i t y s c h e m e s ) , r a t i o n i n g , s t a t e t r a d i n g , Exchequer
s u b s i d i e s , e t c . backed by a v e r y l a r g e a d m i n i s t r a t i v e machine.
3This s u g g e s t s t h a t t h e proposed s t a n d s t i l l w i l l have t o
r e l y l a r g e l y on v o l u n t a r y c o - o p e r a t i o n .
I t w i l l h a v e i n any
c a s e t o s t a r t on a v o l u n t a r y b a s i s u n t i l any l e g i s l a t i v e pov/ers
are enacted.
T h i s e m p h a s i s e s t h a t t h e scheme f o r a f r e e z e
must "be o f a k i n d w h i c h w i l l b e g e n e r a l l y a c c e p t e d b y t h e
community as n e c e s s a r y i n t h e n a t i o n a l i n t e r e s t .
Prom a
s t r i c t l y e c o n o m i c p o i n t o f v i e w t h e p r e s e n t n e e d i s t o combine
a f r e e z e on money i n c o m e s w i t h m e a s u r e s t e r e d u c e demand.
But i n p r a c t i c e a pay f r e e z e w o u l d be r e g a r d e d as t o l e r a b l e
b y t r a d e u n i o n s and p u b l i c o p i n i o n o n l y i f i t was a c c o m p a n i e d
lay a c o m p a r a b l e s t a n d s t i l l en p r i c e s and d i v i d e n d s .
Type and p e r i o d
of
Standstill
h.
T h e r e i s no p o s s i b i l i t y of an a b s o l u t e f r e e z e on p r i c e s .
On t h e i n c o m e s s i d e t h e r e i s a br&ad c h o i c e b e t w e e n an a t t e m p t
t o s e c u r e e i t h e r a c o m p l e t e f r e e z e f o r a s h o r t p e r i o d or a
s t a n d s t i l l w i t h some p r o v i s i o n f o r e x c e p t i o n s f o r a l o n g e r
period.
5.
Te be most e f f e c t i v e t h e f i r s t c o u r s e w o u l d p r o v i d e f o r
ne e x c e p t i o n s ( e v e n f o r l o w e s t p a i d workers or f o r p r o d u c t i v i t y )
T h e r e w o u l d b e a p r o h i b i t i o n on t h e i m p l e m e n t a t i o n o f e x i s t i n g
c o m m i t m e n t s , i n c l u d i n g pay i n c r e a s e s due u n d e r l o n g term
a g r e e m e n t s and on t h e payment o f wage and s a l a r y i n c r e m e n t s
f o r t h e p e r i o d o f the f r e e z e ,
A complete f r e e z e of t h i s k i n d
w o u l d i n v o l v e p r e t t y r o u g h j u s t i c e f o r many g r o u p s a n d , i n so
f a r as p r i c e s r o s e , w o u l d i n v o l v e a c u t i n r e a l i n c o m e s .
It
w o u l d p r o b a b l y n o t t h e r e f o r e be p o s s i b l e t o s u s t a i n i t f o r more
than s i x menths.
N e g o t i a t i o n s and a r b i t r a t i o n and r e p o r t s b y
t h e N . B . P . I . w o u l d c o n t i n u e , and a g r e e m e n t s r e a c h e d w o u l d b e
i m p l e m e n t e d a t t h e end o f t h e s i x months p e r i o d .
6.
A s h o r t but c o m p l e t e f r e e z e c o u l d be e x p e c t e d t o h a v e an
i m m e d i a t e and d r a m a t i c i m p a c t , b o t h on home c o s t s and on o v e r ­
seas o p i n i o n .
I t would have the appearance of g r e a t e r
e q u a l i t y of t r e a t m e n t e v e n t h o u g h t h e t r e a t m e n t vrould b e
h a r s h e r , but the a n o m a l i e s and i n e q u i t i e s w o u l d a c c u m u l a t e o v e r
t h e s i x m o n t h s , and t h e r e e o u l d be a f l o o d o f p e n t - u p i n c r e a s e s
a t t h e end o f t h e p e r i o d , w h i o h c o u l d b e v e r y d a m a g i n g .
Six
1 -i -4
months w o u l d b e a v e r y s h o r t p e r i o d i n w h i c h t o make e f f e c t i v e
a r r a n g e m e n t s f o r an o r d e r l y and m o d e r a t e p a t t e r n o f pay
increases t o f o l l o w the f r e e z e .
Making t h e f r e e z e
effective
so l o n g as i t l a s t s i s l i k e l y t o t a k e up most o f t h e G o v e r n m e n t ' s
energies during this p e r i o d ,
7The s e c o n d c o u r s e v/ould i n v o l v e a l e s s c r u d e a p p r o a c h t o
pay i n c r e a s e s and c o u l d t h e r e f o r e be s u s t a i n e d f o r a l o n g e r
p e r i o d , s a y 12 months.
But i t would h a v e a much l e s s i m m e d i a t e
i m p a c t , p a r t i c u l a r l y i f e x i s t i n g commitments and c a s e s i n t h e
p i p e - l i n e w e r e a l l o w e d as e x c e p t i o n s .
Once some e x c e p t i o n a l
c a s e s a r e a d m i t t e d , i t becomes v e r y d i f f i c u l t t o draw t h e l i n e .
The main a d v a n t a g e s c f t h e s e c o n d c o u r s e a r e t h a t i t v/ould b e
l i k e l y t o b e more a c c e p t a b l e and t h e r e f o r e more e f f e c t i v e and
that i t would p r o v i d e a l o n g e r p e r i o d in which to plan f o r the
o r d e r l y g r o w t h of incomes f o l l o w i n g t h e s t a n d s t i l l .
Although
t h e r e w o u l d be v e r y c o n s i d e r a b l e d i f f i c u l t i e s i n d e f i n i n g t h e
c r i t e r i a f o r e x c e p t i o n s and o p e r a t i n g t h e m a c h i n e r y f o r a p p l y i n g
them, t h e s e c r i t e r i a and t h e m a c h i n e r y c o u l d c o n t i n u e t o be
u s e d w i t h any m o d i f i c a t i o n t h o u g h t d e s i r a b l e a f t e r t h e s t a n d ­
s t i l l period.
8.
I t m i g h t be p o s s i b l e t o combine e l e m e n t s of b o t h t h e s e
c o u r s e s b y h a v i n g a y e a r ' s s t a n d s t i l l v/hich p r o v i d e s f o r
s t r i c t l y l i m i t e d e x c e p t i o n s t o g e t h e r w i t h a six-month deferment
of a l l i n c r e a s e s
u n d e r e x i s t i n g c o m m i t m e n t s , i n c l u d i n g annual
i n c r e m e n t s , due i n t h e c o u r s e o f t h e y e a r .
T h i s w o u l d combine
some o f t h e a d v a n t a g e s ( a s w e l l as t h e d i s a d v a n t a g e s ) o f b o t h
courses.
Legislative
provision
9.
S i n c e i t would be i m p o s s i b l e t o e n f o r c e d e t a i l e d c o n t r o l s
o v e r p r i c e s and pay b y l a w , t h e r e w o u l d be no a d v a n t a g e i n
introducing detailed l e g i s l a t i o n .
Even i f i t w e r e p o s s i b l e
to take comprehensive s t a t u t o r y powers of c o n t r o l f a i r l y q u i c k l y ,
i t would t a k e a c o n s i d e r a b l e p e r i o d t o b u i l d up t h s machinery
n e e d e d f o r e n f o r c e m e n t , b y w h i c h t i m e many p e o p l e w o u l d h a v e
"jumped t h e g u n " .
10.
I t would, however, be d e s i r a b l e t o support the request f o r
a s t a n d s t i l l w i t h some s t a t u t o r y p o w e r s , i f o n l y t o d e t e r some
of t h o s e who d e l i b e r a t e l y s e t out t o f l o u t t h e p o l i c y .
The
a l t e r n a t i v e p o s s i b i l i t y of f i t t i n g s e l e c t i v e p r o v i s i o n s i n t o
the P r i c e s and I n c o m e s B i l l i s d i s c u s s e d i n p a r a . 3 8 ( i i i ) b e l o w .
11.
I t s h o u l d be r e c o g n i s e d t h a t e v e n i f t h e s t a n d s t i l l w e r e
r e i n f o r c e d b y some s t a t u t o r y p o w e r s , i t c o u l d n o t b e e x p e c t e d
t o be c o m p l e t e l y e f f e c t i v e .
But g i v e n a r e a s o n a b l e measure
of p u b l i c s u p p o r t i t c o u l d b e s u f f i c i e n t l y e f f e c t i v e t o
s t r e n g t h e n t h e economy I n t h e s h o r t - t e r m ,
\ \
Incomes
standstill
1.2.
I n p r i n c i p l e i t w o u l d be n e c e s s a r y t o c a l l f c r a s t a n d s t i l l
on a l l p e r s o n a l i n c o m e s , i n c l u d i n g incomes o f s e l f - e m p l o y e d
p e r s o n s , f e e s , d i v i d e n d s , e t c . , i f i t w o r e n o t t o be r e g a r d e d as
d i s c r i m i n a t i n g u n f a i r l y a g a i n s t wage and s a l a r y e a r n e r s .
In
p r a c t i c e i t w o u l d b e d i f f i c u l t t o make a s t a n d s t i l l
effective
e x c e p t i n r e s p e c t o f t h o s e w a g e s , s a l a r i e s and f e o s which a r e
negotiated.
13.
One o f t h e b i g g e s t p r o b l e m s
mentSo
These f a l l i n t o s e v e r a l
i s how t o t r e a t
categories
existing
commit­
( a ) pay i n c r e a s e s due u n d e r a g r e e m e n t s a l r e a d y i n f o r c e .
In
t h e 12 months t o 3 1 s t J u l y , 1967 i n c r e a s e s i n wage r a t e s
o r r e d u c t i o n s i n h o u r s ( o r b o t h ) a v e r a g i n g 5.5% p e r
annum a r e due u n d e r e x i s t i n g a g r e e m e n t s t o a b o u t 5 m i l l i o n
manual w o r k e r s ( a b o u t a t h i r d o f t h e t o t a l number of
wage e a r n e r s ) i n c l u d i n g w o r k e r s i n e n g i n e e r i n g and
s h i p b u i l d i n g , i r o n and s t e e l , and r a i l w a y s .
There i s
no commitment a t p r e s e n t o u t s t a n d i n g . i n r e s p e c t o f t h e
n o n - i n d u s t r i a l C i v i l S e r v i c e , a l t h o u g h about 6 0 , 0 0 0
c i v i l s e r v a n t s a r e due f o r i n c r e a s e s under pay r e s e a r c h .
( b ) P a y i n c r e a s e s r e c e n t l y a g r e e d b u t n o t y e t i n o p e r a t i o n .
Examples a r e e l e c t r i c a l c o n t r a c t i n g , l o c a l a u t h o r i t y
manual and n o n - m a n u a l w o r k e r s .
I n some c a s e s t h e
s e t t l e m e n t and i t s i m p l e m e n t a t i o n may h a v e b e e n d e l a y e d
as a r e s u l t o f Government p r e s s u r e .
Wages C o u n c i l
p r o p o s a l s n o t y e t a p p r o v e d b y t h e M i n i s t e r o f Labour
m i g h t b e r e g a r d e d as f a l l i n g i n t h i s c a t e g o r y ,
( c ) A b o u t t w o m i l l i o n w o r k e r s a r e c o v e r e d b y c o s t o f l i v i n g
s l i d i n g s c a l e arrangements, mainly i n c o n s t r u c t i o n ,
i r o n and s t e e l , p r i n t i n g and h o s i e r y ,
( d ) Some g r o u p s a r e e x p e c t i n g pay i n c r e a s e s as a r e s u l t o f
a c t i o n t a k e n r r s u p p o r t e d by the Government.
Examples
a r e t h e d o c k e r s , r a i l w a y m e n , p o l i c e m e n and Government
industrial workers.
( e ) Some w o r k e r s h a v e c o n t r a c t u a l r i g h t s t o pay i n c r e a s e s
at f u t u r e d a t e s , which employers could not be e x p e c t e d
t o a b r o g a t e on a v o l u n t a r y b a s i s ;
others are e n t i t l e d
t o pay r e v i e w s .
C i v i l S e r v i c e P.R.U. Surveys covering
e v e r . a q u a r t e r o f a m i l l i o n c i v i l s e r v a n t s a r e due f o r
c o m p l e t i o n b y t h e m i d d l e of n e x t y e a r .
( f ) Many s a l a r i e d
pay i n c r e a s e s
scale.
w o r k e r s ( a n d some w a g e - e a r n e r s ) r e c e i v e
i n t h e f o r m o f a n n u a l i n c r e m e n t s on a
14.
T h e s e f o r w a r d commitments p o s e a d i f f i c u l t d i l e m m a .
If a
s t a n d s t i l l i s i n t r o d u c e d on t h e b a s i s t h a t t h e y a r e t o be h o n o u r e d
( a s was done i n t h e 1961/62 pay p a u s e ) i t s e f f e c t i v e n e s s w o u l d b e
much r e d u c e d and i t w o u l d be r e g a r d e d as f a l l i n g u n j u s t l y on t h o s e
w o r k e r s who b y c h a n c e or f o r o t h e r r e a s o n s ( i n c l u d i n g p r e s s u r e f r o m
the
Gavernment i n some c a s e s ) a r e n o t c o v e r e d b y an e x i s t i n g
commitment.
On t h e o t h e r hand t o d e p r i v e l a r g e numbers o f
w o r k e r s o f pay i n c r e a s e s t o w h i c h t h e e m p l o y e r s h a v e a g r e e d w o u l d
be no l e s s u n p o p u l a r a n d , so f a r as t h e p r i v a t e s e c t o r i s
c o n c e r n e d , m i g h t be i m p r a c t i c a b l e .
15.
I f t h e s t a n d s t i l l made any p r o v i s i o n f o r e x c e p t i o n s i t
w o u l d he n e c e s s a r y i n a d d i t i o n to d e c l a r i n g a n o r m " o f z e r o
­
( a ) t o l a y down much more s t r i n g e n t c r i t e r i a f o r d e c i d i n g
e x c e p t i o n s , p r o b a b l y w i t h a r e l a t i v e l y low upper l i m i t
on e x c e p t i o n a l i n c r e a s e s ;
( b ) to c h a n n e l V e x c e p t i o n a l c a s e s t h r o u g h t h e B o a r d , s i n c e
i t w o u l d o t h e r w i s e be v e r y d i f f i c u l t t o c o n t r o l them.
T h i s w o u l d c a l l f o r a r e - t h i n k i n g o f t h e s c o p e and
f u n c t i o n s o f t h e B o a r d , s i n c e a v e r y l a r g e number o f
c a s e s m i g h t n e e d to be h a n d l e d o v e r a s h o r t p e r i o d of
time.
16.
The f u n c t i o n s o f s t a t u t o r y w a g e - f i x i n g b o d i e s w o u l d n e e d t o
be m o d i f i e d or s u s p e n d e d ;
a r b i t r a t i o n awards w o u l d h a v e t o
c o n f o r m to t h e c r i t e r i a l a i d down b y t h e Government o r w o u l d h a v e
t o b e p u t in" a b e y a n c e f o r t h e s t a n d s t i l l p e r i o d .
17.
T h e r e w o u l d i n p r a c t i c e bp no e f f e c t i v e way of p r e v e n t i n g
pay i n c r e a s e s a t w o r k - p l a c e , s i t e or f a c t o r y l e v e l , n o r w o u l d
t h i s n e c e s s a r i l y b e d e s i r a b l e i n a c a s e w h e r e a pay i n c r e a s e was
t h e o n l y way of g e t t i n g work d o n e .
T h e r e would be w i d e s p r e a d
p r e s s u r e from w o r k e r s , i f t h e c o s t of l i v i n g i n c r e a s e d s i g n i f i ­
c a n t l y during the s t a n d s t i l l p e r i o d .
T h e r e w o u l d b e no e f f e c t i v e
way of p r e v e n t i n g c o l l u s i o n b e t w e e n e m p l o y e r s and i n d i v i d u a l
e m p l o y e e s to s e c u r e pay i n c r e a s e s t h r o u g h u p g r a d i n g , r e c l a s s i f i ­
c a t i o n of j o b s , e t c .
The a t t e m p t to i m p o s e a l e g a l s t a n d s t i l l
on pay i n c r e a s e s w o u l d be s t r o n g l y r e s e n t e d b y some i f n o t a l l
trade unions.
I f p r e s s e d v e r y f a r i t would r e s u l t i n s t r i k e
Action and a g e n e r a l w o r s e n i n g of i n d u s t r i a l r e l a t i o n s .
18
The main d a n g e r o f a c o m p l e t e s t a n d s t i l l ( w h i c h w o u l d a p p l y
to a l e s s e r extent t o the l e s s r i g i d forms) i s that the pressure
f o r pay i n c r e a s e s w h i c h w o u l d b u i l d up d u r i n g t h e s t a n d s t i l l
period, "
". ; e x a c e r b a t e d b y t h e i n e v i t a b l e f e e l i n g s o f u n f a i r n e s s
would r e s u l t i n a s p a t e of i n c r e a s e s a s soon as i t was o v e r w h i c h
w o u l d n u l l i f y t h e e c o n o m i c a d v a n t a g e t h a t had b e e n g a i n e d .
It
w o u l d b e n e c e s s a r y , t h e r e f o r e , to t r y to p h a s e out t h e i n c r e a s e s
a t t h e end o f t h e s t a n d s t i l l i n a c c o r d a n c e w i t h p r i o r i t i e s t h a t
had b e e n w o r k e d o u t i n a g r e e m e n t w i t h t h e T . U . C . and C . B . I .
and w i t h t h e a s s i s t a n c e o f t h e N . B . P . I .
A l t e r n a t i v e l y , by
u s i n g amended p o w e r s u n d e r P a r t I I o f t h e P r i c e s ctnd I n c o m e s B i l l
it m i g h t be p o s s i b l e t o e n s u r e t h a t t h e i m p l e m e n t a t i o n o f s e t t l e ­
ments r e a c h e d d u r i n g t h e s t a n d s t i l l p e r i o d and s u b s e q u e n t l y was
d e f e r r e d fcy up t o s i x months f r o m t h e d a t e of t h e s e t t l e m e n t .
19.
The s t a n d s t i l l w o u l d h a v e to be i m p o s e d r i g o r r u s l y in
r e s p e c t of t h e p a y of p u b l i c s e r v a n t s and e m p l o y e e s of n a t i o n a l i s e d
industries.
I t w o u l d p r o b a b l y be d e s i r a b l e f o r s t a t u t o r y d i r e c ­
t i o n s t o be i s s u e d t o t h e B o a r d s o f n a t i o n a l i s e d i n d u s t r i e s
f o r b i d d i n g - them to i n c r e a s e r a t e s o f pay w i t h o u t M i n i s t e r i a l
consent.
I t w o u l d be n e c e s s a r y t o s e c u r e s i m i l a r r e s t r a i n t on
t h e p a r t of l o c a l a u t h o r i t i e s .
I t w o u l d p r o b a b l y be
difficult
to a v o i d a w i d e n i n g d i s c r e p a n c y b e t w e e n t h e t r e a t m e n t o f
e m p l o y e e s in t h e p u b l i c and p r i v a t e s e c t o r s .
T h i s w o u l d "be
s t r o n g l y r e s e n t e d by e m p l o y e e s in t h e p u b l i c s e c t o r .
prices
standstill
20.
I t would be i m p o s s i b l e t o s e c u r e a c o m p l e t e s t a n d s t i l l o v e r the
w h o l e f i e l d o f g o o d s and s e r v i c e s . T h e r e a r e i m p o r t a n t d i f f e r e n c e s
b e t w e e n movements o f i n c o m e s and o f p r i c e s b e c a u s e o f t h e d i r e c t
i n f l u e n c e on p r i c e s o f e . g . i n c r e a s e s i n P u r c h a s e T a x and o f w o r l d
market p r i c e s o f f o o d and raw m a t e r i a l s .
N e v e r t h e l e s s the t r a d e
u n i o n s w o u l d e x p e c t e v e r y e f f o r t t o b e made t o h a v e a s t a n d s t i l l on
a l l t y p e s o f p r i c e s and c h a r g e s .
Management a l s o w o u l d t e n d t o f e e l
t h a t i t w o u l d b e u n f a i r i f t h e s t a n d s t i l l on p r i c e s c o v e r e d o n l y a
part of the f i e l d .
21.
An a t t e m p t t o s e c u r e b y s t a t u t o r y c o n t r o l t h a t n o p r i c e s w o r e
i n c r e a s e d would t e n d t o be i n e f f e c t i v e u n l e s s e x t e n s i v e m a c h i n e r y ,
i n v o l v i n g v e r y l a r g e s t a f f s , was d e v i s e d t o c o n t r o l p r i c e s and p o l i c e
them.
M o r e o v e r i n much o f t h e consumer g o o d s f i e l d i t i s a l m o s t
impossible t o define p r i c e except in r e l a t i o n to q u a l i t y , s t y l e , e t c .
e . g . c l o t h i n g and f u r n i t u r e .
Given wartime e x p e r i e n c e , i t i s c l e a r
that the c o n t r o l s would have t o e x t e n d t o d e f i n i n g q u a l i t y . .
22.
I n i t i a l l y t h e r e w o u l d h a v e t o b e a v o l u n t a r y a p p r o a c h w i t h an
a p p e a l t o a l l c o n c e r n e d n o t t o i n c r e a s e p r i c e s and t h e r e s p o n s e
would d e p e n d on t h e r e c e p t i o n o f t h e p r o p o s e d G o v e r n m e n t measures as
a whole.
T h i s s h o u l d a p p l y t o a l l p r i c e s and c h a r g e s .
23.
But f o r t h e s t a t u t o r y p h a s e i t w o u l d seem u n a v o i d a b l e t h a t t h e
main emphasis s h o u l d b e p l a c e d on a s e l e c t i v e a p p r o a c h r e s t i n g on t h e
l i s t o f g o o d s and s e r v i c e s c o v e r e d b y t h e c u r r e n t v o l u n t a r y e a r l y
w a r n i n g and s t a n d s t i l l a r r a n g e m e n t s .
I t should be p o s s i b l e t o extend
t h i s l i s t somewhat, t h o u g h g r o u p s such a s c l o t h i n g and i m p o r t e d f o o d s
and f o o d s s u b j e c t t o s e a s o n a l f l u c t u a t i o n s c o u l d n o t r e a d i l y b e
covered.
I t might be p o s s i b l e , however, t o d e v e l o p the technique in
use b y t h e M i n i s t r y o f
A g r i c u l t u r e , F i s h e r i e s and P o o d o f k e e p i n g
c e r t a i n f o o d p r i c e s under constant w a t c h t o a p p l y over a wider f i e l d .
2k. F o r a l l t h e i t e m s l i s t e d , t h e r e w o u l d b e a s t a t u t o r y e a r l y w a r n i n g
c o v e r i n g an i n i t i a l p e r i o d o f up t o t h r e e months ( o r p o s s i b l y o v e n s i x
months) and a t o t a l p e r i o d o f up t o one y e a r i f t h e p r o p o s e d p r i c e
change was r e f e r r e d t o t h e N . B . P . I .
25.
The c r i t e r i a f o r j u d g i n g w h e t h e r a c a s e e x i s t e d f o r a p r i c e
i n c r e a s e w o u l d n e e d t o b e n a r r o v r e d , compared w i t h t h o s e s e t o u t i n
the W h i t e P a p e r on P r i c e s and I n c o m e s P o l i c y ( C m n d . 2 6 3 9 ) .
But the
f o l l o w i n g w o u l d h a v e t o b e a c c e p t e d f r o m t h e o u t s e t as r e a s o n a b l e
grounds f o r s e e k i n g an i n c r e a s e :
( a )
Increases
in the cost
of
imported
materials;
( b )
Marked s e a s o n a l
( c )
I n c r e a s e s i n c o s t s i m p o s e d b y t h e G o v e r n m e n t such a s
S e l e c t i v e Employment Tax and i n c r e a s e s i n i n d i r e c t t a x a t i o n .
factors;
/26.
26.
P r o v i s i o n n i g h t a l s o b e made i n t h e P r i c e s and I n c o m e s B i l l
t o t h e e f f e c t t h a t where a p r i c e n o t c o v e r e d by the e a r l y
w a r n i n g r e q u i r e m e n t h a d b e e n i n c r e a s e d and had b e e n r e f e r r e d t o
t h e N . B . P . I . , t h e Government s h o u l d have p o w e r , i f t h e Board so
recommended, t o r e q u i r e t h e e n t e r p r i s e t o l o w e r i t s p r i c e t o t h e
original level.
As i n t h e c a s e o f i n c o m e s r e f e r e n c e s , t h e B o a r d
v/ould h a v e t o b e o r g a n i s e d t o b e a b l e t o d e a l w i t h l a r g e numbers
o f c a s e s on t h e b a s i s o f more s t r i n g e n t and p r e c i s e c r i t e r i a .
27.
I t would be important t o t r y t o e n l i s t the Immediate
s u p p o r t o f l a r g e r f i r m s , b o t h i n m a n u f a c t u r i n g and i n d i s t r i b u t i o n .
I f a number o f t h e l a r g e s t f i r m s w e r e w i l l i n g t o g i v e s p e c i f i c
p l e d g e s t h i s would be a v a l u a b l e example t o the b u s i n e s s
community as a w h o l e .
28.
I n e v i t a b l y , t h e p u b l i c v/ould t e n d t o e x p e c t most p r i c e s t o
r e m a i n u n c h a n g e d and t h e r e v/ould no d o u b t b e a l a r g e f l o w o f
complaints about p r i c e changes.
T h e s e v/ould a t l e a s t p r o v i d e
some h e l p i n w a t c h i n g t h e b e h a v i o u r o f f i r m s and m i g h t make i t
p o s s i b l e t o t a k e some e x e m p l a r y a c t i o n a g a i n s t u n j u s t i f i a b l e
increases.
29o
G i v o n a measure o f d e f l a t i o n i n t h e economy and some
check t o incomes i n c r e a s e s , t h e
c l i m a t e might in time
n
become more f a v o u r a b l e t o h o l d i n g p r i c e s .
But i t must
be remembered t h a t p r i c e s h a v e shown g r e a t e r s t a b i l i t y
than i n c o m e s o v e r t h e p a s t y e a r and t h a t some r e c e n t
/large
6. l a r g e i n c r e a s e s i n labour c o s t s have not yet been r e f l e c t e d i n
prices.
The i n i t i a l p h a s e o f t h e s t a n d s t i l l m i g h t t h e r e f o r e
p r o v e d i f f i c u l t , p a r t i c u l a r l y i f t h e r e was a n y r e a l l a g b e t w e e n
announcement and l e g i s l a t i o n .
C h a r g e s b y Natijpjflal.ised^
M ^ ^ U ^ P J S S J ^ ^ ^ ^ ^ ^ ^ ^ S ^ ^
30.
The p r i c e s t a n d s t i l l w o u l d n e e d t o a p p l y w i t h p a r t i c u l a r r i g o u r t o t h e p r i c e s and c h a r g e s o f t h e n a t i o n a l i s e d i n d u s t r i e s . T h i s w o u l d mean i n p r a c t i c e t h a t no p r i c e o r c h a r g e c o u l d b e i n c r e a s e d w i t h o u t r e f e r e n c e t o and a f a v o u r a b l e r e p o r t f r o m H.B.P.I.
I n so f a r as c h a r g e s a r e f i x e d b y i n d e p e n d e n t s t a t u t o r y
b o d i e s ( e . g . London p a s s e n g e r f a r e s ) s p e c i a l l e g i s l a t i v e p r o ­
v i s i o n s might be n e c e s s a r y ' .
31.
A s f a r a s o t h e r p u b l i c s e c t o r p r i c e s and c h a r g e s a r e c o n ­
c e r n e d , t h e p o s i t i o n i s l e s s s t r a i g h t - f o r w a r d b e c a u s e some o f them e . g . c h a r g e s f o r s c h o o l m e a l s r e f l e c t p u b l i c e x p e n d i t u r e and t a x a t i o n c o n s i d e r a t i o n s .
An i n c r e a s e i n c h a r g e s o f t h i s type c o u l d b e s t be p r e s e n t e d as p a r t o f the measures t o r e d u c e public expenditure. R e n t s . jand ^R a t e s
32.
Rents g i v e r i s e to d i f f i c u l t y .
I n the public sector t h e r e i s a l r e a d y a w i d e measure o f s u o s i d i s a t i o n and i f r e n t i n c r e a s e s w e r e h e l d up t h e r e w o u l d b e p r e s s u r e on l o c a l authority finance.
T h i s c o u l d be e a s e d o n l y by i n c r e a s e d Exchequer a s s i s t a n c e or by i n c r e a s e s i n r a t e s .
But a c o n s i d ­
e r a b l e number o f wage e a r n e r s w o u l d e x p e c t l o c a l a u t h o r i t y r e n t s
t o b e f r o z e n i f t h e i r pay was b e i n g f r o z e n , p a r t i c u l a r l y i f t a x a t i o n had b e e n i n c r e a s e d . 33.
P r i v a t e s e c t o r r e n t s a r e now s u b j e c t t o t h e m a c h i n e r y o f the R e n t A c t 1 9 6 5 , w h i c h a l l o w s f o r r e d u c t i o n as w e l l a s increases.
But h e r e a g a i n , t h e p u b l i c g e n e r a l l y would, e x p e c t r e n t s t o b e c o v e r e d b y a p r i c e s and i n c o m e s s t a n d s t i l l . 3k.
Although r a t e s are a form of t a x a t i o n , they are a l s o a s i g n i f i c a n t element i n the c o s t of l i v i n g in d ex .
Substantial
f u r t h e r i n c r e a s e s i n r a t e s seem i n e v i t a b l e on p r e s e n t p o l i c i e s , but i t h a r d l y seems r e a l i s t i c t o e n v i s a g e a r e a l s t a n d s t i l l on increases in r a t e s . /Mortgage
11
-7­
.'. - S2C88T 35.
T h e s e c o u l d o n l y "be s u b j e c t e d t o a s t a n d s t i l l
i n t e r e s t r a t e s g e n e r a l l y were kept s t a b l e ,
if
pjjyidendjg
36.
A s t a n d s t i l l on d i v i d e n d s p a i d b y i n d i v i d u a l c o m p a n i e s
d u r i n g t h e t w e l v e months w o u l d seem t o b e e s s e n t i a l f o r
p r e s e n t a t i o n a l and p o l i t i c a l r e a s o n s .
P r o v i s i o n might
p o s s i b l y b e made f o r s p e c i a l t r e a t m e n t i n c a s e s a p p r o v e d
b y t h e Government o r a p p r o v e d b y t h e N . B . P . I . b u t i t i s i n
f a c t p r o b a b l e t h a t d i v i d e n d s t h i s y e a r and n e x t w i l l on
a v e r a g e b e l o w e r t h a n l a s t y e a r e s p e c i a l l y w i t h a more
marked d e f l a t i o n a r y t r e n d , so t h a t a s t a n d s t i l l m i g h t n o t
g i v e r i s e t o undue d i f f i c u l t y .
OJlhexJionex^^omes
37I t i s open t o t h e Government t h e m s e l v e s t o h a v e a
c o n s i d e r a b l e i n f l u e n c e on t h e incomes o f F a r m e r s ,
The
i n c o m e s o f .^Qj^zPJ!^2z9X^^.^V^SlIl^.
a r e more o f a p r o b l e m i n
the circumstances o f a g e n e r a l s t a n d s t i l l .
I t might b e
n e c e s s a r y t o t r y t o d e v i s e some a r r a n g e m e n t s f o r
r e - a s s u r i n g p u b l i c o p i n i o n t h a t such i n c o m e s , p a r t i c u l a r l y
a l l forms o f p r o f e s s i o n a l f e e s , were b e i n g kept under
c o n s t a n t w a t c h so t h a t any i n c r e a s e s c o u l d b e r e f e r r e d
promptly t o the N . B . P . I .
-8­
Summary; and
3 8 .
(i)
Conclusions
T h e r e i s no p o s s i b i l i t y o f b r i n g i n g i n t o e x i s t e n c e
r a p i d l y t h e e l a b o r a t e a d m i n i s t r a t i v e machine t h a t w o u l d
b e n e e d e d t o e n f o r c e s t a t u t o r y c o n t r o l s o v e r p r i c e s and
incomes.
I n any c a s e a s t a n d s t i l l w o u l d n e e d t o become
e f f e c t i v e as s o o n as i t was announced i n o r d e r t o a v o i d
a n t i c i p a t o r y i n c r e a s e s i n p r i c e s and p a y .
For both
t h e s e r e a s o n s i t w o u l d be n e c e s s a r y t o r e l y l a r g e l y on
voluntary co-operation.
( i i ) T h i s means t h a t a s t a n d s t i l l w o u l d n e e d t o a p p l y t o
p r i c e s , i n c o m e s and d i v i d e n d s and t o t r e a t them on a
b a s i s w h i c h was r e g a r d e d b y e v e r y o n e a f f e c t e d as
reasonably f a i r .
( i l l ) T h e r e would be no a d v a n t a g e i n i n t r o d u c i n g d e t a i l e d
l e g i s l a t i o n f o r wage and p r i c e c o n t r o l , s i n c e t h i s
c o u l d not e f f e c t i v e l y be e n f o r c e d .
But i t m i g h t b e
d e s i r a b l e t o s t r e n g t h e n P a r t I I o f t h e P r i c e s and
Incomes B i l l b y s ­
( a ) e x t e n d i n g t h e p o w e r s o f c o m p u l s o r y s t a n d s t i l l f r o m
one month t o t h r e e ( o r s i x ) months i n t h e f i r s t
i n s t a n c e , and f r o m f o u r months t o t w e l v e months i n
all;
( b ) t a k i n g p o w e r t o r e q u i r e p r i c e s t o b e l o w e r e d
the recommendation of the N . B . P . I . j
( c ) t o r e q u i r e n o t i f i c a t i o n
f o r increases in pay;
of
all
existing
( d ) t o i n d e m n i f y e m p l o y e r s f o r b r e a c h
r e s u l t i n g from t h e s t a n d s t i l l ;
of
( e ) t o amend t h e . r e q u i r e m e n t s
t o Wages C o u n c i l s , e t c ;
of
( f )
dividends.
to
Standstill
impose a s t a n d s t i l l
on
on
commitments
contract
legislation
relating
on I n c o m e s
( i v ) T h e r e a r e t w o p o s s i b l e
approaches:­
( a ) T o i m p o s e a r i g i d s t a n d s t i l l w i t h v i r t u a l l y
e x c e p t i o n s f o r a p e r i o d o f s i x months..
no
( b ) To r e d u c e t h e norm f r o m 3 i % t o z e r o and t o i n t r o ­
duee more s t r i n g e n t c r i t e r i a g o v e r n m e n t t r e a t m e n t
of exceptional cases.
A l e s s r i g i d s t a n d s t i l l of
t h i s t y p e might b e m a i n t a i n e d f o r t w e l v e m o n t h s .
The main a d v a n t a g e o f c o u r s e ( a ) l i e s i n i t s shock
t r e a t m e n t and t h e i m p r e s s i o n w h i c h t h i s m i g h t make on
foreign opinion.
The a d v a n t a g e o f c o u r s e ( b ) w o u l d l i e
i n the f a c t t h a t i t gave g r e a t e r scope f o r d e a l i n g w i t h
a n o m a l i e s and o b v i o u s i n e q u a l i t i e s and w o u l d make i t
e a s i e r t o c o n t r o l pay i n c r e a s e s i n an o r d e r l y f a s h i o n
a t t h e end o f t h e s t a n d s t i l l p e r i o d .
( v ) A p o s s i b l e c o m b i n a t i o n o f t h e s e a p p r o a c h e s v/ould b e t o
r e q u i r e a l l i n c r e a s e s due u n d e r e x i s t i n g commitments t o
b e d e f e r r e d s i x months f r o m t h e due d a t e and t o p e r m i t
othex i n c r e a s e s on t h e r e c o m m e n d a t i o n o f t h e N . B . P . I .
-1
( v i ) I t v/ould b e n e c e s s a r y t o l a y down more s t r i n g e n t
criteria
g o v e r n i n g i n c r e a s e s i n i n c o m e s and p r i c e s .
In particu­
l a r i t w o u l d be n e c e s s a r y t o make i t c l e a r t h a t any
p r i c e i n c r e a s e s r e s u l t i n g from i n c r e a s e s i n i n d i r e c t
t a x a t i o n o r i m p o r t p r i c e s w e r e n o t t o be r e g a r d e d as
j u s t i f y i n g i n c r e a s e s in pay.
Price
( v i i )
i
standstill
I t w o u l d be n e c e s s a r y t o a c c e p t t h a t i n c r e a s e s i n p r i c e s
c o u l d s t i l l be j u s t i f i e d b y movements i n i m p o r t p r i c e s
o r s e a s o n a l f a c t o r s ttr. b y g o v e r n m e n t a l a c t i o n ( f o r '
e x a m p l e , S e l e c t i v e Employment Tax o r i n d i r e c t t a x a t i o n ) .
( v i i i ) I n a d d i t i o n t o an a p p e a l f o r v o l u n t a r y c o - o p e r a t i o n ,
u s e might b e made o f t h e s t a t u t o r y e a r l y w a r n i n g
requirements (as extended in ( i i i ) a b o v e ) . Dividends
( i x ) Companies w o u l d n e e d t o b e r e q u i r e d n e t
t h e i r d i v i d e n d s f o r 12 m o n t h s . D e p a r t m e n t o f Economic
Storey's Gate,
S W 1
18th July
Affairs,
1966
w
seises?
to
increase