(c) crown copyright
Catalogue Reference:CAB/128/57/3
Image Reference:0001
THIS D O C U M E N T IS T H E P R O P E R T Y
OF H E R B R I T A N N I C M A J E S T Y ' S
COPY
CC(75) 3 3 r d Conclusions GOVERNMENT
0 'X
0 J
NO
CABINET
C O N C L U S I O N S o f a M e e t i n g of t h e C a b i n e t
h e l d a t 10 D o w n i n g S t r e e t o n
T H U R S D A Y 10 J U L Y 1975
a t 10. 00 a m
P R E S E N T
T h e Rt Hon Harold W i l s o n
Prime
The Rt Hon L o r d
The Rt H o n E d w a r d S h o r t M P
Lord P r e s i d e n t of t h e C o u n c i l
The Rt H o n R o y J e n k i n s
Lord
MP
Secretary o f S t a t e f o r t h e H o m e
The Rt H o n A n t h o n y C r o s l a n d
MP Minister Department
MP
Elwyn-Jones
Chancellor
The Rt Hon Denis Healey M P
C h a n c e l l o r of the E x c h e q u e r
The Rt Hon Michael Foot
MP
Secretary o f S t a t e f o r t h e E n v i r o n m e n t
S e c r e t a r y of State f o r
The Rt H o n A n t h o n y W e d g w o o d B e n n
The Rt Hon Shirley Williams M P
S e c r e t a r y of State f o r P r i c e s and
Consumer Protection
Secretary o f S t a t e f o r
MP
Energy
The R t H o n B a r b a r a C a s t l e
MP
Employment
Secretary of S t a t e f o r S o c i a l S e r v i c e s
The Rt Hon E r i c V a r l e y M P
S e c r e t a r y of State f o r I n d u s t r y
The Rt H o n P e t e r S h o r e
The Rt Hon R o y Mason
Secretary of S t a t e f o r
MP
Trade
S e c r e t a r y of State f o r
The R t H o n W i l l i a m R o s s M P
Secretary of S t a t e f o r S c o t l a n d
S e c r e t a r y of State f o r
The R t H o n M e r l y n R e e s
The Rt Hon F r e d Peart
MP
Secretary of S t a t e f o r N o r t h e r n I r e l a n d
MP
Defence
T h e R t H o n John M o r r i s Q C
MP
Wales
MP
M i n i s t e r of A g r i c u l t u r e , F i s h e r i e s and
Food
flhe R t H o n H a r o l d L e v e r M P
T h e Rt Hon L o r d Shepherd
[Chancellor o f t h e D u c h y o f L a n c a s t e r
Lord Privy
(The R t H o n F r e d M u l l e y M P
ISecretary o f S t a t e f o r E d u c a t i o n and S c i e n c e
T h e Rt Hon Reginald P r e n t i c e M P
Minister for Overseas Development
Ixhe R t H o n R o b e r t M e l l i s h M P
T h e R t Hon John Silkin
iParliamentary S e c r e t a r y ,
M i n i s t e r f o r P l a n n i n g and L o c a l
Treasury
Seal
Government
ALSO
PRESENT
T h e R t Hon Samuel Silkin Q C
Attorney General
MP
SECRETARIAT
S i r John Hunt
r
Mr P Benner
( I t e m 1)
M r J A H a m i l t o n ( I t e m s 2 and 3 )
M r J A M a r s h a l l ( I t e m s 2 and 3 )
C O N T E N T S
Item
Subject
1
PARLIAMENTARY
AFFAIRS
2
D R A F T WHITE P A P E R ON
3
FOREIGN
INFLATION
AFFAIRS
Uganda
11 MP
CONFIDENTIAL
ARLIAMENTARY
1.
rFAIRS
the H o u s e o f C o m m o n s d u r i n g the f o l l o w i n g
pRAFT W H I T E
APER O N
iFLATION
2.
T h e C a b i n e t w e r e i n f o r m e d o f t h e b u s i n e s s t o b e t a k e n in
week.
T h e Cabinet c o n s i d e r e d a draft of the White P a p e r
A t t a c k on I n f l a t i o n " .
are recorded
"The
T h e i r d i s c u s s i o n and t h e c o n c l u s i o n s
reached
separately.
OREIGN
3.
FFAIRS
h a d j u s t b e e n r e c e i v e d s t a t i n g that t h e F o r e i g n and C o m m o n w e a l t h
S e c r e t a r y h a d h a d a m e e t i n g w i t h P r e s i d e n t A m i n t h a t m o r n i n g at w h i c h
U n i t e d K i n g d o m / U g a n d a n r e l a t i o n s a n d o t h e r m a t t e r s w e r e d i s c u s s e d .
P r e s i d e n t A m i n had a g r e e d to r e l e a s e M r H i l l s to M r Callaghan
and h e w o u l d b e r e t u r n i n g t o L o n d o n w i t h t h e S e c r e t a r y o f S t a t e l a t e r
in t h e d a y .
T h e C a b i n e t w o u l d w i s h t o c o n g r a t u l a t e t h e F o r e i g n and
C o m m o n w e a l t h S e c r e t a r y on h i s s u c c e s s f u l h a n d l i n g o f t h i s
e x t r e m e l y difficult situation.
iganda
I
revious
eference:
C(75) 32nd
on elusions,
Hinute 2
T H E P R I M E M I N I S T E R i n f o r m e d the C a b i n e t that a t e l e g r a m
The Cabinet
-
T o o k note, with approval,
by the P r i m e M i n i s t e r . Cabinet
Office
10 J u l y 1975
of the
statement THIS D O C U M E N T
IS T H E P R O P E R T Y
OF H E R B R I T A N N I C M A J E S T Y ' S
GOVERNMENT
COPY
NO
9 E
aD
CABINET
CONFIDENTIAL
ANNEX
CC(75) 33rd Conclusions,
Minute 2
T h u r s d a y 10 J u l y 1975 at 10. 00 a m
DRAFT
WHITE
T h e C a b i n e t h a d b e f o r e t h e m a p r i n t e d p r o o f o f t h e W h i t e P a p e r on PAPER
ON
inflation which had been m a d e a v a i l a b l e s h o r t l y b e f o r e the m e e t i n g INFLATION
and w h i c h s u p e r s e d e d t h e d r a f t c i r c u l a t e d w i t h C ( 7 5 ) 7 6 , Previous
Reference:
CC(75) 31st
Conclusions
I n t r o d u c i n g it T H E C H A N C E L L O R O F T H E E X C H E Q U E R said that
t h e S e c r e t a r i e s o f State f o r E m p l o y m e n t and f o r P r i c e s and
C o n s u m e r P r o t e c t i o n a n d h e h a d h e l d an i n t e n s i v e s e r i e s o f
m e e t i n g s o v e r the past w e e k with m e m b e r s of the E c o n o m i c
C o m m i t t e e of t h e T r a d e s U n i o n C o n g r e s s ( T U C ) and w i t h
r e p r e s e n t a t i v e s o f the C o n f e d e r a t i o n o f B r i t i s h I n d u s t r y ( C B I ) .
T h e r e h a d b e e n a m a r k e d and h e l p f u l s h i f t o f v i e w b y t h e T U C .
A t f i r s t t h e y had been r e l u c t a n t to c o n s i d e r any l i m i t f o r pay
i n c r e a s e s b e l o w 15 p e r c e n t , and w e r e a l s o o p p o s e d t o a n y
l e g i s l a t i o n in s u p p o r t o f a v o l u n t a r y p o l i c y .
T h e y had h o w e v e r a g r e e d
to a f l a t r a t e l i m i t of £ 6 a w e e k , w h i c h w a s e q u i v a l e n t t o a l i t t l e
o v e r 10 p e r c e n t , and h a d a l s o a g r e e d t h a t l e g i s l a t i o n w a s n e e d e d
to e n a b l e penal sanctions t o be o p e r a t e d through the P r i c e C o d e ; t o
r e l i e v e e m p l o y e r s of t h e i r c o n t r a c t u a l o b l i g a t i o n t o p a y m o r e than
the p r o p o s e d l i m i t ; and to p r o v i d e sanctions against i n d i v i d u a l l o c a l
a u t h o r i t i e s t h r o u g h s e l e c t i v e u s e of the R a t e Support G r a n t .
H e had
m a d e i t c l e a r t o the T U C t h a t t h e G o v e r n m e n t a l s o r e s e r v e d t h e
r i g h t t o i n t r o d u c e a r e s e r v e p o w e r t o m a k e i t an o f f e n c e f o r
e m p l o y e r s to pay o v e r the l i m i t if this w e r e thought n e c e s s a r y e v e n
though the T U C would b e o p p o s e d to t h i s .
T h e C B I had finally
a c c e p t e d the p r o p o s e d P r i c e C o d e s a n c t i o n s , and they had u r g e d
that a r e s e r v e power w a s n e c e s s a r y .
T h e r e w e r e e l e m e n t s i n the
p r o p o s a l s w h i c h t h e y d i s l i k e d but t h e y h a d s a i d t h a t i f t h e y c o n c l u d e d
that the p o l i c y e v e n t u a l l y announced b y the G o v e r n m e n t w o u l d w o r k ,
they would support it.
T h e C a b i n e t then c o n s i d e r e d the p r i n t e d p r o o f p a r a g r a p h b y p a r a g r a p h ,
and a g r e e d to a n u m b e r of a m e n d m e n t s .
T h e f o l l o w i n g w e r e the
m o r e i m p o r t a n t points m a d e in this p a r t of t h e i r d i s c u s s i o n .
t
The P a y
limit
On p a r a g r a p h 6 i t w a s n o t e d t h a t t h e e q u i v a l e n t o f 10 p e r c e n t f o r
the a v e r a g e a d u l t w o r k e r w a s £ 5 . 50 a w e e k ; but the a g r e e d f l a t r a t e of
£ 6 w o u l d n o t c a r r y t h r o u g h i n t o o v e r t i m e , and t h i s , t a k e n w i t h t h e
f a c t t h a t s o m e e m p l o y e r s w o u l d i n f a c t n o t b e a b l e t o a f f o r d to p a y
t h e £ 6 , m e a n t that t h e o v e r a l l e f f e c t o f a £ 6 m a x i m u m c o u l d b e
e q u a t e d w i t h 10 p e r c e n t .
It w o u l d h o w e v e r be i m p o r t a n t to
e m p h a s i s e t h a t £ 6 w a s a m a x i m u m and n o t an e n t i t l e m e n t .
A flat
r a t e had b e e n adopted b e c a u s e a s i m p l e p e r c e n t a g e , which would
g i v e o n l y £ 3 t o the w o r k e r on £ 3 0 a w e e k , w o u l d h a v e b e e n
u n a c c e p t a b l e t o the T U C ; w h i l e a m i x t u r e o f f l a t r a t e and p e r c e n t a g e
i n c r e a s e w o u l d have b e e n too c o m p l i c a t e d and m a d e much l e s s
impact presentationally.
N e v e r t h e l e s s the flat r a t e c r e a t e d
problems.
One w a s that b e c a u s e t h e r e w e r e l a r g e n u m b e r s of l o w
p a i d w o r k e r s - w h o b e n e f i t t e d m o s t f r o m t h e f l a t r a t e - i n the
c l o t h i n g , r e t a i l d i s t r i b u t i o n and f o o d i n d u s t r i e s i t could h a v e a
d i s p r o p o r t i o n a t e e f f e c t on t h e m o v e m e n t o f t h e R e t a i l P r i c e s I n d e x
(RPI).
A n o t h e r w a s that b y c o m p r e s s i n g d i f f e r e n t i a l s and c r e a t i n g
a n o m a l i e s i t w o u l d i n c r e a s e t h e p r o b l e m o f r e - e n t r y at t h e e n d o f
t h i s p h a s e of the G o v e r n m e n t s i n c o m e s p o l i c y .
Expenses
It w a s noted that t h e r e w a s n o r e f e r e n c e in p a r a g r a p h 6 t o e x p e n s e s .
It w a s a g r e e d that e x p e n s e s should not b e a f f e c t e d b y the l i m i t ,
that this w a s a point m o r e suitably m a d e in a s p e e c h in the
subsequent P a r l i a m e n t a r y debate.
Upper l i m i t
but
On p a r a g r a p h 7 i t w a s a g r e e d t h a t t h e u p p e r l i m i t f o r t h e £ 6 i n c r e a s e
should b e £ 8 , 500 a y e a r .
T h i s would not satisfy fully e i t h e r the
T U C o r C B I but w a s a r e a s o n a b l e c o m p r o m i s e w h i c h w o u l d in
p a r t i c u l a r e a s e the p r o b l e m i n r e l a t i o n t o the p o w e r e n g i n e e r s .
Transitional
arrangements
On p a r a g r a p h 8 it w a s a r g u e d that the c u t - o f f date f o r
transitional
a r r a n g e m e n t s should be 1 A u g u s t i n s t e a d of 1 S e p t e m b e r ,
Admittedly
this would i n v o l v e hardship to c e r t a i n public e m p l o y e e s (including the
police,
the u n i v e r s i t y t e a c h e r s and the r a i l w a y w o r k e r s ) w h o s e
later
p a y m e n t s w o u l d then h a v e t o c o u n t a g a i n s t t h e £ 6 l i m i t , but i f t h e
G o v e r n m e n t w e r e t o c a r r y c o n v i c t i o n they should a l l o w n o e x c e p t i o n s
a f t e r the date f o r the i n t r o d u c t i o n o f the n e w p o l i c y .
w a s a r g u e d that w h e r e public faith w a s p l e d g e d ,
A g a i n s t this it
o r w h e r e the
e m p l o y e e s c o n c e r n e d w e r e at the end of the p r e v i o u s pay r o u n d , it
would be w i s e r to act with g e n e r o s i t y ,
p r o v i s i o n s w e r e c l e a r and d e f e n s i b l e .
as long as the t r a n s i t i o n a l
A f t e r further discussion it
w a s a g r e e d t o r e t a i n the d a t e o f 1 S e p t e m b e r b u t t o a l l o w o n l y
s e t t l e m e n t s and n o t f i r m o f f e r s .
It w a s noted that if this l e d to
the n e e d to r e d u c e j u d i c i a l s a l a r i e s ,
or to amend contracts with
National Health S e r v i c e consultants, this would r e q u i r e legislation.
Food s u b s i d i e s
A s r e g a r d s t h e a l t e r n a t i v e p a r a g r a p h s ( 3 4 and 35 o r 3 4 A and 3 5 A )
and r e n t s
d e a l i n g w i t h f o o d s u b s i d i e s and r e n t s T H E S E C R E T A R Y O F
STATE
F O R P R I C E S A N D C O N S U M E R P R O T E C T I O N a r g u e d that t h e w h o l e
o f t h e £150 m i l l i o n w h i c h t h e C h a n c e l l o r w a s p r e p a r e d to m a k e
a v a i l a b l e in 1 9 7 6 - 7 7 s h o u l d b e d e v o t e d t o p o s t p o n i n g t h e p h a s i n g out
of food subsidies.
Certain m a j o r food price i n c r e a s e s w e r e
a l r e a d y in t h e p i p e l i n e , i n c l u d i n g t h o s e w h i c h w o u l d a r i s e f r o m t h e
r e c e n t d e c i s i o n to adjust the r e p r e s e n t a t i v e r a t e f o r the " G r e e n
Pound".
T h e f l a t r a t e p a y l i m i t w o u l d b e l i k e l y t o h i t the f o o d and
d i s t r i b u t i o n i n d u s t r i e s m o r e than o t h e r s , with c o n s e q u e n t i a l e f f e c t s
on p r i c e s .
Other i n c r e a s e s would a r i s e f r o m a g r e e m e n t s under
the F a r m P r i c e R e v i e w .
T h e r e w a s a l s o the p r o s p e c t of a b a d
h a r v e s t due t o t h e d r y s u m m e r .
T h e r e d i s t r i b u t i v e and e g a l i t a r i a n
e f f e c t o f f o o d s u b s i d i e s u p o n i n c o m e s w a s f a r g r e a t e r than t h a t o f
a n y o t h e r f o r m of s u b s i d y .
M o r e o v e r , r e n t r e b a t e s p r o t e c t e d the
p o o r e s t p e o p l e f r o m the f u l l i m p a c t o f the r e n t i n c r e a s e s , w h i c h
w o u l d in any c a s e n o t be f e l t until A p r i l , w h e r e a s the e f f e c t upon
food subsidies would be f e l t f r o m S e p t e m b e r .
A g a i n s t this T H E S E C R E T A R Y OF S T A T E F O R T H E E N V I R O N M E N T
a r g u e d t h a t t h e a v a i l a b l e £150 m i l l i o n should b e p a r t l y d e v o t e d to
h o l d i n g down, t h e r i s e o f £ 1 a w e e k w h i c h w o u l d o t h e r w i s e t a k e p l a c e i n
council rents.
T h i s m e a n t an i n c r e a s e n e x t A p r i l o f 23 p e r c e n t
w h i c h w o u l d b e h i g h l y d a m a g i n g b o t h p o l i t i c a l l y and e c o n o m i c a l l y .
P e o p l e w e r e not v e r y g r e a t l y a w a r e of the e f f e c t of food s u b s i d i e s
on t h e i r shopping b i l l s , w h e r e a s the addition o f £1 t o t h e i r r e n t ,
c o m i n g at a t i m e w h e n l o c a l r a t e s w o u l d a l m o s t c e r t a i n l y s u f f e r an
as y e t unquantifiable i n c r e a s e , would m a k e a far g r e a t e r i m p a c t .
H e t h e r e f o r e f a v o u r e d h o l d i n g r e n t i n c r e a s e s in l i n e with p r o b a b l e
p r i c e i n c r e a s e s , w h i c h w o u l d m e a n a r i s e o f 15 p e r c e n t o r 60 p e n c e .
A f t e r a s h o r t d i s c u s s i o n , i t w a s a g r e e d that £ 8 0 m i l l i o n should b e
d e v o t e d t o h o l d i n g d o w n t h e i n c r e a s e i n c o u n c i l r e n t s , and £ 7 0 m i l l i o n
t o p o s t p o n i n g the p h a s i n g out of f o o d s u b s i d i e s .
Employment a n d
Public
Expenditure
T H E S E C R E T A R Y O F S T A T E F O R E N E R G Y p r o p o s e d that
p a r a g r a p h s 3 8 - 4 5 and 47 o f t h e d r a f t W h i t e P a p e r s h o u l d b e d e l e t e d
s i n c e h e f e l t t h a t t h e d r a f t p u t f o r w a r d an e c o n o m i c s t r a t e g y t o t a l l y
d i f f e r e n t f r o m that on w h i c h the G o v e r n m e n t h a d b e e n e l e c t e d .
It
w o u l d i n v o l v e r e a l c u t s i n p a y , r i s i n g u n e m p l o y m e n t , and r i s i n g
p r i c e s d e s i g n e d to i n c r e a s e p r o f i t s i n t h e v a i n hope that t h i s w o u l d
lead to i n c r e a s e d investment.
It w a s a r e c i p e
for a major
w h i c h would lead to a continuing l o s s of manufacturing
T h e T U C f a v o u r e d an i n v e s t m e n t - l e d e x p a n s i o n ;
slump
capacity.
but t h e r e w a s
nothing in the t e x t r e f e r r i n g t o the N a t i o n a l E n t e r p r i s e B o a r d ,
i n t r o d u c t i o n o f p l a n n i n g a g r e e m e n t s o r the g e n e r a l l y
p o l i c i e s o f the G o v e r n m e n t t o s t i m u l a t e m o r e
Furthermore,
the
interventionist
investment.
the p r o p o s e d i n c o m e s p o l i c y had b e e n r e p r e s e n t e d as
an a l t e r n a t i v e t o p u b l i c e x p e n d i t u r e c u t s , w h e r e a s p a r a g r a p h 42
f o r e s h a d o w e d f u r t h e r c u t s in a n y c a s e .
In h i s v i e w t h e
strategy
was a C o n s e r v a t i v e one, and w o u l d not w o r k .
In d i s c u s s i o n , t h e r e w a s n o s u p p o r t f o r t h e d e l e t i o n p r o p o s e d ; b u t
a n u m b e r of a m e n d m e n t s w e r e a g r e e d .
On p u b l i c e x p e n d i t u r e , i t
w a s a g r e e d t h a t t h e r e f e r e n c e s i n p a r a g r a p h 42 s h o u l d b e a m e n d e d
to m a k e i t c l e a r t h a t t h e r e v i e w i n t r a i n w a s t h e r e g u l a r annual
p r o c e d u r e , and t o e n s u r e t h a t n o t h i n g s h o u l d p r e j u d i c e t h e d i s c u s s i o n
w h i c h t h e C a b i n e t w o u l d s h o r t l y h a v e a b o u t t h e l e v e l of p u b l i c
e x p e n d i t u r e in f u t u r e y e a r s .
Occupational
It w a s s u g g e s t e d t h a t a r e f e r e n c e t o o c c u p a t i o n a l p e n s i o n s ,
pensions
e x e m p t i n g i m p r o v e m e n t s in t h e m f r o m t h e p a y l i m i t , w h i c h h a d
a p p e a r e d in the A n n e x t o t h e v e r s i o n a t t a c h e d t o C ( 7 5 ) 7 6 , but w a s
not in the p r i n t e d v e r s i o n , should be r e s t o r e d ; but after a b r i e f
d i s c u s s i o n i t w a s a c c e p t e d t h a t t h i s w o u l d p r o v i d e an u n d e s i r a b l e
l o o p h o l e , p a r t i c u l a r l y f o r the b e t t e r p a i d .
Reserve
T h e C a b i n e t then c o n s i d e r e d t h e p r o v i s i o n a l p a s s a g e s a y i n g t h a t t h e
powers
G o v e r n m e n t proposed to invite P a r l i a m e n t to enact r e s e r v e
which,
powers
i f a p p l i e d i n p a r t i c u l a r c a s e s , w o u l d m a k e i t i l l e g a l f o r an
e m p l o y e r to e x c e e d the pay l i m i t .
T H E P R I M E M I N I S T E R s a i d that this i s s u e w a s one upon w h i c h the
future of the G o v e r n m e n t c o u l d d e p e n d .
If the White P a p e r w a s not
s e e n t o b e c r e d i b l e and t h e r e w e r e a f u r t h e r r u n on s t e r l i n g t h e
G o v e r n m e n t could be f o r c e d into much s e v e r e r p o l i c i e s , including
p o s s i b l y e v e n c r i m i n a l s a n c t i o n s a g a i n s t w o r k e r s to w h i c h he had
l o n g b e e n , and w a s s t i l l , f i r m l y o p p o s e d .
H e s a w the a r g u m e n t for
r e s e r v e p o w e r s a s t h e n e e d t o s h o w t h a t t h e r e w a s an e f f e c t i v e
m e a n s o f c o p i n g w i t h t h o s e f e w e m p l o y e r s w h o s e t t l e d o v e r the l i m i t ,
w h e t h e r out o f d o c t r i n a i r e o b s t i n a n c y o r t o p o a c h s k i l l e d l a b o u r o r
b e c a u s e t h e y w e r e p r e p a r e d t o b u y i n d u s t r i a l p e a c e at a n y p r i c e .
T h i s w a s a loophole which the G o v e r n m e n t n e e d e d to be able to
close.
T h e r e s e r v e p o w e r s e n v i s a g e d could h o w e v e r only be
a c t i v a t e d b y an A f f i r m a t i v e R e s o l u t i o n i n P a r l i a m e n t and t h e r e a f t e r
b y a s p e c i f i c O r d e r a g a i n s t an i n d i v i d u a l c o m p a n y .
T h e r e would
b e f e w , if any, c a s e s in p r a c t i c e , s i n c e f i r m s w o u l d shrink f r o m
the publicity which this p r o c e d u r e would i n v o l v e .
He had a strong
p r e f e r e n c e f o r a p o l i c y w h i c h w a s fully a g r e e d with the T U C
p a r t i c u l a r l y s i n c e the l a t t e r had m o v e d further f r o m t h e i r o r i g i n a l
p o s i t i o n than h a d s e e m e d p o s s i b l e .
N e v e r t h e l e s s , the s i z e of the
m i n o r i t y v o t e at t h e T U C G e n e r a l C o u n c i l the p r e v i o u s d a y
i n e v i t a b l y l e f t doubt about h o w f a r they could s e c u r e c o m p l i a n c e
with the a g r e e d l i m i t .
The T U C would strongly oppose legal
s a n c t i o n s a g a i n s t w o r k e r s ; but t h e y had a c c e p t e d the n e e d to
l e g i s l a t e in o r d e r to r e l i e v e e m p l o y e r s of their c o n t r a c t u a l
o b l i g a t i o n s and h e b e l i e v e d t h a t t h e y w o u l d a c q u i e s c e i n t h e p r o p o s a l
f o r r e s e r v e p o w e r s against e m p l o y e r s e v e n though they w o u l d
p r e f e r to a v o i d i t .
H e was as publicly committed against a
s t a t u t o r y p o l i c y a s a n y o t h e r M i n i s t e r b u t he b e l i e v e d t h a t t h e
confidence f a c t o r m a d e it n e c e s s a r y to take this l i m i t e d r e s e r v e
p o w e r as p a r t o f t h e l e g i s l a t i v e p a c k a g e w h i c h t h e T U C h a d a l r e a d y
accepted to be n e c e s s a r y ,
T H E S E C R E T A R Y O F S T A T E F O R E M P L O Y M E N T said that,
the C a b i n e t w o u l d n e c e s s a r i l y w i s h t o g i v e full w e i g h t t o the
a r g u m e n t s put f o r w a r d b y t h e C h a n c e l l o r o f t h e E x c h e q u e r at
their m e e t i n g on 1 July there w e r e other
while
i m p o r t a n t f a c t o r s which m u s t be taken into account.
In h i s v i e w
the adoption of the p r o p o s a l to take r e s e r v e p o w e r s w o u l d l e a d to
the d e s t r u c t i o n of the G o v e r n m e n t .
H e had t w o m a i n r e a s o n s f o r
saying this.
F i r s t , it w a s i m p o r t a n t not to u n d e r e s t i m a t e the
Parliamentary difficulties.
T h e v o l u n t a r y p o l i c y in the W h i t e
P a p e r already needed to be buttressed by legislation eg to p r o v i d e
p e n a l s a n c t i o n s t h r o u g h the P r i c e C o d e , to e x t i n g u i s h e m p l o y e r s
c o n t r a c t u a l o b l i g a t i o n s and t o t a k e d i s c r i m i n a t o r y p o w e r s f o r the
R a t e Support G r a n t .
T h e y w o u l d l e a d t o a s i z a b l e B i l l , but the
T U C h a d a c c e p t e d l e g i s l a t i o n o n t h e s e p o i n t s and t h e r e w a s n o
escape from it.
It w o u l d h o w e v e r i n e v i t a b l y f e e d s u s p i c i o n s that
the p r o p o s e d p o l i c y had a strong statutory e l e m e n t .
If the r e s e r v e
p o w e r s w e r e a d d e d t o t h i s i t c o u l d d o u b l e the s i z e of the l e g i s l a t i o n
and w o u l d c e r t a i n l y i n v o l v e l o n g a n d c o n t e n t i o u s a r g u m e n t s i n t h e
H o u s e of C o m m o n s ,
T h e r e would be strong o b j e c t i o n s f r o m the
G o v e r n m e n t ' s o w n s u p p o r t e r s ; and t h e O p p o s i t i o n w o u l d b e a b l e t o
u s e the p o s i t i o n to i t s own a d v a n t a g e .
In t h e r e s u l t i n g P a r l i a m e n t a r y
s h a m b l e s , the G o v e r n m e n t s position would be seen as v e r y w e a k
and t h i s w o u l d b e j u s t a s d a m a g i n g f o r s t e r l i n g a s t h e a b s e n c e o f a
reserve power.
S e c o n d l y , and c o n c u r r e n t l y w i t h t h e P a r l i a m e n t a r y
t r o u b l e s , t h e r e would be g r e a t difficulties with the t r a d e union
movement.
H e a g r e e d t h a t t h e v o t e at the p r e v i o u s d a y ' s T U C
G e n e r a l C o u n c i l h a d b e e n d i s a p p o i n t i n g , but t h e T U C d o c u m e n t h a d
b e e n b e t t e r t h a n w e h a d d a r e d e x p e c t a n d t h i s in i t s e l f m u s t h a v e
lost some votes.
T h e r e would p r o b a b l y now be a passionate debate
w i t h i n t h e t r a d e u n i o n m o v e m e n t t o i n f l u e n c e t h e v o t e at the m e e t i n g
o f C o n g r e s s on 1 S e p t e m b e r .
T h e T U C l e a d e r s who had done m o s t
t o h e l p the G o v e r n m e n t h i t h e r t o w o u l d be g r e a t l y h a m p e r e d in this
d e b a t e i f r e s e r v e p o w e r s w e r e n o w t a k e n a g a i n s t t h e i r a d v i c e and
wishes.
T h i s i n i t s e l f c o u l d l e a d t o an a d v e r s e v o t e a t t h e C o n g r e s s
m e e t i n g which could in turn be v e r y bad f o r f o r e i g n confidence.
T h e t r u t h w a s t h a t i t w a s n o t p o s s i b l e t o r u n an e f f e c t i v e i n c o m e s
p o l i c y without the s u p p o r t of the t r a d e union m o v e m e n t .
The
Government
and t h e t r a d e u n i o n s s h o u l d m o v e i n s t e p and h e p l e a d e d
with Cabinet not to a g r e e to r e s e r v e p o w e r s .
T H E C H A N C E L L O R O F T H E E X C H E Q U E R said that the d e c i s i o n
f a c i n g C a b i n e t w a s n o t an e a s y o n e ; but h e f e l t t h a t h e h a d a duty t o
r e c o m m e n d the adoption of the r e s e r v e p o w e r s p r o p o s a l .
The TUC
p o l i c y f o r p a y c o i n c i d e d a l m o s t c o m p l e t e l y w i t h that of the
G o v e r n m e n t ; b u t t h e p r o b l e m o f c o m p l i a n c e r e m a i n e d and t h e
c r e d i b i l i t y of the p o l i c y had suffered a setback f r o m the p r e v i o u s
day's T U C General Council vote.
In h i s v i e w t h e r e w e r e t h r e e
r e a s o n s f o r adopting the r e s e r v e p o w e r s .
F i r s t , it was essential
to be able to a s s u r e the w o r k e r s who settled e a r l y in the coming
p a y r o u n d t h a t , if t h e y c o n f o r m e d w i t h t h e p o l i c y , t h e y w o u l d not b e
overtaken by others who c a m e l a t e r .
T h e s a n c t i o n through the
P r i c e C o d e w a s u n l i k e l y t o be e f f e c t i v e in the c a s e of c a p i t a l ­
i n t e n s i v e f i r m s , but if it w e r e m a d e i l l e g a l f o r e m p l o y e r s to pay
m o r e than the l i m i t , this w o u l d - without a c t u a l l y i n v o k i n g the
p o w e r s - e n o r m o u s l y i n c r e a s e the d e g r e e of c o m p l i a n c e .
Secondly,
w h i l e he a c k n o w l e d g e d the P a r l i a m e n t a r y d i f f i c u l t i e s , he b e l i e v e d
t h a t t h e r e w a s o v e r w h e l m i n g p u b l i c s u p p o r t , b o t h i n t h e c o u n t r y and
in P a r l i a m e n t itself, f o r a policy backed by r e s e r v e p o w e r s .
It
w a s b e t t e r t o t a k e t h e p o w e r s n o w r a t h e r than h a v e t o a s k f o r
l e g i s l a t i o n l a t e r when the m o o d m i g h t have c h a n g e d .
T h i r d l y , it
w a s a b s o l u t e l y e s s e n t i a l that the W h i t e P a p e r should c a r r y conviction
i m m e d i a t e l y t o f o r e i g n h o l d e r s of s t e r l i n g .
The general expectation
w a s t h a t r e s e r v e p o w e r s w o u l d b e i n c l u d e d i n t h e p o l i c y , and i f t h e y
w e r e n o t t h e r e w a s a d a n g e r o f an e v e n m o r e s e r i o u s r u n on s t e r l i n g .
T h i s s i t u a t i o n m i g h t b e i m p o s s i b l e t o r e t r i e v e and c o u l d l e a d t o a
c o l l a p s e b o t h o f t h e c u r r e n c y and t h e G o v e r n m e n t .
He recognised
t h a t t h e p r o p o s a l w o u l d c r e a t e g r e a t d i f f i c u l t i e s f o r t h e t r a d e union
m o v e m e n t , and p a r t i c u l a r l y f o r t h o s e w h o had b e e n m o s t helpful in
s h i f t i n g o p i n i o n w i t h i n t h e T U C in t h e p r e v i o u s f o r t n i g h t .
B u t he
b e l i e v e d t h a t t h e y w o u l d s t i l l f i g h t t o m a k e t h e p o l i c y w o r k and he
b e l i e v e d that w i t h o u t the r e s e r v e p o w e r s the p o l i c y w o u l d not be a
credible one.
T h e r e w a s a g e n e r a l r e c o g n i t i o n that n e i t h e r of the a l t e r n a t i v e
c o u r s e s w a s e a s y , a n d t h a t e a c h p r e s e n t e d i t s o w n d a n g e r and
difficulties.
T h e C a b i n e t h a d to w e i g h the r e l a t i v e c o s t in t e r m s o f
t r a d e union g o o d w i l l a g a i n s t the r i s k of a run on the pound.
The
e s s e n t i a l thing to a v o i d w a s a White P a p e r which did not c a r r y
c o n v i c t i o n and w h i c h then l e d t o a f a l l in the exchange r a t e
c o m p e l l i n g the a d o p t i o n o f e v e n s t e r n e r p o l i c i e s than t h o s e n o w i n
contemplation.
I t w o u l d i n a n y c a s e b a a m i s t a k e t o put t o o m u c h
e m p h a s i s on t h e r e s e r v e p o w e r s .
In t e r m s o f a n t i - i n f l a t i o n p o l i c y ,
t h e y w e r e o f l i t t l e s i g n i f i c a n c e c o m p a r e d w i t h t h e i m p o r t a n c e of t h e
G o v e r n m e n t s w i l l i n g n e s s t o s t a n d up t o s t r i k e s .
It should be
s t r e s s e d that the m a i n w e i g h t of the G o v e r n m e n f s p o l i c y r e s t e d on
the f i n a n c i a l s a n c t i o n s .
I n f u r t h e r d i s c u s s i o n the f o l l o w i n g m a i n p o i n t s w e r e
a.
made:­
The previous day's TUC General Council vote was a
serious disappointment,
p a r t i c u l a r l y s i n c e a yea** e a r l i e r
the C o u n c i l had v o t e d unanimously in favour o f m u c h l e s s
s e v e r e g u i d e l i n e s w h i c h had s u b s e q u e n t l y b e e n i g n o r e d b y
m a n y unions.
If the C o u n c i l w e r e d i v i d e d o v e r
severer
g u i d e l i n e s , the p r o s p e c t o f c o m p l i a n c e w i t h t h e m m u s t b e
m u c h l e s s e v e n than l a s t y e a r .
A g a i n s t this i t w a s a r g u e d
t h a t i n 1974 t h e T U C h a d b e e n v o t i n g o n s o m e g e n e r a l and
r a t h e r i d e a l g u i d e l i n e s , w h e r e a s this y e a r they had b e e n
dealing with f a r m o r e p r a c t i c a l and d e t a i l e d s u g g e s t i o n s .
It w a s r e m a r k a b l e and s i g n i f i c a n t that t h e s e had s t i l l w o n a
majority vote.
b.
It w a s f a l l a c i o u s t o s u g g e s t that the r e s e r v e p o w e r s
proposed would operate only against e m p l o y e r s .
Even
though t r a d e unions w o u l d be a b s o l v e d f r o m any l i a b i l i t y t o
b e c h a r g e d w i t h c o n s p i r a c y , the t r u t h w a s t h a t i n t h e p r e s e n t
e c o n o m i c c l i m a t e a n e m p l o y e r w o u l d o n l y p a y an i n c r e a s e
a b o v e the l i m i t under p r e s s u r e f r o m a t r a d e union.
I n thatt
s i t u a t i o n i f the G o v e r n m e n t w e n t t o P a r l i a m e n t t o obtain a n
O r d e r a g a i n s t that e m p l o y e r , they w o u l d be e f f e c t i v e l y
s e e k i n g t o e x e r c i s e a s a n c t i o n a g a i n s t the w o r k e r s .
Further­
m o r e , they w o u l d b e s e e k i n g to i m p o s e a p e n a l t y upon an
e m p l o y e r who w a s by definition in a position of g r e a t
difficulty.
I t m u s t b e d o u b t f u l w h e t h e r the H o u s e o f C o m m o n s
would in fact a p p r o v e such an O r d e r .
c.
T h e p o l i t i c a l p r o b l e m would be a continuing one.
E v e n i f the B i l l w e r e p a s s e d , t h e r e w o u l d b e f u r t h e r c r i s e s ,
and the P a r l i a m e n t a r y L a b o u r P a r t y w o u l d b e c o m e b r o k e n
and d i s p i r i t e d .
T h e G o v e r n m e n t w o u l d then b e c o m e
d e p e n d e n t upon the c a p r i c i o u s s u p p o r t of the C o n s e r v a t i v e s .
T h e r e a l test of a v o l u n t a r y p o l i c y w o u l d c o m e when a m a j o r
union sought t o use its m u s c l e i n d e f i a n c e , and at that point
t h e G o v e r n m e n t w o u l d n e e d the s t r o n g s u p p o r t of the T U C .
T h i s c o n s i d e r a t i o n o v e r r o d e the m o r e i m m e d i a t e a r g u m e n t s
i n f a v o u r of t a k i n g r e s e r v e p o w e r s .
d.
T h e r e s e r v e p o w e r s w e r e i n any c a s e a transparent
bluff.
T h e y m e a n t that a n e m p l o y e r c o u l d b e d r i v e n i n t o
b a n k r u p t c y b y the a c t i o n o f a p o w e r f u l u n i o n ;
and i t m i g h t
b e that w h e n a c a s e w e r e b r o u g h t a g a i n s t an e m p l o y e r he w o u l d
b e a b l e t o p l e a d f o r c e m a j e u r e , i n w h i c h c a s e the c r e d i b i l i t y
of the p o w e r w o u l d r a p i d l y b e u n d e r m i n e d .
E v e n if he could
n o t e f f e c t i v e l y m a k e t h i s p l e a a n d w e r e f i n e d , the f i n e w o u l d
h a v e t o b e b o t h l a r g e and c o n t i n u o u s t o m a k e t h e s a n c t i o n
work.
T h i s w a s h a r d l y l i k e l y to be an e f f e c t i v e p o l i c y .
e.
I f the o p e r a t i o n o f r e s e r v e p o w e r s w a s l i k e l y t o b e
both l i m i t e d and unfair,
t h i s w o u l d b e c o m e a p p a r e n t i n the
C o m m i t t e e s t a g e debate i n the H o u s e of C o m m o n s ( w h e r e the
G o v e r n m e n t m i g h t w e l l f a c e d e f e a t ) and would h a r d l y
o u r o v e r s e a s h o l d e r s of s t e r l i n g .
impress
T h e truth w a s that any
policy could only succeed by a consensus.
f.
O n the o t h e r hand i t w a s v e r y d i f f i c u l t f o r m e m b e r s
of
t h e C a b i n e t o t h e r t h a n the C h a n c e l l o r t o a s s e s s the l i k e l y
effect on f o r e i g n confidence
powers.
of a p o l i c y w i t h o r w i t h o u t r e s e r v e
G r e a t w e i g h t had t h e r e f o r e to be attached t o his
judgment.
In further d i s c u s s i o n it w a s s u g g e s t e d that one c o u r s e which m i g h t
e a s e the d i l e m m a f a c i n g M i n i s t e r s w o u l d be t o r e f r a i n f r o m i n c l u d i n g
the r e s e r v e p o w e r s i n t h e B i l l w h i c h w o u l d b e i n t r o d u c e d f o l l o w i n g
t h e W h i t e P a p e r a n d i n s t e a d t o i n c l u d e i n the W h i t e P a p e r a p l e d g e
that the G o v e r n m e n t w a s d e t e r m i n e d to e n s u r e s u c c e s s and a
s t a t e m e n t t h a t the G o v e r n m e n t h a d a f u r t h e r B i l l i n r e s e r v e , w h i c h
would be i n t r o d u c e d at once if it w e r e n e e d e d , to c o m p e l o b s e r v a n c e
of the pay l i m i t b y a l l e m p l o y e r s .
In c o n s i d e r i n g t h i s p r o p o s a l , i t
w a s a r g u e d t h a t t h e r e w a s a r i s k t h a t , i f the r e s e r v e p o w e r s w e r e
n o t i n c l u d e d i n the f i r s t B i l l , i t w o u l d b e d i f f i c u l t t o c a r r y c o n v i c t i o n
t h a t the G o v e r n m e n t w o u l d i n f a c t f a c e u p t o t a k i n g s t a t u t o r y p o w e r s
later.
It w o u l d a l s o be a m i s t a k e to think that r e s e r v e p o w e r s w o u l d
h a v e l i t t l e e f f e c t u p o n t h e c o u r s e o f e v e n t s - o n the c o n t r a r y , t h e i r
existence would be l i k e l y to have a considerable influence, which
w a s one r e a s o n w h y the C B I w e r e i n f a v o u r of t h e m .
Nevertheless,
the b a t t e r y o f s a n c t i o n s , i n c l u d i n g s o m e l e g i s l a t i o n , w i t h w h i c h t h e
v o l u n t a r y p o l i c y w o u l d b e s u p p o r t e d w a s i m p r e s s i v e , and t h e
G o v e r n m e n t h a d a c h i e v e d a s u r p r i s i n g d e g r e e of s u p p o r t a n d u n d e r ­
s t a n d i n g f r o m the U n i o n s .
It m i g h t t h e r e f o r e just b e p o s s i b l e to
h o l d t h e e x c h a n g e r a t e w i t h t h e i n t e r m e d i a t e p r o p o s a l w h i c h had
been made.
THE PRIME MINISTER,
s u m m i n g up t h e d i s c u s s i o n ,
said that the
C a b i n e t had t o r e a c h a v e r y g r a v e j u d g m e n t , a n d t h e y s h o u l d n o t
u n d e r e s t i m a t e t h e s e r i o u s n e s s o f the s i t u a t i o n t h e y w o u l d f a c e i f
the W h i t e P a p e r f a i l e d t o c a r r y c o n v i c t i o n a n d a f u r t h e r s e r i o u s
on t h e p o u n d d e v e l o p e d .
T h e d i s t i n c t i o n w h i c h had b e e n d r a w n
run
b e t w e e n taking r e s e r v e p o w e r s and h o l d i n g l e g i s l a t i o n in r e s e r v e
w a s h o w e v e r a s u b t l e and s i g n i f i c a n t o n e .
The latter course would
do m u c h to e n s u r e w h o l e - h e a r t e d t r a d e union support f o r the new
policy;
a n d the C h a n c e l l o r o f t h e E x c h e q u e r h a d i n d i c a t e d that h e
thought i t should just g o s u f f i c i e n t l y f a r t o r e a s s u r e o v e r s e a s
opinion
p r o v i d e d the s t a t e m e n t a b o u t t h e G o v e r n m e n t s r e a d i n e s s t o i n t r o d u c e
the f u r t h e r l e g i s l a t i o n ,
if n e e d e d , w e r e m a d e i n s u f f i c i e n t l y
robust
t e r m s a n d p r o v i d e d tb.& W h i t e P a p e r a s a w h o l e a p p e a r e d t o c a r r y
conviction at h o m e .
I t s e e m e d c l e a r that the e x i s t i n g b a l a n c e of
o p i n i o n i n the C a b i n e t w a s a g a i n s t the i n c l u s i o n of r e s e r v e
powers
i n the i m m e d i a t e l e g i s l a t i o n and i n f a v o u r of a c l e a r s t a t e m e n t i n
the W h i t e P a p e r that t h e G o v e r n m e n t h a d a f u r t h e r B i l l r e a d y f o r
p r e s e n t a t i o n and e n a c t m e n t if this b e c a m e n e c e s s a r y .
He
proposed
t h a t h e a n d the t h r e e M i n i s t e r s w h o h a d c o n d u c t e d t h e n e g o t i a t i o n s
w i t h t h e T U C and C B I s h o u l d m e e t t o c o n s i d e r t h e r e d r a f t i n g of the
r e l e v a n t p a r a g r a p h s of the White P a p e r w h i c h would b e n e c e s s a r y to
g i v e e f f e c t t o this c o n s e n s u s .
T h e y w o u l d a l s o be s e e i n g the T U C
a n d C B I l a t e r i n the a f t e r n o o n .
I f n e c e s s a r y h e w o u l d a s k the
Cabinet to m e e t again following these m e e t i n g s .
The Cabinet T o o k note, with approval,
of the P r i m e
s u m m i n g up o f t h e i r d i s c u s s i o n .
Cabinet
Office
11 J u l y 1975
9
Ministers