(c) crown copyright
Catalogue Reference:CAB/128/58/9
Image Reference:0001
I
1
THIS D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y * S G O V E R N M E N T
CC(76) 9th
Conclusions
COPY NO
85
CABINET
C O N C L U S I O N S of 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 Downing S t r e e t on
T H U R S D A Y 11 M A R C H 1976
at 1 0 . 3 0 a m
PRESENT
T h e R t Hon H a r o l d W i l s o n M P
Prime Minister
b e R t Hon E d w a r d S h o r t M P
L o r d P r e s i d e n t of t h e C o u n c i l
(In t h e C h a i r f o r I t e m 5)
T h e R t Hon J a m e s C a l l a g h a n M P
S e c r e t a r y of S t a t e f o r F o r e i g n a n d
Commonwealth Affairs
The
R t Hon L o r d E l w y n - J o n e s
**rd Chancellor
T h e R t Hon Roy J e n k i n s M P
S e c r e t a r y of S t a t e f o r t h e H o m e
Department
*ie R t Hon D e n i s H e a l e y M P
c e l l o r of t h e E x c h e q u e r
T h e R t Hon A n t h o n y C r o s l a n d M P
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
T
T
T
h e R t Hon M i c h a e l F o o t M P
^ * c r e t a r y of S t a t e f o r E m p l o y m e n t
T h e R t Hon A n t h o n y W e d g w o o d B e n n M P
S e c r e t a r y of S t a t e f o r E n e r g y
R t Hon S h i r l e y W i l l i a m s M P
***cretary of S t a t e f o r P r i c e s a n d
^ g u m e r Protection
T h e R t Hon B a r b a r a C a s t l e M P
S e c r e t a r y of S t a t e f o r S o c i a l S e r v i c e s
R t Hon E r i c V a r l e y M P
^ c r e t a r y of S t a t e f o r I n d u s t r y
T h e R t Hon P e t e r S h o r e M P
S e c r e t a r y of S t a t e f o r T r a d e
R t Hon R o y M a s o n M P
^ ^ e t a r y of S t a t e f o r D e f e n c e
T h e R t Hon W i l l i a m R o s s M P
S e c r e t a r y of S t a t e f o r S c o t l a n d
The R t Hon J o h n M o r r i s Q C M P
8e * e t a r y of S t a t e f o r W a l e s
T h e R t Hon M e r l y n R e e s M P
S e c r e t a r y of S t a t e f o r N o r t h e r n I r e l a n d
R t Hon F r e d P e a r t M P
^ ^ i e t e r of A g r i c u l t u r e , F i s h e r i e s a n d F o o d
T h e R t Hon H a r o l d L e v e r M P
C h a n c e l l o r of t h e D u c h y of L a n c a s t e r
c
i
^
The R t H o n L o r d S h e p h e r d
***d P r i v y S e a l
The Rt Hon F r e d Mulley M P
S e c r e t a r y of S t a t e fbr E d u c a t i o n a n d S c i e n c e
Tfce R t H o n R e g i n a l d P r e n t i c e M P
Minister for O v e r s e a s Development
The Rt Hon R o b e r t M e l l i s h M P
Parliamentary Secretary, Treasury
The Rt Hon John Silkia M P
M i n i s t e r for Planning and L o c a l G o v e r n m e n t
ALSO PRESENT
The Rt Hon Joel Barnett M P
Chief S e c r e t a r y , T r e a s u r y ( I t e m s 3 and 4)
SECRETARIAT
Sir
Mr
Mr
Mr
Mr
Mr
Mr
John Hunt
G R Denman
J A Hamilton
T F Brenchley
W I Mclndoe
E J G Smith
J A Marshall
( I t e m s 1 , 2 a n d 5)
(Items 3 a n d 4)
( I t e m 2)
(Item 1)
( I t e m s 1, 2 a n d 5)
(Items 3 and 4)
C O N T E N T S
Item
1.
Subject
Page
PARLIAMENTARY AFFAIRS
E c o n o m i c P o l i c i e s : V o t e of C o n f i d e n c e
2.
FOREIGN AFFAIRS
Rhodesia
2
3.
STERLING
4.
P U B L I C E X P E N D I T U R E S U R V E Y 1976
3
The Economic Background
COMMON AGRICULTURAL POLICY PRICES 1976-77
ii
3
7
PARLIAMENTARY
AFFAIRS
Economic P o l i c i e s '
Vote of C o n f i d e n c e
1.
T h e C a b i n e t c o n s i d e r e d t h e i m p l i c a t i o n s of t h e G o v e r n m e n t s
d e f e a t t h e p r e v i o u s e v e n i n g in t h e H o u s e of C o m m o n s , f o l l o w i n g
t h e d e b a t e o n P u b l i c E x p e n d i t u r e , on a m o t i o n r e l a t i n g t o i t s
economic policies.
It w a s g e n e r a l l y a g r e e d t h a t i t w a s e s s e n t i a l
to d e m o n s t r a t e without d e l a y that the G o v e r n m e n t h a d s u p p o r t for
these policies.
It w a s p r o c e d u r a l l y i m p o s s i b l e , h o w e v e r , to table
a s p e c i f i c m o t i o n of c o n f i d e n c e f o r d e b a t e t h a t d a y . T h e o p t i o n s
o p e n t o t h e G o v e r n m e n t , t h e r e f o r e , w e r e t o c a r r y a v o t e on t h e
adjournment that evening, having previously m a d e it plain that this
w o u l d b e r e g a r d e d a s a v o t e of c o n f i d e n c e in t h e G o v e r n m e n t s
e c o n o m i c a n d f i n a n c i a l p o l i c i e s : o r t o p u t down a s p e c i f i c m o t i o n
of c o n f i d e n c e f o r d e b a t e t h e f o l l o w i n g d a y o r o n M o n d a y .
A
s p e c i f i c m o t i o n of c o n f i d e n c e w o u l d h a v e t h e a d v a n t a g e t h a t t h o s e
of t h e G o v e r n m e n t s s u p p o r t e r s w h o h a d v o t e d a g a i n s t t h e
G o v e r n m e n t m o t i o n t h e p r e v i o u s e v e n i n g w o u l d b e o b l i g e d , if t h e y
w i s h e d t o a v o i d a G e n e r a l E l e c t i o n , t o v o t e e x p r e s s l y in f a v o u r of
the G o v e r n m e n t s economic policies to which the P a r l i a m e n t a r y
Labour P a r t y a s a whole w e r e c o m m i t t e d .
Without such a vote,
t h e y m i g h t c o n t i n u e t o f e e l f r e e , on f u t u r e o c c a s i o n s , t o d i s s o c i a t e
themselves from these policies.
On the o t h e r h a n d t h e r e could
b e a d v e r s e e f f e c t s on i n t e r n a t i o n a l c o n f i d e n c e if, a s a r e s u l t of
t a b l i n g a m o t i o n f o r d e b a t e on F r i d a y o r M o n d a y , G o v e r n m e n t
b u s i n e s s had t o be suspended in the m e a n t i m e and the m e d i a
highlighted the supposed political uncertainty.
There was a
p r e c e d e n t i n 1940 f o r t r e a t i n g an a d j o u r n m e n t m o t i o n a s a m o t i o n
of c o n f i d e n c e a n d , in p r e s e n t c i r c u m s t a n c e s , t h i s a p p e a r e d t o b e
t h e b e s t w a y of d e a l i n g w i t h t h e i m m e d i a t e s i t u a t i o n ,
T H E P R I M E MINISTER, summing up the d i s c u s s i o n , said that the
Cabinet a g r e e d that the motion for the adjournment that evening
s h o u l d b e t r e a t e d a s a m o t i o n of c o n f i d e n c e i n t h e G o v e r n m e n t s
e c o n o m i c and f i n a n c i a l p o l i c i e s a n d t h a t a b r i e f P r e s s s t a t e m e n t
t o t h a t e f f e c t , w i t h a n e x p l a n a t i o n of t h e p r o c e d u r a l r e a s o n s f o r
adopting t h i s c o u r s e , should be i s s u e d forthwith.
The Chief Whip
would inform the Opposition before the s t a t e m e n t w a s i s s u e d .
The Cabinet T o o k n o t e , w i t h a p p r o v a l , of t h e P r i m e
s u m m i n g u p of t h e i r d i s c u s s i o n .
Ministers
T h e C a b i n e t w e r e i n f o r m e d of t h e b u s i n e s s t o b e t a k e n i n t h e H o u s e
of C o m m o n s d u r i n g t h e f o l l o w i n g w e e k .
1
FOREIGN
AFFAIRS
fthod -esia
Reference:
C ( 7 6 ) 8th
Conclusions
***nute 2
C
2.
T H E FOREIGN AND C O M M O N W E A L T H S E C R E T A R Y said
that he had decided t o s e e the two white Rhode si an b u s i n e s s m e n
who h a d r e c e n t l y visited London, r e p o r t e d l y with p r o p o s a l s f r o m
Mr Smith.
The proposition they had advanced w a s quite
u n a c c e p t a b l e : it w a s that the G o v e r n m e n t should appoint t h r e e
w i s e m e n , p r e f e r a b l y r e p r e s e n t a t i v e s f r o m t h e H o u s e of L o r d s
of t h e t h r e e m a i n P a r t i e s , t o g o t o R h o d e s i a a n d m a k e
r e c o m m e n d a t i o n s about i t s future constitution.
He h a d told t h e m
t h a t t h e t i m e f o r p r o p o s a l s of t h i s k i n d w a s l o n g p a s t .
He was
h o w e v e r h i m s e l f p r e p a r i n g , on a c o n t i n g e n t b a s i s o n l y , a s t a t e m e n t
of t h e e l e m e n t s n e c e s s a r y for a t o t a l s e t t l e m e n t in R h o d e s i a ,
c o v e r i n g Buch p o i n t s a s t h e t r a n s i t i o n t o m a j o r i t y r u l e , an a i d
p r o g r a m m e , p r o v i s i o n for Civil S e r v i c e p e n s i o n s , e t c .
It w o u l d
however not be right to produce such a package until Mr Smith had
a c c e p t e d n o t o n l y t h e p r i n c i p l e of m a j o r i t y r u l e b u t a l s o a n e a r l y
date for its introduction.
He h a d m e t t h e F o r e i g n M i n i s t e r of
Z a m b i a that w e e k and w a s likely soon to m e e t the M o z a m b i c a n
Foreign Minister.
The Zambian F o r e i g n Minister would be
a s k i n g P r e s i d e n t K a u n d a t o s u g g e s t t o P r e s i d e n t N y e r e r e of
T a n z a n i a t h a t the l a t t e r should invite M r C a l l a g h a n to go to
T a n z a n i a for t a l k s with h i m .
The four African P r e s i d e n t s w e r e
t h e k e y t o t h e s i t u a t i o n b e c a u s e of t h e i r i n f l u e n c e on t h e g u e r i l l a s .
The Cabinet T o o k n o t e of t h e s t a t e m e n t b y t h e F o r e i g n a n d
Commonwealth Secretary.
2
3.
T h e p o s i t i o n of. s t e r l i n g w a s c o n s i d e r e d b y t h e C a b i n e t ,
Their d i s c u s s i o n and the conclusions r e a c h e d a r e r e c o r d e d
separately.
4.
The Cabinet had before t h e m a m e m o r a n d u m by the
C h a n c e l l o r of t h e E x c h e q u e r ( C ( 7 6 ) 25) a n d a m e m o r a n d u m b y t h e
C e n t r a l P o l i c y R e v i e w Staff (C(76) 2 7 ) a b o u t t h e m e d i u m t e r m
e c o n o m i c background for the Public E x p e n d i t u r e S u r v e y 1976.
THE PRIME MINISTER said that he had l a s t y e a r circulated to
C a b i n e t a p a p e r (C(75) 60) o n t h e p r o c e d u r e t o b e f o l l o w e d f o r t h e
d i s c u s s i o n of p u b l i c e x p e n d i t u r e ; t h e a d o p t i o n of t h i s , w i t h i t s
p r o v i s i o n f o r p r e l i m i n a r y d i s c u s s i o n of t h e e c o n o m i c b a c k g r o u n d
a n d of p u b l i c e x p e n d i t u r e p r i o r i t i e s , h a d l e d t o s o m e e a s i n g of t h e
inevitable p r o b l e m s a s s o c i a t e d with this difficult question.
The
slightly modified p r o c e d u r e he h a d p r o p o s e d for the c u r r e n t y e a r
w a s d e s i g n e d t o e n a b l e t h e W h i t e P a p e r o n p u b l i c e x p e n d i t u r e to) b e
published in N o v e m b e r , and s i m i l a r l y allowed for M i n i s t e r s t o c l e a r
t h e i r m i n d s on p r i o r i t i e s i n e a r l y d i s c u s s i o n s b e f o r e t a k i n g f i r m
decisions.
THE CHANCELLOR OF THE EXCHEQUER said that this w a s the
f i r s t i n t h e s e r i e s of d i s c u s s i o n s w h i c h w o u l d l e a d u p t o a W h i t e
P a p e r in the a u t u m n ; M s m e m o r a n d u m w a s intended to s k e t c h the
g e n e r a l background and to indicate the c o n s i d e r a t i o n s which would
i n f l u e n c e t h e g u i d e l i n e s n e e d e d f o r t h e 1976 p u b l i c e x p e n d i t u r e
Survey.
T h e c e n t r a l e c o n o m i c c a s e p r e s e n t e d in the White P a p e r
on public e x p e n d i t u r e published i n F e b r u a r y ( C m n d 6393) a s s u m e d
a n a v e r a g e annual i n c r e a s e i n g r o s s d o m e s t i c product (GDP)
b e t w e e n 1974 a n d 1979 of 3 . 4 p e r c e n t : i t w a s now c l e a r m a t t h e
HkeXhood of a c h i e v i n g t h i s i n c r e a s e w a s m u c h l e s s t h a n h a d
p r e v i o u s l y b e e n thought, although it w a s v e r y difficult to i n t e r p r e t
the c u r r e n t i n d i c a t o r s .
The recent unemployment figures were
e n c o u r a g i n g , but i t w a s not e a s y to u n d e r s t a n d the r e a s o n s lying
b e h i n d t h e m : t h e v o l u m e of e x p o r t s w a s r a t h e r h i g h e r t h a n h a d b e e n
expected.
With the r e d u c t i o n which had now t a k e n p l a c e in the
s t e r l i n g exchange r a t e , and a s s u m i n g that the G o v e r n m e n t w e r e
s u c c e s s f u l i n c o n t i n u i n g t h e p o l i c y of r e s t r i c t i n g p a y i n c r e a s e s t o a
low l e v e l , i t should not be too difficult t o a c h i e v e the a s s u m e d
g r o w t h i n G D P , a n d i n t h e o u t p u t of m a n u f a c t u r i n g i n d u s t r y , o v e r
the next y e a r .
But it w a s e x t r e m e l y difficult t o s a y w h e t h e r this
r a t e of g r o w t h c o u l d b e m a i n t a i n e d o v e r t h e f o l l o w i n g y e a r s ; m u c h
would t u r n upon the capacity c o n s t r a i n t s e m e r g i n g in the f i r s t y e a r .
On p a y , h e h a d m a d e i t c l e a r t o 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 )
m a t i t w a s not p o s s i b l e for h i m finally to s e t t l e w h a t h e could d o in h i s
Budget about increasing d o m e s t i c d e m a n d until he knew what the pay
l i m i t i n t h e s e c o n d r o u n d of t h e c o u n t e r - i n f l a t i o n p o l i c y w a s g o i n g t o
be.
T h e T U C , c o n r e r s e l y , h a d i n d i c a t e d t h a t t h e i r v i e w of w h a t
3
w a s p o s s i b l e o n p a y w o u l d b e i n p a r t d e t e r m i n e d b y t h e c o n t e n t of
the forthcoming Budget.
It would be possible for h i m to a m e n d
the F i n a n c e Bill a s late a s J u n e in o r d e r to p r o v i d e any t a x r e l i e f
w h i c h m i g h t follow a c c e p t a n c e of a l o w p a y l i m i t , a n d h e t h o u g h t
t h a t a sensible a r r a n g e m e n t could be m a d e with the TUC on that
basis.
O n u n e m p l o y m e n t t h e f i g u r e of 7 0 0 , 000 b y t h e e n d of 1979
w a s n o t a t a r g e t ; i t r e p r e s e n t e d a n a s s u m p t i o n of w h a t c o u l d b e
d o n e if t h e G o v e r n m e n t ' 8 o t h e r p o l i c i e s w e r e s u c c e s s f u l .
What
he had said publicly w a s that the G o v e r n m e n t could not s e t
themselves a less ambitious target than this.
He had discussed
w i t h t h e T U C t h e i r t a r g e t of 6 0 0 , 0 0 0 u n e m p l o y e d b y 1 9 7 8 a n d h a d
pointed out that, given the lag which o c c u r r e d b e t w e e n the g r o w t h
of o u t p u t a n d t h e e f f e c t o n e m p l o y m e n t , t h e a c h i e v e m e n t of t h a t
t a r g e t w o u l d r e q u i r e a n i n c r e a s e of 24 p e r c e n t i n m a n u f a c t u r i n g
output by 1978; this was not i m p o s s i b l e but w a s exceedingly difficult
t o b r i n g a b o u t i n a n y m a n n e r c o n s i s t e n t w i t h a b a l a n c e of p a y m e n t s
d e f i c i t w h i c h t h e r e w o u l d b e a n y p r o s p e c t of f i n a n c i n g .
The
e x p e r i e n c e of t h e l a s t A d m i n i s t r a t i o n h a d s h o w n t h e d a n g e r s of
trying to grow too fast and running into consequential s h o r t a g e s :
i t w o u l d b e p r e f e r a b l e t o a i m f o r a s l o w e r r a t e of g r o w t h w h i c h w a s
consistent with the G o v e r n m e n t ' s other economic a i m s .
The
conclusion he d r e w from this background was that for the period up
to 1979-80, which had been c o v e r e d in the F e b r u a r y White P a p e r ,
public expenditure should in total r e m a i n b r o a d l y unchanged, and he
r e c o m m e n d e d t o h i s c o l l e a g u e s that the guidelines for the f o r t h c o m i n g
S u r v e y should be b a s e d on this a s s u m p t i o n .
In d i s c u s s i o n it was argued that the G o v e r n m e n t ' s p r e s e n t economic
policy was too c r i t i c a l l y dependent upon events outside their c o n t r o l .
So far, the f o r e c a s t s about the upturn in world t r a d e had not been
fulfilled; but the G o v e r n m e n t w a s s t i l l waiting for t h e e c o n o m y t o
be r e s c u e d from its p r e s e n t difficulties by a n i m p r o v e m e n t i n
e c o n o m i c activity in other c o u n t r i e s .
If t h i s d i d n o t t a k e p l a c e , o r
w e r e unduly d e l a y e d , the p r o s p e c t s for our e c o n o m y would be e v e n
w o r s e t h a n w e r e now a s s u m e d a n d t h e G o v e r n m e n t w o u l d c o m e u n d e r
i n c r e a s i n g c r i t i c i s m t h a t t h e r e w a s n o t h i n g i n i t s p o l i c i e s of a s e l f ­
g e n e r a t e d c h a r a c t e r to i m p r o v e the situation.
The central case in
t h e W h i t e P a p e r , p o s t u l a t i n g a g r o w t h of Sj p e r c e n t i n m a n u f a c t u r i n g
output for t h r e e s u c c e s s i v e y e a r s , w a s highly i m p r o b a b l e .
The
v o l u m e of e x p o r t s w o u l d r i s e , b u t t h e d a n g e r w a s t h a t t h i s m i g h t b e
o f f s e t b y a n i n c r e a s e i n i m p o r t s , d e p r e c i a t i o n of s t e r l i n g h a v i n g j u s t
added 5 p e r c e n t to the i m p o r t bill, while the benefit to e x p o r t s was
delayed through the J - c u r v e effect.
It w a s a r g u e d that, while a l l
f o r e c a s t s w e r e u n r e l i a b l e , t h o s e of t h e D e p a r t m e n t of A p p l i e d
E c o n o m i c s a t C a m b r i d g e showed t h a t p o l i c i e s b a s e d on a m o n e t a r y
o r devaluation a p p r o a c h would lead to continuing high u n e m p l o y m e n t
a n d r e d u c t i o n i n t h e r e a l v a l u e of w a g e s .
F u r t h e r falls in the value
of s t e r l i n g w o u l d u n s e t t l e t h e o v e r s e a s s t e r l i n g h o l d e r s , a n d , b y
cutting r e a l w a g e s , h a v e a n i m p a c t on the G o v e r n m e n f a ability t o
achieve a satisfactory wages policy.
The TUC Economic Review
a r g u e d i n f a v o u r of a s t r a t e g y of p r o t e c t i o n , a n d n e i t h e r of t h e
4
p a p e r s before Cabinet gave any consideration to this a s a possible
alternative to p r e s e n t economic policies.
If t h e p r o m i s e d u p t u r n
i n w o r l d t r a d e t o o k p l a c e , i t c o u l d o n l y l e a d t o a flood of i m p o r t s
into the c o u n t r y a s activity r e v i v e d , and a f t e r a s h o r t b o o m the
r e s u l t i n g i m b a l a n c e on e x t e r n a l a c c o u n t would l e a d t o a situation
in which e m p l o y m e n t would suffer s e v e r e l y .
It was e s s e n t i a l that
M i n i s t e r s should have an opportunity t o d i s c u s s s e r i o u s l y a n
a l t e r n a t i v e s t r a t e g e y i n v o l v i n g t h e u s e of i m p o r t c o n t r o l s a s a c e n t r a l
element.
On t h e o t h e r h a n d i t w a s a r g u e d t h a t t h e C a m b r i d g e s c h o o l of
economists had been completely wrong in their predictions last
y e a r , and the forecasts by other outside institutions - the National
I n s t i t u t e a n d t h e i n d e p e n d e n t f o r e c a s t b y t h e B a n k of E n g l a n d - w e r e
a good d e a l m o r e o p t i m i s t i c than p r e v i o u s l y .
This optimism was
c o n f i r m e d b y t h e p r e s e n t s t a t e of e x p o r t o r d e r b o o k s .
It w a s t r u e
that the G o v e r n m e n t s policy depended c r u c i a l l y upon a n upturn in
world t r a d e ; but the truth was that Britain depended v e r y heavily
indeed upon world t r a d e for her economic well-being, and t h e r e w a s
nothing t h e G o v e r n m e n t could do to change t h i s : n o r w e r e we a l o n e
in this r e s p e c t .
On i m p o r t c o n t r o l s , i t w a s a r g u a b l e t h a t n o t a l l
t h e l e a d i n g m e m b e r s of t h e TUC w e r e e q u a l l y w e d d e d t o s u c h a
p o l i c y , b u t t h e y w e r e n o d o u b t a n x i o u s t o f i n d s o m e m e a n s of g e t t i n g
r o u n d t h e b a l a n c e of p a y m e n t s c o n s t r a i n t s .
It w a s e x t r e m e l y
d o u b t f u l w h e t h e r i m p o r t c o n t r o l s on t h e s c a l e s u g g e s t e d w o u l d
produce the e m p l o y m e n t effects for which the TUC hoped.
Import
c o n t r o l s w o u l d c e r t a i n l y d r i v e u p t h e c o s t of l i v i n g , a n d a n y a t t e m p t
t o u s e t h e m r a n t h e s e r i o u s r i s k of a c r u s h i n g r e t a l i a t i o n f r o m o t h e r
c o u n t r i e s which would c o m p l e t e l y nullify a n y benefit they m i g h t
have.
H o w e v e r , t h e r e w a s m u c h t o b e s a i d f o r a full a n d s e a r c h i n g
d i s c u s s i o n of t h e a r g u m e n t s for a n d a g a i n s t t h e u s e of i m p o r t c o n t r o l s ,
among M i n i s t e r s and with the TUC, a s well a s with the National
E x e c u t i v e C o m m i t t e e of t h e L a b o u r P a r t y ( N E C ) ; t h e j o i n t m e e t i n g
b e t w e e n the G o v e r n m e n t and the N E C i n the n e a r future would b e a
m o s t i m p o r t a n t occasion for this p u r p o s e .
T h e a n x i e t i e s of t h e
T U C a n d o t h e r s o n t h i s i s s u e m u s t b e t r e a t e d a s a s e r i o u s element
i n t h e f o r m u l a t i o n of p o l i c y .
1
THE PRIME MINISTER, summing up the discussion, said that the
Cabinet had s u r v e y e d the e c o n o m i c b a c k g r o u n d a g a i n s t w h i c h public
e x p e n d i t u r e S u r v e y p l a n s f o r 1976 w o u l d h a v e t o b e s e t .
They
w e r e content that a t this s t a g e the guidelines for the S u r v e y should
b e b a s e d on t h e a s s u m p t i o n t h a t t o t a l p u b l i c e x p e n d i t u r e I n t h e
y e a r s to 1979-80 would b r o a d l y r e f l e c t the f i g u r e s which had b e e n
published in the p r e v i o u s m o n t h ' s White P a p e r .
The next step
would b e for the Cabinet t o h a v e a n opportunity to d i s c u s s public
e x p e n d i t u r e p r i o r i t i e s a n d t h e r e a f t e r t o a,gr*e t h e g u i d e l i n e s t o r ffee
1976 S u r v e y .
T h e r e w a s a g r e e m e n t t h a t t h e q u e s t i o n of g e n e r a l
Import controls m u s t be examined in depth and the a r g u m e n t s
d e p l o y e d b e f o r e t h e T U C a n d the N E C .
5
The Cabinet ­
1.
T o o k n o t e , w i t h a p p r o v a l , of t h e P r i m e
M i n i s t e r s s u m m i n g u p of t h e i r d i s c u s s i o n .
2.
T o o k n o t e of t h e p a p e r b y t h e C h a n c e l l o r
of t h e E x c h e q u e r (C(76) 2 5 ) .
3.
Agreed that at this stage the guidelines for the
2 976 p u b l i c e x p e n d i t u r e S u r v e y s h o u l d b e f r a m e d o n
the a s s u m p t i o n that the t o t a l e x p e n d i t u r e u p to 1979-80
would b r o a d l y reflect the published f i g u r e s , and
i n v i t e d t h e C h a n c e l l o r of t h e E x c h e q u e r t o p u t f o r w a r d
s p e c i f i c p r o p o s a l s on t h i s b a s i s .
4.
I n s t r u c t e d t h e S e c r e t a r y of t h e C a b i n e t t o a r r a n g e
f o r a p a p e r t o b e c i r c u l a t e d on p u b l i c e x p e n d i t u r e
priorities.
5.
Agreed that there should be collective Ministerial
d i s c u s s i o n of t h e a r g u m e n t s r e l a t i n g t o i m p o r t c o n t r o l s
and t h e i r p r e s e n t a t i o n t o the T r a d e s Union C o n g r e s s
a n d t h e N a t i o n a l E x e c u t i v e C o m m i t t e e of t h e L a b o u r
P a r t y ; a n d i n v i t e d the C h a n c e l l o r of t h e E x c h e q u e r t o
p r e p a r e a paper for this p u r p o s e .
6
COMMON
AGRICULTURAL
POUCV P R I C E S
lfH-77
5,
The Cabinet had before m e m a m e m o r a n d u m by the Minister
of A g r i c u l t u r e , F i s h e r i e s a n d F o o d (C(76) 2 9 ) o n t h e d e c i s i o n s o n
p r i c e s under the C o m m o n A g r i c u l t u r a l Policy (CAP) for 1976-77
w h i c h h a d b e e n r e a c h e d t h e p r e v i o u s w e e k b y t h e C o u n c i l of
M i n i s t e r s ( A g r i c u l t u r e ) of t h e E u r o p e a n E c o n o m i c C o m m u n i t y ( E E C ) ,
THE MINISTER OF AGRICULTURE, FISHERIES AND FOOD said
t h a t t h e m e e t i n g of t h e C o u n c i l of M i n i s t e r s h a d b e e n a v e r y l o n g
and difficult one, lasting f r o m T u e s d a y 2 M a r c h until the e a r l y
All the Ministers p r e s e n t had various
h o u r s of S a t u r d a y 6 M a r c h .
n a t i o n a l o b j e c t i v e s t h e y w i s h e d t o a c h i e v e , a n d none of t h e m w o u l d
In h i s c a s e ,
b e s a t i s f i e d w i t h e v e r y a s p e c t of t h e f i n a l p a c k a g e .
within the g e n e r a l policy s e t b y the M i n i s t e r i a l C o m m i t t e e on
E u r o p e a n Q u e s t i o n s (EQ) t o s e t t l e for t h e l o w e s t p r i c e i n c r e a s e s
negotiable, he had b e e n faced with p r o b l e m s c a u s e d by the fall in
t h e v a l u e of s t e r l i n g w h i c h w a s t a k i n g p l a c e d u r i n g t h e c o u r s e of
the meeting.
T h e E E C s s y s t e m of m o n e t a r y c o m p e n s a t o r y a m o u n t s ,
w h i c h a c t e d a s C o m m u n i t y - f i n a n c e d s u b s i d i e s on m a n y of o u r food
i m p o r t s to o o m n t s r b a l a n c e t h e d r o p i n t h e v a l u e of s t e r l i n g , w o u l d
a s a r e s u l t of t h e d e c l i n e i n t h e p o u n d d u r i n g t h e w e e k c o s t t h e
Community in the coming y e a r £ 7 5 million in addition t o the
£90 million previously expected.
He had come under heavy p r e s s u r e
t o d e v a l u e t h e " g r e e n p o u n d " s o a s t o r e d u c e t h e l e v e l of t h e s e
C o m m u n i t y s u b s i d i e s , b u t h a d r e f u s e d t o d o s o . If h o w e v e r , b e c a u s e
of d i s s a t i s f a c t i o n w i t h o t h e r e l e m e n t s i n t h e p r i c e s p a c k a g e , h e h a d
b r o k e n off n e g o t i a t i o n s a n d r e s u m e d t h e m t h e f o l l o w i n g w e e k , h e
might well not have been able to r e s i s t that p r e s s u r e .
1
O n i n d i v i d u a l i t e m s t h e i n t r o d u c t i o n of f u l l y v a r i a b l e p r e m i u m s f o r
b e e f , e q u i v a l e n t t o o u r p r e v i o u s s y s t e m of d e f i c i e n c y p a y m e n t s , h a d
been a major break-through.
In addition the Council would c o n s i d e r
during the y e a r whether the s y s t e m should b e m o r e widely adopted
In b i s view the hostility t o the s y s t e m
throughout the C o m m u n i t y .
which he had e x p e r i e n c e d the previous y e a r w a s now m u c h r e d u c e d .
On m i l k , t a r g e t p r i c e i n c r e a s e s a v e r a g i n g 6 p e r c e n t o v e r the y e a r
had been a g r e e d , which w e r e somewhat higher than the C o m m i s s i o n ^
p r o p o s a l s ; though for the m a j o r m i l k p r o d u c e r s the p r i c e ' i n c r e a s e s
would i n f a c t w o r k out a t only 3 p e r c e n t for F r a n c e a n d 2 p e r c e n t
T h e r e would be no
for G e r m a n y - a s h a r p reduction in r e a l t e r m s .
r i s e i n t h e r e t a i l p r i c e of m i l k i n t h i s c o u n t r y b e f o r e 1 J a n u a r y 1 9 7 7 ,
and the m i l k s u b s i d y would be r e d u c e d b y £ 7 0 million.
In addition
t h e C o u n c i l h a d a c c e p t e d a f i r m c o m m i t m e n t t o t h e p r i n c i p l e of
p r o d u c e r c o - r e s p o n s i b i l i t y for m i l k s u r p l u s e s .
These decisions
w o u l d r e i n f o r c e t h e r e t u r n i n g c o n f i d e n c e i n t h e d a i r y s e c t o r of
B r i t i s h f a r m i n g , w h i c h a l s o p r o v i d e d t w o - t h i r d s of o u r b e e f .
On
c e r e a l s the p r i c e s finally a g r e e d w e r e l o w e r t h a n the C o m m i s s i o n s
proposals.
O v e r a l l t h e e f f e c t of t h e p r i c e c h a n g e s a g r e e d a t t h e
m e e t i n g w o u l d a d d a b o u t l £ p e r c e n t t o o u r r e t a i l food p r i c e s b y t h e
e n d of t h e y e a r ( a p p r o x i m a t e l y t h e s a m e a s t h e e f f e c t of t h e
C o m m i s s i o n s original proposals), which would be additional to the
7
1 p e r c e n t i n c r e a s e in p r i c e s c a u s e d by our next t r a n s i t i o n a l s t e p to
t h e f u l l l e v e l of E E C p r i c e s .
He had admittedly been attacked in
t h e H o u s e of C o m m o n s f o r a g r e e i n g t o t h i s p r i c e s e t t l e m e n t , b u t
m a n y of t h e a t t a c k s h a d c o m e f r o m M e m b e r s w h o w o u l d n o t h a v e
accepted any settlement reached in B r u s s e l s .
I n d i s c u s s i o n t h e r e w a s g e n e r a l r e c o g n i t i o n t h a t t h e M i n i s t e r of
A g r i c u l t u r e h a d fought h a r d i n v e r y d i f f i c u l t c i r c u m s t a n c e s ; b u t t h e
e x t e n t t o w h i c h t h e f i n a l o u t c o m e h a d f a l l e n s h o r t of o u r o b j e c t i v e s
e m p h a s i s e d t h e n e e d f o r a m o r e f u n d a m e n t a l e x a m i n a t i o n b o t h of t h e
m a c h i n e r y for s e t t l i n g f a r m p r i c e s i n t h e E E C a n d of t h e a g r i c u l t u r a l
policy which we wished the E E C to follow.
A s to the m a c h i n e r y ,
t h e r e was a m a r k e d c o n t r a s t between the way in which such decisions
w e r e t a k e n b y t h e B r i t i s h G o v e r n m e n t , i n w h i c h t h e i n t e r e s t s of a l l
p a r t i e s involved could be advocated, and the E E C p r a c t i c e , w h e r e
t h e d e c i s i o n s w e r e t a k e n b y t h e C o u n c i l of M i n i s t e r s ( A g r i c u l t u r e )
a l m o s t a l l of t h e m e m b e r s of w h i c h w e r e s o l e l y c o n c e r n e d w i t h
farming interests.
S i m i l a r l y i t w a s noted t h a t often i n t h i s a r e a the
C o m m i s s i o n put forward p r o p o s a l s a d v o c a t e d by the C o m m i s s i o n e r
r e s p o n s i b l e for a g r i c u l t u r e , even though they w e r e r e s i s t e d by
C o m m i s s i o n e r s with other r e s p o n s i b i l i t i e s .
It m i g h t b e d e s i r a b l e
for the P r i m e Minister to r a i s e , a t the E u r o p e a n Council meeting on
1-2 A p r i l , t h e q u e s t i o n of t h e m a c h i n e r y b y w h i c h t h e s e d e c i s i o n s
were taken.
A n u r g e n t study should t h e r e f o r e be put i n hand, for
e x a m p l e , of w h e t h e r f a r m p r i c e s s h o u l d b e d e c i d e d b y F i n a n c e a n d
A g r i c u l t u r e M i n i s t e r s m e e t i n g j o i n t l y i n C o u n c i l , s o t h a t the C a b i n e t
c o u l d d e c i d e d u r i n g t h e c o u r s e of i t s w h o l e - d a y d i s c u s s i o n of
E u r o p e a n m a t t e r s planned for 26 M a r c h w h e t h e r s u c h a p r o p o s a l
should be put f o r w a r d .
S i m i l a r l y the G o v e r n m e n t s m a c h i n e r y for
taking such decisions needed examination.
The misunderstanding
that had a r i s e n during a telephone conversation the previous F r i d a y
b e t w e e n t h e M i n i s t e r of A g r i c u l t u r e i n B r u s s e l s a n d t h e S e c r e t a r y of
S t a t e 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 i n L o n d o n on w h e t h e r o r n o t
n e g o t i a t i o n s w e r e b e i n g b r o k e n off f o r f u r t h e r c o n s i d e r a t i o n s h o w e d
the difficulties i n h e r e n t in p r e s e n t p r o c e d u r e s .
It m i g h t be d e s i r a b l e
f o r a M i n i s t e r f r o m t h e T r e a s u r y o r t h e D e p a r t m e n t of 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 to be added to the B r i t i s h t e a m for negotiations
on f a r m p r i c e s .
E Q should take a s p r e c i s e d e c i s i o n s a s p o s s i b l e on
the negotiating l i m i t s , and the c i r c u m s t a n c e s in which r e f e r e n c e
back was required.
It w a s n o t i c e a b l e t h a t o t h e r c o u n t r i e s w e r e n o t
a v e r s e t o b r e a k i n g off n e g o t i a t i o n s for a p e r i o d if t h e y c o n s i d e r e d i t
in their national i n t e r e s t to do so.
A s t o t h e a g r i c u l t u r a l p o l i c y we w i s h e d t h e E E C t o a d o p t , E Q h a d
decided that t h e s e negotiations would not be a good o c c a s i o n to m a k e a
mag o r g e n e r a l stand of p r i a c j p l s a g a i n s t those ektxmnto of t h e C A P w h i c h
w e found d i s t a s t e f u l .
It h a d h o w e v e r a g r e e d t h a t i n the a u t u m n t h e r e
s h o u l d b e a t h o r o u g h r e v i e w of t h e s i t u a t i o n , w i t h a v i e w t o m o u n t i n g
a n a t t a c k o n t h o s e e l e m e n t s i n the c o n t e x t of t h e n e x t p r i c e n e g o t i a t i o n s .
At p r e s e n t we appeared to be losing ground gained in renegotiation,
8
f o r e x a m p l e o n t h e n e e d t o a v o i d t h e c r e a t i o n of s u r p l u s e s a n d on a
f u n d a m e n t a l s t o c k t a k i n g of t h e C A P .
This t r e n d would be hound to
strengthen feeling against the C o m m u n i t y .
It w a s however pointed
o u t t h a t t h e d i f f i c u l t i e s of i n s i s t i n g o n a C A P d e s i g n e d t o m e e t o u r
wishes should not be u n d e r - e s t i m a t e d .
It would be a m i s t a k e to
t h r e a t e n s t r o n g a c t i o n if w e c o u l d n o t c a r r y i t t h r o u g h .
We h a d t o
r e c o g n i s e w e w e r e j u s t o n e c o u n t r y of N i n e , a n d t h a t w h i l e o u r
e c o n o m y was weak our voice i n E u r o p e would be c o r r e s p o n d i n g l y
weak.
We n e e d e d a l s o t o b e c l e a r o n o u r own o b j e c t i v e s - t h e r e
w a s a t p r e s e n t a c e r t a i n a m b i v a l e n c e b e t w e e n o u r d e s i r e f o r food
a s c h e a p a s p o s s i b l e and our w i s h to s t i m u l a t e food p r o d u c t i o n f r o m
our own r e s o u r c e s .
O n t h e d e c i s i o n s r e a c h e d b y t h e C o u n c i l of
M i n i s t e r s ( A g r i c u l t u r e ) t h e p r e v i o u s w e e k , i t w a s p o i n t e d out m a t
t h e i n c r e a s e i n food p r i c e s i n v o l v e d w o u l d c a u s e d i f f i c u l t i e s i n
r e a c h i n g a g r e e m e n t with the t r a d e s unions on a continued c o u n t e r ­
inflation policy, and it might be n e c e s s a r y for the Government to
r e c o n s i d e r i t s p o l i c y o n food s u b s i d i e s .
We a p p e a r e d to have had to
p a y a n e g o t i a t i n g p r i c e t o o b t a i n a c o n t i n u a n c e of v a r i a b l e p r e m i u m s
on beef, e v e n though we had u n d e r s t o o d that this had b e e n a g r e e d i n
renegotiation, and it was i m p o r t a n t that we should not pay again the
following y e a r .
In t h e m i l k s e c t o r w e h a d n o t s e i z e d the c h a n c e of
i n s i s t i n g , a s had b e e n a g r e e d a t E Q , on the n e e d to p r e v e n t the
p e r p e t u a t i o n of a r r a n g e m e n t s w h i c h b u i l t u p s u r p l u s e s .
Even
M r L a r d i n o i s , the E E C C o m m i s s i o n e r f o r a g r i c u l t u r e , h a d b e e n v e r y
w o r r i e d about continuing d a i r y s u r p l u s e s .
H o w e v e r , we had
a c c e p t e d a n i n c r e a s e in m i l k p r i c e s c o n s i d e r a b l y h i g h e r t h a n the
C o m m i s s i o n had proposed, and would inevitably a s a r e s u l t be faced
with even bigger s u r p l u s e s .
T H E LORD P R E S I D E N T , s u m m i n g up the d i s c u s s i o n , said that the
C a b i n e t r e c o g n i s e d t h a t t h e 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 a n d
F o o d had n e g o t i a t e d u n d e r v e r y difficult c i r c u m s t a n c e s .
No-one
could say that a better result was in fact negotiable, or whether he
w o u l d h a v e b e e n a b l e t o o b t a i n t h i s r e s u l t if h e h a d i n s i s t e d o n
suspending the negotiations while he r e p o r t e d back to Cabinet.
H o w e v e r , for c o u n t e r - i n f l a t i o n policy r e a s o n s , it w a s i m p o r t a n t that
t h e r e s u l t s s h o u l d b e p r e s e n t e d c a r e f u l l y f r o m t h e c o n s u m e r p o i n t of
v i e w , a n d t h e M i n i s t e r of A g r i c u l t u r e a n d t h e S e c r e t a r y of S t a t e f o r
P r i c e s and C o n s u m e r Protection should consult about this.
The
M i n i s t e r of A g r i c u l t u r e s h o u l d r e p o r t i n d e t a i l t o E Q o n t h e r e s u l t s
of t h e n e g o t i a t i o n s , a n d m a k e p r o p o s a l s f o r t h e h a n d l i n g of t h o s e
m a t t e r s not yet d e c i d e d .
E Q s h o u l d u n d e r t a k e a n u r g e n t s t u d y of t h e
q u e s t i o n of t h e C o m m u n i t y ^ m a c h i n e r y f o r d e c i d i n g f a r m p r i c e s , a n d
r e p o r t to Cabinet,
The C o m m i t t e e should a l s o p u r s u e in the autumn
i t s f u r t h e r s t u d y of t h e s t o c k t a k i n g of t h e C A P .
It would be d e s i r a b l e
for E Q to be a s p r e c i s e a s p o s s i b l e about n e g o t i a t i n g l i m i t s w h e n
giving guidance to negotiations about f a r m p r i c e s , and the e x t e n t to
which reference back might be r e q u i r e d .
9
The Cabinet T o o k n o t e , w i t h a p p r o v a l , of t h e L o r d P r e s i d e n t s
s u m m i n g u p of t h e i r d i s c u s s i o n .
C a b i n e t Office
11 M a r c h 1976
10
D O C U M E N T ZS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y * S G O V E R N M E N T
C O P Y NO
3 4
CABINET
LIMITED CIRCULATION ANNEX
C C ( 7 6 ) 9th C o n c l u s i o n s , M i n u t e 3
T h u r s d a y 11 M a r c h 1976 a t 1 0 , 3 0 a m
RULING
THE CHANCELLOR OF THE EXCHEQUER said that he wished to
e m p h a s i s e t o h i s c o l l e a g u e s t h a t n o n e of t h e m s h o u l d m a k e a n y
public c o m m e n t s w h a t s o e v e r on the e x c h a n g e r a t e without p r i o r
c l e a r a n c e f r o m h i m of w h a t t h e y w i s h e d t o s a y ; a n d h e w o u l d p r e f e r
t h e m to avoid any reference to the exchange r a t e a t a l l .
I n v i e w of
t h e e v e n t s of t h e l a s t few d a y s i n t h e e x c h a n g e m a r k e t , h e w a s
p r e p a r i n g a brief c o m m e n t which the P r i m e M i n i s t e r might include
i n h i s s p e e c h t o t h e H o u s e of C o m m o n s t h a t a f t e r n o o n .
Since the
d e c i s i o n to i n t r o d u c e a floating e x c h a n g e r a t e i n 1972, the G o v e r n m e n t
had not i n t e r v e n e d in the m a r k e t t o t r y to c o u n t e r a c t m o v e m e n t s
which genuinely a r o s e from such economic c i r c u m s t a n c e s a s the
f a s t e r r a t e of i n f l a t i o n i n t h e U n i t e d K i n g d o m t h a n i n o t h e r c o u n t r i e s .
I n t e r v e n t i o n h a d b e e n confined to s m o o t h i n g w h a t o t h e r w i s e would
have been e r r a t i c movements.
A s a r e s u l t , the sterling exchange
r a t e had moved down over the l a s t four y e a r s ; but since l a s t
N o v e m b e r , b e c a u s e of t h e s u c c e s s of t h e £ 6 p a y l i m i t a n d t h e
r e d u c t i o n i n t h e r a t e of i n f l a t i o n , t h e r a t e h a d r e m a i n e d v i r t u a l l y
unchanged until the p r e v i o u s w e e k . On T h u r s d a y 4 M a r c h the Bank
of E n g l a n d h a d s o l d s o m e s t e r l i n g t o s m o o t h t h e m a r k e t , a n d t h i s ,
c o m b i n e d with a n unfounded r u m o u r that N i g e r i a w a s s e l l i n g h e r
sterling, led the m a r k e t to conclude that the Government w a s trying to
b r i n g the r a t e down.
This view w a s r e i n f o r c e d on F r i d a y 5 M a r c h ,
when the Minimum Lending Rate was reduced by o n e - q u a r t e r p e r c e n t
(a c h a n g e w h i c h i t w a s b e y o n d t h e p o w e r of t h e G o v e r n m e n t t o p r e v e n t
after l u n c h t i m e on T h u r s d a y ) .
The r e p o r t s on the B r i t i s h e c o n o m y
on Monday by the O r g a n i s a t i o n for E c o n o m i c C o - o p e r a t i o n and
D e v e l o p m e n t t h a t the s t e r l i n g r a t e would n e e d t o fall, and on T u e s d a y
b y the N a t i o n a l Institute for E c o n o m i c and S o c i a l R e s e a r c h that the
pound should be d e p r e c i a t e d b y 5 per cent, had e x a c e r b a t e d the
u n s e t t l e d s t a t e of t h e m a r k e t s , a l t h o u g h h e t h o u g h t t h a t t h e i r e f f e c t
was now spent.
Since T h u r s d a y 4 M a r c h the pound had suffered a
d e p r e c i a t i o n of a r o u n d 4 p e r c e n t ; a n d a l t h o u g h s o m e w o u l d a r g u e
t h a t t h e r e w e r e a d v a n t a g e s i n a m o v e m e n t of t h i s k i n d , t h e s t a b i l i s a t i o n
of t h e m a r k e t i n s t e r l i n g h a d c o s t a c o n s i d e r a b l e s u m f r o m t h e r e s e r v e s .
It had t o be r e m e m b e r e d that a 5 p e r c e n t fall in the r a t e added s o m e "
thing like 1 p e r cent to the R e t a i l P r i c e Index,
However, the
1
T r e a s u r y ^ f o r e c a s t h a d a s s u m e d a f a l l i n t h e r a t e of t h i s o r d e r ,
a n d a s long a s t h e r e w a s no f u r t h e r slide t h e r e would b e n o n e e d
to a m e n d the f o r e c a s t s .
The Cabinet T o o k n o t e of t h e s t a t e m e n t b y t h e C h a n c e l l o r of
the E x c h e q u e r .
C a b i n e t Office
11 M a r c h 1976
2