Chapter 31 The 180-degree turn that went too far in the fifth quarter

In the summer of 1972, following reflation and intervention in industry, a third aspect of the new economic approach was presented to us.This was an attempt to reach an agreement on prices and revenues through tripartite negotiations with the Federation of Industry and the Trades Union Congress.Although we have no explicit wage policy, we have lived in a "regular" world since the fall of 1970 when we instituted a policy of no more than 1 percent wage increases.We created this policy in the hope of reducing the "magnitude" of capital increases proposed in current wage negotiations.The solution to the miner problem dramatically undermines this policy.But Ted concluded that we should go further forward, not backward.From the summer of 1972 onwards we aimed at more complex price and income policies, and the center of decision-making moved increasingly away from Cabinet and Parliament.I can, therefore, only give a partial account of what happened.The cabinet only hears from Ted what policy is actually enacted elsewhere, and ministers are increasingly mired in the details of the fluid and complex wage negotiations.The government was obsessively concerned with the details of wages, while at the same time showing its inability to do anything about the final deal.In fact, the most important result has been to distract ministers from important economic issues and to be blinded by trifles when we should be looking ahead to those emerging threats.

From the beginning of July to the end of October, the government conducted tripartite negotiations with the British Trades Union Congress and the National Federation of Industry.During this period the government has made great strides in its goal of keeping inflation in check by keeping wage demands down.However, it has slipped us up in other ways.The Confederation of British Industry proposed to fight for the 200 largest companies in the UK to "voluntarily" limit prices and limit the price increase in the next year to within 5%.In exchange, we proceeded to keep price increases in the nationalized industries at the same level, which was costly, a self-defeating policy that meant these nationalized companies continued to lose money.The British Trades Union Congress took advantage of the role entrusted to it in the tripartite talks to formulate another set of economic policies.The exact opposite of the policies we were elected to promise, they call for action to lower public housing rents (which would undermine the Housing Finance Act, which we intended to bring rents closer to market levels).They demand control of profits, dividends, and prices in order to benefit from the redistribution of income and wealth (in other words, socialism).They also called for the repeal of industrial relations laws.Ted took these demands very seriously at the annual meeting of the British Trade Union Congress held in September.He needs to find ways to raise wages for low-wage workers without a corresponding increase in wages for other workers.In other words, we have moved across the board to the socialist position that low income - however defined - is a "problem" to be solved by the government rather than by the action of the market.In fact, the government has proposed that wage increases be limited to £2 a week for the next year, while the Confederation of Industry has agreed to cap price increases of no more than 4% over the same period and to extend the government's 5% economic growth "target".

It's not enough anyway.The TUC is unwilling—perhaps unable—to limit wage growth, and at the end of October we had a detailed discussion in Cabinet of the arguments for a further move towards statutory policy from this point forward, with those arguing for a wage freeze from now on. manpower.Our state of mind was extraordinary, and as far as I can recall, no one in the cabinet, either then or since, raised objections because this was precisely the policy we refused to consider in our manifesto for the 1970 election.However, no one can accuse Ted of being unwilling to go the extra mile.He only conceded with great reluctance that the TUC was unconvincing.Therefore, on Friday, November 3, 1972, the cabinet made a major decision to implement the legal wage and price policy, and started to implement this policy by freezing prices and income for 90 days.Ted was most unmistakable when he concluded by warning that we face an eventful season.

Along with the adjustment of economic policy, the cabinet has also been reshuffled.Maurice Macmillan - son of Harold Macmillan - had taken over the Department of Employment from Robert Carr in July 1972.The latter replaced Reggie Modlin at the Ministry of the Interior.Now Ted promoted his young follower.He sent Peter Walker to replace John Davies in the Department of Trade and Industry.And promoted Jim Pryor as leader of the House of Commons.Geoffrey Howe, a born economic liberal, entered the cabinet and got the drudgery of managing price and income policy.Rumor has it that I was considered for this post, and if true, I can only be thankful that I was not.

More and more backbench members believe that the new policy is a 180-degree turn that has gone far.When Enoch Powell asked the prime minister in the House of Commons if he had gone mad, he was publicly shrugged off, but many agreed with him in private.Even more remarkably, staunch opponents of our policies, such as Nick Ridley, York Bruce-Girdan, and John Biffen, were elected chairmen or vice-chairmen of important backbench committees, and Edward Dukan, the right wing of the party, Ted's sworn opponent, became chairman of the Conservative backbench committee for 19-22. Since the first phase freeze ended, we designed the second phase.This is to extend the wage and price freeze to the end of April 1973; workers can hope to raise their wages by one pound a week for more than half a year after May 1973, but not more than 4%, and the total annual wage increase will not exceed 250 pounds — This is a program designed to take care of low-income earners.A Wages Committee and a Prices Committee were established to implement this policy.

Our backbench critics have more insight than most.All of this, these commenters argue, is a sensible and pragmatic answer to the union's irresponsible behavior.In those early days, it seemed like the reviews were right. A gasworkers challenge to the policy was defeated in late March.The miners, as we had hoped and expected after their massive wage increases the previous year, voted down a strike on April 5 (against the advice of their executive committee).The number of workdays lost due to strikes has fallen sharply.Unemployment is the lowest since 1970.Generally speaking, the atmosphere in the government has become more relaxed.Ted was visibly happier in his new collectivist hat than he had been in his Selsdon disguise.

Our thoughts and feelings should be very different. The reflationary budget of March 1972, and the effects of the looser fiscal policies it represented, are now evident.The Ministry of Finance has at least begun to worry about economic growth rates well over 5%, which obviously cannot be sustained for long.The money supply, as measured by money supply three (M2) (broad money), is growing too fast - although the government's money supply one (M1) (narrower money) is growing not so fast. The March 1973 budget did nothing to cool an overheated economy, and was wildly out of whack with the need to lower prices and other costs to support "anti-inflationary policies."People, as they wish, call price and income policy "anti-inflationary policy."In May, a small reduction in public spending was agreed.But it was too little, too late.Despite rising inflation in the first half of 1973, minimum lending rates continued to fall and a temporary mortgage subsidy was introduced.The Prime Minister has also issued an order to prepare for statutory controls on mortgage rates if building societies fail to reduce mortgage rates after subsidies are removed.These whimsical schemes serve only to distract us from the need to address the growing slack in the money supply.It was only in July that the minimum lending rate was raised, first from 7.5% to 9%, and then to 11.5%.In the June 1973 poll we were ahead of Labor for the first time since 1970, but in the July by-election the Liberals took Ery and Ripon from us.Unwittingly, we have begun to pay tribute politically and economically.

In the summer of 1973, Ted held more negotiations with the British Trades Congress to seek agreement on the third stage.The details were being carried out by a team of ministers headed by Ted, and the rest of us knew very little about the situation.I didn't know at the time that they were already watching closely for possible problems with the miners.I guess, like most of my colleagues, I thought their unreasonable demands had been met and would not come back for more. However, I wish I had put more emphasis than anyone else on the question of building up coal reserves in case there was the possibility of another miners' strike, however remote it may be.Miners should either be appeased or defeated.However, although the government is good at playing the bureaucratic style of expert governance, it lacks strategic awareness.Ted clearly believes that strategic awareness is not necessary.For, as we now know, he held a secret meeting with Joe Gormley in the garden of No 10 Downing Street, and he thought he had found a way to bribe the miners - extra work for "social time" paid.But this approach miscalculated.Miners' demands cannot be met in the third phase.

The Cabinet approved the Phase 3 White Paper in October on time.The white paper is so complex that it represents the pinnacle of Heath government collectivism - if that wording is correct.The wage increase is limited to 2.25 pounds per week or 7%, and the wage increase shall not exceed 350 pounds per year.Regulations on pay for "social activity time overtime" for shift workers are complex and leave room for agreements on productivity and measures to pay women contract workers for additional payments.In addition, a "minimum pay" - our optimistic estimate of future inflation - has been established when inflation reaches a defined level - grants to pensioners and grants to second-time homebuyers New mortgage allowance.However, the most important new addition is the requirement that the Wages Commission investigate the "comparative differential" in pay among various categories of workers, with the aim of eliminating musical inequalities in the fourth stage.You might think that all contingencies are considered.But, as experience with past wage policies should show, you may be sorry.

My only direct involvement in this new detailed wage policy was regular attendance at the relevant Cabinet Economics subcommittee meetings, usually chaired by a Secretary of State for the Treasury, Terrence Higgins.Even those who thought the policy was based on "fairness" began to have doubts when they saw its terms applied in practice.My participation in Higgins committees is often dictated by teacher salary issues.But once I met Sir William Armstrong, Secretary of the Civil Service there, I found out that the committee was going to discuss the pay of the Under-Secretaries.I know that in the department I work in, the most important policy work is done at the level of the deputy ministers, and I have seen inflation of around 10 per cent and a narrowing of the pay scale due to union power and government wage policy, these people Need to be properly motivated through reasonable salary increases.Of course, these reasons apply to many other types of people as well.What strikes me most, however, is that no one doubts that this particular category of people needs to be paid more than wage policy allows.And the position of the deputy ministers as civil servants is the same as that of countless other categories of people in the economic sector.Not only is our wage policy ridiculous, it's not only not "fair" but basically unjust.In fact, this is an excellent indication that market forces of all kinds operating within the appropriate mechanisms are conducive to achieving equity, whereas even benevolent state control can only be conducive to achieving equality.

In another solemn moment, we debate the reasonable level of salary for secretaries of MPs.This is the most intolerable thing.I said that I did not enter politics to decide on such matters, and that I would pay my secretary enough to live on.The other ministers agreed with me.However, they know their secretary, but not anyone else whose salary they are making decisions about. In any case, it wasn't long before reality began to intrude on policy.Two days after announcing the third phase, the National Union of Miners rejected the National Coal Board's proposal to enter into a productivity subsidy deal conditional on a 16.5 percent increase in wages.The Government immediately chaired the negotiations. (Our days of "hands off" are long gone.) Ted met with representatives of the National Union of Mine Workers at 10 Downing Street, but made no progress. In early November, the National Union of Miners announced a ban on overtime.Morris.Macmillan told us though that it doesn't look like there will be a strike vote anytime soon, and that even a vote won't get the necessary majority in favor of a strike.However, banning overtime would drastically reduce production.There is still a widespread view in Cabinet that the government cannot acquiesce in breaches of the newly introduced wages laws.Rather, we should make a special effort to show what problems can be solved within wage law.It's not just miners who are going to cause trouble.Firefighters, electricians, and technicians all had disputes to varying degrees.This is a penalty that wage policy has imposed on us, and we have to fight on many fronts. Likewise, we were in the midst of a rapid transition to a planned economy, the inevitable weakness of which was little or no consideration of external events.The argument we all used in February 1974 to explain the failure of the Sheehan government's economic strategy (and some continued to use long after) was that the Arab-Israeli war in 1973 caused a quadrupling in the price of oil, thereby giving us the first glimpse of Effective economic policies were shattered.This is clearly wrong.Loose monetary policy has sown the seeds of inflation, which will surge high under the coming Labor government.Income policy merely redistributes the effects of inflation over time, and does nothing to improve the above situation. Even if this income policy achieves limited results, it will, like all other income policies, manifest as a more high demands and higher costs for meeting them.Moreover, the rate of economic growth is too high to be sustainable, especially in an economy that has not undergone deregulation, privatization, and reforms that have weakened the power of trade unions.Public spending is also rising too fast, and we are talking about reducing public spending before we know the full impact of higher oil prices.The fact is that we have not 'modernized' British industry as much as we boast about it - important because only industry and not the government can effectively 'modernize' industry itself, and worse because of the Add fuel to the mix, and by making too many decisions on behalf of managers and wage negotiators, we've created just the wrong climate for industry to succeed. However, even leaving these circumstances aside, the basic argument that the soaring oil price is simply "bad luck" is fundamentally wrong.It was the government's failure to fully consider the situation that hindered the implementation of the economic plan.Moreover, a properly functioning market economy is able to respond sensitively and adaptively to each signal so as to avoid rapid dislocations due to the accumulation of stress. Obviously, the situation was exacerbated by the prospect of an oil embargo and higher oil prices due to the Arab-Israeli war that fall.As the impact of the miners' industrial action deepened, so did the awareness that we were no longer in control.In any case, we must get out of this predicament.That makes holding a general election as soon as possible increasingly attractive.It is of course uncertain what we would do if we were re-elected.Maybe Ted would like to move on to a managed economy.Others may be willing to pay the miners Danish gold in search of a more peaceful political life.Keith and I, along with a majority in the Conservative Parliamentary Caucus, advocated abandoning the totalitarian and nationalist hallmarks of the government of the day and returning to the free market economic approach we had departed from in early 1972. Indeed, in addition to exchanging views on the shortcomings of economic policy, Keith and I were extremely annoyed by the government's posture during the Arab-Israeli war.In order to get favorable treatment from the oil producing countries that are restricting oil supplies to the West, the government refuses to condemn the Arab countries for violating the 1967 ceasefire, and we have an arms embargo on both sides, depriving Israel of the spare parts needed.The government has also refused to allow Americans to use British bases to continue supplying Israel. As an MP for Finchley, I know first-hand how Jews in the UK feel about our policies.The first few days of the war were particularly bad for Israel - much worse than in 1967 - and I listened to the news every hour.Some tough discussions in cabinet.Alec Douglas-Home defended the policy with style, while Ted was determined to doggedly rein in the discussion of an issue that, in his view, would determine the success or failure of our entire economic strategy.Finally, he said bluntly that ministers were circulating his note laying out the public line for their approval.