Robert Taylor has been examining official documents that reveal the background to the demise of arguably Britain’s last centre-left Government
“I HAVE been written off more times than I can remember.” James Callaghan’s handwritten notes from September 1978, just released by the National Archives, reveal a stoical yet surprisingly self-confident Prime Minister on what turned out to be the calm before the onset of the “winter of discontent” and crippling industrial disputes that sealed the fate of what was to be the last Labour Government for 18 years.
Callaghan had just broadcast to the nation that he would not be calling a general election that autumn and would soldier on into 1979 despite the lack of an overall parliamentary majority. The Prime Minister was optimistic about his chances of winning a further term and he was far from barren of new ideas. “We are winning the battle against inflation”, he wrote. “The economy is growing faster.” If the Government could keep rising costs to less than a rate of 10 per cent a year, there was every chance of success.
Callaghan described “inflation as the enemy of democratic socialism”. If the upward pressure on prices could be contained and reduced, Labour might be able to carry on in power, with its wider programme rooted in realism and common sense, to “humanise” the welfare state, pursue effective policies of law and order, improve education and the health service, boost the quality of working life and encourage house building. He wrote of Britain as a “fortunate country”.
The Prime Minister was especially appreciative of the backing his Government had received from the trade unions over the previous three years in dampening down pay expectations. He does not appear to have been fearful that the relationship with the TUC would collapse as the Government refused to budge on its 5 per cent pay policy, although the union leaders had told him for many months that they could not accept any more understandings on pay and many seemed to be in a militant mood to pursue wage rises in excess of 1 per cent and were ready to use strike action to get what they wanted.
In fact, the Prime Minister had decided in late August 1978 that he would not call an autumn general election. Callaghan told Ken Stowe, his principal private secretary, that he “would much prefer to fight the battle during the winter, hope to win it and then go to the country”. It was never a matter of hanging on to the bitter end in the face of hostile public opinion. In the Prime Minister’s papers is a note on a Gallup poll from early December that revealed two-thirds of people still supported the Government’s pay policy and opposed strikes to achieve big wage rises. Labour remained ahead of Margaret Thatcher’s Conservatives in most opinion surveys until the end of the year.
There is no evidence that Callaghan sought any confrontation over pay. “Every effort should be made to reassure the TUC that the Government still valued and wished to maintain the informal voluntary relationships which had served well in the past”, he wrote to Energy Secretary Tony Benn, who had written to him to argue there must be no showdown with the unions after the failure to reach agreement with them.
But the official archives for 1978 also reveal an increasing litany of industrial troubles as pressures grew from below for an end to wage restraint. What the evidence suggests, however, is that the demand for guideline-busting pay deals came first from the top people in the public sector. Executives in the nationalised industries and senior civil servants lobbied for exceptional treatment. None seemed ready to keep their own income rises within Government guidelines even though some of them had drawn them up. John Hunt, the Cabinet secretary, even suggested to Callaghan that he should accept massive pay rises for nationalised industry bosses and just “inform” the TUC but “not discuss it with them”. In fact, most union leaders were relaxed about calls for more executive pay as they wanted to pursue “free” pay bargaining for their own members.
The public sector top people saw they could not have all their employees bursting through Government pay guidelines. Nationalised concerns such as British Leyland, British Steel and the National Coal Board told ministers they would face ruin if their employees secured above 5 per cent pay deals. It was suggested that BL’s car plants at Cowley and Longbridge would have to close, as well as the steel plants at Port Talbot and Llanwern. The miners wanted a 40 per cent pay rise, but the Coal Board warned this would ensure a sweeping pit closure and redundancy programme to meet the cost.
There was no enthusiasm for pay restraint in key parts of the private sector, either. The Ford Motor Company endured a nine-week official strike and settled with pay rises in excess of 15 per cent. Government efforts to impose sanctions on the firm brought defeat in the House of Commons.
The next crunch came with a showdown with the oil tanker drivers. In the previous winter, the Government almost brought back troops from West Germany to drive oil to supply essential services before the companies bowed to the Transport and General Workers’ Union and paid out an increase of more than 10 per cent. In the first days of 1979, the oil companies caved in again.
Ministers were always keen to try and avoid any showdown with the unions at almost any price whilethey kept assuring themselves they must stand firm on the
5 per cent guidelines. Callaghan and Chancellor Denis Healey were convinced Britain needed a national wage determination system. But the unions, after the retirement Jack Jones and Hugh Scanlon, seemed bereft of any common strategy or moral authority of persuasion. Some wanted action on public sector low pay while others demanded a restoration of pay differentials for skilled workers. Union power had moved decisively from national leaders to shop stewards and local officials.
Callaghan pointed out that: “The trade unions were always telling the Government what to do and the Government tried to accommodate them where it could. But they and they alone decided whether to strike and how to settle disputes. They could not in the last resort avoid their responsibilities.”
On October 16, 1978, Callaghan told union leaders they all agreed on the need to keep unit labour costs under 10 per cent in the wage round and this required some response from them. “It was for the unions to put something on the table to which the Government would respond. The Government could not just pour out concessions.” But the unions had no credible alternative to offer. New T&G leader Moss Evans suggested Government action to hold down or control prices might help as a factor in calming wage negotiations. Despite four weeks of discussion, the TUC failed to agree on any settlement for prices.
Most seemed to want the Government to back down and accept the consequences of “free” collective bargaining. They felt under no obligation to suggest how wage inflation could be avoided with its damaging consequences for sterling, financial markets, borrowing and unemployment. Callaghan argued that the only real alternatives to a pay policy were lengthening dole queues, raging inflation and a crisis of confidence in sterling. This is what came about when Margaret Thatcher and the Conservatives took charge after May 1979.
A robust note from David Lipsey, then a young member of the policy unit at Number 10 Downing Street and now a Labour peer, spelt out the fundamental dilemma of the time. “Sooner or later, the British trade union movement will have to face the fact that it can have an incomes policy and social justice or it can have no social justice and no incomes policy, but what it cannot have is social justice with no incomes policy.”
We must wait for the release of the 1979 official papers next year to follow the agonising and tragic final months of what some now regard as Labour’s last centre-left Government.
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