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THE GOVERNMENT'S PROPOSALS TO DEAL WITH INFLATION
On September 26th, the talks between the Government, TUC, and CBI culminated in a definite set of proposals by the Government to deal with inflation. They were
(l) guaranteeing a rate of economic growth of 5% over two years (underwritten by the Government's fiscal and monetary powers: tax cuts, public spending etc)
(2) keeping retail price rises to 5% over the next year (5% is the permissible maximum for increases generated by higher domestic costs. Once-and-for-all factors, like the introduction of VAT, or increases in imported raw material prices are assumed to bring this up to 6.7% per annum).
(3) limiting pay increases to £2 across the board per week for all workers (this includes management) over the next year (if hours are reduced, the amount of the increase goes down by 75p per hour of reduction). There are to be no exceptions - though a wage drift factor of 60p per week is allowed for (because so many other payments are calculated on basic hourly rates). These are a 9% increase overall though the lower paid will in fact get a higher percentage increase and the higher paid a lower one - thus narrowing the differential.
(4) In the first year a threshold agreement would operate after retail prices moved 1% above the 5% norm giving probably 20p per week more for each 1% increase in the retail price index above 6%.
What would happen to prices and incomes in the second year of the guaranteed 5% growth? This would be subject to the deliberations of continuing tripartite meetings. These meetings would be regularly convened from now on in any case to
(a) review the situation with regard to helping "the traditionally low paid industries to achieve greater efficiency as a basis for paying higher wages, and to help the position of low paid workers in other industries"
(b) receive reports of the "new machinery to be created to monitor retail price increases"
(c) hear from an organisation planned "to watch over implementation of the proposals (as a whole)." (Financial Times, 27.9.72) "The proposals are essentially political. They are to be seen as an offer by the Government to do a socially fair deal in exchange for the unions giving up the present free-for-all. They go even further than a once-off deal. This is an offer to the TUC and the CBI to take a really effective share in the formulation of economic policy from now on." (Economist, p. 12, 30.9.72)
"They (the Government proposals) are not only an abject admission that his (Heath's) election promises were a fraud, they are a confession that his policies over two years have been totally misdirected - his policies of fighting inflation by raising prices, and acting on incomes by deliberately staged confrontations with the trade unions." (Harold Wilson at the Labour Party Conference, FT, 4.l0.72)