My only direct involvement in the working of this new, detailed pay policy was when I attended from time to time the relevant Cabinet Economic Sub-Committee, usually chaired by Terence Higgins, a Treasury Minister of State. Even those attracted by the concept of incomes policy on grounds of ‘fairness’ begin to have their doubts when they see its provisions applied to individual cases. My visits to the Higgins Committee were usually necessitated by questions of teachers’ pay. But on one occasion when I found myself there with Sir William Armstrong, the Head of the civil service, it was to discuss the pay of Under-Secretaries. I knew that it was at this level in my department that the most important policy work was carried on, and I saw that with inflation running at about 10 per cent and differentials squeezed as a result of union power and government pay policy, these people needed proper motivation through a decent pay rise. Of course, the same could have been said of many groups. What struck me though was that no one doubted that this particular group needed a larger pay increase than pay policy allowed. And what was true for Under-Secretaries in the civil service was true for innumerable other groups throughout the economy. Our pay policy was not just absurd: far from being ‘fair’, it was fundamentally unjust. It was, in fact, an excellent demonstration that market forces, operating within the right framework, make for fairness, and that even beneficent state control only makes for equality.
On another sublime occasion we found ourselves debating the proper rate of pay for MPs’ secretaries. This was the last straw. I said that I hadn’t come into politics to make decisions like this, and that I would pay my secretary what was necessary to keep her. Other ministers agreed. But then, they knew their secretaries; they did not know the other people whose pay they were deciding.
In any case, reality soon started to break in. Two days after the announcement of Stage 3 the NUM rejected an NCB offer worth 16.5 per cent in return for a productivity agreement. The Government immediately took charge of the negotiations. (The days of our ‘not intervening’ had long gone.) Ted met the NUM at No. 10. But no progress was made. In early November the NUM began an overtime ban. Maurice Macmillan told us that though an early strike ballot seemed unlikely and, if held, would not give the necessary majority for a strike, an overtime ban would cut production sharply. The general feeling in Cabinet was still that the Government could not afford to acquiesce in a breach of the recently introduced pay code. Instead, we should make a special effort to demonstrate what was possible within it. The miners were not the only ones threatening trouble. The firemen, electricians and engineers were all in differing stages of dispute. It is one of the penalties of pay policy that you have to fight on too many fronts.
Similarly, it is an unavoidable weakness of the planned economy to which we were now rapidly moving that economic plans take little or no account of external events. The argument that all of us used in February 1974 (and some people continued to use long afterwards) to explain the failure of the Heath Government’s economic strategy was that the quadrupling of the oil price resulting from the Arab-Israeli war of 1973 shattered our policy when it was just beginning to work. This is plainly false. Loose monetary policy had already sown the seeds of inflation, which was to surge under the incoming Labour Government. Incomes policy, which does no more than redistribute inflation through time, could do little about this. Whatever limited successes it achieved would, like those of all other incomes policies, have unwound in the form of higher demands and settlements later. Moreover, the level of economic growth, particularly for an economy still unreformed by deregulation, privatization or reductions in trade union power, was far too high to be sustainable. Public expenditure had risen too fast as well, and we were already discussing cuts before the full implications of the oil price rise were known. We had not, in fact, ‘modernized’ British industry as we had boasted — not least because only industry, not Government, can efficiently ‘modernize’ itself. Worse, by fuelling inflation and taking too many decisions out of the hands of managers and wage bargainers we had created precisely the wrong climate for industrial success.
Yet, even ignoring all of this, the basic proposition that the oil price hike was just ‘bad luck’ is fundamentally mistaken. It is the very fact that governments cannot take all relevant circumstances into account that militates against economic planning. And it is because a properly operating market economy adjusts so sensitively to every signal that it avoids those sharp dislocations when cumulative pressures break through.
Admittedly, the threatened oil embargo and oil price rises resulting from the Arab-Israeli war that autumn made things far worse. As the effects of the miners’ industrial action bit deeper, the sense that we were no longer in control of events deepened. Somehow we had to break out. This made a quick general election increasingly attractive. Quite what we would have done if we had been re-elected is, of course, problematic. Perhaps Ted would have liked to go further towards a managed economy. Others would probably have liked to find a way to pay the miners their Danegeld and seek a quieter political life. Keith and I and a large part of the Parliamentary Conservative Party would have wanted to discard the corporatist and statist trappings with which the Government was now surrounded and try to get back to the free market approach from which we had allowed ourselves to be diverted in early 1972.
Indeed, quite apart from our exchanges about the shortcomings of economic policy, Keith and I had also been intensely irritated by the posture the Government took during the Arab-Israeli war. In the hope of securing favourable treatment from the oil-producing states — which were limiting oil supplies to Western nations — the Government refused to condemn the Arab states which had broken the 1967 ceasefire and we applied an arms embargo to both sides, depriving the Israelis of the spare parts they needed. The Government also refused to allow the Americans to use British bases to resupply Israel.
As MP for Finchley, I knew at first hand what the Jewish community in Britain felt about our policies. The early days of the war were particularly bad for Israel — the situation was far worse than in 1967 — and I followed the news hour by hour. There were some difficult discussions in Cabinet with Alec Douglas-Home defending the policy courteously and Ted exercising a rigid determination to control an issue which — as he saw it — would determine the success or failure of our whole economic strategy. Finally, he told us bluntly that he was having a note circulated laying down the public line ministers were expected to take.