In March 1975 we discussed a paper from Keith and Angus on policy-making. They proposed involving both backbench committees and sympathetic outside experts; and this was accepted. The number of policy groups continued to multiply, and some were more useful than others. They were generally chaired by the relevant front-bench spokesmen. Geoffrey Howe’s Economic Reconstruction Group was the main forum for hashing over economic policy. From time to time, there would be whole-day Shadow Cabinet policy discussions, which I myself would chair. The full Shadow Cabinet approved, rather than devised, policy on the basis of papers put to it by the chief Shadow spokesmen and their policy groups.
The Centre for Policy Studies and a range of outside advisers, particularly on economic matters, fed in ideas and suggestions to Keith and me (Keith also had a number of lunchtime meetings with other Shadow Cabinet colleagues on policy). And on top of all that I would sometimes advance a new policy in a speech or interview — not always to the applause of my colleagues.
As a system of decision-taking the structure had a somewhat ramshackle feel to it. But then, no amount of institutional neatness could resolve the fundamental questions we had to decide. The fact that by the time we took office in May 1979 so many of the big issues had been satisfactorily resolved, and Shadow ministers had as clear an idea of their priorities as any incoming post-war British Government, shows that in the most important sense this policymaking system ‘worked’.
The foremost policy issue was how to deal with inflation, which soared to 26.9 per cent in August 1975 before beginning to fall, going below 10 per cent in January 1978. Time and again inflation registered in the opinion polls as the public’s top priority for action, though often in tandem with strong support for pay policy as supposedly the only means of fighting it. But unemployment was never far behind, and one of the main attacks we had to face from Labour was that our policy for disinflation would result in still higher unemployment.
Discussion of how inflation was caused and cured also necessarily involved making a judgement about the Heath Government. If inflation was the result of an increase in the money supply, which takes approximately eighteen months to work through in the form of higher prices, then the prime responsibility for the high inflation during the first eighteen months or so of the Labour Government should be laid at the door of the Conservatives. If, however, the cause of high inflation was excessive wage awards after the collapse of the previous Conservative Government’s incomes policy and Labour’s abdication of authority to the trade unions, then political life in Opposition would be easier. We might not have any credible solutions to offer, but we could at least blame everything on the Government. This approach was likely to be particularly favoured by those of my colleagues who prided themselves on being sceptics about all kinds of economic theory. In fact, the case that the Heath Government’s monetary incontinence was to blame for inflation seemed to me convincingly argued by Alan Walters, whose devastating indictment and predictions, first published in June 1972, were circulated by Keith as background for a discussion with Shadow Cabinet colleagues in March 1975. But if I had publicly accepted this it would have provoked even more trouble from Ted Heath and his supporters.
Our failure to be explicit about the overriding importance of monetary policy did, however, open up our flank to attack on incomes policy. For if wage rises were the cause of inflation, as our rhetoric in defence of the Heath years implied, then the question arose: how would we in Government be able to contain such rises? Would we do so by a statutory policy — which would not only move us towards the very interventionist approach I wanted to avoid, but would also run up against fierce trade union opposition? Or by a voluntary policy — on which Labour’s traditional links with the unions and willingness to trade socialist measures to cement them put us at a political disadvantage?
The October 1974 Conservative manifesto had committed the Party to seek a voluntary policy for prices and incomes, with the qualification that it might be necessary to move to a statutory policy if voluntary support were not achieved. I could only gradually wean the Party away from this position. My task was made more difficult both by the fact that wages and prices were soaring alarmingly, and by Ted Heath and Peter Walker putting me under heavy public pressure to support successive stages of the Labour Government’s incomes policy. In an interview with Robin Day in May 1975 I said that under some circumstances a pay freeze might be necessary, but not as a prelude to a permanent statutory incomes policy. Wages had, after all, been growing at some 30 per cent a year since Labour took office. But I never saw even a short wage freeze as having more than a transitional role in any realistic strategy to bring down inflation, which must be based on control of the money supply and government borrowing. In fact, there were already some early signs that the Government had woken up to the need for some financial discipline. The April 1975 Budget announced cuts in planned spending levels and raised the basic rate of income tax by two pence — to 35 per cent — in order to reduce the swelling deficit which was expected to reach £9,000 million in 1975/76.
This did not prevent the Government accepting the hugely ambitious and ill-conceived Ryder plan to rescue British Leyland with £ 1,400 million of taxpayers’ money. Yet, however irresponsible the decision, it was the Conservative Opposition which had most difficulty in responding. BL was a crucial source of income and jobs in West Midlands seats which we had to win in order to form a government. But resources committed to an unprofitable nationalized car industry must have been diverted, through taxation or higher interest rates or inflation, from successful businesses, among other taxpayers. Keith Joseph, Michael Heseltine and I all gave non-committal reactions in public statements, but the variation in tone, particularly between Keith and Michael, was obvious to all.
If public expenditure was one aspect of the debate about counter-inflation policy, trade union power was another. On this matter, the line-up in the Shadow Cabinet over these years was slightly different from that on the question of voluntary/statutory incomes policy versus ‘free collective bargaining’. Geoffrey Howe was the most consistently hawkish on trade unions. Right from the beginning, he emphasized in our discussions the need to shift the balance of power in industrial relations: indeed, I suspect that he would ideally have liked to get back to the Industrial Relations Act framework which he had devised. Keith Joseph and I shared that approach, though I remained extremely wary about committing ourselves to more changes than we could deliver. Jim Prior and most of the other Shadow Cabinet members could be found in the opposite camp.
On incomes policy, however, Geoffrey and Jim, supported by Ian Gilmour, were the strongest advocates of some kind of national understanding with the trade unions. Geoffrey’s view was that we should seek to emulate the alleged successes of the West German approach of ‘concerted action’, whose purpose was to educate ‘both sides’ of industry in the realities of the state of the economy and win some kind of consent to limit wages. This did not in itself involve a renunciation of monetarism, to which Geoffrey, in contrast with Jim and Ian, was increasingly committed. But it did involve a large element of corporatism and centralized economic decision-making, to which Keith was fiercely opposed and which I too disliked.