on the costly and self-defeating policy of holding nationalized industry price increases to the same level, even though this meant that they continued to make losses. The TUC, for its part, used the role it had been accorded by the tripartite discussions to set out its own alternative economic policy. In flat contradiction to the policies we had been elected to implement, they wanted action to keep down council rents (which would sabotage our Housing Finance Act – intended to bring them closer to market levels). They urged the control of profits, dividends and prices, aimed at securing the redistribution of income and wealth (in other words, the implementation of socialism), and the repeal of the Industrial Relations Act. These demands were taken sufficiently seriously by Ted for him to agree studies of methods by which the pay of low-paid workers could be improved without entailing proportionate increases to other workers. We had, in other words, moved four-square onto the socialist ground that ‘low pay’ – however that might be defined – was a ‘problem’ which it was for government rather than the workings of the market to resolve. In fact, the Government proposed a £2 a week limit on pay increases over the following year, with the CBI agreeing maximum 4 per cent price increases over the same period and the extension of the Government’s ‘target’ of 5 per cent economic growth.
It was not enough. The TUC was not willing – and probably not able – to deliver wage restraint. At the end of October we had a lengthy discussion of the arguments for proceeding to a statutory policy, beginning with a pay freeze. It is an extraordinary comment on the state of mind that we had reached that, as far as I can recall, neither now nor later did anyone at Cabinet raise the objection that this was precisely the policy we had ruled out in our 1970 general election manifesto. Only with the greatest reluctance did Ted accept that the TUC were unpersuadable. And so on Friday 3 November 1972 Cabinet made the fateful decision to introduce a statutory policy beginning with a ninety-day freeze of prices and incomes. No one ever spoke a truer word than Ted when he concluded by warning that we faced a troubled prospect.
The change in economic policy was accompanied by a Cabinet reshuffle. Maurice Macmillan – Harold’s son – had already taken over at Employment from Robert Carr in July 1972, when the latter replaced Reggie Maudling at the Home Office. Ted now promoted his younger disciples. He sent Peter Walker to replace John Davies at the DTI and promoted Jim Prior to be Leader of the House. Geoffrey Howe, an instinctive economic liberal, was brought into the Cabinet but given the poisoned chalice of overseeing prices and incomes policy.
For a growing number of backbenchers the new policy was a U-turn too far. When Enoch Powell asked in the House whether the Prime Minister had ‘taken leave of his senses’, he was publicly cold-shouldered, but many privately agreed with him. Still more significant was the fact that staunch opponents of our policy like Nick Ridley, Jock Bruce-Gardyne and John Biffen were elected to chairmanships or vice-chairmanships of important backbench committees, and Edward du Cann, on the right of the Party and a sworn opponent of Ted, became Chairman of the 1922 Committee.
As the freeze – Stage 1 – came to an end we devised Stage 2. This extended the pay and price freeze until the end of April 1973; for the remainder of 1973 workers could expect £1 a week and 4 per cent, with a maximum pay rise of £250 a year – a formula designed to favour the low-paid. A Pay Board and a Prices Commission were set up to administer the policy. Our backbench critics were more perceptive than most commentators, who considered that all this was a sensible and pragmatic response to trade union irresponsibility. In the early days it seemed that the commentators were right. A challenge to the policy by the gas workers was defeated at the end of March. The miners – as we hoped and expected after their huge increase the previous year – rejected a strike (against the advice of their Executive) in a ballot on 5 April. The number of working days lost because of strikes fell sharply. Unemployment was at its lowest since 1970. Generally, the mood in government grew more relaxed. Ted clearly felt happier wearing his new collectivist hat than he ever had in the disguise of Selsdon.
Our sentiments should have been very different. The effects of the reflationary budget of March 1972 and the loose financial policy it typified were now becoming apparent. The Treasury, at least, had started to worry about the economy, which was growing at a clearly unsustainable rate of well over 5 per cent. The money supply, as measured by M3 (broad money), was growing too fast – though the (narrower) M1, which the Government preferred, less so.* The March 1973 budget did nothing to cool the overheating and was heavily distorted by the need to keep down prices and charges so as to support the ‘counter-inflation policy’, as the prices and incomes policy was hopefully called. In May modest public expenditure reductions were agreed. But it was too little, and far too late. Although inflation rose during the first six months of 1973, Minimum Lending Rate (MLR) was steadily cut and a temporary mortgage subsidy was introduced. The Prime Minister also ordered that preparations be made to take statutory control of the mortgage rate if the building societies failed to hold it down when the subsidy ended. These fantastic proposals only served to distract us from the need to tackle the growing problem of monetary laxity. Only in July was MLR raised from 7.5 per cent, first to 9 per cent and then to 11.5 per cent. We were actually ahead of Labour in the opinion polls in June 1973, for the first time since 1970. But in July the Liberals took Ely and Ripon from us at by-elections. Economically and politically we had already begun to reap the whirlwind.
Over the summer of 1973 Ted held more talks with the TUC, seeking their agreement to Stage 3. The detailed work was done by a group of ministers chaired by Ted, and the rest of us knew little about it. Nor did I know that close attention was already being given to the problem which might arise with the miners. Like most of my colleagues, I imagine, I believed that they had had their pound of flesh already and would not come back for more.
I hope, though, that I would have given a great deal more attention than anyone seems to have done to building up coal stocks against the eventuality, however remote, of another miners’ strike. The miners either had to be appeased or beaten. Yet, for all its technocratic jargon, this was a government which signally lacked a sense of strategy. Ted apparently felt no need of one since, as we now know, he had held a secret meeting with the miners’ President, Joe Gormley, in the garden of No. 10 and thought he had found a formula to square the miners – extra payment for ‘unsocial hours’. But this proved to be a miscalculation. The miners’ demands could not be accommodated within Stage 3.
In October Cabinet duly endorsed the Stage 3 White Paper. It was immensely complicated and represented the high point – if that is the correct expression – of the Heath Government’s collectivism. All possible eventualities, you might have thought, were catered for. But as experience of past pay policies ought to have demonstrated, you would have been wrong.
My only direct involvement in the working of this new, detailed pay policy was when I attended 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.
On one 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