The Social Contract: post-war incomes policies and their inflationary impact

Abstract

The Social Contract as originally conceived was an agreement between the British government and the Trades Union Congress (TUC) by which the government agreed to adopt economic and social policies favoured by the trade unions in exchange for voluntary wage control. It emerged from joint TUC-Labour Party discussions and was outlined in a pamphlet published in February 1973 (TUC-Labour Party Liaison Committee, 1973), when the Labour Party was in opposition and soon after the Con servative government had implemented a statutory wage freeze. This document committed the Labour Party to: price and rent control; public transport and housing subsidies; improvements in social welfare provisions; measures to redistribute income and wealth; public control of capital investment; an active labour market policy; the maintenance of full employment by encouraging economic growth; repealing the repressive trade union legislation passed by the Conservative government, and the fostering of industrial democracy. No specific commitment to incomes policy was included in this document, reflecting trade union wariness of such policies, but in its 1974 election manifesto the Labour Party reiterated its commitment to the main lines of the 1973 document to 'create the right economic climate for money incomes to grow in line with production'. The trade union movement's commitment to the Contract developed in the early months of the 1974 Labour Party administration, when the TUC committed itself to ensuring that wage increases did not exceed the level necessary to compensate for rising prices. On 7 September 1977 the TUC effectively withdrew from that commitment when, at the annual Congress, a 2-8 million majority vote reaffirmed support for the 12-month interval between settlements written into the Social Contract and, at the same time, demanded a return to free collective bargaining. Thus, once 12 months has elapsed since a settlement concluded between July 1976 and July 1977 (the period of Phase 2 of the Social Contract), a bargaining group will be free from TUC imposed restrictions on pay settlements.