All the more reason why we on this side of the House want to know the cost of living implications of the tax reform policy of the Opposition. When my right hon. Friend the Member for Belper (Mr. George Brown) struggled to secure the first acceptance of prices and incomes policy in 1965, everyone knew that it would be a long-term policy. It was designed, as the Prices and Incomes Board said in its first report, to change "old habits, inherited attitudes and institutional arrangements".
We did not look to the policy for sudden dramatic effects, but in the economic crisis in 1966, and devaluation in 1967, we rightly decided to use the policy for immediate short-term purposes. In doing that we knew that we were placing a strain on it which it would only bear for a limited time, but the rigorous statutory controls, however unpopular, were a vital part of the economic strategy.
Of course hon. Gentlemen opposite have taken a delight in seizing every opportunity to discredit the policy. All that I can say is that here again they have taken very great care not to be precise about what they would put in its place. That they would put something in its place there is no doubt. The right hon. Gentleman the Member for Enfield, West admitted in the Budget debate last year, this was one of the bits he did not quote:
… all Governments operate a sort of incomes policy.
What sort does he believe in? Not for him the painstaking effort to devise criteria which, for all their faults, try to do broad justice between different groups of workers, put a premium on productivity, give priority to the lower paid. He draws a crude dividing line between the public sector and the private one.
This is what he also told us in the Budget speech:
The Government should give a lead. They should be seen to be absolutely firm in their own wage negotiations."—[OFFICIAL REPORT, 20th March, 1968; Vol. 761, c. 440.]
I hope that we on this side of the House have been warned.
It has become fashionable to say that the incomes policy has failed. The right hon. Gentleman the Leader of the Opposition said it yesterday. The most remarkable characteristic of the Opposition's criticisms of the policy is inconsistency. On the one hand every pay settlement above 3½ per cent. is hailed as a final collapse of the policy, despite the fact that the White Paper specifically provides for increases over 3 per cent. in many circumstances. On the other hand they would have us believe—they have deliberately led people to believe—that wages have been frozen while prices have got out of control. If they say the policy has failed, what do they mean by failure? Are they saying that incomes have risen too much? Will their slogan at the next election be: "You have had it too good"? [HON. MEMBERS: "No."]
The sober fact is that the policy, in the phase since the 1968 Act, was introduced, has worked broadly as we intended. The average size of pay settlement—[Interruption.] I know that hon. Gentlemen prefer myths to facts, but the fact is that the average size of pay settlements in the past year has been at an annual rate of 4 per cent., including all the major productivity deals and the special treatment given to low paid workers like farm workers.
Prices have been broadly contained within our target. Increases in declared dividends have been kept within the rules laid down by the policy. My right hon. Friend the Minister of Housing and Local Government has not hesitated to use his powers under the Act to control rent increases. Over one-third of the proposals for rent increases which were due to come into effect from July of last year have been rejected, including a recently submitted proposal from the G.L.C. for rent increases averaging 7s. 6d. a week, to come into effect in October. About 1 million tenants have benefited from the steps he has taken to secure the reduction, postponement or elimination of rent increases.
Not least, the policy has succeeded in one of its prime purposes—to stimulate the new attitudes towards productivity bargaining. It is this that hon. Gentlemen opposite choose to ignore when they point to the big increase in earnings in the last twelve months. Let us analyse that increase. First, people have been working longer. Overtime has risen, and that has naturally pushed up their earnings, perhaps by one per cent. on that account alone. Output per head has been rising dramatically, and that means more pay for everyone on piecework.
Thanks to the record rise in productivity last year—7 per cent. in manufacturing industry—in which the policy has undoubtedly played a part, there has been only a moderate increase in labour costs per unit of output in the economy. In the third quarter of 1968, the last available figures, they were only 1·6 per cent. higher than a year before.
When I consider the situation in which we have had to operate this stringent phase of the policy, a post-devaluation situation in which prices were bound to rise sharply, when unemployment was falling and productive activity increasing, when everything conspired to boost the price-wage spiral, aided at every turn by hon. Gentlemen opposite, who exaggerated every price increase and went out of their way to convince ordinary people that they were worse off and should demand more, I believe that our success in holding the line in this difficult year in prices and incomes and unit costs, has been remarkable.
Nevertheless the policy has understandably been under increasing strain and inequities grow up which are acceptable only for a limited time. So we must begin to turn again to the long-term problems. Much has already been achieved. The basic concepts of the incomes policy are now accepted. The Trades Union Congress this year by a very large majority adopted the General Council's Report on economic policy in which incomes policy plays an integral part. The argument is not about the existence of an incomes policy but about the form that it should take.
As the Chancellor said yesterday, it is not our intention to continue these stringent, statutory powers over pay settlements when the present powers run out at the end of 1969. Instead, we shall activate Part II of the 1966 Act, which we can do by Order, to provide a long-term framework within which a prices and incomes and productivity policy can be developed. It may be helpful if I remind the House precisely what is involved by the activation of Part II of the 1966 Act.
In the first place it provides statutory backing for what is usually called "early warning" of proposed pay settlements, or price increases. In practice, we have been able to operate the early warning system without any recourse to the powers in the 1966 Act. I see no reason why voluntary co-operation in early warning should not continue, but we would have the powers if it were necessary.
Secondly, Part II gives powers to hold up the implementation of a wages settlement or price increase for three months, while the Prices and Incomes Board examines it. Here again we have found that most employers and unions have been willing to co-operate on a voluntary basis in not implementing settlements before the Board reports, so we have had to make very little use of the formal powers. It is only fair to those who abide by the rules that we should have a residual power to deal with any cases where people try to jump the gun. I believe that most of my hon. Friends, and many trade unions, even those who have most vociferously advocated a voluntary policy, recognise the invaluable work that has been done by the Prices and Incomes Board. They certainly do not want to see it abolished, as hon. Gentlemen opposite do. They want it to continue and try and influence the development of more rational and equitable wages structures, to stimulate genuine productivity bargaining, to get everyone, high and low, thinking in terms of relating pay and performance, helping us in the vital task of keeping down unit costs. But it certainly will not be able to do so if, when it is asked to examine a settlement or a price increase, it is faced with a fait accompli—a situation beyond recall. We want the Board to be able to consider situations and make recommendations while there is still time for the parties concerned to take heed of the wider issues of social and economic policy which may be involved. That is why we must have the arrangements for "early warning" and for standstills for three months while the Board considers particular cases. We shall, however, be relinquishing the power given us in the 1968 Act to extend a standstill, following an adverse report by the N.B.P.I., for a further eight months. We believe that unions and employers will take heed of the reasoned recommendations of the N.B.P.I. backed, as they will be, by public opinion. The procedures I have described will enable the policy to be developed within what I believe will come to be a generally acceptable framework.
But, of course, this framework is not the policy. We shall need to set guidelines for those negotiating pay increases and those fixing prices, dividends and rents from 1969 onwards. These guidelines will be set out in a new White Paper, which we shall draw up after the fullest consultation with the T.U.C. and the C.B.I.
But, to avoid any misunderstanding, I want to make it clear that, whatever changes are made in the guide-lines from 1969 onwards, we cannot afford—nor will there be grounds for—any run-away increase in earnings next year. In the first place, we cannot expect an increase in output per head on the same scale as in 1968 when a great deal of slack was taken up in the economy. But, in addition to this, we can reasonably expect greater price stability from now onwards and the pressure for large pay increases should be therefore reduced.
We have always recognised that the present guide-lines will need re-examination. We shall have to see how some of the inequities that I am the first to recognise exist can be overcome in the new policy. I am concerned in particular about the position of the lowest paid workers.
The difficulties of the existing policy were highlighted by the case of the farm workers' settlement. Here the N.B.P.I. was driven to recommend special treatment outside the terms of the White Paper. Clearly, we need to do some urgent thinking about this problem and we shall be helped in this by the publication quite soon now of the review of a national minimum wage which has been prepared by officials in Government Departments and by the publication over the next three months of the results of the new earnings survey initiated by my Department which will throw entirely new light on where exactly low pay occurs and the reasons for it.
Turning now to prices, as the Chancellor has pointed out, the effects of devaluation on prices have now largely worked their way through and this year's Budget measures will add only a fractional increase to the cost of living index: a half of 1 per cent. It is as vital as ever it was that there should be no unnecessary price increases, and we must retain the machinery for examining increases which seem to offend against the policy. For example, we must guard against increases in S.E.T. being used as an excuse for higher prices without every effort being made to absorb costs. But there is also a long-term constructive rôle for prices policy.