DOMINIC SANDBROOK: Government must be firm or inflation will rocket

Economic madness: Amid a string of massive union pay demands, historian of the 1970s DOMINIC SANDBROOK says that unless the Government holds firm, inflation will rocket even more

A few decades ago, as older readers will remember, the vocabulary of our political life was very different. 

Britain in the 1970s was a weird land of government concordats and social contracts, industrial correspondents and picket-line showdowns, pay norms and incomes policies.

On television, burly men with enormous glasses were forever trooping out of Downing Street, having just partaken of the proverbial beer and sandwiches. 

To the cameras they would mutter something about the government’s disappointing new pay offer, shaking their heads sadly at the thought of their starving members.

A group of local women and shoppers hold up placards to protest about rising food prices and inflation related cost of living increases outside a supermarket in Tottenham, North London on 20 February 1971

A group of local women and shoppers hold up placards to protest about rising food prices and inflation related cost of living increases outside a supermarket in Tottenham, North London on 20 February 1971

There would follow several weeks of negotiations, the prospects of a strike apparently looming ever larger.

Nightmare

Then, at last, the union leaders would emerge once again, brandishing a piece of paper on which the magic figure — perhaps ten, 20 or even 30 per cent — was emblazoned for all to see, a shining symbol of their victory.

And in the meantime, in the supermarkets and at the petrol pumps, the prices went on rising. Such was the way of the world.

Until recently, all this felt like ancient history. But with inflation rocketing, the railways shut down by industrial action and talk of a looming Summer of Discontent, the events of the 1970s are beginning to feel uncomfortably familiar.

And with union leaders clamouring for new pay deals, Boris Johnson is facing an unenviable choice. Does he want to emulate Harold Wilson, who handed the unions double-digit pay increases, only to see inflation peak above a record 26 per cent?

Is he a Jim Callaghan, who insisted on strict pay limits, only to see Britain engulfed in the nightmare of the strike-ridden Winter of Discontent?

Or is he a Margaret Thatcher, who refused to get involved in pay negotiations, but instead used the blunt instrument of high interest rates to squeeze inflation out of the system?

'With union leaders clamouring for new pay deals, Boris Johnson is facing an unenviable choice. Does he want to emulate Harold Wilson, who handed the unions double-digit pay increases, only to see inflation peak above a record 26 per cent?'

‘With union leaders clamouring for new pay deals, Boris Johnson is facing an unenviable choice. Does he want to emulate Harold Wilson, who handed the unions double-digit pay increases, only to see inflation peak above a record 26 per cent?’

'The RMT has demanded a rise of at least 7 per cent for its members, while Network Rail is offering just 3 per cent. But our railway workers are merely the first in a long line snaking along Whitehall, with other employees demanding even higher increases'

‘The RMT has demanded a rise of at least 7 per cent for its members, while Network Rail is offering just 3 per cent. But our railway workers are merely the first in a long line snaking along Whitehall, with other employees demanding even higher increases’

Even a few years ago, when inflation was virtually non-existent, such parallels might have seemed ridiculous. But as in the 1970s, rising world commodity prices have triggered an almost overnight explosion of trade union wage claims.

The RMT has demanded a rise of at least 7 per cent for its members, while Network Rail is offering just 3 per cent. But our railway workers are merely the first in a long line snaking along Whitehall, with other employees demanding even higher increases.

Local government unions have demanded 11 per cent for social workers and other council staff. Teachers are talking of an ‘inflation-plus’ pay rise to reach a similar figure, with their representatives threatening strikes in the autumn unless they get their way. Nurses, meanwhile, want a rise of more than 12 per cent.

At Heathrow, check-in staff belonging to the Unite and GMB unions have already voted to strike unless their pay demands are met. And criminal barristers across England and Wales walked out yesterday in pursuit of a 15 per cent pay rise for legal aid work, with some in tears, rather implausibly, as their spokesmen recited their demands.

Excessive

Perhaps most alarmingly, the British Medical Association’s members voted yesterday to pursue a whopping 30 per cent pay rise over the next five years, with threats of strike action this winter unless NHS bosses cave in. So if you thought waiting lists were bad now . . .

In public, ministers have pledged to stick to their policy of pay restraint. The Chief Secretary to the Treasury, Simon Clarke, told a newspaper this week that the unions’ demands were ‘wildly excessive’, and insisted that there simply is no money for more lavish deals.

The Chief Secretary to the Treasury, Simon Clarke, spoke up against unions demanding pay increases, pointing out that generous public sector pay deals would cost money 'we simply don't have'

The Chief Secretary to the Treasury, Simon Clarke, spoke up against unions demanding pay increases, pointing out that generous public sector pay deals would cost money ‘we simply don’t have’

‘For us to be chasing double-digit numbers,’ he argued, ‘would be directly against the interests of those doctors, those nurses. If we want this situation to resolve itself . . . the best thing we can do is not to compound the problems by effectively offering the false premise that you can just keep paying people very high, inflation-driven settlements.’

The unions insist that they are simply trying to defend their members against the ravages of inflation. In reality, though, high pay rises would simply pour petrol on to the flames, for as any economic historian knows, you can’t bring prices down by throwing ever more money around.

Another obvious problem, as Mr Clarke points out, is that generous public sector pay deals would cost money we simply don’t have.

In the first year of the pandemic, we borrowed £310 bn, followed by another £144 bn a year later.

Injecting billions more into the economy wouldn’t just fuel the inflationary fire, it would leave us with even more debt.

As it stands, we’re already due to pay £83 bn in debt interest payments this year. Running up yet more debts to appease the unions may sound appealing in the short term, but in the long run it would be economic madness.

As Mr Clarke notes, there’s a compelling lesson here from history. When Harold Wilson became Prime Minister for the second time in March 1974, his in-tray was bulging with pay demands from the trade unions, as well as reports of surging inflation in supermarkets and in forecourts.

Desperate to head off the threat of strikes, Wilson gave the unions what they wanted. First the miners, who were already out on strike, got 32 per cent. Then, as prices soared, came the deluge. Power workers got 31 per cent, civil servants 32 per cent, doctors 35 per cent and dockers 30 per cent.

'In the end, it was only Margaret Thatcher¿s harsh economic medicine, with interest rates peaking at an excruciating 17 per cent, that wrung inflation out of the system'

‘In the end, it was only Margaret Thatcher’s harsh economic medicine, with interest rates peaking at an excruciating 17 per cent, that wrung inflation out of the system’

The extraordinary thing was that even the union leaders knew this was madness. The head of the Trades Union Congress, Len Murray, recalled that in private, his colleagues would mutter: ‘Look, we’ve got to do something about this.’

But in their own minds, their only responsibility was to their members. It was the Government’s job, they thought, to draw the line. And if the Government was too spineless to say ‘no’, then they and their members would simply keep taking their winnings.

The result was a disaster. By the spring of 1975, borrowing had reached record levels, while inflation had hit a post-war record of 26 per cent.

A year later, with confidence in the pound having collapsed, Britain was forced to beg the International Monetary Fund for a then-record £2.3 bn bailout. In private, the U.S. Secretary of State, Henry Kissinger, remarked that Britain had ‘sunk to begging, borrowing, stealing . . . That Britain has become such a scrounger is a disgrace’.

In the end, it was only Margaret Thatcher’s harsh economic medicine, with interest rates peaking at an excruciating 17 per cent, that wrung inflation out of the system. But victory came at a colossal cost in bankruptcies, foreclosures and job losses, which might well have been avoided if earlier governments had shown more guts.

Shock

With the economy in such a desperately delicate condition after the rigours of the pandemic, Britain can ill afford a repeat performance.

Yes, I know rising inflation means we’re all feeling the pinch. But this time the unions should show more social responsibility than they did a generation ago.

If they continue to pursue colossal pay rises, they will only drive up the inflation from which they’re claiming to protect their members, and that means we’ll be facing a sharper shock further down the line.

As for the Government, they should treat this as a chance to show some backbone and stick to their guns. It’s true that a Summer of Discontent would be a grim prospect. But unless ministers stand firm, we could be in for season after season of surging wage demands — and month after month of soaring prices. Can Boris Johnson say ‘No’, and stick to it, though?

As they used to say in the 1970s, that’s the six-billion- dollar question. Or the 60- billion-dollar question, if the unions get their way. 

Dominic Sandbrook is the author of Seasons In The Sun: The Battle For Britain, 1974-1979 (Penguin).