The Iron Chancellor Wins

In the end, it was Prime Minister Harold Wilson himself and not Chancellor of the Exchequer Denis Healey who stepped up to the dispatch box in the House of Commons. In the ominous tones he reserves for grave occasions, Wilson told the House of the "economic catastrophe" facing the country. To reverse the tide of inflation (running at an annual rate of 28%) and to calm the jitters of foreign creditors who had caused the pound sterling to hit an all-time low, Wilson formally spelled out the details of Healey's proposed new program of wage, price and dividend controls (TIME, July 14).

It was a major policy reversal for the ruling Labor Party--and particularly for Wilson, who only two weeks ago was pooh-poohing the need for "panic solutions." Since returning to power 16 months ago, Labor's economic policy had been based on the "social contract" --an agreement that the government would deliver social welfare benefits in exchange for the unions' voluntary wage restraints. But more and more unions began violating the contract by asking --and getting--pay raises of 30% and more. Wilson and Healey finally decided more drastic measures were needed.

The terms spelled out last week are substantially the same as those first proposed by Healey. They call for a "universal pay [raise] limit" of -L-6 ($13.20) a week, except for those earning more than -L- 8,500 ($18,700) a year. They will get no raises at all. In agreeing to the flat rate, rather than the 10% limit originally favored by Healey, the government made a gesture to the unions to help win their support. It means that workers on the lower end of the pay scale will get a larger proportionate increase, which will help erode pay differentials between skilled and unskilled workers. Both privately owned and state-run firms will be forbidden to raise prices to pay for increases beyond the -L-6 limit. But instead of seeking immediate legal power to fine employers who do not comply, Labor pledged to push for as yet unspecified legislation for enforcement only if voluntary compliance fails and "the pay limit is endangered."

Given the magnitude of the policy reversal, Wilson and Healey had little to lose by compromising on enforcement at this time. The formula saved face for Employment Secretary Michael Foot, the unions' staunchest defender in the Cabinet, who during the last election campaign flatly committed himself to quit if compulsory wage controls were enforced. There were fears that a Foot resignation would trigger the fall of the Wilson Cabinet. Not only would leftist Energy Secretary Anthony Wedgwood Benn have had little choice but to follow suit; the unions would have withdrawn their support from the government's program as well.

Skillful Wilson. In the end, Healey, who has earned the sobriquet of "the Iron Chancellor," did not get everything he wanted, but considerably more than he had a right to expect. As one Tory M.P. conceded, "The rats have got at it [the government's proposal] much less than expected."

With Foot agreeing to go along, the government should have little trouble with Parliament. There are perhaps 30 or so leftist Laborites who are opposed to controls on principle and who might refuse to back the new bills. But, there are enough Tories, Liberals and Nationalists who can accept the program to make up the loss of votes.

Most political observers in London praise Wilson's tactical skill in stage-managing a policy reversal without a breakup of his government or party. But the weapon he has seized, as one official noted, is still "a rubber sword" and has yet to be tested. The effect is to put off the crunch for three months, when the next round of pay negotiations will reach the critical phase.

Given Britain's catastrophic experiences with balky unions in the past, Wilson would seem to have nothing to lose by such a tactical delay. As Healey put it at week's end: "There is no point in taking two bites out of the cherry at once. Public support [for stiffer laws] will be greater when the need for them is demonstrated." Once again attention will focus on the mine workers. At their annual meeting in the Yorkshire town of Scarborough last week, it took a somber personal appeal from the Prime Minister to reword a resolution that they would "seek" rather than "demand" a whopping increase to $220 a week.

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