New Labour, Old Labour

The Wilson and Callaghan Governments 1974-1979

Kevin Hickson, Anthony Seldon

• Publisher: Routledge
• Year: 2004
• eBook ISBN: 9781134381609
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: American Government
• Index: Politics & International Relations

We are constantly told that New Labour forms an historic departure from the traditions of the Labour Party. This book, written by a distinguished selection of academics and commentators, provides the most detailed comparison yet of old and new Labour in power. It is also the first to offer a comprehensive analysis of the last Labour Government before the rise of Thatcher and the re-emergence of the Labour Party under Tony Blair's leadership. It reveals much about the history of the Labour Party as well as providing a much-needed context from which to judge the current government.

Part I
The framework of ideas

1 1974
The crisis of Old Labour

Vernon Bogdanor

I

Socialist hopes in twentieth-century Britain have flourished best in opposition. In office, by contrast, the contradictions both in Labour’s ideology and indeed in the very structure of the Labour movement have often become painfully apparent. So it had been with the first Wilson Government of 1964–70. For that Government’s most powerful defeats had been inflicted not by its political enemies but by its trade union allies, who had rejected both a statutory incomes policy and the curbs on their legal immunities proposed in the White Paper, ‘In Place of Strife’.

Labour found a convenient excuse for the shortcomings of the first Wilson Government by diagnosing the cause of its defeat as the breach between the political and industrial wings of the movement. This meant that there was no need critically to examine the record of the 1964–70 Government. The legend soon became established that all had been well before the squabbles between government and unions. This suited the outlook of Labour’s leaders, Wilson and Callaghan, whose views on socialism and how it was to be achieved had always been vague and undefined. Indeed, by 1974, Wilson had little to offer beyond the hope of a quiet life. He sought to become the Stanley Baldwin of the 1970s.

The left, however, which had been growing in strength in constituency parties, as after previous defeats in 1931 and 1951, wanted more than a quiet life. After 1931 and 1951, and also after 1979, the Party went through an internal civil war before it could become electable again. That this did not happen after 1970 was largely due to Wilson and Callaghan who pre-empted the left through the skilful use of ambiguous formulae, a method which was to store up trouble in the future when the ambiguities came to be exposed.

For the struggle between left and right was coming, after 1970, to change its character. Labour was beginning to appear an incompatible coalition between reformists and socialists, the latter buttressed by extra-parliamentary activists, whose commitment to democracy was not always apparent. These extraparliamentary activists were assisted by the abolition of the proscribed list in 1973, which had excluded those with non-democratic affiliations from membership of the Party. Abolition meant that members of the non-democratic left were now to be found within, rather than outside, the Labour Party. In 1973, the Campaign for Labour Party Democracy was formed, to press for greater powers for the Party outside Parliament in the selection of candidates, the writing of the party manifesto and the selection of the party leader. This would shift the battleground away from the parliamentary party where, the right had a majority, to the extra-parliamentary party where the chances of the left were much greater. The extra-parliamentary left found a leader in Tony Benn, who, until 1970, had called himself Anthony Wedgwood Benn, but now chose to democratise his name. The Bennite left mounted a determined assault on the Labour leadership after 1970, proposing widespread nationalisation through a new National Enterprise Board, compulsory planning agreements and withdrawal from the European Community, which Britain entered in 1973. To repel this assault, Wilson and Callaghan needed the support of the trade union leaders, and this constituted a further reason to discover formulae which could repair the breach between the parliamentary and industrial wings of the movement.

It was Callaghan who found the formula of ‘renegotiation’ to accommodate left and right over the European Community; and Callaghan who played a major part in formulating the ‘Social Contract’. Both of these formulae were ambiguous. For it was never clear whether renegotiation meant revision of the Treaty of Rome, or renegotiation within the framework of that Treaty. The left took one view, the right another. Nor was it clear whether the Social Contract entailed a voluntary incomes policy, or whether it was compatible with the retention of free collective bargaining. This ambiguity was a positive advantage in uniting a divided party which, by 1974, could be held together only through the tactical skill of a Wilson or Callaghan.

The Labour movement had always been a strange and at times uneasy alliance between the parliamentary and the industrial wings, united by history, sentimental ties and also, seemingly, by common values. Both claimed to stand for socialism, a society in which community values would prevail against private interests. The politicians would seek to achieve this through parliamentary action, the trade unions through using their collective industrial muscle. Each side would respect the interests of the other. ‘I told you last year not to tell the unions how to do their job,’ declared Frank Cousins, General Secretary of the Transport and General Workers’ Union, to the Party Conference in 1956, ‘and I am certainly not going to tell the Labour Party how to do its job.’¹

This demarcation agreement, however, was gradually breaking down. By the late 1950s, strikes, poor industrial relations and malpractices in the unions were affecting support for the Labour Party, while the need to contain inflation in a society committed to full employment meant that a Labour Government would have to intervene in the processes of free collective bargaining. Besides, was it not an anomaly that a socialist government could plan everything except wages? That was the question which the Social Contract sought to evade.

The term ‘Social Contract’ was first used in a Labour Party context by Tony Benn in his Fabian pamphlet, ‘The New Politics: A Socialist Reconnaissance’, published in September 1970. Then, at Labour’s 1972 Conference, Callaghan declared that ‘what Britain needs is a new Social Contract’. The contract would restore relations to what they had been in a bygone era of partnership and cooperation, 1964, or perhaps even 1945. It was, moreover, so James Callaghan told the TUC Conference in 1974, a ‘means of achieving nothing less than the social and economic reconstruction’ of the country.²

The contract was inaugurated when, in April 1971, Callaghan, as Chairman of the NEC’s Home Policy Committee, gave the unions an unconditional guarantee that the next Labour Government would repeal Edward Heath’s hated Industrial Relations Act, even though its provisions differed only in degree from ‘In Place of Strife’, which Callaghan had, from within the Cabinet, opposed. The unions responded by calling for a dialogue. In September 1971, Jack Jones, General Secretary of the Transport and General Workers’ Union, and the dominant figure in the TUC, told Labour’s annual conference:

there is no reason at all why a joint policy cannot be worked out. But let us have the closest possible liaison. Let us put an end to the stress and strain between the trade unions and intellectual wings of the Party [an odd way to speak of the parliamentary party or the National Executive]. In the past we have not had the dialogue necessary.³

A Labour–TUC Liaison Committee was established early in 1972. It agreed to allow the TUC to write the legislation which would replace the Industrial Relations Act. The parliamentary leaders promised that the next Labour Government would introduce price controls, food and housing subsidies, increase expenditure on pensions and social services, and engineer ‘large-scale’ redistribution of income and wealth. The unions offered little in return for these goodies. Perhaps they had little to offer. For, according to Barbara Castle:

So bruised and sensitive were the trade unions that any mention even of a voluntary policy was taboo. When at one of the Liaison Committee meetings someone dared to refer to the role of incomes in the management of the economy, Jack Jones jumped in at once to say, ‘it would be disastrous if any word went from this meeting that we had been discussing prices and incomes policy’.⁴

Labour, however, needed a credible policy against inflation. Therefore, when, in January 1973, Wilson and TUC General Secretary Vic Feather presented the policy document, ‘Economic Policy and the Cost of Living’, in which the details of the contract were outlined, they agreed that an incoming Labour Government’s ‘first task’ would be to secure a ‘wide-ranging agreement’ with the TUC ‘on the policies to be pursued in all these aspects of our economic life and to discuss with them the order of priorities for their fulfilment’. This would, so it was suggested, ‘further engender the strong feeling of mutual confidence which alone will make it possible to reach the wide-ranging agreement which is necessary to control inflation and achieve sustained growth in the standard of living’.⁵

‘This’, Harold Wilson declares in the memoirs of his second administration, Final Term, ‘was widely interpreted as a voluntary agreement to accept restraint in pay demands as part of a wider social agreement.’⁶ It is unclear whether the unions shared this interpretation.

By January 1974, with a general election looming, the leadership felt that it needed a more concrete commitment. It was now in the position of a supplicant. ‘If the Labour government fulfilled its side of the social compact,’ Shadow Chancellor Denis Healey asked the union leaders on the Liaison Committee, then, without pressing for a pay norm or ‘rigid commitments’, surely, ‘the TUC for its part would try to make the economic policy work’. Len Murray, the new TUC General Secretary, poured cold water on even this severely limited aspiration. The greatest disservice the TUC could perform would be ‘to pretend it could do more than it could and the disillusion from that would be far more damaging than the refusal to make impossible promises in the first place’. Undeterred, Wilson intervened to suggest that what was needed was ‘more the creation of a mood than a compact’. Murray ‘nodded vigorously’.⁷

II

Armed with little more than this fig-leaf, Wilson formed his second administration, following the February 1974 general election, an election which most of Labour’s leaders did not expect to win. Indeed, Roy Jenkins, leader of the social democratic wing of the Party, not only believed that Labour would lose. He also believed that Labour deserved to lose, declaring in his memoirs that

1974, according to my strategy, was the year in which temporising Labour Party leadership was due to receive its just reward in the shape of a lost general election.⁸

The Government which unexpectedly won office in 1974 was called upon to combat the most serious economic challenges that Britain had faced since the war, with international monetary disturbance following the breakdown of the Bretton Woods system, the turning of the terms of trade against Britain, and the first oil crisis which, in 1973, had led to a quadrupling of the oil price and worldwide inflation. These challenges were, in Edmund Dell’s view, ‘preparing the final crisis of British democratic socialism’.⁹ Yet, because the Party was so divided, and because of the sensitivities of the trade union leaders, there had been little genuine thinking on how the challenges were to be met. ‘If Denis Healey had worked out a plan for a Parliament,’ declared Joel Barnett, Chief Secretary of the Treasury, in his memoirs, ‘I am bound to say he kept it secret from me. … The real worry was that we had worked out no short-, medium- or long-term economic and financial policies.’¹⁰

The crisis was compounded by the lack of a parliamentary majority. In the 1920s, following the first Labour Government, Ernest Bevin had urged Labour never again to take office as a minority on the grounds that it would be in office but not in power, unable to take strong measures yet held responsible for what went wrong.¹¹ Bevin’s advice, however, was rejected by the Labour Party Conference in 1925, and, in the circumstances of 1974, it would almost certainly have been impracticable. For it would have meant an immediate second general election, in the middle of a miners’ strike which had to be quickly settled. Moreover, when Labour did come to fight a second general election, seven months later, in October 1974, it won an overall majority of just three. There is no reason to believe that a second general election held in March 1974 would have yielded any more favourable outcome.

A possible alternative might have been to secure an agreement with the Liberals, although this would not have yielded a parliamentary majority. But at the 1973 Labour Party Conference, Harold Wilson had given a pledge against co-operation with other parties in terms which it would have been difficult even for him to evade:

Let this be clear: as long as I am Leader of the Party, Labour will not enter into any coalition with any other Party, Liberal or Conservative or anyone else. [Prolonged Applause]

As long as I am Leader of this Party there will be no electoral treaty, no political alliance, no understanding, no deal, no arrangement, no fix, neither will there be any secret deal or secret discussions.¹²

In 1974, as in 1924, 1929, 1950 and 1964, therefore, there would be no question of seeking an agreement with the Liberals. As in 1924 and 1929, Labour took office as a minority government.

A minority government based on just 37 per cent of the vote, however, would hardly enjoy the democratic authority to deal with the crisis which confronted it. The inevitable outcome was that difficult discussions on economic policy were postponed until after the second general election, due in a few months’ time. Bernard Donoughue, Head of the Downing Street Policy Unit, could not ‘recall a single sustained discussion in Cabinet or Cabinet Committee of central economic policy – of fiscal or monetary management, or any direct measures to curb public expenditure growth or wage inflation – until December 1974’.¹³ Instead, the Government sought to meet the crisis by borrowing to pay for the social benefits to which Labour had committed itself under the Social Contract, a policy characterised by Joel Barnett as ‘spending money we did not have’.¹⁴ The Social Contract, therefore, had to be implemented, in desperately unfavourable circumstances, by a minority government and a divided Party which

due to its div...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contributors
• Acknowledgements
• A Brief Chronology
• Introduction
• Part I: The framework of Ideas
• Part II: Domestic and Foreign Policies
• Part III: Government and Politics
• Part IV: Perspectives
• Conclusion: Reading and Misreading Old Labour
• Select Bibliography