The Stairs Were on Fire
If Roy Jenkins had in many ways been the most important minister during the mid-sixties, it was Denis Healey who dominated public perceptions of Labour in the mid-seventies. As a Chancellor of the Exchequer during the worst economic storm of post-war times, through both the Wilson and Callaghan governments, he rivalled each of them as a public icon. His scarlet face, huge eyebrows and rough tongue were endlessly caricatured and mimicked, above all by the TV impressionist Mike Yarwood, who invented ‘you silly billy’ as Healey’s catchphrase, one quickly taken up by the Chancellor himself. Healey was one of the most widely read, cultured, intelligent and self-certain politicians of modern times, whose early Communism, active war service and vast range of international contacts helped mulch and decorate his famous beyond-politics ‘hinterland’. But there was little poetry, relaxation or fun about the job he took up in 1974 and would hold, through near-farcical crises and grim headlines, for the next five years. He described the economy he had inherited from Heath and Barber as ‘like the Augean stables’. Much of his energy would be thrown into dealing with the newly unstable world economy, with floating currencies and inflation-shocked governments. In effect, after the great devaluation argument of the first Wilson administrations, this one was quietly devaluing all the time, as the pound sank against the dollar.
Where were the levers of control? Healey was taxing and cutting as much as he dared but his only real hope was to control inflation by controlling wages. Wilson insisted that an incomes policy must be voluntary. After the torture and defeat of Heath there must be no going back to legal restraints. The unions, under the leadership of men who had risen as shop stewards in the great revolt of the fifties and sixties, the Spanish Civil War veteran Jack Jones, the wily and cynical Hugh Scanlon, and the grammar school boy and ex-Communist Len Murray, became increasingly worried that rampant inflation might destroy Labour and bring back the Tories. So for a while the Social Contract did deliver fewer strikes. From 1974 to 1975, the number of days lost to strikes halved, and then halved again the following year. Contrary to popular myth, the seventies were not all about mass meetings and walk-outs. After Heath had been beaten, the real trouble did not start again until 1978-9. But the other half of the Social Contract was meant to deliver lower wage settlements and that was an utter failure. Despite Labour delivering on its side of the bargain, by the early months of 1975 the going rate for increases was already 30 per cent, a third higher than inflation. By June inflation was up to 23 per cent, and wage settlements even further ahead. The unions suggested a new deal of a cash limit of an extra £6 a week for most workers. The government did introduce an element of compulsion, but targeted employers who offered too much, not workers who demanded too much.
Yet persuading people not to make deals about pay is extremely difficult. It cannot last long in a free society. There will always be special cases, and one special case inspires the next. Healey reckoned two-thirds of his time was spent trying to deal with the inflationary effects of free collective bargaining and the rest with the distortions caused by his own pay policy. As he reflected later: ‘Adopting a pay policy is rather like jumping out of a second-floor window: no one in his senses would do it unless the stairs were on fire. But in postwar Britain the stairs have always been on fire.’ By refusing to allow companies to pass on inflationary wage increases as higher prices, and by endless haggling with union leaders who were themselves alarmed about the fate of the country, Healey did manage to squeeze inflation downwards. He believed that if the unions had kept their promises it would have been down to single figures by the autumn of 1975.
In all this, Healey was under constant pressure to show that he was delivering for socialism. He could not spend more. So he sent what signals he could by skewing the tax system dramatically against higher earners, concentrating any tax cuts on the worse off. Though notorious for warning that he would make the rich ‘howl with anguish’ and often misquoted as promising to squeeze the rich ‘until the pips squeak’, Healey argued that it was the only way of making the country fairer. He never accepted the Conservative argument that high taxes stopped people working harder and blamed Britain’s poor industrial performance instead on low investment in industry, poor training and bad management. A villain and bogeyman for many in the middle classes, Healey did at least suffer from his own policies: ‘As a result of my tax changes and my determination to prevent ministerial salaries from rising as fast as the pay norm, my own real take-home pay as Chancellor fell to only half what I had been earning as Defence Secretary, although I was working harder and longer.’