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Collective Bargaining, Costs And Prices

Volume 958: debated on Wednesday 15 November 1978

The text on this page has been created from Hansard archive content, it may contain typographical errors.

1. The Government and the TUC agree that the fundamental objective of economic policy in 1978–79 is to keep the annual rate of inflation at not more than the present level, and indeed to bring it down further, as a contribution to their aim to reduce unemployment, promote growth and improve real living standards. Policies affecting costs, incomes, investment, the exchange rate and fiscal and monetary developments must be related to this objective.

2. The Government, in consultation with the TUC and the CBI, will strengthen the Price Commission, review the safeguard clauses with the aim of extending the discretion of the Price Commission, and secure the maximum practicable interval between price increases. The TUC believes that there is a legitimate function for the Price Commission in examining all elements of proposed price increases, including raw material, labour and capital costs, without discrimination between the production and distribution stages; and that, as indicated in the TUC guidance attached, employers should give public commitments on prices as part of collective agreements.

3. The Government and the TUC agree that negotiators should focus on the need to secure the maximum efficiency in the use of resources and the containment of unit costs. This will help ensure that the agreed inflation objective is attained, at the same time improving competitiveness, increasing job security, enabling expansion of investment and employment, and providing the basis for higher living standards for work people, including reductions in working hours. For these purposes negotiators must have regard to the need to produce a balanced allocation of benefits between workers, investment and consumers.

4. The TUC will continue to play its part in the industrial strategy with the aim of securing major improvements in the way industrial assets are used. The TUC will continue to give maximum publicity and encouragement on the industrial strategy to its members.

5. The Government reaffirms its position as stated in the White Paper "Winning the Battle Against Inflation" including the maximum level of settlements consistent with the agreed objective and discretionary action, where necessary, to support it.

6. The TUC remains committed to voluntary collective bargaining, and believes that adherence to its guidance to negotiators, as set out in the attached Annex, will result in settlements consistent with the agreed objectives set out in paragraph 1. It also believes that the threat or the use of sanctions in these circumstances is neither necessary nor desirable.

7. Consideration has been given to the TUC guidance and to the special problems of low pay and certain public services. The Government welcomes the emphasis in the TUC guidance to negotiators on the price consequences of individual settlements. In considering discretionary action the Government will take into account the price consequences of that settlement as one relevant factor.

8. On low pay, a major objective is to ensure that workers receive the appropriate terms and conditions of employment, which will involve continued use of the Fair Wages Resolution and Schedule 11 of the Employment Protection Act.

9. The Government will arrange an urgent examination of the existing arrangements—both legislative and administrative—governing wages councils to ensure that there are effective means of carrying out the dual role of improving low pay and encouraging the development of normal collective bargaining in these industries, including the publication of annual reviews of progress towards these objectives. The examination will also cover ways of facilitating the transformation of wages councils into statutory joint industrial councils as envisaged in Section 90 of the Employment Protection Act, and methods of ensuring that wages councils take full account of low pay objectives appropriate to them. The Government will meanwhile draw these considerations to the notice of wages councils. Ways in which the servicing arrangements of wages councils can be improved will be a subject for a separate examination.

10. The Government and the TUC believe that in some areas of the public sector, other than those engaged in trading, there is a greater role for comparability in determining pay. The precise areas and methods will be a matter for negotiation between the employers and unions concerned, but the guiding principle should be the achievement of comparable earnings for comparable work. The Government and the TUC recognise that the establishment of levels of pay by such methods does not provide any automatic basis for increases for groups not part of the exercise. Where these general principles have been appropriately observed the Government will be prepared to see settlements implemented subject to agreement on staging.

11. Progress towards the agreed objectives and any action which may from time to time be needed will be discussed at monthly meetings between Ministers and representatives of the TUC, which will cover all relevant economic issues.

12. For the future, the Government and the TUC will make arrangements for annual discussion of the whole range of social and economic matters which are their common concern, including a common understanding on the prospects for pay and prices.

14 November 1978



1. As part of the understanding on prices and collective bargaining reached between the TUC and the Government on November 14 (copy to be attached) it was agreed (see clause 7) that trade unions should explore ways of reducing or stabilising prices both in the process of bargaining and during the currency of agreements, and give guidance to affiliated unions on this

Prices and Collective Bargaining

2. In the light of the agreement between the TUC and the Government that the fundamental objective of economic policy in 197879 is to keep the annual rate of inflation at or below the present level, as an integral part of the policy to reduce unemployment, promote growth and improve living standards, the TUC General Council wish to draw certain points to the attention of negotiators.

3. The General Council will not "vet" claims, act as watchdogs in the process of negotiations, or scrutinise settlements. They believe on the contrary that negotiators should themselves accept the specific responsibility both in the framing of claims and in the process of negotiation, to ensure that the guidance both in spirit and in letter is fully respected.

Framing of Claims

4. Unions should seek the maximum efficiency in the use of resources and have regard to the need to produce a balanced allocation of benefits between workers, investment and the consumer. To this end:

  • (i) when framing claims. both in the private sector and in nationalised industries, unions should consider the impact of their proposals on prices;
  • (ii) they should seek stability in the price of the product wherever possible, and in all cases have regard to the impact on the overall price level, recognising the need to keep inflation from rising above the present level;
  • (iii) increased productivity and better utilisation of capital equipment should always be considered as a means of combining the objectives of price stability, improved competitiveness and higher living standards for workpeople;
  • (iv) where firms are in a strong market position, they should be pressed to expand output and investment, rather than increase prices to the consumer;
  • (v)a longer timescale than one year in many cases may be the correct strategy for dealing with some of the points outlined above.
  • 5. Negotiators should embody in agreements commitments by employers about price intentions, these to constitute a yardstick against which future action can be judged.

    Information Disclosure in Negotiations

    6. In the course of negotiations:

  • (i) employers should be pressed to disclose the whole of the structure of costs in the enterprise, namely material costs and capital costs as well as labour costs, the latter comprising all grades including the remuneration and fringe benefits of senior executives and directors;
  • (ii) unions should be prepared to take full account of the information disclosed when considering a proper level of settlement:
  • (iii) unions are not however expected to accept unilateral statements by employers on the effect of pay adjustments on prices unless they are prepared to demonstrate this in detail;
  • (iv) unions should not be satisfied with the minimum information needed to meet statutory requirements, particularly where employers cite wider issues of future plans and job security in responding to claims.
  • Review by TUC and Government

    7. The TUC and the Government will meet each month and will review the operation of the above guidelines as part of the overall surveillance of the operation of the joint understanding and the need for the rate of inflation to be kept to the present level or below.

    November 14 1978