Winter of Discontent - Background

Background

The Labour governments of Harold Wilson and James Callaghan had been fighting for several years against inflation, which had peaked at 26.9% in the 12 months to August 1975, but wished to avoid large increases in unemployment. As part of the campaign to bring down inflation, the government had agreed a 'social contract' with the Trades Union Congress which allowed for a voluntary incomes policy in which the pay rises for workers were held down to limits set by the government. Previous governments had brought in incomes policies backed by Acts of Parliament, but the social contract agreed that this would not happen.

Phases I and II

Phase I of the pay policy was announced on 11 July 1975 with a white paper entitled The Attack on Inflation. It proposed a limit on wage rises of £6 per week for all earning below £8,500 annually. The TUC general council had accepted these proposals by 19 votes to 13. On 5 May 1976 the TUC accepted a new policy for the forthcoming year's negotiations of increases beginning 1 August between £2.50 and £4 per week; at the annual Congress on 8 September that year it rejected a motion which called for a return to free collective bargaining (which meant no incomes policy at all) once the agreement expired on 1 August 1977. This proposal became Phase II of the incomes policy.

Phase III

On 15 July 1977 the Chancellor of the Exchequer Denis Healey announced Phase III of the incomes policy in which there was to be a phased return to free collective bargaining, without "a free-for-all." After prolonged negotiations, the TUC agreed to continue with the increases recommended for that year under Phase II limits and not to try to reopen agreements made under the previous policy, while the Government agreed not to intervene in pay negotiations. The Conservative Party criticised the lack of any stronger policy. The inflation rate continued to fall through 1977 and by 1978 the annual rate fell below 10%.

The 5% limit

Despite having prepared for the end of the incomes policy, on 21 July 1978 Denis Healey introduced a new White Paper which set a guideline for pay rises of 5% in the year from 1 August (Callaghan's initial preference had been for 3%, but other ministers considered this totally unachievable). The TUC voted overwhelmingly on 26 July to reject the limit and insist on a return to free collective bargaining as they were promised. Unexpectedly, on 7 September, Prime Minister James Callaghan announced that he would not be calling a general election that autumn but seeking to go through the winter with continued pay restraint so that the economy would be in a better state in preparation for a spring election. The pay limit was officially termed 'Phase IV' but most referred to it as 'the 5% limit.' Although the government did not make the 5% limit a legal requirement, it decided to impose sanctions on government contractors who broke the limit.