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H.W. Set these out as problems for N.E.D. to settle, not as Govt. dictat.

Expound sitn. £500m. = 21/2%. If growth achieved, there would be more. Let us discuss how we did it.
H.B. They want to come in – centre of power. These advisers have told them restraint is necessary: 2½% not unreasonable.
S.Ll. They are in fact split. But on the defensive more than before.

I promised to give, near end/’61, some further guidance. Can’t hold pause v. much longer.

Of course we must put major emphasis on growth. But need some interim arrangement while we plan future growth.
P.T. This paper will be of v. gt. importance. Concessions on public service as bait for acceptance of 2½%. What happens if 1st is snapped up and 2nd is rejected. Surely we shd. see this paper in draft.
H. If 21/2% becomes minimum, won’t it be eroded by arbitn?
J.H. No. Engineers may stand pat on nil.
H. Why?
J.H. They mean to do so because competitiveness.
M. Don’t see how they can.
M. Believe my plan is right for interim. Wish to discuss with S.Ll.
E.M. Timing. Leap-frogging cd. be avoided if all claims settled at same time.
J.H. V. long-term ques.
E.P. Ques. on arbitn must be answered. Will Govt. honour arbitn awards above 21/2% in sectors wh. they control.

Govt. must also decide what offers they will make in public sector.

Will they keep w’in 21/2%?
H.B. Some flexibility is necessary to growth, for individuals. Same must be true of wages. Can’t therefore be a rigid maximum, even for public sector.
Ch.H. But if Govt. go above 21/2% in public sector, how can they get if inspected in private sector.
R.M. An average of 21/2% wd. suffice. If some higher, some must be lower.
P.T. What does S.Ll. intend on arbitn?
H.B. Accept award provided not retrospective. Otherwise, system of arbitn will wrecked.
S.Ll. Statement. First part will go no further than H/C. 18 Dec.
End of pause: meaning. Can’t say anything now re arbitn: omit it.

Must have proposal for interim, as basis for discn. Shall I use both %age and figure?

P.M. Agree with I.M. – only way out is to increase prodn and earn larger incomes. That is real purpose of N.E.D.C., which we ask T.U.C. to join.
M’while they ask us what we intend to do re pause. In present form it can’t continue beyond end/fin. year. What replaces it? Ultimately policy of growth on wh. we invite T.U.C. co-opn. But must be intermediate period of 12 mos. or more – during wh. unlikely to be much more than £500m.
Only in exceptional cases can there by any substantial increase.
Must find means of ensuring tht. no more is drawn out. Thus, restraint.
Translated into practical terms, average of [21/2% - be refrained from mentioning the figure].
H. x| O.K. until you put that into writing & mention the figures. And what answer will you give to ques. of arbitration.
P.T. But do you also say all C. Service claims will be honoured?
H.B. There isn’t much. 2% for P.O. Engineers. M. rate. What else?
P.M. They have higher merit than new claims.
P.T. But if any are 5% or thereabouts . . . .
J.H. Are there any? M. rate is only 2/=. P.O. engineers 2%.
D.E. Don’t appear to be putting Govt. economic policy into commn in N.E.D.
Shd we say we have a no. of measures we cd. put in if you help us to get period of wage restraint.
H. Repeated x/.
P.M. Better therefore to give £500m. not 2½ %.
C.S. Repeated y/.
J.M. Support. Effect on families of all increased charges in last 12 months plus those of measures taken on Agenda.
S.Ll. Tactics. Get them in on N.E.D. planning if we can. If they won’t co-operate in an interim wages policy, get them to say so publicly. Then we have clear responsibility for a Govt. policy.

P.M. Then don’t put the interim policy too plainly. No figures at all? At least no %age. A few millions only.

H.B. Concern about C. Service unless we can say something definite pretty soon.
S.Ll. Believe we cd. w’out danger let the dammed up claims go into effect at end of pause. Say what will happen when pause ends. But must move on to interim policy.
Ch.H. Practical ques. remains: what bearing has this paper on the pending claims of rlways., nurses etc.

Can we hope to get TU.C. into N.E.D. and then at once announce a firm Govt. policy for interim.

J.H. We cd. deal with pending claims on individual merits & let pattern emerge.
E.P. Nurses are claiming 30%. How am I to brief the employers’ side?
They have at least an implied right to arbitration.
H.B. Believe T.U.C. mght. agree to 21/2% - tho’ individual Unions wd. prob. not conform.
R.M. Advantage to have T.U.C. endorsement if we cd. get it.
M. Is it? No responsibility of T.U.C. to deal with wages.
P.M. Two issues: a) Is it better to put paper in general terms, as I indicated:

or is it better to try to get T.U.C. endorsement of

somethg. like 21/2% for next period?
S.Ll. z?/ Put 3 alternatives to T.U.C. without the figures in any.

If they rejected all, our field of manoeuvre wd. be clearer.

Cd at least say they had a chance to advise us.
I.M. Dislike both money & %. Avoid both.

a./ T.U.C. can’t bind Unions on wages.

P.M. Must say we are intending to end pause.
S.Ll. On a./. This is battle for opinion. If T.U.C. endorsed any formula, this wd. strengthen employer and effect on arbitrator.

They won’t enter N.E.D. w’out some indication of policy on wages.

H.W. Support z/.
P.M. Pause must end if somethg. reasonable can be substituted.

Intentns on p.sector near commitments.

Thereafter not much scope for increases over next period before growth.
Takg. hard cases and dammed up, there won’t be much for others.
How much? How wd. you put it? The 3 alternatives w’out figures.
Seek your views on this. Period: looks like 1962 (calendar)
2. Railway Wages.
E.M. a. Beeching wdn’t make a “silly” offer. Wd not start below 5%.

  1. T.U.’s wdn’t accept split offer.

  2. They wd. suggest arbitn; and wd. ask B.T.C. to promise to honour award.

S.Ll. Premature to debate this now. Much depends on genl. talks with T.U.C.

Rlway. Unions are pretty responsible over it. Mght. delay further if T.U.C. were going along with general talks.
Ch.H. x| S.Tel. story came from rlway. unions. 3% from April 1st.
K. Put that into figure of money under course (c).
E.M. Mtg. with Unions is 2 wks ahead. 23/1/62.
P.M. x/ wd. be fair. How do we approach that?
D.E. Not solely a wage problem. Size of deficit is so great. Can’t reduce it w’out lower seat of operation, & improving efficiency by enabling him to raise standard of employees.
I.M. c) means safer than arbitn. On latter we wd. have to promise to respect award: the men wd. not. If sensible award, men wd. strike.

Wd Beeching play on c)?

Limit cost of award to Ty., but let him make up whatever balance he may need by economies & greater efficiency.

3. Miners’ Wages.

R.W. Miners’ claim will now come before rlways.

Rubens will decline concession on hours: but wants to make offer on pay related to some date in spring – prs. March. 7/6d on £9.10.0. if piece-rates are held. £15m. in all. About 21/2%.

C.C. 4(62). 8th January, 1962. (3 p.m.)
1. Post Office: Work to Rule. [Enter B-C., E.P.,

P.M.G. No effect on telegrams & telephones. Posts patchy. Provinces little

diffy. In Ldn. (Mt. Pleasant) 1½ days. Diverting outside Ldn.

Also declining bulk postings. Posn to-day better than Saty.

Little public disquiet or criticism.

Before work to rule had promised to negotiate on pay research reports.

Declined immediate award. Union mtg. Thurs. to discuss future

action. Help to moderates if indicn of end/pause given by S.Ll.

as Wedy & talks by H.B. with C.S. assocns.

No negotiations until work to rule is called off. Any award to be

S.Ll. This is not result of pause. Research unit wd. not have reported

until spring. Can’t we separate it.

J.H. No. Reasons are connected with our limitn on arbitration.
I.M. i) Odd to be paying overtime. ii) Need we take special steps e.g. over

football-pool coupons. Delay there wd. help to put public

opinion v. the men.
P.M.G. Serious break-down in mails wd. discredit Govt.
D.S. Would it?
H.B. Need to explain facts of dispute to public - & why claim can’t be met.
J.H. Union will be influenced by S.Ll. progress with T.U.C. R. Smith is

good man.

Ch.H. Diff. to dissociate this from pause.
Agreed: Ch.H. to present facts to public.

[Exit P.M.G.

2. Government Expenditure.
a) Estimates for 1962/63.
H.B. Para. 4. Figure of £150 m. shd. be £200 m. – further Supplementaries.

But figure of £110 m. still stands because pledge did not take

Supplementaries into account – viz., above Estimates not


Ch.H. “In real terms” = pay & prices. The £50 m. in general grant for

teachers’ wages does not count against us.

H.B. No.
P.M. W’out action Estimates wd. be 4½% above – 2% above pledge given

to Parlt. and to I.M.F.

Vote on account is deadline for announcement. It cd. be p’poned

until end/Feb. – to give us 6, vice 4, wks. to reach condns.

Hail. Only estimate reduced is that for civil science.
H.W. Defence Budget is w’in the 2½%. £46 m. in real terms.
H.B. Grateful for that. Estimates reflect many Dpl. cuts in p’mmes to

come w’in the 2½%. This will have to be brought out in

b) Public Expenditure 1962-65.
H.B. Unless we can survive next 2 yrs. no point in planning for ‘70’s.

If we can’t show in this Budget tht. we have this under control,

we can’t hope to save £.
D.E. Annex A of C(62) 3 stems from date before we had decided that wage

restraint was main objective. Para. 12(c) is wrong: if we can’t

get that right control of public expre won’t suffice.

a) Expre may be so high tht. taxation is disincentive to enterprise.

Momentum is said to be so strong tht. threatens to get out of

hand. Actually wages restraint is more important – itself a large

propn of increase in p. expre.

b) Para. 20. Debt interest: £135 m. increase. Sole mention of this – no

explanation. Why leave out of a/c. If we got a growth policy

going, f. investors need not be ????? by high interest to keep

their money here.

Memo seems to be based on assumptn tht. we shan’t get successful

incomes policy or growth policy. We shd. be planning for

higher figure of G.N.P.

H.B. We shall have to work hard for 2½-3% growth in G.D.P.

Annex is on optimistic basis – para. 10(i). Can’t rely on more than

3½% increase in exports.
D.E. Don’t believe cuts requd to fulfil pledge will help twds. growth. Won’t

encourage exports. Volume of home sales needs to be expanded

for that purpose.
S.Ll. 10% increase in 59/60. But p. expre ran away & exports fell.
D.E. But we had £700 m. increase in incomes. That is the thing to go for.

S.Ll. Due to large demand – partly due to p. expre.

H.B. D.E. line is logical if we are ready to increase taxation. Are we?
M. Support D.E. Order books are going down. Can’t separate home &

export prodn. If you restrict first, second won’t expand.

Wages are basic to this. They explain rise in p. expre.
R.M. Pull of home market does affect b/p. both by attractg. imports &

reducg. exports.

H.B. How expect exports to prosper when we increase taxation & draw

more brains into public sector.

Increase of consumptn 7½% in money & 4½% in real terms (reply

to M.).

Unless we get increased exports, increased growth at home leads to

more imports and b/p. crisis.

E.M. Some of the 42.5% is more productive than others: e.g. roads is

productive, rail is not.

H.B. Ministers must then be ready to cut non-productive expre.
R.M. C. Market will make us more competitive.
H.B. But m’while there are 3-4 yrs. to get thro!
D.E. If 3% growth is best we can expect, and if incomes rise by 4% or more

(recent average) we must devalue anyway – whatever may be

done on p. expenditure.
Hail. Does control of p. expre assist or frustrate that effort?
P.T. Why exempt natd indies?
H.B. Not wholly: but to extent of W. Paper policy.

Also because they (e.g. electricity) are essential to growth.

H.B. Ty. have bn. helped to curb this. E.g. roads: 30% cut on desired

p’mme accepted. Have bn. trying to get supportable total.

Won’t S.Ll. have to say soon how he is getting on with long-term plan.
S.Ll. Thght. Cab. agreed we shd. try to restrain p. expre w’in fixed

proportion of G.D.P. Necessary to preserve some discipline.

Balanced budget of last year already blown away - £200 m. slip

in each of last 2 years. We have this again, posn will be v. grave.

H.B. Supplies are not due mainly to wage increases.

R.M. Some methods of restraining it handicap growth. Some cd. stimulate

wage claims.
H.B. Not as much as threatened. High emplt. is much more potent factor.
E.M. Ship-bldg., which is in effect in C. Market, has not bn. stimulated to

efficiency by that competition – only moved when order-books

shortened. Not sure effect of that is wholly bad.
H.B. Annex B. shows gt. increase in S. Services under Tory Govts.

Main lines of that can go on. But must find means for it by

holding back some p’mmes. – cf. non-essential parts of those

Services. Unless we are ready to say taxation must rise.

3. Investment: Education.
H.B. Have settled N.H.S. (incldg. hospitals) on 2½% basis. Road p’mme –

announced. Discussing Housing. Broad agreemt. also reached

on minor p’mmes. Out-standing ques. = education, & M/E.

needs earlier decision (for 63/64 starts) than some others.

63-66. Doubt if we can do more than £121 m. Even that is generous

in view of start educn had over roads, hospitals etc.

Ch.H. 62. reduction from 110.000 to 100.000 accepted (by H.B.). Still in

discussion of ’63., where I want to revert to 100.000 houses to

make some impact on slum clearance. Housing is becoming

explosive politically.

Hope to consider total housing load on economy: private & public.

Shall submit my problem to Cab.

J.M. Agree on pol. troubles ahead in Scotl. because private bldg. did not

Hail. How do you equate educn & housing.

J.M. My problem on schools is difft fr. E. & W.
D.E. Fwd. programming has bn. built in to school bldg. Pushing starts

fwd. need public announcement.

My memo. assumes genl. agreemt. tht. training college & techn. educn

bldg. can’t be cut at all: & that all redns fall on schools. H.B.’s

memo. spreads slow-down over whole p’mme. I have already

in July pushed training coll. fwd. by one year – w’out

announcement fwd. now have to announce a 2 yr. slip.
H.B. Para. 4 of my memo. Training coll.: peak of starts has bn. passed.

I favour £5 m. p.a. starts as cpd. with £6 m. Marginal effect on

output of teachers. Further educn: £15.7 m. continuing vice

rise progressively to £22 m.

“P’mmes announced” – but only provisional, 18 mos. ago.
D.E. Benefit fr. any slow-down wd. not be worth-while. Outcry wd. be

much more than gain. Pledge re classes: training colleges. On

techn. educn the bulge is due to C.A.T.S: inconsistent with

policy of growth. Thus, all cuts must fall on schools. L.e.a.’s

ready to go ahead. I shd. have to make announcement going

back on Wh. Paper of ’58. In informed circles it is said tht. rate

of investment is already too low. Lowest figure I cd. accept

w’out public announcement is £131 m. average for next 3 years.

H.B. Other Ministers have had to adjust p’mmes publicly.

Present 3 year average is well below £131 m.

Only in v. long term is education investment conducive to growth.
D.E. Really? A level nos. are growing faster than no. of teachers.
4. Nutritional Services.
a) Cheap Milk.
E.P. Wish to press for concession to 3-child families all under 5.

Nutrition experts wd. then say there wd. be no risk. Cost £1½ m.

Adminve complications.
H.B. Ready to make this concession. £17½ m. net assumed in memo., has

risen to £20½ m. because change in price of milk. Tho’ we

shdn’t get full benefit in 1st year.
J.B-C. Cdn’t get it in operation before mid-summer.
Hail. Hope we shan’t keep nibbling at this.
E.P. Nutritional posn of largest families is unlikely to vary over next few

years. It wd. in future be confined to precise nutritional risks.

J.H. V. bad moment for this. Will be politically v. embarrassing.
b) School Meals.
D.E. Can’t say that education wd. suffer.

It means 2/6 extra for each child at school. Will be

misrepresented at a time when we are seeking wage restraint

(and reducg. surtax).

M. Unfortunate to do this when we are trying to keep incomes down.
c) School Milk.
D.E. We cd. save £870.000 by w’drawing free milk from independent


Political trouble – mainly from our own party.
d) Family Allowances.
S.Ll. This might be a runner in reln to relieving lowest level of income-tax

payers. There is a taxation justification for that.

J.B-C. But wd. Sharpen differentiation v. Poorest, who get ch. allowances net.
I.M. Redn of 8/- p.wk in millions of families – at time when we are seeking

wage restraint.

J.B-C. If this is to be pursued, I shd. want to put in a memo.
I.M. Also requires legn.
J.B-C. V. wide-ranging legn.

C.C.5(62) 16th January, 1962
1. Laos. [Enter M.R.
H. Geneva Conf. succeeded. But Princes can’t agree. Phouma’s proposed Cabinet is acceptable to U.S. – but Phoumi won’t accept. Co-Chairmen have called 3 Princes to Geneva. If he is still obdurate, all we can do is to send him back with Mr. Macdonald to confront King. No other possibility. If it fails, fighting will be resumed. U.S. are now putting real pressure on Phoumi.
P.M. A year ago we promised to support armed intervention. But then we were able to secure change in U.S. policy. It will be diff. to go back now to support of SEATO intervention. We aren’t bound by our old commitment. We might make that clear to U.S.
H. Will submit memo to bring Cab. up to date.
2. Congo.
H. Bit quieter. Exchange of prs. (K. & Congo). Due mainly to fact that 2 sensible U.N. officials are on better terms with J. Must press U.N. not to move Urquhart: Smith already moved.

Kizunga opn went well. U.N. troops stood by but didn’t have to intervene. K. now out of picture.

Promising if T. sticks to Kitona pact - & if U.N. refrain from hunting mercenaries by force.
E.H. M.T.’s aim: to promote conciln & work twds. w’drawal of U.N. forces. But he has to keep assuring Afro-Asians that he will continue to carry out resolns.
H. Need for police vice troops. Nigeria might help.
H. U.T. drafted bad lr. to R.W. We asked him to refrain fr. writing & give us name of his repve which we will pass on.
3. Indonesia.
H. Raid y’day, intercepted by Dutch. But there have bn. similar raids before. Might be start of fighting.

We must now suspend [deliveries] licences for arms exports.

M. Shd we suspend or revoke? Second course wd. involve publicity.

Cdn’t m’tain suspension beyond re-assembly of H/C.

Agreed tht. we grant no new licences.
P.M. Gannets: due to go 17/i. Also: engine which is spare to those & they have taken delivery but no export licence granted.
H. Awkward to let these go now, when fighting may be about to start.
M. A no. of other countries have publicly revoked licences.
H.W. Gannet has an offensive capacity.
M. Last 2 of order of 16.
P.M. Recommend:

i) we grant no more export licences (for arms).

ii) suspend or cancel licences (for arms) granted but not executed.

iii) let Gannets go, on basis that Indonesians already own them.

Then try to limit publicity to i) and ii): as temporary measure until situation clears – in terms of war-like stores. The spare engine for Gannets shd. similarly be allowed to go.
4. Berlin.
H. Concln in memo. somewhat speculative. But impressed by permanent “frontier” between W. Berlin and E. Germany. May be that, having sealed off W. Berlin, they will lose interest in negotns. Not sure which way they will play it. Grom. was v. tough in 2nd talk with Thompson. But not sure. There are other matters wh. do interest R. e.g. sovereignty of D.D.R. Next step: see if U.S. will agree tht. T. shd. open up on some of these & see wtr. R. respond. If they don’t, may mean tht. R. prefer status quo for time being.

Our immediate aim: persuade U.S. to agree to a 3rd interview by T.

M. Weakness of our position – based on continuing mil. occupn, which ultimately makes no sense.
S.Ll. Pity T. isn’t free to canvass more freely.
P.M. Because of commitments we have accepted to F. and G.
H. Choice: go on with talks over months or call a F.M. mtg. Wd need to be sure how far we cd. get in latter.
P.M. Remember: Br. people wdn’t willingly go to war over W. Berlin. Nor does Mr. K. wish to do so. But risk of Genl. Clay & contingency planning – may get us into v. real diffies. Who is going to bill that cat?

If K.’s position is being eroded, it may be better to do business with him while he is still available. Alternative would be worse.

H. Can’t risk letting these talks get quite bogged down.
S.Ll. Cd co-Chairmen for Laos meet to discuss that & swop views on this?
5. Incomes Policy. [Enter E.P., P.M.G., R.W. & Thompson.
a) Arbitration.

S.Ll. As in memo.

Third course. With no attempt to define comparability – tho’ I fear that in full emplt. Comparability in full sense isn’t tolerable. We must concentrate on trying to create atmosphere in which arbitrators will need natl interest. If that fails, we may have to go back to course 1.
H.B. There wd. also be reservation v. retrospection.

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