Labour's ‘new group polities’

Elected with a bare majority, the 1964 Labour Government inherited a balance of payments deficit of some £800 million, and a severe sterling crisis. The crisis strengthened the Government's resolve with regard to incomes policy. The key to faster economic growth was the competitiveness of Britain's exports; while no western economy had been successful in combining stable prices with a high level of economic growth and full employment, the problem for Britain, with its dependence on international trade, was particularly serious. A policy to check the rise in prices to improve Britain's trade position was thus essential to the Government's growth plans as well as to maintaining the value of sterling. The nature of such a policy was conditioned by the Government's view that the main cause of rising prices was ‘the excessive expansion of money incomes’. The Government was aware, of course, that this was too ‘simpliste’ an analysis. Since 1958, annual average wage earnings in manufacturing in Britain had risen more slowly than in any other western European country. The problem was that output also had risen more slowly than in these countries, a factor which made the increase in unit labour costs comparatively high. The Government therefore also put considerable emphasis on the need for greater productivity, not as a substitute for wage restraint, but as a supplement to it.