British Economic Difficulties: The Impact Of The Growth In Trade Union Powers

The National Union of Miners was formed in 1888; Newport, in order to protest a colliery owner’s refusal to increase wages. By 1890, it had 250,000 members, rising to 945,000 members by 1920.

NUM

Post General Strike, the NUM faded from significance, as Britain’s economic development led to an improvement in working conditions within pits. However, the dire state of the British manufacturing industry of the 1970s meant that the National Union of Miners was called back into action on 9th January 1972 – its first strike in nearly 46 years.

This reflected a growing sense of unrest within the industrial sector, due to the contraction of union powers, as well as proposed real wage cuts.  Edward Heath’s attempt to reduce union power was epitomised by the introducing of the Industrial Relations Act of 1971. The new act meant that union demonstrations could only happen following a ballot, and the Industrial Relations Court was set up to judge cases where unions supposedly broke an agreement. In theory, this Act was intended to make the Union strike action more diplomatic and less impulsive, however, the labour unions saw this as a ploy to drown the potential union strikes under a mountain of legal battles that would bankrupt them out of any potential conflicts.

Protest Coal

Therefore, the catalyst for the 1973-4 strike emerged from the contractionary fiscal policy that Edward Heath’s administration imposed in order to curb inflation, by reducing domestic consumption through wage cuts. On October 8th 1973, Heath announced his plan to limit pay rises to 7%, whilst increasing National Insurance Contributions by 9p.

As pay rises were capped at 7% (despite inflation of 10.88%) miners were facing a reduction in real wages. The NUM’s collective industrial action came in the form of an overtime ban, commencing on the 12th November 1973. This had the potential to cripple the British energy sector, as following the drastic increase in price of importing oil, Britain could no longer rely on oil or the 149 million tonnes of coal produced in 1972. Consequently, Heath’s administration decided that in order to preserve energy sources during the winter, commercial users of energy were to be limited to three days a week of electricity, and individuals were banned from working overtime during these days.

In effect this not only prevented the domestic use of electricity among the general public, but it also reduced the output in the economy, which contributed towards a further drop in productivity compared to the UK’s European competition. 

Eventually, the three-day week was ended on the 7th March 1974, as Harold Wilson took office.

As such, the British government’s economic difficulties were exacerbated by the ever growing union power. This growth in power stemmed from the desperation for economic growth, in a period of shortages. The British government had their offer of a pay rise of 16.5% rejected by the unions, hence strike actions continued.

Wilson’s new Labour government were able to end the three day week, but only after offering a pay rise of 35% to the unions. In February 1975, a further increase in wages of 35% was achieved, this time without the use of industrial action.

However, Heath’s slogan for negotiation with the NUM still resonated throughout the rest of the decade: “Who governs Britain?”. Indeed, it became clear that in this era of energy shortages and falling output, the government were held hostage by the growing power of the trade unions.

The 35% increase in wages meant an increase in cost of production, therefore there was subsequent cost-push inflation. The increase in wages was not only a symbol of the growing desperation for any kind of energy from the British government, but it acted to increase the inflationary pressures that Britain were already facing.

  The ever increasing negative output gap was epitomised by the fall in productivity in UK manufacturing compared to its developing competition, as seen in the graph below.

Screen Shot 2018-10-02 at 17.40.05.png

The trade union action was in response to contractionary fiscal policy to reduce inflation. But ultimately, the growing union power meant that there was an increase in the cost of production for a vital energy source, hence there was a subsequent fall in international competitiveness and productivity, and a net increase in inflationary pressures.

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