THE CAMPAIGN GUIDE SUPPLEMENT 1978 Published by the Conservative and Unionist Central Office, 32 Smith Square Westminster, S. W. 1. (Tel.: 01-222 9000), and printed by McCorquodale Printers Limited, London. PREFACE We published our main Campaign Guide in April 1977; it carried the story of the present Labour Government up to the turn of the year 1976/77. This Supplement now carries the disagreeable tale on for a further calendar year. Should the Election come this year, the political and economic developments until then— for example, the forthcoming Budget—will be covered in our general publications, particularly “Politics Today”. Should the Election come later, we will publish a second Supplement. We hope, not least for the nation's sake, that this does not prove necessary! I am once again indebted to my colleagues in the Conservative Research Department for all their work in preparing this Supplement, and especially to Anthony Greenland who has edited it. March 1978 C.F.P. CONTENTS PAGE 1. THE LABOUR GOVERNMENT: BACK FROM THE BRINK 1 Appendix:- Labour and Conservative Records 10 2. REVIEW OF THE ECONOMY SINCE 1976 11 3. ECONOMIC AFFAIRS (A) Public Expenditure and Borrowing 22 (B) Taxation 27 (C) Standard of Living and Prices 36 (D) Industry 42 (E) Small Businesses 52 (F) Employment and Industrial Relations 55 (G) Energy 65 PAGE (H) Trade 74 (I) Agriculture, Forestry and Fisheries 79 4. HOME AFFAIRS (A) Introduction 86 (B) Housing 86 (C) Local Government and Environment 94 (D) Transport 106 (E) Education 112 (F) Health and Social Security 118 (G) Home Office Matters 125 5. PARLIAMENT, LAW AND THE CITIZEN (A) Representation of the People 135 (B) Parliament 135 (C) House of Lords 136 (D) Civil Service 137 (E) Constitutional Matters 139 (F) Law and Justice 141 6. SCOTLAND, WALES AND NORTHERN IRELAND (A) Scotland 144 (B) Wales 150 (C) Northern Ireland 155 7. EXTERNAL AFFAIRS AND DEFENCE (A) The EEC 161 (B) Western Europe 165 (C) East-West Relations 167 (D) International Terrorism 169 (E) The United States 170 (F) The Middle East 171 (G) Africa 172 (H) CPRS Report on Overseas Representation 176 (I) Crown Agents 177 (J) Global Matters 177 (K) Aid 178 (L) Defence 178 8. THE OTHER PARTIES (A) Labour Party 185 (B) Liberal Party 202 PAGE (C) Communist Party 208 (D) The Trotskyist Left 210 (E) National Front 211 APPENDICES I. Conservative Party's Central Accounts 213 II. Economic Statistics 214 Index 223 1. THE LABOUR GOVERNMENT: BACK FROM THE BRINK The Labour Conference in the autumn of 1976 saw the British economy at its nadir after two and a half years of Labour government. As the Conference deliberated, Britain faced her worst sterling crisis for years. The £, which had stood at $2·30 when Labour obtained office in March 1974 and $2·00 two years later, closed at $1·64 on 28th September, having fallen 6½ cents in the first two days of the Conference. Mr Healey turned back at London Airport from flying to important international conferences at Hong Kong and Manila and the following day announced his intention to apply for a stand-by credit of £2,300 million from the IMF. Three months earlier he had claimed: “The long-awaited economic miracle is in our grasp. Britain can achieve in the seventies what Germany and France achieved in the fifties and sixties” (Sunday Telegraph, 4th July 1976). He now said: “The alternative to getting help from the IMF would be economic policies so savage, I think they would produce riots in the streets, an immediate fall in living standards, and unemployment of three million” (ITN, News at Ten, 29th September 1976). The Labour Conference reacted to this crisis by passing with the support of 98 per cent of its delegates, Labour's Programme 1976 with its proposals for wholesale nationalisation. Neither Mr Callaghan nor any of his ministers have rejected these proposals—similar to the policies that precipitated the 1976 crisis—nor, of course, did they vote against them at the time. The Cause of the Crisis. Like its predecessor of 1964 this Labour government obtained office committed to extravagant spending programmes which inevitably involved both soaring taxation and threats to industrial confidence. Mr Roy Hattersley, the present Prices Secretary, who is now claiming credit for reducing Britain's inflation to single figures “months ahead” (Times, 18th February 1978) but in fact years behind Labour's target, had said: “We will be an expensive Government with an expensive programme” (Cambridge, 27th May 1972). In the same speech in which he promised to extract “howls of anguish” from “the rich”, Mr Healey told the 1973 Labour Party Conference: “Our programme is going to cost money, and money can only be raised through taxation” (Blackpool, 1st October 1973). Even when it became clear that the Government's excessive spending, borrowing and soaring taxation were causing unemployment to rise to unprecedented levels, the Government continued to resist Conservative pressure to change its policy. In her first Conference speech as Leader of the Conservative Party Mrs Thatcher said: “The Labour Government … have the usual Socialist disease: they have run out of other people's money … Never in the field of human credit has so much been owed” (Blackpool, 10th October 1975). When Mr Healey was asked on 4th March 1976 whether he had any intention of making further cuts in public spending, he simply replied: “No” (Hansard, Col. 1527). Shortly after succeeding Sir Harold Wilson, the present Prime Minister replied to Conservative pressure for reductions: “I think it would be foolish to talk about large scale cuts in public expenditure” (Hansard, 6th May 1976, Col. 1468). At the same Labour Party Conference that witnessed five months later the economic blizzard, Mr Callaghan reviewed the effects of Labour's spending policies: “Over the last three years, whilst our domestic product has risen by 2 per cent, the increase in our public expenditure … has been 18 per cent. We have bridged the gap by higher taxation, by borrowing from abroad and worst of all, by printing money” (Blackpool, 28th September 1976). Labour's reluctance to change their policy was disastrous for British industry. Shortly after obtaining office Mr Healey declared: “I see no reason why the mass of British industry should find itself short of money this coming year” (Hansard, 1st April 1974, Col. 1007). thus justifying the tax burdens placed on industry in his March 1974 Budget. But on 26th September 1974, he acknowledged: “There is a collapse of business confidence in Britain” (People and Politics, ITV). He sought to remedy the situation in his November Budget. But it was too late: inflation was beginning to soar, investment was being deterred and unemployment starting to mount. The Government dealt further blows to confidence through the threats of nationalisation and State control contained in the Industry Act 1975, and placed yet more burdens on industry by the Employment Protection Act of the same year. Reasons for the Recent Recovery. Since the crisis of October 1976, the economy has improved in certain respects. Indeed, things could hardly have worsened. Conservatives acknowledge these improvements: as Mrs Thatcher has said, they were “good news for Britain, and good news for Britain is good news for the Conservative Party” (Blackpool, 14th October 1977). In particular, sterling has recovered, but is still well below its level when Labour obtained office. Taxation has been cut, but the average household is still paying nearly £10 a week more than in 1973–4. The Minimum Lending Rate has fallen from the crisis rate of 15 per cent during the winter of 1976–7. How far these improvements extend will be considered later. What are the factors that have brought them about? (1) Like its predecessors of 1945–51 and 1964–70, the present Labour Government has been forced by the failure of its policies to borrow from abroad. The terms of the IMF stand-by credit as set out in Mr Healey's Letter of Intent of 15th December 1976 bore a striking resemblance to the arguments urged by Conservatives over the previous two years: cuts in government spending designed to reduce public sector borrowing, and control of the money supply. (2) The loss of two safe Labour seats in by-elections in the autumn of 1976—Walsall North and Workington—and two more in the spring of 1977—Birmingham Stechford and Ashfield—deprived the Government of its majority in the House of Commons and thus put an end to any chance of its carrying through further doctrinaire Socialist measures. In 1978 came the loss of Ilford North. (3) A general election is approaching. Not even this Government, despite its manoeuvrings with the Liberals and other minor parties, its five-fold guillotine (see Campaign Guide 1977, page 473), its ‘dodging’ of votes (see page 135), and its threats to the House of Lords (see page 137), can avoid facing the electors before or during the autumn of 1979. The main explanation for the apparent moderation of the 1977 Labour Party Conference and for the absence from the Government's legislative programme for 1977–8 of Socialist proposals was the desire to present to the electors Socialism's pre- election face. As Mrs Thatcher said, the Socialist leopard “has not changed its spots; it just does not want its victim to know that it is there” (Blackpool, 14th October 1977). (4) The contribution of North Sea oil to Britain's balance of payments has been a further essential factor in such recovery as has taken place. This is no credit to Socialism. As Mrs Thatcher said: “I take pride in the fact that it was a Conservative Government which awarded the licences which opened the way for the oil companies of the world to develop this vast new natural resource for the benefit of all of us.