Editing Winter of Discontent (section)

===Incomes policy===

Wilson, and Callaghan, who succeeded him as prime minister after Wilson resigned for health reasons in 1976, continued to fight inflation, which peaked at 26.9 per cent in the 12 months to August 1975. While demonstrating to markets [[fiscal responsibility]] the government wished to avoid large increases in unemployment.<ref>{{cite journal |first=Colin |last=Hay |title=Chronicles of a Death Foretold: the Winter of Discontent and Construction of the Crisis of British Keynesianism |journal=Parliamentary Affairs |year=2010 |volume=63 |pages=446–470 |doi=10.1093/pa/gsp056 |issue=3}}</ref> As part of the campaign to bring down inflation, the government had agreed a "[[Social Contract (Britain)|Social Contract]]" with the TUC 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 [[Act of Parliament (UK)|Acts of Parliament]], but the Social Contract agreed that this would not happen.<ref name=bbc/>

====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''. This proposed a limit on wage rises of £6 per week for all earning below £8,500 annually. The [[TUC General Council]] accepted these proposals by 19 votes to 13. On 5 May 1976 the TUC accepted a new policy for 1976 increases, beginning 1 August, of between £2.50 and £4 per week with further years outlined. At the Annual Congress on 8 September 1976 the TUC rejected a motion which called for a return to free [[collective bargaining]] (which meant no incomes policy at all) once Phase I expired on 1 August 1977. This new policy was Phase II of the incomes policy.<ref name=hay/>

====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 modest increases recommended for 1977–78 under Phase II limits and not to try to reopen pay agreements made under the previous policy, while the government agreed not to intervene in pay negotiations. The [[Conservative Party (UK)|Conservative Party]] criticised the power of the unions and lack of any stronger policy to cover the period from the summer of 1978. [[Disinflation|The inflation rate continued to fall]] through 1977 and by 1978 the annual rate was below 10 per cent.<ref name=hay/>

At the end of the year [[Bernard Donoughue]], Callaghan's chief policy advisor, sent him a memo analysing possible election dates. He concluded that the following October or November would be the best option, as the economy was likely to remain in good shape through then. After that, he wrote, the outlook was unclear, with pressure from the government's own incomes policy likely.<ref name="The Heat of the Kitchen">{{cite book |last=Donoughue |first=Bernard |author-link=Bernard Donoughue, Baron Donoughue |title=The Heat of the Kitchen: An Autobiography |url={{GBurl|yE4KAQAAMAAJ|page=298}} |page=298 |date=2003 |isbn=978-1-84275-051-3 |publisher=Politico's}}, cited at {{harvp|López|2014|page=[{{GBurl|LVy1DAAAQBAJ|page=61}} 56–57]}}</ref>

====Five per cent limit====
At a May 1978 Downing Street lunch with editors and reporters from the ''[[Daily Mirror]]'', Callaghan asked if they believed it was possible that the planned Phase IV would succeed, as he believed it would if the unions and their members understood it was the best way to keep Labour in power. Most told him that it would be difficult, but not impossible. [[Geoffrey Goodman]] disagreed, saying in his view it would be impossible for the union leaders to keep their membership from demanding higher pay increases. "If that is the case, then I will go over the heads of the trade union leadership and appeal directly to their members—and the voters", the prime minister responded. "We have to hold the line on pay or else the government will fall."<ref name="Goodman 220–21">{{cite book |last1=Goodman |first1=Geoffrey |author-link1=Geoffrey Goodman |title=From Bevan to Blair: Fifty Years Reporting from the Political Frontline |date=2003 |publisher=Pluto Press |isbn=978-0-7453-2178-3 |pages=220–21 |url={{GBurl|VqlZAAAAMAAJ}}}}, cited at {{harvp|López|2014|pages=[{{GBurl|LVy1DAAAQBAJ|page=60}} 60–61]}}</ref>

On 21 July 1978 [[Chancellor of the Exchequer]] [[Denis Healey]] introduced a new white paper which set a guideline for pay rises of 5 per cent in the year from 1 August. Callaghan was determined to keep inflation down to single figures; however, trade union leaders warned the government that the 5 per cent limit was unachievable, and urged a more flexible approach with a range of settlements between 5 and 8 per cent. [[Terry Duffy]], president of the AUEW, described the limit as 'political suicide'. Healey also privately expressed scepticism about the achievability of the limit. The TUC voted overwhelmingly on 26 July to reject the limit and insist on a return to [[collective bargaining|free collective bargaining]] as they were promised.<ref name="Conroy">{{cite book |last1=Conroy |first1=Harry |title=Callaghan |date=2006 |publisher=Haus Publishing |isbn=978-1-904950-70-7 |url={{GBurl|txFwUINNlpAC|page=109}} |pages=109–124}}</ref><ref name=hay/>

It had been widely expected that Callaghan would call a general election in the autumn, and that the 5 per cent limit would be revised if Labour won. At a private dinner before that year's TUC conference, Callaghan discussed election strategy with the leaders of major unions. He asked whether he should call an autumn election; with the exception of [[Hugh Scanlon]], the president of the [[Confederation of Shipbuilding and Engineering Unions]], they all urged him to call for one no later than November. Any later, they said, and they could not guarantee their memberships would remain on the job and off the picket line through the winter.<ref name="Goodman 226–27">{{harvp|Goodman|2003|pages=226–27}}, cited at {{harvp|López|2014|pages=[{{GBurl|LVy1DAAAQBAJ|page=60}} 60–61]}}</ref>

Unexpectedly, however, on 7 September, 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, therefore the 5 per cent limit stood. The pay limit was officially termed "Phase IV" but most referred to it as "the 5 per cent limit". Although the government did not make the 5 per cent limit a legal requirement, it decided to impose penalties on private and public government contractors who broke the limit.<ref name=hay/><ref name="Davies">{{cite book |last1=Davies |first1=Andrew J. |title=To Build a New Jerusalem |date=1996 |isbn=978-0-349-10809-4 |url={{GBurl|ClNyQgAACAAJ|page=363}} |publisher=Abacus |pages=363–368}}</ref>