The Social Contract was an

economic policy ''Economic Policy'' is a quarterly peer-reviewed academic journal published by Oxford University Press, Oxford Academic on behalf of the Centre for Economic Policy Research, the Center for Economic Studies (University of Munich), and the Paris Scho ...

of the Labour governments of

Harold Wilson James Harold Wilson, Baron Wilson of Rievaulx (11 March 1916 – 23 May 1995) was a British statesman and Labour Party (UK), Labour Party politician who twice served as Prime Minister of the United Kingdom, from 1964 to 1970 and again from 197 ...

and

James Callaghan Leonard James Callaghan, Baron Callaghan of Cardiff ( ; 27 March 191226 March 2005) was a British statesman and Labour Party (UK), Labour Party politician who served as Prime Minister of the United Kingdom from 1976 to 1979 and Leader of the L ...

in 1970s

Britain Britain most often refers to: * Great Britain, a large island comprising the countries of England, Scotland and Wales * The United Kingdom of Great Britain and Northern Ireland, a sovereign state in Europe comprising Great Britain and the north-eas ...

. The contract referred to a pact between the Labour government and the

Trades Union Congress The Trades Union Congress (TUC) is a national trade union center, national trade union centre, a federation of trade unions that collectively represent most unionised workers in England and Wales. There are 48 affiliated unions with a total of ...

(TUC) in order to allow the former to govern the country more effectively. The main goal of the Social Contract was the control of wage

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

In return for a package of measures, such as the repeal of the

Industrial Relations Act 1971 The Industrial Relations Act 1971 (c. 72) was an act of the Parliament of the United Kingdom, since repealed. It was based on proposals outlined in the governing Conservative Party's manifesto for the 1970 general election. The goal was to st ...

, increased social expenditure, and measures to control the

cost of living The cost of living is the cost of maintaining a certain standard of living for an individual or a household. Changes in the cost of living over time can be measured in a cost-of-living index. Cost of living calculations are also used to compare t ...

, such as food subsidies,

price controls Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of go ...

and a freeze on rent increases, the trade unions would ensure that their members would cooperate with a programme of voluntary wage restraint, in which pay rises were held down to limits set down by the government.

Background

The idea for the contract was drawn up in January 1973 by

and Vic Feather of the TUC, in a document entitled ''Economic Policy and the Cost of Living''. It was adopted as Labour Party policy soon after. It represented Labour's attempt at combating the rampant inflation which took hold in the early-1970s following the " Barber boom" and the

1973 oil crisis In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced that it was implementing a total oil embargo against countries that had supported Israel at any point during the 1973 Yom Kippur War, which began after Eg ...

, by utilizing their close links with the

trade union movement The labour movement is the collective organisation of working people to further their shared political and economic interests. It consists of the trade union or labour union movement, as well as political parties of labour. It can be considere ...

. The trade unions were a powerful force in 1970s Britain, with more than 13 million members.

Results

When Labour returned to government in the February 1974 election The Social Contract was put into practice. For the first four years it operated with reasonable success: Inflation did decline significantly; it peaked at 26.9% in August 1975, and then steadily declined, reaching 12.9% in July 1976, it edged up to 17.7% the following June, before falling to 7.4% in June 1978. The government however, was unable to deliver the increased social expenditure which had been promised as part of the package, due to cuts in public spending imposed by the

IMF The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of la ...

after 1976. The Social Contract broke down however due to

's attempt at holding pay rises to 5% or less in late 1978, which caused the unions to reject further pay restraint. The result was a breakdown in the government's pay policy, and widespread strikes in favour of higher pay rises over the winter of 1978–79, which became known as the

Winter of Discontent The Winter of Discontent was the period between late September 1978 and February 1979 in the United Kingdom characterised by widespread strikes by private, and later public sector trade unions demanding pay rises greater than the limits Prime ...

Influence in other countries

The

Australian Labor Party The Australian Labor Party (ALP), also known as the Labor Party or simply Labor, is the major Centre-left politics, centre-left List of political parties in Australia, political party in Australia and one of two Major party, major parties in Po ...

adopted a modified version of the social contract, known as the

Prices and Incomes Accord The Prices and Incomes Accord (also known as The Accord, the ALP–ACTU Accord, or ACTU–Labor Accord) was a series of agreements between the Australian Labor Party (ALP) and the Australian Council of Trade Unions (ACTU), in effect from ...

, which was introduced by the Labor government of

Bob Hawke Robert James Lee Hawke (9 December 1929 – 16 May 2019) was an Australian politician and trade unionist who served as the 23rd prime minister of Australia from 1983 to 1991. He held office as the Australian Labor Party, leader of the La ...

in 1983, and operated until 1996. The Accord was introduced by Ralph Willis, the Minister of Employment Relations, who had made a fact-finding mission to Britain in the late-1970s. In Willis's view, the social contract had been fairly successful, but fell apart because of what he saw as the inflexible and unrealistic 5% pay policy, he determined that similar mistakes would not be made in Australia. Other countries also adopted similar policies, such as the Wassenaar Agreement in the Netherlands.

References

The Miners Strike and the Social Contract
The National Archives
1974–1979 – The Social Contract
London Metropolitan University, 2012 *{{cite report , url=https://ore.exeter.ac.uk/repository/bitstream/handle/10036/20752/Final%20unions%20article.pdf , title=The Labour Party and the Trade Unions , last=Thorpe , first=Andrew , publisher=University of Exeter , year=2008 , accessdate=18 June 2018 1973 establishments in the United Kingdom 1979 disestablishments in the United Kingdom 1970s in British politics Harold Wilson History of the Labour Party (UK) James Callaghan Inflation in the United Kingdom 1973 oil crisis British economic policy