confidential confidential

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D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y ' S G O V E R N M E N T 80) 26th elusions

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C O N C L U S I O N S of a M e e t i n g of the C a b i n e t held at 10 Downing S t r e e t on T U E S D A Y 1 J U L Y 1980 at 10.30 a m

PRESENT T h e R t Hon M a r g a r e t T h a t c h e r M P Prime Minister Rt Hon W i l l i a m Whitelaw M P .•etary of State f o r the Home Department

T h e R t Hon L o r d H a i l s h a m L o r d Chancellor

Rt Hon L o r d C a r r i n g t o n :etary of State f o r F o r e i g n and imonwealth A f f a i r s

T h e R t Hon S i r G e o f f r e y Howe Q C M P C h a n c e l l o r of the E x c h e q u e r

Rt Hon S i r K e i t h Joseph M P :etary of State for Industry

T h e R t Hon F r a n c i s P y m M P S e c r e t a r y of State f o r Defence « p j |

Rt Hon L o r d Soames d President of the C o u n c i l

T h e R t Hon J a m e s P r i o r M P S e c r e t a r y of State f o r E m p l o y m e n t

Rt HonlPeter W a l k e r M P ister of A g r i c u l t u r e , F i s h e r i e s and F o o d

T h e R t Hon M i c h a e l H e s e l t i n e M P S e c r e t a r y of State f o r the E n v i r o n m e n t

Rt Hon George Younger M P •etary of State f o r Scotland

The R t Hon Nicholas Edwards M P S e c r e t a r y of State f o r W a l e s

Rt Hon Humphrey A t k i n s M P •etary of State f o r N o r t h e r n I r e l a n d

T h e R t Hon P a t r i c k J e n k i n M P S e c r e t a r y of State f o r S o c i a l S e r v i c e s

Rt Hon N o r m a n St John-Stevas M P ncellor of the Duchy of L a n c a s t e r

T h e R t Hon J o h n Nott M P S e c r e t a r y of State f o r T r a d e

Rt Hon D a v i d H o w e l l M P • etary of State for E n e r g y

T h e R t Hon M a r k C a r l i s l e Q C M P S e c r e t a r y of State for E d u c a t i o n a n d S c i e n c e

Rt Hon John Biff en M P if Secretary, T r e a s u r y

T h e R t Hen A n g u s Maude M P Paymaster General

CONFIDENTIAL

CONFIDENTIAL

THE FOLLOWING WERE ALSO PRESENT The R t Hon M i c h a e l J o p l i n g M P Parliamentary Secretary, Treasury

e Rt Hon Norman F o w l e r M P nister of T r a n s p o r t

SECRETARIAT Sir Robert A r m s t r o n g M r P L e Cheminant M r D J L Moore

SUBJECT TOP SALARIES REVIEW BODY R E P O R T S

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S D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y ' S G O V E R N M E N T

C O P Y NO

35

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LIMITED CIRCULATION ANNEX C C ( 8 0 ) 26th C o n c l u s i o n s T u e s d a y 1 J u l y 1980 at 10. 30 a m

P SALARIES VIEW B O D Y PORTS evious

ference: (80) 24th nclusions nute 4

T h ^ C a b i n e t c o n s i i e r e d a m e m o r a n d u m by the C h a n c e l l o r of the D u c h y of L a n c a s t e r (C(80) 33) o n t h e r e c o m m e n d a t i o n s i n the 15th R e p o r t of the T o p S a l a r i e s R e v i e w B o d y ( T S R B 15) f o r new r a t e s for the s a l a r i e s and s e c r e t a r i a l a l l o w a n c e s of M e m b e r s of P a r l i a m e n t ( M P s ) , the s a l a r i e s of M i n i s t e r s , and P e e r s ' expenses a l l o w a n c e s ; a note by the S e c r e t a r y of the C a b i n e t (C(80) 32) c o v e r i n g the 14th R e p o r t of the T S R B on r a t e s of s a l a r y f o r the higher C i v i l S e r v i c e , s e n i o r o f f i c e r s of the a r m e d f o r c e s , the h i g h e r j u d i c i a r y and the c h a i r m e n and b o a r d m e m b e r s of n a t i o n a l i s e d i n d u s t r i e s ; and a note by the S e c r e t a r y of the C a b i n e t (C(80) 34) c o v e r i n g a note by o f f i c i a l r o n s o m e o p t i o n s f o r d e a l i n g w i t h the two TSRB reports. T H E P R I M E M I N I S T E R s a i d that T S R B 14 r e c o m m e n d e d i n c r e a s e s i n a r a n g e f r o m 16.2 p e r cent to 3 0 . 6 p e r cent, a n d a v e r a g i n g 2 5 , 8 p e r cent w i t h effect f r o m 1 A p r i l 1980; a n d T S R B 15 r e c o m m e n d e d i n c r e a s e s f o r M P s of 14. 6 p e r cent f r o m 13 J u n e 1980. It was n e c e s s a r y to c o n s i d e r t h e s e p r o p o s a l s a g a i n s t the b a c k g r o u n d of the c u r r e n t r i s i n g l e v e l s o f u n e m p l o y m e n t , m o u n t i n g c r i t i c i s m of the l e v e l s of p u b l i c s e c t o r p a y , and the o v e r s p e n d i n g by s o m e G o v e r n m e n t D e p a r t m e n t s i n the f i r s t t h r e e m o n t h s of the p r e s e n t financial year. T h e G o v e r n m e n t was d i r e c t l y r e s p o n s i b l e for the d e c i s i o n s o n t h e s e i n c r e a s e s , o t h e r t h a n t h o s e f o r M P s , and the outcome w o u l d i n f l u e n c e the a p p r o a c h to p a y n e g o t i a t i o n s l a t e r i n the y e a r i n both the p u b l i c and p r i v a t e s e c t o r s . T h e two T S R B r e p o r t s s h o u l d be l o o k e d at together a n d g i v e n b r o a d l y s i m i l a r treatment. In r e a c h i n g d e c i s i o n s i t w o u l d be n e c e s s a r y to r e c o g n i s e the i m p o r t a n c e of p r e s e r v i n g r e a s o n a b l e d i f f e r e n t i a l s between g r a d e s , both i n the C i v i l S e r v i c e and i n the a r m e d f o r c e s . The Government would have to be p r e p a r e d to i m p o s e l o w e r r a t e s of p a y f o r A s s i s t a n t S e c r e t a r i e s t h a n t h o s e suggested by p a y r e s e a r c h and to r e f u s e a r b i t r a t i o n to the A s s i s t a n t S e c r e t a r y g r a d e , i f that was n e c e s s a r y to e n s u r e a r e a s o n a b l e d i f f e r e n t i a l between the m a x i m u m of the A s s i s t a n t S e c r e t a r y s c a l e and the r a t e f o r U n d e r S e c r e t a r i e s at l e v e l s w h i c h w e r e not e x c e s s i v e l y h i g h . 1

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T H E C H A N C E L L O R O F T H E D U C H Y O F L A N C A S T E R s a i d that he r e c o m m e n d e d a c c e p t a n c e o f t h e f u l l 14. 6 p e r c e n t i n c r e a s e p r o p o s e d i n T S R B 15 f o r M P s . T h e G o v e r n m e n t w a s p u b l i c l y c o m m i t t e d t o i m p l e m e n t i n g the u p d a t i n g p r o p o s e d b y t h e T S R B . a n d i t w o u l d b e a g r a v e step to go b a c k o n t h i s . T h e E x e c u t i v e o f t h e 1922 C o m m i t t e e and P a r l i a m e n t a r y L a b o u r P a r t y b e l i e v e d t h a t i n p r i n c i p l e t h e T S R B recommendations should be accepted. It was, however, difficult to judge what w o u l d be t h e r e a c t i o n t o t h e p r o p o s a l o f 14. 6 p e r c e n t s i n c e M P s w e r e g e n e r a l l y e x p e c t i n g a r e c o m m e n d a t i o n i n the o r d e r of 20 p e r c e n t . G i v e n t h a t 14. 6 p e r c e n t w a s s u b s t a n t i a l l y b e l o w expectations, and below the c u r r e n t r a t e of i n c r e a s e i n the R e t a i l P r i c e Index a n d i n o t h e r c o m p a r a b l e s a l a r i e s , h e b e l i e v e d that t h e G o v e r n m e n t s h o u l d n o t go b a c k o n i t s u n d e r t a k i n g i n o r d e r t o m a k e further m a r g i n a l reductions. T h e Cabinet had already agreed to i m p l e m e n t the s e c o n d stage i n c r e a s e s due t o M i n i s t e r s . There was no r u c h p u b l i c c o m m i t m e n t t o u p r a t e t h e s a l a r i e s o f M i n i s t e r s a s t h e r e was i n the c a s e o f M P s , a n d i t s h o u l d b e p o s s i b l e t o s e t a n e x a m p l e e i t h e r b y m a k i n g no a d d i t i o n a l p a y m e n t s to C a b i n e t M i n i s t e r s and a p a r t i a l p a y m e n t t o j u n i o r M i n i s t e r s o r b y m a k i n g a s m a l l p a y m e n t to t h e f o r m e r a n d a l a r g e r o n e t o t h e l a t t e r . In d i s c u s s i o n t h e f o l l o w i n g p o i n t s w e r e m a d e a. Since the Government had p u b l i c l y undertaken to accept the o u t c o m e o f T S R B 15 the e c o n o m i c s i t u a t i o n h a d s e r i o u s l y deteriorated. In p a r t i c u l a r unemployment was r i s i n g sharply and t h e r e w e r e i n c r e a s i n g s i g n s o f e c o n o m i c d o w n t u r n . P r i v a t e sector employers were now under strong financial p r e s s u r e s to seek r e l a t i v e l y s m a l l pay settlements i n the next r o u n d , but t h e i r a b i l i t y t o do so w o u l d b e w e a k e n e d i f the G o v e r n m e n t w e r e s e e n t o b e g i v i n g l a r g e i n c r e a s e s i n t h e public services f o r which they had d i r e c t r e s p o n s i b i l i t y . I n these c i r c u m s t a n c e s the G o v e r n m e n t was j u s t i f i e d i n adopting a new approach, and i n m a k i n g c l e a r that i t c o u l d not afford s e t t l e m e n t s a t the l e v e l s p r o p o s e d . W h i l e i t m i g h t be a r g u e d that t h e s e t t l e m e n t s w e r e a t t h e end o f the p r e s e n t r o u n d , t h e y w o u l d be bound t o i n f l u e n c e f o r t h c o m i n g p a y n e g o t i a t i o n s . Unless the G o v e r n m e n t took a tough l i n e o n these groups, which had a l l had m a j o r i n c r e a s e s i n the l a s t y e a r , i t could not hope t o i n f l u e n c e s e t t l e m e n t s i n t h e n e x t r o u n d o r t o p e r s u a d e the c o u n t r y t h a t i t w a s s h o w i n g d e t e r m i n a t i o n i n d e a l i n g w i t h the c u r r e n t s e r i o u s e c o n o m i c a l a n d s o c i a l situation.

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b. Single f i g u r e settlements w e r e n e c e s s a r y to have the maximum impact. N i n e p e r cent was the m i d - p o i n t o f the r a n g e of 7-11 p e r c e n t f o r t h e m o n e y s u p p l y t a r g e t ; but t h e G o v e r n m e n t s h o u l d t h i n k i n t e r m s o f a n a v e r a g e figure w i t h a scatter of r a t e s between grades and groups and i t would be i m p o r t a n t t o a v o i d t h e a p p e a r a n c e o f a p a y n o r m . c. I f M P s ' s a l a r i e s w e r e t o be i n c r e a s e d t o £11, 750 that w o u l d r e p r e s e n t a n i n c r e a s e o f 9 . 6 p e r c e n t . It was thought t h a t t h e m a j o r i t y o f C o n s e r v a t i v e M P s w o u l d be p r e p a r e d t o s e t t l e f o r 10-12 p e r c e n t , a n d m i g h t w e l l be p e r s u a d e d to a c c e p t 9 . 6 p e r c e n t . It w o u l d be n e c e s s a r y to t a k e i n f o r m a l s o u n d i n g s b e f o r e t h e G o v e r n m e n t p u t f o r w a r d i t s r e c o m m e n d a t i o n s a s a b a . u s f o r a f r e e v o t e of t h e H o u s e . It was i m p o r t a n t t h a t t h e G o v e r n m e n t ' s p r o p o s a l s s h o u l d n o t be d e f e a t e d : w h i l e a defeat c o u l d be p r e s e n t e d a s t h e d e c i s i o n of M P s , i t w o u l d c a u s e b a d f e e l i n g a n d c o u l d h a v e r e p e r c u s s i o n s on the h a n d l i n g o f o t h e r b u s i n e s s i n the H o u s e . Rather than i n v i t e c o m m e n t s o n t h e r e c o m m e n d a t i o n s i n T S R B 15 i t w o u l d be b e t t e r to t r y t o i n f l u e n c e M P s b y a n n o u n c i n g , w h e n T S R B 15 w a s p u b l i s h e d , what w e r e t h e G o v e r n m e n t ' s d e c i s i o n s o n t h e i n c r e a s e s f o r M i n i s t e r s a n d f o r t h e T S R B 14 Groups and their recommendations for M P s . d. T h e r e c o m m e n d a t i o n s i n T S R B 14 w e r e o n a v e r a g e c o n s i d e r a b l y M g h e r t h a n t h o s e i n T S R B 15; i f t h e g r o u p s c o v e r e d b y T S R B 14 w e r e s i m i l a r l y b r o u g h t d o w n t o a n average i n c r e a s e of 9 . 6 p e r cent, i t c o u l d be a r g u e d that they would be t r e a t e d p r o p o r t i o n a t e l y m o r e s e v e r e l y than MPs,. T h i s pointed to examining the p o s s i b i l i t y of reducing the T S R B 14 r e c o m m e n d a t i o n s p r o r a t a w i t h t h e r e d u c t i o n proposed f o r M P s , w h i l e p r e s e r v i n g the p r e s e n t cash differentials between g r a d e s . T h i s approach would involve g o i n g b a c k o n the c o m m i t m e n t e i t h e r t o a c c e p t t h e p r o p o s e d i n c r e a s e s f o r t h e A s s i s t a n t S e c r e t a r y g r a d e t o £ 2 2 , 000 which had emerged f r o m the P a y R e s e a r c h Unit ( P R U ) e x e r c i s e o r t o l e t t h e A s s i s t a n t S e c r e t a r i e s go t o a r b i t r a t i o n on that a m o u n t . e. I n the i n t e r e s t o f s i m p l i c i t y t h e r e w a s a c a s e f o r g i v i n g C a b i n e t M i n i s t e r s the s a m e p e r c e n t a g e i n c r e a s e a s other M i n i s t e r s and M P s . O n the other hand, i t m i g h t be b e t t e r f o r C a b i n e t M i n i s t e r s t o t a k e no i n c r e a s e b e y o n d t h e s t a g i n g a l r e a d y a g r e e d , e v e n though t h i s w o u l d be s e e n a s no m o r e t h a n a g e s t u r e . E i t h e r way, i n c r e a s e s u p to those agreed f o r M P s should be a l l o w e d f o r j u n i o r M i n i s t e r s . In a d d i t i o n w a y s s h o u l d be sought o f finding a d d i t i o n a l s u m s , 3

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t h r o u g h attendance a l l o w a n c e s o r i n s o m e s i m i l a r w a y , for j u n i o r M i n i s t e r s i n the H o u s e of L o r d s . Such M i n i s t e r s r e c e i v e d no P a r l i a m e n t a r y s a l a r y of t h e k i n d a v a i l a b l e to t h e i r c o l l e a g u e s i n the C o m m o n s , a n d t h e i r s e r v i c e i n G o v e r n m e n t often e n t a i l e d s u b s t a n t i a l s a c r i f i c e . Without a s s i s t a n c e s o m e of t h e m m i g h t f i n d i t i m p o s s i b l e to continue to s e r v e . T H E P R I M E M I N I S T E R , s u m m i n g up the d i s c u s s i o n , s a i d that the Cabinet a g r e e d that the G o v e r n m e n t s h o u l d a d v i s e M P s to a c c e p t an i n c r e a s e of 9. 6 p e r cent, g i v i n g t h e m £11, 750 f r o m 13 J u n e 1980, r a t h e r than 14. 6 p e r cent a s r e c o m m e n d e d i n T S R B 15. It w o u l d have to be made c l e a r that, although the G o v e r n m e n t h a d h i t h e r t o undertaken to a c c e p t the r e c o m m e n d a t i o n s i n T S R B 15, t h e y now f e l t bound to r e c o m m e n d a l o w e r r a t e of i n c r e a s e , i n v i e w of the p r e s e n t economic c l i m a t e The Cabinet would consider further whether Cabinet M i n i s t e r s s h o u l d r e c e i v e a n i n c r e a s e i n l i n e w i t h that f o r M P s o r s o m e t h i n g l e s s t h a n t h a t . It w o u l d be n e c e s s a r y to give i n c r e a s e s to j u n i o r M i n i s t e r s o f up t o , but no m o r e t h a n , t h o s e offered to M P s . F u r t h e r c o n s i d e r a t i o n s h o u l d be g i v e n to the p o s s i b i l i t y of o f f e r i n g M i n i s t e r s i n the L o r d s a n attendance a l l o w a n c e or some other s u p p l e m e n t to t h e i r M i n i s t e r i a l s a l a r i e s w h i c h w o u l d help to m e e t the p a r t i c u l a r p r o b l e m s t h e y f a c e d . The Cabinet did not a g r e e that M P s ' s e c r e t a r i a l a n d r e s e a r c h a s s i s t a n c e a l l o w a n c e s should go u p by 18 p e r cent a s p r o p o s e d i n T S R B 15; t h i s i n c r e a s e should be r e d u c e d p r o r a t a to the p r o p o s e d r e d u c t i o n i n M P s ' s a l a r i e s T h e C a b i n e t a l s o a g r e e d that the i n c r e a s e s r e c o m m e n d e d f o r the four groups c o v e r e d by T S R B 14 w e r e u n a c c e p t a b l y h i g h . The S e c r e t a r y of the C a b i n e t s h o u l d a r r a n g e f o r o f f i c i a l s to p r e p a r e a f u r t h e r note s e t t i n g out the options f o r r e d u c t i o n s . T h i s should i n d i c a t e f i r s t what w o u l d be the o u t c o m e of d e f l a t i n g the g e n e r a l l e v e l of i n c r e a s e s r e c o m m e n d e d i n T S R B 14 by the s a m e f a c t o r a p p r o x i m a t e l y 35 p e r cent - that was p r o p o s e d f o r r e d u c i n g the i n c r e a s e i n M P s ' s a l a r i e s f r o m 14. 6 p e r cent to 9 . 6 p e r c e n t . This w o u l d m a k e i t n e c e s s a r y to i m p o s e a s a l a r y l e s s t h a n that r e s u l t i n g f r o m the P a y R e s e a r c h U n i t f i n d i n g s for A s s i s t a n t S e c r e t a r i e s ; but the o v e r a l l i n c r e a s e s h o u l d be m o d i f i e d w i t h a v i e w to p r e s e r v i n g b r o a d l y the c a s h d i f f e r e n t i a l s between the g r a d e s . The table should i n d i c a t e the r e s u l t i n g weighted a v e r a g e p e r c e n t a g e i n c r e a s e f o r each of the four groups a n d f o r the f o u r g r o u p s as a w h o l e . The r e s u l t i n g a v e r a g e i n c r e a s e w o u l d i n e v i t a b l y be h i g h e r t h a n the 9. 6 p e r cent p r o p o s e d f o r M P s . T h e t a b l e s h o u l d a l s o i l l u s t r a t e the i m p l i c a t i o n s of h o l d i n g the o v e r a l l i n c r e a s e i n t h e wage b i l l f o r the T S R B groups as a whole to 9. 6 p e r cent, w h i l e p a y i n g due r e g a r d to the p r e s e r v a t i o n of a p p r o p r i a t e d i f f e r e n t i a l s . M i n i s t e r s r e c o g n i s e d that t h i s a p p r o a c h w o u l d m e a n that the G o v e r n m e n t would have to set a s i d e the p a y r e s e a r c h r e s u l t s f o r A s s i s t a n t 4

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S e c r e t a r i e s a n d t o r e f u s e t o l e t the A s s i s t a n t S e c r e t a r i e s go t o arbitration. F o r the n a t i o n a l i s e d i n d u s t r i e s t h e s a l a r i e s e m e r g i n g from this process of calculation would apply this t i m e round. T h e r e a f t e r t h e a r r a n g e m e n t s w o u l d b e o n t h e b a s i s a g r e e d !>y the M i n i s t e r i a l C o m m i t t e e o n E c o n o m i c S t r a t e g y a t t h e i r m e e t i n g o n 20 M a y . F o r a l l g r o u p s p e n s i o n s w o u l d b e b a s e d o n s a l a r i e s a c t u a l l y p a i d , e x c e p t w h e r e , a s i n the c a s e o f M P s , t h e G o v e r n m e n t had '.lready undertaken to base t h e m o n a h i g h e r amount. T h e C a b i n e t w o u l d r e s u m e t h e i r d i s c u s s i o n o n the b a s i s of t h i s further report f r o m officials. I n the m e a n t i m e s h e w o u l d , t o g e t h e r w i t h the C h a n c e l l o r o f t h e D u c h y o f L a n c a s t e r a n d t h e C h i e f W h i p , see the C h a i r m a n o f t h e 1922 C o m m i t t e e . She w o u l d e x p l a i n t h a t t h e Government's p r o v i s i o n a l intention w o u l d be to announce a d e c i s i o n o n the p a y o f M i n i s t e r s a n d o f t h e g r o u p s c o v e r e d b y T S R B 14 a t t h e same t i m e a s m a k i n g t h e i r r e c o m m e n d a t i o n s f o r the i n c r e a s e t o a p p l y to M P s . F o r t h e p r e s e n t t h e r e s h o u l d b e no p u b l i c i n d i c a t i o n of the G o v e r n m e n t ' s t h i n k i n g o t h e r t h a n t h a t u s e f u l p r o g r e s s w a s being m a d e . The Cabinet 1. T o o k note, w i t h a p p r o v e d , o f t h e P r i m e M i n i s t e r ' s s u m m i n g up of t h e i r d i s c u s s i o n . 2. Instructed the S e c r e t a r y o f the Cabinet to a r r a n g e f o r the p r e p a r a t i o n o f a f u r t h e r n o t e o n the l i n e s i n d i c a t e d b y t h e P r i m e M i n i s t e r i n her summing up.

Cabinet Office 2 J u l y 1980

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