1976-79 Callaghan Labour

• Wilson retires in 1976 and the leadership comes down to a competition between Callaghan and Healey
• Callaghan wins but Healey remains a prominent figure
• With Dennis Healey as Chancellor, inflation peaks at 26.9% in 1975
• Healey combats inflation


  1. Public spending cuts

  2. Unions agree to limited pay rises (for 2 years) in return for benefits - the Social Contract

  3. Repealed the Industrial Relations Act

  4. Increased food subsidies

  5. Banned rent increases
• Phase 1: £6 per week for those earning £8500 per year reduced inflation to 12%
• Phase 2: Limited at 4.5% and Inflation is 8.4% by 1978
• Healey secured a $3,9 billion loan from the IMF and alongside this budget cuts occurred and income tax was increased
• Income tax had a new band introduced 33%, 38% and 83%
• Corporation tax was realised from 12% to 52%
• This was a clear move away from Keynesianism but the cuts made are to military, industry subsidies and local authority funding rather than cuts to the welfare state
• In 1974 the state pension was increased 25% and reforms to the Family Allowance Act occurred
• This meant that single parents could now claim these Child Benefits
• Council houses were also funded and improved
• Welfare legislation


  • Trade Union and Labour Relations Act (1974)
  • Employment Protection Act (1975)
  • Health and Safety at work Act (1974)
  • Sex Discrimination Act (1975)
• In March 1977 an 18 moth deal with the Liberal party was formed, referred to as the Lib-Lab pact and allowed Labour to continue despite their narrow majority
• This expired in September 1978 so an election was expected to take place
• The economy was good and Callaghan had been nicknamed 'Sunny Jim'
• However, the election didn't happen and Callaghan was heavily criticised for this decision
• Phase 3 was supposed to be a return to normal collective bargaining however Phase 4 restricted pay rises at 5% due to the impending election
• This 5% limit quickly fell apart and Healey campaigned for a 10-12% limit which would be more popular with the public
• Ford workers demanded a 20% rise and Ford gave in despite the government's threatened sanctions
• This led to a series of further strikes even in the public sector
• During this Callaghan was at a Conference in the Caribbean and the public believed he was out of touch with the crisis at home
• Labour felt betrayed by the unions as everyone began to strike and it appeared that they had lost control
• Thatcher capitalised on labour's failings and used modern advertising techniques to win the 1979 election
• This included the 'Labour isn't working' slogan
• It was a watershed election as the Conservatives won a 43 seat majority