Harold Wilson - Second Term As Prime Minister (1974–76)

Second Term As Prime Minister (1974–76)

When Labour won more seats (though fewer votes) than the Conservative Party in February 1974 and Heath was unable to persuade the Liberals to form a coalition, Wilson returned to 10 Downing Street on 4 March 1974 as Prime Minister of a minority Labour Government. He gained a three-seat majority in another election later that year, on 10 October 1974. One of the key issues addressed during his second period in office was the referendum on British membership of the EEC (see Europe, above).

The second Wilson government implemented a wide-ranging programme of social reform during its two years in office, with spending on education, health, price controls, and housing rents expanded from 1974 to 1976, amongst other reforms. The new government partially reversed the 1971 reduction in the top rate of tax from 90% to 75%, increasing it to 83% in the first budget from new chancellor Denis Healey, which came into law in April 1974. Also implemented was an investment income surcharge which raised raised the top rate on investment income to 98%, the highest level since the Second World War. In March 1974, an additional £2 billion were announced for benefits, food subsidies, and housing subsidies, including a record 25% increase in the pension. Council house rents were also frozen. That same year, national insurance benefits were increased by 13%, which brought pensions as a proportion of average earnings “up to a value equivalent to the previous high, which was reached in 1965 as a result of Labour legislation.” In order to maintain the real value of these benefits in the long term, the government introduced legislation which linked future increases in pensions to higher incomes or wages. In 1974–75, social spending was increased in real terms by 9%. In 1974, pensions were increased in real terms by 14%, while in early 1975 increases were made in family allowances. There were also significant increases in rate and rent subsidies, together with £500 million worth of food subsidies.

In 1975, a state earnings related pension scheme (SERPS) was introduced. A new pension, which was inflation-proofed and linked to earnings, was added to the basic pension which was to increase in line with earnings for the first time ever. This reform assisted women by the linking of pensions to the ‘twenty best years’ of earnings, and those who worked at home caring for children or others were counted as contributors. This scheme was eroded by the subsequent Thatcher Government, and insufficient pension rights had been built up by that time to establish resistance to its erosion. The Sex Discrimination Act (1975) gave women the right in principle to equal access to jobs and equal treatment at work with men, while the Employment Protection Act introduced statutory maternity leave. That same year, the wage stop was finally abolished. In addition, differentials between skilled and unskilled workers were narrowed as a result of egalitarian pay policies involving flat-rate increases.

To help those with disabilities, the government introduced an invalid care allowance, a mobility allowance, a non-contributory invalidity pension for those unable to contribute through national insurance, and other measures. To combat child poverty, legislation to create a universal Child Benefit was introduced in 1975 (a reform later implemented by the Callaghan Government). To raise the living standards of those dependant on national insurance benefits, the government index-linked short-term benefits to the rate of inflation, while pensions and long-term benefits were tied to increases in prices or earnings, whichever was higher.

The Social Security Pensions Act of 1975 introduced equal treatment in pension schemes and eliminated the contributions test which limited state pensions for women. The Housing Finance Act (1974) increased aid to local authorities for slum clearance, introduced a system of “fair rents” in public and private sector unfurnished accommodation, and introduced rent rebates for council tenants. The Housing Act (1974) improved a renovation grants scheme, provided increased levels of aid to housing associations, and extended the role of the Housing Corporation. The Rent Act of 1974 extended security of tenure to tenants of furnished properties and allowed access to rent tribunals. The Community Land Act (1975) allowed for the taking into public control of development land, while the Child Benefits Act introduced an extra payment for lone parents.

Circular 4/74 (1974) renewed pressure for moves towards comprehensive education (progress of which had stalled under the Heath Government), while the industrial relations legislation passed under Edward Heath was repealed. The Health and Safety at Work Act of 1974 set up a Health and Safety Commission and Executive and set up a legal framework for health and safety at work. The Employment Protection Act of 1975 set up the Advisory, Conciliation and Arbitration Services (ACAS) to arbitrate in industrial disputes, enlarged the rights of employees and trade unions, extended the redundancy payments scheme, and provided redress against unfair dismissal. The legislation also provided for paid maternity leave and outlawed dismissal for pregnancy. The Social Security Act of 1975 introduced a maternity allowance fund, while the Sex Discrimination Act of 1975 set up an Equal Opportunities Commission and outlawed gender discrimination (both indirect and direct). Despite its achievements in social policy, however, Wilson's government came under scrutiny in 1975 for the rise in the unemployment rate, with the total number of Britons out of work passing 1,000,000 by April of that year.