The 1974-79 Labour Government was elected in a climate of opinion that was fiercely opposed to government intervention in the wage determination process, and was committed to the principles of free collective bargaining in its manifestoes. However, by December 1974 the Treasury was advocating a formal incomes policy, and by July 1975 the government had introduced a £6 flat rate pay norm. With reference to archival sources, the paper demonstrates that TUC and Labour Party opposition to incomes policy was reconciled with the Treasury's advocacy by limiting the Bank of England‟s intervention in the foreign exchange market when sterling came under pressure. This both helped to achieve the Treasury's objective of improving the competitiveness of British industry, and acted as a catalyst for the introduction of incomes policy because the slide could be attributed to a lack of market confidence in British counter-inflation policy
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