The Social Contract was a policy of the Labour governments of Harold Wilson and James Callaghan in 1970s Britain. The contract referred to a pact between the Labour government and the Trades Union Congress (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 return for a package of measures, such as the repeal of the Industrial Relations Act 1971, increased benefits, food subsidies, price controls 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 Harold Wilson 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, by utilizing their close links with the trade union movement.

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, although rising unemployment may have contributed to the decline in inflation: Inflation 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. However James Callaghan's attempt at holding pay rises to 5% or less in late 1978, 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.