Trade-offs must be made

Business Secretary Vince Cable agreed to address the TUC, but then, in what some union leaders haile

This year's TUC conference will reverberate with anti-government rhetoric. But I know enough about the way that trade unions operate to understand the difference between public posturing and private pragmatism. We in government are not looking for a confrontation with trade unions and I doubt that they really want one with us.

Much of the heated rhetoric comes from the needs of the political, rather than the industrial, wing of the labour movement. Labour has been thrown out of government for the first time in 30 years. Political defeat is always hurtful and we recognise that aggression towards the coalition is being used to help the Labour Party recover its confidence.

Most unions are politically affiliated to Labour and reflect its priorities, or those of particular leadership candidates. That may explain why the TUC does not wish to hear from me or other cabinet ministers, but is happy to hear the same economic message from the governor of the Bank of England, Mervyn King.

No alternative

Most trade union leaders understand, and acknowledge in private if not in public, that the main economic policies being planned by the coalition are not greatly different from those that would have been made had Alistair Darling returned as chancellor and Peter Mandelson continued in my job. They and other ministers recognised that there was no alternative to cutting an unsustainable government deficit, the largest in the G20 and beyond, and that this could involve severe and difficult cuts in public spending.

In this financial year, a fiscal tightening of £23bn was already under way (the coalition added another £6bn, which has been attacked in the labour movement as if it were the slaughter of the firstborn). Public investment had been cut by the outgoing Labour government (leading to cuts in school building, which have caused such outrage).

My department, among others, faced cuts of between 20 and 25 per cent in a Labour public spending review; severe cuts were already being made when I entered the department (though this is difficult to credit, given the mock indignation over cuts in funding for regional development agencies and industrial intervention). The outgoing government was also discussing a rise in VAT. The current leadership contest has induced a state of denial over all of this. It won't last.

I suspect many trade unions will not dissent much from my analysis of how we got into this financial crisis and how we get out of it. We are dealing with the aftermath of an economic disaster which was not caused (like that of the mid-1970s) by unreasonable behaviour by workers, but by unreasonable and irresponsible behaviour by - some - bankers.

The banking collapse and the recession that followed have caused great economic damage. The only way forward is for fiscal consolidation to go hand in hand with growth in a rebalanced economy. This requires a new economic model, with less consumption and more investment; a new emphasis on manufacturing and exports; and less dependence on inflated property markets and a bloated banking sector. Private sector trade unions are painfully aware that manufacturing employment declined faster in the last decade of the Labour government than in the Thatcher era of the 1980s.

When trade unions look at what the government is doing, and try to judge it pragmatically rather than ideologically, they will acknowledge that there is a lot of common ground. In the emergency Budget, for example, the public sector pay freeze - which would have happened under any government - was differentiated to protect the low-paid. The Liberal Democrat policy of raising income tax thresholds for low-paid workers was adopted. Capital gains tax was increased from 18 per cent under Labour to 28 per cent. The longstanding campaign to reverse the decision of Margaret Thatcher to de-link pensions from earnings has borne fruit, at last.

Less action, more talk

A more predictable flashpoint is public spending and the reactions of public sector unions. With the decline in traditional heavy industries and the spread of ser-vice industry employment, often non-unionised, particularly in small enterprises, public sector unions now have greater weight than they did a generation ago. As in France and the rest of continental Europe, trade union militancy is now largely confined to the public sector. Several British public sector unions are threatening action over cuts, though the extreme rhetoric of Bob Crow (who talks of "fiscal fascism") is almost certainly regarded as an embarrassment by leaders of bigger unions.

The more thoughtful unions fully understand that it is absurd to characterise the debate as "cuts versus no cuts". They know that if there had been a Labour government, the cuts would have been a little less in the next few years, but also more protracted - over seven years rather than five. They know that the public understands the need for fiscal discipline and will react badly to industrial action which hits them. They also know that, as in the private sector, there are trade-offs to be made between pay and jobs, between willingness to discuss job flexibility and redundancies.

There is a lot of responsibility on public sector employers to make the case for change, but evidence from research carried out by the Chartered Institute of Personnel and Development suggests that good public sector management, dealing honestly and sympathetically with the workforce, will defuse a lot of hostility and misunderstanding.

These mitigating factors need to be emphasised before we talk our way into a re-run of the confrontational 1970s. There are newspapers egging this on, talking up an autumn or winter of dis­content. We mustn't go down that road.

I vividly recall working with the late John Smith when he held my current job in the Callaghan government. The Winter of Discontent of 1978-79 did serious damage to the Labour government. But it also undermined public support for the trade union movement and opened the way to the Thatcher reforms of trade unions, which greatly weakened them. This government is not looking for conflict of that kind.

I much prefer dialogue to confrontation and my door is open to trade union representatives who wish to talk to me. I am disappointed at not being able to speak at the TUC conference, but I don't take it personally and will try to ensure that the incident does not undermine a potentially productive working relationship.