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===James Callaghan (1976–79)===
[[File:James Callaghan.JPG|right|thumb|[[James Callaghan]]]]
Wilson announced his surprise resignation on 16 March 1976 and unofficially endorsed his
Callaghan's support for and from the union movement should not be mistaken for a left wing position. Callaghan continued Wilson's policy of a balanced Cabinet and relied heavily on the man he defeated for the job of party leader — the arch-Bevanite [[Michael Foot]]. Foot was made [[Leader of the House of Commons]] and given the task of steering through the government's legislative programme.
Callaghan's time as Prime Minister was dominated by the troubles in running a Government with a minority in the [[British House of Commons|House of Commons]]; by-election defeats had wiped out Labour's three-seat majority by early 1977. Callaghan was forced to make deals with minor parties in order to survive, including the [[Lib-Lab pact]]. He had been forced to accept referendums on devolution in
However, by the autumn of 1978 the economy was showing signs of recovery – although unemployment now stood at 1,500,000, economic growth was strong and inflation had fallen below 10%.<ref>biz/ed</ref> Most opinion polls were showing Labour ahead and he was expected to call an election before the end of the year. His decision not to has been described as the biggest mistake of his premiership.
Callaghan's way of dealing with the long-term economic difficulties involved pay restraint which had been operating for four years with reasonable success. He gambled that a fifth year would further improve the economy and allow him to be re-elected in 1979, and so attempted to hold pay rises to 5% or less. The Trade Unions rejected continued pay restraint and in a succession of strikes over the winter of 1978/79 (known as the [[Winter of Discontent]]) secured higher pay, although it had virtually paralysed the country, tarnished Britain's political reputation and seen the Conservatives surge ahead in the opinion polls.<ref>
He was forced to call an election when the House of Commons passed a [[Motion of No Confidence]] by one vote on 28 March 1979. The Conservatives, with advertising consultants [[Saatchi and Saatchi]], ran a campaign on the slogan "Labour isn't working." As expected, [[Margaret Thatcher]] (who had succeeded Edward Heath as Conservative leader in February 1975) won the [[United Kingdom general election, 1979|general election]] held on 3 May, becoming Britain's first female prime minister. Historian Kenneth Morgan states:
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