When the Lib-Lab pact was first mooted in March 1977, Penhaligon was initially opposed and spoke against it. He later came round and told the Liberal Assembly in September 1977 that it had achieved an 'economic revolution'. At a special Assembly in January 1978 he was a star speaker in persuading the delegates representing Liberal members to continue the pact. The pact allowed the Liberals to influence government legislation and Penhaligon objected to proposals from Tony Benn for an Electricity Industry Bill which would centralise control, which single-handedly prevented any progress.