Government Expenditure


We have surveyed posn. generally & in detailed cuts.
 Wd. now like to have general review of position : then discn. of specific proposals.
 General : P.T.'s view is that, as for cap-investment & bank advances, same principle of "no more than this year" must apply to Def. & Civil Estimates.  They total about £5.000 M.  The other view : on a total of that magnitude there must be some room for manoeuvre.  Also shdn't pay for it a price which may imperil our posn. in the main struggle on wages.
 General Policy.


Principal object of policy : to hold £.  If we fail in this, everything fails.  That is why in Sept. I was authorised to say £ came first & everything else gives way to it.  We agreed also on method viz., to fight inflation by limiting money supply.  Banks agreed to this with v. gt. reluctance & pressed me hard on what Govt. wd. do.  We had hard decisions to take on investment - e.g. housing.  As result, we are just about holding position of sterling.  But there will be growing threat to £ : run-down of sterling balances : international "illiquidity".   Only thing holding it now is faith in our determination to enforce our policy.  And what people are looking at = Govt. expenditure & wages.  What will they see : enormous supplementaries, no money left in consolidated fund : increases in Service pay : [estimates £153 M. above last year's expenditure].  Can we hope to win the battle if [  ] remained.  Gt. importance attached to volume of Govt. expenditure - in Tory Party and in country.  Thus, first ques : are we resolved to close that gap : are we resolved to try to secure that no more is spent next year than this.


What if cuts provoke wage claims?


Take that into a/c in deciding what cuts.  But what will cure inflation in the end is reduction of money available.


In the increase there must be elements outside our control e.g. larger number of children etc.,  Isn't there a difference betwn. increases on that account and increases because of policy.


Economic effect is the same.


It wd. be bad rule that in no year must public expenditure rise.
 In this year P.T. aims at checking inflation - & we shd seek to reduce exp're by all possible means.  But it is not possible to reach full target in a week or 10 days - can't transform social policy to this extent in that time.  Thus, we shd. combine such cuts as we can make with indication that changes will be made in policy.  It wd. be wrong to go back, for a theory, on policies to wh. we have devoted our pol. career.


National solvency = our main problem.  We must therefore curb spending.  But can't see any special magic in £153 M.  Do what we can now : and change policy in Budget.
 Increase of £50 M. or so in Estimates won't shake confidence.  What people are watching is wages struggle : & if that went badly, far more inflationary money wd. come into the economy.  Hence, avoid serious attack on social services.


Objective is desirable.  But weigh v. it the damage wh. some of the proposed cuts wd. do in wages struggle.


Concur with H.  Real struggle is over wages.  Don't do anything now to provoke workers in that struggle.
 On £5.000 M. few people wd. be alarmed by increase of about £50 M.


Agree : can't regard £153 M. as a sacred figure.


We accept the aim = try to spend no more next year than this.  But some diffce. on how precisely the whole gap must be closed.
 Specific Proposals.


Agreed : £40 M.  Misc. £10 M. agriculture.  £8½ at. tests : £12½ + 5 from Defence Dpts.  Total agreed £76.
 What of the other possibilities - £30 M. in social service field and a further £7 M. on defence.
 Social Services
 We have excluded school milk because impossible to collect money.  This left family allowances, boarding charge, eyes, welfare milk & N.H.S. stamp.


Boarding charge and eyes - both need legn. and are too difficult.
 For b. charge we shd. need to recruit 1.000 clerks in very grade whose pay is now in dispute.  Hosp. boards wd. also be most unwilling to collect the money.
 Eyes : yield is much lower than Ty. assumed.  For i) switch to hosp. eye service  ii) considerable notice required, & forestalling wd. offset saving.  Also contrary to pledges given : and funds of Friendly Societies were taken over on basis tht. this service wd. be provided by State.
 Welfare milk : anomaly tht. those, who need it more, wd. be paying more than those in schools.  Wd. be regarded as attack on children - and as such wd. handicap us in wages struggle.
 N.H.S. Stamp therefore alone remains.  But we shd. be announcg. increase in very week in which latest increase enters into force.
 [Cd. be dealt with in Budget.]  Printing : we cd. bring in by 1/7 but only by starting to print on assumptn. of Parly. approval.
 Thus : eyes & bdg. charge are impossible : welfare milk is poss. but wd. affect wages struggle : stamp is poss. tho' diff. before Budget.
 £30 M. cd. therefore be reached by £20 M. on stamp + £10 M. on milk.


Taking too narrow a view.  £50 M. or so increase in Estimates won't shake us.  Problem cd. be tackled in 2 bites - £76 off Estimates and changes of policy in Budget.

x| A promise to deal with deficit on N.I. Fund in this Parlt.  And a threat to make

  | people pay by stamp increases any surplus of expenditure on N.H.S. over a
given figure.
 Confidence in £ turns on confidence in this Govt.  That wd. be shaken if we attacked s. services by cutting back provision.
 Half of gap cd. be losed before Estimates publd.  The rest cd. be covered by x/.


Precipitate minor slashes on s. services cd. be sign of weakness vice strength.
 Unity of Govt. is far more important than exact amount of reduction in Estimates.


We cd. announce a firm plan to increase N.H.S. stamp by stated amounts in each of next 2 or 3 years until £50 M more of cost has bn. transferred to contributor.

Ch. H.

N.I. - graduated scheme.  } Wd. assurance on N.H.S. - ceiling of £500 M. for Exchequer cost  } these meet
   } "psychological"
   } need.


See weakness ……….


Estimates now stand at £1469 M.
 In what field cd. further redn. be made?  Main ques : can any saving be made on Service pay etc., (£35 M.)


Was asked to find another £7 M. - from Estimates already v. severely pruned.
 Service Ministers offered the £5 M. because they felt so strongly that pay shd. not be touched.
 Satisfied we can't find another £7 M.  W'out unacceptable damage.
 This bring us to soft spot of £35 M. inducements - actually £33½ M for £1½ M. has bn. announced.  Ty. agree with me that announcing with effect at later date won't do.  Have examined other possibilities.  Decn. on N.S. will have to be taken next summer 1958? : if recruiting isn't adequate by then we shall have to announce in autumn intentn. to bring in legn. for selective service.  We haven't much time.  Dangerous therefore to delay inducements.  They have bn. delayed already too long.  We delayed in Sept. in belief we shd. get it in Feb. (Estimates).  The inducements won't be regarded as excessive.  Doubt if they are enough to get recruits.  V. dangerous to reduce them.  We cdn't offer more later.
 Estimates as now are nearly £50 M. lower than this year's out-turn.


Petrol?  Estimate includes £20 M. for duty on petrol.


Alternatives on Service pay : Do it all : announce all but not to operate until 1/7 : bring in pay at once & defer allowances.


Announcement but deferred opn. conforms with general policy - on wages.  Wd. give £8 M. off Estimates.  Wd. help recruiting.
 Suppose you took a deferred N.H.S. stamp - £12 M.  Plus £14 on deficit on NI Fund + £8 on Service pay.  This wd. yield total of £110 M.
 Must show determn. to do somethg. which hurts, not merely defence.
 Must be seen to be dealing with inflation - social justice.
 Dangers of Govt. collapsing.


Big decision - realise difficulties.
 £153 in £5.000.  Argument cuts both ways.  Shd. be possible to get so small a proportion off.
 My duty : not to approve estimates over last year's expenditure.
 Is there firm determination to close whole gap?  Evidently we are not united in that, on basis of discussion.
 Social services.  Reductions are painful.  They cdn't be defended save by full success viz., by holding expenditure to this year's.  Can I be sure that £30 M. will be found in this field.
 Defence.  Can't have a sham £7 M.  Cdn't announce & defer.
 You cd. do allowances and defer pay, until Grigg Cttee. reports.
 I wd. still want freedom to look everywhere else in Civil Estimates.
 Thus : £76 agreed : £30 M. social services : £22 M. Service pay : £128 M. and look for balance of £23 M. elsewhere in civil Estimates.


 Do nothing wh. impairs wages front. Look therefore for unsound elements in Budget viz., deficit in N.I. Fund must be cured : Service pay increase at present time : £30 M. more off investment wd. be wiser than attack on s. services.


Can't see why Service pay cdn't be announced as coming into effect on 1/7.  Can't see tht. it wd. affect recruiting adversely.
 Tho' I do see that, qua wages front, announcement wd. itself do the damage.
Which wd. you prefer to defer, if you had to - pay or allowances.


I cd. find more on capital expenditure.  Less damaging than some of cuts we are now considering.  On N.H.S. individual is paying already more than he can afford.
Adjourned - Resumed 10.25 pm.


Prolonged discussion - general & specific.
 P.T. feels tht. his burden is such tht. he can't bear it unless colleagues share it with him.  Discussions betwn Ty. & Dpts - traditional bargaining - spirit of it is inapt to these condns.
 We have 7% Bank rate : we have undertaken to hold in money terms the investment on wh. our prosperity depends.  Task greater than any nation has undertaken - since war : internal debt : external posn. of St. area so hard to manage when members are independent.  Natural therefore tht. a Ch/Ex. shd. feel not quite confident tht. we are all resolved to support him in battle v. inflation.  But, if Ministers have raised other points, it's not because they don't attach same importce. to that but because they have Dpl. interests to watch.
 P.T. gave me written summary of his position. i) "Cab firm objective to secure no more exp're next year than this."  Sure we shd. get as near as we can to that.  Pledge ourselves to that.
 But can we achieve it w'out injury to our own purposes?  Matter of judgement.
 Suggest : by all possible means try to reach that point.  But we shan't get exactly there by any proposals now before us.  If we can get reasonably near, we cd. do the rest by "mirrors."
 Real ques : are we firm on battle v. inflation?  Will we stand firm in a strike?  Is that not more important than Estimates?
 "Substantially" is the key word.  Or "by all possible means".
 Now - methods.  Cab. cd. not be asked to pledge raising specific sums fr. specific services.  We have got £76 M. in 2-3 days.
 He asks us to pledge £30 M. fr. social services & still leave him to seek more elsewhere.  I cdn't pledge myself to any particular method.  But wd. agree to raise £76 M. to £100 M. and as much more as we can.  Five proposals made : cleanest was children's allowances.  But that not possible for Tory Govt.
 It was our great contn. to s. services.  i) Contrary to tradn. of our Party  ii) so easily measured.  To 3 M. it is 5% of wage.  Incites to wage claims.  Others - diff. in practice.  Left with welfare milk and/or stamp.  Milk : if necessary to make up balance cd. be considered.  Stamp : not pol. practicable to propose further increase in wk. when last rise comes into opn.  Therefore suggest this shd. be done in context of Budget.
 I wd. not agree to take £30 M. off welfare - by savings or new charges.  If P.T. were satisfied of intentions of Govt. it shd. not be asked for.
* I wd. say we must increase savings to £100 M. or even £110.  *
 Merge 2nd. & 3rd. condn. of P.T.  Seek to reach that target over whole field of Civil Estimates - under R.A.B.
 Defence.  Assumed on Fri. tht. £7-9 M. more mght be found.  Much concerned.  Estimates cut v. low.  D.S. has done well - at cost of diffy. with Services.  Now lower than this yr's exp're and another £18 M. in last few days.  Hesitate to ask for more.  Gt. risks.  Pay.  End of N.S. is one of prizes open to us - economic as well as pol. value.
 At worst not more than 1% of total.  Try for better.
 But don't risk disturbing T.U.'s Ch. allowances fail on that a/c.  Milk perhaps.  N.H.S. stamp - prs. later.  If all that were accepted, I wd. ask M/Def. (by p'poning allowances or otherwise) to find another £7 M. or so.
 Maudling said will : (1) natl. point of view we need £100 or more.
 1% or less.  (2) Govt. shd. not falter, by loss of some of its members.  Complete disintegration of whole Govt.  Wd. ruin Party for 30 years.  Not fr. unexpected misfortunate but our own fault.  (3) Sterling must be preserved.
 Summary.  Ask Cab. to sustain P.T. in battle v. inflation - esp. in main struggle when temptn. to yield will be so much greater : viz., give them another 5%.
 I wd. not face that on basis we cd. be said we had provoked it.
 From whole range of Estimates seek £100 M. or £110 M.
 If that produced unity of purpose, I wd. ask M/D. to seek another £7 M. - pay or otherwise.  Settle that before I leave, and let R.A.B. work further on Civil Estimates.


Not swayed by arithmetic.  But determined to spend substantially no more.

Taken from C.C. 3(58) - Meeting held on 5 January 1958