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After Geddes: Expenditure Squeeze after the Fall of the Lloyd George Coalition

A further striking feature of the Geddes Committee is that the sharp spending reductions it helped to set in train survived the government and prime minister that had set up the committee. Public spending continued to fall under the three governments that succeeded the post-war Lloyd George coalition after it fell in November 1922, namely the majority Conservative Government that ruled for a year until a new leader (Stanley Baldwin) called an early general election over protectionist trade policy in December 1923 and was replaced by an equally short-lived minority Labour Government propped up by the Liberals until it in turn was replaced by another majority Conservative Government in the October 1924 general election.

That continuing fiscal squeeze applied only to expenditure, since revenue fell by more than spending between 1923 and 1925. And when we look at the spending that was cut over that period, the sharpest fall was in social security expenditure (nearly 2 percentage points lower than the 1922/23 levels, reflecting cuts in some of the social, welfare, and pension provision introduced in the previous decade), followed by a drop of 1.7 percentage points in defence and 0.5 percentage points in education.

Most of these spending cuts (7 out of the 9 percentage points by which public spending fell relative to GDP) applied to central government, especially spending on defence and social security. Local government spending fell by just over 2 of those 9 percentage points. Central government transfers to local government (then amounting to 6-10 per cent of central government spending, as compared with roughly 20 per cent today, and about 2 per cent of GDP, compared to about 9 per cent today) fell by 0.5 per cent as a proportion of GDP over 1923-25. So (in contrast to other cases where central governments pass the pain of spending cuts down to lower levels through 'unfunded mandates') these cuts apparently did not fall more heavily on local than central expenditure. The strategy of targeting spending that could be cut without heavy-duty legislative changes meant the axe initially fell onto capital as well as current spending, but capital spending was restored relatively quickly, no doubt reflecting pressures to stimulate economic growth to counter mass unemployment.

At local government level, the biggest reduction was in housing expenditure— those much-vaunted 'homes for heroes' (arising from Lloyd George's 1918 pledge 'to make Britain a fit country for heroes to live in') and the 'comprehensive' approach to social housing promised by the coalition government in its 1918 manifesto (Swenarton 1981). Civil service cuts reduced the number of civil servants by a third between 1920 and 1931, largely by dismissing temporary staff (most of them women) who had been taken on during World War I. Excluding debt charges, total spending fell by about 9 per cent of GDP over this period, and national debt fell from 180 to 175 per cent of GDP between 1923 and 1925.[1]

So why did the spending cutbacks initiated by the Geddes Committee continue under three successive governments, including one Labour Government? Part of the reason may be that for three years running (1922, 1923, 1924) there was a change of government following a general election held late in the financial year (November, December, and October respectively), such that there was little time for newly appointed Chancellors and cabinets to make dramatic changes to financial plans already in train or—at least for the first two governments—to follow up in a subsequent budget.[2] [3] But that outcome is also explicable by the fact that two of the three governments were Conservative Governments and that the 1923-24 Labour Government was a minority government dependent on other parties (notably the Liberals) for support.

After the Conservative Party led by Andrew Bonar Law won the November 1922 general election with a comfortable overall majority, the new Chancellor, Stanley Baldwin, broadly followed the fiscal course set by his party colleague Sir Robert Horne in the coalition government the previous year. Indeed in his 1923 budget speech, Baldwin praised his predecessor's efforts, expressed satisfaction at spending reductions that had considerably exceeded those planned and approved as a result of the Geddes Committee, and proceeded to announce further tax reductions, notably another small reduction in the standard rate of income tax, a halving of the Corporation Profits Tax, reductions in taxes on tea, coffee, and cocoa and in charges for postage and telephone services.11

As noted earlier, despite its secure majority, the Conservative Government elected in 1922 lasted only a year. The prime minister, Andrew Bonar Law, fell ill and resigned just six months into his premiership, and his successor, the former Chancellor Stanley Baldwin, called and lost a general election only a year into the government's tenure over a policy of protectionism that was unsuccessfully pitched to the voters as a route to cutting unemployment. The minority Labour Government led by Ramsay MacDonald that took office in December 1923, lasted ten months before it lost a vote of confidence, precipitating a third general election in less than three years (October 1924).

The Labour Government's single budget, introduced by Chancellor Philip Snowden in 1924, envisaged (and delivered) a budget surplus based on a continuation of reductions in spending, matched by cuts in several indirect taxes. No new taxes were introduced and no tax rates were increased. Snowden, who had no previous ministerial experience, portrayed this budget—the very opposite of the 'tax-and-spend' stereotype of the way left-of-centre governments approach fiscal policy—as a result of the fact that he had only been in office for a few months and that budget preparation had been at a late stage within the Treasury when he became Chancellor. But the design of the 1924 budget could be interpreted not just as a matter of late-stage inheritance, but also of political calculation based on the constraints of the parliamentary arithmetic, in the sense of the need for substantial support from other parties for the budget to pass.

  • [1] Such that the fiscal adjustment was 'successful' according to Alesina and Perotti's (1997)criterion.
  • [2] As noted by Winston Churchill in his 1925 Financial Statement (HC Deb 28 April 1925,c.58-9).
  • [3] HC Deb 16 April 1923, c.1721-41.
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