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Home arrow Political science arrow A Century of Fiscal Squeeze Politics : 100 Years of Austerity, Politics, and Bureaucracy in Britain

Winners and Losers: What Was Spared and What Was Sacrificed

As we have seen, the period covered by this chapter began with a hard revenue squeeze initiated by the minority Labour Government's 1930 budget. In that budget, the Labour Government chose to lay aside (or postpone) its manifesto pledges of the previous year by retaining the food taxes it had promised to abolish, while steeply raising direct taxes. After the Labour Government had fallen in August 1931, the National Government's emergency budget introduced the following month comprised further significant increases both in direct and indirect taxes. The standard rate of income tax was raised by another 6d in the ? (meaning it had risen by some 20 per cent in total between April 1930 and September 1931), while tax allowances were cut,[1] and at the same time indirect taxes were increased on a range of items, including not only beer, tobacco, and petrol but also tea and sugar—staples of those who were in 'food poverty' at that time and which the Labour Party had promised to cut.

On the spending side, the planned cuts announced in a White Paper by the National Government in September 1931[2] amounted to some ?70m, rather less than the May Committee had recommended. Half of that sum comprised cuts in spending on unemployment benefits and increases in compulsory National Insurance contributions from employers and workers. Of the remainder, the biggest single cut was in spending on education (over ?10m), reflected in relatively deep cuts in teachers' pay (15 per cent, as against the 20 per cent the May Committee had recommended) and reductions in grant funding for all levels of education, with spending reductions for England and Wales automatically triggering a reduction of 11/80th of the grants made for Scotland under the territorial funding formula that applied at that time. After education, a major reduction in spending on roads accounted for over 10 per cent of the total cuts package, and that was followed by a series of smaller savings across the whole range of public services, including some ?4.5m from reductions in pay of government ministers, MPs, judges, civil servants, and members of the defence forces.

That spending cuts package was distinctive in at least two ways. One is that, apart from cuts in pay of the armed services (which provoked the Invergordon naval mutiny and was said to have broken a tradition that the pay of service personnel should not be reduced during the period of their service), only 10 per cent or so of the package came from defence cuts, in contrast to what happened in the 1920s or the 1940s. A senior Treasury civil servant observed, 'The fact is that the [May] Economy Committee were hard put to it to discover any outstanding economies in the Fighting Services.'[3] So these cuts fell largely on civilian expenditure and the welfare state.

Second, in contrast to all the other episodes considered in this book, both public sector wages (including police and industrial civil servants such as those working in the Ordnance factories) and welfare benefits were cut in absolute terms for a period of years, as an emergency measure. Rates of welfare benefit for the unemployed were cut by 10 per cent (the issue that broke the minority Labour Government, though that government had evidently been prepared to consider extended means-testing and changes in qualifying periods for benefit), while rates of contributions to the Unemployment Fund from employers, employees, and government were steeply raised. In addition, unemployment benefit from the (contributions based) Insurance Fund was limited to six months in any 'benefit year', with claimants thereafter having to prove continued unemployment and undergo a 'needs test' assessed by the

Public Assistance Authority before further benefits could be paid from general tax funds.

As for public sector wages, the National Government decided to cut all public service salaries from October 1931, but with proportionately higher cuts applying to those earning higher salaries. Government Ministers' salaries were accordingly cut by between 10 and 20 per cent (according to their individual salary level). Something similar applied to officers in the armed services and to civil servants, with cuts of 10 per cent in the highest salaries but proportionately less for those earning less (in the case of the civil service, the 10 per cent cut applied to salaries of over ?1000 a year, 5 per cent on salaries between ?200 and ?1000, and less than 5 per cent on salaries of less than ?200). These public sector wage cuts, which were imposed in two stages in most cases, were presented as 'emergency reductions' and indeed half of those temporary pay cuts were restored less than three years later, in July 1934.[4]

For local government services, cuts were made to pay for those local officers of services financed by percentage grants from central government, and to the pay of doctors and pharmacists operating under the then National Health Insurance scheme (the precursor of the National Health Service). Apart from that, no explicit targets for pay reduction were set by central government: there were general exhortations to other local government officers 'to make their contribution in the present emergency' and to each local authority to review and rein in their spending 'till better times'.[5]

Despite the lofty 'equality of sacrifice' rhetoric, many argued that the sacrifices made were anything but equal in practice, and that equal percentage cuts in salaries and benefits did not necessarily represent 'equality' in other important senses. Indeed, the archival record is full of wrangling about the small print of who was to sacrifice what, and the detailed implementation of the pay cuts across the public services evidently did not always square with those 'equal sacrifice' pledges. There were inevitably complexities arising from prior agreements, pension entitlements, and other elements of reward. For example, police pensions, pension entitlement, and pensionable pay were not actually cut at all, despite serious concerns expressed by the May Committee about the financial consequences of what they saw as a dangerous pension 'time-bomb' building up in the police force.[6] And there were numerous hard cases, particularly relating to more powerful groups in the public service, such as munitions factory workers. For example, there was a mighty battle between the Treasury and the Home Office over the imposition of the second stage of a 10 per cent cut in police pay in 1932. The police were a sensitive case, given their importance in maintaining public order (after all, the General Strike of 1926 was still fresh in memory at that time, and there had been a major police strike only a decade or so before in 1919). The pay of serving police officers had been cut by 5 per cent in October 1931 as an initial response (that of new entrants had been cut considerably more), but during a parliamentary debate on the omnibus bill that gave effect to the cuts in 1931, the Home Secretary had suggested that 'administrative economies' in the police budget might be used to offset the need for further police pay cuts,[7] and accordingly the Home Office argued strongly the following year for setting of the second stage of the police pay cut against 'administrative economies'.[8] But despite the political sensitivity of imposing sacrifices on the police, this proposal was resisted, since ministers presiding over 10 per cent pay cuts in other departments (notably those in the Defence Departments, who were conscious of the Inver- gordon naval mutiny against pay cuts the previous year) were unwilling to agree special terms for the police.

  • [1] Finance Bill 1931 Clause 6 (Increase in standard rate of income tax for 1931-32), HC Deb30 September 1931, c.423-30.
  • [2] Memorandum on the Measures Proposed by His Majesty's Government to Secure Reductions inNational Expenditure, Cmd 3952 1931, London: HMSO.
  • [3] 'Remarks of the Services Departments etc. on the Recommendations of the Committee onNational Expenditure', memo to Sir Richard Hopkins dated 12 August 1931 from A.P. Waterfield,Treasury;T161/494 Finance accounts general: May Committee on Economy 1931;FightingDepartments Economies. The May Committee had floated the idea of a contributory pensionfund for the armed forces, rather than funding pensions out of general taxation. But thatproposal was easy for the Service departments to resist, since a Royal Commission had recentlyrecommended against establishing a contributory pension scheme for the civil service.
  • [4] T160 566 (Estimates 1933 and 1934).
  • [5] Ministry of Health circular 1222 to local authorities, 11 September 1931, HO 185 76, Reductionof Expenditure in State Management districts.
  • [6] The May Committee proposed to reduce the pensionable salaries of all constables andsergeants, and called for the right of voluntary early retirement on 2/3rds pay after twenty-fiveyears of service (thirty in Scotland) to be withdrawn from existing police officers over a period, withretirement no longer permitted before the age of fifty.
  • [7] Home Office memo to the Cabinet Sub-Committee on Police Economies [undated] MEPO 5294, Reduction of Police Expenditures.
  • [8] Memorandum by Sir Warren Fisher, 5 September 1932, 'Police Pay Cut' inT162 287 on PolicePay Reductions following the May Committee report.
 
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