The Final Labour Years 1950-51
Shortly after the 1949 spending squeeze, a general election held in February 1950 returned Labour to office with the slimmest of majorities. In that election, the Conservatives had promised to cut 'wasteful' public spending to finance tax cuts, particularly on the main sales tax of that time. That taxcutting promise evidently had electoral traction: though the Conservatives did not win the election, Labour only squeaked back into office and saw its 1945 landslide 146-seat parliamentary majority reduced to a mere five, which imposed severe challenges for party management and made it unlikely that the government would survive another full electoral term.
Faced with that prospect, the Attlee Government in its remaining twenty months in office was caught between pressures to squeeze welfare state spending to fund the Korean War (which broke out in mid-1950), pressure to cut taxes to counter continuing Conservative tax-cutting election promises, and contrary pressures to maintain and extend welfare state spending to appeal to core Labour voters and meet the demands of the left within the Party, for example, over restoring 1950 cuts in the housebuilding programme.
This final period of Labour Government is ambiguous in our analysis of reported financial outcomes since (as already noted) the overall spending squeeze we identified in Chapter Two ends after FY 1949/50 on two out of three sources, and that applies both to total spending and to civilian spending excluding defence. Nevertheless the historical record points to considerable efforts to restrain the growth of public expenditure over this period under Labour's final Chancellor, the economist Hugh Gaitskell (who succeeded Stafford Cripps in October 1950 after Cripps had to resign due to of ill-health). In late 1950 Hugh Gaitskell asked all government departments for proposals for major cuts in civil spending for FY 1951/52 (Gaitskell was said to be privately aiming for a cut of 5 per cent, but chose not to name a figure). Gaitskell's letter referred to the rise in defence spending as a result of the Korean War and the consequent need for
really big reductions in civil expenditure... it must, I am afraid, be accepted from
the start that we cannot confine ourselves to administrative economies, important though these are. We must face the necessity for change in policy too if the reductions in expenditure are to be in the least adequate.
Written to Accounting Officers (officials) in each department rather than ministers and not asking for replies with specific proposals for cuts, Gaitskell's letter was evidently intended as a softening-up exercise to indicate that some of the proposals rejected in the 1949 spending squeeze (such as fees for state schools and NHS charges) would be back on the agenda for FY 1951/52. But his letter produced a swift remonstrance from the Health Minister, Aneurin Bevan, who urged Gaitskell to reconsider his ideas and have a general discussion in cabinet (preferably in the absence of officials) before taking his proposals further.
I was hoping that you would be searching... for new sources for augmenting revenue rather than adopting... the fixed Treasury habit of... cutting expenditure in the public sector... I notice particularly your sentence: 'We must face the necessity for changes in policy too if the reductions in expenditure are to be in the least adequate.' If that sentence has any meaning it must mean that in order to re-arm we intend to reverse the policies we have followed since 1945.
That salvo was the beginning of a conflict that was to produce a serious split in the Labour Government over the 1950 budget. In that budget, Gaitskell retained the level of food subsidies, while increasing income tax, taxes on profits, petrol and entertainments, and raising Purchase Tax (the general sales tax introduced during World War II, as described earlier) from 33 to 66 per cent for items such as cars, TV sets, and domestic appliances. But the part of the budget package that proved most politically divisive within the Labour Party was the introduction of user charges for some NHS services that had been provided free for the previous three years (namely spectacles and dentures). Those charges—in a way that was partly echoed almost fifty years later when the Blair Labour Government introduced higher education fees—was seen on the left as breaching the principle of a free health service, and led to Nye Bevan's resignation from the government. Bevan was later joined by two other up-and-coming Labour ministers, Harold Wilson and John Freeman, and the split continued to resonate in the Party into the 1950s and 1960s.
While the Labour Party was split over such spending-squeeze measures, the government continued to be challenged to cut taxes by cutting 'wasteful' expenditure by the Conservative opposition and by Conservative-supporting newspapers. For example, in December 1950 The Daily Express carried a series of fiery articles, partly drawn from a report by the parliamentary Public Accounts Committee, calling for cuts of some ?250m a year in government spending, through measures that included mergers of departments and big cuts in civil service numbers, information services, new government offices, and particularly government cars and motoring.
Similarly, in the budget debates in April 1951, Captain Waterhouse (Conservative MP for Leicester South East) attacked what he portrayed as unnecessary waste on 'frills' and 'administration'. As 'frills', Waterhouse cited the amounts being spent on the 126 professors who had been commissioned to write war histories, rising spending on universities and colleges (which had increased tenfold in nominal terms since before the war), and the growth in numbers, salaries, and travelling costs of civil servants in general and of those in the Treasury in particular. Such attacks seem to have hit home and to have played a part (along with other factors, including a further balance of payments crisis in summer 1951) in the Attlee Government's eventual demise. When that government called a snap election in October 1951 in the hope of achieving a more workable parliamentary majority, Labour instead lost a further twenty seats, with the Conservatives and unionists achieving a seventeen-seat overall majority.
-  Conservative Manifesto, 1950, 'This is the Road: The Conservative and Unionist Party'sPolicy', http://www.politicsresources.net/area/uk/man/con50.htm.
-  Letter from the Chancellor to Departmental Accounting Officers, 24 November 1950, T233/547, Chancellor's Memorandum on Economies in Government Expenditure (November 1950).
-  Letter from Aneurin Bevan to the Chancellor, 28 November 1950, T233/547. Chancellor'sMemorandum on Economies in Government Expenditure (November 1950).
-  Daily Express, 4 December 1950, 'How to Save ?250,000,000 a Year'.
-  HC Deb 12 April 1951, c.1261.