Richard Clarke

Long-term Operations: 1955–59

The first of these, which failed to establish itself, was a five-year forward survey of the Exchequer cost of the social services (housing, education, health, national insurance, child care). It was begun in the last year of Mr Butler’s Chancellorship, in mid-1955, and presented to Ministers early in December, just before Mr Butler was succeeded by Mr Macmillan. By our later standards, it was not a very sophisticated survey.1 But it showed without any doubt that even on departments’ expectations on the basis of their policy of the time, before the great expansions of the late 1950s had got under way, the cost would expand much faster than any expansion that could possibly be expected in the gross national product.

Stamp Memorial Lecture

In February 1964, I was invited to give the Stamp Memorial Lecture, then as now a signal honour. Lord Stamp (1880–1941) was one of the truly outstanding men of his time. His death so early by enemy action makes it impossible to compare him with his contemporaries, such as Lord Waverley (still better known as Sir John Anderson, 1882–1958) or Lord Beveridge (1879–1963). But his career showed the immense opportunities offered to young men of ability by the civil service before the First World War: he entered the Inland Revenue as a clerk at the age of sixteen: by 1916 (aged 36) he was assistant secretary to the Board of Inland Revenue, and already perhaps the greatest expert on taxation in the country. He left the Inland Revenue in 1919 to be a director and secretary of Nobel Industries (future constituent of ICI); and was at once put on the 1919 Royal Commission on income tax and on the 1924 Colwyn Royal Commission on taxation and national debt.1

The Initial Operations: 1960–62

While the Plowden Committee’s interim reports had been going through their final stages in the early summer of 1960, the next steps were being developed. There were three essential things to be done: n n(1) n nto make a statistical apparatus for the ‘Plowden’ operations — definitions, classification, accounting conventions — and find the people to do it; n n n n n(2) n nto educate the departments in the concepts of the new system, and to persuade them of its value — without this, it was impossible to imagine carrying out operations of the seriousness and complexity that were envisaged; n n n n n(3) n nmost important of all, to persuade Ministers to accept the implications of the new system — the prospectus was straight common sense, which nobody could sensibly resist, but the implementation was certain to be full of difficulty, and probably disadvantageous for the interests of some Ministers.

PESC in Reflation: 1962–63

Very soon after the Chancellor had made his expenditure and investment statement on 27 February 1962, the pressure for reflationary action began to build up again. Mr Selwyn Lloyd made no concession to this in his Budget speech on 9 April, but in the next few weeks it became insistent. The Prime Minister, as in 1958, was in the lead in this and, writing of this period, records:1 nI had been continually pressing on the Chancellor of the Exchequer and the Treasury the need for a substantial reflation…. On 8th March 1962 Bank Rate was reduced from 6 to 54 per cent. But I was not satisfied and kept pressing for further expansionist moves. On 22nd March, Bank Rate came down to 5 per cent, and to my great delight the Treasury and the Bank agreed to a further reduction to 41/2 per cent on 16th April…. I was also anxious for the system of Special Deposits to be modified with a corresponding increase of the total sums available for credit: this was done on 31st May when £70 million of these deposits were released.

The Background to Plowden

The most convenient starting-point is the work of the Select Committee on Estimates on Treasury Control of Expenditure [H.C. 254, 1957–58]. This report, prepared under the chairmanship of Sir Godfrey Nicholson, was published in July 1958: it was based on four months’ questioning of Treasury and other witnesses and substantial written memoranda: and its general tenor was critical but not unfavourable to the Treasury ‘system’. The sting was in the tail: nThe aim of Your Committee was to find out whether the present ‘system’ of Treasury control is as effective as modern conditions demand. Your Committee cannot give a definite answer. The system appears to work reasonably well. But it would be idle to pretend that Your Committee is left entirely without disquiet … n nBecause of all these doubts, and because of the constitutional significance of the subject, Your Committee have reached the conclusion that further enquiry, at once more detailed and more expert, is required. Accordingly they recommend that a small independent committee, which should have access to Cabinet papers, be appointed to report upon the theory and practice of Treasury control of expenditure.

State of Play: Summer 1964

The four-year period from 1961 to 1964 is of great interest as showing the beginning of the impact of the growth of public expenditure in relation to resources from the low point reached in the second half of the 1950s. Public sector expenditure (including debt interest) was going up at about 7 1/2 per cent a year (in money): public sector receipts by about 7 per cent a year. There were, so to speak, four-and-ahalf Budgets — Mr Selwyn Lloyd’s of 1961 and 1962, Mr Maudling’s ‘mini-budgets’ of end-1962, and his Budgets of 1963 and 1964: they occupied one modern-style trade cycle, with unemployment at the beginning the same as at the end: n n n− Registered unemployment October* n nin Britain(’000) n n n1960 n n329 n n n1961 n n366 n n n1962 n n501 n n n1963 n n474 n n n1964 n n348 n n n n n*Mid-point of the financial year, and political end of the period

PESC in 1963–1964

The first half of 1963 was a difficult period for expenditure decisions. The reflationary policy and situation had greatly weakened the brakes: any relaxation of the normal Treasury pressure against expenditure is bound to have this effect, even if it is supposed to be highly selective (e.g. for short-term projects only). The Government’s adoption of the 4 per cent growth objective had similar effect. The General Election was coming into sight. The terrible weather in January and February, with the interruption of outdoor work, led to high temporary unemployment and mistaken fears that the Government’s reflation policy was failing.

The Plowden Report

The Plowden Committee began to work in October 1959. The chairman was supported by Sir Sam Brown, Sir Jeremy Raisman and Mr (later Lord) John Wall, all of whom had had much experience in public administration; with six permanent and deputy secretaries from the Treasury and other departments, who were more properly described as assessers, for they could not sign the reports. It must be recalled that this was an internal Treasury enquiry, responsible directly to the Chancellor of the Exchequer; and it proceeded by making interim reports to him, the first of which, covering the fundamental issues before the Committee, were presented at the beginning of June 1960. One must note from these dates that the Committee moved with effective speed: when I became an assesser in January 1960, the discussion of the basic principles was already well under way, and the questions of what could practically be done, rather than what was desirable, were beginning to dominate the situation. As the enquiry proceeded, it became clear that it would be necessary to produce a published report, and this was of course done [Cmnd 1432 of July 1961]: it covered the whole range of the Committee’s deliberations, and only omitted those points that the Committee wished to keep confidential to the Chancellor and his senior colleagues.

PESC and the 1964–66 Labour Government

The Labour Party was voted into office on Friday 16 October, and Mr Harold Wilson took charge immediately. The first issue was machinery of government, and the long-expected break-up of the Treasury and the creation of the Department of Economic Affairs (DEA); and Mr Wilson has described in his memoirs1 the background of his thinking, and how he reached agreement with Mr George Brown and Mr Callaghan on that first evening. For the control of public expenditure, the division of responsibilities and the ability of the two Ministers and their departments to work effectively together was of crucial importance.

The First PESC Report: 1960–61

Mr Selwyn Lloyd became Chancellor of the Exchequer in July 1960, arriving at the same time as the Plowden Committee’s first set of interim reports. Mr Lloyd was probably unique among post-war Chancellors in bringing with him into office his own ideas about how to handle public expenditure: he favoured long-term planning of public expenditure and taxation, so found the Plowden Committee’s advice welcome. He also wanted to simplify the Estimates and Accounts, and the Plowden Committee’s advice fitted well with this. He wanted to create a single tax for companies, instead of income tax and profits tax, and set the studies on foot that led to Mr Callaghan’s corporation tax in 1965; and he wanted to merge income tax and surtax, an extremely difficult reform to accomplish, ultimately done in Mr Barber’s 1971 Budget. Mr Lloyd took the unpopular step of bringing the surtax threshold into line with the fall in the value of money, raising it from £2000 to £5000: he began the removal of Schedule A tax on resident owner-occupiers: he introduced the short-term capital gains tax. He introduced the ‘regulator’ to permit changes in indirect taxes between Budgets (and the abortive ‘regulator’ to change employers’ insurance contributions, quickly abandoned).