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(THIS DOCUMENT IS THE PROPERTY OF HER BRITANNIC MAJESTY'S GOVERNMENT;
SECRET
C.P.(55) 183
3rd December, 1955
CABINET
COPY NO.
SOCIAL SERVICES EXPENDITURE
Memorandum by the Chancellor of the Exchequer
On 5th July the Cabinet considered C. P. (55) 57, a paper by me on the cost of the social services (C. M. (55) 20th Conclusions, Minute 4). In that discussion I undertook to have a survey made of the probable course of Government expenditure on the social services during the next five years. I now attach a survey which has been prepared in the Treasury, in close consultation with the other Departments concerned. The survey is based on existing policies and makes no allowance for any substantial forward move in policy, as distinct from development in the more or less normal course of existing policies.
2. On the above basis the survey foreshadows an increase in Government expenditure (including the Insurance Funds) on the social services from £2,032 millions in the present financial year to £2,369 millions in 1960/61. This increase of £337 millions is mainly concentrated on four services - National Insurance (£ 131 millions), Education (£94 millions), National Health Service (£72 millions) and Housing (17 millions). The total increase represents a cumulative increase at the rate of about 34 per cent per annum.
3.
If the figures were confined to expenditure from the Exchequer (i.e. excluding the Insurance Funds) they would show an increase from £ 1, 452 millions to £1, 737 millions in 1960/61, i. e. of £285 millions. This represents a cumulative increase at the rate of about 3 per cent per annum.
4. These prospective increases, whichever way one looks at them, are certainly formidable. They show that the prospective rate of growth of this expenditure is greater than that of the Gross National Product (in real terms) in the five years from 1949 to 1954, which was 24 per cent per annum. It was suggested at our discussion in July that we should have regard to the growth, not of the Gross National Product, but of the nation's taxable capacity. Any such conception is, however, very difficult to define: the yield of taxation at given rates depends on the level and distribution of the national income and the pattern of national expenditure. Moreover, it would be altogether too depressing to assume that we shall not, in the next five years, make any further reductions in rates of taxes.
5. It is widely agreed that our present rates of taxation are already too high. If we are to look for a reduction in the rates of taxation over our expected period of office, we must make changes to ensure that total expenditure does not rise as fast as the yield of revenue increases.
As my colleagues know, the same problem arises on the prospective growth of defence expenditure over the next few years. Page lagred elsewhere: my present object is to ask the
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