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SECRET

C.P. (49) 170

4th August, 1949

1949975

CABINET

Copy No. 31

GOVERNMENT EXPENDITURE

MEMORANDUM BY THE PRIME MINISTER

At the time of the last Budget the Chancellor of the Exchequer stressed the importance of preventing the expansion of Government expenditure from out- running the increase in national production; and in the Treasury circular T.C. No. 2/49 of 6th April Departments were warned that Supplementary Estimates would not be allowed unless they were necessitated by a major change of policy or similar exceptional circumstances.

2 The Cabinet have recently held a comprehensive review of the economic situation, in the course of which they have had before them an estimate (E.P.C. (49) 76) of the prospective increase of Government expenditure in the next two years, and they are satisfied that the present economic circumstances make it necessary, not only to avoid new increases in expenditure, but to introduce measures of retrenchment if only to offset the increases which must automatically follow from the expansion of policies already approved.

3.

I therefore ask all Ministers in charge of Civil Departments to undertake forthwith a searching scrutiny of the expenditure for which they are responsible, with a view to finding measures of economy under the following two heads:

(a) Curtailment of services which are not essential to major Government policy. I am satisfied that there are many such services which, though they may have seemed useful and promising when they were started, must now be regarded as luxuries which in present circumstances we cannot afford. Some could be cut out entirely, without prejudice to major Government policy. The development of others could be retarded and spread over a longer period in order to reduce current expenditure of 662

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(b) More economical administration of policies which must be retained. Under this head I am confident that there is room for a really Pagesubstantial reduction in the numbers dragovernment Staffs.

of

I look

to Ministers to take a personal initiative in overcoming the traditional reluctance of Departments to effect any reduction in their numbers.

4. Circumstances differ from one Department to another and I am not therefore proposing a uniform percentage cut in the expenditure of each Depart- ment. What I ask is that the maximum practicable economy shall be vigorously enforced in every Department. It may help Ministers, however, in preparing their proposals, to know that my general aim is to secure a reduction of about 5 per cent. in the total rate of Government supply expenditure. I intend that the detailed measures necessary to secure a result of this magnitude shall be reviewed, and final decisions taken, by the Economic Policy Committee. I think it would assist the Committee to reach decisions which would be fair all round if any Minister who is unable to offer means of reducing his rate of net expenditure by 5 per cent. by measures within 3 (a) and 3 (b) would also indicate what further action would have to be taken if his rate of expenditure had to be reduced by that figure. Any measures affecting Government policy would have to be treated as strictly confidential at this stage.

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5. The position of the Defence Departments differs from that of the Civil Departments in several ways and the terms of the two preceding paragraphs are not entirely appropriate to them. I am issuing a separate instruction to the Defence Ministers.

6. I have asked the Permanent Secretary of the Treasury to ensure that this review of current expenditure goes forward in all Departments with the necessary speed and on a comparable basis; and he will be getting into touch with the Permanent Secretaries of all Departments for this purpose.

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It is my desire that final decisions should be taken by the Economic Policy Committee in September. For this purpose I shall be glad if you will let me have your proposals by the middle of September.

C. R. A

10, Downing Street, S.W. 1,

4th August, 1949.