By Professor Nick Bosanquet of Reform.
In 1921 a Government on the run set up an Independent Committee to review public expenditure. The story of the Geddes Axe gives a very definite lesson on how not to change course on public expenditure.
The Committee arose from the political need to do something about a powerful press campaign on government waste. Indeed Prime Minister Lloyd George had even sent a circular to his colleagues on 20 August 1919: “The time has come when each Minister should make it clear to those under his control, that if they cannot reduce expenditure, they must make room for somebody who can … That is the public temper and it is right.” However the circular did not prevent a series of by-election defeats.
Led by Lord Northcliffe and the Daily Mail the campaign featured two civil servants Dilly and Dally. It brought into relief that total public expenditure had risen from £272 million in 1910 to £1.592 million in 1920. Part of this was the rise in debt interest from £37.3 million to £359.8 million. But other programmes had gone up steeply as well, with a rise in spending on education from £17.2 million to £59.3 million.
The main Geddes Report was published in December 1921 and recommended reductions of £87 million, or 9.9 per cent of non-debt expenditure. Most of the reduction was from the armed forces, with a reduction of 50,000 soldiers for the Army and 35,000 men for the Navy. Among the civilian departments the main cuts recommended were in education, with little reduction in pensions, health or housing. There was much criticism of the scale of central grants to the new Burnham Committee on teachers’ pay, which had shifted much of the cost from local rates to central government. The Report was also critical of waste. In Army transport companies there was a ratio of one cleaner per vehicle: “We have ascertained the figure with regard to the cleaning staff employed by large omnibus companies and find the ratio in their case is approximately one man for each five vehicles.”
In the event the government implemented cuts of £52 million, or 6.6 per cent of non-debt spending. The response from some was that such savings were not enough when, in the words of Henry Hyde reviewing the Report in the Economic Journal, “we are most heavily taxed community in the world.” But the Report did prolong the Government’s life for at least six months.
The Report did not stop continued criticism. Much focused on the spin doctors of the day, the new Ministry Publicity Departments. A writer in The Times on 30 July 1923 spelled out: “I do know something about the Civil Service and the new Publicity Departments ... The latter are an innovation fraught with sinister and insidious danger alike to public opinion, the independence of the Press, and the credit of Parliamentary life, for they offer endless opportunities for illicit influence, jobbery, log rolling, underhand propaganda, and the misdirection and ‘doping’ of the public mind.”
However the most important effect of the Report was to strengthen Labour and the forces arguing for more public spending. R. H. Tawney, writing in the Manchester Guardian, emerged as a major critic of the the Report, decrying it as a “back to 1870” programme, as the Report recommended withdrawing all funding for 14-16 continuation schools. The Report contributed to a rise in Labour seats from 59 in 1918 to 142 in 1922, reflecting a new coalition across class lines between the unions, teachers and technocrats.
The episode demonstrates that any plans for public expenditure need to take account of longer term economic effects. The issue of waste proved ephemeral; more permanent in its impact was the abolition of secondary education for poorer children at time when the numbers of workers under 30 had been greatly reduced by First World War casualties. This move led to a loss of national income as the returns to human capital were higher in the 1930s than today; it also had regional effects as there were more free places in the older urban centres than in the 19th century industrial towns.
The defence cuts were widely welcomed in the post war mood of pacifism, with the Labour party seeking to abolish the armed forces as the capitalists could not be trusted with them. However they made all too clear that Britain was no longer in a position to field more than two divisions on the European continent.
For today the lesson is that the argument from waste is not enough. A viable programme for reductions has to meet tests of economic logic and of equity.
Nick Bosanquet is Professor of Health Policy at Imperial College London and Consultant Director of the independent think tank Reform
