The initial legislative programme of the first Labour Government culminated in the far-reaching Social Security Act of 1938. It is doubtful whether its authors, preoccupied with the social or income-redistributive aspects, visualised the part that would be played by this and related legislation in budgetary exercises of the future. From 1939 the Social Security Fund absorbed the Employment Promotion Fund and the civil pensions hitherto charged to the Consolidated Fund. These were increased and a new one added – universal superannuation – payable without a means test at 65 and intended to absorb eventually the age benefit. Starting at a modest £10 per annum in 1940, it was intended to rise to the maximum of £78 in 1968. The great increase in expenditure on the family benefit that was to take place later was probably not foreseen. The greatest immediate change was the inauguration of a widespread system of medical, hospital, and pharmaceutical benefits which, in turn, were inevitably to have a profound effect on public hospitals and their finance.
The new fund was financed by a charge of 1s. in the pound of income (the old fund had collected 8d.) and a registration of £1 per annum (men; all others, 5s.); all persons over 16 years were liable. The charge was extended to include the income of companies, not because they would benefit directly but because the revenue was needed. The general effect was to replace non-contributory civil pensions with those on a contributory basis, having greater and much wider benefits. The existing contributory unemployment assistance was also extended.
“Contributory” as applied to the new fund was a relative term. The policy was a 50–50 sharing of cost by the payers of the specific taxes (broadly, the beneficiaries) and by the Consolidated Fund (as representative of the community at large), which would otherwise have been relieved of the cost of the existing civil pensions. Of the estimated outgo of £15 million in 1939–40, specific taxes were to finance £8.5 million and the general revenue £6.5 million (5.1 million for existing civil pensions, plus £1.4 million additional). Owing to delay in commencing some benefits, particularly the controversial medical benefits, expenditure that year turned out at only £9.8 million, almost all of which was covered by the specific taxes. The real test – the extent to which the fund had to be supported by general revenue – was yet to come. Meantime, unemployment, which had shown a resurgence during 1939, ceased to be a problem after the outbreak of war, and the demands of the war restrained the development of social services generally.
In 1945 the end of the war led to increases in benefits (mainly age) and a decision to increase the family benefit to 10s. per week from April 1946 and abolish its means test. The social security charge was therefore increased to Is. 6d. in the pound, replacing in part the national security (war) tax. With the return to peacetime economic activity, attention had swung back to social services as the focal point of major policy.
From 1951 Government aid to public hospitals increased as local hospital rating was reduced. When rating was abolished in 1957 local restraint ceased and there was another upsurge in hospital expenditure. Since then the use of new and costly drugs has helped to nearly double the expenditure on pharmaceutical benefits. In 1964–65, total Government expenditure on health was nearly £70 million, more than twice what it was 10 years before. The post-war baby boom at one end of the chain of education and, at the other, an increase in the proportion of secondary-school pupils going on to the universities, has sharply increased the cost of education. The universities now face further pressure as the first wave of young adults born in the late forties reaches their doors. The cost of education, running at over £60 million a year, is two and a half times what it was in 1953–54. Major changes in social security benefits were made in 1958–59, when the family benefit was increased to 15s. per week, and in 1959–60, when capitalisation of this benefit for home ownership was introduced. In 1959–60 also universal superannuation was sharply increased (and again in 1960–61) in order to equate it with the age benefit.
Social services as a whole now account for 44 per cent of total Government expenditure compared with 37 per cent 10 years ago. Though their budgetary importance grew, they remained, despite post-war increases, at 14–16 per cent of the national income from 1946–47 to 1957–58. After a quick rise the percentage has remained at about 18 since 1959–60. Whether this is the start of another “plateau” of stability depends largely on the education and health services, which have an inherent tendency to expand.
|war, etc., pensions||6.6||8.4||11.0||13.7||14.8||14.9|
|Total as percentage of—|
*Includes buildings paid for by Government.
†Includes cost of social security administration.
Note: This is based on the conventional presentation, but stabilisation subsidies (£17.3 million 1964–65) can only be described as welfare expenditure: if these be added and an estimate made of the interest concession in the formulation of State house rents (currently returning 3 per cent on capital), the further rental concession to pensioners and the interest concession in 3 per cent housing loans, the aggregate of social services in 1964–65 was over £270 million.
Though the Government bears the cost of repayments of public-hospital loans, the individual boards are responsible for raising the loan money: this they do successfully, partly because the interest and repayments are Government guaranteed, partly because hospitals have a strong appeal to investors.
For simplification of the public accounts, the Consolidated and Social Security Funds were merged from 1 April 1964 in the Consolidated Revenue Account. This should result in a better understanding of social service expenditure because the use of the word “fund” in connection with Social Security was misleading. Any “fund” so closely affected by political considerations, which relied on the general taxpayer for as much as 30 per cent of its receipts, was merely an account. Even as an account it obscured the picture of health services, especially public hospitals, as some large costs were charged to the Consolidated Fund.