Subscribe now and receive weekly newsletters with educational materials, new courses, interesting posts, popular books, and much more!
Articles
Churchill: A Great Reformist Chancellor of the Exchequer
- By NICK BOSANQUET AND ANDREW HALDENBY
- | August 24, 2023
- Category: Churchill Between the Wars Truths and Heresies
Winston Churchill was Britain’s Chancellor of the Exchequer from 1924-29. Those years are best known for political drama, a return to the Gold Standard and the General Strike. But Churchill’s considerable achievements remain hidden. In this phase of his long career, he did not write his own history.
For Roy Jenkins in The Chancellors, Churchill’s “great virtues had been the generosity of his sympathies together with the force of his oratory and personality. His great defect had been the lack of any persistent sense of direction.”1 In fact, he had defined his aims clearly. In his first budget speech in 1925 he declared: “Security for the wage earner and encouragement of enterprise by the relief of taxation on income.”
Pensions and reform
On security for wage earners, Churchill showed ability to bring about fundamental change through the introduction of immediate non-contributory pensions for widows and contributory old age pensions for all.
The Geddes Axe in 1922 seemed to have blocked all new initiatives in public spending for years.2 But with vital help from Prime Minister Stanley Baldwin and Minister for Health (and local government) Neville Chamberlain, Churchill secured agreement for a scheme with a long term capital cost of £750 million within six months of taking office.
Churchill owed a great deal to Baldwin’s brief time as Chancellor in 1923. Baldwin had set up a Committee on National Insurance, led by a future Chancellor, Sir John Anderson. Churchill acknowledged this in his budget speech: “Without the preliminary work which was done by that Committee it would not have been practicable to deal with this matter this year, and perhaps not next year.” To Chamberlain he owed suppression of doubts among colleagues and willingness to take on administration of the scheme.
“Driving the ambulance”
This was the first time a Chancellor had stressed the cost of ageing. Deftly, Churchill cited the numbers: In 1891 the census had shown 5.6 million people between ages 40-60; by 1921 it was 9.7 million. The existing non-contributory pension was set to rise in cost from £27 million to £54 million. Churchill recommended the gradual shift to a contributory pension, sharing the costs of ageing with later generations. This was a message of hope and of relief, and a brilliant use of statistics to win political consent.
Churchill’s 1925 Budget marked the first specific allowances for widows with children. After 4 January 1926, widows would receive 10 shillings per week (£31 in today’s money) for life. The eldest child would receive 5 shillings, others 3. From 6 January 1928, men over 65 would be eligible for a pension of 10 shillings a week, “without a means test or disability of any kind.” Pensioners were also allowed to work without a retirement condition.
The 1942 Beveridge Report was hailed as a great step for welfare, but it simply extended flat rate benefits to Churchill’s 1925 contributory system. His 1925 speech was the first time a Chancellor proposed National Insurance with multiple benefits. The widows pension scheme showed remarkable foresight. Churchill’s initiative—and it was his, against Treasury opposition—ended poverty for two million widows.
In his long introduction Churchill made clear that he was taking over as driver of Lloyd George’s “ambulance wagon.” “The threat of adversity,” Churchill told Parliament, “has been active all these years, and in the upshot no effective provision has been made by the great mass of the labouring class, for all their efforts, for their wives and families in the event of their death.”3
The Local Government Act
In 1926-27, Churchill had to focus on the coal industry and the General Strike. But in 1928-29, he was able to bring in more reforms. The change with the most effects was the 1929 Local Government Act. A joint initiative between Churchill and Chamberlain, it marked the end of the Poor Law.
Mainly credited to the later Labour Government, the Local Government Act was actually enacted during Churchill’s term at the Exchequer. Hospitals, including those developed by the Metropolitan Asylums Board, came under local government. The Act provided for the reorganization of local government with sixty-two county boroughs and eighty-four county councils. They replaced a thousand smaller authorities descended from the old parishes.4
The Act accelerated hospital development, especially in London.5 The Ministry of Health in its 1934-35 Annual Report commented: “The Councils have now become the direct providers of treatment, both at hospitals and at the homes of the sick poor on a scale unparalleled elsewhere.”6 The London County Council (LCC) developed a coordinated hospital service which provided for the needs of every type of patient.
Among the striking improvements was maternity services. While confinements doubled between 1931 and 1938, the maternal death rate dropped from 8.0 per thousand confinements to 2.80, and by 1947 to 1.28.7 The LCC provided an integrated service, with hospital care and community nursing, to four million people. In the 1930s it began developing research through the first municipal postgraduate hospital at Hammersmith, which would later lead London hospitals in research on respiratory diseases from smoking and air pollution. Its research prepared the way for the 1956 Clean Air Act, prepared under Churchill’s 1951-55 government. This banned the use of coal fires and ended the era of London fog. (See “Churchill and the Great Smog.”)
Chancellor Churchill’s lasting achievements
The 1929 Local Government Act had very positive results during the Second World War. In London and other big cities, local government units led relief work during the Blitz, including for those who had lost their homes. Churchill made his first visit to the County Hall (LCC’s headquarters on the Thames opposite the Houses of Parliament) on 14 July 1941. There he honoured the service of London local government during the Blitz:
Public order, public health, the maintenance of all the essential services… the shelter of millions of men and women and the removal of the dead and wounded from the shattered buildings; the care of the wounded when the hospitals were being ruthlessly bombed and the provision for the homeless sometimes amounting to many thousands in a single day….
But there was one thing about which there was never any doubt. The courage, the unconquerable grit, and stamina of the Londoners showed itself from the very outset. Without that all would have failed. Upon that rock, all stood unshakable. All the public services were carried on, and all the intricate arrangements, far-reaching details, involving the daily lives of so many millions, were carried out, improvised, elaborated and perfected in the very teeth of the cruel and devastating storm.”8
Churchill was simply recording the long-term effects of his decisions as Chancellor in 1928-29. Yet his actions had been severely criticized almost from the beginning.
Keynes leads the critics
As early as 1925, Churchill was under fire by the leading economist John Maynard Keynes. His pamphlet, The Economic Consequences of Mr Churchill, held the field. It was based on Keynes’s articles in the Evening Standard, owned by Lord Beaverbrook, a long-time critic of the Gold Standard. The pamphlet’s conclusions were a forecast; yet July 1925, when it was published, was far too early for evidence of any “consequences.”9
The Gold Standard, Keynes argued, was a certain move toward high unemployment. Yet a detailed study in 1928 showed that Keynes’s estimates of cost differences between Britain and America were too wide.10 The most likely difference was 2.5%, not 10%. A 1930 study of postwar unemployment concluded that the Gold Standard was only one factor.11 Others included concentrated unemployment in the coal and steel industries and the return of France and Germany to world markets. Indeed, unemployment in 1927-28 was the same as in the rest of the decade. In the engineering industry, unemployment actually fell. A later review by A.J.P. Taylor has exonerated Churchill.12 The return to the Gold Standard was inevitable as an act to ensure postwar stabilization.
A great reformist Chancellor
The truth needs to be recognized: Winston Churchill was the first Chancellor of the Exchequer whose policies explicitly aimed at promoting economic growth. Against opposition from most of his colleagues, his 1928 Budget cut rates (property taxes) entirely for agriculture and by three-quarters for railways and other companies. Churchill’s “derating” initiative was the first move by a Chancellor to plan to manage an economy—not just to manage a budget.
With the coming of the Depression, Churchill’s reforms had little immediate effect. But they contributed to the strong economic recovery from 1934 on. In 1938—nine years after Churchill—British real income per head was higher than in the United States. The first Chancellor to promote economic growth, he was followed by many successors, including his then-assistant Harold Macmillan—another promoter of derating—who later delivered with the unusual, successful proposal of premium bonds.
Endnotes
1 Roy Jenkins, The Chancellors (London: Macmillan 1998), 329.
2 The Geddes Axe was a drive for lower government expenses proposed in 1922 by the Committee on National Expenditure, chaired by Sir Eric Geddes.
3 Winston S. Churchill (hereinafter WSC), House of Commons, 28 April 1925, in Robert Rhodes James, ed., Winston S. Churchill: His Complete Speeches 1897-1963, 8 vols. (New York: Bowker, 1974), IV: 3572.
4 A.J.P. Taylor, English History 1914-45 (Oxford University Press, 1965), 256-57
5 London County Council, The L.C.C. Hospitals (1949), passim.
6 L.C.C. Hospitals,15.
7 L.C.C. Hospitals, 44.
8 WSC, London County Hall, 14 July 1941 in Complete Speeches, VI: 6449-50.
9 John Maynard Keynes, The Economic Consequences of Mr. Churchill (London: Hogarth Press, 1925. See also Leon Trotsky, Where is Britain Going? (London: George Allen & Unwin, 1936) Churchill had said Britain must “conform with reality.” For Trotsky, “Churchill’s words signify we have become immeasurably poorer, the United States immeasurably richer.”
10 H.W. Macrosty, Trade and the Gold Standard (London: Royal Statistical Society, 1928), 303 et. seq.
11 Henry Clay, The Post-War Unemployment Problem (London: Macmillan, 1930), Ch. 11.
12 Taylor, English History, 222-24.
The authors
Dr. Nick Bosanquet was formerly Professor of Health Policy, Imperial College London. His publications include Our Land at War (2014), on key sites for medical and other services in the First World War. Andrew Haldenby, former Director of Reform, a UK-based think tank. Together they are co-founders of the consultancy, Aiming for Health Success.