Editing Hugh Gaitskell (section)

== Chancellor of the Exchequer, 1950–51 ==

=== Economic philosophy ===
On his appointment, Gaitskell told [[William Armstrong, Baron Armstrong of Sanderstead|William Armstrong]], his Principal Private Secretary, that the main job over next few years would be the [[redistribution of wealth]].<ref name="Dell 1997, p.147">Dell 1997, p.147</ref>

[[Rab Butler]] and [[Samuel Brittan]], both writing in the early 1970s, commented that Gaitskell was the most technically qualified chancellor of the 20th century up until that date.<ref name="Dell 1997, p.138" /> However, Dell comments that he often went into excessive detail, including personally overseeing economic forecasts, and held excessively long meetings. This may have been from a love of micro-management or because, as an advocate of controls and planning, he was suspicious of treasury officials, whom he thought excessively inclined to free market mechanisms.<ref>Dell 1997, p.139</ref>

In December 1950, Gaitskell rejected the advice of [[Cameron Cobbold, 1st Baron Cobbold|Kim Cobbold]] ([[Governor of the Bank of England]]) and Hall that interest rates be raised, calling such a policy "completely antiquated".<ref name="Dell 1997, p.141" />

=== Cost of rearmament ===
[[Marshall Plan|Marshall Aid]], which had totalled $3.1bn over previous three years, ended officially on 1 January 1951, although in practice it had ended six weeks earlier. It was held that the balance of payments was now strong enough for it no longer to be necessary.<ref name="Dell 1997, p.144" /> [[Harold Wilson]] ([[President of the Board of Trade]]) and [[George Strauss]] ([[Minister of Supply]]) warned Gaitskell that the burden of rearmament was too much for the shortage of raw materials and manufacturing capacity, but Gaitskell ignored them as they were friends of Bevan. On 27 January 1951 Bevan was reshuffled to the Ministry of Labour with Health, now under [[Hilary Marquand]], downgraded to a non-Cabinet appointment.<ref name="Dell 1997, p.146">Dell 1997, p.146</ref> Gaitskell welcomed the changes as reducing an obstacle to economies in health spending.<ref>Campbell 2010, p205</ref>

Gaitskell still favoured discrimination in favour of sterling trade and was opposed to sterling convertibility but was now a lot more pro-American since his October 1950 visit to Washington. By February 1951 he was strongly critical of anti-Americanism in cabinet.<ref>Dell 1997, p.145</ref>

Bevan's Commons speech on 15 February 1951 defended the extra £4.7bn on armaments, although most of it was a warning not to rearm too fast and that communism would be defeated through democratic socialism and not through arms. The following day Gaitskell recorded his regret that for all Bevan's brilliance in oratory he should be "a difficult team worker, and some would say even worse – a thoroughly unreliable and disloyal colleague."<ref>Campbell 2010, p206</ref>

=== Budget ===
Gaitskell made the controversial decision to introduce charges for prescription glasses and dentures on the [[National Health Service]] in his spring 1951 budget.<ref name="Howse">{{cite news|title=Anniversaries of 2013|url=https://www.telegraph.co.uk/history/9770133/Anniversaries-of-2013.html|archive-url=https://web.archive.org/web/20121231203151/http://www.telegraph.co.uk/history/9770133/Anniversaries-of-2013.html|url-status=dead|archive-date=31 December 2012|newspaper=Daily Telegraph|date=28 December 2012|location=London|first=Christopher|last=Howse}}</ref> The Cabinet had agreed in principle in February 1951 to charges on teeth and spectacles.<ref name="Matthew 2004, p.288" /> For 1951-2 Bevan was demanding £422m of health spending, whereas Gaitskell was willing to allow £400m.<ref name="Dell 1997, p.147" /> Gaitskell wanted to pass on half the cost of false teeth and spectacles, to bring in £13m in 1951-2 and £23m in a full year. Children, the poor and the sick were to be exempt.<ref>Dell 1997, p.148</ref> On 9 March [[Ernest Bevin]] was moved from the Foreign Office, dying a month later. Bevan, who had hoped to succeed him, was passed over for promotion to a major job for the second time in six months. By this point other ministers felt that Bevan was looking for an issue on which to resign, and that it was pointless making too many concessions as he needed to be made to appear to be in the wrong.<ref>Dell 1997, p.146, 148</ref>

In addition, [[Purchase Tax]] was increased from 33% to 66% on certain luxury items such as cars, television sets and domestic appliances, while entertainment tax was increased on cinema tickets.<ref name="Hugh Gaitskell by Brian Brivati">Hugh Gaitskell by Brian Brivati</ref> At the same time, however, taxation on profits was raised and pensions increased to compensate pensioners for a rise in the cost of living,<ref>Henry Pelling, ''The Labour Governments, 1945–51'' (1984).</ref> while the allowances for dependent children payable to widows, the unemployed and the sick, together with marriage and child allowances, were also increased.<ref>Post-Victorian Britain 1902–1951 by Lewis Charles Bernard Seaman</ref> In addition a number of small items were removed from purchase tax,<ref name="Hugh Gaitskell by Brian Brivati" /> and the amount of earnings allowed without affecting the state pension was increased from 20 shillings (£1) to 40 shillings (£2) a week.<ref>Denis Nowell Pritt, ''The Labour Government 1945–51'' (1963)</ref> Besides taxing the better off and protecting pensions, Gaitskell actually increased NHS spending.<ref>Campbell 2010, p209-10</ref> The budget increased defence spending by £500m to £1.5bn for 1951–2, helped by a surplus inherited from Cripps and optimistic growth forecasts. Plans to introduce capital-gains tax were postponed until 1952.<ref>Dell 1997, p.147, 150</ref>

Prime Minister Attlee's initial reaction to the draft budget was that there were not likely to be many votes in it. Gaitskell replied that he could not expect votes in a rearmament year.<ref name="Matthew 2004, p.288" /> [[Ernest Bevin]] did not like the idea of health charges and tried in vain to negotiate a compromise. Education Minister [[George Tomlinson (British politician)|George Tomlinson]] suggested a repetition of the previous year's formula, a spending ceiling of £400m. Gaitskell was prepared to offer a delay in the introduction of charges but rejected the Tomlinson formula despite Attlee's urgings, since the ceiling could not be achieved without charges. Attlee went into hospital to be treated for a duodenal ulcer on 21 March. From his sickbed he wrote what [[Kenneth O. Morgan]] calls a "remarkably vacuous letter", which "dealt with none of the substantive points at issue".<ref name="Dell 1997, p.148-9">Dell 1997, p.148-9</ref> At a Cabinet meeting on 22 March Gaitskell was dissuaded from his original intention to insist on prescription charges since they might fall heavily on the genuinely sick.<ref name="Campbell 2010, p207-8">Campbell 2010, p207-8</ref>

=== Bevan's resignation ===
Gaitskell and Attlee warned of risks that the rearmament programme might not be fully implemented. Gaitskell warned the Economic Policy Committee (3 April 1951) of the shortage of machine tools, and stated that some could be imported from the US but that this would weaken the balance of payments.<ref name="Dell 1997, p.151">Dell 1997, p.151</ref>

A very angry Bevan saw the charges as a blow to the principle of a free health service, telling a heckler while he was making a speech in [[Bermondsey]] (3 April 1951) that he would resign rather than accept health charges. Gaitskell, besides the obvious need for a new Chancellor to assert his authority, saw this as a deliberate attempt to bounce the Cabinet publicly, telling Dalton that Bevan's "influence was very much exaggerated" and that he might split the Labour Party as [[David Lloyd George|Lloyd George]] had the Liberals.<ref name="Campbell 2010, p207-8" />

In two long Cabinet meetings on 9 April Bevan found himself supported only by Harold Wilson.<ref name="Campbell 2010, p208-9">Campbell 2010, p208-9</ref> [[Herbert Morrison]], who was chairing the Cabinet whilst Attlee was being treated in hospital, again proposed a compromise that there be an agreed ceiling on public spending but no NHS charges.<ref name="Matthew 2004, p.289">Matthew 2004, p.289</ref> Gaitskell was determined that there would not be an open-ended commitment to welfare spending at the expense of economic investment or rearmament, and rejected Morrison's proposal.<ref name="Matthew 2004, p.289" /> At the second meeting, Gaitskell threatened to resign, but quietly and without a public fuss, if he did not have the backing of the Cabinet; the resignation of the Chancellor on the eve of the budget would have caused a political crisis. Douglas Jay and others attempted in vain to persuade Gaitskell to compromise, but he refused, arguing that two members of the Cabinet should not be allowed to dictate to eighteen, although he agreed not to specify just yet the date at which the charges would come into effect.<ref name="Campbell 2010, p208-9" /> A final attempt by Attlee to negotiate a compromise from his sickbed (10 April) came to nothing.<ref name="Dell 1997, p.148-9" /> The affair brought Gaitskell close to physical and emotional collapse.<ref name="Matthew 2004, p.289" />

Gaitskell won the admiration of Treasury officials for his stance: on the morning of the budget Sir Edward Bridges came to tell him of the respect he had earned in the department and that it was "the best day we have had in the Treasury for ten years". Gaitskell recorded that Bridges, Plowden, Leslie (Head of Information) and Armstrong were all urging him to stand firm and that he was "overcome with emotion" at Armstrong's words.<ref>Dell 1997, p.149</ref>

Gaitskell's budget was praised at the time. His predecessor Stafford Cripps wrote to him praising him for not giving in to "political expediency", whilst he was supported in public by two younger MPs later to be staunch allies, [[Roy Jenkins]] and [[Anthony Crosland]].<ref>Dell 1997, p.150</ref> After the budget [[Tony Benn]], who was on the right of the Labour Party at that time, recorded the atmosphere at the party meeting (i.e. a meeting of Labour MPs) on 11 April as "sheer relief" that it had not been worse; the Parliamentary Labour Party (PLP) strongly supported the budget. However, Bevan soon rejected Gaitskell's proposed compromise that it be announced that the health charges were not to be permanent as "a bromide". Bevan's ally [[Michael Foot]] wrote an editorial in ''[[Tribune (magazine)|Tribune]]'' comparing Gaitskell to [[Philip Snowden, 1st Viscount Snowden|Philip Snowden]] (the Chancellor whose cuts in 1931 had brought down the [[Second MacDonald ministry|Second Labour Government]], after which he and other leading members of the Cabinet entered into the Tory-dominated [[National Government (United Kingdom)|National Government]]). Bevan resigned on 21 April, as did Harold Wilson and [[John Freeman (British politician)|John Freeman]].<ref>Campbell 2010, p210</ref>

Gaitskell defended his budget at the party meeting on 24 April. He said it was still too early to tell if the rearmament programme was actually achievable.<ref name="Dell 1997, p.151" /> Benn commented after the meeting on how Gaitskell's greatness arose from his combination of "intellectual ability and political forcefulness". Bevan then made an angry speech which did not impress many of the PLP.<ref>Campbell 2010, p212-3</ref>

=== Analysis ===
[[Edmund Dell]] argues that neither Bevan nor Gaitskell emerge with much credit from the affair. "Gaitskell was obsessed by Bevan and by the need to establish his authority over him". Charges on false teeth and spectacles were "insignificant" in the context of the greater budget and "financially were neither here nor there" ... but Bevan was "impatient and arrogant and noisy and apparently intent on exhausting the tolerance of his cabinet colleagues". Gaitskell agreed to limit health charges to three years (subject to Parliament voting to extend them), made concessions on pensions to the Trade Union Group of MPs, and a diary entry suggests he was not happy about dividend constraints – yet he was not prepared to make significant concessions to Bevan. However, Dell argues that all chancellors have to make sticking points or they would have to give in to everybody. Gaitskell saw himself as defending the country and wanted to prove Labour a "responsible party of government", but the public were not yet aware of the looming inflation problem. Gaitskell told [[George Brown, Baron George-Brown|George Brown]] in 1960: "It was a battle between us for power – he knew it and so did I".<ref>Dell 1997, p.148, 155-7</ref>

[[John Campbell (biographer)|John Campbell]] agrees that Bevan may have been partly right that Gaitskell, abetted by Morrison, was deliberately trying to drive him out of the Cabinet. Gaitskell believed that Labour had to be seen to govern with fiscal responsibility, telling Dalton on 4 May 1951 that he and Bevan were engaged in a battle for the soul of the Labour Party, and that if Bevan won Labour would be out for many years (although, ironically, Gaitskell won but they were out of power for many years anyway). Had Attlee not been sick, he might have been able to patch up a compromise.<ref>Campbell 2010, p213-5</ref>

Historian [[Brian Brivati]] believes that the importance of the charges was "irrelevant" to the huge cost of rearmament, which damaged Britain's recovery in the years which followed by absorbing earnings from exports.<ref>Matthew 2004, p.288-9</ref>

=== Aftermath ===
A £300m surplus in the British balance of payments in 1950 turned into a £400m deficit in 1951, the most sudden reversal on record up until that time. This was caused partly by businesses switching to rearmament rather than generating exports. The other reason was a deterioration in the [[terms of trade]]: higher oil prices after the [[Abadan Crisis|Iranian oil crisis]] caused an outflow of dollars, whilst prices of wool, tin and rubber fell so the rest of the sterling area was not earning so many dollars from exports. By the second half of 1951 the overseas sterling area was importing from North America at double the 1950 rate. By 1951 inflation was beginning to increase, the government budget surplus had disappeared, and in another sign of an overheating economy unemployment was down to 1945 levels. By the second half of 1951 Gaitskell was worried about the political effect of the higher cost of living, but the ''[[Financial Times]]'' and ''[[The Economist]]'' accused him of using higher prices to choke off consumption and free up resources for rearmament instead of consumer goods production.<ref>Dell 1997, p.152, 154</ref>

Gaitskell again rejected Treasury advice to raise interest rates to cool the economy in June, July and August 1951. He argued that higher interest rates would be perceived as generating profits for the banks, which would not sit well with trade unions, and he was only prepared to consider demanding that the banks restrict credit.<ref name="Dell 1997, p.141" /> Gaitskell (diary 10 August 1951) stated that he and Morrison thought that Attlee had been too weak in dealing with Bevan.<ref>Campbell 2010, p216</ref> By August–September 1951 the Treasury were taken by surprise by a full-on sterling crisis, which they passed on to the incoming Conservative Government. Sterling was trading unofficially at $2.40, below the official rate of $2.80.<ref>Dell 1997, p.158</ref>

Gaitskell visited Washington in the autumn of 1951, where he thought US Treasury Secretary [[John Wesley Snyder]] "a pretty small-minded, small town, semi-isolationist". A committee was formed, containing Plowden and [[W. Averell Harriman|Averell Harriman]], to investigate the way in which US rearmament was absorbing and pushing up the prices of world raw materials.<ref name="Dell 1997, p.151" /> Gaitskell was horrified by Attlee's calling an election (19 September 1951) when he and Morrison were in North America. If Attlee had held on for another six or nine months Labour might have won.<ref>Dell 1997, p.157</ref> Labour lost the [[1951 United Kingdom general election|October 1951 General Election]] despite getting more votes than the Conservatives. Whilst the Bevanites blamed defeat on Morrison's policy of "consolidation", the right blamed Bevan for causing a split. Nobody imagined Labour would be out of power for more than a few years, and Attlee expected to be Prime Minister again by 1953.<ref name="Matthew 2004, p.288" /><ref>Campbell 2010, p217</ref>

When the Conservatives returned to power, the new chancellor [[Rab Butler]] would get the balance of payments back into surplus in 1952 by cutting overseas spending, a measure which Dell suggests Gaitskell had not wanted to irritate the Americans by taking. In his memoirs (''Art of the Possible'', p.&nbsp;163) Butler later called him "a political mouse who, confronted with a gigantic deterioration in the balance of payments, responded by cutting a sliver off the cheese ration".<ref>Dell 1997, p.154</ref> After the Conservatives cut the armament plans in 1952 Crosland told people that Gaitskell had made him look like "a complete idiot" for supporting the budget in public. However, even by the end of 1951 there was less likelihood of the Korean War turning into a general war (the front line had stabilised, with the US administration being clear that they did not wish to escalate hostilities against China), so any government might have pared back defence spending in 1952.<ref>Dell 1997, p.150, 152-3</ref>