Cost-of-Living Subsidies.

Financial Statement – in the House of Commons on 25th April 1944.

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In the third place, we have aimed at maintaining a reasonable stability in the cost of living, partly by means of an intensive and successful rationing system, and partly by subsidising costs. Here, again, I can claim that our policy has been fully successful. But I cannot claim that in this field the position is so satisfactory that I need do no more than leave well alone, for I am not, I confess, altogether happy about the present trend of events. I must begin by reminding the Committee of what has happened in the three years since Sir Kingsley Wood explained the principles and conditions of the stabilisation policy in his Budget of 1941. This year's statistical White Paper shows that the cost, exclusive both of indirect taxes and of subsidies, of the whole body of goods and services which enter into consumption stood in 1941 at 29 per cent., and in 1943 at 38 per cent., above the pre-war level. The cost of living index, on the other hand, stood in 1941 at 28 per cent. above the pre-war level; and it stands at 29 per cent. to-day. Meanwhile the subsidies which have been necessary to maintain this stability have been increasingly costly. In 1940 we were spending 70,000,000 on subsidies; in 1941, as the result of the definite introduction of the stabilisation policy, the cost rose to £140,000,000. In 1943 the figure had risen to £190,000,000 and in the current year the cost will be greater still. Without these subsidies the cost of living index, instead of being z8 per cent. over the pre-war level, would have probably reached about 45 per cent. above it on the average of the calendar year 1943, and it might reach so per cent. above it during this financial year.

These figures of increases are, in themselves, moderate. They contrast with the gloomy forebodings widely entertained in the first year of the war, when it was almost taken for granted that prices would go on soaring indefinitely, as they did in the last war, and that the money in our pockets would become worth less and less as time went on. I do not think, however, that anyone will deny that the benefits that we have gained hitherto from the stabilisation policy far outweigh its cost. Nevertheless, as I have said, I am disturbed at the trend of these figures. The maintenance of the stabilisation policy is as necessary and as beneficial as when it was first introduced, and the general principles underlying it are as sound as they were. But I am afraid we can no longer regard a cost of living figure of 25 per cent. to 30 per cent. above pre-war as sacrosanct, for the conditions laid down by my predecessor as necessary to the maintenance of this particular figure are now being imperfectly fulfilled. May I remind the Committee what Sir Kingsley said when he announced the stabilisation policy? He said: I put this forward as a most important development of policy, and I hope we may thus create conditions which will enable the wages situation to be held about where it now is. It is clear that persistence of the tendency towards rising wage rates, which necessarily increase costs of production at every stage of the productive process, would compel abandonment of the stabilisation policy."—[OFFICIAL REPORT, 7th April, 1941; col. 1322, Vol. 370.]