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THIS D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y ' S G O V E R N M E N T
:
m
Printed
for the Cabinet.
—
:
May 1959
The. circulation of. this p a p e r h a s been strictly limited. ' I t i s issued
for t h e p e r s o n a l e s e of...........
'.
J
.. ...
T O P S E C R E T
Copy N o .
C. (59) 8 0
5th May, 1959
CABINET
RETIREMENT
MEMORANDUM
PENSIONS
BY T H E SECRETARY
AND NATIONAL
ASSISTANCE
OF STATE FOR T H E H O M E
DEPARTMENT AND
L O R D PRIVY SEAL
A g a i n s t t h e b a c k g r o u n d of t h e d e m a n d for an increase in r e t i r e m e n t p e n s i o n s
a n d t h e k n o w l e d g e of t h e p r o m i s e s o u r o p p o n e n t s a r e m a k i n g a n d will c o n t i n u e
to m a k e , t h e Ministerial C o m m i t t e e o n Pensions h a v e c o n s i d e r e d t h r e e possible
courses of a c t i o n —
(A) T o d o n o t h i n g .
(B) T o increase n a t i o n a l assistance.
(C) T o increase r e t i r e m e n t p e n s i o n s ( a n d o t h e r benefits).
T h e second a n d third a r e e a c h susceptible of several v a r i a t i o n s , w h i c h a r e discussed
below.
( A ) T o D o Nothing
2. If this is politically feasible, it w o u l d h a v e t h e a d v a n t a g e s t h a t —
(i) It w o u l d avoid E x c h e q u e r e x p e n d i t u r e for w h i c h n o p r o v i s i o n h a s b e e n
m a d e in t h e c u r r e n t year, a t a time w h e n d e p a r t m e n t a l forecasts for
t h e following y e a r a l r e a d y s h o w disquieting increases.
(ii) It w o u l d a v o i d further d e m a n d s o n P a r l i a m e n t a r y t i m e , w h i c h w o u l d
b e very difficult t o m e e t .
(iii) It w o u l d leave us m o r e r o o m for political m a n o e u v r e a t a l a t e r stage.
I r e t u r n . t o this a t t h e e n d .
(B) T o Increase National Assistance
3. W e h a v e c o n s i d e r e d a p l a n p r e p a r e d a t o u r r e q u e s t b y t h e M i n i s t e r of
Pensions, w h i c h w o u l d consist of t h e following e l e m e n t s —
(i) A n increase in t h e scale rates from 45s. t o 50s. for a single p e r s o n a n d f r o m 76s. t o 85s. for a m a r r i e d couple. T h e real (as distinct from nominal) value of t h e c u r r e n t 55147
r a t e s h a s r e m a i n e d substantially u n c h a n g e d since 1948
a n d the i n c r e a s e could and w o u l d be p r e s e n t e d as a
r e a l i m p r o v e m e n t in s t a n d a r d s . T h e y c o u l d be effected
b y regulations r e q u i r i n g affirmative resolution in b o t h
H o u s e s a n d , in a full year, m i g h t cost a b o u t ...
:..
(ii) A n increase in the a m o u n t of the various types of i n c o m e
(disability, o c c u p a t i o n a l and o t h e r pensions, earnings,
&c.) w h i c h are a l r e a d y d i s r e g a r d e d in the assessment
of need. T h e s e disregards h a v e r e m a i n e d u n c h a n g e d
since 1948 a n d a 50 per cent, increase w o u l d a p p r o x i ­
m a t e l y restore, b u t n o t increase, their real value. W i t h
the exception of t h e earnings disregard, it w o u l d
r e q u i r e a short Bill and, in a full year, w o u l d cost a b o u t
(iii) A revision of t h e t r e a t m e n t of capital assets, possibly
involving elimination of the w a r savings disregard.
Similar c o n s i d e r a t i o n s , including the n e e d for legisla­
tion, a p p l y as t o (ii) a b o v e a n d t h e cost in a full year
might be a b o u t ...
...
(iv) A n increase in t h e a m o u n t of t h e c o n t r i b u t i o n s assumed
to b e m a d e t o w a r d s h o u s e h o l d expenses b y self­
s u p p o r t i n g m e m b e r s of the h o u s e h o l d (a m i n o r i t y of
cases), together with offsetting increases to m e e t the
r e n t in full w h e r e the allowance for rent is n o w
restricted b y reference to an out-of-date " local rule "
fixed n i n e y e a r s ago.
T h e s e adjustments could be
effected as in (i) a b o v e and in a full year w o u l d cost
about
...
about
£27 millions
£2 millions
£1 million
£2 millions
£32 millions
4. W e h a v e c o n s i d e r e d w h e t h e r , in o r d e r t o r e d u c e the d e m a n d s b o t h o n the
E x c h e q u e r a n d o n P a r l i a m e n t a r y time, this plan c o u l d be restricted to those p a r t s
of it w h i c h c o u l d b e effected by r e g u l a t i o n s — t h a t is, a n increase in the scale r a t e s
a n d t h e earnings disregard a n d t h e adjustments referred t o at 3 (iv) a b o v e (costing
a b o u t £30 millions altogether)—or even to the scale rates alone (costing a b o u t
£27 millions). T h e p a r t s of t h e p l a n w h i c h w o u l d r e q u i r e legislation w o u l d a d d
a b o u t £2 millions t o the cost, a n d w e a r e conscious that, even if t h e F i n a n c i a l
R e s o l u t i o n w e r e d r a w n tightly e n o u g h t o p r e c l u d e n e w disregards, t h e r e w o u l d
b e P a r l i a m e n t a r y p r e s s u r e to e x t e n d t h e disregards further.
5. W e a r e doubtful w h e t h e r , if t h e p l a n does n o t comprise all t h e disregards
m e n t i o n e d , it is o n e w i t h w h i c h we c o u l d be satisfied. It m u s t b e p r e s e n t e d ,
if at all, n o t as a s o p to public o p i n i o n b u t as a real i m p r o v e m e n t in s t a n d a r d s
for t h e p o o r e s t section of" the c o m m u n i t y . M o r e o v e r , the N a t i o n a l Assistance
B o a r d , u n d e r Sir Geoffrey H u t c h i n s o n , w h o s e r e c o m m e n d a t i o n of n e w scale r a t e s
is a p r e r e q u i s i t e of t h e p l a n , are k n o w n to feel strongly that the time h a s c o m e
t o i m p r o v e all t h o s e disregards described. So t h e situation is t h i s : t h e r e is a
t r u n c a t e d p l a n , w i t h o u t legislation, w h i c h is b e t t e r t h a n n o t h i n g , b u t it w o u l d
i n t h e view of the m a j o r i t y of t h e C o m m i t t e e b e better t o increase t h e scales a n d
legislate o n t h e disregards.
6. It m i g h t b e possible t o m a k e t h e p l a n m o r e attractive by changes in the
n o m e n c l a t u r e of n a t i o n a l assistance, especially w h e n g r a n t e d to r e t i r e m e n t
pensioners!—e.g., b y r e i n t r o d u c i n g the t e r m " s u p p l e m e n t a r y p e n s i o n " — o r by
s o m e such a d m i n i s t r a t i v e device. S o m e of us a t t a c h great i m p o r t a n c e t o a
d e v e l o p m e n t on these lines b u t there are, at the s a m e time, serious a r g u m e n t s
a g a i n s t it a n d the v a r i o u s possibilities a r e being further e x a m i n e d . S u c h changes
c o u l d n o t in a n y event b e applied for s o m e time.
(C) T o increase the retirement
7. T h e cost of increasing
a p p r o p r i a t e increase for m a r r i e d
full year. T h i s a l o n e c o u l d b e
pension
the r e t i r e m e n t p e n s i o n alone by 10s., with a n
couples, w o u l d b e a b o u t £130 millions in t h e first
effected by a m e n d m e n t of t h e c u r r e n t N a t i o n a l
i n s u r a n c e Bill. B u t w e d o n o t believe t h a t w e either c o u l d or s h o u l d confine t h e
increase to r e t i r e m e n t pensions. If it were e x t e n d e d to t h e o t h e r N a t i o n a l I n s u r a n c e
benefits (widows', sickness, u n e m p l o y m e n t , &c.) a n d t o industrial injury benefits
t h e cost w o u l d b e nearly £200 millions in t h e first full year, iising every y e a r . F o r
this a s e p a r a t e Bill w o u l d be r e q u i r e d . N o r c o u l d w e a v o i d in s u c h c i r c u m s t a n c e s
a n i n c r e a s e in w a r pensions a n d a n increase in n a t i o n a l assistance ( t h o u g h t h e cost
of a 5s. increase in t h e latter w o u l d b e offset by savings resulting from t h e increased
benefits). T h e total cost w o u l d b e n o t less t h a n £210 millions in t h e first full year.
8. T h e i m m e d i a t e cost of t h e L a b o u r P a r t y ' s p r o p o s a l of a 10s. i n c r e a s e
w i t h o u t a n y a d d i t i o n a l increase for m a r r i e d couples w o u l d b e a b o u t £115 millions
if applied t o r e t i r e m e n t pensions only a n d of t h e o r d e r of £160 millions if a p p l i e d
t o all benefits.
9. T h e cost of a 5s. increase would b e half the a m o u n t s given in t h e t w o
preceding paragraphs.
10. I n o r d e r t o cover t h e increased e x p e n d i t u r e c o n t e m p l a t e d in p a r a g r a p h 7
by i n c r e a s e d c o n t r i b u t i o n s , t h e increases necessary in t h e first full y e a r w o u l d be
as follows—
Additional
contributions
required—
Employed
man
Employer
Exchequer
(weekly
(weekly
(annual
contribution)
contribution)
cost)
F o r r e t i r e m e n t p e n s i o n s only Is. I d .
Is. I d .
£20 millions
F o r all benefits
Is. 9d.
Is. 9d.
£30 millions
T h e s e increases w o u l d preserve t h e p r e s e n t r a t i o b e t w e e n c o n t r i b u t i o n s f r o m
e m p l o y e r s , e m p l o y e d a n d E x c h e q u e r respectively.
T h e total increased cost to the E x c h e q u e r in the first full y e a r o n this basis
w o u l d b e as f o l l o w s : —
£ Millions
If r e t i r e m e n t p e n s i o n s only were increased
20
If o t h e r N a t i o n a l I n s u r a n c e benefits w e r e
also increased
10
15
F o r w a r pensions
G r o s s cost Less N a t i o n a l Assistance net saving
N e t cost (say) 45
- 3
42 in first full y e a r
11. T h e s e increases in the c o n t r i b u t i o n s w o u l d be higher t h a n w o u l d b e
actuarially a p p r o p r i a t e in r e l a t i o n to the increased benefits. I n o t h e r w o r d s , they
w o u l d c o n t a i n a degree of overload. If t h e increases in t h e c o n t r i b u t i o n s w e r e
limited to the a p p r o p r i a t e a c t u a r i a l a m o u n t s , t h e result w o u l d be an i m m e d i a t e
increase in the deficit in the F u n d — i . e . , a smaller e x t r a b u r d e n o n e m p l o y e r s a n d
e m p l o y e d , b u t a larger e x t r a b u r d e n o n the E x c h e q u e r .
B u t even if the o v e r l o a d e d c o n t r i b u t i o n s were charged as in the first table, they
w o u l d n o t suffice to m e e t the a d d i t i o n a l e x p e n d i t u r e after the first year, so t h a t t h e
deficits n o w in p r o s p e c t (until the n e w Bill is in o p e r a t i o n ) w o u l d in a n y e v e n t t h e n
be increased unless the c o n t r i b u t i o n s were p u t u p yet again. A l t h o u g h the n e w Bill
r e m o v e s t h e deficits n o w in p r o s p e c t , the c o n t r i b u t i o n s w h i c h it charges w o u l d b e
far too l o w to cover also t h e cost of i m m e d i a t e higher benefit r a t e s : t h e y w o u l d
therefore h a v e t o be increased if w e are to avoid being faced with a fresh series of
deficits.
12. T h e r e are the following reasons w h y it w o u l d be u n d e s i r a b l e to raise t h e
contributions—
(i) It w o u l d be i n c o m p a t i b l e with o u r defence of t h e c u r r e n t N a t i o n a l
I n s u r a n c e Bill o n the g r o u n d t h a t it reduces c o n t r i b u t i o n s for t h e
lower-paid.
(ii) It w o u l d involve s u b s t a n t i a l a m e n d m e n t s of the figures in t h a t Bill.
*
(iii) It w o u l d lay an a d d i t i o n a l b u r d e n o n m a n y w h o will receive little o r n o
benefit from t h e income-tax concessions in the Budget.
(iv) It w o u l d bring c o n t r i b u t i o n s t o a level which the lower-paid w o r k e r at
p r e s e n t wage-levels w o u l d find heavy a n d it w o u l d lead to b o t h w a g e ­
d e m a n d s a n d price-increases and t h e c o n s e q u e n t d a n g e r t o e c o n o m i c
stability.
(v) It w o u l d i m p o s e a h e a v y additional b u r d e n o n the E x c h e q u e r .
A n d it is in a n y case b y n o m e a n s certain t h a t s u c h a rise in the c o n t r i b u t i o n s w o u l d
n o t go far t o nullify any political credit we m i g h t o b t a i n from raising t h e pension.
Conclusion and Recommendations
13. It follows that, in o u r view, there are grave difficulties in a n increase
in t h e r e t i r e m e n t p e n s i o n at t h e present time. S o m e of these derive from t h e
i n c r e a s e in c o n t r i b u t i o n s , s o m e from the E x c h e q u e r o u t l o o k a n d s o m e from the
effect o n o u r p r e s e n t N a t i o n a l I n s u r a n c e Bill a n d the need to a m e n d it. A r e we
t h e n t o d o n o t h i n g or to i n c r e a s e n a t i o n a l assistance? O n balance, w e favour t h e
full p l a n for increasing n a t i o n a l assistance a n d dealing with the d i s r e g a r d s , as
s k e t c h e d in p a r a g r a p h 3, t h o u g h the C h a n c e l l o r of the E x c h e q u e r wishes at this
stage t o reserve his position. W e are u n d e r n o illusion t h a t we m a y n o t get a
g r e a t deal of political g r a t i t u d e , if we a d o p t this course. B u t there is m u c h to be
said for it o n m e r i t s : it is timely a n d h o n o u r a b l e .
14. W e prefer the c o u r s e m e n t i o n e d in t h e previous p a r a g r a p h to doing
n o t h i n g . B u t t h e possibility of " standing p a t " c a n b e discussed at C a b i n e t .
15. A very early decision is necessary if w e are to h a v e time to b r i n g the p l a n
i n t o effect by, say, t h e b e g i n n i n g of S e p t e m b e r .
16. W e therefore (subject to the C h a n c e l l o r ^ position being reserved a n d to
t h e r e c o m m e n d a t i o n s of t h e N a t i o n a l Assistance Board) invite the C a b i n e t —
(a) to agree t o the p r e p a r a t i o n of—
(i) r e g u l a t i o n s to raise the scale r a t e s of n a t i o n a l assistance b y 5s. single
a n d 9s. m a r r i e d (£27 millions); a n d
(ii) a Bill a n d regulations t o m a k e , b r o a d l y , a 50 per cent, i m p r o v e m e n t
in the i n c o m e disregards a n d a revised t r e a t m e n t of capital assets,
eliminating the w a r savings disregard (£5 millions).
F a i l i n g that,
(b) to consider w h e t h e r w e should be justified in a d o p t i n g either of the
following alternatives, which could be effected w i t h o u t legislation b u t
w h i c h w e r e g a r d as o p e n t o real o b j e c t i o n s —
(i) t o raise t h e scale rates alone, as in (a) (i); or
(ii) to raise t h e scale rates a n d m a k e certain adjustments in t h e earnings
d i s r e g a r d , & c , leaving the m a i n disregards alone.
R . A . B.
Home Office, S.W. 1, 5th May, 1959.