COST OF LIVING (PENSIONS) (Hansard, 29 January 1954)

§ Mr. John McKay (Wallsend)
In introducing this subject of pensions and the cost of living there are four points which I wish to emphasise. First, in comparing the cost of living, particularly with regard to insurance pensions, we should go back to the date when the insurance Bills were introduced, at the end of 1945. Secondly, from 1945 to June, 1947, there was an old Ministry of Labour Index which was recognised as being absolutely out of date. That index showed no increase in the cost of living, whereas even the Treasury annual index showed a substantial rise, and many other important indices showed the same movement.
Thirdly, the 1947 index was an emergency measure, which was introduced because the old 1914 index was useless. The 1947 index was based on an investigation which took place in 1937–38, so that even that index was scarcely an accurate one in connection with the ordinary working class cost of living. Fourthly, all the general statistics suggest that from 1945 the cost of living rose by at least 50 per cent., and probably 55 per cent.
My case is based largely upon a statistical table, which itself is based upon official figures supplied by the Government. It is necessary that this table should be given very accurately and I must, of necessity, read it very closely. In 1938, the drop in the value of the £ started. We start with the value at 100. It dropped in 1939 to 97 and in 1940 to 83…

§ The Joint Parliamentary Secretary to the Ministry of Pensions and National Insurance (Mr. R. H. Turton)
Will the hon. Gentleman say from what he is reading, so we may know where we are?

§ Mr. McKay
I am reading from statistics given in an answer by the Chan-

§ Mr. Turton
Which year?

§ Mr. McKay
Last year, 6th February. I have a table of these and other statistics, and the figures are these:

§ Mr. Turton
The hon. Gentleman told me earlier that he was quoting from Hansard, but I now gather that this mythical table is a document which he himself has prepared.

§ Mr. McKay
Apart from column 1 and column 3. They are figures given by the Treasury. The others are deductions from those figures, and column 5 is from the London and Cambridge Bulletin of Retail Prices.

§ Mr. Turton
Perhaps the hon. Member would like to make it clear to the House, and for the purpose of the record, that the document from which he is quoting is not a document published by any official statistician, but is a document prepared by himself for the purpose of his argument.

§ Mr. McKay
Yes—the whole table. I was going on to say that from that table certain information can be extracted. 2137 During the period 1945 to December, 1947, I contend, there was no Ministry of Labour index of any value in operation, because the Ministry suggested that there had been no rise in the cost of living when every other figure in the country was indicating a substantial rise. In the period 1945 to December, 1947. as will be seen in column 2, retail prices rose from 154 to 170, which equals a 10 per cent. rise; in column 4 of the same table, retail prices rose from 100 to 110, which equals 10 per cent.; in column 5 retail prices rose from 148 to 161, which equals 9 per cent.; in column 6. for the half year, retail prices showed a rise of 4 per cent.; and in column 7, which deals with the 1914 index, no rise was shown at all during those 18 months.
These figures prove to what a fantastic position the 1914 index was taking us. In column 8 it will be seen that the wholesale figures for the two years rose from 167 to 189, which amounts to a rise of 13 per cent. Professor Bowley, who was considering this matter very closely at the time, concludes that in one year, 1946 to 1947, the cost of living went up by 6½ per cent. Miss Schultz, of the Oxford Institute of Statistics, who has examined the whole question of family costs very closely every six months for year after year, came to a conclusion as to what was the actual increase; and her investigation shows that the increase in the cost of living had exceeded all the figures given in those two years.
From all this information I suggest that it is reasonable to assume that there was a rise in retail prices during the 18 months from 1945 to the introduction of the 1947 index in June, 1947—a rise of 8 per cent. That is for a period for which the old Ministry of Labour index showed no rise. Taking all those statistics and taking a reasonably logical deduction from them, we must come to the conclusion that there was a rise of at least 8 per cent. in the cost of living for a normal cost-of-living index.
If insurance pensions and other benefits are to be paid on a cost of living basis, it is vital that this period be re-examined. The National Insurance (Industrial Injuries) Bill was presented on 1st August, 1945, and had its Second Reading on 10th October, 1945. The National Insurance Bill was introduced on 20th December, 1945, and had its Second 2138 Reading on 6th February, 1946, and its Third Reading on 30th May, 1946. I emphasise that both these big Bills were introduced in 1945. Actually, new pensions were paid in August, 1946.
All these questions of benefits to be paid, were, therefore, settled in relation to the cost of living and the general economic conditions existing at the end of 1945 and the beginning of 1946. So when future benefits are to be considered in new Bills, then to compare like with like, as the Minister of Food tells us to do, the end of 1945 is the right date.
When the Labour Government brought in their Bill in April, 1951, they appear to have been guided solely by the 1947 Ministry of Labour index which showed a rise in the cost of living for January, February, and March, of 1951, of 18 per cent. The Government of that day raised pensions in accordance with the increased cost of living based on the 1947 index. They increased the pensions for the married by 19 per cent. and for single men by15½ per cent.
The present Government brought in their Bill in April, 1952, and apparently they took the basis as July, 1948, when the general insurance benefits began to be paid. Allowing for the increased cost of living from 1948 to the time when they introduced their new Bill in 1952, and basing their figures upon the 1947 index, they calculated an increase of about 25 per cent. since 1948. The Tory Government, in 1952, therefore, increased the benefits, generally speaking, by about 25 per cent. above 1945. They seem to have ignored in that action the fact that there had been actual payments in 1946. The 1952 Government simply calculated from 1948 when the general benefits were paid. In any case, all this indicates that neither the Tory Party nor the Labour Party has used any distinctive dates which can be logically defended.
The insurance Bills were pushed through very quickly but, owing to very special administrative difficulties, the general benefits were not paid until three years after the introduction of the Bill dealing with industrial injuries, and more than two years after the Third Reading of the general insurance Bill. In any comparative revision of benefits we must go back to 1945. To take July, 1948, as a basis would be a scandal, and June, 2139 1947, is very little better. Taking the main table, from 1945 to the end of 1953 we find that column 2 and column 4 give a rise in retail prices of 51 per cent. and in column 5 a rise of 54 per cent. That is from the London and Cambridge index. The other is the Treasury index.
How do the Treasury indices work out in comparison with the so-called working-man's consumptive index for June, 1947? If we compare the first full year of this index with 1948 with the rise indicated in the Treasury annual index for the same period, 1948–53, we find a remarkable fact. There has been a general assumption when talking of the cost of living that the annual index of the Treasury indicated a much smaller rise in retail prices than the ordinary index of 1947, which is considered to be the working-man's index. Yet, when we compare the two indices for 1948–53 we find that in the Ministry of Labour index the rise is 30 per cent. and in the two Treasury indices, column 2 and column 4, it is 28 per cent.
That means that in five years, comparing the two Government indices, there is only practically a half of 1 per cent, difference each year. They are very close, but many thought that there was a big margin when comparing the rise in retail prices in one with the other. Yet. from 1947–1952, which was not a modern index as it was based on 1937 and 1938 investigations which had to be made because the 1914 index was no good, the special investigation in 1950 changed the whole weighting and spread the index over more goods. The modern index, therefore, is from 1947 to 1952 and that index was weaker.
Over the five years there was a difference in the rise in retail prices of only one half of 1 per cent. per year and the same applies if we compare the last two years. They work out at the same average. The Treasury retail index only varies about half of 1 per cent. and my estimate that the working man's consumptive index increased by 8 per cent. from 1945 to June. 1947, when the Treasury showed a rise of 10 per cent. has been confirmed and indeed proved. On that analogy, the 10 per cent. would be increased on the 1947 basis to 11 per cent. for the two years and, taking that 2140 as a guide, for the 18 months in which there was practically no working class index we get a level of about 8 per cent.
If the Treasury index shows a rise of 51 per cent. in retail prices from 1945 to 1953 the Ministry of Labour working man's index, which is gaining almost half of 1 per cent. each year, should now be giving an index of 55 per cent. rise. Fifty-five per cent. almost tallies with the London and Cambridge index in column 5, which stood in 1945 at 148 and in 1953 at 228. This makes a rise of 54 per cent. in the London and Cambridge index table.
It is all a statistical problem, but it exists and can be reasonably estimated. There is a case for going back to 1945 to establish the rise in the cost of living for National Insurance purposes. The two main political parties differ in practice, but the people who apart from political tactics want the old people to get the economic standard set in the initial stages of the two National Insurance Bills in 1945 and 1946 will support the basic date of 1st January, 1946.
To raise the insurance pensions by 55 per cent. would increase the payment to married pensioners from 42s. to 65s., of single pensioners from 26s. to 40s. and industrial basic pensions from 45s. to 70s. If these rates were operated the married couples on pension alone would still be far below what the National Assistance Board recognises as a subsistence level, at the rate of 59s. plus 12s., 14s. or 16s. rent allowance in addition to many other special helps that both married and single pensioners receive from the Board.
All these additions are obtainable only through a personal means test and many deserving people refuse to submit to this and suffer far beyond others in dignified silence. This kind of thing should be avoided as far as possible, and the only way to do that is to bring the statutory pension as near as it can be brought to the subsistence level.
I have hurried through that statement to get it on to paper for consideration, not today but in the future. I believe myself that, taking the statistics as shown and the logic of the Government's statistics, there is a case for a 55 per cent. increase.

§ The Joint Parliamentary Secretary to the Ministry of Pensions and National Insurance (Mr. R. H. Turton)
The hon. Member for Wallsend (Mr. McKay) has presented a series of figures which are a complete muddle. He said at one point that he was comparing like with like, but he has tried to compare the Treasury index, based on consumer expenditure, with the working-class index. There is only one working-class index, the Ministry of Labour index. That index has not been challenged by the hon. Member or any of his hon. Friends from 1945 onwards and it is extraordinary that the hon. Member, who has been a Member of this House ever since July, 1945, has not until today tried to challenge it.
It is merely because the index is now showing the extent to which we have stopped inflation that we have heard this criticism. The only upshot of the hon. Member's speech is to show, contrary to what the current index suggested in the period from 1945 to 1947 prices were rising. Yet his leaders at that time were maintaining that they were keeping prices stable.
The only figures I will give the House—and they are reliable and provide a true comparison—compare the last 18 months of the time of the previous Socialist Government and the last 18 months of the present Conservative Government. During the former period, April, 1950, to October, 1951, the all-items index rose by 13 per cent and the food item by 17 per cent. Between June, 1952, and December, 1953, with the Conservative Government, the all-items index rose by 1½ per cent. and food by 1 per cent. That shows the measure of success of the present Administration in keeping prices stable. That cannot be challenged by any recourse to what happened between 1945 and 1947.
I would say this final word on the matter of the cost-of-living index. Since we came into office we have made every 2142 endeavour to keep it up to date and in line with present day working-class expenditure. In March, 1952, the index was revised so as to take account of the pattern of working-class expenditure in the year ending December, 1950. The Government are continuing to take measures to maintain the accuracy of the index.
The Cost of Living Advisory Committee, on which sit members representing employers and employed and some of the leading statisticians of the country, is today conducting an inquiry into expenditure up to last December. In due course, if necessary, the index will be revised in order to make it completely up to date. It is a poor service to the community for the hon. Member for Wallsend, or for any hon. Member to try to undermine the great importance of present cost-of-living index, the Interim Retail Price Index, which is relevant not only to social security payments, but also a basis for wages in many industries.
It is our endeavour to have social security payments restored where possible to 1946 levels, but until we can do that we must try to clear up and disentangle the difficulties we are facing in National Insurance finance and I attach importance to National Insurance being based on the contributory principle. I believe that hon. Members on all sides of the House would like to see that. To help us we have appointed the Phillips Committee, which will be examining the question of the provision for old age. Meanwhile, we have restored the purchasing power of all National Insurance benefits to the July, 1948, figure—

		Govt. Yearly Index of Drop in Value of £ Sterling 1938=100	Corresponding rise in Retail Prices 1938=100	Treasury Yearly Index drop in Value of £ Sterling 1945=100	Rise in Retail Prices with Fall of £ Sterling 1945=100	London and Cambridge Bulletin Retail Prices 1938=100	Ministry of Labour Index of Retail Prices June 1947=100	Ministry of Labour Index of Retail Prices 1914=100	Wholesale Prices from Monthly Digest 1938=100
		1	2	3	4	5	6	7	8
1938	…	100	100	—	—	100	—	156	—
1939	…	97	103	—	—	102	—	158	—
1940	…	83	120	—	—	119	—	184	—
1941	…	75	133	—	—	130	—	199	—
1942	…	70	143	—	—	139	—	200	—
1943	…	68	147	—	—	143	—	199	—
1944	…	67	149	—	—	146	—	201	—
1945	…	65	154	100	100	148	—	203	167
1946	…	63	159	97	103	151	—	203	173
1947	…	59	170	91	110	161	June 100	June 203	189
Dec 104
1948	…	55	182	85	118	175	108	—	216
1949	…	53	189	82	122	180	111	—	226
1950	…	52	192	80	125	185	114	—	258
1951	…	48	208	74	135	202	125	—	315
1952	…	44	227	69	145	221	136	—	323
1953	…	43	233	Nov. 67	149	228	140	—	323
					^*Dec. 151
^*This figure is provisional.