The Institutional Characteristics of the Board of Trade

Previous studies concerning the Board of Trade’s labor policy have not paid sufficient attention to the fact that the board was originally an organization mainly in charge of the promotion of foreign trade. Since the period when William Huskisson was the president (1823–27), the Board of Trade was continually a stronghold of free traders and contributed to Britain’s conversion from protectionism to free trade.^{Footnote 14} In the latter half of the nineteenth century, when the initiative in tariff policy shifted from the Board of Trade to the Treasury, the board was devoted to administrative works for transportation. Thomas Henry Farrer, the ex-chief of the Marine Department, maintained his position as Permanent Secretary from 1865 to 1886, after which, the next three Permanent Secretaries of the Board were the ex-chiefs of the Railway Department until 1907, when Llewellyn Smith, who had been the head of the Commercial Labour and Statistical Department, was promoted to the post of Permanent Secretary.^{Footnote 15} This does not mean that the Board of Trade ever lost its enthusiasm for the expansion of foreign trade. The board carried out active regulation on transportation in order to help maintain transportation cost at a low level. For instance, from 1894 to 1913, the upper limit of the freight charge of railways was fixed by the board, which resulted in traders continuing to enjoy cheap transportation costs, although such active regulation forced the board to clash with railway companies.^{Footnote 16}

On the other hand, the Commercial Department, whose function had once been absorbed into the Foreign Office, was reorganized in 1882 and gradually regained its importance.^{Footnote 17} In 1886, the Commercial Department began to issue the Board of Trade Journal, and the Labour Bureau was newly established within the Commercial Department in order to collect and analyze labor statistics. In 1893, the Labour Bureau was elevated to an independent Labour Department. Under the Conciliation Act of 1896, the Labour Department acquired the authority to intervene in industrial disputes. Until the end of 1910, the Commercial Department and the Labour Department joined together into the tripartite department, Commercial Labour and Statistical Department. The tripartite department was led by two high-ranking officials, the comptroller-general and the deputy comptroller-general.^{Footnote 18} That is, the control of commercial and labor policies was unified in the Board of Trade when board officials began to examine the unemployment insurance scheme. Former studies have overlooked this significance.

After Llewellyn Smith became the Permanent Secretary, he succeeded in taking over the initiative in negotiations for commercial treaties from the Foreign Office.^{Footnote 19} As a result, during 1910 and 1911 the commercial treaty with Japan was negotiated between Takaaki Kato, who was the Japanese ambassador, and Llewellyn Smith. Through this negotiation, Llewellyn Smith achieved remarkable success in lowering the tariff rate originally proposed by the Japanese government.^{Footnote 20}

The Board of Trade’s explanatory pamphlet about their organization also indicated that the Commercial Department’s activity on commercial negotiations had increased considerably since 1907.^{Footnote 21} Thus, Llewellyn Smith’s reign at the Board of Trade was characterized by not only an energetic labor policy but also an active commercial policy.

As for the commercial policy, the board’s concern was exclusively for expansion of foreign trade, not home trade. This is demonstrated by the report of Sir Clarendon Hyde’s Committee. At the time of World War I, this committee was established to examine a measure to strengthen the government machinery dealing with trade questions. In order to discharge this duty, the committee interviewed leading officials treating commercial matters at the Board of Trade, including the Permanent Secretary Llewellyn Smith. The report consequently issued in 1917 stated: “It was apparent at once that the Board of Trade has in the past not considered the promotion or assistance of home trade to be one of its main functions. Its Commercial side was chiefly devoted to the assistance of British trade abroad.”^{Footnote 22}

Thus, the Board of Trade was an organization whose primary duty was to promote foreign trade, especially export trade, and the labor policy of the board was originally a concomitant of its commercial function. Arguably, such an attitude of the Board of Trade reflected peculiar characteristics of Britain’s national economy, which had an exceptionally long-standing free-trade policy and whose degree of dependence on foreign trade was considerably high. Inevitably, restraining wage levels was especially crucial in Britain, as rising wage levels would directly weaken the industrial competitiveness under the fixed exchange rate of the gold standard in those days.^{Footnote 23} Unlike Britain, other industrial countries that had protective tariffs could tolerate the rise of wage levels to some extent. For instance, the United States could tolerate very high wage levels because it was protected by a high tariff wall.

The next section explains how the Board of Trade carefully and consistently avoided instigating the movement for wage increases.

The Board of Trade’s Wages Policy

In July 1896, in the parliamentary debates at the House of Commons, the Conservative MP Kenyon asked the Foreign Office to “get for the statistics as to rates of wages paid and hours worked in cotton, woollen and iron trades in France, Germany, Switzerland, Austria, Russia, and Japan.” The Foreign Office accepted this request and thereafter collected the data of each country from consuls and commercial attachés. When the Foreign Office asked the Board of Trade whether it agreed on publishing the report, board officials fiercely opposed. The central figure of this opposition was Llewellyn Smith, who was then deputy comptroller-general. According to his marginalia on the file of the board, “It is difficult to suggest any course to be adopted in view of the promise made to Mr. Kenyon to lay the reports.”^{Footnote 24} This comment indicates that Llewellyn Smith objected to the nature of Kenyon’s request itself. Consequently, the Foreign Office was forced to withdraw the publication.

Next, in 1904, under Comptroller-General Llewellyn Smith, the Board of Trade made its own report, “Comparative Progress in the Economic Condition of the Working Classes in the United Kingdom, the United States, France and Germany since the period 1840–45.” While the report by the Foreign Office showed only money wages of industrialized countries, this report, which dealt mainly with real wages, concluded: “Although therefore the materials for the construction of a general Index Number of prices are not available in the case of Germany or France, there is no doubt that the differences in the relative movement of prices far outweigh such differences as exist in the relative movement of money wages, and that the purchasing power of wages in this country has increased faster than in France, Germany or the United States.”^{Footnote 25}

Explaining the report to Permanent Secretary Francis Hopwood, Llewellyn Smith wrote: “It will be observed however that the available data do indicate a more rapid increase of German money wages than in the United Kingdom, and that the caution in the Memorandum is intended to guard against attributing too much importance to this difference in view of the defects of the data from which it is derived.”^{Footnote 26}

These facts apparently show that Llewellyn Smith carefully emphasized the favorable condition of British real wages while he glossed over the unfavorable condition of British money wages. His attitude toward minimum-wage legislation was also suggestive. When Sir Charles Dilke, a doyen of the Liberal radicals, introduced the Wages Boards Bill in 1902, which imitated the minimum-wage regulation in Victoria, Llewellyn Smith wrote in the board’s file: “I do not suppose that comment will be required on this Bill at present.”^{Footnote 27}

So far as we judge from the same file, other board officials, including Hopwood and Comptroller General Alfred Bateman, were also indifferent to the bill.

The proposal of the Wages Boards Bill was easily defeated in the Conservative majority parliament, but the landslide victory of the Liberal Party in the 1906 general election changed the situation. Because of heavy pressure from the Liberal radicals and the National Anti-Sweating League, Prime Minister Asquith decided to support minimum-wage legislation in 1908.^{Footnote 28} According to the original plan, not the Board of Trade, but the Home Office, was supposed to discharge minimum-wage regulation.^{Footnote 29} However, for unclear reasons, the Home Office handed over that duty to the Board of Trade. This does not mean that the board officials’ attitudes toward minimum-wage regulation ever turned positive. In a memorandum addressed to President Churchill, Llewellyn Smith wrote:

Jenny Morris also observes: “Llewellyn Smith was largely responsible for the limitations of the legislation in that he drafted a bill which was essentially no more than an extension of the Board of Trade’s arbitration and conciliation activities.”^{Footnote 31}

Churchill took the same stance to contain a radical implication of minimum-wage legislation. In a memo presented to the Cabinet, he pointed out that before the Board of Trade made a compulsory order, they would “have to be satisfied that the decisions are in harmony with the predominant opinion in the trade, and only resisted by a comparatively small section of the less reasonable employers.”^{Footnote 32}

As a result, the effect of the Trade Boards Act, which was enacted in October 1909, was minimized. Before World War I, the coverage of the act was limited to minor industries in which most workers were women.^{Footnote 33} This meant that there was little repercussion on general wage levels. There is evidence that board officials intended to minimize the effect of the act. In 1913, Llewellyn Smith and George S. Barnes, the head of the Labour Department, conspired to conceal the opinion of the board law officer that “a new rate fixed by a Trade Board became obligatory immediately, without any act on the part of the Board of Trade, provided that a previous rate had been made obligatory.” Through correspondence with Llewellyn Smith, Barnes even mentioned the possibility of reducing the minimum-wage rate in the future.^{Footnote 34}

The conciliatory intervention of board officials in industrial disputes also suggests that they were biased against wage increases. According to Davidson’s empirical study, “In the period 1896–1914, labour fully achieved its objectives in only 21% of disputes settled under the Conciliation Act as compared with 27% of all industrial stoppages.”^{Footnote 35}

The next section clarifies the historical and social contexts in which unemployment insurance was formulated.

The Challenge of the Labor Movement

The long depression, which began in 1873, finally ended in 1896; thereafter, industrial disputes gradually increased. The Conservative government from 1895 to 1905 adopted a coercive measure against trade unions to restrain wage costs, and by doing so tried to maintain the competitiveness of British industry. The Taff Vale judgment of 1901, which ruled that trade unions could be sued for damages incurred during a strike, symbolized this coercive approach. The Merthyr Tydfil Judgment of 1900, which ruled that granting poor relief to strikers was unlawful, provides another example.^{Footnote 36} It is true that the court should be distinguished from the government, but the leading judge of the House of Lords was Lord Chancellor Halsbury, who was a Conservative politician notorious for his anti-unionism. The Times backed up these judgments through a series of articles, titled “The Crisis in British Industry,” that warned about trade unions’ power in threatening industrial competitiveness.^{Footnote 37}

In addition to the impact of the Taff Vale judgment, a recession hit Britain in 1902 and continued until 1905. Because of the double impact, the labor movement was severely checked. There were 710 industrial disputes in 1899, 633 in 1900, and 631 in 1901; thereafter, the numbers dropped to 432 in 1902, 380 in 1903, 346 in 1904, and 349 in 1905.^{Footnote 38} The rate at which real wages were increasing started to decline after the turn of the century. Under this condition, there were no pressing needs for the Board of Trade to advance an active labor policy to hold back the labor movement. Davidson indicates that board officials were “very reluctant to endorse TUC [Trades Union Congress] proposals for the legalisation of picketing, for the amendment of the law of conspiracy, and for the legal immunity of trade unions.”^{Footnote 39}

However, in 1906, the restraint on the labor movement was lost. The Liberal government enacted the Trade Disputes Act, which immunized trade unions from liability for damages incurred during a strike. According to Norman McCord, the Liberal government “accepted ill-thought-out and badly drafted proposals from the back benches, without any real understanding of what the consequences would be.”^{Footnote 40} John Saville also notes, “Its [Trade Disputes Act] acceptance by the Parliament of 1906 was the result of an unusual conjuncture of events and politics.”^{Footnote 41} It is quite natural that a dramatic increase in industrial disputes was expected. However, Britain was hit by a serious recession from 1907 to 1909, resulting in a decrease in industrial disputes as well as a decrease in pressure for higher wages. Therefore, it was inevitable that explosive pressure for wage increases would come about after the recession. In 1907, Llewellyn Smith was elevated to the post of Permanent Secretary, and the following year Churchill became president of the Board of Trade. At that time, the board’s labor policy turned very active. Board officials began to examine a plan for national compulsory unemployment insurance in the first half of 1908.

According to Davidson, prior to 1906 the board “was involved in only 3.5 per cent of industrial disputes and settled only 2.5 per cent, affecting a mere 5 per cent of the workforce involved in strikes and lockouts,” but “in the period 1906–14 it settled nearly 10 per cent of all industrial stoppages, affecting 25 per cent of the workforce involved in strikes and lockouts.”^{Footnote 42} However, such conciliatory intervention by the board had its limitations, as its arbitration was not compulsory. Nonetheless, board officials opposed compulsory measures for fear that it might worsen industrial relationships even further and undermine the confidence in the board’s impartiality.^{Footnote 43} Such board officials’ attitudes were understandable because the British trade unions strongly insisted on the protection of wages from political intervention.^{Footnote 44} Instead, in 1908, board officials tried to set up a Standing Court of Arbitration to consolidate the working of the Conciliation Act.^{Footnote 45} Llewellyn Smith also made a draft of an invitation letter to industrial associations “to discuss the advisability of adopting some equitable scheme for the future automatic regulation of wages,”^{Footnote 46} although it is not clear if the letter was actually sent.

Even during the severe recession of 1907–9, great stoppages occurred in both engineering and shipbuilding industries. In December 1907, the shipbuilding employers demanded a wage reduction, and their demands were accepted by about three-fourths of the affected workers. However, the rest of the workers rejected their demands and went on strike in January 1908. The employers countered with a lockout. Finally, the Board of Trade intervened and a wage cut was accepted. As a result, 1.7 million working days were lost. In the meantime, on the northeast coast, engineering workers rejected a wage reduction and went on strike in February 1908. While the board’s intervention proved unsuccessful, the strike continued into August. Finally, the strikers were defeated. Coincidentally, the lost working days were also 1.7 million.^{Footnote 47}

Both the engineering and shipbuilding industries had characteristic structures with remarkable downward nominal wage rigidity and especially strong demands for wage increases after recessions. First, both industries were highly unionized and especially the Amalgamated Society of Engineers was famous for its militancy. Second, because both industries were dependent on many skilled workers, employers found it difficult to employ workers flexibly.^{Footnote 48} This meant that, at prosperous times, the threat of strike was very effective because employing replacement workers was difficult for employers. Third, trade fluctuations were particularly remarkable in both industries. Therefore, after recessions, a heavy pressure for wage increases would be inevitable and would be justified by trade unions as being indispensable to preparing for the high risk of unemployment, whether in the form of individual savings or unemployment benefits by trade unions.^{Footnote 49}

It is true that, in 1908, strikers in both industries were defeated and forced to accept wage cuts, but a large-scale counteroffensive by the trade unions was even more inevitable after the recession. Note that soon after the long depression, a large-scale strike broke out in the engineering industry in 1897. To make things worse for employers, George N. Barnes, who had been rather a moderate negotiator, resigned his position as general secretary of the Amalgamated Society of Engineers in March 1908, as he failed to dissuade it from going on strike.^{Footnote 50} In this situation, it is not surprising that policymakers felt that some kind of radical measures would be necessary in order to weaken workers’ demands for wage increases.^{Footnote 51} It was in this context in 1908 that board officials started to examine the plan of national compulsory unemployment insurance covering both the engineering and shipbuilding industries.

The next section provides evidence that Board of Trade officials initiated the plan for unemployment insurance.

Board of Trade Officials’ Initiative in Unemployment Insurance

A number of scholars have shown that there was a kind of paradigm shift in the 1880s in which the concept of “unemployment” was discovered by myriad social reformers.^{Footnote 52} However, the distinction between the deserving and undeserving poor, which originated from the earlier Poor Law system, survived that paradigm shift. As King argues, the obsession that social policy for the unemployed might benefit the undeserving malingerer continued to exert a strong influence on the Board of Trade’s policymaking.^{Footnote 53}

The only precedent of compulsory unemployment insurance was the one conducted in the Swiss canton of St. Gall during 1894–96, but this proved an utter failure because of maladministration. In contrast, unemployment insurance on a voluntary basis had been more successful. This was especially the case for the “Ghent system,” starting in 1901, in which the municipality contributed to out-of-work benefits paid by local trade unions and which had spread to Germany, France, Italy, Holland, Denmark, and Norway by 1909.^{Footnote 54}

Guy M. Nicholson was an unknown precursor who advocated compulsory unemployment insurance in Britain. In May 1907, in the National Liberal Club Political and Economic Circle, he read a paper titled “Profit Sharing and National Insurance as an Aid to the Solution of the Labour Question.” The paper stated the following: “Where the Trades Unions are strong they succeed, in some cases, in fixing wages at such a level, without regard to international competition or the fluctuations of trade, that it becomes impossible to carry on business at a profit. On the other hand, in trades where no organisation exists the work is paid for at the lowest possible rate, regardless of the price it will fetch. In both cases the result is bad.”

On these grounds, Nicholson proposed compulsory national insurance covering “illness, accident, disablement for life, old age and temporary lack of employment” and profit sharing to harmonize workers’ welfare with industrial competitiveness.^{Footnote 55} Because only eight members were present at the meeting, it is hard to imagine that this presentation had an influence on actual policymaking. However, consider that there was one person who advocated compulsory national insurance, including unemployment insurance, in order to maintain industrial competitiveness.

Gilbert attributes the origin of unemployment insurance of 1911 to a letter written by Churchill to The Nation on March 7, 1908.^{Footnote 56} It is true that in this letter Churchill stated his determination to tackle the unemployment problem. However, Churchill’s only proposal to deal with unemployment was “the acquisition of the railways or canals” and “the development of certain national industries like Afforestation,” and he did not mention unemployment insurance at all.^{Footnote 57} According to E. P. Hennock, Churchill was to show no interest in proposals for dealing with unemployment by means of insurance until after Lloyd George had announced his conversion to an insurance policy.^{Footnote 58} In the meantime, before Churchill took office on April 16, 1908, board officials had already revealed their concrete plan of national compulsory unemployment insurance as the evidence before the Royal Commission on the Poor Laws on April 6, 1908. Therefore, the initiative of civil servants rather than politicians should be paid attention to.

The evidence of board officials was, in turn, preceded by that of William Beveridge in October 1907, who was then a regular writer for the Morning Post. It is often said that Beveridge’s evidence had great influence on the board’s policymaking. However, that influence should not be overemphasized. In his evidence, his main concern was clearly how to deal with the problem of casual labor, so he focused on persuading the commission to understand the necessity of labor exchanges to eliminate casual labor. Certainly, he suggested the possibility of unemployment insurance, but in doing so he stressed that labor exchanges were the essential prerequisite of unemployment insurance. For him at this time, labor exchanges were a major concern, while unemployment insurance was a secondary concern. Therefore, he argued for the combination of compulsory labor exchanges and voluntary unemployment insurance.^{Footnote 59}

The content of the evidence of board officials was considerably different from Beveridge’s. As representatives of the Board of Trade, Comptroller-General Arthur Wilson Fox and Labour Department officials W. H. Dawson and F. H. MacLeod provided evidence. They submitted papers dealing mainly with cyclical unemployment to the commission, and the evidence was provided on the basis of these papers. At this time, board officials did not show much enthusiasm about the problem of casual labor. When they were asked their opinion on that problem, Wilson Fox replied: “I think public attention has been much more drawn to it. I have no evidence on that point.” They were also skeptical about the idea of compulsory labor exchanges, but they disclosed a more modest plan for setting up a labor bureau at the docks to promote regularization of the casual laborers.^{Footnote 60}

In contrast, they were very positive about dealing with the problem of cyclical unemployment. They indicated that the fluctuations in both the engineering and shipbuilding industries were “very considerable.”^{Footnote 61} While they were skeptical about the foreign voluntary schemes of unemployment insurance on the grounds that “the class of people you want to get in do not come in,” they argued for compulsory unemployment insurance.^{Footnote 62} Although they said that having labor exchanges as a precondition of unemployment insurance was “very desirable,” they argued that introducing unemployment insurance was not impossible without labor exchanges.^{Footnote 63} Moreover, they finally disclosed their concrete plan of national compulsory unemployment insurance. According to their plan, the worker would pay 2d., the employer would pay 1d., the state would pay 1/2d., the municipality would pay 1/2d., and the workers’ contribution would be deducted from wages.^{Footnote 64} Thus, it is highly likely that Board of Trade officials took the initiative for the ambitious plan of national compulsory unemployment insurance.

The Making of Unemployment Insurance

In July 1908, Llewellyn Smith agreed with Samuel Provis, permanent secretary of the Local Government Board, that “the subject of Labour Exchanges ought to be considered as a question of Employment and not of Relief, and consequently should be dealt with by the Board of Trade.”^{Footnote 65} In the same month, Beveridge was recruited by the Board of Trade to deal with “labour exchanges and the rest of the unemployed problem from the side of industrial organisation rather than relief.”^{Footnote 66}

In the autumn of 1908, Llewellyn Smith and Beveridge worked in close conjunction to begin the draft scheme, in which unemployment insurance and labor exchanges were interconnected.^{Footnote 67} According to King, the labor exchanges were intended to constitute the necessary preliminary to the implementation of the unemployment insurance scheme, since they would provide a mechanism for excluding the alleged undeserving.^{Footnote 68} On December 11, 1908, Churchill submitted the outline of the scheme and the draft bill to the Cabinet. At this time, the draft bill consisted of Part I: Unemployed Insurance and Part II: Labour Exchanges. According to Part I, compulsory insurance against unemployment was provided to a group of trades consisting of building and works of construction, engineering, and shipbuilding, in which the percentage of cyclical and seasonal unemployment was especially high. Half the cost of the insurance scheme would be met by a compulsory contribution of 2d. a-week deducted by the employer from the workmen’s wages; one-quarter (1d. a-week) by the employer; and one-quarter (1d. a-week) by the Treasury.^{Footnote 69} Contrary to Beveridge’s original idea, this bill provided the combination of compulsory unemployment insurance and voluntary labor exchanges.

Later in December, Churchill and Chancellor of the Exchequer Lloyd George agreed to postpone the introduction of unemployment insurance until the Treasury had prepared invalidity insurance, which would be renamed health insurance in 1910.^{Footnote 70} Consequently, the labor-exchanges scheme was separated from unemployment insurance, and the Labour Exchanges Bill passed into law in September 1909.

Although the Treasury’s invalidity insurance scheme was delayed because of the great controversy over the “People’s Budget” of 1909, Llewellyn Smith ensured that his unemployment insurance scheme progressed steadily. In the winter of 1908/9, in order to get the opinion of informed circles, he asked ten professionals, including four civil servants of the board, for comments on the draft of unemployment insurance. Percy Ashley, secretary of the Board of Trade’s Commercial Intelligence Advisory Committee, said: “With the general principles of the schemes set out in these memoranda, I am in complete sympathy, and I concur entirely in the outlines of the plans of insurance against unemployment and of labour exchanges.”^{Footnote 71} Benjamin Browne, a leading figure in the Engineering Employers’ Federation, was skeptical about “high wages mechanics” being included in unemployment insurance, but said: “When from the skilled mechanic we turn to the ordinary labourer who has, say, £1 a week and a family, the case is wholly different, and I believe the value of your scheme would be very great indeed.”^{Footnote 72}

Consequently, Llewellyn Smith drew up a detailed memorandum on a scheme for unemployment insurance, and this memorandum was submitted to the Cabinet in April 1909. In this memo, he indicated that the coverage of unemployment insurance might be widely extended in the future, and proposed that a grant in aid of voluntary insurance should be introduced in other trades for the time being. As for the compulsory unemployment insurance, the employers’ contribution was raised to 2d. and the state contribution was raised to 1 1/3d.^{Footnote 73} Thereafter, additional increases in the state contribution were requested, with board officials announcing 2d. as the state contribution at the conference with the Engineering Employers’ Federation and the Shipbuilding Employers’ Federation in August 1909.^{Footnote 74}

The employers’ contribution meant an increase in costs for employers. When Sydney Buxton, who succeeded Churchill as president of the Board of Trade in February 1910, was asked his opinion about the employers’ contribution by the Morning Post, he replied: “It may of course happen that the contribution of the employers will ultimately fall on the consumer.” Buxton also did not deny the possibility indicated by the Morning Post that the employers’ contribution might be deducted by the workmen’s wages and concluded: “The employer’s contribution must no doubt be distributed.”^{Footnote 75} Board officials also could not deny the possibility of the deduction of employers’ contributions from wages, when they were asked whether this was an option in the evidence before the Poor Laws Commission.^{Footnote 76}

Certainly, for the building and construction industries, it might be possible to pass on the additional costs to the prices, but for the engineering and shipbuilding industries, passing on the additional costs to the prices would not be so easy, since they faced international competition. It was also improbable that employers’ contributions could easily be deducted from wages in the engineering and shipbuilding industries, in which there existed strong trade unions. If employers were not able to raise prices or deduct the cost increases from wages, they would have to bear the costs themselves. In reality, how did board officials consider the influence of the employers’ contributions on the trade? The clue is given by Llewellyn Smith’s memorandum, which was prepared to explain the scheme of compulsory unemployment insurance. Regarding the employers’ contribution of 2d., he wrote:

1. (a) It will probably not exceed 10s. per 100 pounds of wages—an amount roughly comparable to the cost of compensation for accidents before the Act of 1906.

2. (b) Far greater increases of wages have constantly occurred and do occur as between one year and the next without harmful effect. Thus, in engineering, wages at the end of 1907 stood 2 per cent. (40s. per 100 pounds) above the level of 1900, and nearly 10 per cent. (200s. per 100 pounds) above the level of 1890, having risen about 23s. per 100 pounds from 1906, which itself represents an advance of 15s. per 100 pounds on 1905.^{Footnote 77}

Thus, Llewellyn Smith emphasized that the cost of paying insurance contributions was much less than the cost of wage increases. This logical consequence is that he could expect that if unemployment insurance could weaken workers’ demands for higher wages, its long- or medium-term effects would largely exceed the short-term effects of employers’ contributions. In other words, if unemployment insurance compensated for loss of wages of workers at the time of unemployment to some extent, it would not be urgently necessary for workers to demand great wage increases at the time of economic recovery, thus improving the competitiveness of British industry. It appears that unemployment insurance contributed only by workmen and the state would also accomplish the purpose of compensation for loss of wages without the cost of employers’ contributions, but in that case unemployment insurance would not necessarily attain the purpose of strengthening the bargaining power of employers over wages. Thus, the aim of board officials was to redistribute and constrain workers’ wages through unemployment insurance with the effect of enforced savings of workers and with the help of the state and employers’ contributions.

In fact, Llewellyn Smith hinted at this point in his address at the meeting of the British Association for the Advancement of Science in 1910. In this address, he appealed to the public for the need to introduce unemployment insurance. Regarding cyclical and seasonal fluctuations, he said:

In addition, Llewellyn Smith argued that unemployment due to “holidays, strikes, lock-outs, voluntary leaving of a situation, sickness, and crime” should be excluded from the benefit.^{Footnote 79} Note that not only strikes but also even lockouts were mentioned.

Beveridge also stated the same point in more detail in his book Unemployment (1909), which was based on the lectures given at Oxford in the autumn of 1908. Although he had originally regarded cyclical and seasonal unemployment as a secondary concern, he changed this view and began to be no less interested in those problems than in underemployment after he entered the Board of Trade. Consequently, almost equal weight with underemployment was given to cyclical and seasonal unemployment in Unemployment. In this book, he repeated his view that the essence of unemployment insurance “is for the individual workman an averaging of earnings between good and bad times.”^{Footnote 80} The heading of the part in which unemployment insurance is dealt with is “The Averaging of Work and Earnings.” His explanatory note for the words “measures of industrial organisation” also stated: “Insurance against unemployment deserves this title because it is essentially an averaging over good and bad times.”^{Footnote 81} In the conclusion, he wrote again: “They must through insurance or its equivalent be able to average wages over good and bad times and to subsist without demoralisation till they can be re-absorbed again after industrial transformations.”^{Footnote 82}

“An averaging of earnings between good and bad times” implies that workers’ demands for wage increases in prosperous times could be moderated in return for the benefits of unemployment insurance.

In fact, concerning the high unemployed percentage of the engineering industry at the downward phase, he wrote: “Appreciation of this certainty reacts on wages. To keep its members together, the union helps them when unemployed; it must therefore hold out for wages sufficient to cover the heavier subscriptions involved. In the shape of these higher wages, it transfers on to the trade as a whole the burden or part of the burden of unemployment.”^{Footnote 83} Thus, Beveridge implied that great wage increases would be no longer unavoidable by the effect of averaging or spreading wages under the unemployment insurance scheme. It is worth noting that both Llewellyn Smith and Beveridge had keen interests in the wage increases in the engineering industry.

Churchill also justified unemployment insurance in the same way. When a conference was held between the Board of Trade and the Engineering and Shipbuilding Employers’ Federation, mainly to discuss the Labour Exchanges Bill, but partly to discuss the unemployment insurance scheme, he tried to persuade the employers who complained about their burden caused by employers’ contributions by saying this:

Churchill made the same argument inside the Board of Trade. He wrote a memorandum to argue against Llewellyn Smith, who planned to impose strict conditions to qualify eligibility for benefit of insurance, but Churchill’s opinion was overridden with the result that the workmen who had been discharged for misconduct or who had abandoned their job “without just cause” were excluded from benefit for the first six weeks of unemployment.^{Footnote 85} Board officials resisted the heavy pressure from the Labour Party and ensured that unemployment caused by an industrial dispute including lockout did not qualify for benefit.^{Footnote 86} In this memo, Churchill said: “But when it is proposed that the employer and the workman shall each give 2d., that is to say, that the workman shall subscribe 4d.—for I believe that the whole system will prove to be nothing more or less than wages-spreading—and that the State only contributes 1 1/3d., it is obviously contrary to sense and justice to deprive the workman of the accommodation for which he has paid.”^{Footnote 87}

Thus, both board officials and Churchill clearly recognized that the cost of employers’ contributions would be offset by the effect of “wages spreading” or “averaging of earnings.” However, this does not mean that Board officials were completely optimistic about the effect of employers’ contributions. After the Treasury belatedly set to work for health insurance in December 1910, Beveridge submitted to the Treasury a memorandum that proposed the outline of sickness and invalidity insurance. According to this outline, “The cost of the insurance will be borne by the workman and the State to the exclusion of the employer. The employer already bears the whole cost of accidents, and will bear a considerable share of the cost of unemployment.”^{Footnote 88} Such advice by Beveridge must have been consistent with Llewellyn Smith’s opinion, as William Braithwaite, who was in charge of health insurance scheme in the Treasury, wrote in his diary that Llewellyn Smith took an arrogant stance that “Health Insurance must be modified to suit Unemployment and give way to it.”^{Footnote 89}

Llewellyn Smith continued enthusiastically to promote unemployment insurance. Frustrated about the 1910 constitutional crisis over the House of Lords, because of which the national insurance scheme was compelled to get delayed, he was even moved to submit his own proposals for constitutional reform to Churchill.^{Footnote 90}

When a behind-the-scenes battle occurred between the Board of Trade and the Treasury over the initiative in the national insurance scheme since December 1910, Llewellyn Smith, instead of Buxton, fought with Lloyd George. Because of Lloyd George’s heavy pressure, the Board of Trade was forced to acquiesce in the decrease of the state contribution to 1 2/3d., and in the increase of employers’ and workmen’s contributions to 2 1/2d.^{Footnote 91} Moreover, after the introduction of the National Insurance Bill into the House of Commons, Lloyd George threatened Llewellyn Smith that he would postpone Part II (unemployment insurance) in order to get the support of the Conservative Party and secure the passage of Part I (health insurance) of the bill. Shocked by this threat, Llewellyn Smith sent a letter to Churchill, who was then Home Secretary, to ask him to persuade Lloyd George.^{Footnote 92} However, finally, as Braithwaite reflected, “Sir Hubert Llewellyn Smith won’t admit that he has been worsted and indeed has shown himself a very strong man.”^{Footnote 93} The fraught nature of the negotiations over Part I of the National Insurance Bill was also a tailwind for Part II. As a result, Part II of the National Insurance Bill had a relatively easy passage through Parliament, and the National Insurance Bill passed into law in early December 1911.