The Budget: Left view
The relevance of Mr Barber
Thomas Balogh
When the Spring-sowing is due, so is the ritual dance of the Budget. The economic High Priests rise to the irrelevant occasion and busily chant their incantations, telling how to achieve the good things in life: full employment, growth, stability of prices, and, to boot, a surplus of the balance of payments. Their conflicting howls grate on the ear. The Chancellor is entreated to give a shove to demand — (the Economist and the TUC) — to be 'neutral,' — (National Institute) — or to lean heavily on frivolities and towards deflation — (Professor Kaldor and the Expenditure Committee of the House of Commons). The difference is that the Treasury usually succeeds in protecting itself by giving few clues as to how they arrive at their "final judgment." Only in the future can we see in retrospect how and why it all went wrong, because wrong it did go.
Yet was there ever a Government which turned so many policy somersaults, not to say cartwheels? Initially they steadfastly believed that market forces could be left to assure stability and revival, provided the public sector prices were controlled by resisting wage claims. This followed from the general philosophy of the Election Manifesto, which rejected "detailed intervention " and " preferred a system of general pressures." We now know that those "general pressures " were unemployment and the direct weakening of union bargaining power by legislation. It was the Selsdon Man at his most inflexible, bent on confrontation. No doubt if the latter policy had been driven to its logical conclusion, as it was in Spain or Nazi Germany, the Government might have been successful. In the case of the weaker unions and low paid workers in the public sector, it did to some extent succeed. The Post Office could hold out indefinitely, so possibly, for some time, could Ford; but the smaller entrepreneurs in the private sector must prefer settlement however unreasonable the wage demands, because a longish strike would bankrupt them. Their will to resist is in any case weakened by their capacity, as a body, to shift the increased wage burden through price rises on to the public. The miners, the railwaymen, the electricity workers, not to mention the hero of the Lumpen-Bourgeoisie, Mr Clive Jenkins, have shown that an escalation of cost inflation cannot be prevented by an acceptable degree of force, but only by persuasion. Their electoral planks, their original policies rotted before our very eyes and noses, and their rotting has poisoned the atmosphere.
On the other hand it has become equally certain that a free-for-all in the labour market is incompatible with the achievement of either full employment or a satisfactory rate of expansion. The massive concentration of economic power has brought with it a complete change in the functioning of the economy. The vital problem is, therefore, how to get the unions to agree to some policy of restraint in order to permit the simultaneous attainment of stability, full employment and expansion. Mr Heath, like everybody else, has failed in this when he attempted it by demand management, by fine tuning the economy, and will fail once more unless he realises that his attempt at a direct regulation of incomes and prices must fail if it is not accompanied by, and based on, consent.
Economists say that by-gones are bygones. They could not be more mistaken. It is from past experience that future motivations, behaviour, and anticipations are spun. From this viewpoint Mr Heath's conversion to an incomes and prices policy could not have taken place in a more arid wasteland of inappropriate past policies. His tax reforms are the embodiment of inequality. Indirect taxation was made more regressive by cutting tax rates on luxuries. The introduction of VAT, the simultaneous abolition of SET and purchase tax had similar effects. Concessions were made mainly to the upper income classes in the hope that investment would be boosted. They failed, until very recently, in this, as they failed in expanding consumption for some time. The 'normal propensity' to save was reinforced. At the same time increased rates, rents, social service charges, means tests lie between Mr Heath and his success in creating a new consensus. All but a few fiscal measures militate against moderation, restraint and co-operation on the part of the unions. It is entirely from this point of view that the present Budget must be judged. Even its direct and indirect effects on economic activity must take second place, if only because fiscal policy has proven a broken reed in that respect. Success depends almost entirely on whether Mr Barber's plans help or hinder the end of confrontation. Only if it speeds the end of the present violent conflict, can we be sure — and not very sure at that — that a better era might begin.
The Chancellor made much of his success in starting expansion and cutting unemployment as a basis for his plea for co-operation. Two things need to be said in this respect. In the first place unemployment is still far higher than at any time (since the war) before 1971, except for the 1947 fuel crisis. Employment in manufacturing, according to the last figure available (November 1972) is 10 per cent down since the last vigorbus expansion (1966). In the second place Britain as a result of the measures used to stimulate the economy, is now using some 75 per cent of the National product for private consumption. The rapid fall of unemployment lately, as a result of a more moderate increase in production, welcome as it is from a short-run social standpoint, augurs ill for the future. Any acceleration of demand beyond the increase of productive capacity would necessarily further worsen the balance of payments, while the present level of investment is totally insufficient to sustain a high rate of expansion. The Chancellor's imprecations about investment were emphastic, but will they be successful? With the overall.Budget deficit running at some £4,500 million and the balance of payments at a rate of over E500 million, a Budget which is curiously described as ' neutral ' because it maintains last year's level of fiscal boost, is to say the least, surprising.
Public opinion fortunately has taken a violent lurch in this respect. The recurrence of massive deficits no longer induces dread or sends Chancellors scurrying towards the safety of deflation: The floating of the currency, it is said, will harmonise , domestic and international policies. Cambridge has already retreated from this rather exposed intellectual salient and admitted that depreciation and devaluation might have dangerous inflationary consequences. They are now in favour of new weaponry, should incomes policy not prove feasible. But this new weaponry — wage subsidies on a massive scale, reinforced by import quotas or surcharges — is strictly contrary to the basic rules of the EEC and the Government will in any case have difficulties in maintaining their Present The most curious passage in the Budget was that concerning savings. Of course liquidity and savings have increased. They are one of the counterparts of the violent Budget deficit and the regressive redistribution of income. To decide to maintain a deficit so as to get expansion and then to try to bribe the recipients of tax concessions to ' save' by further raising interest rates, seems odd indeed. Just as the 'reform' of the management of banking has jerked up short term rates by the unleashed monopolistic competition for deposits to levels unprecedented in peace time, so this policy is bound to sap the funds of building societies unless long term interest rates bound upwards. Yet the Chancellor predicts an expansion of private building!
If his analysis is deficient, his proposals are basically optimistic from an economic viewpoint. They put the burden of preserving stability on incomes and, prices policy. Yet they reaffirm an anti-consensus stand in a period when consensus is ostensibly sought. VAT at 10 per cent, the reform of direct taxation as announced last year, all these stand, though they are the paraphernalia of the confrontation philosophy. The concessions on children's clothes and confectionery, to pensioners and (very partially) to those hit by rerating, are welcome but surely not sufficient. So is the tax , on sterilised building land and the far from complete rectification of the scandalous failure to secure a fair share for Britain on the North Sea oil and gas profits.
When all this is acknowledged it does not amount to the decisive psychological boost needed to overcome the militants of the Left whose extravagant frisks and squeaks have wrecked the Wilson Government and bid fair to exculpate the follies and torts of the present administration. As a possible gambit for a General Election, however, this Budget, given the shortsightedness of the Left, could nuke good political sense.
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