CAPITAL CUTS
By ROY HARROD WE now have a partial picture of what the Government is intending for the redress of our balance of trade, and it is urgently necessary to consider what more has to be done. Men and materials to the value of £600 million a year have to be found by release from other occupations for the increase of our exports. It appears from the White Paper (Cmd. 7268) that. Sir Stafford Cripps plans to release not more than £130 millions' worth from the capital programmes. It will be shown that this is insufficient. To this we must add the extra taxes recently imposed by Mr. Dalton, to yield " in a full year " £208 million. The idea is that these taxes,
by restricting consumers' purchasing power, will release an equivalent quantity of men and materials hitherto devoted to the production of consumer goods. It is quite clear, however, that so large an amount as £208 million will not be released in this way. Consumers will react by saving less. For instance, the Profits Tax due to yield £57 million net will not produce an immediate restriction of consumer spending of this amount. Dividends will be reduced gradually, and not all dividend receivers will economise in their spending by the full amount of the dividend reductions.
To these releases must be added any economies that the Govern- ment may make from now onwards in its public expenditure. Un- fortunately, it has to be recorded that some part of the £130 million cuts already referred to will be within the sphere of the ordinary Budget, and we must be vigilant to see that when budgetary economies are announced the Government does not claim credit for the same cuts twice over. We are promised reductions in defence expenditure, and it would be well if the Government announced the extent of these quickly, so that the public could see by what path the Government hopes to lead us to solvency, and acquire confidence accordingly. It looks as if these three items taken together would not get us near our target of £600 million.
It has been argued by some that credit can also be taken for
the buoyancy in the revenue recently recorded. This, however, is not so. Extra money taken in taxation during the last six months, over and above expectations, is indeed reducing the inflationary pressure, but cannot be reckoned as a contribution to the £600 million, since this money was being siphoned off from expenditure in those very same months when we were displaying a trade deficit at the rate of £600 million a year. In order to get right, we have to make cuts in purchasing power worth in all £600 million, over and above any that were being made in the aforesaid six months. And so we still have to find further ways and means for reducing expendi- ture by an amount well over £300 million. Defence should contribute something substantial. It is probable that the general call-up, which the military authorities regard as of little value from the training point of view, should be suspended and replaced by a much more limited kind of call-up. We should gain greatly in this matter if we could give up window-dressing, and concentrate our minds upon the task, which really is important from the military point of view, of giving adequate advanced training to a select number of persons In the use of modern weapons—aircraft, rockets, etc. In modern war only a small fraction of the Forces deals with these weapons ; the others perform duties for which they can be quite quickly trained when the time comes.
For the rest we have to secure resources by further reducing capital outlay or consumption or both. It seems doubtful whether much more can be got by attempting to restrict the consumption of the mass of people. This may be divided into good quality goods, food, clothes, footwear, household utensils, bicycles, etc., which are already at a bare minimum, and those other goods and services to which excess of purchasing power is devoted, football pools, toys, household ornaments, etc. If people are deprived of purchasing power by higher taxes (or reduced subsidies) it is in these last that economies will be effected. It is doubtful if such economies would release a large quantity of really high-class labour and materials for our export drive.
There has been much talk lately of the importance of tackling the food subsidy question on bold lines. In my own person I am not convinced of the wisdom of this. There is the serious danger that a substantial rise in food prices might set off further wage demands, and I do not think that the remedy of compulsory wages is practicable or desirable. There is always the reasonable hope that, by waiting for another year or two, we may be able to eliminate or greatly reduce the subsidies painlessly through the fall in world prices. But, most important, we should look at what this policy is really designed to achieve. By raising food prices, it is intended that the main mass of people should have less money to spend on less necessary articles.
This brings us back to the question whether the men and materials devoted to producing these " marginal " articles are really of first- rate quality. If they are not, then this seems a poor method of expediting the export drive. Furthermore, there is the question of whether it is right or wise or necessary at this juncture to oppress the consumer still further. He has had much to bear during eight years. It is all very well to be scornful of hie amusements as trumpery, but some recreation is needed. We talk of incentive, but what incentive would be provided if there were literally nothing to buy with the extra wages ?
I am convinced that the required resources can be found by further capital cuts without serious damage. We may be sure that good labour and materials will be released by these. They cannot necessarily be switched in each individual case straight on to making goods for export, but their release for some other needed purpose may release resources there, and so forth, so that at the third or fourth remove new resources become available for production for export. After Sir Stafford's cuts have been enforced we shall still have a plan for gross capital investment of £1,42o million, according to the White Paper. The White Paper admits that this is "very large compared with what was accomplished in the more normal times before the war." It seems out of all proportion that we should be proceeding with such a "very large" programme at this time when an immediate rectification of our trade balance is an absolute necessity. Many of these capital projects are admittedly only of long-range value. They must be undertaken in any case some time. It may not make a vital difference whether they are completed in 1951 or 1953, but the immediate release of resources entailed by their suspension now would make a vital difference. I propose that the 1948 programme should be reduced to £1,200 million gross at most, which would still be a most handsome contri- bution to the national capital.
This further cut (of L220 million) would amount to approximately 15 per cent, of the proposed outlay. Without access to detail, it is difficult to specify particular cuts. In order to get things moving quickly Sir Stafford might be well advised to order a 20 per cent. cut all round, leaving a 5 per cent. margin to meet appeals for cases where the high priority of the work suggests that no cut at all is desirable. There must also be some lack of precision in achievinit the target reduction in the private sector.
jt is difficult for the outsider to specify the direction of the cuts. This raises a most alarming question. Is it not almost equally difficult for the planners in Whitehall to do so ? This is not to criticise those planners. The Government has at its disposal a small number of highly competent persons, who make up in quality for what they lack in quantity and may be relied on to do the job as well as anyone else. But is it a job that it is fair to ask them to do ? Here are a few individuals who are asked in this time of urgent need to decide on the desirability of investing some £1,400 million in the course of one year. No leader of business, no industrial genius however consummate, has ever had such a large sum of money to play about with. In each category of expenditure there are items which Joe& extreme; important, while there are probably other items, which, if only one could get down to minute detail, would seem obviously suitable for postponement. This is the rub in having "public control of investment." Under the good old system there was the admirable sanction of possible loss. The individual who decided to embark on a scheme would be stimulated to particular scrutiny because he would know that his own pocket would suffer if a mistake was made. How much better for the nation would it be now, if all this vast outlay had to be subjected to similar detailed scrutiny I There is no need to be downhearted. With this large sum of £142o million to be drawn on, Sir Stafford Cripps should not find it impossible to extract another £200 or L300 million for the export drive. What is essential is that he should act quickly.
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