Portrait of the week
With the pound reduced to the new level of two dollars forty cents, our proud nation had broken out of its straitjacket: so Mr Wilson explained on Sunday. In April Mr Callaghan referred to devalua- tion as 'a flight into escapism'—and although he did not escape his critics this week, his flight from the Exchequer seemed certain. The Prime Minister came in for a stern drubbing from Mr Macleod: 'he has devalued his word and betrayed his high office.' The Labour my for Toxteth, Mr Crawshaw, resigned the party whip in protest against the Government's decision.
The pound went back to work on Tuesday. Ala meeting of the parliamentary Labour party Mr Wilson proposed still more discussions with ludas- try. Mr Peter Shore, for the Government, said the cost of living would rise by sevenpence-halfpenny in the pound, and there were other gloomy predic- tions: the cost of Concord would soar by £25 mil- lion, and our Fills by f100 million; barring radi- cal policy changes the overseas defence bill would increase by £300 million next year, although the Government's decision to economise by not build- ing its controversial staging post on Aldabrk Island showed that zoologists (and tortoises) have already benefited from devaluation. Meanwhile, France stood firm in refusing British entry to the EEC. ...
In Geneva, Lord Shackleton began talks with biLF representatives; it appeared that the hand-over of Aden would be an expensive business, though the us, India and West Germany promised sup- plementary economic aid. The Foreign Office an- nounced the resumption of diplomatic relations with Egypt and George Brown, almost despairing of a diplomatic triumph in Europe, bent all his energies on the Middle East, while Greece and Turkey moved nearer to war over Cyprus. The Government withdrew its White Paper on fuel policy in deference to the mining ayes' protests. Sir Stanley Raymond resigned as chairman of British Rail, and refused Mrs Castle's Freight Inte- gration sop. The foot-and-mouth outbreak became Britain's worst ever and a typist in Birmingham got stuck in her typewriter for more than two hours. chase controls are limited entirely to motor:- cars, and the promised cuts in the rapidly rising total of public expenditure are derisory. Of course, the devaluation itself—through rising prices—has a deflationary impact on spending at home. But it is only too clear that all this is far from enough, and to make the devaluation 'stick' and avoid a blaze of inflation the Government is gambling heavily on the success of its incomes policy—an in- comes policy, moreover, which, after the events of 1966, the Government dare not make other than voluntary. This would have been a poor straw to clutch at a time of con- stant prices, rising unemployinent, a govern- ment with authority in the country and a trade union movement in control of its mem- bers. But to make the success of the voluntary incomes policy the keyitone Of the success of a devaluation at a time of rising prices (due to the devaluation itself), falling unem- ployment (which will be the pattern through- out 1968), a government that has lost all moral authority and a trade union movement that is losing control of its members, is to invite disaster.
Yet to allow a devaluation to fail is unthinkable. There is simply no other weapon left. The effect on the country's morale would be incalculable. That is why those who genuinely want a devaluation to succeed always insist on a margin of safety; on erring on the side of initially devaluing too much and deflating too much. There can always be a let-up later, when the operation is proved to have been successful. Thepresent Governnient has allowed no margin- what- ever: it has whittled down the amount of the devaluation and not deflated 'enough. It seems clear that Mr Callaghan, who genuinely wanted' anted to make a success of the devaluation, intended to secure that vital margin, and to buttress the so-called incomes policy, by de- flating more. But once again the Prime Minister overruled the ChancellOr—just as he overruled and outmanoeuvred him when Mr Callaghan, again rightly, advocated -de- valuation in July 1966.
This does not mean that the: new policy will not work at all. Devaluation is a very powerful export incentive indeed, and to some extent—and for a period—it is bound to work. The question is whether, by other measures—which should include, inimedi- ately, further cuts in government expendi- ture to make adequate room for the hoped- for export boom, and the shelving of the Industrial Expansion Bill sine die in order to restore confidence among those on whom the Government depends to " get the in- creased export orders—the devaluation will be allowed to restore lasting equilibrium to Britain's balance of payments, or whether it will be used 'by the Government simply as a means of winning the next election, its benefits dissipated in a wildly- inflationary pre-election boom. , That is the choice before the Government today. And if it is to be left to Mr Wilson, it can be taken for granted that it will be the short-term, ephemeral, objective that is chosen. (No doubt he will convince himself that the long-term will take care of itself : he always does; and that is why the country is in its present mess.) The signs are already there. The inadequate cutback in home de- mand, so that no margin of safety exists.
The withdrawal of Mr Marsb's courageous fuel policy White Paper, presumably to keep open more uneconomic pits—when the right course after a devaluation would have been to keep down the price of energy for industry by abolishing the tax on fuel oil. And the Prime Minister's declaration to the parlia- mentary Labour party on Tuesday that the economy would grow over the next twelve months by anything up to 6 per cent: a per- fectly feasible rate (for one year only) but one that would generate such inflationary pressures that the devaluation would be doomed from the start.
Al] these signs point in the same direction. And even if there is no failure of will on Mr Wilson's part, there remains the even greater danger of a failure of nerve. Strong nerves will be needed this winter, as unem- ployment—and prices—rise, as Labour con- tinues to fare disastrously in opinion polls and by-elections, and before the export-boom begins to manifest itself, if the Government is to resist the increasing clamour from its own supporters for more expansion and more public spending. The Prime Minister has cheek, but that is not the same as nerve.
It looks increasingly as if all will depend on the next Chancellor of the Exchequer. Mr Callaghan will shortly resign the office he has held for more than three years. It is right that he should do so. He has discovered too late the pit his leader has dug for him; while any hopes he may have of leading a Coalition government without Mr Wilson are, to say the least, premature. Although his culpa- bility for the fiasco of Labour's economic policy during-that time is -infinitely less than that of the Prime Minister, it is' still sufficient to Warrant resignation. Nor is this the only case for a new Chancellor. The events of last weekend have gravely diminished Mr Callaghan's personal authority over his Cabinet colleagues. And if a sane economic policy is to be -pursued—above all, if some check is to be imposed on public spending— that authority is essential.
Mr Callaghan's successor will be, poten- tially, in a strong position. He will not have the disaster of the last three lost years like an albatross round his neck. He will be able to enjoy the benefits of his' predecessor's de- valuation. Above all,'Mr Wilson, having just lost one Chancellor, will not dare lose another in a hurry. If, in 'spite of this, Mr Cal- laghan's successor allows himself to be the Prime Minister's creature, the chances of last weekend's devaluation proving the beginning of the British `economic miracle' which it so easily Could have been will be very slender indeed. But a . new, strong Chancellor—a Chancellor who, as his first move, would in- troduce a significantly deflationary budget in 1968 (for this, in the light of the inadequate measures taken so far, is vital)could still do the trick. The nation will pray that he
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