Not much carrot from Healey
Nicholas Davenport
There can be nothing so boring as watching a BBC or ITV programme covering the Budget speech. Wiseacre pundits are called upon to comment on snippets of the Chancellor's speech as they are released from the Commons before the full meaning or significance of them can be understood. It was all the worse on this occasion because Mr Healey kept his tax secret until the end. In the interminable gaps the camera flashed upon a manager or worker in a factory to give their unimportant and uninformed views. It is the most banal performance ever seen on the television box and I appeal to the broadcast ing bosses to stop these tedious and timewasting shows once and for all.
It was a relief to collect the papers from the Treasury and study the Chancellor's text in detail. It was clear from his somewhat rambling speech that there was nothing of economic importance in it at all, unless we can all be induced to work harder as a result of it, which is extremely doubtful. There is to' be no reflation of domestic demand. Exports are expected to rise but the present pause in the world trade recovery is exercising 'growing concern.' European countries are being very cautious in their fiscal policies and the non-oil developing countries are held back by their debt financing problems. At the end of 1976 there were 15 million unemployed in the OECD countries—an average of 5 per cent—and this year Europe can expect little, if any, reduction in unemployment.
In this grim assessment of world trade the Chancellor made no mention of what stimulus might be given by a concerted drive to bring down the rate of interest. After the panic 15 per cent Bank rate in October the rate has been brought down to 10i per cent, but if Treasury bills in America are around 4.6 per cent why' is it necessary to have a Treasury bill rate in London of 9.35 percent? I would have thought that a margin of around 2 per cent above the American level would have been sufficient to keep sterling stable now that we have a 'safety net' for the official holders of sterling and huge credits to draw upon if necessary. The absence of any mention in the Chancellor's speech of the desirability of cheaper money to stimulate trade was the most depressing aspect of it.
The omission was all the more extraordinary because the PSBR (Public Sector Borrowing Requirement) turned out to be much lower than had been forecast for the IMF— even after the tax changes it is forecast at £7,500 million for 1977-78, which is well within the ceiling agreed with the IMF— while the DCE (Domestic Credit Expansion) in the coming year should be well within the limit of 7,700 million set for the IMF in December. Mr Healey remarked that the money supply increase would allow sufficient room for industry's needs but, as I have already argued, this is doubtful. The Government, he added, continued to regard the provision of adequate finance for industry as a key part of their industrial strategy, and even welcomed the Wilson committee of inquiry into City finance, which everyone in the City knows is a waste of time. The hypocrisy of this remark will be appreciated by industrialists who have now to expect a tightening-up of the price controls on profit margins and a new power to freeze a particular price for up to a year when considered
Spectator 2 April 1977 necessary. The CBI will not stomach this. While their managers will welcome the modest tax reliefs allowed, the CBI as a body will not like this budget.
Nor, I imagine, will the TUC. Tax reliefs amounting to £1,290 million are immediately given but an extra £1,000 million will come if a satisfactory pay deal can be worked out fora third year of restraint. The TUC does not like bargaining under duress. Perhaps the most irritating part of the Budget for the working man, as well as for the manager, is the increase of 5p in the petrol tax and the £10 increase in the vehicle duty to £50, making no difference between a small workers' car and a Rolls-Royce. The immediate tax reliefs of £1,290 million are spread from the low to the high paid by raising the tax thresholds, which I gave in detail in a recent article. While the 35 per cent basic rate band is raised by £1000 to £6000 and the 60 per cent tax rate now begins at £10,000 instead of £8,500 the still extortionate rate of 70 per cent applies over £14,000, 75 per cent over £16,000 and 83 per cent over £21,000. And the absurd investment income surcharge remains with only a small concession—raising the bands by £500. Also the small concession on overseas earnings, leaving 75 per cent of them still subject to British penal taxation, will not prevent distinguished scientists leaving our shores. The Chancellor has made one small step towards making British taxationless oppressive but it is not nearly enough. At the lower end of incomes it is something that the increased personal and age allowances will remove 845,000 people out of PaY" ing income tax, that is, out of the so-called 'poverty trap.' So some people are going to be pleased with this budget, but not, I think, very many. The promise of another £1,000 million of tax relief if the TUC will agree with the Government upon another—third—round of pay restraint will enable the Chancellor to reduce the basic rate of tax from 35
per cent
to 33 per cent. It is interesting to note that if the basic rate were reduced from 35 per cent to 25 per cent on the first £1,000 of income it would cost the revenue £2,200 million. Judging from the expressions on the faces of the TUC members on the television box I do not imagine that this diminutive carrot dangled before them over the negotiating table is g0-. ing to make them very responsive. The awful problem of the differentials remains and a deal will not be easy to reach.
The Stock Exchange took a too optimistic
line in its first reactions to this complicated Budget. I can support its cheerfulness over the Chancellor's dismissal of Mr Ton_Y Benn's campaign not to sell any more BP shares—it is always good to see Mr I3entili being put in his place—but I cannot go wit. it in accepting Mr Healey 's optimistic es mate that manufacturing output will rise Yt 2f per cent and manufacturing investment by 15 per cent to 20 per cent by mid-1978 0 that the inflation rate will reach single figure: mbytehesusbedcuoend bdquullarter of 1978. I remain
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