Now for the first problem
BY 'AN ECONOMIST'
The most hopeful and forward-looking budget since the end of the war, so forward
looking, indeed, that it is almost as if the chancellor has already introduced his budget for 1973, that seems to be the verdict on Mr Barber's performance last Tuesday.
It was absolutely right to plunge straight ahead with far reaching reforms of the existing tax system (if it can be called that) and Mr Barber has surprised everyone by going a great deal further than expected. Plans are now made, and disclosed to over- haul completely personal and company tax- ation within the next three years. The new personal tax, to replace income and surtax, the extension of earned income relief, a top tax rate of 75 per cent, and a rounding down of the standard rate, all these changes make sense and if they do not ease the burden of tax greatly at least individuals may now feel that they are no longer there just to be taxed as much as politicians dare. The reforms in capital gains tax, the separate assessment for tax for working wives and of children's incomes are all welcome. All these will encourage effort, make the system more intelligible, and cheer everyone up.
Similarly for industry there is only good news—a lower rate and a non-discriminatory corporation tax to look forward to, and new provisions for the heavily oppressed family 'close' companies. The replacement of Selec- tive Employment Tax and the thirty-year old Purchase Tax by the Value Added Tax was probably inevitable, whether or not Britain joins the Common Market. But it is a major decision to have taken, and the immediate cut in SET by 50 per cent will please everyone and is the first step to improve companies' cash balances. Those businessmen who want to invest more will now find it easier to do so.
As for the mass of small reforms, they are all well chosen and helpful; they will also demonstrate to the Socialist party how much can be achieved at little cost to the Treasury if spitefulness and doctrinaire advice are disregarded. There remain of course a number of finer and major question-marks hanging over Mr Barber's new policy. It is unfortunate that he has retained a discrimi- natory tax on larger investment incomes, and many observers were hoping to see 'free depreciation' allowed for companies. But the most alarming question is literally what does it all amount to? Mr Barber's taxation strategy is clearer than his economic strategy. What will all the changes really do to the immediate problems of unemployment and especially inflation? The Chancellor has put a £550 million stimulus through the economy, rather more than most left wing critics thought possible. The Treasury evi- dently thinks that demand inflation is not the danger, and Mr Barber clearly indulged in understatement in his speech when he said that he did not believe in 'fine tuning'. But may not the Chancellor have gone too far? And if so, will he not have taken the unions off the book on which they were
busily impaling themselves? As in the bad old days the unions will now perhaps be able to push for higher wages without bringing about more unemployment because the Chancellor will be financing the wage in- creases—via inflation, of course. The rather offhand references to monetary policy (and the absence of a cut in bank rate) do not suggest that Mr Barber believes it to be a very effective weapon in any direction, either for restraint or for expansion.
So all that is left, as a policy to stabilise prices is the idea that more incentives and encouragement will improve effort and morale to raise productivity sufficiently to bring the economy all the way up from a growth rate of 2 per cent to one of 3 per cent and if that seems modest, even ludicrous, it accurately reflects the limits of what can be done just as long as the State controls in one way or another about half the national income. Recalling what has been said in this column only recently, what matters most is expenditure reform, not taxation reform, Mr Barber has' tackled the second problem splendidly. Now he must set about the first,
Previous page
