THE HONEST CHANCELLOR
By NICHOLAS DAVENPORT IF Mr. Butler comes to grief with labour over his autumn Budget it will be because he has been too honest as a Chancellor. He has always made it clear that the prob- lems of the British economy demanded a dual policy of incentive and restraint, and in so doing he has always laid himself open to the taunt from the Opposition that the incentives were for the business man and the restraints for the workers. By taking six- pence off the income tax in April he gave what he honestly believed to be an incen- tive to increase production for the largest number of people. Dearer money and tighter credit imposed the general restraint on the business world. The forecasts on which he based this dual policy have been proved entirely correct. Industrial produc- tion did increase—by 54 per cent.—as he anticipated, while the increase in personal spending actually slowed down. There is nothing deceitful about accurate fore- casting. What went wrong were the re- straints. The credit squeeze was Slow to operate because the banks were unwilling to hurt their best customers. Dearer money did not immediately restrict investment because the investment boom had gathered too great a momentum. New factories had to be completed; orders for new machine tools had to be delivered. Indeed, it was the investment boom which caused the over-strain—the shortage of labour and of steel—and because it could not be halted quickly enough by monetary measures, the Chancellor was obliged to have recourse to direct action : cutting down the coun- cil building programme by 40,000 houses, Postponing capital expenditures of the nationalised industries where possible, and asking the local authorities to restrict their capital expenditures outside housing to the level of 1954-55. All these things he could have done, of course, without an autumn Budget but, being an honest Chancellor, he felt that a Budget statement was required to impress public opinion with the ur- gency of restraint. His appeal was re- inforced with a moderate increase in the purchase taxes and in the distributed profits tax. It may have been bad politics but it was not unsound economics to take away some of the money resources in the hands of consumers to ease the strain on Physical resources caused by the invest- ment boom.
The TUC accuses the Chancellor of dis- criminating against 'social expenditure' and relying too heavily on a cut in local authority housing to reduce investment demand. But faced with a balance of pay- ments problem, it is certainly more realis- tic to cut investment in housing rather than industrial investment designed to in- crease output and lower costs. As the Chancellor made no cuts in the expendi- ture devoted to slum clearance, hospitals and the new towns, whose subsidies he actually increased, he cannot fairly be ac- cused of discriminating against 'social expenditure.' The Opposition is naturally indignant when the Chancellor refuses to Control investment in the private sector and singles out the local authorities, whose capital expenditures account for about one- quarter of the total national investment. Personally I wish he would assume more direct control of private investment than is possible through dear money, the bank credit squeeze and the Capital •Issues Com- mittee—if he reimposed building licences, as Mr. Harold Wilson urges, he would run into less trouble—but Mr. Butler is a Con- servative who does not believe in controls. Being a man of principles, he therefore acts in accord with his principles. But he has still left the local authorities in a privi- leged position in the matter of borrowing rates. If they cannot raise money in the capital or the mortgage market, they can still get financed by the Public Works Loan Board, who will charge them not the rates appropriate to Government credit but `to the credit of local authorities of good standing in the market.' Thus, spendthrift or needy councils will be able to borrow from the PWLB at the rates appropriate for, say, prosperous Birmingham. This is surely discriminating in favour of social expenditure. So far this year council bor- rowings from the PWLB have amounted to £223 million — £83 million more than last year—and as this involves the Gov- ernment in borrowing on Treasury Bills, it has been neutralising the squeeze on the liquid assets of the banking system. It was therefore necessary to reduce PWLB loans. One finds an honest reason for every one of Mr. Butler's proposals in this pedestrian autumn Budget.
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