Mr Barber's gamble
Apart from such cosmetic artifices as the zero VAT rating on children's clothes and the lifting of the lollipop tax on such necessities of human life as ice-cream, sweets and potato crisps, it was a very neutral Budget. But that flat and non-committal adjective should conceal from nobody the size and character of the risk Mr Barber is taking. What, in effect, he said in his Budget speech was that he proposed to let the economy rip on in its present fashion for another year, hoping that, during this period, all would come right, growth would be achieved, investment would rise and — aided by the statutory controls on wages and some prices which the Government has introduced recently — inflation would be tamed. The Chancellor has deliberately stood aside from the economy, and abandoned any pretence. that he can control its operations. Mr Barber, it is clear, believes that his earlier budgets have laid the foundations of economic expansion, and he has the nerve to do no more now than tinker. His neutralism constitutes a far bigger gamble than did Mr Maudling's famous dash for growth in 1963 and 1964, when a huge balance of payments deficit was simply ignored. We have to hope that the economic consequences of Mr Barber will not be the same.
The most important charge that can be made against the Budget statement is that it took absolutely no account of the central problem of the economy, caused because the Government is spending far more than the revenue it is raising. Mr Barber declined to raise taxation or to cut public expenditure, and actually announced proposals to increase expenditure and further cut taxation. Against the background of such a policy his pious professions about choking back on the rate of increase in the money supply mean nothing. Unless there is such a spectacular increase in the gross national product sufficient to start closing the £4,000m plus gap between what the Government takes in taxation and what it spends, we will have to face the grim prospect of radical and punishing deflation, probably later this year.
In order to secure a steadily rising standard of living, and a steady increase in the quality of social provision, any Chancellor must be successful in maintaining a balance between income and expenditure: taxation can be continually lowered, and public outgoings increased, only in so far as new economic growth provides sufficient national wealth. Micawberish fantasies such as the Government is now indulging in can last for only a certain amount of time, before reality intervenes. It has to be said, clearly and unmistakably, that the five per cent growth rate which Mr Barber is hoping for and aiming for is simply not enough to make up the difference between revenue and expenditure.
Clearly, the Chancellor realises the difficulty he is in. Again and again during his speech he made a pair of the chase for growth and the fight against inflation. The measures to stimulate growth have all been taken. The measures against inflation consist solely in the apparatus of wage and price control which the Government has already introduced and which, in Phase Three of the Incomes and Prices policy, it will introduce. It is extremely doubtful if, over a longish period, and without even more power to determine wage and price levels than even this Government has had the courage to take, the policy of controls will work. So far, the Chancellor and his colleagues seem to have the public on their side in insisting that trade union militancy is the principal cause of inflation, but if industrial unrest continues, even at its present muted level, and if at the same time it becomes clear that inflation is not being brought under control, that public mood will change. The judgement of the public will begin more accurately to place the blame for inflation where it really lies — on the shoulders of a Government which simply refuses to put its house in order.
The heart of the matter remains the desperate chase after growth. Even here it is likely that membership of the EEC, and any new fixed exchange rate for the pound such as the Chancellor is now contemplating, will prove to be inhibiting factors, at least over the next few years. If growth of the order of six, seven or eight per cent is achieved between now and the end of 1974 then the Government can ease itself and us back into financial and economic res'ponsibility without too much pain. Some public expenditure can be allowed to taper off, or can be tapered off — indeed Mr Barber pointed to some areas of spending which he hoped to cut in the future. Some extra revenue can be found from, for example, the taxing of North Sea Oil profits. Some relief can be expected from the buoyancy of taxes — the phenomenon whereby income from taxation rises, in a period of growth, in real terms each year, even if there is no increase in taxation levels. And a pound floating or fixed at something which for the moment — and it can never be for more than a moment — is a realistic level of exchange will stimulate exports. All this is the best we can hope for; and it is what, essentially, the Chancellor is hoping for — a painless adjustment to reality over a period of a couple of years.
But it looks as if Mr Barber realises that he may not be able to achieve this end. While predicting that a rate of growth sufficient to protect him from embarrassment would be achieved, and while expressing the hope that increased National Savings would provide him with some of the cash needed to finance his more extravagant spending schemes,Mr Barber stressed " that this is a 'central forecast' and subject to the many uncertainties to which, as every former Chancellor knows, such predictions are necessarily subject. For this reason I shall if necessary not hesitate to act at any time of the year, in whatever direction the economy may require, on expenditure, on taxation or on monetary policy ". It is to be hoped that Mr Barber's gamble will be sufficiently successful to save him from having to act on the deflationary threat implicit in those words. But it looks as though we shall have to have an Autumn Budget, which will go some way towards redressing the central imbalance of the economy. And such a budget would be bound to contain either a savage attack on public expenditure, or swingeing increases in taxation.
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