POLITICS
Now you see it, now you don't
NOEL MALCOLM
N igel Lawson, as we all know, does not always get his predictions right. His opening announcement on Budget day last year was that his speech would have 'a claim to a place in the history books ... as the last untelevised Budget speech'. The committee on televising the proceedings of the House has plodded on so slowly that we shall be lucky if we see anything of the Commons on our screens before this time next year. But we can rest assured that the Budget presentation next month will be just as much of a theatrical performance as any of the previous Lawson budgets.
In fact the whole business of managing the economy has become, under this Gov- ernment, more and more a matter of political theatre — by which I mean the manipulation of the responses and expecta- tions of the public, in a way that goes far beyond the actual script, so to speak, of the Government's real economic policies. Thus for years the theatrical message was one of savage cuts all round, while the script, for those that could be bothered to read it, was about steady increases in public expenditure in real terms. The theatre of Thatcherite tax policies involved telling people that the burden of taxation was getting lighter and lighter: this was achieved, by shining the spotlight on the one area of taxation that people had reason to think about each month, namely income tax. Meanwhile the less visible taxes, VAT and National Insurance, were raised sharp- ly. After nearly ten years of a government publicly committed to lowering taxes, the proportion of the average worker's earn- ings gobbled up in taxes of one form or another has ever so slightly risen.
Most aspects of this theatrical perform- ance have worked to the Government's advantage. Last year, indeed, Mr Lawson seemed to be the unrivalled master of the one-man double act, making the audience laugh and cry with his boast that he was simultaneously raising public spending and lowering it. But at some point during the last 11 months he seems to have lost his knack with the public. The opposition case, which argued that the tax cuts in the 1988 budget had directly caused the over- heating of the economy and the surge in inflation in the second half of the year, has moved centre-stage and is hogging the limelight. It too is political mummery and flummery: doubly so, because the Labour argument claims not only that a rise of £4
billion in private spending has over heated the economy, but also that public spending should have been raised by at least as much as that. If the first proposition were true, it would undermine the second.
In one radio interview last month, the Chancellor quite correctly poured scorn on the idea that the tax cuts of last year's Budget had caused all the subsequent economic malaise. The key figure, he pointed out, was not the £4 billion given back to tax-payers, but the £40 billion taken out by borrowers — mainly in the form of mortgages. It is the growth in credit which is the real problem, not the growth in spending on consumer durables. But although the Chancellor obviously knows this, most of his other pronounce- ments have pandered to the popular mis- conception of what has happened. He has defended the raising of interest rates, for instance, by arguing that it forces present mortgage payers to 'tighten their belts' and spend less money on other things. And he has compounded this fault by lecturing the population on the need to exercise 'self- restraint' in their finances — as if calculat- ing one's financial arrangements were a matter of giving expression to one's moral virtues. 'Self-restraint' indeed. Whatever will he start preaching next? Humility?
By identifying high interest rates in the public's mind with a crackdown on con- sumer spending, Mr Lawson has painted himself into a corner which will prove extraordinarily hard to manoeuvre in on Budget day. He will have more money to 'give away' (i.e. give back) than any previous Chancellor: probably as much as £17 billion. Yet any measure that smacks of giving people money to spend will produce jitters in the public, dismay on the Tory benches and Schadenfreude on the Labour ones. The scale of the problem is breath taking: here is a Chancellor who could, in theory, reduce the basic rate of income tax to tenpence in the pound, but who will be howled down if he dares to push it any lower than 24p.
'Don't tell Sid it's going through his back yard.' •
The economists and fiscal pundits are • not short of suggestions. But they are suggestions which, naturally, appeal more to pundits than to politicians. The National Insurance system, for example, is badly in need of reform, and one good way to start would be. by introducing a proper contributions-free allowance at the bottom of the scale, instead of the trip-wire threshold which suddenly makes people liable for contributions on all their earn- ings. The trouble is that most people don't really understand how National Insurance works anyway. A tax give-away here would be virtually invisible. That is the dilemma: if the give-away is. invisible it brings no political credit, but if the audience do catch sight of it they will boo it off the stage.
Various arguments can be raised against almost any reduction in taxes. If em- ployers' contributions to National Insur- ance are reduced, either the employees will not notice or they will demand inflationary wage-rises to mop up the extra percentage points. A reduction in VAT to ten per cent would have an instant effect on inflation, but the Chancellor would be accused of stoking up the fires of consumer spending. My guess, for what it is worth, is that we shall see one penny off income tax, the abolition of some minor tax so minor that ordinary people have never heard of it (the important thing being to keep up the theatrical tradition. of abolishing one tax each year), some tinkering with Advance Corporation Tax, some holding down of excise duties (which is good for inflation and looks less like a tax cut anyway), and a larger than expected repayment of the national debt. Mr Lawson's Public Sector Debt Repayment is not the most glamor- ous character to have appeared on the political stage, but it certainly deserves more applause than it gets. It moves gracefully in a virtuous circle: for every £10 billion paid off, annual public spending in future years is reduced by £1 billion. And it represents, in effect, a form of public saving which more than compensates for the decline in private savings over the last couple of years. The Institute of Fiscal Studies has calculated that total savings, both public and private, have actually risen, from 21.4 per cent of nominal GDP in 1986 to 23.1 per cent in 1988. When people clamour for a 'Budget for savers', they forget that Nigel Lawson is the biggest saver of them all.
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