Will Geoffrey's garlands fade?
Ferdinand Mount
A man who has been humiliated by the voters three times in three months has every right to feel depressed. After being snubbed by the Scots and the Welsh, slung out by the English and now spat on by the Continentals after Labour's pathetic showing in the Euro-elections, Mr Callaghan does not seem entirely happy in his work. Glum varying to tetchy would be a fair description. Yet when he rises from the slough, he can give his melancholy a fine, almost seventeenth-century sonority, as he did on Budget Day.
Beware, he told Sir Geoffrey Howe, the plaudits the press will heap on you: 'I have seen how rapidly the garlands fade.' Sleep, according to Sir Thomas Browne, could hardly with any delight raise up the ghost of a rose; with Sir Geoffrey, now that he is no longer Mogadon Man, the trouble is said to be fading garlands. You announce the biggest tax cuts in history. and half-an-hour later all the Evening Standard says is UP, UP UP— Drinks, Smokes, VAT and I Op on the gallon.
Still, better garlands that fade than none at all (talking of which, I cannot now recall any of Mr Callaghan's own Budgets being exactly festooned in leis). And it has to be said that Sir Geoffrey was crisp, clear and bold (all right then, chancy). He has put off the hushpuppies of opposition and put on the gleaming black shoes that Chancellors have to wear to impress the IMF; you can always tell a gentleman by his shoes, my aunt used to say. And not the least of the Budget's merits is the curiously split reaction which it has provoked from the Opposition.
While the Rookers and Skinners and Ranters gibber on about 'paying your rich City friends' and 'kicking the poor in the teeth' most of Labour's front-benchers offer only the most ritual salutes to class envy. Their objection to cutting taxes is not that it is wicked, indeed they always had it in mind to do something of the sort themselves, but they realised with the maturity that marks the statesman that it was just not on.
Look, Mr Callaghan said, you tried all the same things in 1970 and they didn't work then, so why should they work now? In reality, though, it is by examining the differences rather than the similarities between this Budget and Lord Barber's first Budget (more properly, the combination of his October. 1970 measures and his 1971 Budget) that we may begin to see daylight.
First of all, the Barber boom did get production moving and, after an interval too long for Mr Heath's patience (always an uncertain quality), investment got going too; by 1973, the economy was growing at breakneck speed, and breakneck was the word. The question therefore is not whether the animal responds to geeing up but whether it can be controlled after breaking into a gallop. It looks more like a bolter than a mule: That is why Sir Geoffrey has set out to provide a far more elaborate harness. The tax cuts are much bigger than Lord Barber's – £4i billion in a full year. And so are the cuts in public expenditure – £21 billion in a full year and that is only for starters. Cuts in current spending, to wit, the reduction of the size of the civil service, take longer to achieve.
The scale of the operation is what matters. This represents the most sustained effort in this generation to reduce the role of the state, to switch from direct taxation to indirect taxation and in particular to do away with the crippling top rates which have been with us ever since the war, as have the hobbling exchange controls. The burden of proof is on the pessimists. For if other countries appear to prosper on low top rates and we seem to be boxed in as we are, there is no reason not to try the experiment. And if we don't try it now, we shall never know whether the British disease is incurable or not.
But to talk of a 'colossal gamble' – as Tory MPs do as well as Mr Callaghan and Mr Healey – is to confuse two separate and partially conflicting wagers being laid. Sir Geoffrey has not only placed a bit on the connection between low income tax and high growth; he has also placed a much riskier bet on the control of inflation.
This is not a simple Maudling or Barber dash for freedom. It is an effort to combine what the Chancellor called 'an Opportunity Budget' with a Responsible Budget. The anxiety about rising inflation has led him, if only pro tern to put minimum lending rate back up to 14 per cent, a severe squeeze on credit which has disturbed Tory MPs. Is not Sir Geoffrey using snaffle and spurs at the same time – or anyway doing something horsey people shouldn't?
And won't every union leader start asking for 20 per cent pay rises when he sees that the Treasury's own Red Book estimates that by the end of 1979 prices will be rising at an annual rate of 16 per cent, as a result of the 4 per cent increase in the retail price index caused by nearly doubling VAT?. Mr Healey found the relevant paragraph for his leader all by himself; nice to see that one does learn something from five years at the Treasury.
Sir Geoffrey's answer is that the trade union leaders are more sophisticated nowa days. In private conversation they have shown an understanding not only of the connection between pay claims and infla tion but also of their own members' yearning for tax cuts. Alas, private conversation and public posture are two very different things, as shown by the opening screeches from David Basnett, Alan Fisher et al. As for the dreaded 16 per cent inflation, well, as one senior minister put it with childlike faith in the authority of the printed word: 'look, it shows the figure coming down to I3i per cent next year.' The sums may work, just. But one purses . the lips at the Tories' claim to have it government borrowing by £21 billion. This figure is arrived at by subtracting the new government's forecast for this year from an imagined continuation of the figure actuallY recorded by the old government last year. But if you are to compare like with like, then you ought to compare this govern' ment's forecast for 1979-80, £8.25 billion, with the Labour government's forecast for 1978-79, £8.50 billion – a negligible cut in cash terms and only a modest one in real terms or expressed as a percentage of GDP. This pedantry is inspired by the perceptive Nigel Lawson who was always ticking off Mr Healey for not comparing like with like, so as to seem to be spending less of your money than he really was. And now that Mr Lawson is Financial Secretary to the Treasury and as a result his name appears in splendour as sole author of the TreasurY Red Book, he would obviously not wish to leave any lingering misapprehension. Nor,' am sure would Sir Geoffrey wish to rePres" ent the lowering of his monetary target t° 7-11 per cent as a real reduction fr0111 Labour's 8-12 per cent, in view of the surge in the money supply since the last of Mr, Healey's seemingly interminable string 0: Budgets. The truth is that Sir Geoffrey is starting from a higher baseline, and he Is taking risks. If he was really putting sound money first, not to speak of energy COMO vation, he would have put another lop on petrol and a lot more on beer and smokr (what we in the trade call 'revalorisation Still, a risk had to be taken, one way another. Cash limits do have a nice habit 0' making government departments spend less than they are allowed to (they call it 'under' shooting'). And in dealing with all the forecasts, we do but trifle with shadows. For of all the fine sentiments that have beguiled the ear in these interesting times,' perhaps the most profound are to be foul in that section of the Treasury Red Bo° which deals with the Economic Outlook and is entitled Margins of Error: 'These estimates are in no sense the inaX: imum errors that are likely to occur. For otw_ thing they are based on the average not, largest size of errors recorded in Lilt past. . . there is no clear presumption tu°c past errors are a good guide to fun°. errors.'
Indeed there is not and Sir Thomas Browne could not have put it better.
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