A Budget of no importance
Poor Roy. After his first Budget, in 1968, in which he increased taxation by an un- precedented £923 million, he had his own backbenchers waving their order papers with joy. After his second Budget, last year, in which he raised taxes by a further £340 million, his colleagues in the House gave him a standing ovation. This year, when he has actually cut taxes by some £220 million—in the first Budget to have reduced taxation to any significant extent since 1963—the Labour benches behind him were unable to conceal their disap- pointment.
No doubt some, on the left of the party, felt cheated because, for the first time in a Jenkins Budget, there was no gratuitous swipe at the middle classes. Others may have felt let down by the lack of drama. But the real reason for the disappointment was that his colleagues expected far more of the Chancellor than a tax cut of £220 million in a pre-election Budget, after six years in which the present Government had increased taxation by more than fourteen times that amount. After two years hard slog, and an unprecedented balance of payments surplus, surely there ought to have been more to show for it than this? Nor can the National Institute, which opened the betting last month with a figure (however hedged around) of £650 million, have helped.
It may well be that Mr Wilson himself, who can see no greater benefit to his country than his continued tenancy of Downing Street, and who is certainly old- fashioned enough to believe in the electoral value of sunshine Budgets, was among those disappointed. For this was in every way Mr Jenkins's Budget—as his repeated references to the indispensable part played by devaluation in the balance of payments improvement, a fact which even now the Prime Minister cannot bring himself to admit, clearly showed.
In economic terms Mr Jenkins was right. The country is already in the grip of the worst wage/price inflation it has ever known, with no sign of any let-up. The true scope for inflating the economy Still further, through tax cuts, was—and is—nil. The £220 million the Chancellor has 'given away' is in fact reduced to a shade over £150 million by the increase in telephone charges (in effect a 'telephone tax') a few days before the Budget, and this, in the context of a £40,000 million-a- year economy, is indeed negligible. (In the light of the telephone charges, however, it was a bit much for Mr Jenkins to claim as stridently as he did that nothing in his Budget would put up prices.) Mr Jenkins has, of course, used a con- siderable amount of his undoubted inecn- uity in spreading his limited largesse among the largest possible number of people, notably taking nearly two million tax- payers out of the Inland Revenue's net altogether. (The complexity of the Budget precludes, of course, an election before the autumn; but no serious political ob- server has ever expected otherwise.) The Chancellor tried to portray this as an act of social justice; which is a trifle hard to sustain when the really poor pay no tax even now, and those to be excluded in future are for the most part single people and working wives. We arc scarcely likely to see the Child Poverty Action Group dancing in the streets. But it is politically shrewd. since resentment against income tax among manual workers has for the firlt time become a major electoral factor.
Even so, the electoral benefit is unlikely to be great. For Mr Jenkins resembles no- one so much as Sisyphus: such is the likely rate of inflation in the year ahead that the bulk of the two million who have been taken out of the tax net this week are likely to be back in it again a year from now— indeed, half of them as it is are the very same people Mr Jenkins proudly excluded from taxation last year, but were brought back again by rising prices and rising money (but not real) wages.
In short, in economic and political terms alike, this was a Budget of no importance. Economically and politically, the issue of the hour is inflation—the wage-price spiral that has got utterly out of control. Even last year Mr Jenkins realised that orthodox budgetary measures were irrelevant: hence his announcement of legislation to imple- ment the trade union proposals of 'In place of Strife' as a means of buttressing the incomes policy. But now, when the infla- tionary danger is greater, there is no in- comes policy, no trade union legislation; nothing. 'If we are to achieve the reason- able stability of prices which is necessary for a sound economy and a healthy social framework' declared the Chancellor in his speech, 'incomes cannot for long continue to rise at their recent rate.' Yes, indeed; but what does Mr Jenkins propose to do about it? Nothing.
The first round of the local elections has given the Labour party far less encourage- ment than it had hoped for. The Budget has been equally disappointing. If the result of the general election is to be de- termined by the public's feelings about the economy, as it has in the past, it seems likely to hinge on whether the floating voter's satisfaction with rapidly rising wages exceeds his (and his wife's) dissatis- faction with rapidly rising prices.
But sooner or later—which, in practical terms, means as soon as the election is over—inflation will have to be tackled. Not by an incomes policy, which has been proved not to work: indeed, it is in large measure because both parties went nap on the incomes policy as the one way to halt inflation that the public is now so cynical about its ever being halted, which makes the task still harder. Not by massive unemployment, either. Nor even, although this will help, by a reform of trade union law. It can be tackled only by a readiness to face up to strikes in ihe public sector, to prune public spending sufficiently to allow tax cuts that will genuinely encour- age saving, and to recast the welfare state so that benefits are no longer a subsidy for industrial strife (ending the tax-free status of unemployment benefit and sup- plementary benefit would be an obvious first step.) But all this lies in the future. This week's Budget may have done no harm: it has done no good. either. The inheritance of the present Labour government was a grave external economic situation. The inheritance of the next (presumably Tory) government will be something far more serious and intractable: a major economic (and, indeed, social) crisis at home.
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