MONEY AND THE CITY
Mr Barber's non-event
Nicholas Davenport
I hope that the economists who headlined their pieces some time
ago with the words 'The boom that must go bust' will not crow too much just because we have now abandoned growth and are fighting for survival. The bust came not for the reasons they concocted but because three strong-arm unions put their sectional interests above the national interest and because the Aralr oil producers put their national interests above the international. I admit that the boom was already beginning to .tail off on its own accord — witness the drop in construction and housing orders— but the drastic action now taken by the Government is surely bringing on a bad recession overnight. It was no doubt intended to give the nation an electric shock treatment. When such treatment is given to mental or neurotic patients it is not always successful. Let us hope that it will succeed in our case. But the large number of Marxist lunatics we see around in the trade union world who did not realise that when they grab a bigger slice of the national cake, they are reducing the likely size of the cake for everyone, including themselves, does not make for much optimism.
MrBarber took no action todeal with the special problem of the £ sterling. It has now depreciated by 18.7 per cent against a weighted average of all currencies and by over 11 per cent against the dollar (the present rate is $2.31 against the Smithsonian level of $2.60). It clearly cannot stand up against the mounting' deficit on the balance of payments. The deficit on the November trade figures — imports at £1306 million and exports at £1036 million — was not as bad as the market had expected (£270 million against £357 million in October) but the total deficit for the year, after allowing for invisibles, cannot be under £1500 million. The
increase in our oil bill, through the fantastic rise in oil prices, will mean, according to the National Institute, that we must budget for a deficit of at least £2000 million in 1974. The OECD is shortly publishing its estimates for the payments deficit between the industrial countries of the West and Japan and the raw material producing countries, including the Arabs. The total is put at no less than $25,000 million of which the UK share would be abr t $2,300 million, i.e. E1000 million).
Indirectly, of course, Mr Barber took some action to reduce the import bill by reimposing the controls on hire purchase finance. At the moment of writing I have no details but if he steps up the down payment sufficiently he will reduce the number of foreign motor cars, television sets and other consumer durables which we import from abroad. I am disappointed, however, that he did not impose an import surcharge on select goods.
Economically I have little quariel with Mr Barber. He did not put up the cost of living. He did not over-deflate. He put the £1,200 million cut not on the consumer but on government expenditure which will take time to come through, although it may slow down the growth in the money supply. But why did he not say that the Channel Tunnel and Maplin were indefinitely postponed?
Politically, of course, Mr Barber's statement was disappointing. He will not buy industrial peace by taking £80 million from property developers or by putting a 10 per cent surcharge on surtax paid by the younger business men.
It is something, but not at all comforting, to know that other countries are having almost as difficult a time as we are. In Japan zero growth is anticipated in the
next six months. In real terms growth had already dropped from an annual rate of 15; per cent to 2; per cent before the oil cuts were announced. And their inflation has become worse than ours. Since October the price of heating oil in Japan has gone up by 75 per cent, sugar by 75 per cent, tea by 50 per cent, detergents by 40 per cent, cotton clothes by 28 per cent, and restaurant prices by 25 per cent. According to the Times correspondent Japan faces a prolonged period of industrial unrest, which one can well believe.
According to the National Institute output in all the important industrial countries is slowing down rapidly. In America it will be in 1974 at most half what it was this year. Much the same applies to Canada. In West Germany forecasts are universally gloomy, some anticipating zero growth next year. For France the official estimate for 1974 is still around 6 per cent growth but as the Bank of France has raised its discount rate from 9 per cent to 11 per cent no one is believing it. Italy has had a huge rate of inflation, but since the price freeze of end-July industrial output and investment have begun to revive. In the smaller European countries growth estimates for 1974 are all down, the worst being Holland and Switzerland.
All this points to a serious slowing down of world trade in 1974. How, then, can the export trade of the UK be expected to go on rising even if Mr Barber's new taxation succeeds in releasing some goods from the domestic trades? The oil producers should be able to use their huge surpluses to step up their purchases of our manufactures and it is good to see that we have had missions in Iran and Saudi Arabia seeking to book orders fOr tankers, refineries and other distributive plant. But it all takes time before it spills into our export returns. And how can we boost exports if we have an industrial challenge and no steel? It looks as if we need an immediate loan of about $5,000 million to help the £ and the balance of payments.
The Stock Exchange is no doubt entitled to its technical rally on this great non-event but it is surely a depressing thought that we are still running on a collision course with the trade unions.
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