After the Budget : a survey MONEY SPECIAL

Tax increases worked out at some 30s a head for every family in the country per week. Yet

despite all this the progress made on the balance of payments was deeply disappointing, as Mr Stonehouse has indicated and as the trade figures published on Budget day underlined.

The future prospects must have looked pretty sour too. Already a massive change had been wrought in the monetary situation. Without any tax increases the government accounts would have swung from a large deficit to large sur- plus. Interest rates are historically high, and the credit squeeze one of unprecedented ferocity. This surely should have been enough to satisfy in any normal conditions the most Chicago-minded monetary enthusiast. Worse still, the situation on the labour front is clearly deteriorating; industrial relations are in many ways worse than they have been for a long while, with a rapidly growing conviction that a crisis is approaching. The incomes policy, already heavily battered, has been brought vir- tually to the point of collapse by recent de- velopments and recent government retreats.

.,*-Finally, and no doubt the Prime Minister rubbed this in, the political position of the

Labour party has become extremely precarious.

What was the unfortunate Chancellor to do in such circumstances? He had no new ideas to offer, or if he had such ideas his more hoary-minded colleagues would have held him back. He could only use once again ,the hum- drum methods of deflation by socking the consumer. Yet he must have known perfectly well that this policy has grown less effective with each succeeding application. He must also have known, and I doubt if his colleagues were backward in pressing it on him, that a further attack on the consumer would be wildly un- popular in political terms.

Against this background it is interesting to see the cunning with which he operated. The tax increases he made were as disguised as possible. The cake was larded with one or two concessions, shrewdly judged and deliberately exploited. But he went to extraordinary lengths to conceal the real impact, for example, of SET and corporation tax; he even took the unprecedented step of announcing in detail forthcoming pension increases, while refusing to quantify the cost of the increased contribu- tions. These tactics had some success on Budget day, but it has been short-lived.

But his other and perhaps more important tactical manoeuvre was in the field of labour relations, where he deliberately linked the twin problems of incomes policy and unconstitu- tional disputes. Once again it was ingenious and one can perhaps detect the touch of the Prime Minister iri this scheme. One can imagine the advice he would give—'we all know the incomes policy has virtually collapsed and the party would not allow us to renew our compulsory powers. Let us, therefore, make a virtue of necessity and announce that we are abandoning it, but as this might scare the pants off the gnomes of Zurich, we must produce some counterweight. Let us, therefore, have an attack on irresponsible strikes and on the weaknesses in the trade unions. As well as impressing :the gnomes, this will be good politics, because it will impress the floating

voter, while in the end the unions will come back to us when the election comes. And In any case, we can mollify them (-and, incident- ally, spike Jim Callaghan's guns) by announc- ing the abandonment of the already exploded incomes policy.'

Hence Parliament was presented with the astonishing spectacle of a Labour government abandoning a Bill which it presented as de- signed to curb the power of the House of Lords, in favouv- of a Bill designed to curb the power of organised labour.

This Budget haS been called a `gambler's budget.' It is, but, of course, there is an

element of gamble in any Budget. Ultimately a Chancellor has to back his judgment, and even a decision to do nothing at all can be a gamble. But this year's Budget is exceptional in being both a political and an economic gamble.

The question, of course, is will it work? The prospects are not encouraging. The balance of payments remains stubbornly adverse; the ex- pansion of world trade may be slowing down; stocks of imported commodities are low; the effects of devaluation are wearing off; we are

living in a world of high interest rates which show no sign of diminishing. Even in political terms the gamble is a doubtful one. If the

policy is successful, unemployment will rise and this will not help relations with the ituc.

The abandonment of the incomes policy may lead to a flood of increased purchasing power which will drown even the increased taxes in the Budget. The action taken against the unions will certainly create great straim within the Labour party. But it is more difficult to be sure that the results in either economic or political terms will be worth the candle. There is a lot of evidence for saying that once again the Government has made the mistake of choosing a bold policy and then pursuing it in such a half-hearted fashion as to get the worst of both worlds.