The worst of both worlds
REGINALD MAUDLING, MP
This and the next two articles in our post- Budget financial survey analyse, from three different standpoints, the Budget • itself. The survey then turns to the more detailed prospects for insurance, banking and savings in the year ahead. Finally, Christopher Fildes looks back on the past year in the City, William Janeway examines the American economic situation in the light of President Nixon's Budget proposals, and Roger Pemberton discusses the advertis- ing scene.
In my experience the first reaction to any Budget is never the lasting one. Mr Jenkins's spring Budget of 1969 is no exception. First it was hailed as being 'moderate.' This in itself is a good comment on the experience of the last four years. If public opinion regards an additional £300 million or .so of taxation as 'moderate,' we must be pretty inured to suffering. It was also described as 'politically skilful,' which means, in effect, that it was designed to hide the true facts from the tax- payers. But in this purpose I am sure it will have failed; and already we are seeing a growing reaction of hostility to the tax increases involved.
It is, not merely the obvious and direct im- positions like petrol tax or purchase tax, though even here Mr Jenkins seems to have been a little too clever in obscuring the full impact of the purchase tax increases. The main point is that all his tax increases, including the SET and the corporation tax, are designed to fall, and will fall, upon the consum,r if they are to achieve his purpose. One way and another the increases in SET must work them- selves through into the level of prices, often gathering moss as they go, and there can be little doubt that the same is true about the increase in corporation tax. I doubt if there will be much reduction in distribution by com- panies. If not, then clearly the money must come either from increased prices or lower corporate savings,, and on the logic of his Budget Mr Jenkins must clearly choose the former alternative. For the whole theme of the Budget was to cut consumption by en- couraging savings and by increasing prices. The whole purpose of the SET and other tax increases can only be realised, therefore, if they are largely passed on to the consumer. In practice they will be, and gradually the public will come to realise this. But in the meantime the first effect of -the Budget will be to discourage precisely the investment we require.
To judge Mr Jenkins's strategy one should look at the position he was facing and try to assess his motives. The year 1968 was frankly a disastrous one in terms of economic policy. Prices rose faster than they have done since the last Labour ,government. Interest rates and unemployment were both historically high.
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