Conversion of St Denis
Nicholas Davenport
It was unkind and ungenerous of the City to receive Mr Healey's White Paper on public expenditure with so little praise and so much cackle of the old Tory cliché of 'too little, too late'. Heavens! the man has undergone a conversion as dramatic as St Paul's on the road to Damascus. He has at last seen that the public sector must no longer grab an increasing proportion of the gross national product—now 60 per cent— because, as he says, when world demand picks up more resources will be needed for exports and investment and—to quote his White Paper--'these resources can be made available only if we keep public expenditure at roughly the same level for several years'. This economic truth is apparently beyond the understanding of Miss Joan Lestor, Mrs Judith Hart, Mr Eric Helfer and the rest of the left fringe of the Labour Party. As the Chancellor remarked at the TUC-Labour Party Liaison Committee, 'they must be out of their little Chinese minds'. Let us thank Heaven that the Chancellor, and all the senior members of the Cabinet, not excluding the prime minister, have now seen the economic light. Did the City really expect Mr Healey to say in the White Paper what I have been crudely saying in this column for a long time—that the Labour Government can no longer afford to finance any more socialism by way of nationalisation or any other extension of the public sector? But that was what he meant.
Of course it is disappointing to find that after making cuts of £3000 million in public expenditure in the 1978-79 period the end total will still be almost 2 per cent higher than that estimated in the 1975 White Paper. The cancerous growth has not been completely cut out. This is due to the mounting interest on public debt. The estimated cost of vl-vicing this debt in 1978-79 has gone up by £3,300 million which wipes out all the savings from the cuts.
There is a special chapter in the White Paper which calls attention to the devastating consequences of falling hopelessly into debt. The public sector borrowing requirement has risen steeply from nil in 1970 (thanks to Roy Jenkins) to £4,000 million in 1973, to £6,000 million in 1974 and to £12,000 million today. The servicing of this debt cost £5,000 million in 1975-76 and goes up to £6,200 million in 1976-77, to £7,000 million in 1977-78 and £7,500 million in 1978-79. It is currently about 10 per cent of all public expenditure.
The Chancellor does not appear to have been worried until now by this fantastic charge, partly because the price inflation has mitigated the real burden it imposes on the economy, partly because a lot of the cost comes back to the Exchequer by way of tax, partly because a considerable proportion of the pay-out is saved and comes back into the gilt-edged market through the life and pension funds, and partly because, apart from payments to the debt holders abroad (about one seventh of the debt is held abroad and is therefore a burden on the balance of payments), the balance represents merely an internal transfer of purchasing power. But is it right—is it sane —that in the worst slump we have suffered since the 'thirties—with unemployment rising to 14 million—the only people who have prospered, who have enjoyed their biggest bonanza of all time, are the bankers and money lenders?
This brings me again to the hobby-horse I have been riding in this column—the control of the rate of interest. It is absurd in this severe crisis to allow money to get dearer and dearer so that it becomes impossible to bring the rise in our public expenditure to a halt. We are not the only borrowers in trouble through dear money. In the third world the poor developing (non-oil) countries find that they cannot increase their exports fast enough to meet the rise in their debt service, so that they get more and more into debt. The capitalist world is making money its master instead of its servant. The communist countries must be laughing all the way to their state banks.
Deploring a crazy world in which people pay taxes principally in order to meet the cost of interest on the national debt, while the standard and quality of public services and national defence are eroded further and further, Mr Peter Jay—a puritan levellersocialist straight from the seventeenth century if ever there was one—tells the readers of the Times that this is the classic profile of national bankruptcy—the slippery slope which leads ineluctably to repudiation of debt and political collapse. I wish he had not used these alarmist words. Miss Joan Lestor, Mrs Judith Hart and Uncle Eric Heifer and all might take him seriously and start calling for the repudiation of debt. The end of that—if they came into power— would be the complete collapse of sterling and many millions more would be thrown out of work. No doubt they would make an appeal to Communist Russia, if not to China, to save us from starvation. What fools they would look ! Soviet Russia cannot even feed itself.
The only way out of the financial mess in which a prodigal Clause 4 Labour Government has landed us—In the last three years', says the White Paper, 'public expenditure has grown by nearly 20 per cent in volume while output has risen by less than 2 per cent'—is to call the capitalist powers to a monetary conference to consider how to get the rate of interest down and avoid moving it up again when the recession ends, as Dr Burns of the Federal Reserve threatens to do. The capitalist world moved out of its depression in the 'thirties by cheapening money. Today some governments are better at controlling the rate of interest than, others. Bank rate today in West Germany is 34 per cent and in the US 4i per cent while ours is still 94 per cent having been as high as 12 per cent in October 1975. Monetarily we are bleeding ourselves to death.
I suggest that we have a special money conference in London to consider how to attract savings from the public without having to hand out the absurdly high coupons such as 124 per cent on the last 'long tap' and 104 per cent on the `short tap', which have been our ruin. We cannot afford to wait until the decline in the rate of inflation brings down the rate of interest. As the White Paper says, this will only help with new debt and that part of the old debt which falls due for redemption. And decelerating inflation reduces the extent to which the debt burden is lessened by the falling value of money. There has been talk of a 'variable rate of interest' stock offer, but in my opinion there should be an equity stock offer based on a public unit trust owning the leading equity shares in the private sector. It would pay a national dividend when dividends had been earned. There would be no fixed dividend or interest charge. The issue would be immensely popular because when the turn comes upward in world trade the capital appreciation, based on the quoted shares of the underlying portfolio, would be terrific. The market has not yet discounted the conversion of the Wilson cabinet to economic truth and reality. It could be the beginning of the end to the industrial decline of Britain.
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