The economics of masochism After the Budget A 14-page financial

survey

IA1N MACLEOD, MP

lain Mackod is Shadow Chancellor of the Exchequer.

Mr Jenkins is the vogue. If he had stood up on budget day and recited the list of trains arriving at Victoria the trendier commentators would have been breathless with adoration. And when he actually said something, when he actually did something, with one accord they worshipped. `Roy's Medicine Is Working' screamed the headlines—forgetting no doubt that on half a dozen occasions since October 1964 the same bannerline with Jim in place of Roy had been pressed into service. Every socialist deflationary announcement has two predictable results. Equities go through the roof, sterling through the floor. At least on this occasion sterling strengthened for a few days before resuming its old lurching course.

Sir Leslie O'Brien spoke for all central bankers when he called the Budget 'a first-class achievement.' Sir Leslie, however, is a tactful man and, noting the presence of Mr Heath and myself, went on to make the orthodox Tory criticisms of the level of public expenditure and the pre-Budget failure to act. This part of his speech was little reported. It seems to be Sir Leslie's fate to make balanced speeches and receive unbalanced reporting. We all suffer from it.

For myself I have not denied the Budget the merit of courage, even if the Chancellor took too long to nerve himself. The lack of action at the time of devaluation was pitiful, to allow the spending spree to soar ahead' was weak, the January cuts were absurd. If I watch a golfer slice his drive almost out of bounds, hook his second shot into a bugker and then make a spectacular recovery, 1/can 'join in the ap- plause; so long as I am also allowed to observe that it is better golf to drive down the fairway and put one's second close to the pin.

The bankers approved. Everyone in this country who could get his hands on a ballot paper did not. The Cabinet by this time had convinced itself that the public were longing for a good whipping. Labour party

managers actually believed that a brutal Bud- get might save the by-elections for them. In

much the same mood most of the government supporters in the House of Commons waved order papers in delight. As Lord Macaulay almost observed : 'We know of no spectacle so ridiculous as the Labour party in one of its periodical fits of masochism.' Those few re- maining Labour supporters who can add two and two together and who realise that the answer is not minus 923 million sat glum and silent. The danger of overkill is very real, and the instinct of the people is not always wrong.

I do not intend to spend much time on the details of the Budget. There will be time enough for that in the long weeks of the committee stage, which this year for the first time (and most conveniently for the government) will be relegated to the relative obscurity of an up- stairs committee room rather than the floor of the House. Two Mr Jenkinses were heard in the Budget speech. Dr Jekyll Jenkins had some very sensible things to say about the rela- tion between direct and indirect taxation, on the provision of incentives, even on the need (some time) to reduce high levels of personal direct taxation. But towards the end the other

Mr Jenkins had his way. Mr Hyde Jenkins led into his attack on savings and wealth with a carefully scripted sneer at rich men. Clutching the vulgarian cheers to his bosom he swept to his peroration. It was an unattractive epi- sode and merely revealed, to use his own phrase from his winding-up speech, the 'in- continence of his ambition.' Some country members of the FORI club cancelled their sub- scriptions on the spot.

But will it work? Perhaps one should turn for clues to Mr Crosland's speech the day after the Budget. Some prospects are bright. Even when eroded by higher import prices and the removal of SET premiums and the export rebate there are still excellent prospects in some export fields. The February cut survey showed a clear increase in optimism about export pros- pects. So does the January inquiry of the National Institute. Applications to the EGCD for credit limits are well up on a year ago and still rising. All in all Mr Crosland expects that in the second half of this year we shall begin to move into surplus. And one may add 'so I should hope.' The citizen has been clobbered, and his standard of living cut for the first time since Mr Gaitskell did it in 1951. The nor- mal compensation for0Ajs That one's overseas account strengthens. Tr was Mr Callaghan's unique achievement that he managed to com- bine a weak pound and a poor balance of pay- ments performance with deflation and heavy unemployment at home.

Mr Crosland's modified optimism may be well founded. I hope it is. Bu the other side of the ledger has some disturbing entries. We have a prices and incomes policy as lamen- table as Mr Shore's explanation of it. The policy seems carefully designed to produce the maximum of dislocation for the minimum of result. Not all the export signs are favourable.

There is evidence of key industries to whom the real advantage of devaluation works out

at about 8 per cent, and who are finding their new prices promptly matched by their com- petitors. No doubt in this there is an element of hidden or open subsidy, but the Government was probably over-hasty in throwing away the export rebate. And over everything hangs the question of the us action in relation to their deficit. Will the President's dramatic decision to isolate himself from party pressures make Congress more or less willing to help him? If America does nothing it could be bad for us. If she does as much relatively as we have done it would almost certainly be disastrous for us. Somewhere between these two extremes there is no doubt a knife-edge of safety. It will be hard to find and difficult to perch on.

And yet all these nice calculations still

ignore the key consideration. At the moment and for some time ahead at least the Labour party's efforts will be concentrated on political survival. I do not believe that the normal statistical equations are of much- value, at least until the political crystal ball stops spinning— if it does. How can one measure in economic terms the irresolution of the Prime Minister? How does one allow for party pressures or for irrational activity which can wither the frail plant of confidence? If everything goes right then fears could be liars, but it is a grim gamble.

And at the end of the day the true priorities remain. A prices and incomes policy, especially a statutory one, is no substitute for effective demand management. Public expenditure has been and probably still is out of control. On balance the Budget is actually an attack on savings, and small savings have been largely used to finance an unchecked spending spree. And the attack on industry and industrial costs through such measures as the Industrial Ex- pansion Bill and the Transport Bill goes on unchecked. As a Tory I would of course say that we need a new government. But even with the present Government the urgent need is not for a reshuffle of the same pack but for a new attitude of mind. It is just possible that Dr Jekyll Jenkins sees this too.