THE ECONOMY
Mr Lawson buys off the dentists and opticians
JOCK BRUCE-GARDYNE
Forecasting, Mr Brian Walden put it to the Chancellor on television a fortnight ago, is a mug's game. Mr Lawson readily agreed. Why, then, asked Mr Walden, did he not simply refrain from doing it? No choice: 'I am required by law to produce the forecasts.' He naturally refrained from reminding us — and Mr Walden was too polite to do it for him — that he had himself to thank for the law's require- ments.
Fortunately the former City editor has not lost his skills in the gentle art of news management. Had he revealed the painful news that a £13 billion trade deficit in 1988 would be followed by another one of £11 billion in 1989 cold in Tuesday's autumn statement, the watching markets might Well have taken fright. So he took care to signal the bad tidings in advance, at the Mansion House banquet. And the mar- kets, on Tuesday, did not turn a hair. Nice one, Nigel.
Of course what really interest the mar- kets these days is not so much the balance of payments, as the outlook for interest rates and the exchange rate. So long as they are convinced that Mr Lawson will continue to pay them several percentage points more than they can get in alternative lock-ups for their short-term cash, while at the same time doing whatever may be required to keep the pound from falling, the overseas investors are happy to finance his trade deficit.
And about the exchange rate the Au- tumn statement confines itself to the con- ventional assumption that it will stay pretty well unchanged; while on interest rates it has nothing to say.
Still, the message which the statement was intended to convey — that the Chief Secretary had not in the event, conceded any increase at all in the sums for next year's departmental spending total pencil- led in at the time of this year's Budget was certainly reassuring. OK, so it is to some extent done by mirrors. It always is. Nevertheless the long line of the Chancel- lor's living predecessors, from Geoffrey Howe through Denis Healey and Lord Callaghan right back to Lord Thorney- croft, just have been green with envy at his ability to conjure up at the same time lots more lovely lolly for such backbench fan- cies as health, defence and 'Laura Norder', and a steadily declining profile of Whitehall's share of national income.
That's what comes of a full head of steam in the engine room.
Which brings us back to those wretched forecasts. Last Budget time I speculated in these pages about what made Nigel Law- son think that the economy was going to cool off of its own accord well before 1988 was out. The explanation, so they tell us, was that the Treasury had made up in its mind that we were all so over-borrowed, that we would have to start rebuilding our family stocks of savings. Well of course it did not happen (and it remains a mystery how the Treasury convinced itself that it would). However the Chancellor has no doubt that now it will.
This time round he has some rather more solid grounds for his expectations. For it is true, as he says, that the very scale of our family indebtedness means that a sustained period of high mortgage charges will eat into the cash available for the shopping basket. Nevertheless the slow- down predicted — to an annual rate of growth of just 11/2 per cent in domestic demand by next autumn — is a substantial one. And we shall need every bit of it if we are not to encounter something nasty in the woodshed on the external trade account.
But Mr Lawson would not be Mr Law- son if he did not hold out the prospect that this slow down was (unlike previous 'stop' phases of the stop-go cycle) actually going to be rather fun. The key here is a remarkable turn-around in exports and imports. After a year in which exports are forecast to have grown by just two per cent while imports soared by 121/2 per cent, 1989 is to bring a jump of seven per cent in export volumes, compared with five per cent in imports. So while consumption at home shrinks, our happy businessmen will be working round the clock to meet the orders pouring in from every corner of the globe. As the Duke of Wellington re- marked, if you believe that you'll believe anything. At any rate Mr Lawson himself plainly doesn't, since if he did his balance of payments forecast would be a great deal rosier.
All harmless stuff. What may not be so harmless, though, are the deft touches of largesse with which the Chancellor and Chief Secretary sought to buy off the dentists and opticians, and their spokesper- son in Parliament. Even Mr Rodney Bick- erstaffe seems to have been somewhat at a loss for words with which to criticise the unexpected size of the additional resources allocated to the NHS. No wonder. For if we take the figures at face value, we're going to have Aids clinics, cardiac arrest units, and hip joint replacement centres going up in every hamlet in the land.
Care to bet on it? I wouldn't. I'd care to bet that every extra penny will actually find its way into the pay packets of Mr Bicker- staffe's members, not to mention the mysterious 'merit awards' of the medical consultants. The Royal College of Nursing, with this year's 18 per cent pay increase tucked into its aprons, is already lining up for another helping of the same in 1989, and can you blame them? The appetite grows with feeding.
Now pay in the public sector is already overtaking rapidly the excessive rate of growth in earnings in private manufactur- ing. Mr Lawson was judiciously coy about the precise profile for the retail price index emerging from the Treasury's number- crunchers: inflation, he says, 'will inevit- ably continue to edge up' to some 'peak' at a date unspecified in mid-1989 before `falling back again to five per cent' in the autumn, after which it will 'resume to its downward path'. Which, being inter- preted, probably means something like seven per cent by the late spring, with the `blip' extending well into 1990. That is the background to wage negotiations over the next twelve months, and it is a stormy one. All the same there must be a significant risk that employers in the private sector will be induced, by the spectacle (the mot juste in the circumstances) of large head- line settlements in the NHS and other public services, to concede pay increments which cannot remotely be absorbed. And that in turn must mean that the 'blip' will become self-perpetuating, or that the sav- ings on unemployment benefit which con- tributed handsomely to the last year's undershoot on public spending program- mes will not be repeated.
Still, it worked, didn't it, on Tuesday night? For all the huffing and puffing from the noble dentists and opticians I somehow doubt that their Lordships will kick over the traces this coming Tuesday by repeat- ing their defeat for fees for eye and tooth tests. And as one of my former editors used to say, 'You can't make omelettes without cooking eggs.'
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