What Reggie Ought to Do
By NICHOLAS DAVENPORT
DEAR REGGIE.— it must be an awful bore for the guardian of our economy to have to present to Parliament a meaningless cash budget at an extremely awkward date in the year. I do feel fon'you in your position as the financial ex- pert of such a 'modern' party as the Con- servatives. When you are trying to work out in real economic terms what the inflationary 'gap,' if any, will amount to at the end of the year it must be infra dig. to commit yourself in April to a lot of cash estimates which are bound to be as wildly inaccurate as those you gave a year ago (which were £208 million 'out'). I mean—why do It? Why compromise yourself? Why not tell the House that as it is quite impossible to ‘guess the state of the economy in nine months' time you are simply presenting the spending estimates of the departments and the guesses made by your officials of the revenues which will accrue on the basis of the existing taxation—and leave it at that? Thanks to the trade expansion the revenues are bound to be up far more than the spending. Later on, when it is possible to see whether any curb should be put upon the expansion, you or Your sicessor can present an autumn budget. Think o what fun it will be, if you find yourself ,on the Opposition front bench, pulling poor James Callaghan to pieces! Alas, I see from your Economic Report, 1963, that you have decided to take the gloomy Pro- fessor Paish's advice and apply the brakes at °nee. In your opening paragraph you give this solemn warning : 'By the end of the year ... the °lain problem had become, one of moderating the expansion to a rate that could be sustained in long run.' I know how sensitive you are to `,'e reproach that you are reintroducing 'stop-go.' You were quick to tell the House in February when you raised Bank rate from 4 per cent to 5 per cent—one of the highest in Europe—that you were merely trying to make a smooth transition from an abnormally high growth rate of 6 per ,,,e,nt (possible, you said, only when taking up 7`tek in the economy) to the more sustainable rate of 4 Per cent. But please don't try to kid me 0,.
. ' the House that you know how to apply the orakes so scientifically that you can slow down to 4` per cent. Why, your Economic Report says that .inere is no way of directly measuring the under- Tng rate of growth.' We certainly took up some slack last year and,' allowing for this, your statisticians believe that the underlying rate of growth—or 'growth in 'productive potential"— went a little ahead of 3 per cent by the end of 1963. But they add: 'What has been happening in 1963 is not fully clear; in particular, the change in the labour force and the underlying growth of productivity are matters of some doubt.' And they conclude: `To measure the growth of [pro- ductive] potential in 1963 is particularly hazardous.' So please don't repeat this yarn about slowing clown from 6 per cent to 4 per cent. You haven't even got an accurate economic speedo- meter to tell you what rate you are travelling at, much less what rate you can travel at next year. There is little doubt that if our labour force were properly deployed and used economically and scientifically we could increase our productive capacity sufficiently to meet all the demands on our resources in 1964. Your predecessor sug- gested a pay-roll tax to make companies employ their labour more economically, which was a silly idea. Why not work out a formula by which companies would pay less profits tax in propor- tion to the saving of labour they effected in their production process? That is my suggestion num- ber one.
Re-reading your Economic Report 1 could not find much evidence to support your obvious budget intention of damping down or restricting demand. The White Paper showed that the gross national product, estimated from the expenditure side, was £26,358 million last year—a little over 5 per cent higher than in 1962. Revalued at con- stant prices it was 3+ per cent higher. Consumer spending in real terms was 31 per cent up. Do you consider that extravagant? The figures of bank advances don't suggest an explosive boom. Personal savings rose from 8+ per cent to 9 per cent of disposable income. Do you consider that
'Speaking personally. the best of luck to the Anti-Blood Sports people. l'nz losing my wind.'
unsatisfactory? Exports were 8 per cent up in value and 6 per cent up in volume and it will be lucky if we can hold that rate of increase. Coming to investment, there is little to suggest a big rise in private investment, but public investment is rising rapidly. and the total authorised for the financial year 1963-64 is no less than 20 per cent more in real terms than in 1962-63. Do you not consider that extravagant? The total shown in the White Paper for 1963 was over £2,100 million. Suggestion number two is that you should slow this public investment down before you think of adding to our taxes You say in your Economic Report that the achievement of 'expansion without inflation' re- quires also stability of costs and 'prices and the maintenance of a satisfactory balance of pay- ments. Last year the trend of prices of goods and services was upwards at the rate of 2 per cent per annum while the settlements of wages and salary rates were on a scale (allowing for the time interval since the previous settlements) equivalent to about 4-1 per cent per annum. I quote your own figures. Seeing that the gross national pro- duct increased by 51 per cent why do you think these figures alarming? Where do you find the signs that 'the increasing pressure of demand for labour' is beginning to affect 'the atmosphere' for wage and salary negotiations? I can assute you that the wage claims will go on even if you increase taxation by L2004250 million as Pro- fessor Paish wants you to do by applying the 10 per cent regulator. Have you ever stopped wages rising by putting prices up? No, but a tough budget has often stopped output and pro- ductivity from rising and so has worsened our competitive position abroad.
As for the balance of payments, the new White Paper certainly showed up an unpleasant decline in the surplus on current trading account from £71 million in the first quarter to £6 million in the last—mainly due to the steady rise in im- ports. Nevertheless, the total surplus for the year was £121 million against £102 million in 1962 and the reason for the adverse balance of mone- tary movements of £155 million was the bigger outflow of long-term capital. You will never cure a depression in the balance of payments with a deflationary budget. If you are worried by the current trading balance my suggestion number three is that you re-impose some control over imports. If you are worried over the final balance my suggestion number four is that you impose some control over the outflow of long-term capital. Your party has stolen so many of the Labour Party's policies that this last would scarcely be noticed.
Finally, 1 do hope that you won't make the mistake, which many of your predecessors have made, of supposing that because there may be art excess demand over supply developing in the labour market in certain industries (e.g. building and contracting) there is. an excess monetary demand over physical resources over the whole country. Your figures don't suggest such a thing. It would be wicked to deflate the whole economy because your party won't impose a building or job control over the big 'contractors. (Suggestion number five.)
I expect, dear Reggie, that you have your Budget speech already drafted, but it is never too late to tear it up. I know you are worried about what happens when we have taken up the slack in our economy but don't you think that we might slow down on our own—without a push from you—especially if your 'leader postpones the general election to October?
Your well-wisher,
NICHOLAS.
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