THE CITY, THE SURVEY AND THE BUDGET
By NICHOLAS DAVENPORT
AFTER studying the Economic Survey for 1958 the City is look- ing forward to the Budget with pleasurable anticipation. For this cautious Treasury document gives no reason whatever why taxation should be increased and suggests many reasons why it should be reduced. It was only last autumn that the Governor of the Bank was suggesting at a Mansion House dinner—how many speakers at these feasts wish afterwards that they had eaten their words as well as their plateful!—that it would be desir- able for the Chancellor to increase taxation so as to secure an over-all Budget surplus. But the Sur- vey declares categorically that 'the economic climate is less inflationary than for several years' and gives new figures about saving and invest- ment expenditures which show how great was the restraint exercised by spenders last year. Personal savings apparently increased to £1,639 million and company savings to £1,763 million. These, with Government savings of £557 million, brought a surplus of saving over investment at home of £374 million. Why, then, worry about an over-all Budget deficit of £212 million if the 'below-the-line' capital and other expenditures of £635 million have already been more than covered by the national savings? The Survey mentions that total personal saving last year was between 10 per cent. and 11 per cent. of personal income after tax, which is an unusually high proportion. Well over £500 million went to increase life assurance and pen-
sion funds. The general balance of the economy has undoubtedly been restored by the high degree of saving achieved in the last two years.
And here is another disclosure which points to deflation rather than inflation. The new Survey table of saving and investment reveals a 57 per cent. rise in private investment in stocks and work in progress, namely, £147 million to £402 mil- lion, in spite of the fact that the volume of output went up by only 2 per cent. This suggests that goods are not flowing freely from factories to stores—that there has been an accumulation of over-bought raw materials and unwanted semi- finished manufactures. We were, in fact, suffering last year from too little, not too great, a demand.
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The Treasury is therefore forced to admit in this Survey what I have been arguing ad nauseant for the past twelve months—that there is an excess industrial capacity in the country which should be brought into use. The admission is made in the following terms (paragraph 77): 'Although industrial production in 1957 was only slightly higher than in 1955 (!) the high investment which has been going on for several years in most in- dustries should provide a store of capacity for further expansion.' Yet Ministers get angry when some of us complain of the industrial stagnation of the past three years! They appeal to the workers to increase productivity, but productivity cannot be substantially increased until the indus- trial machine is turning at full speed. In fact, until this excess industrial capacity is put to work
British manufacturing costs can never hope to compare favourably with those of our competit0t abroad.
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The Survey gives good reasons why some extr° money should now be pumped into the econoalY to increase demand. It mentions external draw stances 'which give grounds for anxiety'—i,11° American recession first and foremost; next, 0, loss of gold and dollars to the US by the rest of the world (outside Germany), which weaker° international reserves and encourages a return co import restrictions; next, the substantial fall I° certain commodity prices, which strains the balm°, of payments of some primary producing countries:, and finally, the slowing-down of world industrIll , production, which means that American recessleall today is not going to be offset, as it was in 1953-54' by European expansion. Here is a clear Treasury warning that if the American slump is not halted before very long, say, within the next three months (which appears at the moment unlikely)' the British export trade will begin to feel the pinch before the end of the year. The Survey had already anticipated that 'the decrease in demand relative' to industrial capacity which took placei in 1951 will continue into 1958.' It is therefore onlY prudent that the Chancellor should release some additional buying power to meet the likely con' tingency of a further fall in total demand.
It is obvious that home demand can be storied up today without any risk of upsetting the balance of payments, for the current surplus on our inter national account in the last half of 1957 rose to £122 million, making a total surplus for the Year of £237 million. Moreover, we have not yet had the the full benefit of the fall in import prices, which
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1.,-med sharply, through the slump in freight tah-Y risk of upsetting the export trade, for we lUs 1,ed on every count "at We can increase home demand today without me an excess industrial capacity sufficient to 'e care of both. A relief of taxation is thereforein in the last half of the year. It is also obvious how much? The surplus 'above-the-' \\ .4423 million. Sixpence off the income Maxt s ;4 take half the surplus and leave roomfor ITething off purchase lax. But all this would na„ e tnrie to seep into the economy. To stimulate iti-k industrial investment a further cut in b(s-n" rate seems imperative. To delay this relief ther'e are wage disputes and threats of 1.1^es is absurd. Labour is more likely to show is Mon stI when the Government's economic policy re reasonable.
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