MY BEST CHANCELLOR
By NICHOLAS DAVENPORT
THAT the Chancellor should have done exactly what I told him to do in my last sentence last week implies no sinister leak from Great George to Gower Street—the last Chancellor 1 interviewed was Mr. Harold Macmillan : I mercifully escaped being briefed by Mr. Thorneycroft—it merely confirms the logic of my interpretation of r. Amory. It is cleat that he is a very cautious man, but when at last he can be per- suaded to say anything definite his words can be taken to mean what they say. I quoted him as saying that production had levelled off, that un- employment was rising against the seasonal trend, that the expansion of world trade, on which the growth of our exports had been based, had stopped. In other words, having acknowledged a trend towards recession, Mr. Amory was bound to feel that he could lift the credit squeeze.. It re- quired no great gift of prophecy to see this coming. He has not done everything, however, that I hoped for. He has not given any positive incentive for industrial investment (such as restor- ing the investment allowances) or increased the capital spending of the public sector. He has merely allowed borrowers, to have a less restricted access to funds, first, by lifting the 1957 ceiling from bank allowances (the quality sanction re- mains), secondly by removing the absolute ban on issues by hire-purchase finance companies (not to mention investment trusts and unit trusts as well), and thirdly by increasing from £10,000 to £50,000 the minimum amount that can be raised without CIC consent. So far so good. But before industry can be induced to resume its long-term investment expansion it will want to see its surplus capacity brought into work through a rise in demand at home and overseas.
* * * The next move from the Chancellor—that is, towards a positive stimulus of the economy—will probably wait upon developments overseas. If the export trade were to fall away at the year's close, particularly in motor-cars, Mr. Amory would then
have to reduce the purchase taxes on consumer durables and relax the hire-purchase controls. This is a simple enough matter and does not require an autumn Budget. If the recession were to develop from a further decline in capital expendi- tures, then Mr. Amory would have to step up public spending on roads and railways. I cannot see why he does not boost the road programme immediately. The materials required are not imported, the labour used can come from those laid off in building, and an improved road system would lower transport costs and increase indus- trial efficiency. (The first hint that he is reconsider- ing all this, and I will indulge in prophecy. again.) My guess is that sooner rather than later he will accelerate the road programme, for I cannot believe in an early return of the American boom.
While Mr. Amory has abolished the main credit squeeze he has tightened up the legislative appara- tus for monetary control. This suggests that he has already come to the conclusion that reliance on Bank rate, which his predecessor carried to an extreme, is either not good enough or too expen- sive. First, he has come to an arrangement with the banks, a temporary arrangement 'pending the recommendations of the Radcliffe Committee,' whereby the banks will be required from time to time to deposit at the Bank of England a certain percentage of their gross deposits bearing interest to the nearest 1)6' per cent. either above or below the Treasury bill average. No bank will be able to draw on these special deposits, which will therefore be outside the banks' liquid assets. In other words the device is intended to draw oft excess liquidity and is comparable with that of `variable liquidity ratios' which I have been advocating for a long time. It is a welcome reform which should make it less necessary to resort to high Bank rates when we come to the next call for monetary restraint. My only criticism is that the banks should be given a Treasury bill rate of return on these special deposits. In my opinion they should have only a nominal 2 per cent. seeing that these deposits are merely drawing off surplus cash.
Next, the Chancellor has tightened up the Control of Borrowing Order as it relates to the Capital Issues Committee. He has wisely removed bonus issues from the Committee's purview, for these do not involve the raising of cash, but has brought in share exchanges and loans from sub- sidiaries to parents, which were among the in- genious devices used to circumvent CIC control. (This should put a stop to 'shell' transactions.) It was surely right to rationalise the Capital Issues Committee rather than abolish it, for without its supervision control of borrowing under the Bor- rowing (Control and Guarantees) Act would be impossible. If the Government is to continue its attempts to stabilise the economy, as I hope it will, it is essential to retain its legislative apparatus of control of borrowing. Overloading will never be prevented without it.
* * Mr. Derick (or Little by Little) Amory may yet go down to history as one of our great Chancellors of the Exchequer. No doubt he has been in touch with Lord Radcliffe and is aware of the recom- mendations which his Committee is about to make. Is it possible that we are on the eve of a far- reaching reform of our antiquated financial system? Mr. Amory has surely realised that the attempts of his Conservative predecessors to con- trol the economy in the main by the use of the
monetary weapon were not entirely successful. The dearest rate for money we have had for over twenty-five years failed to stop a wage-cost in- flation. Other controls are necessary, and when the Amory reforms are complete we may find it un- necessary to depend so much on the use of Bank rate. If I may use Butlerian phraseology, Mr. Amory is undoubtedly the best Chancellor we have got. He is in danger of becoming my-hero.
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