Political commentary
The undeflected Chancellor
Ferdinand Mount
A few minutes before the Chancellor got up, Mrs Thatcher delivered a charming tribute to Professor Friedrich von Hayek. She was a great admirer of his, she said. Some of his books were 'superb'. In particular, the Constitution of Law and Liberty and some other opus which I didn't quite catch were 'first-class' and would benefit every member of the House. The greatest of flatteries is to remember the names of a person's books, even if most of the audience are not accustomed to tackling anything stiffer than Raceform or the latest Frederick Forsyth.
Naive perhaps. Imagine, oh, Denis Healey evincing in public an unquenchable admiration for the works of Joseph Schumpeter (I heard him do so once but in private, and he got the Schumpeter message back to front anyway). To be so careless of associating with foreign economists, well, the political old-stager purses the lips. That's no way to start a Budget and a Budget which was to be so unashamedly, horribly — for once the adjective is apt — monetarist. Has the woman no sense of self-preservation?
If this government goes down— as half the Tory backbenchers seemed to think it would when the shocks first hit them — then it will go down firmly stuck to guns and with colours nailed to masts. It will, in short, be unlike other British governments. Professor J. K. Galbraith can rest easy. This is as fair a test of monetarism as we are likely to find in an imperfect world. Mrs Thatcher may fumble. She may acquiesce in the odd medium-sized surrender. But in any large ample sense of the verb, she does not turn.
This does not mean you have to endorse Sir Geoffrey's sums, any more than you have to love the Pyramids; but you cannot help gasping a little at their size. The Chancellor himself reckons to have cut 0,600 million off what the government will • have to borrow this year. But if we include, as we should, his measures last November — the cuts in government spending plans and the increases in National Insurance — together with his refusal to up-rate the income tax personal allowances in line with inflation, then the total extent of Sir Geoffrey's deflation is far larger — more than £8,000 million over the last four months. This is a staggering figure — only out-staggered by the size of the government's likely borrowing if Sir Geoffrey had not done as he has; the Public Sector Borrowing Requirement would have been no less than £18,000 million.
How are we to describe the mood of Tory MPs? Shocked? Disheartened? I prefer 'grave', For the general reaction was couched in that peculiar Conservative idiom, in which the speaker refers vaguely to the whole business: 'I'm afraid it's very bad' — not bad in the sense of 'morally deplorable' or `intellectually incoherent', but `bad' in the sense of 'I hear Pongo's very bad, they say he won't last till Goodwood.'
What they miss is the lack of balance. By time-honoured custom, the Chancellor, if constrained to put a few bob on cigarettes or drink, always lightens the burden elsewhere; making a Budget is traditionally regarded not so much as being like making or even slicing a cake, but rather as an exercise in high-class flower arranging. The available blooms are bunched, grouped, have their stems shortened, are taken out and then shoved back in different places.
With this Budget, unless you are a blind, one-legged, teetotal non-smoking member of the Royal Family with several children who plans to start a small business in an enterprise zone, your personal position is unlikely to have been much improved. Nor indeed is there 'anything for exports' or 'anything for the regions'. It is only when you see an unpopular Budget like this one that you realise how deeply pseudoKeynesian the conventional attitudes to the Budget have become. Chancellors are expected to 'get the economy moving'; indeed they are expected to be able to get the economy moving at different speeds in different parts of the country and in different sectors of industry. The question of covering public expenditure by money honestly raised is treated as being at best secondary.
This Budget has two features which distinguish it from all other post-war Budgets, including both Sir Geoffrey's previous efforts. First, at the depth of the recession, it continues to put sound money and sound government financing first; government borrowing of £10,500 million is the maximum that could be justified as inevitable in a slump when public revenue drops and public spending on unemployment has to rise. Second, Sir Geoffrey Howe makes no claim at all to be able to get anything moving — in contrast to his first Budget, in which income tax cuts were said to offer irresistible incentives to thrusting entrepreneurs.
Here we are then in the realm of faith. The Treasury team are convinced that the recession is virtually over and that a recovery of sorts is on the way. How strong and how long-lasting this boom will turn out to be is not within their competence; their job is simply to permit it to take its natural course without exploding in a fresh burst of inflation. By contrast, the Government's opponents believe that any recovery will be very slow and so fragile that it is liable to be squashed flat by the slightest deflationary pressure. This conviction is supported by a wealth of metaphor; we aresaid to be lost in a nightmare landscape of vicious spirals, tunnels-beyond-tunnels and steeped precipices.
Whose forecasts have proved least wrong so far? The monetarists at the London Business School grossly underestimated the drop in production over the last year. On the other hand, almost everybody else grossly underestimated the drop in inflation. Both phenomena are due to the same cause, the unexpected steepness of the slump. Coming out of the slump, the errors may well be reversed — which is a roundabout way of saying that my guess is that the recovery will be fairly brisk (well, it costs nothing to guess). If consumers have kept up their spending and their standard of living through the worst days of the recession, are they likely suddenly to become tight-fisted now? The inevitable drop in most people's real incomes as a result of the Budget and low wage rises this past winter may slow down the increase in demand, but it seems perverse to predict that it will actually be halted when the general climate is rather more cheerful.
The politics of the Budget are more interesting still. For the first time since 1945 by my calculations, we have a Chancellor who has stuck, however clumsily, to his proclaimed strategy over three Budgets. If, by this time next year, it can be said to have begun to work in any visible sense, attitudes to Budget-making inside both political parties will begin to shift, even if few politicians will admit it. The austere Crippsian tendencies inside the Labour Party may get more of a hearing; Mr Peter Shore will begin to retreat from his dashing spendthrift manner, which suits him so ill. On the other hand, if the recovery is slow and faint, then Sir Geoffrey himself will not recover — and the Government's condition will be critical.
At present, happy days still seem a long way off. But that is because, as usual in politics, we are still digesting last year's news. The most popular game in Westminster now is inventing scenarios on the lines of anecdotal Victorian paintings: 'The Six Squires come to tell Margaret the news'. I find these pictures hard to visualise in detail. Who is to be their spokesman? Mr Prior may be the most outspoken, but would he speak for the brOad mass of backbenchers? And what precisely is it that they would say — reduce taxation or resign? More credible is a gradual deflection of the government's course, until Mrs Thatcher is facing in the other direction. This is what many people thought was happening as, One after another, British Leyland, British Steel and the miners drove public finance off course; now that damage has been, if not made good, at least paid for. It is an agonising, long-drawn out business; but it is Still in hand.
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