ECONOMICS
Nigel Lawson's Budget for the hustings
JOCK BRUCE-GARDYNE
Tuesday's the day that matters. According to Andrew Gimson, writing in this journal a fortnight back, Budget Day is `the date of the Tories' opportunity to seize the political initiative'.
Abusing the benefit of a lengthy ac- quaintance — all of 30 years, God bless my soul! — with our Chancellor, I'd hazard the guess that he did not need telling. He is not universally admired at Westminster, even on the Tory benches: `too clever by half, they mutter, as they used to say of Rab Butler. All the sweeter therefore, if, in the next Parliament, the Critchleys and the Tapsells had grudgingly to acknow- ledge that their safe return to Westminster (if not — such are the ways of the wicked world — to an office of profit under the Crown in the third Thatcher administra- tion) owed something to his skills.
In some ways it is a pity — a pity, that is, that this year's is bound to be an election Budget. For if the polls were over the hills and far away what a chance he'd have to go down to history as that almost mythical creature, a 'great reforming Chancellor'. He finds himself, by almost universal consent, in the enviable position of being able to forego several billion pounds of revenue and still to look respectable: just the sort of sweetening required to make the, medicine go down. Moreover the key components of a simple reform package would, by happenstance, be calculated to give a tilt to citizens' behaviour which would be eminently defensible in the pre- sent environment.
The first item in the package would be one the Chancellor broke a lance upon in 1984: the abolition of the fiscal privileges of the pension funds, currently costing £4.6 billion, and what Mr Lawson called the `much loved anomaly' of tax-free 'golden handshakes' on retirement, costing another £1.1 billion. Next comes mortgage interest relief, costing £4.5 billion. Thirdly there is the elimination of VAT zero-rating on new buildings, commercial consump- tion of fuel and power, water and sewage services to industry, and — another 'much- loved anomaly' -- children's clothing, worth perhaps a further billion. Finally there is the application of a full tax-rate to corporate perks, including the company car used for other than demonstrable commercial purpose.
Such a package would remove the pre- sent bias in favour of indirect saving via the institutions. It would tackle the 'privileges' enjoyed by the fund managers in determin- ing the fate of companies in which they are invested, about which the Bank of Eng- land's David Walker has recently been expressing doubts, logically and at source. It would remove the obligation currently placed upon the Chancellor to boost the credit boom with tax subsidies, and cheapen the cost of home-ownership to first-time buyers, particularly in the South- East. It would build a less haphazard 'ring fence' round VAT, and eliminate the imminent threat of litigation with the EEC. All in all it would create a far more defensible tax structure.
And it would turn the voters off in droves. But now consider the potential offsets. A top marginal tax rate of 30 per cent — on all forms of income and 'real' capital gains alike: eminently defensible both nationally and by international stan- dards as part of this package. A cut in the standard rate of VAT from 15 to 12 per cent to offset the impact of the wider scope of the tax on inflation expectations — with something to spare. Income tax thresholds raised by three times the rate of inflation over the past year, with a new starting step at 25 per cent thrown in for good measure. Abolition of the car tax to compensate the motor industry for the elimination of the tax-attractiveness of the corporate car perk.
It isn't going to happen. It isn't going to happen since, were Nigel Lawson to be of a mood to be so radical, his colleagues from the PM down would hold up their hands in horror. That's life. And when all is said and done securing the return of a third Thatcher Government, with all that that would imply by way of pushing the Marx- ists to the irrelevant fringe of British politics, is, like Paris, well worth a mass.
So we return to realities. The conven- tional wisdom is that we shall see a cut of two, or even three pence off the standard rate of income tax, and that this will soak in imports, do nothing for employment, and store up trouble for the immediate future of the balance of payments. It has to be conceded that the arguments for boost- ing consumer spending power when we already have the most booming economy of the Western world are not immediately apparent. But nor is the assumption that another boost to public spending program- mes would create additional employment, rather than bigger pay-packets for those already working in the public sector. If the Chancellor can contrive to generate con- sumer happiness with tax cuts, without provoking a significant and scary increase in domestic prices this side of the election, he will have done his duty.
If. The proviso does not concern the electoral response to tax cuts — we are not as altruistic in the privacy of the polling booths as we like to present ourselves to the pollsters. It concerns the outlook for domestic prices: and here what the Chan- cellor does with interest rates is likely to be rather more significant than what he says on Tuesday.
So far he has grudgingly conceded half a point, and been roundly condemned for his miserly behaviour. Yet if the uncovenanted eagerness of half the world to buy UK stocks and bonds just now could be ignored, the case for cheaper credit would scarcely look impressive on its merits. We consumers continue to borrow as if credit were about to be abolished. 'Money', by its broader definition, expands far beyond the generous target set for it. Attitudes toward cost and price increases are beginning to look remarkably laid back.
The only serious excuse for cheaper borrowing is that a dearer international price for sterling is currently the alterna- tive. But would that be so terrible? The CBI would cry havoc: its members might think more carefully about pushing up their prices. If overseas investors want to go nap on another Tory victory at the polls, then let them pay a higher transfer price for their bets; and if this means cheaper holidays in Spain or Italy for the voters, well that might fit the likely electoral timetable rather well.
But spare us, please spare us, 0 Chan- cellor, one widely predicted ingredient in the Budget: another increase in the ceiling on mortgage interest relief. Restricting relief to the standard rate of tax would be but modest mitigation: reimbursement of 29 per cent, or 27 per cent, or 25 per cent of interest paid on 'housing finance' used to buy the next Merc or holiday in Corsica is no more defensible than reimbursement of 60 per cent, and the only result would still be a further widening of the gap in housing costs between the North and South. Almost anything on Tuesday would be preferable to that.
Previous page
