A SAVER'S BUDGET
THE Budget which Mr. Macmillan will introduce in just over three weeks' time has now become the main talking point amongst businessmen, trade unionists, and in the City. It is discussed apprehensively, as well it might be after the showing the Government has made over the last year. The feeling grows that much is at stake—not only prosperity in this country, but the future of the pound sterling, and even the unity of the sterling area system. And it would be an exaggera- tion to say that opinion is confident that all will soon be put right. Yet gloomy forebodings can be overdone, particularly if one makes the mistake of supposing that there are implacable forces of one kind or another in the economic world working against us. That is not true. Our troubles are entirely of our own making; they can be remedied by our own actions.
What we lack is a consistent and far-sighted economic policy sustained by political decisions which will ensure its success. In recent years we have been trying to have the best of all possible worlds, and what the Treasury deceives itself into thinking is economic policy is really no more than the hopeless pursuit of agreeable but completely conflicting objectives. That is not a Policy (which requires that choices should be made), but the absence of policy. Consider for a moment the tremendous programme of capital investment we are committed to, even though everyone by now knows that we cannot find enough savings to finance it. We promise ourselves new roads, a decent railway system, more efficient mines and still more houses. There is an ambitious plan to exploit nuclear power. We have undertaken to lend a great deal of money for projects in various parts of the Commonwealth. On top of all this we are now belatedly trying to make room for the greatest investment boom in manufacturing industry which has been seen this century. Most of these developments are, by themselves, admirable. Though a few may be over-ambitious, others are vital. We must continue to lend money to the Commonwealth, or much of the raison d'etre of the sterling area system dis- aPpears. And it is a tragedy that the authorities have so bungled our affairs that the new and exciting spirit of expansion in industry has had to be discouraged just as it was taking hold.
But because the direction of the economy has been so slack, this great surge of investment has been allowed to threaten our solvency. Owing to the inadequacy of budgetary policy the country has been spending more than it earns, and investing more than it saves. The result has been that the overseas trade balance has deteriorated and the reserves have fallen to danger level. Out of this confusion Mr. Macmillan must choose What he values most highly, and then build his economic policy around it. It is to be hoped that he will decide that we must continue to invest as much as we can, and that therefore the Main aim of policy, to which all else is subordinate,. must be to find by every possible means more savings to pay for these capital programmes. With this in mind, he should introduce the first 'Saver's Budget.' Many suggestions have been made about how to increase savings, most of which refer to new types of saving which Would contain some element of capital appreciation, or would be tax-free. Tax concessions on income from investments has also been mentioned. It is to be hoped that all these proposals are being seriously considered by the Treasury at this moment. But they do not go to the root of the matter, however acceptable they may be. The preliminary condition for more savings is that prices should stop rising. No one is going to save more through any scheme unless he can be certain that it is worth while to do so. When prices rise 7 per cent. in a year the wise man does not save his money, he spends it. Mr. Macmillan would do well, therefore, to instruct his advisers to prepare for him a plan which will bring the rise in prices to a halt within a few months. And the most important part of this plan must be a balanced Budget, which would contribute powerfully to more stable prices. But to balance the Budget will not be easy.
The natural reaction of the Treasury will be to try to close this gap by raising taxes. But that will not do. Higher taxes will either discourage production or reduce the possibilities of saving, or both. And that conflicts with what should be the main aim of policy. This is equally true of suggestions to increase old taxes, or proposals to introduce new ones—the sole justification for which seems to be that they have never been thought of before. A much sounder reaction is to cut Government spending. It is not enough to reply, as the previous Chancellor did, that this would mean major changes in policy. That is precisely what is required. And the first place for major changes is the rump of the food subsidies, and other subsidies to consumption, which should now be abolished completely. The farmers, too, must be shaken out of their dream world.
If these measures prove insufficient, there are two other matters which must be considered before higher taxes are imposed. The first is the termination of the de-rating of in- dustry and agricultural property, which, since it dates from the days of the 1929 slump, may be said to have outlived its usefulness. The second is the raising of rents to something like a sensible level. Both these measures would, by a suitable adjustment of local authority grants, help to relieve the load on the Exchequer. Even if they cannot be introduced immediately, the Budget should be framed on the assumption that they will make some impact later in the year. Of course, they would be unpopular. But they would have one advantage compared with other unpopular measures which have been imposed recently, which is that they would at least be effective. Unpopularity now is something which Mr. Macmillan must inevitably suffer.
By relieving some of the burden on the Exchequer, and by encouraging saving, Mr. Macmillan can restore to budgetary policy what should always have been its prime responsibility— the maintenance of the value of money. If this is achieved, he may even be able to ease his use of monetary policy and higher interest rates, which have been used to repair the damage done by inadequate budgeting. Along these lines he stands some chance, not only of helping the country through its immediate difficulties but also of giving new direction to Conservative economic policy, so that the economic situation will cease to be an everyday preoccupation and will take the back seat, where, as Keynes said, it belongs.
Previous page
