A star is born
Jock Bruce-Gardyne
If Mr Nigel Lawson were of a superstitious disPosition — which he isn't — he would have spent Wednesday morning chewing Garlic and circumnavigating every ladder Would have to go back to the heyday of R. A. Butler — or beyond — to mah the sor of notices this first Budget got.tc Tremen- t 5etts Panache and style in delivery, radical In content, it contrived to give the Govern- ment's supporters the biggest shot in the aril' 'they had known since 9 June last, to deligt the City, to win the grudging en- dorsement of even the Keynesian commen- tators, and to establish its author's star quality overnight. And we all know what Ian Macleod had to say about Budgets: that those which were cheered to the echo in the were rubbished by August. Consider ,„"e fate of Sir Geoffrey Howe's first offer- "1 .1.Ust five short years ago. That, too, was _received with waved order papers on the st 1°rY benches, yet contrived to look less atesManlike in retrospect. Will Mr wson's undergo a similar reappraisal? . On the whole I doubt it. For whereas Sir Cle.. °ffreY back in 1979 took a large a ''alculated risk with short-term expectations nd --Ca a risk that failed to come off — Nigel ,,. w.son's calculations look essentially to ii..e ionger term. In his youth, we are told (I _Oeld not know L. ot hancellor' him in those days), our cur- IZ,ker. This is a chess-player's Budget, s diversions were chess and .rukose strategy goes several moves deep. dtaisteri.af°1 ri example the phased shift from in- P2ranvestrnent allowances to lower cor- .tiOn tax. Over time it reduces the ab- 41aarcc11 hias in our fiscal syste agaist in favour of machines . Yetn itsmen im- mediate impact is likely to be to give a positive stimulus to investment in plant and machinery; while as it matures it will hit another longstanding Treasury target by sharply reducing the 'tax-efficiency' of the banks and at the same time improve the money figures by reducing corporate dependence on bank borrowing, It is not such good news for those businesses — aerospace. for example —whose tradition is to look after the sales and leave the pro- fits to take care of themselves. But Mr Lawson would argue that we have had more than enough of that sort of 'investment' over the years.
Then consider the tax treatment of fund- raising. At first blush the extension of capital gains tax exemption to corporate debentures held for a year is calculated to increase the competition in the market- place where the Government broker purveys his wares. But what he might lose on the swings the Department of National Savings picks up on the roundabouts by be- ing released from competition with the banks for the savings of non-taxpayers. And at the same time the application of the composite rate to the banks promises a sav- ing of 1,000 in the Inland Revenue to make room for the several hundred extra whom the Customs and Excise will need to take on to cope with VAT on imports. Purists may complain that a mechanism which transfers tax from those on higher rates to those below the threshold is one calling for elimination, not extension, But you can't dismiss the elegance.
If one is allowed a small pi, cicular grouse it is this. 'There will,' said the Chancellor, 'be transitional tax an angements for cer-
tain investment projects in the development areas and special development areas. When
a project has had an offer of... selec- tive financial assistance and also attracts regional development grants, the existing capital allowances will continue to ap- ply...'. Now let's not beat about the bush: this is the Nissan loophole. We have already tailor-made the prospective changes in in- vestment grants and subsidies to give the oriental carmen an open-ended privilege, and now we add another one.
It is also, however, a poker-player's Budget. There is quite a'lot of psychology to it: and more than a pinch of hazard. Here the biggest single first-year innovation — the imposition of VAT on importers is particularly instructive. Its effect is to lay a claim on next year's revenues to pay for this year's tax cuts. The Chancellor calculates there is no harm in that, since ris- ing output and tight restraint of public spending will give him ample room to take it on the chin in 1985. But in the meantime, and coupled with the elimination of the national insurance surcharge, it is liable to give quite a shove to manufacturing output prices, since it will both raise costs and reduce the competitiveness of imports, while on past performance a high propor- tion of the NIS saving is likely to pass straight through to wage rates.
But then for all the rhetoric the Budget judgment is not perhaps quite as 'neutral' as it was billed to be. Five years ago, when he was drafting the first edition of the Medium Term Financial Strategy, Nigel Lawson wrote in a figure of 11/2 per cent for the ratio of deficit financing to gross domestic product for the year now ending; and only six months ago he was talking about his goal of zero inflation. Now he calculates the 1983/84 deficit at 31/4 per cent of GDP, £2 billion more than Sir Geoffrey Howe predicted notwithstanding the buoyancy of revenues and his own economies last summer — and we haven't seen the final figures yet. As for the future, the borrowing requirement for the year ahead is lowered to £7 billion: but that is after allowing for £2 billion of asset sales, which must be a substantial underestimate unless something goes awry with the British Telecom flotation. And looking further ahead he has decided that 3 per cent a year inflation is near enough to zero to make no neverminds. Add in a somewhat downbeat presentation of the money targets, with PSL2 — the one that is currently behaving most obstreperously — slipped' beneath the carpet, and it is clear we have moved some way from the stern unbending counter- inflationary stance of Nigel Lawson, FST.
But Mr Lawson has made a major start along the road to tax neutrality. He has scrapped two basically illogical taxes — the NIS and the Investment Income Surcharge — 'at a stroke' (and how many of his predecessors could have made that claim?). He has put new heart into his party when it needed it. And he has done his reputation a power of good. He won't find it an easy performance to beat in future years.
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