No alternative
Wednesday's split down the middle of the trade union movement over the TUC's propo- sals for a voluntary incomes policy, although not unexpected, will doubtless be taken by the Government as the signal to introduce a much tougher statutory policy. This is all the more alarming as the signs multiply that the Chan- cellor of the Exchequer is looking to this to let him off the hook of having to introduce a really tough Budget on 19 March. If incomes can be held back, so the Jenkins argument runs, consumer speriding at home will be re- strained without the need for large and un- popular increases in taxation.
Fortunately, the National Institute's latest review underlines the fallacies of this Pan- glossian approach. Judging that, if nothing is done in the Budget, the economy would grow this year by a highly inflationary 5k per cent (compared with the unofficial and extremely suspect Treasury estimate of 4 per cent), the Institute concludes that, merely to keep the rate of growth down to 4 per cent and at the same time allow devaluation to produce the rapid balance of payments improvement that is vitally necessary this year, some £500 mil- lion of increased taxation (or its equivalent) is needed in the Budget--and that a success- ful incomes policy could only knock £100 million off this figure.
In fact, even this seems an excessively ambitious claim (but then the Institute is very keen on an incomes policy). Experience shows that a prices and incomes policy, even if (for a short time) it does slow down the rate of increase in incomes, tends to hold prices back still more and so add to, rather than subtract from, consumer spending. But even in the wages field the chief characteristic of an incomes policy is its utter ineffective- ness. As the Institute itself points out, after a careful review of the evidence of the past three years, weekly earnings from April 1966 to October 1967—a period of incomes policy, `wage freeze' and 'severe restraint'—weekly earnings rose by 5.6 per cent. During the comparable period of the previous economic cycle, April 1961 to October 1962—when there was neither a Prices and Incomes Board nor statutory control of any kind, let alone the notorious Part IV—weekly earn- ings rose by 5.3 per cent. The Government's only consolation is that the Economic Com- mission for Europe has discovered that other countries' incomes policies have proved equally ineffective.
It is, in short, plain, on all the evidence, that the only kind of incomes policy that could be effective at all is one that would be utterly unacceptable in a free society— one that would be a giant stride forward, not to socialism but to totalitarianism. No doubt it is very hard luck on Mr Jenkins that in his first Budget he will have to increase taxation (or its equivalent, hire purchase controls) by getting on for £500 million, and preside over a year in which personal living standards, as measured by consumer spend- ing at home, are actually falling, for the first time since 1950-52. But there really is no alternative—that is, if devaluation is to be made to work. In the Institute's own words, 'an incomes policy is in no way a substitute for policies of demand regulation' And if devaluation is not to be allowed to work Mr Jenkins might just as well throw his hand in, together with that of the rest of the Govern- ment, right away.
Previous page
