20 MARCH 1971, Page 8

THE NATION'S WEALTH BY 'AN ECONOMIST'

The easy part of the Chancellor's job, and therefore the bit that all the commentators go on about, is tax reform. What matters, and is therefore not discussed by any commentator in any newspaper, is expenditure reform. With state spending now running at well over £20,000,000,000 each year, and increasing, the scope for cuts is enormous. Any com- petent businessman could knock 10 per cent off as a starter. And if the Tories really are determined `to concentrate the activities of government and public authorities on the tasks that they alone can perform', what about the £10,000,000,000 or so now going on welfare, the bulk of it to people who could, and who would prefer to, look after themselves given half a chance and some of the money back? As incomes rise, the number of people to whom this does not apply is all the time shrinking.

But the Government has also made it clear that spending on welfare services will be put up along with government spending in general. Schizophrenically, the Tories some- times want to 'concentrate' government

activities and at other times weakly capitulate to the fashionable view that state spending will and ought to take an ever-rising share of natural resources. Until the Cabinet makes up its collective mind about the proper level of official spending (especially overseas), economic policy will remain ineffective. But one day the choice will have to he made between policies with a reasonable chance of limiting inflation and policies to cut taxes. It is a choice. So far the Government has sensibly listened unsympathetically to the predictable cries from the cm, the TUC, the National Institute and the Sunday Times, all of whom think that inflation can be cured by more inflation. For that is what they mean by the euphemism 'reflation'. Whatever the word they use, the TUC want to in/reflate to keep the wages spiral going without impaling unions on the hook of, unemployment, and the cal want to in/reflate to keep profits and markets easy. Both point to recent (and future) redundancies to support their argu- ment without asking themselves whether Ve- hicle and General, the Daily Sketch, Rolls-

Royce and others would really have been helped if costs had risen even faster and further than they have.

Once the departments' appetite for re- sources is checked there will be no difficulty about a policy as politically popular and ad- ministratively simple as reducing taxes. But until the right time comes the Chancellor had better content himself with a few inexpensive gestures, such as separate assessments of working wives, disentangle- ment of children's incomes, reversion to earlier tax rules about interest on borrowed money and a rather larger extract than usual from the long list of small anomalies in tax- ation which the Treasury means-to-put-right- but-never-seems-to-be-able-to-find-the-time.

Two runners for a win, or at least a place, are a cut in surtax and the abolition of earned income relief. The latter is a handy illusion for the Chancellor to perform, since a straight 30 per cent rate of income tax is virtually the same as the forecast rate of 38.75 per cent without the two-ninths earned income relief. And perhaps the Tories will have enough courage not to impose a discriminatory surcharge on what it emotively called 'unearned' income, but is properly investment income, unless of course they wish to continue the post-war policy of discouraging saving whenever possible.

A modest package this year, then, with much more to look forward to after the Government has really imposed its will on expenditure in—say—its second year, or should one say its second term?