Healey disposes
Nicholas Davenport
If the Chancellor wants to fiddle the unemployment returns in a harmless enough way I do not see why anyone should object. It pleases our bosses, Mr Len Murray of the TUCand Mr Jack Jones of theTGWU, and keeps confrontation off the streets. It may even lift despair from some of the unfortunate youths leaving school who see little hope of a job. And it will not hurt the taxpayer. One third of the gross cost of his £215 million `package' will not fall until after 1976-77. Under £140 million will be spent this year and the net cost to the Exchequer will be negligible. And it also pleased the City which was delighted to see that Mr Healey was holding firm to his promise not to countenance a general reflation of the economy.
The professional economists will of course, pooh-pooh the economic importance of this package. It gave an extra £56 million for 'improving the industrial base' and £50 million for improvements on public housing. This is tinkering at the investment problem but the £102 million on extending the temporary employment subsidies and training—intended to provide about 140,000 jobs or training places—soothed the TUC and even the parliamentary Left. It showed that the Chancellor was doing his best to help and was not trying to deceive. Indeed, he was modest enough to say that not all these jobs will last a year and some may be at the expense of other jobs. Over the coming financial year the net effect upon employment could be about half that figure. But the important point, as we all know, is to keep the TUC happy and persuade it to carry on with a voluntary wage restraint plan after the expiry of the £6 a week in August. We should be thankful that the dictatorship (Mr Murray and Mr Jones) should be willing to have friendly talks at No 11 with a politician about how to save the nation. It helps to keep the pretence of democracy alive—as well as the economy.
Mr Healey may believe that he can persuade the TUC to continue its wagerestraint policy after August but he was surely unwise to state publicly what sort of bargain he is prepared to make. When the nation is being governed secretly behind the parliamentary scene by the TUC, it is best not to call public attention to this undemocratic fact. And to discuss possible budgetary moves a few weeks before budget date (April 6) is unprecedented. What Mr Healey told the Labour Economic Finance and Taxation Association in London was that he would be willing to cut income tax if the TUC would accept a pay limit lower than the £6 in the next round. This is so important that I must quote his exact words: `A lower pay limit next year, besides leading to lower prices, will give me room to cut income tax and to do so in ways which reflect social priorities by helping those who suffered most from inflation in the recent past ... There is no reason why I should not compensate people in tax reliefs for what they lose by accepting a lower limit. The average working man and woman would then be no worse off but the country as a whole would be far better off.'
The resulting fall in industrial costs, he added, would boost business confidence, boost investment, boost exports and improve our companies' ability to compete with imported goods. This is good bull market talk, especially coming from the present Chancellor.
Mr Healey is not going to find it so easy to strike his bargain with the TUC. To begin with, he wants the next round of restraint to be on a percentage basis to avoid worsening the problem of differentials and Mr Jack Jones wants to continue with a flat rate. Mr Healey argues that a 5 per cent norm with a sufficient increase in personal allowances against income tax to raise take-home pay by a further 20 per cent would enable inflation to be brought down without any sacrifice by the workers. But they are a canny lot. They are well aware, as Mr David Howell has pointed out, that money has fallen in value since the last annual budget by 20 per cent so that anything less than a 20 per cent increase in tax allowances would leave them worse off. To keep pace with inflation the increase would have to bring the single personal allowance up from £675 to £810 and the married allowance up from £955 to £1,146. Is Mr Healey prepared to go beyond that without paying regard to his massive borrowing requirement ?
Another stumbling block is Mr Jones's egalitarianism. He does not like the huge salaries paid to the industrial tycoons and thinks that £20,000 should be the top limit. (This seems to be another attack upon Lord Ryder.) The latest report of the Royal Commission on the Distribution of Income and Wealth should be made compulsory reading for the egalitarians. Their Table 37 shows that a 1974-75 gross salary of £18,550 becomes £8,021 after tax and £3,988 at July 1969 prices. It is really absurd to go on quoting salaries on a gross basis having regard to our punitive taxation. Indeed, Mr Healey has recognised that he must come to the rescue of the middle managers who have suffered more than most from inflation. The £11,354 manager was left with £5,800 after tax. All things considered the lower-paid manager is already worse Off than the top-level wage earner. And Mr Jones should know that the worker has just not got the capacity to manage. The Royal Commission heard evidence about the ill effect of very high salaries on shop floor workers but observed that managerial salaries were much higher abroad than in this country (and, of course, are taxed much less).
The goings-on behind the parliamentary scene may upset the constitutionalist and even Mrs Thatcher but they will not upset the City if sensible agreement between the Chancellor and the TUC is reached and the budget turns out to be stimulating for businessmen without being reflationary for the economy as a whole. It will undoubtedly reinforce the bull market in equity shares. Recent economic figures have been tending to support the underlying bullishness which is evident in the City. The trade figures last week were good. Exports were up 4 per cent in volume over the past three months while imports were stationary. Although industrial investment is still falling the new orders for public housing were 40 per cent up and for private housing over 30 per cent up. The Treasury forecast is for an output growth of 2i per cent in 1976; in other words, it sees the beginning of the upturn. Meanwhile inflation is really dropping. The rate of increase in prices over the last six months, excluding seasonal foods, is down to 13i. All this would have led to the resumption of the bull market if it had not been for the spate of new issues. As I have said, the recent £75 million oil issue broke the back of the rise in the index (now back to near 400). The liquidity of the life and pension funds after their phenomenally high contributions to both industrial and gilt-edged issues is probably down to £1,500 million which is as low as it should be. The crisis in Africa is also pulling the market down. But those who read the economic news and understand the change in the political scene should regard these setbacks as buying opportunities, provided the setback is considerable enough.
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