MR. BUTLER'S BUDGET
WHEN a Chancellor of the• Exchequer is shaping his Budget, it is quite as important for him to be a good psychologist as it is for him to be an accurate arith- metician. If laymen forget this fact, they may be excused since all but the greatest economists commonly ignore it. They forget, that is to say, that their statistical arguments and Com- putations all rest on a complicated network of assumptions about the reactions of human beings. Will the wage or salary earner be stimulated by his sixpence relief in income tax to increase the national income by working harder, or will he merely use it to increase his consumption of imports and send up the prices of scarce goods? Will an increased Bank rate help over a long period to curb spending? If it does, will it discriminate against undesirable spending or operate equally against urgently needed expenditure on machines and factories?
This is the sort of question which Mr. Butler has had to ask, and the first thing to be said about it is that it is not the sort of question which permits of a cast-iron answer. Economists know remarkably little for certain about the complex rules of the economic game when played in the conditions of full employment. Chancellors have to exercise judgement, which is to say, to engage in sublime guess-work. The penalties of failure in this field are quite disproportionate to the chances of success, for. as the winter crisis showed, and as Mr. Butler has never tried to conceal, we are living on a narrow margin.
In deciding to distribute, almost entirely by reliefs in direct taxation, about half of the estimated surplus of £282 million Mr. Butler has merely remained loyal to the Government's thesis (which distinguishes it more than anything else from the Opposition) that we have passed the point at which we could be saved merely by discipline; that the way to national salvation is not a general exhortation to have less fun but a widely spread opportunity to earn the right to more fun; that, in the long run, higher production is a more important ingredient in recovery than lower consumption.
It may be said at once that the arguments against Mr. Butler's relatively optimistic conclusions are very strong indeed. Last February's measures scotched the dealings in sterling which were partly resporisible for the crisis, but they h•.lve so far had no perceptible effect (and indeed could not yet have any) on the relationship between imports and exports (in March we still had a deficit of £92.4 million on our foreign trade), and there is certainly no evidence yet of a reduction of personal spending at home. There have been some signs in recent months of a decline in the rate of increase in national production. The whole policy of wage restraint has collapsed. This is the time. so the Chancellor's critics will complain, that he has ctosen to put more money into the pockets of millions of consumers. What effect can this have, they will ask, other than a return to serious inflation?
To these arguments, the Chancellor has several sober replies which were well presented in his Budget speech. He can point to a great increase in personal savings in support of his hope that the new tax reliefs will be prudently used. He can quote the improvement in industrial investment as showing that our power to produce is perpetually increasing, and that those who have most immediately to lose by miscalculation are taking arrhopeful view of the general prospect. Above all, he can legitimately remind us that the gold and dollar reserve of the sterling area still stood at the end of March at £350 million above what it was at its lowest point just after his first Budget. `Crisis' is a word which springs easily to the lips, but one which has acquired a very different meaning under Conserva- tive rule from that which it had in the last months of Socialist rule. The margin is slight, but at least there is a margin.
Clearly, whatever Mr. Butler fias done, he has not introduced an electioneering Budget which flies in the face of economic realities. Equally, he has not banished (but no Chancellor could have banished) the speCtre of recession. We are in a realm of almost complete uncertainty, but in it there is onz certainty, and it is on that that Mr. Butler has based his Budget : whatever else is in doubt it is abundantly plain that this country cannot advance so long as it continues to bear the crushing burden of taxation. That is the clearest distinct mes- sage which the Cobservative Party takes to the hustings, and it is economically right. Whatever may have to be done next autumn or next spring, Mr. Butler's decision on that point will remain sound. That decision will itself be a factor in the fate of sterling. To those who say that the Chancellor has bought votes at the cost of giving foreign investors an impres- sion of recklessness, one flippant answer might be that the impression of recklessness given to foreign investors by a Labour victory would be even more striking, but a more serious retort is that Mr. Butler has shown himself to be a man capable Of restraint as well as optimism, and that his policy surveyed over the years gives authority to his judgement in any particular set of circumstances. The Chancellor has guessed, but he has guessed prudently, and that is the best that could be achieved by any occupantof his office.
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