MACMILLAN'S FIRST ROUND
IT is clear from the nature of the new economic measures introduced last week that the new Chaticellor found him- self in a tight corner when he arrived at the Treasury. By last week the situation had deteriorated even farther than the pessimists feared and gold was running out alarmingly. And with nearly two months to go before his first Budget, the new Chancellor had very little choice of what he could do. Never- theless, Mr. Macmillan came out fighting. With his first blow —the increase in Bank rate to its highest level since September, 1931—he took the City by surprise and put up the cost of borrowing throughout the country. By withdrawing the invest- ment allowances he then hit industry hard, though whether in the right place or not is wdisputed point. Finally, he launched something like a hay-maker in the direction of the general Public with severe new restrictions on hire purchase and a small cut in food subsidies. The verdict must be that the first round in the fight against inflation has gone to the Chancellor.
As expedients to provide some breathing space, these measures will just serve. They give Mr. Macmillan time to regain his breath and to do some thinking about the reasons for the sudden change in our fortunes. There are a great many lessons to be learned. The first, which must already have im- pressed the Chancellor and all his colleagues, is the importance of producing a Budget appropriate to the economic circum- stances. With perhaps two exceptions none of the Budgets since the end of the war has really measured up to what was needed. Last April, Mr. Butler's Budget mistakenly increased pur- chasing power, making it impossible for the investment boom to develop without causing trouble. Once purchasing power has been spilt in the Budget, it is extremely difficult to mop it UP again during the year. It is to be hoped that this lesson has now been learned in the Treasury. .
The second subject for the Chancellor's reflections should be a study of the reaction of industry, the City and the press to the measures he announced last week. The lesson here is that he Chancellor must not only do enough to stop inflation but Re Must be seen to do enough. It was clear from the immediate reaction to his measures that few people were really convinced that he had got inflation by the neck. On the contrary, comment was a matter of 'perhaps' and 'it may be' and 'on the other hand it may not be.' It was a matter of question marks where there should have been none. In fact, Mr. Macmillan achieved a great deal last week and what he has done is probably adequate. But this kind of Government action is, by its nature, obscure. It is difficult to explain what is being done and to make it plain, not so much to the general public, but even to informed public °Pinion. How can one assess the effect of the new terms of reference to the Capital Issues Committee? Are the cuts in the capital investment programmes of the nationalised industries really going to bite this time, even though these industries still retrain privileged borrowers from the nation's pitifully in- adequate supply of new capital? No one can tell. The third lesson is that the Conservatives must learn how to be unpopular more effectively. There is a very simple maxim for guidance which says that you may as well be hanged for a sheep as for a lamb. The cut in food subsidies repeats the mistake made over the additional purchase-tax proposals in the autumn Budget. It gives splendid scope for sound and fury from the Opposition benches and yet achieves very little for it. Why were these food subsidies not abolished completely? In his speech the Chancellor said, rightly, 'In present circum- stances, with full employment and high wages, it is difficult to justify the continuance of these general consumer subsidies on their present scale.' This is unexceptionable. Against a back- ground in which the country's wage bill has doubled in the last ten years, it is absurd that subsidies to consumption should continue. But Mr. Macmillan's proposals to reduce the subsidy on bread and milk (the latter only takes effect from July 1) have the appearance of a compromise. It is hoped that this is not the explanation, for it would be scandalous if Mr. Macmillan were not receiving the whole-hearted support of all his colleagues in the Cabinet at the present moment.
When all is said and done, it remains a bad business that the Conservative Government has had to curb the expansionist mood in industry just as it was taking hold. If Mr. Macmillan's predecessor had been stronger and more clever, this might have been avoided. As it is, Mr. Macmillan has, doubtless re- luctantly, been forced into measures intended to curtail plans for modernisation and re-equipment now being studied in directors' board rooms up. and down the country. All this is none the less regrettable because, economic policy having been left without direction for so long, it had become inevitable.
On one point, however, Mr. Macmillan must be criticised. It is distressing that at this late stage he not only failed to introduce new measures to increase savings, but did not even discuss them in his speech. There have been tantalising hints from time to time of a great savings campaign which is being prepared in the Treasury. Perhaps it will be launched in the Budget. One certainly hopes so, for if it is not, we can write off Britain as a source of capital for overseas investment. More savings are now the clear answer to the political and economic dilemma in which Mr. Macmillan finds himself. More savings will first moderate consumption. But this is only one aspect of the virtues of a savings campaign. For, at the same time, these increased savings will enable us more easily to pay for the investment at home and abroad which we must undertake. Even if the plans are not yet complete, it should surely have been possible to make some reference to them in his speech to the House.
The final judgement, however, must be that Mr. Macmillan has done well to avoid the larger errors of re-imposing import control and building licences which the Opposition would have him make. By resisting similar pressures inside his own Party he' has earned our gratitude. But there is a long struggle ahead, and, as yet, Mr. Macmillan is only through the first round.
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