25 MARCH 1972, Page 11


66, , it is safe, wise ... and very unlikely to make any real difference at all• •

liarr,..LG. Johnson nlost reliable harbinger of spring in „ is Country is not the weather, which is but the budget charade, which f u°tn a reliable calendar event and a ha:L1.1. War social ritual. This year's budget has no exception. of Ifst, there is the aggregate management fia,,fhe economy. Everyone wanted re "on; but how much was safe was a atter of Opinion. The National Institute Economic and social Research, the w.!,t "ian horse of Keynesian radicalism hin the walls of the establishment, 't3ked for far more than it should have braW,n Was safe; the TUC and the CBI --ced nicely on one standard deviation n tne predictable side from the safe ,a0 re, according to the conventional wis harn. and as a conservative the Chancellor naturally come out much closer to the tituo than to the CBI. So he should have errlioep: in an inflationary environment, on the side of inflationary policy beeasured at current prices are likely to irio,8„,afely un-inflationary, in terms of real the-les, employment, and demand, once With`",e,°ts of inflation are allowed for. As is bf.aii Charades, the solution to the riddle it, ,Indingly obvious once one has guessed sonlci utterly characteristic of the perhasanty been able the charadist. The Chancellor to r: able to use the National Institute of -eve a little (but not much) to the left rislt-,e,C111, without running any very real ha,s °ver-inflating the economy. But his een on balance a non-reflationary aeo0 tto, there are the details of the tax Gov other changes. Since the present to ,!rfin.lent was elected, its aim has been EurZefsuade the public that getting into chanP,e Will be relatively painless, by the ting British institutions so far towards ,What ILt°13ean that the difference between nave they already have and what we still 'eft Will appear to be so small that it %print be worth fighting for. If we have valo:rt Prices for agriculture, and the bteau added tax, then why not join? Georkse 01-laving accepted the principle, as court: ..eroard Shaw once remarked to a st.413,.san, all we have left to do is to Th'Isb the price. *hiohe :agricultural price support principle, weilis definitely not part of this budget, „,,4afIr .own to be a source of unneces u4ed inefficiency in fact, this country Airieri`c1 take pride, in relation to the adoptp,e,ans and the Europeans, in having itIsteaT tale deficiency payment principle t,oWam f,ilough now we have been moving de -"'s it in the name of European-ness ' b kaus,, erate economic stupidity) and it disguised from the public how )r-Ihser iltal.8 to pay to afford stockbroker°Yces, ue wherewithal to run Rolls The Value-Added Tax, on the other hand, is a fiscal improvement, though not for the reasons claimed by the Chancellor. The purchase tax system rests on the class-orientated idea that people with a certain income level necessarily have to buy certain kinds of goods, and that hence taxing such goods at differential rates permits the government to introduce either progressivity or a particular concept of morality into the tax system. Substitution of VAT for purchase tax is desirable, because it both reduces the progressivity of the tax imposed in this country on people who actually work — a minority group to be sure — relative to those who either have unjustified inherited incomes or who can obtain non-taxed spending power from one source or another, and reduces the distortions in the allocation of national resources induced by the fact that, for example, a rich man who chooses to wallow in milk pays less for the privilege than it costs the country to provide it for him, whereas one who chooses to drink whisky or bathe in champagne is likely to be paying four or five times as much as it costs the country to furnish him with the relevant liquidity.

Unfortunately, the argument applies only if the VAT is a general and not a discriminating tax. Once the fallacious logic of discriminatory purchase tax levied at high rates on ' socially undesirable' forms of consumption like alcohol or cars and at zero rates on socially desirable' forms of consumption like food is melded into a VAT system, we are back at square one. The Chancellor's exceptions to the application of VAT may even mean, economically, that we are back at square zero — which is the part of the board that surrounds the part on which the real game takes place Third, in considering details, one has to consider the political flexibility that an ongoing inflation, itself created by or at least tolerated by government policy, affords to a Chancellor. Inflation by itself taxes the pensioners and benefits the active population in real terms; an increase in pensions matched by an increase in social insurance contributions makes the pensioners happy without making the social insurance contributors think that they have lost anything other than an ill-gotten gain. Similarly, an inflation moves people up into the income-tax-paying class who do not belong there. Put them back where they belong by raising income-tax exemption levels and they will, quite unjustifiably, feel grateful for the Chancellor's beneficence. Not only that, they will not realise that the major ecenomic benefit of higher income-tax exemption levels accrues, not to them, since their marginal tax rates are low, but to the high-marginal-income-taxpayers, whose real tax burden is reduced proportionately much more. So a benefit to the rich can be passed off as a benefit to the poor — and in both cases it is not a benefit, but a remission of unjust taxes imposed by the government's own inflationary taxation of private incomes.

Finally, we have the usual ritual lipservice towards helping industry' and towards 'regional development '.

There is very little evidence if any to support the Keynesian theory, which is a Labour rather than a Conservative party theory, that giving investment incentives promotes economic growth. The Chancellor's 5 per cent growth rate target is based either on deliberate disregard of the fact of British historical experience, or on a crass exploitation of the fact that any economy can have any measured growth rate it wants over a short enough period of time if it starts with enough unemployed capacity and injects a big enough bang of unsustainable demand.

There is very little evidence if any also to support the view either that regional development is a good thing to aim for, or that government can do it if it wants to. This country has spent fortunes, or money that could with wise investment have been pyramided into fortunes, in preserving monuments to its own past inability to abandon dying industries in favour of the lusty squalling infants of industrial progress. The monuments remain monuments, standing in the graveyards of its past. Nowhere one can think of has government regional policy done more than condemn the next generation of children to the living death of their parents. It is high time that British government policy realized that in economic affairs as in human life, vitality is not achieved by injecting corpses with embalming fluids.

So the budget meets the needs of this spring, but not of the British economy. It is safe, wise, difficult to quibble with if one is not an extremist, and very unlikely to make any real difference at all to what happens next — except that it has made a few steps towards making our economic policies (structural, not demand-management) as stupid as those of our European brothers whom we are committed to join by the end of this year.