THE ECONOMY
Mr Lawson tries to put the genie back in the bottle
JOC K BRUCE-GARDYNE
Between Dr Jeremy Bray, the Labour Member of Parliament for Motherwell, and Chancellor Lawson there is a great gulf fixed. Both are intellectual heavyweights with limited time for the bar-rooms of politics. But thereafter their paths diverge. It is not just that their economic philo- sophies are poles apart: a more fun- damental difference concerns their con- flicting attitudes to the modern science — if such it is — of 'methodology'. Nigel Lawson has never hidden his scepticism, bordering on contempt, towards the art of forecasting. He can read the runes pre- pared deep down in the bowels of the Treasury with greater ease than any of his predecessors since Reggie Maudling. But having done so he prefers to reach a seat-of-pants judgment over a glass of whisky wth his Chief Economic Adviser, Sir Terence Burns. Dr Bray, by contrast, passionately believes that there is a land beyond the rainbow where a perfect com- puter, perfectly fed, exists which will print Out the only path to human happiness.
So it is ironic that it was an alliance of convenience between these two improb- able collaborators which placed budgetary forecasting on its present pedestal. Back in 1975, when Mr Wedgwood Berm was piloting through Parliament his Industry Act, Dr Bray sought to tack on to it an obligation upon the Treasury to produce an 'autumn forecast' to bridge the gap between the Budgets. The then Chancel- lor, Denis Healey, has little more in common with the Doctor than Nigel Law- son has. So the ministerial brief was marked 'resist'. Nigel Lawson, however, reckoned he saw a chance to embarrass the Labour government, and persuaded his front bench to lend support to Dr Bray. Sure enough the government was beaten, and the 'autumn forecast' entered on the Statute Book.
Sir Geoffrey Howe took kindly to this innovation. Once, in opposition, he had made a speech in which he called for a 'green Budget' to throw debate about the contents of the Box on Budget Day wide open. Maybe this did not seem quite such a smashing idea when he eventually got to 11 Downing Street. Nevertheless, spurred on by Sir Douglas Wass, his chief civil servant (now one of the adornments of the 'free- dom of information' campaign), and need- led by the Parliamentary Treasury Select Committee, he was increasingly prepared to show his hand. The 'autumn forecast', originally a paragraph or two buried in the annual public expenditure statement in November, blossomed into glossy covers of its own. Not only that. It became the custom to publish estimates of the 'fiscal adjustment' — i.e. room for tax cuts and/or extra spending — which might be available to the Chancellor in the years ahead; and also a DIY kit of the cost of various tax adjustments.
Some of us reckoned this would end in tears. We recalled how, when it became the done thing to publish long-term spend- ing projections in the 1960s, ministers soon found themselves obliged to tank up ex- pectations, and to match them with fore- casts of future growth to pay for their realisation which bordered on the farcical. We foresaw that the only consequence of encouraging a debate about tax options would be to foreclose them, as threatened interests took defensive action.
Notwithstanding his involvement in the launching of the 'autumn statement' I suspect that the then Financial Secretary, Nigel Lawson, shared our doubts (I don't know, I wasn't there at the time). At any rate it seems he's had about enough. He has told the Treasury Select Committee that foolish talk about the size of this year's 'fiscal adjustment' contributed to sterling's troubles last autumn. He wants to scrap it.
Needless to say the Select Committee is outraged. It argues (with some justifica- tion, I fear) that if there was loose talk last autumn it emanated from the Treasury itself. It points out that if Nigel Lawson were to decline to define his room for fiscal manoeuvre Parliament could work it out for itself, and so accuses him of wilful obscurantism. In practice there is an im- portant distinction between sums worked out by commentators and 'guesstimates' undersigned by the Treasury. Nevertheless I have a sinking feeling that the Chancellor will not find it easy to recork the genie in the bottle from which he helped it to escape in 1975.
If so, he may have reason to be sorry. For his sums do not gereasier. An awful lot now hinges on the sale of assets. If British Airways, the British Airports Authority, the Royal Ordnance Factories, perhaps the naval shipyards and of course above all — dwarfing all else by far — British Gas can be got away in 1986-87, then it should be possible to present a budget deficit next spring which does not scare the horses without the sort of economies in spending programmes which are not going to be attainable this autumn, and still have room for tax cuts. If not, not. Unfortunately there would still be a price to pay. If it be true that the second half-point cut in interest rates this week was at least in part inspired by the desire to dispose of the remainder of the Govern- ment's stake in Britoil acceptably, then the imagination does begin to boggle at the sort of market manipulation that is going to be required to flog off the contents of next year's bran-tub. It's all very fine to talk about the need for a degree of monetary stringency sufficient to 'bear down' on inflation. Were that to involve a level of interest and exchange rates that had the stock market plunging, it would be difficult to give away Sir Denis Rooke and Co., accompanied by a solid gold tea-chest for every taker.
It is true that the dollar could yet come to the Chancellor's rescue. So far its retreat from above the snow-line has been surpn- singly orderly. But unless Mr Paul Volcker is even more of a wizard than he is (deservedly) cracked up to be a point is liable to come, and perhaps quite soon, at which the movement out of dollars bec- omes a stampede. If, by then, we have taken the advice of the CBI and signed on for full membership of the European cur- rency club then admittedly the Chancel- lor's dilemmas would remain. We should have to hold on to high interest rates to keep up with a tear-away Deutschemark.
But if — as still, on balance, looks more likely — we decide to stay aloof, then the sort of cuts in interest rates the CBI (with a sublime disregard for consistency) is also clamouring for could be made without too much risk on the inflation front in the short run. The long run might be a different matter; but then in the long run politicians, if not dead, may be out of office. A shrinking dollar price for North Sea oil might still leave a nasty hole in the Chan- cellor's bucket. But at least there should be buyers for the contents of his bran-tub. These, though, are large ifs. Some fleet and fancy figuring is likely to be needed whatever happens. So the less the watching world is scared in advance by earnest inquisitions conducted by the Treasury Select Committee, on the whole the better.
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