Advice to the Chancellor
By NICHOLAS DAVENPORT
BELlEVE it or not, I had just written a piece of advice to Mr. Maudling telling him that he must immediately re- duce the remaining high rates of purchase tax when I heard over the radio that he had cut television sets and radios, gramophones and records, perfumery and cos- metics from 45 per cent. to 25 per cent. I hasten to say 'thank you,' but it is not enough. There are three rates of purchase tax remaining-10 per cent., 15 per cent. and 25 per cent.—and they should be further reduced so that the Chancellor can introduce in his Bud- get the beginnings of a low general sales tax. It is absurd in this period of stagnant trade that essential domestic appliances should bear a tax as high as 25 per cent. or that furniture should carry even 10 per cent. Domestic furniture is a depressed trade and badly needs a stimulus. The whole of the retail trade is suffering from bad weather and poor spending—too much freezing and too much saving!--and if demand could be stepped up, the extra amount of goods sold could be supplied out of unused resources and the existing supply of labour.
There is nothing inflationary, then, in Mr. Maudling's sound attempts at reflation. My only criticism is that they do not go far enough. The last cut in purchase tax would save the spend- ing public £30 million in a full year. The motor- car cut would save them £55 million. How far this will be replaced by a general sales tax re- mains to be seen next April. The new investment allowances and depreciation rates will save the company spenders perhaps about £50 million in a full year. The extra spending by the Government on capital account will amount to £200 million in 1963-64. I will not mention the extra post-war credits which will mostly be saved, not spent. These all add up to a few hundreds of million pounds. But the unused resources of the country add up to thousands of million pounds. That is how we must regard the present modest attempt to wipe out the colossal deflation of Mr. Selwyn Lloyd.
There is one further reflationary move which Mr. Maudling can, and should, make before the Budget. This is an immediate increase in unem- ployment pay. It is really scandalous that men thrown out of work through no fault of their own should draw in weekly unemployment `benefit' merely a fixed amount of money which is only about 19 per cent. of their average earn- ings in industry. A fair compensation should be-proportionate to their previous earnings— say, 50 per cent. at least of their last pay-packets. Or even more! Why should the unemployed man be made to suffer for the inefficiencies of an economic system which cannot apparently run without an unemployment rate of between per cent. and 2 per cent.? (In the US be- tween 5 per cent. and 6 per cent.!) We are really inflicting on the unemployed, the victims of our own economic stupidities, a flagrant act of social injustice. Apart from all that, it would be plain economic common sense to improve the spending power of nearly 600,000 unem- ployed when there is so much slack in the economy. I would expect Mr. Maudling to be quick to remedy this social and economic wrong, seeing that he must win the confidence of the trade unions if he is to carry through his wages policy. Briefly, that policy is to see that wages do not rise faster than the productivity of labour. If that is adhered to, as it has been since the pay pause ended, the Chancellor can proceed with further reflation with the utmost confidence. In fact, an announcement that unem- ployed pay is to be raised immediately—with a rise in pensions coming later in the Budget—would surely convince the trade union leaders that this is an intelligent, sympathetic Chancellor with whom they can really co- operate in the carrying-out of a sensible wages policy.
Incidentally, I do not hold with those extreme 'left' economists who argue that a reasonable wages policy cannot be worked without some control of prices, profits and dividends. The trade union leaders understand very well that such controls are impracticable in our democratic system. They will surely be content to leave taxation to take care of excessive profits.
Whether all these reflationary moves wilt be
sufficient to offset the decline in industrial in- vestment and other expenditures in the private sector will remain to be seen. The confidence of the industrial managements has not yet been restored. With the uncertainty created by the interminable negotiations at Brussels and by the approach of an election year, very few business- men want to embark on new investment pro- grammes, especially if they can meet any likely increase in demand out of their existing re- sources of plant and labour. To restore their morale Mr. Maudling might tell them that they should work on the assumption that the Brussels negotiations will either fail or be suspended by the Prime Minister for the time .being. He has already said that this would not kill us. Our goods are competitive in the worldsarkets. Labour costs have recently been rising on the Continent faster than they have been rising here and it is something that the industrialists in Germany, France and Italy have to bear a much higher proportion of the rising cost of social security. Moreover, if we do not join the Euro- pean club we will avoid a sharp rise in food prices and hence in wages. In other words, we will probably improve our competiti‘e position. Mr. Maudling should ring Lord Hailsham's bell and tell the business managements to stop worrying and get on with their jobs.
He might also tell the Treasury hierarchs to stop worrying about the balance of payments. Indeed. Mr. Maudling might take this as an opportunity to bring home the lesson to the Western world that full employment and growth are first priorities and that the maintenance of fixed exchange rates comes second, We are all, in the same monetary boat and we all know that it is not particularly seaworthy. That is why the IMF and its 'Paris Club' members are prepared to come to the rescue with thousands of millions . of gold and dollars when an exchange storm blows up. If they didn't and sterling got into trouble, we should be forced to take the sort of direct action which Canada took in her recent crisis. (As Mr. Diefenbaker has protested so much against our entry into the Common Mar- ket because of the damage to the Canadian export trade, let us not forget that Canada de- cided to meet her exchange crisis by devaluing her dollar and imposing a stiff tariff surcharge —in addition to applying her anti-dumping duties viciously against British goods. In spite of all this we came to Canada's help with a loan.) I can imagine the howl of alarm if Britain were forced in the interests of her own workers to apply a tariff surcharge or re-impose quotas against the goods of the European Common Market and North America and at the 'same
time make a new trade treaty with Soviet Russia and China. Mr. Kennedy would be on the tele- phone in a flash to Mr. Macmillan, making full use of that 'special relationship,' protesting against such a reactionary step as would export our unemployment to foreign countries, assur- ing him that if the EEC did not meet us over the agricultural clauses of the treaty he would retaliate against their beastly goods, swearing that his real objective was to have an Atlantic economic union with no tariffs on a full range of 'common manufactures,' reminding him that trade with the Eastern bloc was sin and that the almighty dollar--the prop of the Western world —could not hold up if sterling were devalued. What a fine opportunity this would give to Mr. Maudling to cal] the monetary bluff of the Federal Reserve and the IMF and bring the Western world (including the EEC) back to eco- nomic realities! The truth is that no Western capitalist power has an assured economic future until it can devise a monetary and payments system which will allow the poor underdeveloped nations of the world to make good use of its unused industrial resources. I have high hopes that a British Chancellor as intelligent as Mr. Maudling can bring some sense into the inter- national business scene in 1963,
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