Skinflint thoughts
Nicholas Davenport
It was not quite fair of Skinflint to say that I had put my neck on a much-blooded block by saying that the FT index would go to 350. The tenor of my argument was that as the index had been carried down to an abnormal extent — from 543 to 146 — because the City fathers had concluded from the socialist manifesto of the Labour Party that the private enterprise system was doomed, it would recover to its normal register when they discovered that the private enterprise system was not doomed and that Mr Healey was actually coming to its rescue. This normal register I put as 300 to 350. I was not, therefore, in the least surprised that an oversold market should double its index in a matter of months when the big institutional investors reversed their stand and took £1,000 million off 'the street' and put it in the market. The index actually went up from 146 to 317. On March 15 [said that it was on the march to 320 because interest rates were falling and the gilt-edged market was strong. The minimum lending rate (i.e. Bank rate) has come down to 10 per cent and the clearing banks are busy cutting their base lending rates — Barclays now leading the rest with 101/2 per cent. But the bullishness suddenly went out of the equity market for a very obvious technical reason. Too many companies had taken advantage of the sudden rise to make too many rights issues. During the past month these amounted to a cash call of around £200 million. Indigestion followed. Rio Tinto Zinc, for example, thirsty for £33 million, asked shareholders to pay 125p for new shares when the rights were worth only 9p. It saw the price go down to below 125. It will take time for the market to get over its indigestion. The normal correction of an aggressive bull market is to lose a third of its quick gain. The gain was 171 points and a third of that is 57 points, which would bring the market down to 260. It came back to 265. The outstanding feature of this behaviour was that on the fall the volume dried up. A good sign. A better sign would be to see Gauleiter Healey standing up to the trade unions over the guide lines of the social contract. That, I said on February 22, would justify the index going to 350. Until the budget comes, which will be April 15, there is bound to be a see-saw market. No one knows what Mr Healey is likely to do because the advice he is getting is contradictory. Clearly he cannot accept the TUC advice to reflate by over a £1,000 million when the price-inflation is running at 20 per cent and when no promise has been given by any trade union to moderate the rate of increase in money wage rates. The refusal of the TUC to bring 'the social wage' into consideration, as Mr Healey desired, was pretty ominous.
Mr Healey has more than once called attention to the economic madness of paying ourselves 5 per cent more than the value of everything we produce. This has led some people to suppose that he means to put up income tax to teach us all a lesson but as the main excuse of the wage-inflaters is the continued fall in the value of net take-home pay Mr Healey may shrink from giving them another cause to demand a further increase in the gross. After so many victories have been scored by the powerful trade unions not even a tough Gauleiter like Mr Healey may want to threaten them with a punitive tax. My guess is that he will be seeking some trick tax defiater which will bring about the required cut in demand without causing a confrontation with labour. He has Lord Kaldor at his right hand who can pull rabbits out of his tax hat at a moment's notice.
The Chancellor has other advisers who, not being at his right hand, buzz aroiind the Treasury like angry bees. One is Mr Gordon Pepper who writes a monetary bulletin for a firm of stockbrokers, W. Greenwell and Company, which appears to get into the press as hotly as it is printed. He caused quite a set-back in the gilt-edged market last week when he urged that the coming budget would offer the last chance for effective corrective action, namely, in slashing government expenditure, to ward off national bankruptcy. Since November, he said, public expenditure from the Consolidated Fund has been running at 60 per cent above the level for the same period a year ago and in February the increase had reached 67 per cent. If expenditure is not cut "we will either stumble into a seige economy with draconian controls or hyper-inflation will occur in 1977 or shortly thereafter." The growth of the public expenditure, as most thinking people know, is far more than the economy can afford. The increase, as planned, between the level in 1972/73 and for 1975/76 is nearly 25 per cent in real terms while the GNP is expected to grow only by 51/2 per cent. I have said the same thing last week and before but my adverse comments, fortunately, do not influence the sale of millions of stock as Mr Pepper-pot does. However, 1 welcome his
support. '
I suggest that Messrs Greenwell should now concentrate their attacks on the monstrous expenditure of the local authorities, whose increases in rates are driving all of us householders to despair. I am not prepared to withhold my payment because they can cut off my water supply, blow up my boiler and refuse to collect my rubbish. But I am prepared to direct public attention to the poor moral and intellectual level of our municipal grandees. The speech which Mr Crosland made in introducing the bill of indemnity, relieving the councillors who broke the law by not increasing rents, was magnani mous in tone but drew a picture of local public life which most of us found disgusting. If Mr Healey would reduce the grants which the central government makes to the local authorities and insist on their cutting their swollen staffs he would earn our gratitude. They are responsible for over 40 per cent of our current public expenditures and for nearly 50 per cent of our total public spending on 'fixed capital formation.' Are they really up to the tremendous job?
What all the economic and financial critics of Mr Healey's budget are failing or not daring to say is that the great socialist experiment, which has undermined the old disciplines of industry and failed to get workers to cooperate, will drive this country into such a pile of international debt that foreigners will no longer be willing to accept our sterling promissory notes. And now we have lost in the assassination of King Feisal a real friend who was prepared to let 60 per cent of the Arab $60,000 million surplus last year stay on deposit in sterling. The ex-Communist Mr Healey can hardly be considered persona grata with King Feisal's family.
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