Paying for poultices
THE Chancellor will remember that as last year's Budget approached, panicky self- appointed advisers were urging his prede- cessor to raise taxes and so try to slow the economy down. John Major had more sense. The same people are now panicking in the opposite direction. They have finally realised that the European exchange rate mechanism has made it harder for Mr Lamont to cut interest rates, so they want him, instead, to spend more and tax less a fiscal stimulus, as they prefer to say. It will not happen like that. This year, as last year, the Treasury cannot be expected to revert to its old fine-tuning days and ways, when the Chancellor would announce what he called his budget judgment, and seek to manage the level of demand in the eco- nomy by twiddling the knobs of taxing and spending. As it happens, quite a lot of fiscal stimulus is getting into the budget numbers already — a difficult bargaining round on public spending, high payments linked to an inflation rate which the Treasury had misguessed, and the cost of all the poultices now being applied to sores which the Thatcher government left untreated. I expect Mr Lamont, with one eye on the voters and one on the financial markets, to try to make his budget sound tougher than it is. A proven maxim says that the British like their economic policies as they like their white wine — dry on the label, but sweet in the bottle. Mr Major's skill, a year ago, was to plan what was in knob-twiddling terms a no-change budget, but to bring in change by devising a budget for savers. That was to push at an open door. The tax regime for saving was — and for the most part still is — a ragbag of old reliefs and allowances and incentives and schemes and wheezes whose effects are perverse. They discriminate against per- sonal ownership and against productive investment. They have until now treated borrowers better than savers. Tessas (tax exempt special savings accounts) were the star turn of the Major budget — for the first time, giving regular savers in building societies the sort of tax break that the societies' borrowers regard as their right. Mr Lamont is certain to give the open door another push. His natural successor to the budget for savers must be a budget for owners.
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