PRIVATE RESTRAINT AND GOVERNMENT TIMIDITY
By NICHOLAS DAVENPORT
THE next round of wage claims is approach- ing. The Union of Shop, Distributive and Allied Workers have resolved, at their annual conference, not to stand still while the cost of living continues to mount and the incomes of other people go on rising as a result either of lower taxation or higher dividends. There is still resentment, it appears, at what they consider to be unequal distribution of sacrifice because the first Budget of 1955 remitted £155 mil- lion in income tax and the second imposed increases in purchase tax, not to mention the cuts in the milk and bread subsidies which were made in the 'little Budget' in February. Mi. Macmillan may try to remove this sense of grievance by increas- ing the tax on distributed profits, as Mr. Butler did (and failed) last 'autumn, but it is a pity that he has not done more to silence the nonsense talked about the Increase in dividends. In the decade to 1948 shareholders' gross income rose by no more ;than 10 per cent., while that of wage and salary earners doubled. Between 1948 and 1955 dividends paid on ordinary and preference shares increased by 80 per cent., while wages and salaries advanced by 25 per cent. And allowing for the rise in prices the real value of wages and salaries in- creased in this period by 40 per cent. while that of dividends actually decreased by 30 per cent. Said the White Paper: 'Divi- dend payments now constitute about 5 per
cent. of total incomes and their relevance to the movement of prices lies much less in their direct effect than in the pressure which they are liable to generate for what are felt to be corresponding adjustments in wages and salaries.' But the Govern- ment should see to it that the public is not subjected to pressure of this bogus sort. Dividends are now taking only 21 per cent. of company incomes against 47 per cent. in 1938, and in view of the current decline in company turnovers and profit margins they will probably take even less in 1956. If risk capital is not to be properly rewarded the supply of it will dry up and labour will he unemployed.
The economic scene is now moving to its inevitable climax. But catastrophe seems un- avoidable if the nation persists in increasing its income and expenditure more than its production, as it did last year. In that event prices will go on rising until our export trade is seriously hit and we do not earn enough abroad to pay for essential imports. The Government is trying to avoid that catastrophe by limiting demand at home. The main components of demand at home are consumers' expenditure, Government expenditure and investment. Although con- sumers' expenditure is by far the largest part of home demand, the main expan- sionary force in the economy at the present time, as the Economic Survey pointed out, is the increase in fixed investment. Large programmes of modernisation and develop-
ment are in hand which will in time greatly improve our output capacity and productivity. It would be a crime to cut them down. According to the Economic Survey for Europe the net fixed investment as a percentage of the net national product is only six for Britain against fifteen for Western Germany. We cannot afford to reduce it. A more determined effort should therefore be made to cut Government expenditure (including defence). Invest- ment in housing is due to be reduced further, but it would be better done by the licensing of private building than by hold- ing the local authorities up to ransom with the pistol of the rate of interest. As for consumers' expenditure, it is useless for the Chancellor to try to limit it through indirect taxation, for that merely tends to divert expenditure from the heavily taxed to the lighter taxed article or the untaxed. Besides, the rise in consumers' real expenditure last year was only a modest 3 per cent.—less than the rise in the previous two years— and the only bad feature of it was the 26 per cent. jump in the expenditure on private motoring and cycling. To try to limit that expenditure by higher purchase tax on motor-cars would be a mistake. It would be far simpler to limit, by agreement with the motor manufacturing companies, the percentage of output which could be sold in the home market. The Government must now stop exhorting trade unionists and company directors to exercise restraint and get down to the job of creating the condi- tions in which demand is not in excess of labour and materials so that wages and prices need not be forced up. That can only be done in two ways—by cutting down Government and local authority expendi- ture and reducing private spending through higher direct taxation.
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