The British Budget MR AMORY IGNORES DANGER SIGNALS

Press, Volume XCIX, Issue 29177, 11 April 1960, Page 14

The British Budget MR AMORY IGNORES DANGER SIGNALS

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RICHARD DENMAN

(From th* "EconumiM" Intellio«ncß Unit]

London, April 4.—The Budget has been remarkable chiefly for what it has failed to do. After all the concern which economists have expressed about the danger of renewed inflation and a new crisis for the pound, very little has been done to guard against either danger. The Chancellor has tightened his rein slightly, but for the most part his cry has been, "Full speed ahead,** Mr Amory is a cautious man, not given to ignoring danger signals. Yet this is in fact what he has done. If the prophets were right in foreseeing too mucn money chasing too few goods in the old, familiar way, then nothing in this year’s Budget will avert that state of affairs. It has been a masterpiece of leniency. Certainly, a few steps have been taken to reduce consumer spending. Measures have been taken to encourage saving; premium bond prizes are to be bigger, more numerous, and more frequently awarded. Mr Amory has also added an extra twopence to the tax on cigarettes, so that a packet of 20 now cost 4s Id. This should give him an extra £39 million, and profits tax has gone up from 10 to 12J per cent, to bring in £65 million next year. Socialist Flavour Some of the steps the Chancellor has taken to prevent tax avoidance have a taste of political irony about them. Indeed, a number of his proposals might have been taken straight out of the Labour Party’s election manifesto. Measures have been taken to tax transactions on the btocK Exchange which are especially designed to gain tax advantages. Money paid in compensation lor loss of office —a form of tax-free remuneration which has become well known since the recent spate of takeover bids—is now to be taxed. And people who have been gaining tax relief by running ‘‘spare-time” farms deliberately at a loss are no longer to be allowed to do so. Few things could have a more socialist flavour. _ . Nonetheless, the financial effect oi these changes cannot hope to be at all large. And elsewhere in the Budget there is nothing that might be taken as a safeguard against excessive demand or rising prices. There have even been a number of concessions: increased income tax allowance for widows and widowers, repayment of some post-war credits, and a reduction in import duty on wines—a step taken at the / prompting of Portugal, one of Britain’s partners in the “Outer Seven.” The Chancellor expects that the net effect of his measures—many of which are small and of a “tidying-up” nature—will be to bring in an extra £2l million a year. But nobody could claim that a sum as small as this will have rhuch effect on the course of events in the year ahead. The slightness of the Chancellor’s damping-down measures comes as an especially severe shock because it was completely unexpected. The Conservative Government has a full four years of life ahead of it and can afford to take unpopular steps for the sake of long-term safety. Why has Mr Amory declined to do so? Confidence or Timidity? It is hard to see how his disregard for economic caution can be justified. In the ciming year consumer spending. Government spending, and investment are all expected to rise considerably. Indeed, the Government itself is now committed to such large-scale financing of coal, steel, arid the motor industry, quite apart from its spending on roads, schools, hospitals, and defence, that some expansion in total spending can scarcely be avoided. At a time when some of Britain’s resources ar-> already in danger of falling

Into short supply, Mr Amory would have been wise to do something to reduce the public’s spending substantially, either by Increasing purchase tax or by instituting stricter hire-purchase controls. That he has not done so may be a sign of his confidence in Britain’s ability to increase its oytput to meet growing demands. But it may also be a sign of timidity. United Kingdom imports are, on the Chancellor’s reckoning, expected to rise by at least 6} per cent, in 1960. He also expects that the year will see some drain on the country’s gold and dollar reserves. Indeed, in order to prevent such a drain it will be necessary for Britain to have a surplus on its balance of visible trade considerably bigger than it did last year. The danger is that, with the present upsurge in home demand continuing unchecked, goods will be directed from the export market to the home market. If this happens, as it well may, then the surplus on visible trade; far from being bigger than last year’s, may be smaller. It would be all too easy for the Chancellor by his leniency to allow the country to drift perilously close to a balance-of-payments crisis such as we have not had since 1957. Furthermore, any rise in British prices which follows his full-speed-ahead Budget may well tend to have the same effect By slowing down the rise in exports it may leave Britain unpleasantly short of currency reserves. Strength of Reserves It would be unwise, admittedly, to over-estimate the dangers. The United Kingdom's reserves are considerably greater now than they were in the periods before the previous sterling crisis. Moreover, even if the United Kingdom’s reserves fall, those of the sterling areas as a whole will probably rise. The primary-pro-ducing countries of the Commonwealth are likely to increase their exports this year, and any change in prices should be in their favour. Moreover, much of the longterm capital which Britain exports goes to other sterling-area countries. In these cases the sterling area as a whole loses nothing. Again, it is possible that the Chancellor’s confidence may be justified. Savings have been leaping upwards for several years now, and his added incentives may provide the extra ounce of energy needed to restrain demand. Nonetheless, to take such a view requires more optimism than a Chancellor can usually afford to take. An altogether safer course would have been to restrain demand to the extent of £lOO million, or even more. If Christmas comes without either the price index or the balance-of-payments deficit getting fat, Mr Amory will be a lucky man.