The British Budget “BITTER PLUM IN A TASTELESS PIE”

Press, Volume CI, Issue 29800, 17 April 1962, Page 14

The British Budget “BITTER PLUM IN A TASTELESS PIE”

(By

RICHARD DENMAN

of the "EconomiM'J

(From che “Economist" Intelligence Unit)

London, April 9.—lt is gradually getting through to the man in the street that Budget day in Britain is no longer to be considered a day for flag-waving and controversy in the pubs. In any case. Mr Lloyd has never stirred strong feeling in British breasts, and today was no exception. The Chancellor lived up to his reputation for dourness with a Budget statement that was. with one exception—admittedly an important one—as flat as any in recent times. The over-all deficit for next fiscal year is estimated to be almost precisely the same as that put forward in the 1961 Budget; £64 million as against £69 million in 1961 A considerable readjustment of indirect tax rates will lead to an alteration in net reserve from customs and excise duties of precisely £1 million. Income tax. too, is hardly altered. This. then, is the standstill budget which so many of the commentators have forecast. The Chancellor is doing nothing to expand Britain’s stagnant economy. He thinks expansion will come without any prodding from him. Steep Gains Tax

The one plum in this tasteless pie has a hard and bitter .taste for speculators on the I 1 stock exchange or in property. A capital gains tax was known to be on its way, had in fact been announced by the Chancellor as far back as last autumn. The version that has been produced is bad news for the City. Most striking is the heavy rate of the new tax; those making capital gains on the stock exchange (and realising their profit within six months of purchase) will pay income ■ tax on them—and surtax, too. ■ if they are liable as well—- ' just as they would on ordinary income. ' This was not altogether tin--1 expected after the recent dei nunci-ation of the Government by Lord Ritchie, chair- ' man of the Stock Exchange; but it is a higher rate of tax than is applied in the United States. The Chancellor justified the tax on grounds of

“fair terms between taxpayers.” “Yield is not my mam purpose,” he said The tax will not be retrospective, and it will be possible to set off losses against gains for tax purpose in any given tax year. As a final point it maybe noted that this is in some senses an “optional” tax in that it is applicable only to sales within six months of purchase in the case of shares and within three years of purchase in the case of land. The intending seller can therefore postpone his sale, if he wishes, and so avoid the tax altogether. There will be great controversy over this tax; only slightly less controversial is the Government’s economic analysis. It is the Chancellor's View that the economy will expand steadily this year; public Investment will rise by 5 per cent., personal expenditure by 4 per cent in real terms. Given these expectations. the Chancellor has decided to wait and watch the growth rather than commit himself more deeply at a time when it is probably more difficult to forecast Britain's economic future than the Chancellor would care to admit. For if exports fail to rise at the projected 4 to 6 per cent, annual rate which the Treasury has in mind, then the controversy over the Government’s analysis of the situation will really catch alight.

Debatable Policy It is, of course. Government policy to keep home demand in check as the means of ensuring that export opportunities are not missed “Force industry to find markets abroad by denying them outlets at home," is the simplified summary of Government policy It is at least debatable whether the restriction of home demand is the right policy, in present conditions, when there is large unused capacity in many industries: in car and steel manufacture, for instance. It is not just excess demand which has led to inflation; the contribution made by the “push" of increased costs through wage rises negotiated under collective bargaining seems to have been more significant in Britain in recent years Might it not be more helpful to British exporters if they were encouraged to increase output and so lower their unit costs? And is there really sufficient incentive to exporters? Would not a turn-over tax, with rebates for exports, be a useful incentive for British exporters, as it is for many of their continental competitors?

Though it may lack a forceful strategy, this Budget has brought in a reorganisation of indirect taxation of a moderately interesting kind. The 10 per cent special surcharge on indirect taxes imposed in the July Budget has been eliminated, and the loss of revenue ha« been recouped by increasing the basic tax charge on vari|ous products. IVhile the overall effect has been no noticeable loss in revenue, the burden has been redistributed to some extent. There has. in fact, been a significant consolidation of purchase tax. the higher rates (like the 55 per cent, tax on cars) being RyJ-f d down 1 a f «w pegs and un (f > r'X r be ' ng PUSh * d up (from s'i per cent, to 10 per cent.). A Genera) Sales Tax? T £’ e ?e alternatives are probably the forerunners of a more general sales tax It Itooks very much as if Britain will soon drop its purchase tax altogether and I have instead a sales tax i applying to a much wider range °f goods and services. , but at a low rate. This will |be a much more effective of demand and at “the same time be a lot fair

er in its effects on individual industries. Cars and consumer durables have suffered much more than enough for recent swings in Government policy. Another reform that is still to come is the amalgamation of the present income tax and profits tax on companies into a single corporation tax. The Chancellor said he was going into the difficulties involved in this tax with the professional bodies concerned, but he himself regarded it as, in principle, “worth while.” This is another measure that should make Britain's tax structure more suitable for modern needs.

What is to be made of this standstill Budget generally? Its political usefulness will be clear to supporters of the Conservative Party. The absence of concessions this year could prepare the ground for a politically judicious Budget in a year’s time. And by April. 1963, the next General Election will probably be in the offing. The Chancellor is probably very willing to forgo his vote of thanks now if. by doing so. he is more likely to get much more effective votes next year. The Conservatives played the pre-election Budget trick with great skill in 1959 It would be surprising if they missed it in 1963 This is not to say that Mr Lloyd is insincere in his assertion that he ought not to do anything in this Budget to expand demand at home. He undoubtedly thinks it would be dangerous. The national income, he thinks, will rise substantially this year, anyway. Consumers at homeland traders abroad—must hope he is right.