1960s >> 1966 >> no-742-june-1966

The Budget

What Labour Party members would have thought in the old days when they were a movement of jolly cyclists and hiking clubs that they would one day have a Government which succeeded in making a lot of people feel guilty?


Ever since they came to power in October, 1964, the Labour Government have carried on a skilful publicity campaign which has drummed home two main ideas. The first is that we are living in the midst of a desperate economic crisis, caused by an unfavourable balance of payments. The second is that this situation is mainly our fault; we have been living too well; we have been earning too much money; we have been spending too many holidays abroad, and so on.


The effect of this campaign has been to make many people who did not realise before that there is such a thing as the balance of payments anxiously follow the monthly figures of imports and exports, almost like pools addicts grabbing the Saturday evening newspapers. The Labour Government have sworn to put the balance of payments into surplus and over the past 18 months they have taken many steps which they said would do just that.


One of the remedies which Mr. Callaghan has applied with a heavy hand has been enormous doses of taxation. His first Budget, in October, 1964, increased the tax on petrol by 6d. a gallon; this was just after the imposition of the 15 per cent import surcharge. His second Budget, in April, 1965, increased taxes on cigarettes and drink, and on vehicle licences; this Budget was designed to rake in an extra £217 million a year. These increases contributed their bit to the record figure of tax which was collected during the financial year 1964/5—according to the report of the Commissioners of Inland Revenue, £4,072 million.


The latest dose of taxation to be prescribed by Mr. Callaghan was the payroll tax, which made the headlines in this year’s Budget. This tax is expected to yield something like £240 million in a full year.


Heavy taxation, as anyone who remembers the days of Sir Stafford Cripps will agree, has been a favourite policy of post-war Labour Governments. What effect has it had on the problems which the Government said it would solve?


In October, 1964, the Government told us that the way to cure the economic troubles of British capitalism was for everyone to work harder, to keep their wage rises down to three per cent a year and for manufacturers, retailers and so on to hold their prices stable. This, they said, would solve the problems—helped, of course, with a bit of financial masterminding by Wilson, Callaghan, Brown and the rest.


And the result? The White Paper on National Income, published last April, stated that during 1965 there was an “effective rise” in personal income of some 5½ per cent. The same White Paper said that the gross national product went up by only 2½ per cent. Even when we have made allowance for the customary “adjustments” which these figures must be subject to (personal income, for example, is not made up exclusively of wages), it is apparent that the Government’s policies are not having the results they promised.


No matter what the Government say or do, wages are still rising faster than they would like and productivity is not going up at the rate they want. Inflation, which they promised to control—like the Tories before them—continues; the Financial Secretary to the Treasury said in the House of Commons last February that the purchasing power of the pound, taken as 20s. when Labour was returned to power in 1964, had declined to 18s. 11d.


This obvious failure of the Government’s policies does not stop most people thinking that the way to deal with an economic crisis is to impose some sort of similar measures. There may be some disagreement over the details of these measures, but generally the financial pundits and the economic experts stand united that there must be some sort of juggling about with taxes, Bank Rate, hire purchase controls and so on. Perhaps they all have a good reason for this unanimity; if the Government ever lost faith in such juggling that would be the end of a lot of City Editors, Treasury experts and the like.


All of these experts are very busy in the weeks leading up to Budget Day, offering their advice to the Chancellor. Few of them have the slightest doubt about the way to solve the crisis. The Government, it seems, is overlooking the obvious—until we remember that Whitehall also has its economic experts, whose job it is to examine the obvious, as well as the less obvious. This, of course, is the great difficulty; all the experts are rushing to give their advice but they are all contradicting each other.


This year the Government showed how much its own experts disagreed with the rest by upsetting all the pre-Budget predictions. Before Mr. Callaghan opened his box all the financial and economic tipsters were assuring us that there were to be increases in income tax, purchase tax, road licences and so on. The shops which sell taxable goods were cashing in by advising their customers to Beat the Budget—Buy Now! (This on the assumption that an increase in purchase tax automatically leads to an increase in prices, which is not true.) The Daily Telegraph on Budget Day reported “Stores and shops were crowded by a beat-the-Budget shopping rush yesterday, and post-offices and local taxation departments were busy with motorists anxious to renew road tax licences to beat a possible increase of the £17 10s. rate.”


Perhaps when he read this Mr. Callaghan permitted himself one of those famous jolly smiles. Or perhaps he didn’t; after all, he was once a financial expert himself.


What the experts have to explain is why so many efforts to control the economy come to grief, why so many variations of control are tried to deal with the same problem, and why the difficulties which are supposed to be eliminated by the juggling are still there.


Since the war one Chancellor after another has tackled the problems of wages, inflation, productivity and the balance of payments. All of them have failed. At times they have increased taxes, or Bank Rate or they have imposed stricter controls on things like hire-purchase; at other times they have reduced the severity of these measures. None of them has had any effect.


Mr. Callaghan is the latest in the line. And he, too, is failing. At this rate, and on precedent, he’ll probably end up Prime Minister.


One thing which is obvious—and which explains to a large extent why they fail—is that Chancellors work in the dark. On Budget Day they may like to pretend that they can predict the effects their policies will have, but in fact they can do nothing of the kind. Mr. Callaghan came to office pledged to, as they say, “take the heat out of the economy,” which means that he would implement policies to ease off the boom in some industries, reduce the shortage of labour and hold wages in check.


But after all the restrictions, the economy stays obstinately “hot”. The labour market remains very tight, with the number of vacancies far exceeding the number of registered unemployed. And in this condition the rest of the Government’s policy—in particular its Incomes Policy—has little chance of success. One industrialist to recognise this is Sir Eric Mensforth, chairman of Westland Aircraft limited, who said last October:


  An incomes policy lo withstand bullying will have to be sincerely sought. . . . and . . . there will have to be the sanction of unemployment, I hope small, but enough to make a good job something to strive for.


What nobody has yet been able to explain, however, is how a Government can ignore the conditions in which it governs. No Government has yet been able, in a time of slump, to create markets to stimulate its industries. Nor, in a boom, has a Government been able lo destroy markets. Capitalist industry lives by making profit, and when there is a market which can be profitably exploited industries will rush to fill it, even if a Government puts difficulties in the way, or skims off a heavier dollop of profit in the shape of tax, or makes industry pay more for money loans. A boom economy will absorb these blows—and come back for more.


A Government cannot create unemployment when industry is clamouring for labour, and it cannot impose an incomes policy when employers are in general compelled by a labour shortage to comply with trade union demands. Of course, when there is a slump it is a different matter; then it is the unions who are crying for Government protection—as they did when they asked for the coal subsidy in 1926—and asking the Government to run counter to the current conditions of capitalism.


Mr. Callaghan’s troubles, then, do not come out of nothing, in the same way as the slump which the 1929 Labour Government had to face was no accident. That recession was world-wide, and so is the situation which now worries Mr. Callaghan. Germany is faced with inflation: France is in turmoil over trade union resistance to the Government’s attempts to impose a five per cent ceiling on rises in nationalised industries; Japan, Israel, India and the United States are other countries which are in similar difficulties.


This should suggest to the experts that, if there is a solution to the problem it is an international one. Indeed, they continue to advocate measures which concern only one country. Every country, for example, wants its international trade to be in surplus; but this is clearly impossible. Each surplus must be balanced, somewhere,, by a deficit: and it is equally impossible for international trade to be in precise balance, with every country exporting exactly as much as it imports.


When the experts are sounding off about how to run capitalism they assume that it is a social system which can be controlled by policies based on reason and sanity. But capitalism is not like that. It is a system in which competition between firms, between nations, makes nonsense of reason. It is a system whose priorities of profitability deny sanity. It is a system described recently by the Director- General of the Confederation of British Industry as one where “live and let live” is changing lo “compete or die”.


This system will defeat Mr. Callaghan’s efforts to control it, just as it defeated those of his predecessors. Of course, the Chancellor tells us that his efforts are directed at solving our problems, but in fact nothing that he does, or can do, will have any effect on the basic restriction on the lives of


the working class, which is the poverty suffered by every member of that class.
That poverty is as real today as ever. The latest figures of income from the Board of Inland Revenue, covering the year 1963/4, stated that 80 per cent of the wealth of Britain was owned by some five million people, or nine per cent of the population. Poverty is not a problem of that section. But on the other hand there are the remaining 91 per cent who between them own 20 per cent of the wealth; the Board’s figures indicate that of these people, some two-thirds of the British population have no wealth worth recording. It is in this group that poverty is an ever-present problem, restricting and dragging them down into worry and illness and worse.


It is laughable that these people should feel guilty about the balance of payments crisis of the British capitalist class. Indeed, the only guilt they should feel—and this they should feel keenly—is that they have it in their power to end the society of poverty and privilege, yet they choose to do nothing about it.