UK. BUDGET Mr Selwyn Lloyd’s Novel Measures Assessed

Press, Volume C, Issue 29511, 12 May 1961, Page 17

UK. BUDGET Mr Selwyn Lloyd’s Novel Measures Assessed

IBs RICHARD DENMAN, of th* ■'Economist"! The failure of the advanced countries of the world to achieve a steady growth in' output without the seemingly inevitable accompaniment of a rise in prices may well turn out to have been the greatest obstacle in the last 10 years or so to a continuous expansion in world trade.

One country after another has had to pull up its economy with a jerk when an industrial boom threatened to send prices rocketing. The result has all too often been that either the medicine would prove too drastic and economic activity would go sharply into reverse or else it would languish in stagnation far longer than had been intended.

Nor are the industrialised countries the only ones to suffer from the lurch in gs of their economies between boom and slump. One of the more important lessons learned from recent experience has been that it needs only a slowing down in the expansion of the advanced nations to put the underdeveloped countries, the suppliers of industrial raw materials and other commodities, into serious difficulties. Not only do their exports decline but their earnings are further reduced by fails in the prices of what exports they do sell. The poor as well as the rich have a vested interest in keeping expansion going in the richer countries, or at least tn preventing violent swings in activity. The sad fact is that governments are not yet able to regulate their economies so as to bring about the kind of gradual adjustments that are required. They just do not know how to do it—and nobody else can tell them either, with any certainty. Consequently, any reasonable experiment that is made to try out new economic weapons is worth applauding and this is what gives special interest to this year’s British budget. New Controls For the Chancellor of the Exchequer is providing himself with two new regulations with which he hopes to curb the swings in demand and maintain a better control over economic activity than he has enjoyed in the past. Up to now he has had to rely on budget changes, which normally come only once a year, on hire - purchase restrictions which are cumbersome and affect only a limited range of goods, or on changes in interest rates which are imprecise in their effects.

One of his two new weapons is a sort of payroll tax on employers levied in relation to the number of men they employ. Such a tax has been advocated for some time in Britain as labour hoarding has become common and the replacement Of men by machines ha» not moved as fast in some industries as it might have done. Mr Selwyn Lloyd's version of this tax is odd, to say the least. He evidently tn? tends to use it more as a regulator of consumption than as an inducement to industry to get rid of uneconomic labour. Hence he

has made it a variable tax, which will be adjusted up and down according to the level of demand, which is hardly the way to encourage a long-term shift from labour-using techniques to machine-using ones. Too Small? The tax also seems much too small to be effective. At its highest it cannot exceed 4s a week for each employee and, since this sum is treated as an expense of the business and so is allowable as a deduction against other taxes, it in effect is reduced to below half of this sum. It would not be surprising if the tax annoyed employers without affecting In the least their decisions on labour questions. Even judged purely as a lever for guiding demand the

tax holds out little hope of success. It is better and easier to levy a new, variable tax directly on incomas or on consumption than to try to get at these through raising industry's easts. But it seems that a new tax on the incomes of the broad mass of people was thought to be a politically impossible trick in a year when surtax on the highest incomes was drastically reduced. So now, when the Chancellor wants to discourage demand, he will presumably levy or raise this tax—it has not yet actually been imposed. He might have to wait a long time before sales go down, if indeed they ever do. Purchase Tax Although the Chancellor has probably fallen between two stools over his payroll tax, he is more likely to have found a winner in his other weapon. Here he has aimed straight at sales in the shops. He is taking the power to vary up and down the Indirect taxes on goods sold in this country, both the purchase tax on a wide, but not the whole, range of sales, and the customs and excise duties. He is limiting himself to variations that do not exceed 10 per cent, of the previous level of tax, but this should still enable him to exercise considerable Influence on total demand.

Whether this proves to be so or not might well depend upon how far the public’s very knowledge that this weapon exists serves to defeat its own purposes. The buying public could easily indulge In forestalling operations that could prove very annoying. It only needs the newspapers to point out, when sales in the shops start going down, that this could mean a cut In the tax and a fall in prices, and large numbers of potential buyers might postpone their purchases, so making any small recession a lot worse. Similarly a boom could easily be stoked higher Mill by warnings that prices are going to be raised. It la too much to

expect that newspapers will refrain from prophecies of this kind; indeed this tax is heaven-sent copy for the financial journalist. This does not mean, however. that all variable indirect taxes contain the seeds of their own destruction. Only sizeable changes in price can be expected to produce this kind of result. IL therefore, the variations in tax were kept small In relation to the price of the goods, forestalling operations might well be negligible And this could be done without reducing the total effect of the changes as regulators of demand by making sure that the taxes which were varied were spread over the whole range of goods. Then even small changes in the tax would still mean a large variation in the income they produced, but forestalling operations would have much less point. Unfortunately, the taxes on which the Chancellor is •

JOing to operate are not spread as widely as they might be. So the variations that he makes are likely to be big enough to make it worth the public's while to act one jump ahead of him. at least in regard to buying or not buying the more expensive goods like consumer durables. It should prove an intriguing game to watch; the finance ministers of other countries should find it also rewarding.

Chubbs To Make Safes In N.Z.

Representatives of the Reserve Bank, the trading banks. Government departments and commercial and financial institutions attended a cocktail party given by Chubb Lock and Safe Company, Ltd., in Wellington to mark the beginning of manufacture tn New Zealand, in association with S. A. Hunt and Company, Ltd. Hosts were Mr R. C, Richard, managing director, and S. R. Masters, director Bf Chubb's Australian Company, Ltd., Sydney. Mr Richard said yesterday that by beginning manufacture in New Zealand, the firm could render a better service to buyers. He said that the only holdup now would be the importing of the machine tools necessary tor production. Chubb and Sons supply safes for many commercial and banking services in New Zealand.