DIALÉCTICA DEL RECONOCIMIENTO

Chancellor: Roy Jenkins; Prime Minister: Harold Wilson (Labour)

Context

Of the 1968 Budget, Cairncross notes it “slowed down the rapid expansion in progress but did not put an end to the pressure on sterling”.366 The 1969 FSBR also noted that while the balance of payments was improving during 1968, the “results came more slowly than expected”367 at the time of the 1968 Budget. Continuing speculative pressures forced extra tightening through 1968. Monetary policy was tightened in May and by November hire purchase and lending restrictions and import deposits were introduced. The Chancellor also made use of the regulator, raising consumption taxes by 10 per cent (covered below).368 However, “the indicators for the months following the November [1968] measures suggest some slowdown in demand”.369

Overall Budget Objectives

The Chancellor noted that, although previous measures achieved some progress, there is “clearly still a long way to go” in dealing with the balance of payments.370 While not as stringent as in the previous year, more corrective measures would be needed. The Chancellor forecast that “output would grow slightly in excess of productive potential” and noted that “the balance of payments should cross the line from deficit into surplus fairly soon, but in the absence of further action it is unlikely that within the next year we would attain the substantial rate of surplus which is essential… I must therefore limit the growth of home demand”.371 In short, the main purpose of the Budget “is to restrain current consumption”.372 However, unlike in the previous year, a number of concessions were granted – and were typically focused on particular social groups. It is also worth noting the Chancellor’s interest in simplification “I am constantly urged to produce

363

HC Deb 19 March 1968 vol 761 c299 364

HC Deb 19 March 1968 vol 761 c295 365

HC Deb 19 March 1968 vol 761 c298 366 Cairncross (1992), page 167. 367 FSBR 1969, page 5. 368 Cairncross (1992), page 167. 369 FSBR 1969, page 6 370

HC Deb 15 April 1969 vol 781 c992 371

HC Deb 15 April 1969 vol 781 cc1001-2 372

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simplification. I am instinctively sympathetic to such pleas”.373 In general, there were some reforms, some social concessions and a sizable number of revenue raisers. As a rule of thumb below, the tax rises were all to limit demand — and while no direct, explicit link is made in this speech between the overall objectives and the specific measures — comments about the need ‘to seek the required additional revenue’ this year are a useful indicator.

Pre-Budget Measures

On 22nd November 1968, and effective from that date, it was announced that the regulator would be used to impose a 10 per cent surcharge on the Purchase Tax, tobacco, oil and alcohol duties. Currency speculation had been rife but also “the speed of our movement into balance of payments surplus has been insufficient”.374 In justifying use of the regulator, the Chancellor continued “Despite high exports, our trade figures, while improving, have not done so as fast as necessary. One reason is the continuing high level of consumer spending… In order to accelerate our progress, particularly in view of the international events of the past week, we need to take firmer action to curtail demand, especially demand for imports”.375 I therefore classify the November measure as endogenous, demand management.

By the April 1969 Budget, the Chancellor had to decide whether to maintain this increased revenue. Though no specific motivation is given, the Chancellor consolidated the 10 per cent rise into main duty rates on 15th and 16th April 1969. Given the original motivation and the Chancellor’s overall Budget aims, discussed above, I continue to classify this 1969 measure as endogenous, demand management.

Major Budget Tax Changes

In addition to maintaining the surcharge there were further increases in consumption taxes in the 1969 Budget. Fuel duties increased on 15th April 1969 as “I am not… able to avoid some further contribution from road users. Consumers' expenditure on motoring has been rising very sharply in recent years”.376 Wine duties rose on 15th April as well: “very much against my own personal inclination, however, I have decided that these considerations against a further increase do not apply to wine. Consumption has grown at a remarkable rate”.377 Having rejected a rise in Purchase Tax rates beyond the consolidation of the November surcharge, Jenkins states “I do not, however, believe that these considerations apply to some broadening of the base of Purchase Tax”378 and more items were brought into the tax to raise revenue from 27th May 1969. There were also changes to betting and gaming duties from 1st October 1969. Again, having rejected increases in rates, “I nevertheless think it reasonable to seek more revenue from this source”.379 Given the overall objectives of the budget – and all these changes being revenue raisers – I classify these as endogenous, demand management.

Corporation Tax was increased by 2.5 per cent to 45 per cent from 1st April 1968 as “after a very buoyant rise in company profits, I cannot exclude companies from some further contribution”.380 The Selective Employment Tax was also increased from 7th July 1969 as “I need more than £100 million more, and I need it in a form with a substantial demand or resource releasing effect”.381 This also increased the amount of refunds, so the net effect of the tax rise was £136 million (0.3 per cent of GDP) in a full year. As revenue raisers, faced with the overall objectives of the Budget I classify these as endogenous, demand management.

On capital income taxes, relief for interest was removed for new loans from 15th April 1969. The concluding justification was “by attacking the problem of loans for personal expenditure at both ends, discouraging borrowers as well as lenders, I expect to secure a substantial reduction in consumer demand”.382 I therefore classify this measure as endogenous, demand management.

However, there were some concessions given in the Budget. Five remissions were made on income tax allowances and bands from 6th April 1969 and “I must concentrate this year on more vulnerable sections

373

HC Deb 15 April 1969 vol 781 c1016 374

HC Deb 22 November 1968 vol 773 c1792 375

Ibid. 376

HC Deb 15 April 1969 vol 781 c1025 377

HC Deb 15 April 1969 vol 781 c1022 378

HC Deb 15 April 1969 vol 781 c1023 379

HC Deb 15 April 1969 vol 781 c1020 380

HC Deb 15 April 1969 vol 781 c1026 381

HC Deb 15 April 1969 vol 781 c1028 382

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of the community”.383 There were increases in the single and married persons’ allowances together with a change in bands as “I believe that the level of income at which tax starts to be paid is too low”.384 There were other “concessions” for those with single-handed care for children and on age relief “to help elderly people living on a fairly modest income from their savings”.385 “Taken together, these concessions will have a significant effect on the living standards of people who are particularly vulnerable to increases in taxation and the cost of living”.386 These measures I classify as exogenous, ideological. There were also some changes as a consequence of reducing the age of majority to 18 – namely consequences for the tax rules aggregating a child’s unearned income into that of the parent and “corresponding changes should be made [to this] new tax rule”.387 I classify this as exogenous, ideological. However, given the strength of the overall objectives, I also provide an alternative classification of endogenous, demand management.

Two measures were introduced to help businesses. Some close companies are “the soil in which major industrial and commercial initiative may develop and I am persuaded that they have some legitimate grievances”.388 Changes were made to restrict directors’ remuneration and to make some allowance for interest paid to directors. I classify these changes as exogenous, long-run. Some changes to the classifications within the Selective Employment Tax were altered as “there are bound to be hard cases at the borderline. Many of these have already been resolved administratively… There are certain other steps which we can take”.389 I classify this measure as exogenous, long-run as it improves the tax. This change occurred with the other S.E.T. changes. Again, an alternative classification of endogenous, demand management is given.

On Estate Duty “I am anxious to find room for some lightening of the burden of duty in the smaller cases” and to introduce some reforms providing “a smoother progression, and, in particular, remove a difficulty of the present system in dealing with marginal cases”.390 The motives here both appear exogenous – the first is more ideological and the second more long-run. Without a way of splitting these up I classify them as exogenous, ideological (and with the alternative classification).The changes came into effect on 16th April 1969.

Finally, gilt-edged securities were also exempted from Capital Gains Tax from 15th April 1969 which “should make gilt-edged more attractive to investors and will encourage a more active market in gilts — a necessary condition for a successful selling policy”.391 As this measure is listed under monetary policy and related to sterling to deal directly with the balance of payments, I classify the change as endogenous, deficit reduction. Finally, relief was given for capital gains arising from devaluation and was effective from 19th November 1967.