The Economy Bill

The Budget and the Economy Bill are replete with folly and injustice. It is a tragedy that the moral energies and enthusiasm of many truly self-sacrificing and well-wishing people should be so misdirected.

The objects of national policy, so as to meet the emergency, should be primarily to improve our balance of trade, and secondarily to equalise the yield of taxation with the normal recurrent expenditure of the Budget by methods which would increase, rather than diminish, output, and hence increase the national income and the yield of the revenue, whilst respecting the principles of social justice. The actual policy of the Government fails on each of these tests. It will have comparatively little effect on the balance of trade. It will largely increase unemployment and diminish the yield of the revenue. And it outrages the principles of justice to a degree which I should have thought inconceivable.

To begin with the last. The incomes of well-to-do people have been cut by 2½ to 3½ per cent. The school-teachers are cut 15 per cent,^[1] in addition to the extra taxes which they have to pay. It is a monstrous thing to single out this class and discriminate against them, merely because they happen to be employees of the Government. It is particularly outrageous, because efforts have been made in recent years to attract into the profession teachers of higher qualifications by holding out to them certain expectations. It is even proposed to take powers to dissolve existing contracts. That the school-teachers should have been singled out for sacrifice as an offering to the Moloch of finance is a sufficient proof of the state of hysteria and irresponsibility into which Cabinet Ministers have worked themselves. For it is impossible to represent this cut as one of unavoidable necessity. The money saved is £6,000,000. At the same time £32,000,000 is going to the Sinking Fund, whilst tea, sugar, and a tariff as sources of revenue are left untapped. The Prime Minister has offered no defence, except that some of his former colleagues, who have since recovered their heads, were temporarily frightened into considering something of the same kind.

The school-teachers are the most outstanding case of injustice. But the same considerations apply in varying degrees to all the attacks on the standards of Government employees. The principle of discriminating against persons in the service of the State, because they can be reached most easily, is not right. At least it would have been more decent in the circumstances if the phrase "equality of sacrifice" had not been used.

Moreover, the Government's programme is as foolish as it is wrong. Its direct effect on employment must be disastrous. It is safe to predict that it will increase the volume of unemployment by more than the 10 per cent by which the dole is to be cut. It represents a reckless reversal of all the partial attempts which have been made hitherto to mitigate the consequences of the collapse of private investment; and it is a triumph for the so-called "Treasury View" in its most extreme form. Not only is purchasing power to be curtailed, but road-building, housing, and the like are to be retrenched. Local authorities are to follow suit. If the theory which underlies all this is to be accepted, the end will be that no one can be employed, except those happy few who grow their own potatoes, as a result of each of us refusing, for reasons of economy, to buy the services of any one else. To raid the Road Fund in order to maintain the Sinking Fund is, in present circumstances, a policy of Bedlam.

Finally there is the problem of the Balance of Trade, which, after all, is the main point so far as concerns the emergency. Broadly speaking, the cost of production is left unchanged. Cutting the school-teachers' salaries will not help us to recapture the markets of the world. Those wages and the like which are within the Government's direct control happen to be just those which it is most useless to cut in the interests of the export trade. We are told that it is a wicked misrepresentation to say that all this is a preliminary to a general assault on wages. Yet it has less than no sense unless it is. But meanwhile the Government have noticed that there is just one point where their activities raise the cost of production, namely, the employers' insurance contribution, which is, in effect, a poll tax on employment. So, in order to prove for certain that they are quite mad, the Government have decided to increase it.

There are only two ways in which the Government plan can help the Balance of Trade. Whenever any one is thrown out of work or otherwise impoverished, he will perforce consume less. Most of this reduced consumption will merely cause business losses and unemployment to other Englishmen. Some part of it, however, perhaps a fifth, will be at the expense of imports; though even this would not help if those Free Traders are right who think that a reduction of imports leads to a corresponding reduction of exports. But it is a wasteful way of setting about the task of reducing imports. The other way is by increasing both the quantity of unemployment and also the pains of being unemployed, since this may slightly increase the chance of wage-reductions being accepted. Economy can have no other purpose or meaning except to release resources. A small proportion of what is thus released will relieve the Balance of Trade. The rest will be resources of domestic plant and labour, of which we already have a surplus out of use.

Thus the Government's scheme, for the sake of which we are asked to swallow so much, is in the main misdirected, and will not assist the solution of our twin problems of unemployment and an adverse balance of trade.

As regards the latter, which, unremedied, will at no distant date break the gold standard even if we cut school-teachers' salaries to nothing, the only remedies now open to us are Devaluation, a drastic restriction of imports by direct methods, a severe cut, not less than 30 per cent in my judgement, in wages and salaries, or a decisive change in the international position. An attack on wages would mean a severe industrial struggle which would drive us off gold-parity within a few weeks; so that this is not in practice an alternative to Devaluation. Thus there are only three lines of policy to which it is worth the Cabinet's while to direct their minds. The first and mildest is a plan for the restriction of imports. The second is a plan for getting off gold-parity without allowing the slide to go too far. The third is a plan for an International Conference—one that means business of the most definite kind, quite different from any Conference ever held hitherto—for giving the gold-standard countries a last opportunity. All the rest is waste of time. The advantage of the last alternative is that this alone offers any chance, however slight, of an amelioration of the international position, without which we are faced with a disappearance of income from our foreign investments on a scale which neither a Tariff nor Devaluation could offset.