More Freeze & Squeeze

The land of the mod and the miniskirt is also the home of the mini-growth economy. Last summer, faced with mounting international debts, a critical gap between rising imports and diminishing exports, and growing skepticism about the value of the pound sterling, Britain's Labor government put the nation on a deflationary diet. Wages, profits and dividends were frozen; taxes were pegged high to dampen spending, and even a slight rise in unemployment was tolerated by a Labor Party that had always stood for full employment. Saddled with such restraints, Britons quickly became uncommonly economy-conscious. And they listened with uncommon attention last week when Chancellor of the Exchequer James Callaghan, with a rosebud in his lapel and a glass of orange squash close by to fuel him through a 36-page speech, rose in Commons to present the fiscal '68 budget.

"Restoring Our Fortunes Abroad." "The measures," said Callaghan, speaking of last July's austerity orders, "are doing what the government expected of them, namely restoring our fortunes abroad while giving us an uncomfortable time at home. The freeze and squeeze have been worth it." The trade deficit, reported the Chancellor, dropped from $126 million a month in 1964 to $32.2 million a month last year, as exports rose 14%. Britain's baiance-of-payments deficit eased from $974 million to $529 million as funds flowed in. As a result, Britain will be able to pay off debts amounting to $896 million that it owes the International Monetary Fund and foreign banks--probably before the December due date. Even more important, said the Chancellor, the pound has been restrengthened. As a result of Callaghan's speech, it rose to $2.80 in foreign-exchange trading last week, the first time in 14 months that it managed to reach its parity rate.

The government was frankly pleased by such results from a year of freeze and squeeze. "We are back on course," Callaghan told the house. "The ship is picking up speed." Then, to the disappointment of his listeners, the helmsman added: "Every seaman knows the command at such a moment: steady as she goes." Callaghan urged another year of deflation. Government spending will rise by 8 1/2%, he said, but wages, profits, dividends will continue to be dampened --by law until the austerity measures run out in July, after that by persuasion and the specter of reimposed orders. To the alarm of businessmen, private investment will drop another 10% under government pressure.

Only modest changes will be made in tax laws, giving a break for example to motorcyclists and liquor-store owners. The way to health, said Callaghan, is through increased productivity rather than lower taxes. "If you happen to be an unmarried woman novelist running a liquor store and supporting a widowed mother who does part-time work, with a passion for motorbikes and wanting to buy a house this autumn for -L-5,500 then this is your budget," sniffed the Daily Express.

Stay-at-Home Vacations. For all the gains that Callaghan proudly pointed to, Britain is not yet clear of some economic shoals. The government still owes another $1.4 billion to the IMF, which will come due in 1970. The trade gap is far from permanently closed. And lately it has begun to widen, largely because the U.S., on whom Britain depends to absorb its stepped-up exports, has problems of its own and is buying less. Unemployment, while leveling off some, is still 2%; the Selective Employment Tax that was supposed to force workers out of service jobs into manufacturing has plainly not been effective.

Under such circumstances, the average Briton may not have lost money under freeze and squeeze, but he has not gained much either. Prices are steady; he can cover his needs, visit a pub, even buy such luxuries as a new television set. But sales of autos and houses are slow because money is tight. Few people will vacation abroad this year because of the $140 limit on money that can be taken out of the country.

The ship may be on course, but the passengers are feeling surly. After word of the new budget was passed last week --by press and telly and town crier--voters (see THE WORLD) went strongly Tory in local elections.

This file is automatically generated by a robot program, so reader's discretion is required.