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Sweeping British tax reforms criticized for favoring the rich

By Julian BaumStaff writer of The Christian Science Monitor / March 17, 1988



London

In the rowdiest session in the House of Commons in recent memory, Britain's chancellor of the exchequer announced this week major tax reforms which favor the rich and a balanced government budget which offers no new money for social programs. Chancellor Nigel Lawson proposed in his annual budget speech a simplification of Britain's tax system, abolishing all tax rates above 40 percent and lowering the basic tax rate by two percent to 25 percent.

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Other changes included a modest increase in personal allowances which raises the minimum income excluded from taxation. He set a long-term target of 20 percent for the basic tax rate.

This was the most radical change in Britain's tax structure since World War II. It returned the basic tax rate to its lowest level in 50 years. Mr. Lawson proposed the first balanced budget for a British government since the 1950s and projected a budget surplus this year of some $5.5 billion which would be used for repaying government debt.

The announcement Tuesday evening was greeted with sneers and catcalls from opposition members in Parliament who criticized the budget as a giveaway for the wealthy. There was instant hysteria in the House of Commons when Lawson announced that the top tax rate of 60 percent was cut back to 40 percent. The tax cut meant that out of an estimated $7 billion the government would not plan to collect in the future, about $3 billion is going to those in upper income brackets.

Lawson's speech was stopped twice, once when the chamber paused to vote to expel a member of the Scottish Nationalist party who called the lowering of the basic tax rate an ``utter obscenity.'' The outcry was prompted in part by Scottish objections to a national per capita tax scheduled to be implemented first in Scotland, one of the poorest regions in Britain, later this year.

But behind the drama of this year's budget was a personal triumph for Lawson, who, during five years as chancellor, has simultaneously reduced inflation to 3.3 percent and cut taxes. His talent for economic policy and managing the budget has given him a formidable reputation within the ruling Conservative Party and he is sometimes mentioned as a successor to Prime Minister Margaret Thatcher.

It was the potential rivalry between the two powerful Conservative Party politicians that almost overshadowed the government's budget message. There were leaks last week from their adjacent Downing Street offices that Lawson and Mrs. Thatcher were in dispute over the management of the value of Britain's pound, including hints that Lawson might resign over the issue and take a lucrative job in London's financial sector.

Lawson favors government intervention in world money markets and lower interest rates to control the pound which reached a high yesterday of $1.85 and 3.085 deutschmarks. Thatcher advocates the rule of the marketplace and, in recent parliamentary debate, has opposed attempts to stabilize exchange rates through an active monetary policy.

Lawson has Thatcher's full support, however, for his tax reform package which he told Parliament Tuesday would give Britain ``one of the simplest systems of income tax in the world.''

He was typically immodest in describing Britain's ``unprecedented economic strength'' under his tenure as chancellor and proclaiming his ``radical reform'' and eliminating ``long-standing injustice'' in the tax system.

The opposition Labour Party was predictably outraged, though their position is too weak to affect the budget proposals in parliamentary debate.

``The more I look at it the more staggered I am at the callousness, at the wrong sense of priorities,'' said John Smith, the ``shadow'' chancellor of the opposition Labour Party in a radio interview Wednesday.

Mr. Smith said the government should have spent its surplus on the National Health Service and other social programs rather than reduce tax rates so drastically.

There was also debate about the budget's inflationary impact on the economy which, analysts say, is experiencing a consumer boom. London's financial community has been cautious in its reaction though it does not disagree with Lawson's projection of strong growth with low inflation this year.