Britain's Budget Focuses On Cutting Public Deficit
But indirect taxes to help meet that goal will hurt the middle class
KENNETH CLARKE, Britain's chancellor of the exchequer, is aiming to put the country's finances on a sound footing by the end of the century.Skip to next paragraph
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But analysts say the goal stated in his first annual budget of wiping out a ballooning public deficit of 50 billion [$74 billion], though achievable, will be met only at a high cost to consumers.
As a political exercise, Mr. Clarke's proposals delighted fellow Conservatives at a low point in the government's fortunes. They also pleased industry leaders who had feared that Britain's fragile economic recovery might be snuffed out by heavy-handed measures.
Most consumers, however, will find themselves paying more for transport, fuel, and some other products as the Clarke measures take hold.
The budget proposes no increase in income tax or value-added tax, and demands heavy cuts in public spending, notably on defense and the environment. Both lines of approach pleased right-wing Conservatives on whom John Major, the prime minister, heavily depends for support.
But gasoline, tobacco, and wine will cost more, and new taxes are to be levied on air travel, airline fuel, and insurance premiums.
Clarke proposed substantial weekly child care payments to help mothers obtain jobs otherwise denied to them by their family responsibilities.
He drew howls of protest from the opposition Labour Party by curbing unemployment and benefits for invalids, slashing state grants to students, and putting women on an equal footing with men by raising their retirement age from 60 to 65.
John Smith, the Labour leader, accused Clarke of setting out to correct the government's past economic errors by ``attacking the welfare state.... This is a disgusting fiscal cocktail of broken tax pledges and assaults on welfare.''
Clarke insists he has made a realistic attempt to return the economy to health.
In his speech to Parliament Nov. 30 he said: ``My budget puts Britain firmly on course for a sustained period of rising prosperity and falling unemployment, based on low inflation and healthy public finances.''
Analysts generally gave the budget a cordial welcome, though there are doubts about continuing growth in the economy.
David Currie, director of the London Business School, says Clarke has defused a potentially damaging dispute over an earlier decision to impose VAT on domestic fuel by offering pensioners subsidies to meet the extra cost.
Gavyn Davies, head of research at Goldman Sachs, says that new indirect taxes mean middle-income Britons will bear a heavier financial burden as Clarke struggles to bring down government borrowing to zero in the next seven years.
Mr. Davies characterized the budget measures as ``brave and generally sensible.'' They represented a ``necessary reversal of inappropriate budgetary easing in the second half of the 1980s.''
A surprise in the budget was a heavy cut in public spending. Clarke proposes a 3.5 billion cut next year, rising to a 10 billion cut in 1997.
He is likely to be helped by falling inflation. Tim Congdon, director of Lombard Street Research, said less inflation would reduce the trend to higher government spending next year.
Howard Davies, director-general of the Confederation of British Industry, the main employers' organization, said it was ``the kind of strategy manufacturers and exporters need.''
Clarke's budget generated special interest because the chancellor is seen as a likely successor to Mr. Major. It won high marks for confident delivery from Conservative members of Parliament.
The chancellor is a tough-talking, no-nonsense politician. He is a strong believer in European unity and, in the teeth of right-wing Conservative criticism, continues to insist that Britain should one day return to the European Community's exchange rate mechanism.
There was unease among some economic analysts over the budget's growth forecasts. Clarke said growth of 2.5 percent could be expected next year.
But Wynne Godley, professor of economics at Cambridge University, believes the forecast is ``too high, and miserable anyway. If the rate continues at or below 2.5 percent we are still effectively in recession.''