British Budget Sends Major On Long Reelection Road

Voters get a tax cut, but less than some Conservatives hoped for

MANY Conservative politicians in Britain were demanding a budget that would boost, at a single stroke, the ruling party's chances of retaining power in the next election.

Instead, Chancellor of the Exchequer Kenneth Clarke unveiled an annual budget with modest tax cuts and a longer-term strategy of steadily fueling the ''feel-good factor'' among voters.

The immediate political effect of Mr. Clarke's financial statement, delivered Tuesday, was to dampen Conservative Party hopes of a ''quick fix'' that would improve the government's flagging fortunes.

John Townend, influential chairman of the Conservative backbench finance committee in Parliament, said Clarke would be under mounting pressure to produce measures, including interest-rate cuts, designed to please voters.

''No one can accuse the chancellor of attempting to bribe the electorate,'' Mr. Townend said. ''He has given us the first building bricks for a recovery of government fortunes, but much more needs to be done.''

John Redwood, who challenged John Major for the leadership of the Conservative Party earlier this year, says he had hoped Clarke would cut taxes by 5 billion ($7.6 billion); Clarke's plan reduces taxes by 3.1 billion.

Political commentators generally agree that Clarke's approach signals that the government intends to serve a full five-year term.

That gives it a maximum of 18 months in which to stage the political recovery needed to fend off an election challenge from the Labour opposition under its new leader, Tony Blair.

''The one certain conclusion from the budget is that the general election will not be held before spring 1997,'' says political analyst Peter Riddell.

Clarke's measures include reducing the basic rate of income tax from 25 to 24 percent, cutting 1.5 billion in public-sector investment, and adding restrictions on certain classes of welfare, including single-parent benefits.

Notably absent from the budget was anything to pump new life into the construction industry. For the first time in more than 100 years, Clarke reduced taxes on alcoholic spirits.

He said his budget was intended to create ''a Britain in which everyone can keep more of what they earn or save.''

But the Institute for Fiscal Studies says the bottom 10 percent of Britain's population, which includes the unemployed, would be left ''worse off'' by the budget, whereas the top 10 percent would gain more than 7 ($10.73) a week.

Mr. Blair's response to the chancellor's list of measures was to jibe: ''If this budget was supposed to relaunch the Conservative Party, it will fail.''

In London's financial district there is a broad consensus that by being cautious now, the chancellor is hoping to give himself scope for greater generosity in the months ahead.

The budget forecasts inflation at only 2.5 percent, and analysts tend to agree that Clarke is likely to cut interest rates, perhaps before Christmas.

Reflecting the desire for a cut in rates, four of Britain's leading home-loan companies decided on Nov. 29 to reduce their lending rates unilaterally.

Clarke's anticipated strategy of steadily fostering voter support by ordering interest-rate cuts in coming weeks and delivering a second tax-cutting budget next fall - all ahead of a general election the following spring - is seen by some analysts as risky.

David Owen, an economist with Kleinwort Benson, says the government's effective House of Commons majority of only six seats puts the strategy ''on a knife-edge.''

Even Conservative loyalists doubt whether Prime Minister Major's fortunes will be much improved by the Clarke strategy.

Clarke has had to revise his estimates for future government borrowing, and this has attracted criticism. He is proposing to borrow 29 billion in the 1995-96 fiscal year, a boost of more than 5 billion from prior estimates.

''The markets are left with the feeling that Clarke had to take a few risks on the borrowing side to fund only a modest tax-cutting package,'' says Keith Skeoch, chief economist James Capel, an investment house.

The strong challenge the Labour opposition seems certain to mount in the run-up to the general election is reducing Clarke's room for maneuver on taxes.

Labour is promising to spend more on schools, take measures to safeguard the state-funded health service, and stress law and order.

In response, Clarke's budget sanctioned extra spending on health, education and the police.

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