New British budget sits heavily on country's taxpayers

The massed ranks of dark-suited government members sat glum and silent, while opposition benches erupted with cries of "resign, resign" as the full weight of new taxes on the average British consumer became apparent.

For 88 minutes the smooth, imperturbable voice of Sir Geoffrey howe, chancellor of the exchequer, outlined a tougher economic strategy than expected, with a number of elements in it similar to President Reagan's current proposals to the US Congress.

The danger, however, is that his new taxes are so tough, and his new aid to industry so limited, that the embattled Thatcher government might end up deepening recession instead of alleviating it.

Like other industrial countries at a time of world recession and rocketing oil prices, Britain is trying to bring down inflation by sharply reducing public spending and restricting the money supply.

Indeed, inflation has dropped, to a mere 7.5 percent over the past six months.

But ailing industry has been hard hit. Unemployment shot up to 2.4 million and output fell 2 percent in 1980. Manufacturing output sank by 9 percent. Companies lost one-quarter of their disposable income.

At the same time, those people still working saw their real incomes rise by 17 percent since 1977, according to government figures.

So Sir Geoffrey's new budget cuts spending, taxes individuals harder than experts had predicted, and gives limited help to industry.

He is also raising an extra L1 billion ($2.2 billion) by new taxes on the north Sea oil that has given Britain energy independence (but which the chancellor admitted was flowing at a slower rate than expected these days).

The budget is seen by many here as a "holding operation," largely based on the fervent hope that the recession will reach its low point several months from now and then begin to taper off.

In part, this is the same kind of "supply side" strategy President Reagan is counting on. The British government hopes the general level of business and consumer confidence is on the verge of rising anew, and that its latest budget measures will position the country to take maximum advantage of the swing.

If recession worsens rather than improves, a minibudget may be necessary later in the year to raise even more revenue. British governments face one major hurdle Mr. Reagen does not: heavily nationalized basic industries running at colossal losses, and needing to be bailed out with public money.

The most unpopular moves in the budget speech March 10 were a renge of new taxes that make it more expensive to drive and register cars, motorcycles, motor scooters, and mopeds, and to drink alcohol, smoke, use company cars, buy goods on company-issued credit cards -- even to buy matches (and cigarette lighters).

At the same time, the chancellor failed to increase personal income tax allowance exemptions at all, contrary to a 1977 law requiring them to be linked to the rise in inflation over the past twelve months.

By that measure, exemptions should have been raised 15 percent, but Sir Geoffrey proposed the House legislate a new measure allowing no change. He had been expected to lift them 5 percent.

This announcement was greeted by prolonged shouting from opposition benches, and cries of "resign" and "cheat."

An audible gasp greeted his new tax on gasoline. This had been expected to add 10 or 15 pence (22 to 33 cents) a gallon, but Sir Geoffrey calmly said gasoline will not be 20 pence (44 cents) a gallon higher. This brings a gallon of British gasoline to about L1.51 ($3.32) a gallon.

This, Sir Geoffrey said, would yield the government L910 million ($2 billion) in 1981-82. That figure is roughly the same amount that the government has just granted state-owned British Leyland to keep it afloat.

Another L1 billion ($2.2 billion) is being raised by extra taxes on alcohol and tobacco.

After all these fiscal sticks, the chancellor did include a fiscal carrot: He dropped the minimum lending rate of the Bank of England by two points, from 14 to 12 percent.

This will lower home mortgage rates by an expected 1 percent -- but will be more important in allowing industry to borrow more easily and hopefully to employ more workers.

Sterling had fallen on foreign exchanges on advance rumors of the bank rate news. If it stays low, British industry should be able to complete abroad and sell more easily.

A severe testing time lies ahead for the Thatcher government. It admits it underestimated how much it would have to spend to cushion unemployment and salvage nationalized industry in a recession that hit Britain harder than most expected.

Labour Party leader Michael Foot led the opposition charge by labelling the budget a "catastrophe of the first order" and a dose of "massive and monstrous deflation."

You've read  of  free articles. Subscribe to continue.