Thatcher's budget: she giveth and she taketh away

For a young man out of work, for the sales manager of a small company, and for an average family running a car, the latest British budget is not much immediate help.

But the Conservative government's strategy looks beyond this year, in which it acknowledges that unemployment will continue to rise. And it relies on two worldwide economic trends outside the control of the budget: falling oil prices and lower interest rates.

The overall aim is to help business, both big and small, with a series of measures, including help on energy costs and a 1 percent reduction in the government payroll tax. The government says it can discern the first faint signs of economic recovery and hopes that the new budget will accelerate them.

This in turn, it believes, will boost business and cause it to employ more people. The big questions are whether the long-hoped-for economic recovery has in fact begun, and if so, how soon business might begin to hire staff instead of laying people off.

On the answers depend not only Prime Minister Margaret Thatcher's own hopes for reelection about two years from now, but also the hope of a job -- any job -- for hundreds of thousands of young people across the country, many of whom have not worked since leaving school.

More immediately, the government hopes that by lifting a number of pension benefits it can help slow down the momentum of the new Social Democratic Party and defeat leader Roy Jenkins at the important Hillhead by-election in Glascow March 25.

Initial reactions to the budget included mild praise from Conservative back benches, strong criticism from the Labour Party, and dismissal by the Trades Union Congress (TUC), which called it ''timid'' and a ''missed opportunity.''

The voice of business, the Confederation of British Industries (CBI), gave measured approval. Director-general Sir Terence Beckett said business had not got all it wanted but the budget had moved in the right direction. He said the 1 percent reduction in the government payroll tax would save business (STR)640 million (about $1,100 million) in the near future.

The TUC has been advocating (STR)8.3 billion (about $15 billion) of new government spending, which it insists would create 667,000 new jobs in its first year while increasing inflation by only 1.1 percent.

Chancellor of the Exchequer Sir Geoffrey Howe announced in the House of Commons March 9 a (STR)1.3 billion ($2.53 billion) package of new spending that will help business, and a higher-than-expected tax break for individuals. He also announced higher old age, unemployment, and child benefits; a lower government stamp duty for buying new homes up to a certain limit; a new plan to put 100,000 unemployed young people to work on nonprofit community projects.

Catching instant headlines in Britain were extra indirect taxes that will wipe out almost all the benefits given. The extra taxes raised the costs of alchohol and cigarettes, and of operating motor vehicles. The government had previously announced a rise in government social insurance which must be paid by employees each week.

The average married man will gain from the raising of income tax allowances by 14 percent (2 percent higher than the rate of inflation), but will have to pay out about the same amount in extra auto costs. Annual road tax has gone up from (STR)70 ($126) to (STR)80 a year, and gasoline is up 9-pence a gallon to about (STR)1.57 pence ($2.86).

More hopeful for the average man is a drop in home mortgage rates widely forecast after the budget. The government has announced lower rates of interest on a new savings certificate, thus allowing British building societies (roughly equivalent to US savings and loan associations) to lower their own rates.

Behind the maze of figures in the new budget, the economic road ahead remains difficult to predict.

The government pins its long-term hopes to lower interest rates in the United States and Western Europe. Britain is a relatively small industial power and has been buffeted by high US interest rates for many months.

US rates have now begun to fall and the stage is set for lower rates here. The government hopes that business will pick up as a result -- particularly the ailing construction industry, which also received special help in the budget.

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