Major's Economic Strategy Changes After Mining Debacle

PRIME Minister John Major has switched economic direction and opted for a "go for growth" strategy in a bid to prevent Britain's deepening recession becoming a full-scale slump.

His decision last week to increase capital spending on infrastructure, allow interest-rate cuts, and accept inflation of 2 to 3 percent, instead of aiming at a zero rate, is being overshadowed by growing doubts about the credibility of the government's economic decisionmaking machine.

An attempt by Mr. Major two weeks ago to close more than half the nation's coal mines was headed off last week by dissident government backbenchers in the House of Commons. They forced the prime minister to delay the pit closure program, pending an inquiry into future energy needs.

Conservative members of parliament said the sudden switch to a growth strategy after several years of bearing down hard on inflation, was also a response to pressure by government supporters alarmed at the deteriorating economy.

This past weekend, elated by the influence they were having on economic policy, Conservatives opposed to the Maastricht Treaty on European political and economic integration, began pressing Major to delay debate of the controversial legislation, at least until next year. Sir Marcus Fox, chairman of the Conservative backbenchers, told Major that most of the parliamentary party believed early consideration of a Maastricht bill was not in Britain's interests. The prime minister told Sir Marcus that ratifica tion of Maastricht was a key part of the government's economic strategy.

There was also heavy criticism of how economic strategy was being handled. David Howell, energy secretary under Margaret Thatcher, accused the Treasury of large-scale miscalculation. Mr. Howell said of the pit closure decision: "I suspect that if you follow back the powder trail from where the explosion took place, it will lead to the Treasury." Major came to the premiership in December 1990 with what appeared to be a proven record of economic management. He was chancellor of the exchequer in the Thatche r government and was a driving force behind the former prime minister's decision to take Britain into the European exchange-rate mechanism (ERM).

On Sept. 16 Major was forced to abandon the ERM and devalue the currency. Three weeks later the decision to close 31 of the country's 50 coal pits produced a huge surge of opposition. Leading Conservatives, industrialists, and economic analysts joined a protest against the closures. Thousands of miners and supporters staged a march on parliament last Wednesday. When Conservative backbenchers threatened to overturn his majority in the Commons, Major put the mine closures on hold and decided that Britain w as headed for depression unless it switched to a growth strategy.

Major announced his growth strategy after the publication of government statistics showing that male unemployment was at its highest level since the depression of the 1930s.

The total number of people out of work is currently 2.83 million, and rising by 8,000 a week. Every month 5,700 companies are failing. Government sources concede that unemployment will rise to well over 3 million before any improvement can be expected.

Ian Fells, professor of energy conversion at Newcastle University, noted that Britain has more than half of the European Community's recoverable coal. "Denying ourselves access to that resource while relying on expensive nuclear power and natural gas makes no sense at all," Mr. Fells said. "We are the most fuel-rich country in Europe. Once you shut down a coal pit you lose it virtually forever. He added that several of the pits Major wanted to close were profitable and producing coal more cheaply than mi nes elsewhere in Europe.

John Watts, the Conservative chairman of the influential Commons Treasury committee (a cross-party panel of senior parliamentarians) pointed out that by contrast with Britain, Germany was heavily subsidizing its coal industry.

At one point Watts threatened to vote against the government unless it reversed its pit-closure program. In deciding to support the government he made it clear that he and his committee would be giving future energy strategy the closest attention.

Government sources suggest that cuts in interest rates below the current level of 8 percent are likely in coming weeks. Norman Lamont, chancellor of the exchequer, who has been heavily criticized for his role in quitting the ERM, is expected to give more details of the government's growth strategy early in November.

In an attempt to placate anti-Maastricht Conservatives, Major promised on Friday that ratification would be debated in the context of a broad reassessment of Britain's economic goals. But Lord Tebbit, a former Conservative party chairman (who with Lady Thatcher leads the anti-Maastricht group at Westminster) urged members of parliament to reject ratification, even if it meant having to get rid of Major as prime minister.

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