Early Christmas

Britain's heavily burdened taxpayers last week got an early Christmas present from Denis Healey, the Labor government's stern Chancellor of the Exchequer and previously a champion of austerity. Presenting his second minibudget of the year to a tune of increasing optimism over North Sea oil, Healey abandoned his Scrooge-like posture to unwrap a package of tax cuts and state-pension increases worth $1.75 billion this fiscal year (which ends next March) and $3.5 billion in the following fiscal year. Under the proposals, a married couple earning $8,750 a year will pay $95 less income tax; Britons will be allowed to spend more pounds abroad; widows and pensioners will get a one-shot, tax-free Christmas bonus of $18 each; and small businesses will be granted some relief from the tax on sales or other transfers of business assets. SANTA DENIS! cried a headline in London's racy tabloid the Sun.

Whether the timing is right for such stimulus to the economy is highly debatable. Prime Minister James Callaghan a few weeks ago told the Labor Party conference in Brighton that Britain is on the verge of an era of prosperity that "will eclipse anything seen since we became an industrial power 200 years ago." In his speech last week, Healey optimistically forecast that inflation would fall to a single figure. At present, inflation, though down, is still running at a high annual rate of 16.5%, and some unions are pushing for wage boosts going beyond the government's guideline of 10% a year.

In fact, the budget seemed shaped much more by political than by economic considerations. After trailing badly for a long time. Labor is now running neck and neck with the Conservative Party in public-opinion polls. Callaghan must call an election within the next 24 months, but could do so earlier if Labor takes a strong lead--as it might if Healey's minibudget proves popular. The London Times editorialized that the budget seemed designed "to keep the political initiative rather than for any purpose of managing the economy." Tories, bitter because Labor had stolen their policy of aid to small businesses, described Healey's package as "a budget of repentance ... an electioneering budget."

Healey did make a plea for further wage restraint. He tentatively promised more tax cuts and spending increases next spring--but only if unions adhere to the 10% wage guideline. Even if they do, some economists worry, the Labor government in its rush to secure victory at the polls may spur a new round of inflationary consumer spending. Labor Party leaders said at Brighton that Britain ought to spend North Sea revenues to modernize its industry and build new income-producing businesses. By giving most of its goodies to consumers, this minibudget goes in the opposite direction.

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