Mean Budget

Critics decry the P.M. 's plans

Some of the voters who put Margaret Thatcher and the Conservatives into office last May may well be wondering just who is in charge at 10 Downing Street, Mrs. Thatcher or Nobel-prizewinning U.S. Economist Milton Friedman. Friedman's philosophy of monetarism--unflinching regulation of a nation's money supply as the golden elixir for economic health--flows through every line of the Thatcher government's budget for 1980. The proposed budget, which is virtually assured of passage, was presented last week to a grim session of the House of Commons by Chancellor of the Exchequer Sir Geoffrey Howe, and the reactions it produced ranged from apprehension to bitterness.

To fight inflation, now at 19%, the plan called for deep cuts in public spending--over the next four years, $20 billion less than the last Labor budget. Foreign aid, education, housing and municipal programs of all kinds were slashed. No sector of the British economy was untouched. To raise revenues, North Sea oil taxes were hiked 10% for oil companies, adding to the $1.1 billion already gushing into the treasury's coffers as high-grade crude comes fully onstream. Alas for the ordinary Briton, new excise taxes raised the price of his beloved beer (to 95-c- a pint from 91-c-) as well as those of wine, whisky, cigarettes, automobiles and gasoline, which costs $2.42 per gal., up from $2.25.

Ironically, those excise tax hikes will have the effect of initially raising inflation to at least 20%. But Thatcher expects her people to support her in the effort to turn the economic indicators around. "We did not promise you instant sunshine," she told a Tory group. "We pointed out over and over again that a nation cannot accelerate downhill for years, then jam on the brakes and suddenly return to prosperity as though the past had never happened."

The budget clearly showed the direction of the Tory government: for the first time since the inception of the British welfare state after World War II, a wide range of social benefits were "de-indexed," or uncoupled from the rate of inflation. Prescription drug prices for many Britons were more than doubled. Sick pay and unemployment compensation were declared taxable income.

The cuts leave Britons with precious little extra change in their pockets. Tinkering with income taxes--raising certain thresholds and allowances--will save some administrative costs and put only one or two additional pounds into the hands of the average family of four. That is not likely to impress most people, who flocked to pubs last week to drink up before the new taxes went into effect, and laid in cases of Scotch and gin to beat the $1.10 increase on each bottle.

Laborites fumed. Chief among them was former Prime Minister James Callaghan, who called the budget "the meanest the country has had since 1931." Surveying the new excise taxes, David Basnett, general secretary of the General and Municipal Workers Union, snapped: "Workers who live in a cave--if they don't smoke, if they don't drink, and if they drive an electric car--might say they were coming out better." Even business was chary over Thatcher's plan, which will be especially painful in the short term.

Thatcher's budget comes at a time of unrelieved gloom on the British economic horizon. Unemployment has risen to 1.4 million, or 5.6%; it will probably reach 2 million by the end of next year. The high cost of money, now 17% to big borrowers but much more to the average consumer, has driven many small companies into bankruptcy and primed the nation for a deep recession. Growth prospects are discouraging; Chancellor Howe concedes that the economy will decline by 2.5% this year.

The foul mood prevailing in Britain as a result of Thatcher's economies was scarcely improved by the announcement that allowances for the royal family will go up by more than $1.1 million in 1980. One item: a 32% raise, to $187,000, in the allowance given to Princess Anne. Though her husband Captain Mark Phillips once explained, "We're a young couple and we've a mortgage like everyone else," their plight elicited little public sympathy. A sporting headline in the London Daily Mirror summed up the general reaction: GOOD DAY FOR THE ROYALS. MEAN DAY FOR THE REST.

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