Business: Time to Be Bullish on Britain?

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When it comes to money, Britain's problem for years has been where and how to borrow enough to keep its rickety economy going. Now the British government faces exactly the opposite question: how best to spend the $40 billion or so that will flow into the national treasury in the next seven years. That is obviously a happy problem, but a problem nonetheless: while a right decision offers Britain the chance at last to break decisively out of the cycle of ravaging inflation and high unemployment in which it has been trapped, a wrong choice could keep that cycle going.

The source of the bonanza is North Sea oil. By the end of 1977, taxes and royalties on it will have brought the government a trifling $9.5 million. But during 1978 and 1979, the government's take will multiply a thousand times, and by the mid-1980s Whitehall's share will be running at $6.7 billion a year.

The money is beginning to roll in at just the right time; after three nightmarish years, Britain is finally getting its economy in order. Much of the credit goes to the International Monetary Fund, which a year ago made available $3.9 billion in loan money to Britain in return for a severe austerity program. The IMF loan prevented a collapse of sterling. A long period of voluntary wage restraint, accepted by Britain's powerful trade unions at the Labor government's prompting, has reduced inflation from a Latin American annual rate of almost 27% in August 1975 to a still high 13% now.

The decline of inflation has given a welcome boost to British exports, which during 1977 significantly increased their share of the world market. As exports have risen and the pound has steadied, foreign capital has once again begun to flow into Britain, converting a 1976 balance-of-payments deficit of $6.9 billion into a surplus of $10.3 billion in the first nine months of 1977 (including both current transactions and capital movements).

Freed from worries about the pound and payments deficits, the government can now turn to correcting the long-term economic neglect that has made Britain the industrial world's basket case. Since November, the Labor Cabinet has been debating five main options for using the North Sea revenues: 1) accelerate repayment of the country's $24 billion in accumulated long-term foreign debts (an unlikely choice), 2) develop alternative sources of energy against the day when North Sea oil runs out, 3) expand public services in order to reduce unemployment, which last month declined only slightly from its autumn-long postwar record level, to 6% of the labor force, 4) increase investment in modernizing Britain's woefully outdated plant and equipment, 5) cut taxes. The decision, which will not be made until Parliament debates the issue in the next few months, undoubtedly will be some combination of several of these alternatives.