Britain: Howe It Hurts

Thatcher holds her course

Britain's Chancellor of the Exchequer Sir Geoffrey Howe had barely finished addressing the packed House of Commons when an avalanche of outrage and derision descended. "A catastrophe of the first order for the British people," sputtered Opposition Leader Michael Foot. "Fundamentally wrong in concept and maladroit in detail," complained a fellow Conservative M.P., Peter Tapsell. Said London's staid Financial Times: "An admission of defeat by the government." Blared the tabloid Sun: "Howe it hurts."

The target of the multifaceted protest last week was an 82-page document Howe had extracted from its battered red case: Prime Minister Margaret Thatcher's severely austere new budget, which she insisted "laid a solid foundation for sustained revival of the British economy." Ignoring urgent pleas for relief from both industry and trade unions, Thatcher asked Britons to swallow yet another dose of her bitter, monetarist medicine. "This government," she insisted, "has taken the wise and moral course, and I will challenge anyone who takes the contrary view." The new budget will raise government revenue by $7.7 billion-in part by imposing heavy new excise taxes on beer, liquor, cigarettes and gasoline. A fifth of 70-proof Scotch whisky, for example, went up from $11.80 to $13.54. The price of cigarettes jumped 31¢ to $1.93 a pack. Gasoline increased by 44¢, to an eye-opening $3.42 per imperial gal. Consumers will also face increased personal income taxes. Reason: tax allowances will no longer be adjusted to offset Britain's 13% inflation rate.

British industry received a few small breaks. The nation's minimum lending rate was reduced from 14% to 12%, a move designed to stimulate new investment and reduce the cost of British exports. At the same time, however, the oil and banking industries were hit with new taxes. Spokesmen complained that the meager benefits in the budget package would do little to relieve the plight of most businesses. "I share the disappointment everyone will feel," said a somewhat apologetic Howe. "But I am determined to sustain firm action in the battle against inflation. To change course now would be fatal."

Indeed Thatcher has not compromised in what some of her own Tory backbenchers called her government's "last-chance budget," and her advocates argued that this latest round of austerity will finally begin to pay off in recovery. That cannot come too soon for most Britons. Unemployment has hit almost 2.5 million, the highest level since the 1930s; the government itself has forecast 3 million by the end of the year (the equivalent of 12,660,000 unemployed in the U.S.). Inflation, though down from a high of 22% last summer, is still above the 10% level, which was where it stood when Thatcher took office. For all its efforts at cutting public spending, the government overran its targeted deficit by more than $10 billion, largely because of unemployment compensation and bailouts of steel and other public-sector industries. The glum assessment of one Tory economist: "Thatcherism is dead."