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Britain joins America in struggle against inflation

Inflation, or recession? As the Western world struggles with both and anguishes over which is worse, Britain, to no one's surprise, has decided, like America, to pursue its attack on inflation.

The Conservative government's annual budget reinforces this policy: The nation will not spend its way out of inflation (the traditional remedy) but instead will hew to the line of monetarism -- controlling the rate of money supply growth in order to bring down the rate of inflation now approaching 20 percent.

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The success or failure of the monetarist experiment -- being mounted here with probably more singlemindedness than in any other developed country -- will be keenly watched by other governments.

Chancellor of the Exchequer Sir Geoffrey Howe laid his hopes on the line March 26 before a packed and turbulent House of Commons.

His plan: Hold the key inflation-making public sector borrowing requirement (the PSBR, or amount of borrowing needed by government to finance its activities) at L8.5 billion, or 4 percent of gross domestic product, and bring in needed revenue by such measures as reductions in unemployment compensation, higher excise taxes, cuts in civil service, and increased taxes on north sea oil.

Sir Geoffrey's budget (or, more properly, Prime Minister Margaret Thatcher's budget as implemented by her chancellor) lands at a difficult time and in a hard place.

Difficult, because the economic outlook makes revenue-raising awkward. Britain's gross domestic product rose only 1.5 percent last year (0.5 percent if North Sea oil is excluded). Output is predicted to fall by 2.5 percent next year, unemployment (now about 1.5 million of the 22 million work force) is forecast to reach 2 million by 1981, and inflation will fall to only 16 percent by the end of the year.

And it is a hard place. Britain is one of the original welfare states, where decreases in social benefits of the sort announced on budget day are seen to attack the very fiber of a society that for 50 years has aimed at a high level of government support for its less-well- off.

Sir Geoffrey's rather moderate speech preserved much of that support, saving pensions, one-parent families, the disabled, and children from inflationary erosion. But he struck out at other parts of the social services -- an area which, he said, absorbs one-quarter of government spending.

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He increased unemployment benefits by less than the inflationary amount and sharply cut state support for workers on strike -- which has cost the government L8 million ($18 million) for the steel strike alone this year -- to cries of "class war" from the opposition benches.

Other measures included:

* Increases in taxes on alcoholic beverages, tobacco, and some gambling.

* A rise in petrol (gasoline) tax of 10 pence (about 22 cents) per gallon, with a smaller increase on diesel fuel.

* Increases in vehicle excise tax -- but with the elimination of that tax for electric vehicles.

* Higher taxes on executive "perk" cars provided by employers.

* A bundle of aids to small businesses, lowering their corporate tax rate (from 52 percent to 40 percent) and making them easier to pass down from parent to child.

* Cuts in education funding of 6 percent for the next five years -- during which time enrollments should fall by 13 percent.

* An increase of defense spending by 3 percent, police by 2.5 percent, and health by 2 percent.

In closing, he formally established a half dozen 500-acre "enterprise zones" -- inner- city blighted areas where government instead of muscling in with its planners, would greatly relax the rules, lower the taxes, and let private enterprise alone.


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