British Analysts Give Lamont's Plan Lukewarm Reception
BRITAIN'S business leaders were cautious about an economic recovery package unwrapped last Thursday by Norman Lamont, the chancellor of the exchequer. Trade union leaders were downright hostile.
But Mr. Lamont's measures have given government supporters hope that the deepening recession can be turned around.
Lamont's statement to parliament, based largely on attempts to stimulate growth and curb public spending, was the government's response to weeks of political turmoil and uncertainty unleashed by Britain's Sept. 16 withdrawal from the European Exchange Rate Mechanism and currency devaluation.
John Townend, chairman of the Conservative finance committee in the House of Commons, congratulated Lamont on his "courage and determination." But Howard Davies, director general of the Confederation of British Industry, said no one could be certain that the chancellor's moves would be sufficient to pull the country out of recession. Mr. Davies and Peter Morgan, leader of the Institute of Directors, both called for interest-rate cuts beyond the 1-percent drop ordered by Lamont.
Leading analysts noted that even if the Lamont measures had the desired effect, recovery would be painfully slow. Gavin Davies, chief economist in London of Goldman Sachs, described Treasury forecasts of 1 percent economic growth in the next year as "modest but accurate."
Key elements in the chancellor's package are special help for housing and car industries; a 1.5-percent curb on pay increases for 5 million public-sector workers; a cut in the base lending rate from 8 to 7 percent (the lowest in 15 years); and tax incentives to industry to encourage investment.
Lamont conceded that his measures would involve government borrowing this year of $56.5 billion compared with the $42.7 billion estimate in his spring 1992 budget. Next year borrowing is likely to rise to $68.7 billion. Gordon Brown, the Labour party's "shadow" chancellor, warned that this may require Lamont to order tax increases.
Conservative backbench approval of the chancellor's measures was prompted as much by what he did not do as by what he did. Despite media forecasts to the contrary, Lamont refused to cut social security benefits or to increase workers' national insurance contributions - options that would have been politically damaging to John Major's government. Pensions and benefits will be allowed to rise with inflation.
Trade union leaders said they were angered at the public-sector wage restraint. Norman Willis, general secretary of the Trades Union Congress, said the curb would "store up grave problems for the future." He appeared to be suggesting that strikes were probable next year.
Economists were cautious over the absence of measures to reduce unemployment, now just under 2.9 million and rising. Brian Pearse, of Ernst & Young's forecasting group, said unemployment would continue to grow. "At the moment, although credit is getting cheaper and there will be tax incentives for corporate investment, people are reluctant to go out and spend," he said. "The Lamont growth scenario is not going to change such attitudes."
The chancellor was careful to avoid increasing government spending as a means of stimulating growth. A tax on sales of cars will be abolished. He also offered capital allowances of up to 40 percent to companies investing in new machinery. The private sector will be encouraged to build toll roads - something so far virtually absent from Britain's transport infrastructure.