Thatcher cuts budget to guard hopes for economic recovery
The proudest achievement of the Margaret Thatcher government in Britain has been reducing inflation from 22 percent a year to the current rate of less than 4 percent.
This has allowed Mrs. Thatcher to claim success in the battle against world recession, to appear as an example for President Reagan in government budget-cutting, and, in part, to score a big victory in parliamentary elections June 9.
But now, only a few weeks after the vote, treasury analysts are worried that inflation, and therefore interest rates, are ominously close to rising again.
If they do rise, Britain's long-awaited economic recovery, now showing early signs of gathering some momentum, and hopes of reducing unemployment would both be set back.
So the government has taken swift action, and even more drastic moves are widely predicted for later in the year.
Coming so soon after the June 9 vote, the moves have also touched off widespread argument and debate.
After denying in the election campaign that it had any ''secret plan'' to reduce the welfare state, the government has now imposed spending cuts totaling (STR)500 million ($768 million), which means immediate reductions in the budgets of health, defense, employment, education, and transport.
It plans to raise another (STR)500 million by selling off as yet unspecified government assets.
Critics, led by shadow treasury spokesman Peter Shore, ask why spending had been allowed to rise so much in the first place. They conclude that mismanagement and the recent election campaign both played a part.
When the government sent supplementary spending estimates to Parliament July 8, it showed that it needs new money because of overspending in three main areas: social security, price supports for British farmers, and financing of the Common Market supports for dairy farmers.
Most of the domestic overspending was related to economic recession: more people claiming welfare benefits, including unemployment relief.
There is other worrisome economic news for British consumers as well:
* Higher gasoline prices, ordered by oil companies, which removed support payments to service stations. A gallon of high octane gasoline now costs around
* More expensive home mortgages (raised by 1.25 percent to 11.25). This was imposed by local building societies (savings and loan groups) to attract more savings. Demand for mortgages is now high.
Chancellor of the Exchequer Nigel Lawson says his new cuts are simply trying to bring expenditures back into line with estimates released last February. His aim is to head off another round of interest rate increases by convincing the money men in the City of London financial center that the government is not about to borrow a lot more money.
In fact, the Cabinet has allowed ministries to spend beyond their limits since early this year. With the Labour Party charging during the early months of the year that Mrs. Thatcher wanted to ''dismantle'' the welfare state, no minister wanted to provide evidence of cutbacks.
Facing Britain now is another series of hard choices.
''To reduce unemployment,'' Mr. Marin says, ''gross national output needs to keep on rising faster than the rate of productivity per worker. It just hasn't been doing so.''