Major's New Budget Gets a Cool Response From Voters
PRIME Minister John Major, bidding for a fourth consecutive term in power for the Conservative Party, has abandoned key elements of the economic policy of Margaret Thatcher, including her commitment to balanced budgets and dislike of tax cuts for the poor.
But his attempt to strike out with policies owing little to the philosophy of his predecessor has received a lukewarm response from London's financial district and British voters.
City of London analysts gave an early thumbs-down reaction to an annual financial statement presented last week by Chancellor of the Exchequer Norman Lamont, which proposed a heavy increase in public borrowing.
Opinion polls in the wake of Mr. Lamont's budget indicated that his offer of tax cuts for low-paid workers has had no discernible impact on the electorate.
Campaigning for the April 9 general election formally got under way yesterday. The broad consensus among candidates and election analysts is that economic factors will decide the outcome.
Last weekend half a dozen opinion polls showed the ruling Conservatives and the opposition Labour Party running neck and neck. No political party in Britain has won four parliamentary terms in a row since the early 19th century.
Lamont's budget was intended to give the Conservative campaign a kick-start with measures to combat Britain's worst recession since the 1930s, and also to undercut Labour by offering special help to low-paid workers and to pensioners. The budget proposes a special 20 percent income tax rate for the poor (five percentage points lower than the standard rate).
But to finance this the chancellor had to turn his back on an important element of Thatcherite faith by proposing government borrowing of British pounds28 billion (US$ 48 billion) a year. The debt was much higher than most City of London economists had been expecting.
It prompted Paddy Ashdown, leader of the centrist Liberal Democrat Party, to say: "A wise government borrows to invest. Borrowing to pay for tax cuts is the road to ruin."
The day after the budget, shares on the London stock exchange suffered their worst fall in seven months. For the rest of the week the London market remained nervous - the opposite of what the government had hoped. Pointing to the soaring government deficit proposed by Lamont, Kevin Gardiner, an economist at the investment bank SG Warburg, says: "This is not the sort of budget that has election-winning written all over it."
"Government expenditure may be out of control," says Gerrard Lyons, an economist at the Japanese bank, Daichi Kangyo. Sources close to Lamont say the heavy borrowing was necessary because of the continuing recession and an anticipated falloff in tax revenue.
Six recent opinion polls indicate that the election result was too close to call, with Labour leading by 1 to 3 percent. Robert Worcester, head of the MORI polling organization, says the proposed special 20 percent rate appeared to have left Britain's 4 million low-paid workers unimpressed. Partly this was because Lamont increased taxes on cigarettes, alcohol, and vehicle licences, cancelling out some of the benefits.
At first the chancellor seemed to have jolted the Labour leadership, which during the campaign will propose massive public spending to be paid for by increased taxes. Labour's "shadow budget" proposal is expected to contain special measures to boost industrial investment and ease financial pressures on low-paid workers and pensioners.