Chancellor of the Exchequer Nigel Lawson presented his budget proposal to the House of Commons today, saying Britain will decrease its basic income tax rate while increasing taxes on cigarettes and gasoline.
Lawson, who presented the government's 1986-87 budget, described the oil-price collapse that has cut British petroleum revenue in half over the past five months as a net plus for the economy.
The basic income tax rate is to be decreased to 29 percent, while the tax on a package of cigarettes has increased 16 cents and that on a gallon of gasoline by 10 cents. Lawson said he hoped the new gas tax would be offset at the pump by declining oil prices.
The tax-reduction package will total about $1.5 billion, significantly less than what the government had hoped to be able to provide before oil prices began to fall, cutting projected revenue virtually in half, to less than $9 billion for the coming year.
The fact that he found any slack at all to cut taxes, Lawson said, was because of sound economic management under Prime Minister Margaret Thatcher, and "the underlying strength of the economy."
Britain, Lawson said, is "not only a major oil producer" but also a "major consumer" that will benefit from lower energy costs resulting from oil prices now down to 1973 levels. Insisting that "there is no question whatever and has never been any question of the United Kingdom cutting back its oil production" he said that "there is no overall U.K. national interest in keeping oil prices high."
Other changes in the British tax system announced today included new deductions for charitable contributions -- never before permitted -- lowering the tax on many stock transfers and tax deferrals on stock income for small investors.
While generally applauded by business and financial sectors, the new budget was somewhat of a disappointment to some in Thatcher's Conservative party who had argued that more money should be spent on job creation, even if it had to be borrowed.
Although existing job training and government-funded part-time programs were expanded somewhat, no major employment initiatives were announced. The new budget, former defense secretary Michael Heseltine said, "doesn't meet the scale of the challenge that we face."
Norman Willis, head of Britain's umbrella Trades Union Council, described the new budget provisions as little more than "tidying up" what the government considers "a very successful operation" that he said benefits the well-off and working, while ignoring the poor and unemployed. "What the hell is happening in this country?" Willis asked.
The government believes that pump-priming incentives to private investment and small business start-ups, along with low inflation, provide the best long-term strategy for job creation. At the same time, with high-income votes assured, the Thatcher government sees its electoral future in the hands of the employed middle and lower-middle classes that it believes will respond favorably to a freer marketplace and more investment opportunities.