The government of Prime Minister Margaret Thatcher announced a package of bold budgetary steps today to fulfill her campaign promise to move Britain away from socialism and encourage private enterprise.
The package includes big income tax cuts "to restore incentives and make it more worthwhile to work," tax relief for business and investors to encourage more private investment, and a sharp reduction in government spending and ownerhsip.
To offset the loss of income tax revenues, the Tories will, as promised, increase sales taxes.
"We can turn our economy around," Thatcher's chancellor of the Exchequer, Sir Geoffrey Howe, told the House of Commons as he presented the Conservatives' new budge. "Government will spend less. Government will borrow less.
"This budget is designed to give the British people a greater opportunity than they have had for years to win a higher standard of living, for their country and for their families as well as for themselves. I dare to believe they will respond to the opportuniey."
Because the Conservatives have the votes to push the budget through without major changes, it is a key instrument of economic policy making. And the policy changes in Thatcher's first budget are as drastic as any observer here had dared speculate.
Howe called the income tax cuts "the keystone of our policy." The minimum rate of 33 percent is being cut to 30 percent this year, Howe said, and would be reduced to 25 percent in the future. The maximum rate of 83 percent, one of the highest in the world, is being cut to 60 percent.
All rates in between the two extremes are being cut proportionally and personal exemptions are being increased so that nearly 2 million more british families will no longer pay any income tax.
"Excessive rates of income tax bear a heavy responsibility for the lackluster performance of the British economy," However told the Commons. "We have to compete in attracting and retaining the talent required to run our industry efficiently and profitable."
He said both previous Labor and Conservative governments had "spent too much time and effort" trying to use the income tax to "level down" the British classes by redistributing income. "This is no good to anybody," he argued. "We cannot have a successful and prosperous society without successful and prosperous individuals."
To offset the income tax and a variety of business and investment tax reductions, the Conservatives will raise the value-added sales tax from 8 percent on some goods and 12 percent on others to 15 percent on everything, except food, heating, light, public transportation, children's clothes and medicine.
Howe said that even with this steep increase in the sales tax, most families will still be left with more money in their pocket from the income tax cuts.
It is better to shift from taxes on earnings to taxes on purchases so that "the choice of the way they spend their income will rest increasingly with the people, and not with government," he said.
The tax on oil products also is being increased to cut fuel consumption. Gasoline at the pump will go up by another 20 cents to about $1.70 a gallon. The British government's share of the profits made on extraction of oil and gas from the North Sea also is being increased.
These are the biggest risks of the Conservatives' budget. Inflation, already over 10 percent here and expected to rise to 12 percent in a few months, will be increased by another 3 to 4 percent by the higher sales and oil taxes.
Howe hopes to stem the rise in inflation somewhat by restricting both government and private borrowing. The Bank of England's prime borrowing rate is being increased from 12 to 14 percent to reduce the growth of money supply and "squeeze inflation out of the economy."
Howe also expects to help reduce inflation - and the government's involvement in the economy, as well as help make up the lost tax revenue - by making deep cuts in government spending. Investment in public housing and industry, employment subsidies, foreign aid, transportation subsidies, road building and special aid to Scotland and Wales are being cut to save $6 billion this year.
Strict limits on future government spending, Howe said, mean that pay raises for civil servants will have to be offset by job cuts. An estimated 150,000 of the current 738,000 civil service jobs are to be eliminated, mostly through attrition, in the next three years, according to officials.
Although the token prices the British pay for prescriptions and some dental work are being increased, there will be no change in the free National Health Service, Howe said. There are also a few increases in government spending for the military services, retirement pensions and unemployment benefits.
Predictably, Howe's budget speech was greeted with lusty cheers from the Conservative majority in the Commons and jeers from the Labor minority, including cries of "shame, shame" and even "treason" when the increases in sales tax and the Bank of England's lending rate were announced.
Howe ignored it all and continued his low-key delivery. He is an owlish, scholarly man who treads the center path of the Conservative Party, liberal on social issues and conservative on financial matters. CAPTION: Picture, Chancellor of Exchequer Sir Geofrrey Howe carries traditional "budget box" to Commons with wife Elspeth.