Proving again that she is determined to move Britain radically to the right as rapidly as possible, Prime Minister Margaret Thatcher has gambled almost everything on her first high-stakes roll of the dice.
The bold budget her chancellor of the Exchequer unveiled Tuesday drastically changes Britain's tax system. It offers big rewards to upper-income achievers but very little to lower-income workers, virtually guaranteeing a climactic confrontation between Thatcher and the labor unions later this year. It risks runaway inflation, industrial recession and high unemployment all at the same time.
"Six weeks ago," the politically independent Financial Times reminded its readers today, "the country voted for a radical change of direction, and yesterday it got it."
The swiftness of that change left Britain off balance. Prices on the London stock exchange fell sharply today as money men weighed the budget's grave short-run risks against what Thatcher's Conservatives consider its long-term promise of an economic revitalization. The Financial Times stock index, which had hit a record high of 558.6 the day after the Conservatives won the election last month, slid another 13 points today to 448.5 as the total value of shares decreased by $2 billion.
Thatcher's central and most controversial change is the abrupt shift of part of the tax burden from income to consumption taxes. Its purpose is to give everyone more take-home pay, with the government recovering some of the lost revenue in higher sales taxes.
The big tax cuts for those in higher income brackets (families earning more than $25,000 a year) will put significantly more money into the pockets of executives, small businessmen, professionals and highly skilled workers - people Thatcher believes have been discouraged by the income tax system here from being as productive as they could be. They also are the people who voted in the largest number for the Conservatives in last month's election.
At the lower end of the income scale, however, the tax cuts will barely give enough extra take-home pay to cover the big increase in sales taxes on everything from clothing, appliances and gasoline, to entertainment, candy, alcohol and tobacco.
Because the value-added sales tax increase - from 8 percent on some items and 12 percent on others to 15 percent on everything except food, housing and public transportation - does not take effect until next week, shoppers rushed into the stores today.
Government and independent economic analysts agree that the sales tax increases will send Britain's already fast-rising inflation rate up to 15 percent or more.
To try to contain inflaiton, interest rates are being increased, the growth of the money supply is being restricted and government spending and jobs are being drastically cut.But these steps could plunge Britain deeper into a recession likely to be brought on by deteriorating economic conditions throughout the West.
A serious recession and the government job cuts Thatcher intends to make are likely to worsen unemployment here considerably.
The Conservatives' hope is that after this period of adjustment has passed, further income tax cuts without any more increases in sales taxes will trigger new private investment leading to expansion.
Former prime minister James Callaghan labeled the Thatcher government's budget "a reckless gamble with our economic future." The Labor leader warned that lower-paid workers and their unions will rebel, producing "dire industrial consequences" like the miners' strike that forced the last Conservative prime minister, Edward Heath, to call an early election in 1974. The Conservatives lost.
"This is rather like a rerun of an old film," Callaghan said, "and we all know how that film ended."
Leaders of the Trades Union Congress vowed to mount major opposition to the policy. They want a meeting with Thatcher to warn that the unions might respond with "industrial action."
"We are going to protect jobs and maintain our members' living standards," declared David Basnett, moderate leader of one of the biggest unions, the General and Municipal Workers' Union.
He and other union leaders have made clear that their target in the next round of wage negotiations this year will be pay raises of 20 percent or more to cover expected inflation.
In turn, Thatcher has warned that large pay raises would likely lead to more job cuts in both government and private industry because there would not be enough money to go around.
If wages and prices spiraled out of control, would Thatcher slap on a wage freeze? During the election campaign, she pointedly refused to rule out that possibility despite her professed dislike of government involvement in wage bargaining.
Thatcher's mettle may be tested soon. Civil servants, reviving demands for higher pay they first made under the Callaghan government, are planning disruptive job actions. And London subway workers are going on strike Monday. CAPTION: Picture, MARGARET THATCHER . . . risks recession, more inflation