After a year of tinkering with troubled British economy Prime Minister Margaret Thatcher's Conservative government intends to make more drastic cuts in government spending that will significantly trim Britain's postwar welfare state.
Its stategy for shrinking British government spending by 1 percent a year over the next four years will affect state social programs from housing and health to job protection and social security.
Government housing construction will come to a standstill, and rents will be raised sharply in a country where one family in three lives in public housing. Resources will be stretched thin in a national health system already overburdened by an aging population.
Old-age pensions will be indexed only to inflation rather than to whichever increases more -- prices or wages. Unemployment and sickness benefits will no longer keep pace with inflation and will be taxed for the first time. Subsidies that had protected tens of thousands of jobs in nationalized industries will end.
Thatcher and her key economic advisers contend that only by forcing down government spending and tightening the money supply can they hope to stop inflation, reduce budget deficits, cut taxes and shift resources to Britain's ailing private economy.
But critics assure Thatcher of pursuing a political strategy to dismantle the welfare state and to test a radical survival-of-the-fittest philosophy based on monetarism. They say her policies will only make Britain's economic and social problems much worse. In some cases, they argue, they already have.
Thatcher's experiment also is being watched closely by a wider audience. Now that the U.S. economy appears to be suffering from "the British disease" of high inflation and low productivity, President Carter is trying similar measures to treat it, while a leading advocate of monetarism, Ronald Reagan, waits in the wings.
Even the wealthier welfare states of Scandinavia are threatened by the same problems. Despite great disparities between the Scandinavian countries and Britain in prosperity and prevailing political philosophy, Scandinavian governments are also moving to limit costs in the current economic climate.
In Denmark, the minority government of the left-of-center Social Democrats, who built the Danish welfare state, already has proposed controversial cuts in public spending for social programs. If approved by other parties in parliament, the cuts would affect everything from day care and dental services to unemployment compensation and old-age pensions.
The governments of Norway and Sweden are trying to save money by reducing the large subsidies that protected jobs in dying industries, a cornerstone of their policies for maintaining virtually full employment. Sweden's budget minister recently proposed that other government spending also be curbed.
But even the strongest advocates of curbing government spending in Scandinavia would resist comparision with Thatcher's government. It appears to have departed from the postwar consensus among parties on the left and right that created and expanded the British and Scandinavian welfare states.
"We are not mounting a frontal assault on the welfare state, but are taking necessary action to bring it back into fiscal control," said John Biffen, Thatcher's chief secretary to the treasury. Biffen, who acknowledged kinship to the conservative economic policies of American monetarist Milton Friedman, is one of the architects of Thatcher's economic policy.
In an interview, he pointed out that spending for social welfare benefits increased by 50 percent here over the last decade, total government spending grew by 30 percent while the gross national product expanded by only 15 percent.
"If you are going to cut government spending overall, you must do something about the biggest and fastest growing parts of the budget," Biffen said.
Yet Thatcher's government intends to considerably increase spending for defense and law enforcement while steadily shrinking the total British budget. d
Among other things, this means closing down hospitals and raising prescription and dental charges in a country that pioneered free health care for everyone, and reducing public investment in industry in a country where the government owns the lion's share of the coal, steel, automaking, shipbuilding, oil, aerospace, transportation and communications industries.
In the short run, according to government statistics and independent economic analysts, Thatcher's stategy is increasing inflation and further weakening the economy.
The inflation rate has more than doubled during Thatcher's first year in office to nearly 20 percent. Public housing rents and bus, subway and railroad fares are rising rapidly. Local property taxes have gone up to offset cuts in national grants to local governments, and value-added sales taxes have been sharply increased to pay for income tax cuts that mostly benefited upper-income families. Record 18 percent interest rates, intended to discourage borrowing and to tighten the money supply, are also contributing to inflation and the government is still borrowing large amounts of money to cover budget deficits.
Meanwhile, the impact of tightening the money supply and reducing government spending is expected to exacerbate the recession already under way, making it Britain's worst since World War II. Unemployment is climbing and forecasters fear it will reach its highest level since the depression of the 1930s. Businessmen worry about the prospect of widespread bankruptcies.
The Thatcher government's blueprint for the next four years was recently attacked by Denis Healey, the economic spokesman for the opposition Labor Party, as "another enormous dose of medicine which had already made the patient as sick as a dog. The result would be to turn the 1980s, which should have been a golden decade because of the benefits of North Sea oil, into a rerun of the hungry 1930s."
Healey characterized the cuts in welfare-state spending as "mean, vicious and vindictive," and the economic plan as "a stinging karate chop to the neck of British industry, from which it may never recover."
Answering Healey in Parliament, Biffen denied that the government's policies represented "hostility to the welfare state, but rest on the simple point that social security benefits must be related to the nation's taxable capacity." Thatcher's government, he vowed, "will reduce inflation through the passage of time."
Repeating the now-familiar argument that it will take time for its monetarist policies to produce results, another key Thatcher adviser, Industry Secretary Sir Keith Joseph, said in an interview that after the country goes through "a painful two years while monetary contraction continues to bite" he is "modestly, moderately, cautiously hopeful about our economic future."
The shrinking of government and its spending is necessary, Joseph said, because "government has gotten so big, it has crowded out the private sector. It preempts so much of the spending. It taxes and borrows so much of the money. It hires so many people away from the private sector."
Joseph said he believes the government is creating "a fiscal climate within which business can work." He did not seem disturbed by the possibility that some businesses might fail in this new climate. "People have to be shown that government isn't there to rescue them from wrong decisions," he said.
Joseph also sees higher unemployment as an inevitable and even potentially beneficial in the short run. If British businesses are to improve their productivity, Joseph said, fewer workers must produce more "and unemployment goes up." Some people who lose jobs, in Joseph's vision, could wind up starting new small businesses that Britain needs. If these changes are not made, he added, "unemployment would go up even faster."
Joseph and other members of Thatcher's Cabinet also are counting on large royalties and tax revenues from Britain's North sea oil, as production reaches peak levels, in the mid-1980s. But they do not intend, in Joseph's word, for government to ladle the money out."
Instead, he and Biffen said, the Thatcher government will use its revenue to reduce income taxes. Biffen said their goal is to channel the oil revenue directly into the private sector. "We want to see individuals take this money and go out and make a living," Biffen said.
According to Energy Secretary David Howell, North Sea oil money is already beginning to create "an interesting structural change" in the British economy. He said new British firms servicing the multinational corporations drilling in the North Sea have not been encumbered by traditional labor-management and class conflicts or work rules that inhibit productivity in Britain's older industries and that new businesses have been more receptive to new technology and working relationships.
Howell said he believes that is just one sign of a new mood in Britain -- a mood of impatience with Britain's long decline and the heavy tax burden of the welfare state.
Biffen talked about a similar "sharper mood in the country that is not hostile to what this government is doing. Among a large number of people who are supporters of the Labor Party -- blue-collar workers -- I think there is quite a strong feeling that government spending should be curbed" so taxes can be reduced and more money spent on consumer goods.
"We think the change in this country actually began taking place at the end of the 1970s, before this government took office last year," Howell said. "We have our sails up and think we are blowing with the right wind."
A recent poll commissioned by the Sunday Times newspaper from a respected British firm, Market and Opinion Research International, showed that a majority holding an opinion believed that Thatcher's latest budget plans "generally are a good thing" in the long run even though they expected themselves and the British economy to be worse off for the next year or two.
Except for the cuts in spending for housing and education, which could still pose serious political problems for Thatcher, a majority also approved of many other reductions in spending that she is making, presumably because they believe this will eventually help cut income taxes.
But what if Thatcher is unable to make those tax cuts because the increase in North Sea oil money is offset by declining tax revenues from a recession-ridden economy? What if the number of unemployed, now nearly 1.5 million in this country of 56 million people, pushes up over 2 million and causes serious social unrest? What if so many businesses fail that Thatcher faces a revolt of the entrepreneurial class that has been her primary consituency?
When asked these dark questions raised by political opponents, independent economic analysts and political observers, several of Thatcher's key advisers gave the same answer: both they and the British people simply must have faith in the Thatcher experiment, particularly if the going gets really tough.
"Faith is a very important part of our policy," one Cabinet minister said. "There must be a degree of evangelism in what we are doing."