Prime Minister Margaret Thatcher's Conservative government moved today to stimulate economic recovery and regain lost political support by announcing a budget that reduces income and business taxes without increasing government borrowing.
In what the chancellor of the Exchequer, Sir Geoffrey Howe, called "a budget that will strengthen the foundation of economic recovery," one employers' payroll tax was cut by nearly one-third, energy costs were reduced for industry, and more money was allocated to government construction projects. Personal income tax allowances were increased by 14 percent, social security benefits also were raised by more than the inflation rate, and a planned reduction in unemployment benefits was restored.
The income tax reductions were offset by an increase in the employes' payroll tax for national health insurance. Excise taxes on gasoline, cigarettes and alcoholic beverages also were increased, although by much less than last year.
In addition to an already announced training program for unemployed teen-agers, Howe said the government would put about 100,000 of Britain's record 3 million unemployed to work in community service jobs.
In contrast to the politically damaging adverse reaction to last year's budget, which raised taxes and held benefit increases below the inflation rate, the measures announced today were welcomed by business leaders and some Conservative members of Parliament who had been critical of Thatcher's economic policies.
"There will be no revolts on this," said former House of Commons leader Norman St. John-Stevas, whom Thatcher fired last year for his outspoken dissent. "I would argue that you could have put in a bit more expansion of the economy, but the chancellor has moved very considerably. This has made it much easier to unite the party."
"The chancellor has taken a number of steps that help business," said Sir Terence Beckett, director general of the Confederation of British Industry. "We have not got all we wanted, but these are moves in the right direction."
The main boost for businessmen was a reduction in the social security contribution surcharge paid by employers.
Opposition politicians and labor union leaders complained that the budget still offered little hope of reducing the unemployment rate of nearly 13 percent, increasing the take-home pay or significantly improving Britain's battered economy.
Labor Party Leader Michael Foot said the budget "by no means dealt with the major concerns which face the country" and showed "no proper understanding of the scale of the catastrophe which has befallen our country and our people." Foot had called for $16.3 billion in extra spending.
Instead, Howe kept the projected deficit on a $208 billion budget for the fiscal year starting in April to a modest $17.2 billion, nearly $2 billion less than the deficit in the current fiscal year.
David Basnett, economic spokesman for the British Trades Union Congress, said "Unemployment will go up still more by the end of the year, prices will rise, and the poor will be poorer."
Howe told Parliament he was trying to spur economic recovery while sticking to the Thatcher government's strict monetary strategy by reducing the budget deficit and government borrowing. This restraint, he said, would make it possible to continue bringing down both inflation and interest rates.
He forecast that inflation will fall from 12 percent to under 10 percent by the end of the year and that British economic output will grow by 1.5 percent this year after shrinking more than 5 percent during the past two years. Financial analysts expect Britain's current prime lending rate of 13.5 percent to be reduced later this week.
"My purpose," Howe said, "is to give as much encouragement as I believe we can afford to an economy which is now moving in the right direction."
Analysts disagree about whether real recovery from Britain's worst recession in half a century has finally begun or how robust it will be. Manufacturing output has fallen 20 percent to a 15-year low, and by the time of the next national election in 1983 or 1984 is expected to remain well below the level when Thatcher took office three years ago.
Howe repeated the government's arguments that its unpopular policies have begun a needed restructuring of the British economy by reducing wage and price inflation, cutting the government work force and forcing productivity improvements in private industry. "Thanks to last year's budget," he said, government borrowing has decreased in proportion to Britain's gross national product, keeping interest rates here an average of 4 percent lower last year than those in the United States or France.
"It is widely recognized abroad," Howe contended, "though not always recognized at home, that we have made substantial progress in tackling our long-term problems."
In diplomatically coded language, Howe again warned of damage to all Western economies if the Reagan administration failed to reduce its projected budget deficits and bring down U.S. interest rates. "We in this country," he said, "must do our best to exercise our influence on the policies of our allies and associates."