BRITAIN'S RESISTANCE TO PAINFUL CURES

TAX increases in Britain are imposed with guillotine-like dispatch. Disclosing few, if any, details in advance, the government presents the bad news in its annual budget and gets quick approval from a compliant Parliament. In what has become a national guessing game, Britons start hedge-buying weeks beforehand on goods and services that they expect to be hit by new taxes. They are urged on by shop-window posters that read "Beat the Budget." Because of Britain's economic difficulties, the guessing in recent years has been over where--not whether--the tax ax would fall.

Thus, few Britons were surprised when on Budget Day last week Chancellor of the Exchequer Roy Jenkins announced higher taxes and other austerity measures. This time, politics impelled Jenkins to go light on wage earners and to hit business heavily. Still, his prescription calls for much the same medicine that has so far proved ineffectual in curing Britain's ailing economy. Somewhat lamely, Jenkins told the House of Commons that the long-promised economic recovery "has been a good deal slower than we had hoped."

Britain's economy is considerably weaker than Jenkins admitted. Technically bankrupt, with foreign debts that greatly exceed its reserves of gold and foreign currencies, the country depends on international loans to support the pound. Sterling's devaluation 17 months ago was supposed to give Britain time to overcome its chronic trade deficit, the main source of its precarious financial condition. Instead, the country wound up with a 1968 trade deficit of $1.1 billion, and the red ink has continued to flow this year. Last week the Board of Trade reported a March trade deficit of $124.8 million, a disappointingly small improvement over the $ 153.6 million deficit of the month before.

Dallying Over Demand. Efforts to improve the trade picture have been bungled repeatedly by Harold Wilson's Labor government. After devaluation, Wilson dallied for months over steps to curb domestic demand, which was not only stoking inflation but sucking in imports that Britain could ill afford. The government belatedly imposed a record $2.3 billion of new taxes a year ago and subsequently put new restrictions on bank credit and installment purchases. All such restrictions reckoned without the canny determination of the British consumer, who ran up his personal debt and ran down his personal savings to get rid of his money before rising prices and taxes further reduced its value. Consumer spending, instead of declining 1.9% last year as the government had intended, rose by 1.2%. Wages also rose by 7% last year and prices by 6%, despite government efforts to control both. The government undermined its own wage-restraint policies by agreeing to a big raise for workers on the government-owned railways.

Considering those pressures, Jenkins' latest dose of restraint was relatively mild. The new budget will raise taxes by $816 million, barely one-third of the 1968 increase. Business will bear the biggest share of the burden in the form of higher payroll and corporate-income taxes. For individuals, the main increase was a 2.30 rise in the gasoline tax (to 540 per imperial gallon). There were also boosts in taxes on light wine (130 a bottle), off-track bookmaking, slot machines and gambling casinos. To induce Britons to save more and spend less, the government raised the interest that it pays on savings bonds. In a sharp break with tradition, it chose to end income tax reductions for interest paid on personal loans.

The budget omitted any increase in individual income taxes. Instead, the government rejiggered the rates to allow more than 1,000,000 low-paid wage earners to escape income taxes entirely. To further placate wage earners, it announced an increase in personal pensions and promised to let its authority to veto inflationary wage increases--which angered labor despite its ineffectiveness--expire by year's end.

In its largest concession to organized labor, Wilson's government scaled down its attack on wildcat strikes, which account for more than 90% of Britain's labor turmoil and exact a heavy economic toll. To minimize such damage, the government introduced legislation that would empower it to order a 28-day cooling-off period whenever a wildcat strike looms and to impose settlements in union jurisdictional disputes, another key source of industrial trouble. But the government shied away from proposals to make labor-management contracts legally binding and shelved its own plan to require a membership vote before strikes.

Worst Year. Businessmen faulted the budget for providing no new export incentives, and some complained that higher corporate taxes would deter the capital investment so essential to a bigger export push. Condemning a "dead-end budget by a fagend government," Tory Leader Ted Heath accused Jenkins of glossing over Britain's troubles. "Who, listening to that elegant, lucid style, would have been able to deduce that 1968 was, economically, the worst year in Britain's history?" asked Heath.

Britain's difficulty in achieving a turnaround raises fundamental questions about the value of the classic fiscal and monetary remedies for curbing inflation. As with the income-tax surcharge in the U.S., higher taxes no longer dampen demand as effectively in reality as in Keynesian theory. Corporate-tax increases are passed along in the form of higher prices. Unless governments impose wage controls, unions in turn use their power to win higher wages. Moreover, Britain's tax level is becoming increasingly oppressive; the total take exceeds 40% of the country's gross national product (compared with less than 30% in the U.S.).

Britain's economic dilemma is a blend of too much pride and too little selfdiscipline. For centuries Britain enjoyed overwhelming economic and political power for its size, a situation that has left the country accustomed to living beyond its shrunken means. Doubt has taken deep hold that any government--or policy--will overcome the problem. Britain long ago stopped making full use of either its individual resources or its technological know-how. Only if it succeeds in using both will its economy gain the strength to climb out of the present morass.

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