Not Soaked, but Damp

Britain's Tories were understandably apprehensive. For one thing, bushy-browed Denis Healey, the new Chancellor of the Exchequer, had warned that when Labor came to power there would be "howls of anguish from the rich" and that he would squeeze them "until the pips squeak." For another, shortly before Healey brought his first budget to the House of Commons in the traditional red leather dispatch box bearing the monogram VR (for Victoria Regina), it was announced that under Conservative leadership the nation had suffered the worst monthly trade deficit in its history --$1.02 billion in February.

Not surprisingly, as the Commons assembled on Budget Day last week, its mood was far different from the palmy days of Empire, when members turned out in top hats and tails. Two young Tory M.P.s, Hugh Dykes and Robert Adley, tried to capture the mood by appearing in blue Mao jackets--appropriately austere attire, as one of them explained, for "the first socialist budget of our parliamentary careers."

If some Tories were expecting the worst, however, Healey did not oblige them. Sipping brandy and water to fortify himself during his 2-hour 20-minute message, he elicited the most anguished howls not so much from the rich as from left-wing Laborites, especially union members who had been demanding far more radical reforms. Nevertheless, leaders of the Trades Union Congress gave Healey a critical benefit of the doubt, thus at least temporarily lessening the chance of inflationary strikes.

While Healey did not soak the rich, he did get them a little wet. The basic corporate tax rate was raised from 50% to 52%, the basic income tax from 30% to 33%, with the burden falling heaviest on the biggest earners. Thus, a $25,000-a-year earner who had been paying roughly $8,000 a year in taxes will now pay about $500 more. Those earning $7,200 and under will pay marginally less. There will be heavier levies on luxuries such as liquor (48-c- more for a 26-oz. bottle of gin, to $6.24), cigarettes (12-c- more a pack, to 78-c-) and beer (2 1/2-c- a pint, to 48-c-). Meanwhile, nearly $1.2 billion in subsidies will be spent in an effort to reduce retail food prices (especially bread and milk) by a targeted average of 6%. A new gift levy will put teeth in Britain's inheritance tax. Previously, gifts bestowed a minimum seven years before death were not subject to any taxation; now they will be. In addition, resident foreigners who do not directly receive their income in Britain will be taxed on 50% of that income anyway. (In the past, this loophole meant that an American working for a U.S. company in London could have his salary deposited in a New York City bank, thus largely avoiding both U.S. and British taxes.) Pensions will also increase. A single retired person will collect about $24 a week, a $5.50 increase.

No Clear Mandate. Though London's stock market tumbled to a twelve-year low after Healey's message, his tax and spending proposals fell far short of the radical redistribution of wealth to which Harold Wilson's Labor government is pledged. Public spending was budgeted for a $1.7 billion increase (including the food subsidy), but the sum will be covered more than twice over by higher taxes. This exercise in restraint won praise even from the authoritative Financial Times, which rated the budget "none the worse for being orthodox and unglamorous."

The budget had to be just that because Harold Wilson is leading the first minority government in 45 years; with only 301 out of 635 seats in the Commons--17 shy of a majority--the party has no clear mandate to carry out its full campaign manifesto. Even if Labor had won a landslide, however, it probably would have avoided radical innovation, at least until Britain's economy was in less parlous shape. Said Healey, who produced the budget in "the most exhausting three weeks of my life" instead of the normal six months: "It is a delicate, different and dangerous business, taking over the steering wheel when the coach is hurtling downhill out of control. Too sudden a lurch could produce an accident we are trying to avoid."

Things are not all bad. A number of major commercial banks displayed their confidence in Britain by granting it the biggest loan in its history--$2.5 billion --to cover the trade deficit. The Labor government ended the coal miners' strike and along with it, the three-day work week. Despite the short week, most manufacturers were still able to get four days of production because of uncharacteristic cooperation between management and labor, and workers' wages dropped only about 4.6% because of unemployment compensation and guaranteed-annual-wage provisions. But the reduced week did cut output by 10%, costing Britain the confidence, and perhaps the orders, of foreign businessmen.

The budget left unresolved whether the economy should be stimulated to keep unemployment from climbing beyond the present 500,000 level, or retrenched to cool Britain's already desperate inflation. It is running at 13.2% and climbing (see cover story in ECONOMY AND BUSINESS). Unsure how to negotiate such rapids, the Chancellor has laid plans to deliver a second budget message, probably in October.

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