It's High Time to Call It a Day

In a historic reversal of party policy, Prime Minister Harold Wilson's Labor government last week conceded that ambitious social-welfare programs were crippling Britain's economy and announced plans for vast cuts in public spending. Setting forth a four-year economic plan in a 149-page White Paper, Chancellor of the Exchequer Denis Healey proposed a $3.6 billion cut in public spending for 1977-78 and a further $6 billion cut for 1978-79--a reduction of 12% on original plans.

Healey had probably gone about as far as any Labor Chancellor could ever be expected to go. Nonetheless, the Confederation of British Industries denounced the program as "too little, too late." Tory Shadow Chancellor Sir Geoffrey Howe called it "a devastating admission of the government's huge mistakes in the past." The drastic austerity plan, said Liberal Party Spokesman Richard Wainwright, was the price for "years of debauchery conducted on tick [credit]"--Britain's version of the installment plan. Though left-wing Laborites denounced the White Paper as a "document of shame," other party stalwarts were more sympathetic. "Mr. Healey had to act," said the mass-circulation Daily Mirror.

Healey's ax fell heavily on many of the welfare state's most sacred cows. Education will be hardest hit, with cuts totaling more than $2 billion (5%) by 1980. More than $1 billion in food subsidies will be phased out; a $150 million fund to guarantee lower milk prices is the only exception. Transportation subsidies will be almost halved and construction programs for schools, hospitals and roads sharply curtailed. There will be stiff increases in public-housing rents, which had been unrealistically low. Subsidized school lunches, still the mainstay of many children's diets, will cost more.

The cuts will not take effect until mid-1977, lest they impede Britain's recovery from the recession and add to an unusually high unemployment figure of nearly 1.5 million. Nonetheless, a London Times headline summed it up best: SO THE PARTY'S OVER.

The only sector that will receive substantial budget increases in the new plan is private industry. Healey's rationale: Britain cannot go on consuming wealth unless her industries produce it first. "If we want to regenerate manufacturing industry," said Healey, "we must leave enough resources free from public expenditure." While Britain's gross national product has risen less than 2% over the past three years, public spending has skyrocketed by almost ten times that figure. Such spending now devours a staggering 60% of the G.N.P., up from 50% in 1973 and 42% in 1960. The national debt has risen from $8 billion in 1970 to an estimated $25 billion this year. Indeed, the cuts proposed last week will not even cover the $15 billion-debt interest payments that are due by 1980.

Bilking the Rich. Without cuts in public spending and incentives to private industry, said Healey, taxes would have to be increased to the point that they would "undoubtedly corrode the will to work throughout the country." As it is, because public spending will continue to rise despite the cuts, there may have to be a boost in income taxes too. By 1979 the average tax burden could rise from 41% of income to between 43% and 47%. Before anyone could suggest the alternative of bilking the rich even more, Britain's "Iron Chancellor" pointed out that even if the government taxed away all income over $10,000, the revenues would yield only $800 million. That might just keep the nation awash in subsidized tea for one more year--but not much longer.

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