Thatcher’s New Budget Cuts Income Tax Rate

Prime Minister Margaret Thatcher’s government announced an upbeat annual budget Tuesday, including a cut in the income tax.

The move heightened speculation that there will soon be a general election, possibly as early as June.

Chancellor of the Exchequer Nigel Lawson, who made the announcement, said that in addition to reducing the basic income tax rate from 29% to 27%, the government borrowing requirement will be cut back sharply, a step regarded as almost certain to bring down commercial interest rates and the cost of home mortgages.

“This is a budget built on success and a budget built for success,” Lawson said.

Election Speculation

The tax cut, coupled with a Lawson economic forecast of continued growth, gradually declining unemployment and stable inflation, led political opponents to speculate that a general election is virtually imminent. As prime minister, Thatcher can call an election at her discretion, but she must do so before her present five-year term expires in June of next year. She is most likely to call it when her party’s public standing is at a high point.

“This is a bribe budget,” Neil Kinnock of the opposition Labor Party said. “It has little to do with the general good (and) everything to do with the general election.”

He and other opposition members dismissed the budget as irrelevant to the nation’s problems. They argued that instead of cutting taxes and public borrowing, the government should be concentrating on creating jobs and improving education and health care.

Optimistic Outlook

“I think it’s more a budget for votes than for jobs,” said Roy Jenkins, the economic affairs spokesman for the Social Democratic Party. “It gives a signal to the prime minister that she can go ahead with the election.”

Financial markets apparently agreed with Lawson’s optimistic outlook. The pound closed at a five-year high against the dollar, and the London stock market index closed at an all-time high.

Public opinion surveys in recent weeks have placed Thatcher’s Conservative Party slightly but consistently ahead of Labor. The results of a poll conducted by Market and Opinion Research International, made public Sunday, gave the Conservatives a lead of 9%, their largest in 2 1/2 years.

Bitter Differences

The nine-point gap is attributed partly to bitter differences that have cropped up in the Labor Party over Kinnock’s controversial defense policy. It calls for unilaterally dismantling Britain’s modest nuclear deterrent and for the withdrawal of U.S. nuclear forces based in Britain.

Last week in Parliament, James Callaghan, the former Labor Party prime minister, stunned his party’s supporters by criticizing the idea of unilateral disarmament and supporting the present government’s plan for upgrading Britain’s nuclear arsenal by spending $14 billion on U.S. Trident missiles.

Outside Parliament, Callaghan’s Labor colleagues accused him of destroying the party’s chances to win the election.

“If you had listened to me on defense, you wouldn’t be where you are now,” Callaghan replied hotly.

Political Windfall

Many political observers expect Thatcher to reap a further political windfall from her planned trip to Moscow next week, the first by a British prime minister in 12 years. If the polls continue to give her a comfortable lead, an election before the summer vacation period in late June would seem increasingly likely, these observers believe.

Thatcher associates have said consistently that she will not call an election until “the feeling is right.” But two members of her government indicated Tuesday that the intensity of speculation could itself become a factor in the timing.

“The momentum of election-guessing can get to a point where it becomes difficult not to have an election,” said Christopher Patton, the minister of overseas development.

Lawson, after his budget speech, expressed similar sentiments, noting that nothing is forcing Thatcher into an early election but that if she decides on an early date, it will put an end to distracting speculation.