Thatcher battles to boost sagging British economy

After 18 months in power Margaret Thatcher's government has decided that it is essential to put its economic strategy back on course. A package of economic measures, presented to Parliament Nov. 24 by Chancellor of the Exchequer Sir Geoffrey Howe, lowered the Bank of England's minimum lending rate from 16 to 14 percent in an attempt to boost Britain's languishing industry. It also laid the groundwork for a further big cut in expenditure in the public sector.

Employees' national insurance contributions are to be raised by 1 percent, yielding a harvest of the Exchequer of an estimated L1 billion ($2.4 billion). Pensions and other welfare payments will not be increased by as much as had been planned for next year.

Sir Geoffrey was forced to lower the Bank of England's lending rate by heavy pressure from industrial leaders who claim manufacturing output has fallen by 10 percent in the past year. A further cut in the lending rate is expected in a month or tow as efforts to stimulate the private sector into greater activity continue.

Mrs. Thatcher came to office last May promising heavy reductions in public spending and a set of policies designed to "shake out" unproductivity industry as a preparation for long-term industrial growth. The new economic measures, while not exactly conceding failure of the original policies, recognize that the prime minister's aims have been much more difficult to realize than she or her supporters expected.

Aware that her ideas on tight credit and a shrinking of the public sector are under sharp scrutiny by governments in Europe and North America, she is battling to retain the main lines of her policy.

Among Mrs. Thatcher's miscalculations:

* Unemployment is much higher than forecast. It is currently over 2 million and may rise to 3 million in the next 12 or 18 months.

* Attempts to slash public spending have met with resistance from within the state apparatus, where pressures for wage rises persist and inflation is eating into the real value of what departments are budgeted to spend.

* The industrial recession has hit private industry much harder than Mrs. Thatcher foresaw, not merely wiping out inefficient concerns but curbing the productivity of genuinely healthy businesses.

* High interest rates have forced manufacturers to cut back on stocks and have overvalued currency, making it hard for exporters to hold their own in world markets.

Politically, Sir Geoffrey's measures are regarded as controversial and in some ways high risk.

By cutting the link between pensions and rises in the cost of living, the government is opening itself to charges that is penalizing poor people. This is happening when the Labour Party opposition has a new leader and is in a mood to hammer Mrs. Thatcher and her policies as hard as it can.

It is widely believed that Sir Geoffrey's package is only part of one of a two-part series, with a tough budget, including higher taxes, to be enacted in a few months.

Mrs. Thatcher is already being pressed by economic moderates in her Cabinet to curb the rigors of her policies, lest the Labour opposition be given an opportunity to mount a truly credible assault on her record in office.

The Chancellor of the Exchequer's decision to bow to demands for a lower Bank of England interest rate is likely to dampen criticism of the prime minister by her Cabinet colleagues. On the other hand, Mrs. Thatcher is being forced into some dubious compromises.

Sir Geoffrey's latest financial cuts include a $:200 million ($480 million) reduction in defense spending, mostly in the NATO area. For a government pledged to building up defense, that comes close to an admission of defeat.