§ These considerations lead me to the conclusion that the Budget should provide some addition to demand. This leaves two questions to be answered—the magnitude of the addition which is required and the type of measures which would be most appropriate in the present circumstances.
§ The first question requires a difficult exercise of judgment. I have never made any pretensions to fine tuning, but my judgment is that the broad aim should be an addition to demand adequate to raise the rate of expansion of output to the rate of growth of productive potential, which is estimated to be about 3 per cent. The measures I shall be proposing are intended to increase demand in the economy over the year ahead by the amount needed to achieve that result.
§ If, after the measures I am about to announce have been allowed a reasonable time to have their effect, a further stimulus is needed, the usual instruments are always available. Here I should mention that I propose to extend for a further year the power to vary revenue duties and purchase tax by means of the regulator.
§ The need for this degree of addition to demand this year provides the opportunity to do certain things which are in themselves highly desirable. I think that the whole House will agree that much of the scope for tax relief should be used to assist the fight against inflation and to help some of those who are worst hit by it. At the same time, my aim is that this Budget should not only maintain an adequate rate of expansion of output in the year ahead but that it should also make some contribution to our capacity to grow in the longer term. 1371 It will do so, I believe, by re-establishing confidence and creating the conditions in which industry can make firm plans for a rising level of investment. With these aims in mind, I propose to use much of the scope for tax remission which exists this year to make a start on the more fundamental reforms of the structure of taxation which we shall carry out.
§ Before I come to my major proposals for taxation, however, I must deal with monetary policy in the year ahead and with a variety of other measures, both in the field of taxation and outside it.