§ The primary objective of last year's Budget was to set our nation on a course of faster economic growth. I said then that the aim was that our national output should increase at an annual rate of 5 per cent. over the eighteen-month period to the present half-year. There are still some months to go but the indications are that we shall broadly achieve that objective. Indeed, in the closing months of last year industrial production, consumers' expenditure, and retail sales all showed increases over a year earlier of considerably more than 5 per cent. And the indications are that a rapid pace of expansion is being maintained this year.
§ At the time of the last Budget I said that no Government could tolerate the level of unemployment which we had at that time. The facts of the past year are these. At the last count on 12th February the number of unemployed was over 200,000 lower than a year earlier. And the number of vacancies was over 100,000 236 higher—nearly twice as high as a year ago.
§ The very fact that our national output has been growing rapidly over this past year or so has been one of the principal reasons why, last year, living standards—measured in the conventional terms of real personal disposable income—rose faster than in any year since the end of the war. Whatever the problems ahead—and there are plenty—our nation starts this year with a standard of living which is about 10 per cent. higher in real terms—that is, after allowing for inflation—that it was when we came to office.
§ There is, I know full well, a sharp contrast between these very real achievements—in increased production, improving employment, and a higher standard of living—and the frustrations which are so often expressed.
§ And the reason, I think, is two-fold. First, our progress has been made up of a very large increase in money incomes, offset in part by an increase in prices. It is all too easy to look at price increases and not to take into account the fact that the increases in pay have been greater.
§ The second reason is this. Over a period, the improvement in most people's real income has taken place in steps—when they have got their pay rise. But from then until their next rise they have seen their gain in part whittled away by rising prices—the inevitable result of the large pay increases of others, and sometimes, I may say, of their own. This has obscured the fact that, taking one year with another, pay has gone up much more than prices.
§ Not only does inflation create injustice as between one individual and another. It also binds us, as a nation, to our real achievement. Instead of satisfaction it breeds resentment. There is only one way of removing the causes of this attitude, and that is by attacking inflation itself.
§ I turn now to the future. We have achieved our first objective—to lift the economy on to a path of higher growth. My aim in this Budget, looking ahead over the next year or so, is to continue on that path.
§ But it is well recognised that the faster rate of growth we are now achieving depends partly on taking up slack in the economy. If this faster growth is not to be a transitory affair, and if we are 237 to succeed in our long-term objectives, three conditions must be fulfilled.
§ First, there must be a higher level of industrial investment. This is required to increase our sustainable growth of productivity, to improve our international competitiveness, and to provide sufficient capacity to re-employ more people so that unemployment can continue to decline.
§ Second, we must not find ourselves compelled to bring growth to a halt in order to deal with difficulties which ought to be tackled in other ways, whether those difficulties are concerned with inflation or with the consequences of inflation for the balance of payments. Indeed, we have consistently affirmed that sound and sustained growth is a major element in our programme of action to deal with inflation.
§ Third, we must conquer inflation. The battle against rising prices is crucial not only in its own right because inflation is bad, unfair and socially disruptive; but also because our success or otherwise will have a major impact on confidence at home and abroad. Without confidence at home there will be insufficient investment and reduced prospects for sustained growth and for the achievement and maintenance of a high level of employment. As for confidence abroad, there would be no soft options for an economy which allowed itself to become uncompetitive. Pressures on sterling would be intensified by lack of confidence and would lead in one way or another to a depreciation of the exchange rate which in turn would exacerbate the inflationary spiral.
§ I will be dealing later and in detail with each of these pre-conditions for growth. But it is right that I should say at the outset that I believe they can be met.
§ One thing that has made a great impression on me was our experience in the 1960's. In those years the prosperity of our nation was improving more slowly than that of most other advanced countries. This was due, above all, to our failure to match their economic performance. So the standard of living of the British people fell further and further behind those of other countries, and we were getting into a frame of mind where it was almost assumed that we did not 238 have it in us, as a people, to do as well as others. Our self-confidence was sapped, and the very fact that our economic performance had been poor led to social tensions which would otherwise have been avoided.
§ But I just do not believe that we are innately less capable that are those other countries of achieving a better economic performance. What they can do, we can do.
§ And so, on the economic front, the strategy of this Budget, like that of its predecessors, will be to keep the economy growing, and to keep it growing over the next year or so at a rate comparable with that we have now achieved. But as I have said on earlier occasions, it is crucially important to look beyond the next year and to lay firm foundations on which we can build a fast rate of economic growth in the future. We have had spurts of fast growth before and they have always either petered out or been brought abrupty to an end because we have not taken the proper measures to ensure that they could be sustained. We are determined not to let this happen again.