§ Let me sum up the economic effects of this Budget. To start with, I have taken action which was necessary and urgent to improve the financial position of industrial and commercial companies. Taking together the relaxations of the Price Code and the relief of corporation tax on stocks, I reckon that the financial benefit to companies next year will be about Ell billion. This is a very substantial improvement and should go a long way to prevent the closures, redundancies and investment cuts which have been threatening to fall upon us.
§ Given this relief to companies, together with the other changes which I have announced, the growth of total output in the period ahead is forecast at about 2 per cent. per annum. This reflects a slight weakening in the pressure of demand and would mean some increase in unemployment. Much will depend on the development of the world economic situation, on which there is a great deal of uncertainty, but our present forecast, which includes the effects of the present Budget, predicts that the rise in unemployment will be modest and its level will remain well below 1 million.
§ The relaxation of the Price Code and the increase in the value added tax on petrol will, of course, raise the retail price index: the effect by the middle of next 279 year I estimate at a little over 1½ per cent. If we are to correct the large structural distortions which have affected our economy over recent years, with too much going into consumption and too little into investment and exports, it is inevitable that from time to time steps should be taken which will raise consumer prices. There is no escape from this. But what can be done is to protect those consumers who are least able to bear the burden. This I have tried to do through the increase in family allowances, the April uprating of social security benefits and the new tax allowance for the elderly.
§ Finally, there is the effect of all this on the borrowing requirement. The net effect of the measures which I have announced today is to increase the borrowing requirement by about £800 million, the whole of which will be matched by a corresponding improvement in the financial position of the company sector. It cannot, therefore, be judged in the same way as an increase in the public sector deficit which is undertaken in order to stimulate consumption. In this instance, the public sector will have to borrow more in order to reduce the borrowing needs of industry to tolerable limits, in order to enable industry to continue to perform its functions in the normal manner.
§ In saying this, I do not wish to disguise the fact that I regard the resulting public sector borrowing requirement—£6,300 million—as a disturbingly large figure which one would never accept in normal circumstances. But in present circumstances, if I had made an attempt to close it, whether by cuts in public expenditure or by increases in taxation, the result could only have been a large fall in our national output and a massive increase in unemployment. This is because, for reasons which I explained earlier today, a large balance of payments deficit is inevitable in the present circumstances, and a large public sector deficit is the inevitable counterpart of this, given that the private sector as a whole cannot be in substantial deficit without grave consequences.
§ What matters is that a public sector deficit should not be allowed to become so large that its very existence causes a pressure on resources, a further deterioration in our balance of payments and a dis- 280 proportionate increase in the money supply. I see no reason why the public sector deficit this year should involve any of these consequences. If our policies as a whole represent a reasonable response to our present situation, as I believe they do, it is something we just have to accept.
§ I think that the House will admit that there has rarely been a time when it was more difficult for a British Chancellor to achieve a proper balance between the five objectives he must always seek to reconcile—full employment, economic growth, social justice, stable prices and external equilibrium. Some may feel that the full scale of the crisis should have been brought home to people more directly by swingeing increases in taxation or disruptive cuts in public expenditure. If so, I hope that they will tell us during the debate. But this could only bring mass unemployment in its train, with political, economic and social consequences I hope none of us would welcome.
§ Indeed, in other circumstances the massive deflationary effect of the oil price increase and the fall-off in world trade might have made more reflation desirable. As it is, the expected short-fall in demand compared with the capacity of our economy gives us all the room we can use for a substantial growth of exports. Again, the increase in prices which must result from our reaction to the world situation might justify more help to the worse off if the consequent increases in taxation were not incompatible with a voluntary policy for incomes.
§ As it is, I have struck a balance which I dare say will satisfy nobody completely. But I believe that in our present situation it provides a sound foundation for that fundamental reconstruction of our economy which we need. In that sense, I ask the House to approve it as a basis on which all sections of our people can combine in a united national effort to restore Britain to the place she should have in the world.
§ Mr. Deputy Speaker (Mr. George Thomas)
Before I propose the Question on the first motion, I remind the House that the debate today and on succeeding days takes place on this motion. The Questions on the b remaining motions will not be put until the conclusion of the debate on Thursday.