§ These then are my proposals. The House will want to know how, as they are implemented, I expect to see the economy develop.
§ Firstly, I look forward to 1975 being a very much better year than 1974 for the balance of payments. We have made a good start in the first quarter, though the figures for March were favourably distorted by the London dock strike. For 1975 as a whole, despite the fall in world trade, there are good prospects that our deficit will be at least a billion pounds lower than in 1974. In other words, the non-oil deficit on the current account will have turned into a substantial surplus.
§ Secondly, the outlook for prices. The adjustment for the cost inflation already in the pipeline still has some way to run. Rent and rate increases are already under way. Nationalised industry prices are now reflecting increases in wage and other costs more fully. Mainly by adjusting the excise duties to reflect past inflation, my Budget measures themselves will put up the RPI by about 2¾ per cent. This means that for some months yet we must expect high figures for the RPI compared with twelve months previously.
§ However, the year-on-year figures published every month are slow to reflect a change of trend and may sometimes mask it completely. By the middle of the year, 319 once the increases I have mentioned have been digested, and the effects of lower food and commodity prices are feeding through, I would expect the rate of increase in the month-on-month index to begin to fall. In fact there are good prospects that between about June and December the cost of living will rise on average by not much more than 1 per cent. a month, implying an annual rate of the order of 12 to 16 per cent. But, as the House will realise, these figures will not be achieved if there is any acceleration in wage and salary increases.
§ Thirdly, for the public finances I expect the borrowing requirement in 1975–76 to be about £9 billion. Though higher in money terms than last year, as a proportion of GDP it should be about the same—about 10 per cent. Though this figure is large, my concern at its size is mitigated by two considerations. In the first place, the tax measures I have announced today will even at constant prices yield more revenue in a full year than in 1975–76. The public expenditure reductions, which will not affect the borrowing requirement to any significant extent this year, will have their impact in 1976–77. For that year I see good prospects that the borrowing requirement will be significantly lower as a proportion of GDP, since my measures will then reduce the PSBR by approximately £3 billion compared with £1 billion in 1975, while our GDP is then expected to be much higher.
§ Second, it is important to recognise that, at current rates of taxation and public expenditure, the borrowing requirement would be very much lower still if exports increased to the extent that output and employment at home could return to full employment conditions. Higher exports would mean higher incomes and higher tax receipts out of those incomes, to the benefit of the economy as a whole and the public finances in particular. Under conditions of full employment brought about in this way, the borrowing requirement would be some billions of pounds less than my present forecast.
§ These two considerations, therefore, both lead me to view my forecast public sector borrowing requirement without alarm, but they do, of course, make it more necessary than ever for us to follow 320 the strategy I have laid down today over the next two or three years.
§ The income tax changes will be at particular benefit to lower income taxpayers, especially, of course, one-parent families. Altogether 9 million taxpayers or 35 per cent. of the total will pay less income tax as a result of the Budget. This figure includes families with two children up to around average earnings. The increases in indirect taxation on inessentials will raise prices, but the impact will vary depending on how much individuals choose to spend on such goods. Allowing for the fall in income tax paid by lower income families, and bearing in mind the earlier decisions to increase family allowance and to introduce fully graduated insurance contributions, poor families will be affected least of all by my strategy of moving resources away from private consumption. Taking the measures as a whole, I am confident that their impact will be fair and progressive.
§ The effect of the Budget measures on employment has given me great concern, since I absolutely reject the use of mass unemployment as an instrument of policy, and this year employment will be seriously affected in any case by the world recession springing from the oil crisis. I think that hon. Members know that it is particularly difficult to forecast the unemployment figures, though so far the record of my Treasury advisers has been a good deal better than that of most outsiders. With all the necessary caution, I predict that, given a continuing low level of trade in 1975, the pressure of demand in the United Kingdom will continue easing and unemployment will continue to rise for the remainder of the year. I must warn the House that it could be touching a million, or 4 per cent. by the end of the year.
§ The Budget measures will reduce demand in 1975 by about £330 million and may be responsible for about 20.000 out of the total unemployed—about a fiftieth of the million. But this is part of the price we have to pay for inflation at current levels. On the other hand, in 1976, as world trade begins to grow vigorously again, I would expect to see a reversal of this trend set in and a continuing fall in the number of unemployed. I repeat, however, what I said 321 earlier, namely, that if the stronger countries fail to expand their economies sufficiently, I shall have to consider very carefully what measures I should take to maintain employment in Britain. I pledge myself in any case to take steps to increase employment once our inflation rate has settled down to the international average.
§ The Budget I have presented today is a hard one for all of us in Britain. It is dictated by the harsh reality of the world we live in. A severe Budget is a necessary element in any strategy for improving the overall performance of our economy, which has been lagging increasingly behind most industrial economies for more than a single generation. Added to the need for measures to produce the essential structural changes in the balance of our economy are the burdens we carry with other countries because the explosion of world prices has cut our real income by 4 per cent. But in this situation the key to our immediate success is the rate of inflation inside Britain, and it is our failure here which is responsible for the special severity of this Budget.
§ So long as pay and prices increase at their present rates, no Chancellor of the Exchequer who puts his country first would act otherwise than I have done this afternoon. The situation would be very different if through improvements in productivity and moderation in pay negotiations we could substantially reduce our inflation rate. With higher productivity, lower wage settlements and the consequential improvement in the balance of payments we could have the same standard of living with lower prices, lower taxes and, most important of all, more jobs. At the same time we should have a sounder currency, a better assurance of international credit and a greater degree of that business confidence which is a precondition of the investment we need most of all.
§ There is a better alternative to the stony road we have to follow at present. It requires only a sustained act of will to take it—an act of will from which no section of the community, on the shop floor, in the board room or in the home, can stand aside. If this Budget helps to convince the British people of this fact, it will have performed a long-term service to our nation even more important than 322 the solution of the problems which are its immediate aim.
§ Mr. Deputy Speaker (Mr. George Thomas)
Under our Standing Orders, the first motion, entitled "Provisional Collection of Taxes", must be decided without debate. When that matter has been disposed of, I shall call the Chancellor to move the motion entitled "Amendment of the Law". It is on that motion that the Budget debate will take place today and on the succeeding days. The remaining motions will not be put until the end of the debate on Monday.