§ The most encouraging developments of the last 12 months have been those on inflation. In my Budget speech last year I made it clear that I saw success in reducing the rate of inflation, and the rate of wage increases in particular, as the key to achieving our objectives of higher employment and a stronger balance of payments. But at the time I presented that Budget the rate of wage increase was far in excess of the rate of increase in prices and threatened to destroy any hopes of getting inflation under control. As I said then, we could hope to reverse that trend only by a sustained act of will involving all sections of the community.
§ That act of will came three months later. The £6 pay limit was the TUC's response to the nation's need. It was an act of great responsibility on the part of the whole trade union movement—an act which has been sustained with impressive unanimity ever since. With only a few months of the current wage round left to run, we know of no instance where wages are being paid in breach of the £6 pay limit. In consequence, confidence in our future has been transformed both 238 at home and abroad. There is no man or woman in the country who has not benefited as a result.
§ I forecast in my Budget speech last year that the annual rate of inflation in the second half of 1975 would be between 12 per cent. and 16 per cent.; in fact it was 14 per cent., compared with 38 per cent. in the first half. The £6 pay limit guarantees that our rate of inflation will continue to fall in 1976. This will be a massive improvement, but we shall still have a long way to go before our inflation rate is down to the levels of our competitors abroad. In the OECD as a whole, inflation averaged 8 per cent. a year in the second half of 1975 compared with our figure of 14 per cent. Therefore, we cannot relax our efforts. Further progress depends crucially on the pay limit for the next pay round, to which I shall revert later.