§ The Chancellor of the Exchequer (Mr. Denis Healey)The latest forecast prepared before the measures showed a PSBR of £10½ billion in 1977–78 and £11½ billion in 1978–79. These forecasts embodied unrealisticaly favourable assumptions on several important points. Even so, the PSBR figures were unacceptably high and the immediate objective of the measures which I am announcing this afternoon is to reduce the public sector borrowing requirement to about £8.7 billion in 1977–78 and to somewhat less in the following year—on present forecasts I expect a figure of some £8.6 billion. So the reduction in the PSBR would be nearly £2 billion in 1977–78 and nearly £3 billion in 1978–79. Expressed as a percentage of GDP, the PSBR will fall steadily from 9 per cent. in the current year to about 6 per cent. in 1977–78 and rather over 5 per cent. in 1978–79. These objectives are calculated on the basis of the economic prospect as I now see it.
To achieve these objectives, the Government are proposing adjustments to current plans amounting to £1½ billion in 1977–78 and £2 billion in 1978–79. I am, therefore, announcing specific 1526 measures this afternoon which amount to some £1½ billion in each year. In addition, the Government will make a further fiscal adjustment of about £½ billion in 1978–79 but it is too soon to say what form this further adjustment will take.
It is, of course, impossible to forecast with any confidence at the present time what will be the condition of the economy in 1978–79. The extent to which further fiscal adjustment might be needed cannot be decided at this stage. If the forecasts at the time show the economy growing from the beginning of 1978 to the end of 1979 at a rate of more than 3½ per cent. a year, the Government intend to make a further fiscal adjustment in the 1978 Budget—of between £500 million and £1 billion, depending on the buoyancy of demand and the state of the world economy at that time—to ensure that with those higher growth rates domestic conditions do not prevent us from giving the necessary priority to exports and investment.