§ 3.36 p.m.
§ The Chancellor of the Exchequer (Mr. Denis Healey)Since the Financial Statement and Budget Report gives a full account of events in our economy over the last twelve months, I do not propose to begin my speech this afternoon with the usual historical preamble. And I shall follow the precedent I set last October by wherever possible putting detailed material about my proposals into supplementary documents which are being published this afternoon. I shall therefore confine my speech to the central features of our economic situation as we enter a new financial year and to the budgetary measures which I am asking the House to adopt in consequence.
The whole of the industrial world has found the last four years by far the most difficult since the war. The enormous increase in oil prices and the reaction to it of the industrial countries have plunged the world into the deepest and most prolonged recession since the 1930s combined with an unprecedented inflation. The period has been particularly difficult for us in Britain because we entered it in 1974 with our economy already badly out of balance, a growing deficit on our current account and severe inflationary pressures.
Four years of painful and difficult decisions have now got the economy into much better balance. Our current account has moved into surplus. Our financial position has been transformed. The year-on-year rate of inflation is well into single figures and still falling. Interest rates are far below the level of four years ago. The money supply is under firm 1184 control and we have exceptionally high reserves. All this is reflected in the fact that the fourth quarter of last year saw a rise of nearly 5 per cent. in real personal income after tax and national insurance—the biggest quarterly rise in living standards for nearly six years.
But this transformation in our financial situation has not yet been reflected in an adequate growth of output. In consequence, unemployment remains intolerably high, though it has been falling slowly since September. It is the first purpose of this Budget to encourage a level of economic activity sufficient to get unemployment moving significantly down. But like all other countries—and more than most—we cannot isolate ourselves from the rest of the world. And here the outlook still leaves much to be desired.
Two years ago it looked as if the industrialised world was emerging from the severe recession which followed the increase in oil prices. But that recovery proved more sluggish than expected. 1977 was a disappointing year for nearly all the world. Economic growth in the OECD area was well below the average rate obtained in the 1960s. World trade in manufactures increased only 3½ per cent. compared with 9½ per cent. in 1976. Although with an increase of 8 per cent. in the volume of our manufactured exports we increased our share of world trade, in general as well as in manufactures, there was very little growth in our economy during 1977.
The problems created by the slow growth of the world economy have been made worse by the big payments imbalances between the oil-consuming countries. Some oil-producing countries cannot in the short run eliminate their surpluses through trade, so the oil consumers as a group must face a corresponding deficit. The total current account deficit of the OECD countries rose to around 30 billion dollars in 1977. But this total includes a large increase in the deficit of the United States and a large increase in the surplus of Japan.
One reason for these disparities is that other strong countries have been slow to follow the expansionary lead of the United States. These payments imbalances are at the root of the currency instability of the last few months which is itself a further threat to world growth.
1185 If we are to solve this country's problems we need to take action on a world scale, because no single country can lead the world out of its difficulties. Indeed, no single country can by itself solve even its own problems. My right hon. Friend the Prime Minister and the President of the United States recognised this fact together when they met at Easter to discuss a programme for concerted action designed to attack simultaneously all the five major problems which are now damaging the world economy—low growth, currency instability, the trend towards protectionism, over-dependence on imported energy and inadequate flows of stable long-term capital and aid from the surplus countries to countries in deficit, including many in the developing world.
Yesterday the Heads of Government of the seven leading world economies agreed to develop their policies so as to promote a concerted approach to this group of problems in the months leading up to the Bonn Summit meeting in July. The European Council agreed on Saturday to work with determination for the higher economic growth that this approach requires.
This Budget represents a first British contribution towards that common effort as well as meeting our national needs.
§ Mr. Deputy SpeakerI remind the House of the convention that Mr. Chancellor of the Exchequer is not interrupted during his Budget Statement.