§ Further progress towards lower inflation and lower interest rates does not depend primarily on improvements in funding techniques or in managing the money markets, important though these are. The overriding need is for more effective restraint of public spending. In the last year public expenditure has put a severe strain on the budget. Much of the increased spending has been caused by the effects of the recession being worse than expected. There has been an increase of £¾ billion in spending on unemployment benefit and on special employment measures, notably the temporary short-time working scheme. On many central Government programmes the expected shortfall in expenditure has not happened, and so the total has been higher than expected.
§ The recession has also—inevitably—had an adverse effect on the financial situation of most nationalised industries. It has meant an increase in the total of these industries' external financing limits for 1980–81 of some £900 million, over half of which has been for the steel industry. Some of the nationalised industries are now taking steps to reduce the overmanning and inefficiency which have built up over the years. But that, too, can cost more money initially.
§ These, however, have not been the only sources of upward pressure. On defence there has been substantial overspending—to the tune of £260 million—over and above a cash limit that had already been increased by £200 million. Local authorities' total cash spending appears to have been a good deal higher than allowed in my last Budget—and the position would have been much worse without the firm action taken by my right hon. Friend the Secretary of State for the Environment.
§ Because of all these developments we have not been able, in the course of 1980–81, to secure the full 5 per cent. cut at which we were aiming in our predecessors' planned 767 volume of expenditure. We have nevertheless achieved a reduction of about 3½ per cent.—or £3½ billion. Moreover, since the Government came into office numbers employed in the Civil Service have fallen by 35,000, and by the equivalent of about 40,000 lull-time staff in local government.