§ For the United Kingdom, the medium-term financial strategy has been the cornerstone of such policies. It will continue to play that role—to provide a framework and discipline for Government and to set out clearly, to industry and the financial markets, the guidelines of policy. Too often in the past Governments have abandoned financial discipline whenever the going got rough, and staggered from one short-term policy expedient to another. The temptation to accommodate inflationary pressure proved irresistible, and the nation's longer-term economic performance was progressively undermined.
§ The medium-term financial strategy was designed to remedy this, by imposing a disciplined financial framework which would also ensure consistency between monetary and fiscal policies, and a proper balance in the economy. It is so designed to ensure that the more inflation and inflationary expectations come down, the more room is available for output and employment to grow.
§ People now know that the Government intend to stick to their medium-term objectives. They understand that the faster inflation comes down, the faster output and employment are likely to recover. The increasing degree of realism and flexibility in the economy owes much to the pursuit of firm and consistent policies within the MTFS framework.
§ Originally the MTFS covered four years. In this first Budget of a new Parliament it is appropriate to carry it forward for five years. So the MTFS published today in the Financial Statement and Budget Report—the Red Book—shows a continuing downward path for the monetary target ranges over the next five years and a path for public borrowing consistent with that reduction. It takes full account of important influences such as the pattern of North sea oil revenues and the level of asset sales arising from the privatisation programme.
§ For the two final years of the new MTFS, which lie beyond the period covered in last year's public expenditure survey and last month's White Paper, the Government have not yet made firm plans for public spending. But the MTFS assumption—and at present it is no more than an assumption—is that the level of public spending in 1987–88 and 1988–89 will be the same in real terms as that currently planned for 1986–87.
§ The precise figures set out in the MTFS are not of course a rigid framework, lacking all flexibility. As in the past, there may need to be adjustments to take account of changing circumstances. But no changes will be made that might jeopardise the consistent pursuit of the Government's objectives.