§ While monetary policy is at the heart of the medium-term financial strategy, it needs to be buttressed by an appropriate fiscal policy.
The outturn for the public sector borrowing requirement for 1983–84 was £9¾ billion, or 3¼ per cent. of GDP. In my Budget last year I planned to reduce it substantially in 786 1984–85 to £7¼ billion, or 2¼ per cent. of GDP. In the event, this year's PSBR looks like turning out at £10½ billion, or 3¼ per cent. of GDP—the same as last year.
All but half a million pounds of this substantial overrun is directly attributable to the cost of the coal strike. I believe it was right to meet the large but once-for-all cost of keeping the economy going throughout the coal strike by borrowing, thus in effect spreading the cost over a number of years, but it is now necessary to return to the path I outlined last year.
That means that the PSBR for the coming year, 1985–86, will be set at £7 billion, equivalent to 2 per cent. of GDP. As this year, some £3 billion will be financed through national savings.
I have been urged by some to provide for a still lower borrowing requirement in order to impress the financial markets. Others have argued that the present high level of interest rates would justify a more relaxed fiscal stance.
There is nothing sacrosanct about the precise mix of monetary and fiscal policies required to meet the objectives of the medium-term financial strategy, but this is not the year to make adjustments in either direction. The wisest course is to stick to our pre-announced path. This means that, for the coming year, a substantial reduction in the PSBR must take precedence over our objectives for reducing the burden of tax.