§ Although monetary policy must play the main role in tackling inflation, a tight fiscal policy is also essential. It cannot do the work of monetary policy, but it can and must support it. The dramatic improvement in the state of public finances over the past 10 years under the stewardship of my right hon. Friends is an achievement of which they can be rightly proud. For decades, successive Governments had spent more than they were prepared to raise honestly from taxation and they made up the shortfall by borrowing. They left that bill to be picked up by future generations. Over decades, it mounted to very considerable levels. Today, just paying the gross interest on the accumulated debt accounts for 10p on the basic rate of income tax.
§ Over the past 10 years, we have reversed that trend and in the past three, we have repaid around £25 billion, reducing the burden of Government debt to levels that we have not seen since before the first world war. The rewards of this repayment will be felt by future generations, but they bring also an immediate benefit. As a result of the debt repayments, we are saving over £2,500 million a year in debt interest. That is sufficient to meet the annual cost of around 150 district general hospitals.
§ The very large Budget surplus in 1988–89 owed much to cyclical factors. In the current year, as I told the House some months ago, we expect the surplus to fall back. The position, as usual, will remain uncertain until the year is complete, but our best estimate is that the debt repayment this year will be around £7 billion.
§ The fall in the surplus owes less to the slowdown in growth than to a number of special factors. We have seen a fall in privatisation proceeds from the very high level 1017 achieved in 1988–89. There has also been a sharp and unwelcome increase in local authority spending. This has been particularly marked in their capital spending, as local authorities have sought to forestall the new controls which will take effect in April. As a result, we now expect the public expenditure planning total this year to be overshot by £2.25 billion. Central Government expenditure remains well under control.
§ Another, but much more welcome, factor reducing the surplus has been the higher national insurance rebates which have resulted from the huge success of personal pensions. This extension of choice is a considerable tribute to my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler). Over 3.5 million people have now taken out personal pensions. As well as benefiting the individuals concerned, in the long term this will reduce public spending, but it also reduces national insurance receipts, by £2.5 billion this year.
§ Next year, some of these factors will be partially reversed, but we will see the effect of slower growth on the debt repayment. In particular, corporation tax receipts are likely to fall a little after six years of rapid growth, not least because of the higher investment of recent years which can be offset against tax. These allowances will be worth more than £10 billion to companies next year, as opposed to £9 billion this year.
§ It is against the medium-term fiscal prospect that I have framed the Budget judgment, for fiscal policy is not, in my view, a flexible instrument which should be altered to meet short-term contingencies. Fine-tuning fiscal policy is not only disruptive to the public sector, to business, and to taxpayers, but its effects on the economy are uncertain and often destabilising.
§ Accordingly, I am budgeting next year for a further public sector debt repayment of £7 billion—the same as this year. Looking further ahead, I expect our fiscal position to move towards the medium-term objective of a balanced Budget—an objective that I reaffirm today.
§ The overall effect of the Budget measures that I shall announce today will be to maintain a tight fiscal policy by modestly increasing the yield from taxation by about £500 million next year and just under £1 billion in 1991.