§ Public spending as a share of national income varies from year to year, but under this Government's policies—and I have described our policies, which are policies of change and of priorities—over the past 16 years, the trend has been downward.
§ In the mid-1970s, when public spending peaked, it did so at 47¼ per cent. of national income. The next peak reached 45½ per cent. in the early 1980s and the last peak was 43½ per cent. in the recession of the early 1990s. I now expect total public spending to be 42 per cent. of national income this year.
§ When I became Chancellor two and a half years ago, I said that we should aim to push the ratio below 40 per cent. and keep it there. The decisions I am announcing today will 1063 achieve that aim. The ratio will be below 40 per cent. from 1997–98 onwards. That is far below the ratio in any other major European country. Controlling public spending is crucial to our goal of making the economy more successful and the enterprise centre of Europe.
§ I have now taken £53 billion out of projected public spending in my three Budgets. I judged that necessary to reduce Government borrowing following the international recession of the 1990s. Even with the extra money for schools, the extra money for hospitals and the extra money for the police, I now expect total planned public spending to be kept broadly unchanged in real terms over the next three years.
§ When we first set out our public spending control totals three years ago, most of the pundits did not believe that we would stick to them. The doubters have been proved wrong.
§ Not only have we stuck to our plans, but I have managed to reduce them again, for the third year running. Next year, the control total will be £3¼ billion below the level that I set in last year's Budget. That is £12 billion below the level we expected it would be for that year when I was first appointed Chancellor.
§ Having carefully reviewed the latest projections for public borrowing in the light of those decisions, I have concluded that we can now return to the task of starting to cut taxes again. [Interruption.] I hope that some Labour Members begin to understand that there is a correlation between the two in a well-managed economy. I am able to make tax cuts broadly equivalent to the spending reductions, with Government borrowing still falling to zero by the end of the decade.
§ After the Budget measures are taken into account, I expect the PSBR to continue to fall at roughly the rate we have now achieved in the past two years. I expect it to fall from £29 billion this year to £22½ billion in 1996–97 and £15 billion in 1997–98. Broad balance should be reached after a further two years. The financial deficit is now expected to be close to the Maastricht reference level of 3 per cent. of GDP in 1996–97 and to fall well below it in subsequent years.
§ So fiscal policy will remain tight. That is why the measures in this year's Budget are economically and socially responsible. I have made it clear all along that every Budget I deliver will be dominated by the long-term interests of the British economy. Let me now turn to my tax proposals.