§ Two years ago, Britain faced the threat of rapidly rising inflation. So our first priority, and our continuing obligation, has been, and is, to build a solid foundation of economic stability.
§ We took decisive action in 1997 and 1998 and, as a result, inflation is under control and for the last seven months has been at or around 2 ½ per cent.
§ In the 1980s, inflation went as high as 21 per cent. Our forecast is for inflation of 2 ½ per cent. this year, next year and the year after. For the first time in our generation, Britain can look forward to sustained low inflation.
§ In our first week in government, we made the Bank of England independent, freeing monetary policy from the politically driven control that, in the last economic cycle, led to 15 per cent. interest rates for an entire year and interest rates at 10 per cent. or more for four years.
§ Now, because together we are steering a course of stability, long-term interest rates have come down from over 7 per cent. in May 1997 to 4 ½ per cent. now—our lowest long-term interest rates for 40 years.
§ And, after five interest rate cuts in five months, saving the typical home owner around £900 a year on their mortgage, Britain now has the lowest mortgage rates in 33 years.
§ All of this has happened against a background of great uncertainties in the global economy. One quarter of the world is now in recession. World growth has been cut in half. World export growth has fallen even faster. And, as a result of failures in many of east Asia's economies, our exports to them have fallen by more than 50 per cent.
§ And this year, as trade imbalances worsen, and threats of protectionism grow, it will be even more important to hold to our course of stability. Britain, with other G7 nations, has rightly assumed a leadership role to address the root causes and contain the spread of future global crises.
§ The storms may come again. But, because of what we have done, our economy is now better prepared to weather them.
§ With public investment now set to rise and interest rates coming down, both at precisely the right time in the economic cycle, Britain's fiscal and monetary policies— often at odds in previous economic cycles—are now working together to promote growth with low inflation.
§ I can confirm our growth estimate for 1999 of 1 per cent. to 1½ per cent. which is what I told the House in November, followed by stronger growth—in 2000 of 2¼ per cent. to 2¾ per cent. and then in 2001 of 2¾ per cent. to 3¼ per cent.
175§ Despite world conditions, more men and women are in jobs in Britain than at any time in our history, and unemployment in the last year has been at its lowest rate for 20 years. Since May 1997, youth unemployment has fallen by 57 per cent, and long-term unemployment has been cut in half.
§ And because more lone parents are now in work, the numbers claiming out-of-work benefit—rising for 30 years, over 1 million when we took office—have now fallen by nearly 100,000.
§ As we entered office, we also inherited a Budget deficit of £28 billion.
§ We said in our manifesto we would work within the existing spending plans for our first two years.
§ In our first year, the deficit was reduced by £19 billion.
§ In my Budget last year, I promised we would reduce the deficit further.
§ As a result of our prudence, our first two years' spending is £2 billion lower than the spending plans we inherited.
§ This year, the Budget will be in surplus. The current surplus this year is forecast to be £4 billion. Public sector net borrowing will be in surplus by £1 billion—in contrast to the £28 billion deficit we inherited.
§ I am determined to continue locking in this fiscal tightening for the years to come so that we continue to meet our fiscal rules and so deliver sound public finances. I have had to offset the impact of slower world growth on corporate tax revenues and lower indirect tax revenues.
§ But, as a result of sound economic management, debt interest payments next year have been cut by £2½ billion from their previous forecast and, in total, debt interest payments have been cut by £4 billion over the next three years.
§ Because less of our social security budget is being wasted on paying for past failures in employment policy, social security spending as a whole has not been rising as in previous years. And, over the next three years, social security spending, including unemployment—even after adjusting for the economic cycle—is set to be significantly lower than previously forecast, freeing resources for new help for families and pensioners.
§ At the time of the comprehensive spending review last July, there were those who said that we could not afford the £40 billion for new investment in health and education and still meet our fiscal rules.
§ I can report that the entire £40 billion of investment in health and in education will be fully delivered, and will be delivered fully within our fiscal rules. Not only that, but still meeting the test of fiscal prudence, I will today allocate from our capital modernisation fund even more investment for hospitals and schools.
§ And, still meeting that test of fiscal prudence, I will be able to afford tax cuts to reward work, encourage enterprise and strengthen the family.
§ Even after all the measures in today's Budget, next year's current surplus is expected to be £1 billion higher than previously forecast and £1 billion more in 2000–01. For the coming five years, the current surpluses are forecast to be—successively—£2 billion, £4 billion, £8 billion, £9 billion and £11 billion.
176§ In line with our golden rule, even under our most cautious assumptions, we are balancing the current Budget over the economic cycle and, for the first time in a generation, we are eliminating the current structural deficit.
§ We are also meeting the second fiscal rule, that of sustainable investment—a prudent ratio of debt to GDP.
§ Debt as a proportion of national income has fallen from the 44 per cent. that we inherited to under 41 per cent. this year, and it will fall below 40 per cent. to 39½ per cent. next year, then to 38 per cent, and then to 37 per cent. in 2001–02.
§ Britain's fiscal position is therefore not only sound today, but on the soundest possible footing for the long term.
§ For the coming five years, the estimated current Budget surplus totals £34 billion, in contrast with the last Government's deficit over the last economic cycle of minus £149 billion and their doubling of the national debt.
§ For those who take a special interest in European issues, in particular the Maastricht treaty, I can confirm that Britain is well within the Maastricht criteria.
§ So, as we cut debt payments and, at the same time, the bills of economic failure, I will further lock in the fiscal tightening that we have achieved over the past two years, I will continue to meet our fiscal rules and I am also able, with my Budget measures today, to boost purchasing power over the next three years by £6 billion at exactly the right time for the economy.
§ Even after these measures take effect, public sector net borrowing will be lower than previously forecast in each of the next three years—at £3 billion in the coming year and then £3 billion, £1 billion, £3 billion and £4 billion in the years after.
§ I have often told this House that our prudence is for a purpose. And so, I am now able to announce: a new boost to purchasing power of £6 billion over the next three years as a result of my Budget measures—net tax cuts of £4 billion targeted to working families; and, on top of that, for families and public spending, more than £2 billion of additional public investments.
§ And I will also today announce major additional allocations from the £2½ billion capital modernisation fund, adding more resources to the extra £40 billion that we have already committed to invest in health and education over the next three years.
§ Let me turn to the details of measures, beginning with the tax and other reforms that deliver a better deal for enterprise.