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I have already said publicly that I have been looking forward to this year's Budget.

I am enjoying each a little more as I get nearer my goals.

The British economy has now been growing for almost four years.

The recovery has created more than half a million new jobs.

We have more of our people in work than in any other major country in the European Union.

Inflation is enjoying its best run for almost 50 years.

All the major western economies have slowed down this year but our recovery remains stronger than most.

The IMF has forecast that next year we will be joint top, with Germany, of the G7 growth league table.

Few chancellors have delivered their Budget against a background of such strong economic fundamentals.

But getting this far has not been easy. It has required tough decisions on tax and spending over the past three years.

This Budget builds on the hard-won gains this government has made and keeps Britain on course to be the enterprise centre of Europe.

A Britain that creates more jobs and generates the greater wealth and personal prosperity in which all can share. A Britain in which everyone can keep more of what they earn or save to spend as they choose not as the state chooses. A Britain where more money is spent on the things that everyone cares about - our schools, our hospitals, our police.

The people of this country believe in these goals. Only this government is committed to the means of achieving them. We are keeping inflation low. We are keeping control of public spending. We are keeping government borrowing on a downward path. And we believe in the policies of low taxation which all countries must follow if they want to be world class economic powers.

The people of Middle England, Middle Scotland, Middle Wales and Middle Ulster understand that these policies address their needs and meet their concerns in a rapidly changing and ever more competitive world.

These are the people of Britain who are hard working and take responsibility for themselves and their families. The people who want to get on in life, who run their own businesses and who create jobs.

And the people with that great British virtue - a social conscience - who want to see a successful economy first earn the wealth, in order to give the weak and the less fortunate a helping hand.

This Budget addresses the aspirations of the people of this country in an economically and socially responsible way.

It controls public spending overall while shifting more money towards schools, hospitals and the police.

It keeps government borrowing on a clear downward path and fiscal policy tight so that the recovery will be sustained.

And it cuts taxes.

For all these reasons, that is why I have been looking forward to this year's Budget.


The Recovery

Before moving on to specific tax and spending measures, let me deal briefly with the economic background.

In 1994 the economy grew by around 4 per cent, fuelled by the success of British exporters overseas.

No matureindustrial economy could easily sustain these rates of growth without risking a rise in inflation. That is why towards the end of last year I raised interest rates.

In the event, slower growth in the world economy has reduced the growth of British exports. British exporters are well placed to compete in markets overseas. For example, we now have a current account surplus with the so-called tiger economies of South East Asia. But our key markets in America and Europe are growing by less than they were in 1994.

Growth in this country will be sustained because the fundamentals of the economy are strong as a result of our economic policies. We have low inflation, sound public finances and more competitive businesses.

The change in the pace of growth this year is not unique to Britain and has been seen in the US, Germany and elsewhere. No recovery ever proceeds at a constant rate of growth throughout. In fact, this recovery is proving to be the steadiest seen in Britain for a generation.

Many commentators confidently predicted that the higher tax and lower public spending of the last three Budgets would knock the recovery off-track. They were wrong. Consumer spending has been on a firm upward trend since the recovery began. With the tax increases behind us, consumer spending should grow further next year and the year after.

Businesses have responded to the economic recovery by investing for the future. Manufacturing investment has grown by 12 per cent over the past year. The conditions for further increases in investment - low inflation, low interest rates, low corporate tax rates, and healthy company balance sheets - remain in place.

For the economy as a whole, the forecasts published in the Red Book are for growth of 2 3/4 per cent this year and 3 per cent in 1996.

My last two Budgets have strengthened the foundations of the economy and put the recovery onto a secure footing. I have reduced public spending and borrowing plans to create more room for the wealth-creating part of the economy to grow. I have helped businesses. And I have improved the working of the labour market.

The decisions I took and the policies I pursued in those Budgets have helped to reduce pressure on me to increase interest rates further, without jeopardising my inflation target.


We have got inflation under control. Inflation has picked up over the past year as the impact of last year's worldwide increase in commodity prices has fed through the price chain. But these cost pressures are now steadily easing. Underlying inflation may be close to its peak and should resume its downward path during the course of next year. It remains on course to meet the government's target of 2 1/2 per cent or below by the end of the present parliament. The House might care to remember that last August was the twentieth anniversary of inflation reaching a staggering 26.9 per cent.

The public finances

We have got the public finances under control. The government has delivered last year's tough public spending plans. Indeed, we expect to undershoot them. However, tax receipts have come in lower than expected this year. This is partly due to lower inflation and to lower growth. The Public Sector Borrowing Requirement (PSBR) is the difference between two enormous numbers so that forecasts for public borrowing have always been notoriously difficult to make. I have therefore been cautious and prudent this year in setting out the latest projections. I now expect the PSBR to be £29bn in the current financial year. That will be £7bn less than last year and £16bn less than two years ago.

I am determined to follow a consistent course and I have taken more public spending decisions to keep it that way.

I have no intention of throwing away the gains we have made in recent years in getting public borrowing down. We will keep on track towards balance in the medium-term because I do not want the future strength of the recovery put at risk. Overall, our decisions on public spending and the tax measures I shall describe shortly will be broadly neutral in their impact on the downward path for the PSBR over the next three years.

This downward profile for government borrowing sets the overall framework for my Budget this year. I am not prepared to take any action which would put at risk my fiscal target of moving towards balance in the medium-term. I had to make the difficult judgements and decisions about the balance between the levels of taxation and public spending. This year, as in previous years, I have made those judgements and taken those decisions with the dominant priority of improving the long-term health of the British economy. Our tax and spending policies must promote our aim of becoming the enterprise centre of Europe.


In each of my three Budgets I have reduced public spending plans substantially. This year, I have once again kept a firm grip on public spending, helped by my RHF the Chief Secretary.

My RHF and I have at least three things in common.

We have both been in charge of big spending departments so we are both poachers turned gamekeepers.

Neither of us could be described as adopting the slash and burn approach to public spending.

But we are both convinced that the share of national income taken by the State in public expenditure must be reduced to below 40 per cent if we are to remain competitive in today's world. It is essential to give the private sector more room to generate the jobs, the investment and the wealth that will make people and their families more prosperous.

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