'On the basis of these indicators, I felt able last week to reduce interest rates to 5 1/2 per cent, the lowest level for sixteen years. Since 1990, industry's interest bill has been slashed by nearly £12 billion a year, and the typical mortgage borrower is paying £170 less each month. That is a massive boost to spending power, fully justified by the remarkable progress we have made on inflation.
'Starting with last week's change, I decided to give the Bank of England responsibility for the precise timing of interest rate movements. This underlines my commitment to the new framework for monetary policy established by my predecessor last September.
FUNDING POLICY 'Mr Deputy Speaker, the increasing credibility of that framework has brought our long-term interest rates down to their lowest level for over twenty-five years. That fact also demonstrates the ease with which this year's borrowing requirement has been financed. But the very success of the funding programme, coupled with last year's substantial gilt sales to banks and building societies, has squeezed the liquidity of the banking system, complicating the task of managing the money markets.
RISKS TO THE RECOVERY 'World economic developments: As we look towards 1994 the prospects are encouraging. But two substantial risks remain.
'First, the continuing weakness of world economic activity, particularly in continental Europe. With Britain the only major country in the European Union likely to have grown at all in 1993, what manufacturing industry needs most is a pick up of activity in the rest of Europe.
'But economic recovery on the continent will not be enough on its own. Europe's economic problems are not just cyclical. The continent as a whole faces a number of deep-rooted and long-standing challenges - inflexible markets and declining competitiveness, which have combined to produce mounting structural unemployment.
'There were more jobs created in Britain in the 1980s than anywhere else in Europe. And in the period ahead, we must not only fight to export our goods and services, but also to win the battle of ideas in Europe. We must continue to work for more flexible and deregulated labour markets across the continent. And we must continue to fight for free trade, not just within the European Union, but between the Union and the rest of the world. The first essential step is to secure a satisfactory conclusion to the GATT round.
THE PUBLIC FINANCES 'The second major risk to the recovery in Britain is the public finances. The overriding need is to place the public finances on a sound footing. That is the immediate task of the Government and the main theme of my Budget today.
'Business can plan ahead with confidence only if it knows that government borrowing is under control. My task today is to deliver that confidence.
FISCAL POLICY 'In his excellent Budget in March, my RHF the member for Kingston announced a series of tax measures designed to reduce public sector borrowing over the medium term. But necessary and controversial as those measures were, they still left the prospect of a borrowing requirement of over 4 per cent of GDP by the end of this Parliament. In my judgement, we now need to go further. The first Budget that combines decisions on taxation and spending, a reform instituted by my RHF, gives me the opportunity to do so.
'As a prudent Government, we cannot sit by, simply hoping that faster growth and forecasting changes will come to our rescue. As a Government committed to high quality public services, we must prevent ever larger sums being swallowed up in debt interest payments. As a Government with a long-term tax-cutting agenda, we must stop ever more national debt piling up for future generations to pay.
'And as a Government determined to deliver sustained recovery, we must ensure that billions of pounds of the nation's savings are not poured into the public sector - savings that are better used by the private sector, to support investment, expansion and jobs.It might seem easier to take the short-term view. But Britain's recovery can only be sustained if we tackle the deficit now. In my opinion the Budget must sort out the problem of public borrowing once and for all.Mr Deputy Speaker, the measures I am announcing today will in themselves reduce the public sector borrowing requirement by a further £5 1/2 billion in the next financial year, by £7 billion in 1995-96 and by £10 1/2 billion in 1996-97, equivalent to 1 1/4 per cent of GDP by the end of this Parliament.
'Coming on top of the measures announced by my RHF in March, these are substantial sums. But in my judgement, this is the minimum necessary to ensure that the public finances are on a sustainable track for the rest of the decade. It will help to reduce the public sector borrowing requirement from just under £50 billion in the current year to about £38 billion next year. It should eliminate borrowing to finance current spending by 1997-98 and eliminate government borrowing entirely by the end of the decade.
In short, Mr Deputy Speaker, my proposals today should meet their objectives in full - establishing sound public finances into the next century.