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GENERAL ECONOMIC STRATEGY
112
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1. Economic Strategy: progress and objectives
Objective is continued reduction of inflation and sustained economic growth. Maintenance
of firm financial framework is bringing successful response. Inflation is down sharply from
1980 peak of over 20 per cent.
Micro-economic policies to improve supply performance essential. Privatisation and
removing obstacles to free functioning of markets encourage vigorous enterprising economy,
higher output and more jobs. Reduction and simplification of taxes reduce distortions and
improve incentives. Easing rigidities in labour markets encourages better match of supply
to demand for labour and so faster creation of new jobs.
Low inflation is bringing steady growth of output. UK now entering fifth year of rising
GDP. Annual growth from trough of recession in 1981 Q2 to 1985 Q1 averaged 3 per cent.
UK likely to grow faster than any other Community country and US in 1985. Government forecast is rise of 31 per cent.
Figures suggest total employment has been growing since Spring 1983. Estimated 649,000
rise in UK employed labour force March 1983 to March 1985. Prospects for unemployment
depend on encouraging enterprise and effort and moderation of real wage increases (have
averaged about 3 per cent a year since 1981).
2.
MTFS
Restatement of Medium Term Financial Strategy in 1985-86 FSBR (Red Book) set out
indicative ranges for (decelerating) monetary growth and figures for government receipts,
spending and borrowing to 1988-89. Reduced level of public sector borrowing essential for
medium term. Government strategy is to hold public spending broadly flat in real terms at
1984-85 level (excluding effect of coal strike). In growing economy, tax burden can then
come down as percentage of GDP.
3. Chancellor ready to increase PSBR for 1986-87 to finance extra tax cuts?
[Budget Speech said ... "nothing sacrosanct about the precise mix of monetary and fiscal policies required to meet the objectives of the MTFS, but this [ie 1985-86] is not the year to make adjustments in either direction". 1985 MTFS indicated 1986-87 PSBR of £7 billion - 2 per cent of GDP. Issue was pursued further in Chancellor's Weekend World interview
24 March.]
Nothing to add to what Chancellor has already said: any adjustment of monetary/fiscal
policy mix would be undertaken only if fully confident inflation on sustained downward
trend.
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