Nigel Lawson – 1985 Autumn Statement Speech

Below is the text of the Autumn Statement speech made by Nigel Lawson, the then Chancellor of the Exchequer, in the House of Commons on 12 November 1985.

With permission, Mr. Speaker, I should like to make a statement.

I am laying before the House today an autumn statement which brings together the Government’s outline public expenditure plans, proposals for national insurance contributions next year, and the forecast of economic prospects for 1986 required by the Industry Act 1975.

This year’s autumn statement contains considerably more information than its predecessors. It breaks new ground by providing a forecast of the public expenditure outturn for 1985–86 for each Department, and the plans not just for the year immediately ahead but for each of the next three years. Both these innovations meet specific requests from the Select Committee on the Treasury Civil Service and I hope that they will be welcomed by hon. Members.

The outturn for this financial year is expected to be the same as set out in the Budget, that is, £134 billion. After allowing for inflation, this is lower than last year, which bore the brunt of the public expenditure cost of the coal strike.
The Government will continue to maintain firm control over public spending.

Following this year’s review, the planning totals for 1986–87 and 1987–88 will be held to the levels set out in the Budget —£139 billion and £144 billion, respectively. For 1988–89 the total has been set at £149 billion. Over these three years public spending in real terms is expected to be broadly flat at very slightly below this year’s level. As a percentage of national output it will continue to decline as it has since 1982–83. By 1988–89 it should be back to its lowest percentage since 1972–73.

In order to meet contingencies, the plans contain large reserves, rising from £4½ billion in 1986–87 to £8 billion in 1988–89. The reduction in the reserve for 1986–87 as compared with the provisional reserve for that year, which I announced at the time of the Budget, chiefly reflects the fact that the passage of time allows part of the reserve in any given year to be allocated to individual expenditure programmes as their costs become known more accurately. But the £4½ billion reserve for the year immediately ahead remains a substantial figure.

Although I expect the planning total for 1985–86 to be the same as I did at the time of the Budget, the public sector borrowing requirement—subject to the usual margin of uncertainty at this time of year—is forecast to be about £ 1 billion higher—some £8 billion rather than £7 billion. This is due to lower sterling oil revenues. But even at £8 billion the PSBR would be the smallest that it has been as a percentage of GDP since 1971–72.

The PSBR would, of course, have been running at a higher level than this were it not for the proceeds from privatisation, to which I will turn in a moment. But even without the privatisation proceeds, this year’s forecast PSBR would still be the smallest as a percentage of GDP since 1971–72.

The Government’s privatisation programme is now getting into top gear and will continue for many years to come. [Interruption.] I am glad to see that the Opposition welcome that. I cannot stress so strongly the importance of this programme—now being emulated throughout the world—as a fundamental objective of Government policy. The transfer of state-owned businesses to the free ​ enterprise sector of the economy brings enormous long-term benefits to the nation as a whole in terms of greater concern for the customer and increased efficiency. It also provides the opportunity for a massive boost to wider share ownership, among both the public in general and the employees of those great enterprises in particular.

The increased pace of privatisation means that the proceeds from this programme will rise substantially from £2½ billion this year to £4¾ billion in each of the next three years. In particular, the planned flotation of the British Gas Corporation is included for the first time. At the same time, however, there have been increases in a number of public expenditure programmes, so that the overall planning totals have remained unchanged.

However, this needs to be seen in perspective. Even if the proceeds from privatisation were to be ignored altogether, the public expenditure planning total would still be broadly flat in real terms, at less than 1 per cent. above this year’s total, and public spending would still be on a steadily declining path as a percentage of GDP, reaching by 1988–89 its lowest level since 1972–73.

The annual review of public spending provides an opportunity to reconsider priorities and adjust the balance between programmes. While some programmes this year have been held back, it has been possible to make significant additions to others.

There will be increased spending on the National Health Service over previous plans of £250 million in 1986–87 and £300 million in 1987–88. On top of this, health authorities are able to spend the savings from their cost improvement programmes, which are expected to amount to £150 million this year and still more in future years. This should enable health authorities to meet demographic pressures and to deliver improvements in services as well.

Total public sector provision for housing is being increased by £220 million net of receipts in 1986–87 and £200 million in 1987–88, and the housing plans now provide for some £3¼ billion of capital spending next year. Within this total, the Government believe that there should be a substantial shift in priorities in favour of renovation of the existing public sector housing stock.
An extra £54 million in 1986–87 and £71 million in 1987–88 is being made available for capital expenditure on national and local roads.

Just over £1 billion is being added to the social security programme for 1986–87, largely as a result of the 7 per cent. increase in benefits taking effect this month. Expenditure in the subsequent years of the survey period is subject to decisions on the Government’s social security review, on which a White Paper will be published shortly.

Additional provision has been made under the law and order programme to allow local authorities to direct extra spending towards the police.
For defence, the provision is unchanged. After the substantial real increases in spending since 1978–79, from which the defence programme will continue to benefit, the emphasis must now switch to improving our defence capability through greater efficiency and value for money, especially in procurement.

On employment, there were large additions in the Budget to fund an expansion of the youth training scheme and the community programme. In this survey, a number of new initiatives have been agreed, but savings are to be made by a reduction in payments from the redundancy ​ fund. My right hon. and learned Friend the Paymaster General will be making a statement giving further details later today.

There have been significant improvements in efficiency and value for money in many programmes. It is a great mistake to fall into the trap of measuring public expenditure programmes solely in terms of the money put into them: it is improved output that matters.

Further details of these and other changes are contained in the autumn statement itself, and of course full details, together with information on running costs and manpower, will be given in the public expenditure White Paper to be published early in the new year.

I now turn to national insurance contributions. The Government have conducted the usual autumn review of contributions in the light of advice from the Government Actuary on the prospective income and expenditure of the national insurance fund.

The lower earnings limit will be increased next April to £38 a week, in line with the single person’s pension, and the upper earnings limit will be similarly increased to £285 a week, broadly in line with earnings.

I announced in the Budget reduced rates of contribution for the lower paid and their employers—5 per cent. for those earning up to £55 a week, 7 per cent. for those earning up to £90 a week and 9 per cent. for employers of workers earning up to £130 a week. These took effect at the beginning of last month and are already starting to provide welcome assistance to the low paid and their employers, and a stimulus to the employment of the young and unskilled.

The limits for these reduced rate bands will also be increased from April, in line with the lower and upper earnings limits, to £60, £95 and £140 a week, respectively.

There will be no change in the main class 1 contribution rates, which will remain at 9 per cent. for employees and 10·45 per cent. for employers. This is the third year running in which national insurance contribution rates have been held constant, despite a growing number of pensioners and the substantial uprating of benefits taking effect later this month.

My right hon. Friend the Secretary of State for Social Services will this afternoon announce details of these proposals, and will lay before Parliament the necessary order and the accompanying report by the Government Actuary.

Finally, I turn to the Industry Act forecast. The economy is progressing very much as I envisaged at the time of the Budget. Inflation is falling again, after the predicted temporary rise in the spring, although I now expect inflation in the fourth quarter of this year to be slightly above the Budget forecast: 5½ per cent. rather than 5 per cent.

The overall growth of the economy this year still looks like turning out at 3½ per cent.—the highest rate of growth since 1973.

The pattern of growth, too, has been much as envisaged. Exports and business investment, as expected, were the fastest growing elements in demand in 1985. The rise in total investment is now put at 4 per cent. in 1985; within this figure business investment is expected to be up by 7 to 8 per cent., to yet another all-time record.

As a result of this steady progress, there has been a substantial growth in the number of people in work since ​ 1983. This has now been reflected in a levelling out in unemployment—albeit still at a sadly high level, not least because of the rapid growth in the total labour force. The prospect here is for some further improvement, assisted by the measures I announced in the Budget to help on the jobs front, which will have their main effect in 1986. But that improvement could easily be put at risk by excessive pay settlements.

The prospect for 1986 is one of continued growth and still lower inflation. The composition of growth is likely to change somewhat, with consumer spending taking up the running as exports—which had an exceptional rise of 7 per cent. this year—grow more slowly. The current account balance of payments surplus is forecast at £4 billion, compared with £3 billion in 1985. Fixed investment is expected to grow, once again, slightly faster than the economy as a whole.

Overall, the economy in 1986 is expected to grow by a further 3 per cent.—the fifth successive year of growth at an average of 3 per cent. a year, and into the sixth, the best performance since before the first oil shock. At the same time, inflation is expected to fall further, to 3¾ per cent. in the fourth quarter of 1986.

Indeed, if the forecast is correct—and I am the first to admit its inevitable fallibility—1986 promises to be the first year since the ‘sixties when inflation and growth will be within one point of each other. What is beyond doubt is that we are now achieving the steady growth with low inflation which successive Governments have sought in vain for a generation.

All in all, Mr. Speaker, the progress and prospects I have described amount to the clearest possible vindication of the policies we have been following these past six years, and will continue to follow.

The autumn statement is now available from the Vote Office, and the House will no doubt wish to take it into account when we debate the economy tomorrow. The framework of public expenditure control which it sets out should allow scope for considered and justified reductions in the burden of taxation; and these in turn will further reinforce the economy’s flexibility and dynamism. It is on that prospect that the future prosperity of all our people depends.