Below is the text of Mr Major’s Autumn Statement, given in the House of Commons on 15th November 1989.
CHANCELLOR OF THE EXCHEQUER:
The Chancellor of the Exchequer (Mr. John Major) : With permission, Mr. Speaker,
I should like to make a statement. Cabinet agreed the Government's expenditure plans
this morning. I am now able to inform the House of the public expenditure outturn
for this year; the plans for the next three years; proposals for national insurance
contributions in 1990-
Tight control of public expenditure remains a central element of the Government's
economic strategy. In the past seven years this has led to a sharp fall in the ratio
of public spending, excluding privatisation proceeds, to national income. This fall
has made it possible to improve dramatically the Government's finances while still
making substantial reductions in tax rates. The ratio of public spending to gross
domestic product was nearly 47 per cent. in 1982-
For the current year, the outturn of expenditure is expected to be about £168 billion-
This includes central Government support for local authorities, but excludes their
The new plans also show continued real growth in spending on the Government's priorities. Thus, between this year and next, spending on the National Health Service in the United Kingdom will rise by £2, 400 million. Taking account of income generation and cost savings, that is equivalent to a £2,600 million increase in resources, or 5.5 per cent. in real terms. These plans will finance the improvements in the management of the service outlined in the National Health Service review. They provide more than £200 million extra for hospital building and other capital expenditure next year ; and they will finance continuing growth in services for patients. They are the clearest possible evidence of the Government's practical commitment to improving the care available in the National Health Service.
There will be substantial increases also for investment in transport. Spending on
national roads is planned to double between 1988-
My right hon. Friend the Secretary of State for Social Security has already announced
real increases in benefits which will help 1.5 million families and 500,000 long-
Mr. Eric S. Heffer (Liverpool, Walton) : On a point of order, Mr. Speaker, I have been a Member for a long time, but I wish to know whether I am allowed to ask the Chancellor of the Exchequer a question. He is making a long statement. Am I allowed to ask a question and, if not, when can I ask him a question?
Mr. Speaker : Surely the hon. Member does not need to pose that question. If I call him later, he can ask the Chancellor a question then.
Mr. Major : The new plans include the money central Government provide to support
local authority spending. The Government's proposals for aggregate external finance
Capital grants and credit approvals will provide central Government support for local
authority capital expenditure under the new arrangements. The new plans provide support
for a sustained programme of school and college building and modernisation, for local
authorities to contribute to the homelessness package, for transport projects, as
well as capital spending on other local services, including local roads and environmental
improvement. As in the past, these improvements have been possible only through a
rigorous selection of priorities, substantial gains in value for money, and a very
welcome reduction in the burden of debt interest. They have been found within an
affordable level of total public spending. Overall public spending excluding privatisation
proceeds is expected to grow on average by 1.75 per cent. a year in real terms throughout
the period between 1988-
The Government's new plans demonstrate their continuing commitment to two vital principles : first, to maintain firm control over total spending; and secondly, to increase efficiency in order to provide more resources where they are most needed. I should like to congratulate my right hon. Friend the Chief Secretary on his skilful and successful conduct of the public spending round.
I turn next to national insurance contributions. As the House knows, we have now implemented the reform of employee contributions announced by my right hon. Friend the member for Blaby (Mr. Lawson) in the Budget. From last month, two of the three step increases in contribution rates have been abolished. This means that employees who get pay increases taking them just above these steps can no longer lose more in higher contributions than they gain in extra pay. And the initial step at earnings of £43 a week, where people first enter the contribution system, has been more than halved. These measures have reduced contributions by up to £3 a week for nearly 19 million employees and are of particular help to many employees on modest incomes ; they have also removed some important disincentives. The usual autumn review of contributions has been conducted in the light of advice from the Government Actuary on the prospective income and expenditure of the national insurance fund, and taking account of the statement on benefits made in October by my right hon. Friend the Secretary of State for Social Security.
Next year, the initial class 1 contribution rate payable on earnings up to the lower earnings limit will remain at only 2 per cent. This means that a payment of only 92p a week will buy entitlement to the basic pension and other contributory benefits for those who earn just enough to pay contributions. On additional earnings, up to the upper earnings limit, the rate will remain unchanged at 9 per cent. For employers, the main rate will also be unchanged at 10.45 per cent.
The lower earnings limit will be increased to £46 a week, in line with the single person's pension, and the upper earnings limit will be raised to £350 a week. For employers, the upper limits for the three reduced bands will be increased broadly in line with prices. I am also publishing today the economic forecast required by the Industry Act 1975.
It is clear beyond doubt that the economy has greatly strengthened over the last decade. We have experienced eight years of strong and sustained growth with inflation at moderate levels. This has brought an increase in employment of about 2.75 million since March 1983 and a sustained rise in living standards. However, it is also clear that in the last two years, 1987 and 1988, demand, and with it output, rose at a rate which exceeded expectations and could not be sustained. That became apparent in increased inflationary pressures and the growth of the current account deficit.
These pressures had to be reduced and monetary policy was tightened accordingly.
The effects of this tightening are already apparent in recent retail sales figures,
and the turnaround in the housing market. The Government's fiscal position is also
very strong. I now expect this year's fiscal surplus to be about £12.5 billion, equivalent
to 2.5 per cent. of GDP. That represents a very tight fiscal stance by any standards.
Both tax yield and expenditure are higher than forecast at Budget time, but lower
proceeds from privatisation and the very high take-
Looking at the wider economy, as always, a great deal inevitably depends on the actions
of companies and individuals. So there is bound to be uncertainty about the speed
with which the economy will adjust to the present tight stance of policy. Our forecast
is that growth in domestic demand will be a little over 3.5 per cent. in the current
Business investment is likely to increase by 9.25 per cent. this year, giving a total
of over 40 per cent. in the three years to 1989. This is the largest-
As domestic demand slows, import growth should moderate. At the same time, the strong
rise in exports, which has been one of the most welcome developments in 1989, is
forecast to continue. Non-
We will also see a further reduction in inflation. The headline measure of retail price inflation has already peaked at over 8 per cent. in May and June this year, and has since come down a little. Following the recent rise in mortgage rates, it will remain high for some months, but our forecast is for it to fall to 5.75 per cent. by the fourth quarter of 1990, and I expect to see it fall still further after that.
Our main priority must be to bring inflation decisively down, and keep it down. To
achieve this, the economy must slow down for a while. This does mean that 1990 may
not be an easy year, but the economy enters the 1990s in incomparably better shape
than it entered the 1980s. The supply side reforms of the last decade have left business
and industry better able to handle both the short-