Let me make my point. If the Deputy wants to challenge me afterwards, fair enough. The position here is that you have, of course, a very strong seasonal component in unemployment. It always rises sharply in the winter, particularly in the period immediately after Christmas. It is important to try to detect the underlying trend in unemployment. For this purpose seasonal correction factors are applied. There are some doubts about these seasonal correction factors, especially when the whole scale of unemployment has changed as it has done with a sharp increase in the last couple of years. On the best seasonal adjustment available there is evidence of fractional decline in unemployment in November as against October, some indication of this continuing in December although the December figures are unreliable. Because of the effect of the day of the week on which Christmas falls, the end December figures are not a reliable indicator. The trend in January, where there has been the usual sharp post-Christmas seasonal increase, so far suggests that the end January figure when seasonally adjusted will show a decline of several thousand in the underlying trend of unemployment by comparison with November and December. We cannot be certain yet until we get to the end of the month, but last week's figure showed a very small increase and unless the increase in the current fortnight, the last two weeks of the month, is as high as 4,000, certainly the seasonally adjusted figure for unemployment at the end of January will be below the figure for November which itself was below the figure for October. In fact, it looks as if we are at the stage now where the underlying trend of unemployment is slightly downwards and has brought us back to the position of about last June. This is something which will only become clear when we get the figures in January and February and when the seasonal adjustments are made to them, and I am in a sense, sticking my neck out a bit by making this point at this stage, but it is important and we should not be misled by superficial appearances. The reality of a levelling off in the decline in our economy with an impact on unemployment occurring sooner than one might have expected is a feature of our economy at the end of last year.
This does not mean, however, that any real recovery involving a substantial increase in output or a significant drop in unemployment is likely in the six or even perhaps nine months ahead. What we have at the moment is a reaction to the excessive running down of stocks. It is to some degree a technical recovery. It is limited in character, and only two things can make that a worth-while recovery. One is, and only within strict limits, the action the Government take in the budget in seeking to stimulate output and employment. Given the external restraints, given the problems of borrowing, given the continuing sluggish demand in most export markets, there are strict limits to what the Government can do, but the Government can do something in the budget to encourage this recovery, to give it a bit of a boost in the nine months ahead as we wait for the external demand factor, which is ultimately the important one, to take effect.
That is what this budget within the restraints imposed by the financial difficulties is designed to do, as I shall show in a few minutes. Our hope would be, then, that this would lead to a recovery so that in the current year taken as a whole national output, instead of falling by 3 per cent as it did last year, would rise by perhaps 2 per cent. That is the Minister for Finance's forecast. Personally I would hope that he may be a little pessimistic and that the upturn towards the end of the year may be somewhat sharper and the recovery more than 2 per cent. The Minister for Finance is right to be cautious in an area where over the past couple of years every country's expert forecasters have proved to be too optimistic.
That is the economic background. What is needed then is a budget which within the limits of what is financially possible and financially wise will give some stimulus to the economy, and that is what this budget is designed to do, and when it is examined it will be seen that it is orientated in this direction very strongly indeed. This is most noticeable on the capital side.
We have a problem here in the presentation of the budget, to be quite frank about it. The traditional system under which the expenditure figures are published first and accepted as given and then the Minister comes in to find the money to pay for the expenditure is one which can give a false impression of the impact of the budget. The budget is not just the Minister for Finance coming in and announcing £100 million extra taxation. The budget is the sum total of the decisions taken by Government on expenditure and revenue and it is only when seen as a whole that its impact can be seen. Virtually every budget involves some increase in taxation. That does not mean that every budget is deflationary. It is the overall impact of expenditure and revenue, current and capital, which determines whether the budget is deflationary or reflationary. If one takes the budget as a whole and examine its composition, current and capital, and the increases under different headings, and take this in conjunction with the increase in taxation one gets an overall picture of a budget which is to a significant degree reflationary, not strongly so because the financial constraints are such that there is a limit to what can be done, but strongly, orientated in that direction.
A broad test that one can apply as to whether a budget is reflationary or not, before looking at details of the pattern of expenditure and taxation, is the trend of capital spending and of current deficit. Current deficit as now forecast is higher than last year by about £68 million. This represents an increase which is significantly higher but not enormously higher than the expected increase in the cost of living. It means the deficit will be slightly larger in real terms. On the capital side the increase in capital spending foreshadowed is 27½ per cent which is roughly twice the expected increase in the cost of living during the year. This means that the volume of capital spending is up 14 per cent. A budget which after the addition of taxation involves a somewhat higher current deficit and a significant increase in capital spending is a budget which in broad terms is reflationary.
When one comes to examine the composition of the spending, on the capital side in particular, one sees how strongly orientated it is in this direction because, if Deputies examine the capital programme they will find that there is a very striking increase in certain particular areas, the areas which are most likely to generate employment, the areas in particular of industry and tourism and I would add as a very productive area, the modernisation of agriculture. Taking these three together, in the 1975 budget these three together absorbed about 22½ per cent of the Exchequer capital spending. The increase in spending in these areas is 70 per cent, which is a colossal increase, an increase in real terms of over 50 per cent. Even allowing for price changes, that is a colossal increase in capital investment in these highly productive areas most of which have important employment implications. The effect has been, in fact, that something like 60 per cent of the whole increase in capital spending is concentrated in these areas, which themselves represent barely one-fifth of existing capital spending. There is a remarkable reorientation of the Government's capital programme in a highly productive direction, in a direction most likely to yield economic growth and increased employment. The combination, therefore, of the overall pattern of the budget with a somewhat increased current deficit in real terms and a substantially increased capital programme in real terms, and within that capital programme priority given to productive projects, industry, tourism and the modernisation of agriculture—the sum total of that is a significant reflation of the economy.
It is necessarily limited because of financial constraints, and it has involved considerable restraint in other areas to divert resources in these directions in order to achieve this result. Certainly, nobody looking at the budget objectively could regard it as deflationary; it is a reflationary budget within the limits of what is possible at this time. The problem the Government faces in this budget is the large increases required under the headings of public service pay and remuneration of debt. Public service pay increases are, of course, limited to the carry-over effect of increases in a national wage round last year, together with some special claims conceded in the early part of the year, before the Government indicated that they were not in a position to make further concessions in the form of special claims.
The carry-over effect of the national wage round into 1976, and of whatever special claims were conceded in the first half of last year, without any further increase in public pay in the current year—apart from the 2.8 per cent arising from the last stage of the 16th round—is an increase of £112 million, or about 20 per cent in public service pay. Of that figure 2 per cent is accounted for by increased numbers in two areas, in the Army and in teaching to keep up with the increased number of pupils, something I am sure Deputy Wilson will welcome although no doubt he will say it is inadequate.
