Financial Resolutions, 1978: Financial Statement, Budget, 1978. - Job creation
When we took office we already had a well-developed strategy to cope with the economic and budgetary situation which confronted us.
Despite the resumption of economic growth there was, and is, no prospect that unchanged budgetary policy would, of itself, be sufficient to bring about a large reduction in unemployment, or to cut the rate of inflation to an acceptable level. The huge increase in unemployment since 1974 has had a direct impact on the budget by forcing up the cost of government services, through social welfare payments and by reducing the buoyancy of revenue. It has been one of the main contributors to the high Exchequer borrowing which has been incurred in recent years.
Thus, while the Exchequer borrowing requirement as a proportion of GNP had by end-1976 come down from its mid-recession peak, there was little prospect of any further significant reduction until such time as the problems of unemployment and inflation had been adequately tackled.
The choice facing the Government was clear—either to take immediate action to restore balance to the public finances or to tackle unemployment and inflation boldly as a first priority. To give priority, in the short-term, to achieving a further substantial reduction in borrowing would have involved a severely deflationary budgetary stance which could only increase unemployment yet again, and might well destroy the basis for renewed growth in the economy. It would, indeed, have been self-defeating from a budgetary point of view since rising unemployment would depress revenue and add to expenditure and borrowing. It would have meant indefinite deferment of the most clearcut and pressing national objective—that of providing employment for as many people as possible as quickly as possible. The Government chose instead to tackle unemployment and inflation head-on through this budget and the other measures implemented since taking office.