International Healy's bid to reduce Britain's Budget deficit

Press, 17 December 1976, Page 5

International Healy's bid to reduce Britain's Budget deficit

NZPA-Reuter London lhe British Chancellor of the Exchequer (Mr Denis Healey) has told Parliament that he plans to reduce Britain’s Budget deficit by £3,500M _(56,480M) over the next two years.

Mr Healey was presenting a package of economic measures designed to restore Britain’s economic health and to prepare the way for a SUS3,9OOM loan from the International Monetary Fund.

The immediate effect of the measures, he said, would be to reduce Britain’s Budget deficit to £8,70031 ($16,00031) for the financial year beginning in April, and to about £8,60031 ($15,90031) the following year. Estimates for the present vear put the financial deficit around £11,00031 ($20,37031).

The reduction of this huge gap between revenue and planned spending by the Central Government, local authorities, and nationalised in-

dustries has been one of the main concerns of the I.M.F. in considering Britain’s loan application, the Chancellor said.

His measures would amount to a reduction of

£1,500M (52.775 M in publicsector borrowing in each of the next two years, he said, and there would also be tax adjustments of about £SOOM ($925M) in 1978.

Defence spending would be cut by a total of £3OOM (5555 M over two years. Overseas aid — spared in previous economic packages — -would be reduced by a

total of £IOOM (SIBSM) in the same period. (The present aid budget is £SI6M ($955M) for this year). Mr Healey said that there was a good hope that Britain’s present balance-of-payments deficit could be transformed into a surplus of perhaps £2,000M to £3,000M in 1978-79. Mr Healey said that the managing-director of the 1.M.F., (Dr Johannes Whitteveen) had expressed support for the Government’s measures, and was ready to recommend to the Fund’s executive directors the granting of the SUS3,9OOM credit to Britain. He was confident that arrangements for the loan would be completed a few

days after the end of the year, so that Britain’s reserves could be replenished.

Last week, he said, Britain had repaid SUSI,SOOM owed on a six-month credit granted by leading industrial countries.

The reserves were reduced to SUS3,6OOM dollars — their lowest for five years. Mr Healey said that SUSI,ISOM of the I.M.F. loan would be made available immediately, and more than SUSI,OOOM more before the end of 1977. “I fear that there is likely to be a further rise in unemployment, but a smaller one than would have been likely without the adjustments I have described,” the chancellor said.

When Mr Healey resumed his seat, dozens of members on both sides of the House — the Labour Party’s Leftwingers were strongly opposed to the measures — rose to their feet, shouting: “Resign! Resign!”

The I.M.F. credit to Britain will be the first standby loan in its history to run for two years, according to monetary sources in Washington.

Standby loan agreements are normally for a 12-month period. Each drawing which Britain makes on the loan will depend on its meeting targets for public spending, borrowing, and money-supply growth laid down in the terms of the loan, the sources say. The fund will therefore have influence for some time on British economic policies, and this could mean a cut-off in additional funds should Britain fail to meet the targets laid down.