The Governor reviews progress since the introduction of the medium-term financial strategy in 1980. Although the detail of the strategy has been modified-and its objectives not always achieved- inflation has fallen faster than almost anyone predicted and the economy is looking more healthy than for some time. The PSBR has been substantially reduced; but to achieve balanced, sustainable growth, the long-running tide of increasing public spending will have to be arrested.
The Governor draws four implications for public spending, with particular reference to local authorities:
- restraint in all parts of the public sector will be necessary;
- it is not clear that the right balance between capital and current spending has been achieved;
- accurate and speedy information is needed on public sector spending and receipts;
- local authorities must remember that the rate burden is substantial for many businesses, and it is a burden over which they have little control.
The local authorities' borrowing requirements have been greatly reduced in the last two years and there has also been a marked shift in the sources of their borrowing, away from the banking system and towards the Public Works Loan Board. These changes, which have been promoted by government, have cut local authorities' borrowing costs and at the same time helped the operation of monetary policy.