I turn now to the public finances.
Last year, I continued the process started by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont). I announced measures which cut the public sector borrowing requirement by 1¼ per cent. of GDP by the end of this Parliament. Combined with the healthy growth in the economy that we are now enjoying, those measures have helped to bring the public sector borrowing requirement from £45½ billion in 1993–94 to an expected £34½ billion this year. My objective remains the same: to balance the Budget over the medium term. We remain on course to eliminate Government borrowing entirely by the end of the decade. By 1996–97 borrowing will be approximately equal to the Government's net capital expenditure.
About half my own cuts in public borrowing last year were achieved through cutting public spending plans. But, because of the length of the recession, my right hon. Friend and I also had to raise taxes to meet the objective of healthy public finances.Delay and failure to act would have caused, since then, intolerable additional pressures to raise interest rates faster and to raise taxation still further. We would not have had strong and sustainable recovery now if we had failed to cut spending and raise taxes last year.
For that reason, the public spending cuts and the tax increases that I announced last year remain, of course, quite essential to the strategy of achieving economic recovery. We have restored confidence in our ability to achieve sustained recovery by the process of taking firm measures. We would damage that confidence again if we now seemed to falter, or even to go back on any of the measures that we have already put in hand.