Oil price decline and Exchequer savings
The Minister said lower oil prices were unlikely to produce significant Exchequer savings in 1986 because most spending was committed; only £1 billion of current expenditure would be affected by lower inflation.
asked the Minister for Finance the saving to the Exchequer arising from the decline in oil prices over the last 12 months; and if he will indicate the way in which he will be allocating such savings.
Comment on this
Developments in relation to oil prices since the budget was formulated are unlikely to give rise in 1986 to any significant saving on the Exchequer borrowing requirement.
The vast bulk of Government expenditure for 1986 as indicated below is already committed and will not be affected by the lower inflation now expected.
Only £1,000 million of current expenditure will therefore be affected by the drop in inflation from the 4 per cent on which the Estimates were based to the 3 per cent now expected.
The Government will of course through its control and monitoring procedures pursue all possibilities for realising savings consequent on lower prices but as will be evident from the foregoing, the scope for such savings is not significant in the overall budget context.
Similarly, it is not expected that falling oil prices will lead this year to any significant increase in revenue. Higher consumption should boost certain tax receipts but lower receipts from importrelated taxes seem likely to almost fully offset these in 1986.
While the Exchequer will not benefit greatly this year from lower oil prices, there will of course be considerable benefits for the economy. Inflation will be down to about 3 per cent. Consumption volume should grow by over 3 per cent. Investment and employment prospects should be enhanced while the balance of payments deficit should fall substantially as compared with 1985.
In relation to 1987, the present indications are that inflation will be close to 1 per cent, assuming that lower oil prices are sustained and this will obviously have implications for the Exchequer. Departments will be taking this factor into consideration in drawing up their expenditure proposals for 1987.
The anticipated impact of lower inflation and other macro-economic developments flowing from change in the level of oil prices will also be reflected in due course in Estimates for 1987 for the other budgetary aggregates.
