Financial Statement

Debate between George Osborne and Lindsay Hoyle

Wednesday 16th March 2016 Commons Chamber

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

Today I report on an economy set to grow faster than any other major advanced economy in the world. I report on a labour market delivering the highest employment in our history, and I report on a deficit down by two thirds, falling each year, and, I can confirm today, on course for a budget surplus. The British economy is stronger because we confronted our country’s problems and took the difficult decisions. The British economy is growing because we did not seek short-term fixes, but pursued a long-term economic plan. The British economy is resilient because, whatever the challenge, however strong the headwinds, we have held to the course we set out.

I must tell the House that we face such a challenge now. Financial markets are turbulent; productivity growth across the west is too low; and the outlook for the global economy is weak. It makes for a dangerous cocktail of risks, but one that Britain is well prepared to handle if we act now so we do not pay later. Britain has learned to its cost what happens when you base your economic policy on the assumption that you have abolished boom and bust. Britain is not immune to slowdowns and shocks, but nor as a nation are we powerless. We have a choice. We can choose to add to the risk and uncertainty, or we can choose to be a force for stability. In this Budget we choose to put stability first. Britain can choose short-term fixes and more stimulus, as others are, or we can lead the world with long-term solutions to long-term problems.

In this Budget we choose the long term. We choose to put the next generation first. We choose, as Conservatives should always choose, sound public finances to deliver security, lower taxes on business and enterprise to create jobs, reform to improve schools, and investment to build homes and infrastructure, because we know that that is the only way to deliver real opportunity and social mobility. And as Conservatives, we know that the best way we can help working people is to help them to save and let them keep more of the money they earn. That is the path we have followed over the past five years, and it has given us one of the strongest economies in the world; and that is the path we will follow in the years ahead. In this Budget we redouble our efforts to make Britain fit for the future.

Let me turn to the economic forecasts. I want to thank Robert Chote and his team at the Office for Budget Responsibility. To make sure that they have available to them the best statistics in the world, I am today accepting all the recommendations of Sir Charlie Bean’s excellent report. I also want to take this moment to thank another great public servant, Sir Nicholas Macpherson. He has served as permanent secretary to the Treasury for 10 years, under three very different Chancellors, and throughout he has always demonstrated the great British civil service values of integrity and impartiality. He is here today to watch the last of the 34 Budgets he has worked on, and on behalf of the House and the dedicated officials in the Treasury, I thank him for his service.

The OBR tells us today that in every year of the forecast, our economy grows and so too does our productivity. But it has revised down growth in the world economy and in world trade. In its words, the outlook is “materially weaker”. It points to the turbulence in financial markets, slower growth in emerging economies such as China, and weak growth across the developed world. Around the globe, it notes that monetary policy, instead of normalising this year as expected, has been further loosened. We have seen the Bank of Japan join Sweden, Denmark, Switzerland and the European Central Bank with unprecedented negative interest rates.

The OBR also notes that this reflects concerns across the west about low productivity growth. The secretary-general of the OECD said last month that

“productivity growth...has been decelerating in a vast majority of countries”.

As a result, the most significant change the OBR has made since its November forecast is its decision to revise down potential UK productivity growth. The OBR had thought that what it describes as the

“drag from the financial crisis”

on our productivity would have eased by now, but the latest data show that it has not. The OBR acknowledges today that this revision is, in its words, a “highly uncertain” judgment call, but I back the OBR 100%. We saw under the last Labour Government what happened when a Chancellor of the Exchequer revised up the trend growth rate, spent money the country did not have and left it to the next generation to pick up the bill. I am not going to let that happen on my watch. These days, thanks to the fact that we have established independent forecasts, our country is confronted with the truth as economic challenges emerge, and can act on them before it is too late. We fix our plans to fit the figures; we do not fix the figures to fit the plans.

The IMF has warned us this month that the global economy is “at a delicate juncture” and faces a growing “risk of economic derailment”. Eight years ago, Britain was the worst prepared of any of the major economies for the crisis we then faced. Today, Britain is among the best prepared for whatever challenges may lie ahead. That is what our long-term economic plan has been all about.

When I became Chancellor, we borrowed £1 in every £4 we spent. Next year, it will be £1 in every £14. Our banks have doubled their capital ratios, we have doubled our foreign exchange reserves, and we have a clear, consistent and accountable monetary policy framework, admired around the world.

The hard work of fixing our economy is paying off. In 2014, we were the fastest-growing major advanced economy in the world. In 2015, we were ahead of everyone but America. So let me give the OBR’s latest forecasts for our economic growth in the face of the new assessment of productivity and the slowing global economy. Last year, GDP grew by 2.2%. The OBR now forecasts that it will grow by 2% this year, then 2.2% again in 2017, and then 2.1% in each of the three years after that. The House will want to know how this compares to other countries. I can confirm that, in these turbulent times, the latest international forecast expects Britain to grow faster this year than any other major advanced economy in the world.

The OBR is explicit today that its forecasts are predicated on Britain remaining in the European Union. Over the next few months, this country is going to debate the merits of leaving or remaining in the European Union, and I have many colleagues whom I respect greatly on both sides of this argument. The OBR correctly stays out of the political debate and does not assess the long-term costs and benefits of EU membership, but it does say this, and I quote directly:

“A vote to leave in the forthcoming referendum could usher in an extended period of uncertainty regarding the precise terms of the UK’s future relationship with the EU.”

It goes on to say:

“This could have negative implications for activity via business and consumer confidence and might result in greater volatility in financial and other asset markets”.

Citing a number of external reports, the OBR says this:

“There appears to be a greater consensus that a vote to leave would result in a period of potentially disruptive uncertainty while the precise details of the UK’s new relationship with the EU were negotiated.”

The House knows my view. Britain will be stronger, safer and better off inside a reformed European Union. I believe we should not put at risk all the hard work that the British people have done to make our economy strong again. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We all want to hear what the Chancellor has to say. Some people may agree, some may disagree, but I want to hear him, the electorate want to hear him, and this country wants to hear him.

[Mr Osborne]

Let me turn to the OBR forecasts for the labour market. Since the autumn statement just four months ago, the businesses in our economy have created over 150,000 more jobs than the OBR expected. That is 150,000 extra families with the security of work, and that is 150,000 reasons to support our long-term economic plan. This morning, unemployment fell again, employment reached the highest level ever, and the data confirm that we have the lowest proportion of people claiming out-of-work benefits since November 1974.

Now the OBR is forecasting a million more jobs over this Parliament. We remember what our political opponents said in the last Parliament: they claimed 1 million jobs would be lost—instead, 2 million were created. When the jobs started coming, we were told that they were going to be low-skilled, but today we know that almost 90% of the new jobs are in skilled occupations. We were told the jobs were going to be part-time, but three quarters are full-time. We were told the jobs would all be in London, but the unemployment rate is falling fastest in the north-east, youth unemployment is falling fastest in the west midlands and employment is growing fastest in the north-west. And in today’s forecast, real wages continue to grow and outstrip inflation in each and every year.

The OBR forecasts lower inflation, at 0.7% this year and 1.6% next year. I am today confirming in a letter to the Governor of the Bank of England that the remit for the Monetary Policy Committee remains the symmetric consumer prices index inflation target of 2%. I am also publishing the new remit for the Financial Policy Committee, the body we created to keep an eye on emerging long-term risks in our financial system. I am asking it to be particularly vigilant in the face of current market turbulence, because in this Budget we act now so that we do not pay later.

That brings me to our approach to public spending and the OBR forecasts for our public finances. In every year since 2010, I have been told by the Opposition that now is not the right time to cut Government spending. When the economy is growing, I am told we can afford to spend more. When the economy is not growing, I am told we cannot afford not to. Today, I am publishing new analysis that shows that if we had not taken the action we did in 2010, and had listened instead to our opponents, cumulative borrowing would have been £930 billion more by the end of the decade than it is now forecast to be. If we had taken their advice, Britain would not have been one of the best-prepared economies for the current global uncertainties, we would have been one of the worst-prepared.

Now, the very same people are saying to us that we should spend more again—I reject that dangerous advice. The security of families and businesses depends on Britain living within its means. Last autumn’s spending review delivers a reduction in Government consumption that is judged by the OBR to be the most sustained undertaken in the last 100 years of British history, barring the periods of demobilisation after the first and second world wars. My spending plans in the last Parliament reduced the share of national income taken by the state from the unsustainable 45% we inherited to 40% today. My spending plans in this Parliament will see it fall to 36.9% by the end of this decade. In other words, the country will be spending no more than the country raises in taxes. And we are achieving that while at the same time increasing resources for our NHS and schools, building new infrastructure and increasing our security at home and abroad.

The OBR now tells us that the world has become more uncertain, so we have two options: we can ignore the latest information and spend more than the country can afford—that is precisely the mistake that was made a decade ago—or we can live in the world as it is, and cut our cloth accordingly. I say we act now so we do not pay later. So I am asking my right hon. Friends the Chief Secretary and the Paymaster General to undertake a further drive for efficiency and value for money. The aim is to save a further £3.5 billion in the year 2019-20. At less than half a percent of Government spending in four years’ time, that is more than achievable while maintaining the protections we have set out.

At the same time, we will continue to deliver sensible reforms to keep Britain living within its means. On welfare, last week my right hon. Friend the Secretary of State for Work and Pensions set out changes that will ensure that within the rising disability budget, support is better targeted at those who need it most. Let me confirm that this means the disability budget will still rise by more than £1 billion, and we will be spending more in real terms supporting disabled people than at any point under the last Labour Government.

On international aid, I am proud to be part of a Government that was the first to honour Britain’s commitment to spend 0.7% of national income on development. We will not spend more than that, so the Budget will be readjusted, saving £650 million in 2019-20.

We are also going to keep public sector pensions sustainable. We reformed them in the last Parliament, which will save more than £400 billion in the long term. To ensure that those pensions remain sustainable, we have carried out the regular revaluation of the discount rate, and the public sector employer contributions will rise as a result. This will not affect anyone’s pension, and will be affordable within spending plans that are benefiting from the fiscal windfall of lower inflation. Each of these decisions is a demonstration of our determination that the British economy will stay on course. We will not burden our children and grandchildren. This is a Budget for the next generation.

Let me now give the Office for Budget Responsibility’s forecasts for the debt and the deficit. The combination of our action to reduce borrowing this year, along with the revisions to our nominal GDP driven by lower inflation, have produced this paradoxical result. In cash terms, the national debt is lower than it was forecast to be in the autumn, but so too is the nominal size of our economy. We measure the fiscal target against debt to GDP, so that while debt as a percentage of GDP is above target and set to be higher in 2015-16 than the year before, compared with the forecast, the actual level of our national debt in cash is £9 billion lower. In the future, debt falls to 82.6% next year, then 81.3% in 2017-18, then 79.9% the year after. In 2019-20, it falls again to 77.2%, then down again the year after to 74.7%.

Let me turn to the forecast for the deficit. When I became Chancellor, the deficit that we inherited was forecast to reach 11.1% of national income—the highest level in the peacetime history of Britain. Thanks to our sustained action, the deficit is forecast to fall next year to just over a quarter of that, at 2.9%. In 2017-18, it falls to 1.9%. Then it falls again to 1% in 2018-19. In cash terms, in 2010, British borrowing was a totally unsustainable £150 billion a year. This year we are expected to borrow less than half that, at £72.2 billion. Indeed, our borrowing this year is actually lower than the OBR forecast at the autumn statement. Borrowing continues to fall—but not by as much as before—to £55.5 billion next year, £38.8 billion the year after, and £21.4 billion in 2018-19.

I know that there has been concern that the challenging economic times mean we would lose our surplus the following year, and that would have been the case if we had not taken further action today to control spending and make savings. But because we have acted decisively, in 2019-20 Britain is set to have a surplus of £10.4 billion. That surplus is then set to rise to £11 billion the year after. That is 0.5% of GDP in both years.

We said that we would take the action necessary to give Britain’s families economic security. We said that our country would not repeat the mistakes of the past and instead live within our means. Today, we maintain that commitment to long-term stability in challenging times. We have taken decisive action to achieve a £10 billion surplus. We act now, so that we do not pay later. We put the next generation first.

In every Budget I have given, action against tax avoidance and evasion has contributed to the repair of our public finances, and this Budget is no different. In the Red Book, we have set out in detail the action that we will take to: shut down disguised remuneration schemes; ensure that UK tax will be paid on UK property development; change the treatment of free plays for remote gaming providers; limit capital gains tax treatment on performance rewards; and cap exempt gains in the employee shareholder status.

Public sector organisations will have a new duty to ensure that those working for them pay the correct tax rather than giving a tax advantage to those who choose to contract their work through personal service companies. Loans to participators will be taxed at 32.5% to prevent tax avoidance, and we will tighten rules around the use of termination payments. Termination payments over £30,000 are already subject to income tax. From 2018, they will also attract employer national insurance. Taken altogether, the further steps in this Budget to stop tax evasion, prevent tax avoidance and tackle imbalances in the system will raise £12 billion for our country over this Parliament.

The Labour party talked about social justice, but left enormous loopholes in our tax system for the very richest to exploit. The independent statistics confirm that, under this Prime Minister, child poverty is down; pensioner poverty is down; inequality is down; and the gender pay gap has never been smaller.

The distributional analysis published today shows that the proportion of welfare and public services going to the poorest has been protected. I can report that the latest figures confirm that the richest 1% paid 28% of all income tax revenue—a higher proportion than in any single year of the previous Labour Government and proof that we are all in this together. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. It is strange that we cannot hear your Chancellor of the Exchequer. I want to hear him, and I am sure that you do as well.

[Mr Osborne]

I can report solid steady growth; more jobs; lower inflation; and an economy on course for a surplus—and all done in a fair way. This is a Britain that is prepared for whatever the world throws at us, because we have stuck to our long-term economic plan.

Credible fiscal policy and effective monetary policy have only ever been part of our plan. A crucial ingredient has always been the lasting structural reforms needed to make our economy fit for the future. With new risks on the horizon, and with all western countries looking for ways to increase living standards, now is not the time to go easy on our structural reforms. It is time to redouble our efforts. My Budgets last year delivered key improvements to productivity, such as the apprenticeship levy, lower corporation tax and the national living wage.

My Budget this year sets out the further bold steps that we need to take: first, fundamental reform of the business tax system, with loopholes closed and reliefs and rates reduced, and the result a huge boost for small business and enterprise; secondly, a radical devolution of power so that more of the responsibility and the rewards of economic growth are in the hands of local communities; thirdly, major new commitments to the national infrastructure projects of the future; fourthly, confronting the obstacles that stand in the way of important improvements to education and our children’s future; and, fifthly, backing people who work hard and save. In short, this Budget puts the next generation first, and I will take each step in turn.

In the last Parliament I cut corporation tax dramatically, but I also introduced the diverted profits tax to catch those trying to shift profits overseas. As a result, Britain went from one of the least competitive business tax regimes to one of the most competitive—and we raised much more money for our public services. Today, the Financial Secretary and I are publishing a road map to make Britain’s business tax system fit for the future. It will deliver a low-tax regime that will attract the multinational businesses that we want to see in Britain, but ensure that they pay taxes here too—something that never happened under a Labour Government. It will level the playing field, which has been tilted against our small firms. The approach that we take is guided by the best practice set out by the OECD. This is work that Britain called for, Britain paid for and Britain will be among the very first to implement.

First, some multinationals deliberately over-borrow in the UK to fund activities abroad, and then deduct the interest bills against their UK profits. From April next year, we will restrict interest deductibility for the largest companies at 30% of UK earnings, while making sure that firms whose activities justify higher borrowing are protected with a group ratio rule.

Next, we are setting new hybrid mismatch rules to stop the complex structures that allow some multinationals to avoid paying any tax anywhere, or to deduct the same expenses in more than one country. Then, we are going to strengthen our withholding tax on the royalty payments that allow some firms to shift money to tax havens, and, lastly, we are going to modernise the way that we treat losses. We are going to allow firms to use losses more flexibly in a way that will help over 70,000 mostly British companies, but, with these new flexibilities in place, we will do what other countries do and restrict the maximum amount of profits that can be offset using past losses to 50%. This will apply only to the less than 1% of firms making profits over £5 million, and the existing rules for historic losses in the banking sector will be tightened to 25%.

We will maintain our plans to align tax payment dates for the largest companies more closely to when profits are earned, but we will give firms longer to adjust to these changes, which will now come into effect in April 2019. All these reforms to corporation tax will help create a modern tax code that better reflects the reality of the global economy. Together, they raise £9 billion in extra revenue for the Exchequer. But our policy is not to raise taxes on business. Our policy is to lower taxes on business. So, everything we collect from the largest firms who are trying to pay no tax will be used to help millions of firms who pay their fair share of tax.

I can confirm today that we are going to reduce the rate of corporation tax even further. That is the rate Britain’s profit-making companies, large and small, have to pay, and all the evidence shows that it is one of the most distortive and unproductive taxes there is. Corporation tax was 28% at the start of the last Parliament and we reduced it to 20% at the start of this one. Last summer, I set out a plan to cut it to 18% in the coming years. Today I am going further. By April 2020, it will fall to 17%. Britain is blazing a trail; let the rest of the world catch up.

Cutting corporation tax is only part of our plan for the future. I also want to address the great unfairness that many small businessmen and women feel when they compete against companies on the internet. Sites such as eBay and Amazon have provided an incredible platform for many new small British start-ups to reach large numbers of customers, but there has been a big rise in overseas suppliers storing goods in Britain and selling them online without paying VAT. That unfairly undercuts British businesses both on the internet and on the high street, and today I can announce that we are taking action to stop it.

That is the first thing we are doing to help our small firms. Secondly, we are going to help the new world of micro-entrepreneurs who sell services online or rent out their homes through the internet. Our tax system should be helping these people so I am introducing two new tax-free allowances, each worth £1,000 a year, for both trading and property income. There will be no forms to fill in, no tax to pay—it is a tax break for the digital age and at least half a million people will benefit.

On top of the two measures comes the biggest tax cut for business in this Budget. Business rates are the fixed cost that weigh down on many small enterprises. At present, small business rate relief is only permanently available to firms with a rateable value of less than £6,000. In the past, I have been able to double it for one year only. Today I am more than doubling it, and more than doubling it permanently. The new threshold for small business rate relief will rise from £6,000 to a maximum threshold of £15,000. I am also going to raise the threshold for the higher rate from £18,000 to £51,000.

Let me explain to the House what that means. From April next year, 600,000 small businesses will pay no business rates at all. That is an annual saving for them of up to nearly £6,000, forever. A further quarter of a million businesses will see their rates cut. In total, half of all British properties will see their business rates fall or be abolished altogether. To support all ratepayers, including larger stores who face tough competition and who employ so many people, we will radically simplify the administration of business rates, and from 2020, switch the uprating from the higher retail prices index to the lower consumer prices index. That is a permanent long-term saving for all businesses in Britain. A typical corner shop in Barnstaple will pay no business rates. A typical hairdresser in Leeds will pay no business rates. A typical newsagents in Nuneaton will pay no business rates.

This is a Budget which gets rid of loopholes for multinationals and gets rid of tax for small businesses. A £7 billion tax cut for our nation of shopkeepers. A tax system that says to the world: we are open for business. This is a Conservative Government that are on your side.

Just over a year ago, I reformed residential stamp duty. We moved from a distortive slab system to a much simpler slice system, and as a result 98% of homebuyers are paying the same or less and revenues from the expensive properties have risen. The International Monetary Fund welcomed the changes and suggests we do the same to commercial property, so that is what we are going to do, and in a way that helps our small firms. At the moment, a small firm can pay just £1 more for a property and face a tax bill three times as large. That makes no sense. So from now on, commercial stamp duty will have a zero rate band on purchases up to £150,000, a 2% rate on the next £100,000, and a 5% top rate above £250,000. There will also be a new 2% rate for those high-value leases with a net present value above £5 million.

This new tax regime comes into effect from midnight tonight. There are transitional rules for purchasers who have exchanged but not completed contracts before midnight. These reforms raise £500 million a year and while 9% will pay more, more than 90% will see their tax bills cut or stay the same. So, if you buy a pub in the midlands worth, say, £270,000, you would today pay over £8,000 in stamp duty. From tomorrow, you will pay just £3,000. It is a big tax cut for small firms, all in a Budget that backs small business.

Businesses also want a simpler tax system. I have asked Angela Knight and John Whiting at the Office of Tax Simplification to look at what more we can do to make the tax system work better for small firms and I am funding a dramatic improvement in the service that Her Majesty’s Revenue and Customs offers them. Many retailers have complained bitterly to me about the complexity of the carbon reduction commitment. It is not a commitment; it is a tax. I can tell the House that we are not going to reform it. Instead, I have decided to abolish it altogether. To make good the lost revenue, the climate change levy will rise from 2019. The most energy intensive industries, such as steel, remain completely protected, and I am extending the climate change agreements that help many others.

The Secretary of State for Energy and Climate Change and I are announcing £730 million in further auctions to back renewable technologies, and we are now inviting bids to help develop the next generation of small modular reactors. We are also going to help one of the most important and valued industries in our United Kingdom, which has been severely affected by global events. The oil and gas sector employs hundreds of thousands of people in Scotland and around our country. In my Budget a year ago, I made major reductions to its taxes but the oil price has continued to fall, so we need to act now for the long term. I am today cutting in half the supplementary charge on oil and gas from 20% to 10% and I am effectively abolishing petroleum revenue tax too, backing this key Scottish industry and supporting jobs right across Britain—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Mr Ellis, Mr Shelbrooke, just relax. There is more to come.

[Mr Osborne]

Both those major tax cuts will be backdated so that they are effective from 1 January this year and my hon. Friend the Exchequer Secretary will work with the industry to give them our full support.

We are only able to provide this kind of support to our oil and gas industry because of the broad shoulders of the United Kingdom. None of this support would have been remotely affordable if, in just eight days’ time, Scotland had broken away from the rest of the UK, as the nationalists wanted. Their own audit of Scotland’s public finances confirms that they would have struggled from the start with a fiscal crisis under the burden of the highest budget deficit in the western world. Thankfully, the Scottish people decided that we are better together in one United Kingdom.

Believing in our United Kingdom is not the same as believing that every decision should be taken here in Westminster and Whitehall, and that is the next step in this Budget’s plan to make Britain fit for the future. Because as Conservatives we know that if we want local communities to take responsibility for local growth, they have to be able to reap the rewards. This Government are delivering the most radical devolution of power in modern British history. We are devolving power to our nations. The Secretary of State for Scotland and I have agreed the new fiscal framework with the Scottish Government. We are also opening negotiations on a city deal with Edinburgh; we back the new V&A museum in Dundee; and in response to the powerful case made to me by Ruth Davidson we are providing new community facilities for local people in Helensburgh and the Royal Navy personnel nearby at Faslane, paid for by our LIBOR fines.

In Wales, we are committed to devolving new powers to the Assembly and yesterday the Secretary of State for Wales and the Chief Secretary to the Treasury signed a new billion-pound deal for the Cardiff region. We are opening a discussion on a city deal for Swansea and a growth deal for north Wales, so it is better connected to our northern powerhouse. I have listened to the case made by Welsh Conservative colleagues and I can announce today that from 2018 we are going to halve the price of the tolls on the Severn crossings.

The Secretary of State for Northern Ireland and I are working towards the devolution of corporation tax. I am also extending enhanced capital allowances to the enterprise zone in Coleraine and we will use over £4 million from LIBOR fines to help establish the first air ambulance service for Northern Ireland.

In this Budget we make major further advances in the devolution of power within England too. It was less than two years ago that I called for the creation of strong elected Mayors to help us build a northern powerhouse. Since then, powerful elected Mayors have been agreed for Manchester, Liverpool, Tees Valley, Newcastle and Sheffield. Over half the population of the northern powerhouse will be able to elect a Mayor accountable to them next year. We will have an elected Mayor for the West Midlands too.

These new devolution arrangements evolve and grow stronger. Today I can tell the House that the Secretary of State for Justice and I are transferring new powers over the criminal justice system to Greater Manchester. This is the kind of progressive social policy that this Government are proud to pioneer. I can also announce to the House that today, for the first time, we have reached agreement to establish new elected Mayors in our English counties and southern cities too. I want to thank my right hon. Friend the Secretary of State for Communities and Local Government and my Treasury colleague Jim O’Neill for their superhuman efforts. We have agreed a single powerful East Anglia combined authority, headed up by an elected Mayor and almost a billion pounds of new investment. We have also agreed a new West of England mayoral authority—and they too will see almost a billion pounds invested locally. The authorities of Greater Lincolnshire will have new powers, new funding and a new Mayor. North, south, east and west—the devolution revolution is taking hold.

When I became Chancellor, 80% of local government funding came in largely ring-fenced grants from central Government. It was the illusion of local democracy. By the end of this Parliament, 100% of local government resources will come from local government—raised locally, spent locally, invested locally. Our great capital city wants to lead the way. My friend the Mayor of London and my hon. Friend the Member for Richmond Park (Zac Goldsmith) passionately argue for the devolution of business rates. I can confirm today that the Greater London Authority will move towards full retention of its business rates from next April, three years early. Michael Heseltine has accepted our invitation to lead a Thames estuary growth commission and he will report to me with its ideas next year.

In every international survey of our country, our failure for a generation to build new housing and new transport has been identified as a major problem. But in this Government we are the builders. So today we are setting out measures to speed up our planning system, zone housing development and prepare the country for the arrival of 5G technology. My right hon. Friend the Business Secretary will be bringing forward our innovation proposals. And because we make savings in day-to-day spending we can accelerate capital investment and increase it as a share of GDP. All these are things that a country focused on its long-term future should be doing.

Our new stamp duty rates on additional properties will come into effect next month. I have listened to colleagues and the rates will apply to larger investors too. We are going to use receipts to support community housing trusts, including £20 million to help young families on to the housing ladder in the south-west of England. This is a brilliant idea from my hon. Friend the Member for Truro and Falmouth (Sarah Newton) and many other colleagues. And it is proof that when the south-west votes blue, their voice is heard loud here in Westminster.

Because under this Government we are not prepared to let people be left behind, I am also announcing a major new package of support worth over £115 million to support those who are homeless and to reduce rough sleeping.

Last year, I established a new National Infrastructure Commission to advise us all on the big long-term decisions we need to boost our productivity. I am sure everyone in the House will want to thank Andrew Adonis and his fellow commissioners for getting off to such a strong start. They have already produced three impressive reports. They recommend much stronger links across northern England. So we are giving the green light to High Speed 3 between Manchester and Leeds; we are finding new money to create a four-lane M62; and we will develop the case for a new tunnelled road from Manchester to Sheffield. My hon. Friends the Members for Carlisle (John Stevenson), for Penrith and The Border (Rory Stewart) and for Hexham (Guy Opperman) have told us not to neglect the north Pennines. So we will upgrade the A66 and the A69 too.

I said we would build the northern powerhouse. We have put in place the Mayors. We are building the roads. We are laying the track. We are making the northern powerhouse a reality and rebalancing our country.

I am also accepting the National Infrastructure Commission’s recommendations on energy and on London transport. The Government who are delivering Crossrail 1 will now commission Crossrail 2. I know this commitment to Crossrail 2 will be warmly welcomed by the Leader of the Opposition, the right hon. Member for Islington North (Jeremy Corbyn). It could have been designed just for him, because it is good for all those who live in north London and are heading south.

Across Britain this Budget invests in infrastructure—from a more resilient train line in the south-west, to the crossings at Ipswich and Lowestoft in the east that we promised—we are making our country stronger.

To respond to the increasing extreme weather events our country is facing I am today proposing further substantial increases in flood defences. That would not be affordable within existing budgets. So I am going to increase the standard rate of insurance premium tax by just half a per cent., and commit all the extra money we raise to flood defence spending. That is a £700 million boost to our resilience and flood defences. The urgent review already under way by the Secretary of State for Environment, Food and Rural Affairs and the Chancellor of the Duchy of Lancaster will determine how the money is best spent. But we can get started now. I have had many representations from colleagues across the House, including my hon. Friends the Members for Morley and Outwood (Andrea Jenkyns) and for Calder Valley (Craig Whittaker). So we are giving the go-ahead to the schemes for York, Leeds, Calder Valley, Carlisle and across Cumbria.

In this Budget we invest in our physical infrastructure and we invest in our cultural infrastructure too. I am supporting specific projects from the Hall for Cornwall in Truro, to £13 million for Hull to make a success as city of culture. Our cathedral repairs fund has been enormously successful so I am extending it with an additional £20 million, because there is one thing that is pretty clear these days—the Conservative party is a broad church. In the 400th anniversary of the great playwright’s death, I have heard the sonnets from the right hon. Member for Knowsley (Mr Howarth) and we commit to a new Shakespeare North theatre, on the site of the first indoor theatre outside our capital. My hon. Friend the Member for Newark (Robert Jenrick) has proposed that we introduce a new tax break for museums that develop exhibitions and take those exhibitions on tour. It is a great idea and we add that to our collection today.

We cut taxes for business. We devolve power. We develop our infrastructure. The next part of our plan to make Britain fit for the future is to improve the quality of our children’s education. Providing great schooling is the single most important thing we can do to help any child from a disadvantaged background succeed. It is also the single most important thing we can do to boost the long-term productivity of our economy, because our nation’s productivity is no more and no less than the combined talents and efforts of the people of these islands. That is why education reform has been so central to our mission since we came to office five years ago. Today we take these further steps.

First, I can announce that we are going to complete the task of setting schools free from local education bureaucracy, and we are going to do it in this Parliament. I am today providing extra funding so that by 2020 every primary and secondary school in England will be, or be in the process of becoming, an academy. Secondly, we are going to focus on the performance of schools in the north, where results have not been as strong as we would like. London’s school system has been turned around; we can do the same in the northern powerhouse and I have asked the outstanding Bradford headteacher, Sir Nick Weller, to provide us with a plan. Thirdly, we are going to look at teaching maths to 18 for all pupils.

Fourthly, we are going to introduce a fair national funding formula, and I am today committing £500 million to speed up its introduction. We will consult, and our objective is to get over 90% of the schools that will benefit on to the new formula by the end of this Parliament. The Conservative Government are delivering on their promise of fair funding for our schools. Tomorrow my right hon. Friend the Education Secretary will publish a White Paper setting out further improvements that we will make to the quality of education, because we will put the next generation first.

Doing the right thing for the next generation is what this Government and this Budget are about, no matter how difficult and controversial that is. We cannot have a long-term plan for the country unless we have a long-term plan for our children’s healthcare. Here are the facts that we know: five-year-old children are consuming their body weight in sugar every year. Experts predict that within a generation more than half of all boys and 70% of girls could be overweight or obese. Here is another fact that we all know: obesity drives disease. It increases the risk of cancer, diabetes and heart disease, and it costs our economy £27 billion a year. That is more than half the entire NHS pay-bill.

Here is another truth we all know: one of the biggest contributors to childhood obesity is sugary drinks. A can of cola typically has nine teaspoons of sugar in it. Some popular drinks have as many as 13 teaspoons. That can be more than double a child’s recommended added sugar intake. Let me give credit where credit is due. Many in the soft drinks industry recognise that there is a problem and have started to reformulate their products. Robinsons recently removed added sugar from many of its cordials and squashes. Sainsbury’s, Tesco and the Co-op have all committed to reduce sugar across their ranges. So industry can act, and with the right incentives I am sure it will.

I am not prepared to look back at my time here in this Parliament, doing this job, and say to my children's generation, “I’m sorry. We knew there was a problem with sugary drinks. We knew it caused disease, but we ducked the difficult decisions and we did nothing.” So today I can announce that we will introduce a new sugar levy on the soft drinks industry. Let me explain how it will work. It will be levied on the companies. It will be introduced in two years’ time to give companies plenty of space to change their product mix. It will be assessed on the volume of the sugar-sweetened drinks they produce or import. There will be two bands—one for total sugar content above 5 grams per 100 millilitres, and a second, higher band for the most sugary drinks with more than 8 grams per 100 millilitres. Pure fruit juices and milk-based drinks will be excluded, and we will ensure that the smallest producers are kept out of scope.

We will, of course, consult on implementation. We are introducing the levy on the industry which means that companies can reduce the sugar content of their products, as many already do. It means that they can promote low-sugar or no-sugar brands, as many already are. They can take these perfectly reasonable steps to help with children’s health. Of course, some may choose to pass the price on to consumers, and that will be their decision, and this would have an impact on consumption too. We as Conservatives understand that tax affects behaviour. So let us tax the things we want to reduce, not the things we want to encourage. The Office for Budget Responsibility estimates that this levy will raise £520 million, and that is tied directly to the second thing we are going to do today to help children’s health and wellbeing.

We are going to use the money from this new levy to double the amount of funding we dedicate to sport in every primary school. For secondary schools, we are going to fund longer school days for those that want to offer their pupils a wider range of activities, including extra sport. It will be voluntary for schools but compulsory for the pupils. There will be enough resources for a quarter of secondary schools to take part, but that is just the start. The devolved Administrations will receive equivalent funding through the Barnett formula and I hope they spend it on the next generation too.

I am also using the LIBOR funds specifically to help with children’s hospital services. Members across the House have asked for resources for children’s care in Manchester, Sheffield, Birmingham and Southampton, and we provide those funds today. We have a determination to improve the health of our children, a new levy on excessive sugar in soft drinks, the money used to double sport in our schools—a Britain fit for the future, a Government not afraid to put the next generation first.

Let me now turn to indirect taxes. Last autumn I said that we would use all the VAT we collect from sanitary products to support women’s charities. I want to thank the many Members here on all sides, in all parties, for the impressive proposals they have put forward. Today we allocate £12 million from the tampon tax to these charities across the UK, from Breast Cancer Care to the White Ribbon Campaign and many other causes. We will make substantial donations to the Rosa fund and to Comic Relief so that we reach many more grassroots causes.

I now turn to excise duties. When we took office, we inherited plans that would have seen fuel duty rise above inflation every year and cost motorists 18p extra a litre. We wholeheartedly rejected those plans and instead we took action to help working people. We froze fuel duty throughout the last Parliament—a tax cut worth nearly £7 billion a year. In the past 12 months, petrol prices have plummeted. That is why we pencilled in an inflation rise. But I know that fuel costs still make up a significant part of household budgets and weigh heavily on small firms. Families paid the cost when oil prices rocketed; they should not be penalised when oil prices fall. We are the party for working people, so I can announce that fuel duty will be frozen for the sixth year in a row. That is a saving of £75 a year to the average driver and £270 a year to a small business with a van. It is the tax boost that keeps Britain on the move.

Tobacco duty will continue to rise, as set out in previous Budgets, by 2% above inflation from 6 pm tonight and hand-rolling tobacco will rise by an additional 3%. To continue our drive to improve public health, we will reform our tobacco regime to introduce an effective floor on the price of cigarettes and consult on increased sanctions for fraud.

I have always been clear that I want to support responsible drinkers and our nation’s pubs. Five years ago we inherited tax plans that would have ruined that industry. Instead, prompted by my hon. Friend the Member for Burton (Andrew Griffiths) and others, the action we took in the last Parliament on beer duty saved hundreds of pubs and thousands of jobs. Today I back our pubs again. I am freezing beer duty, and cider duty too. Scotch whisky accounts for a fifth of all the UK’s food and drink exports. So we back Scotland and back that vital industry too, with a freeze on whisky and other spirits duty this year. All other alcohol duties will rise by inflation, as planned.

There are some final measures that we need to take to boost enterprise, back the next generation, and help working people keep more of the money they earn. All these have been themes of this Budget. Let me start with enterprise. We Conservatives know that when it comes to growing the economy, alongside good infrastructure and great education we need to light the fires of enterprise, and our tax system can do more. To help the self-employed I am going to fulfil the manifesto commitment we made, and from 2018 abolish class 2 national insurance contributions altogether. That is a simpler tax system and a tax cut of over £130 for each of Britain’s 3 million-strong army of the self-employed.

Next, we want to help people to invest in our businesses and help them to create jobs. The best way to encourage that is to let them keep more of the rewards when that investment is successful. Our capital gains tax is now one of the highest in the developed world, when we want our taxes to be among the lowest. The headline rate of capital gains tax currently stands at 28%. Today I am cutting it to 20%. and I am cutting the capital gains tax paid by basic rate taxpayers from 18% to just 10%. The rates will come into effect in just three weeks’ time. The old rates will be kept in place for gains on residential property and carried interest. I am also introducing a brand-new 10% rate on long-term external investment in unlisted companies, up to a separate maximum £10 million of lifetime gains. In this Budget, we are putting rocket boosters on the backs of enterprise and productive investment.

In this Budget, I also want to help the next generation build up assets and save. The fundamental problem is that far too many young people in their 20s and 30s have no pension and few savings. Ask them and they will tell you why. It is because they find pensions too complicated and inflexible, and most young people face an agonising choice of either saving to buy a home or saving for their retirement. We can help by providing people with more information about the multiple pensions many have, and providing more tax relief on financial advice, and the Economic Secretary and I do both today.

We can also help those on the lowest incomes to save, and the Prime Minister announced our Help to Save plan on Monday. Over the past year, we have consulted widely on whether we should make compulsory changes to the pension tax system. But it was clear that there was no consensus. Indeed, the former Pensions Minister, the Liberal Democrat Steve Webb, said I was trying to abolish the lump sum. Instead, we are going to keep the lump sum and abolish the Liberal Democrats. [Laughter.] I am tempted to say it will take effect from midnight tonight.

My pension reforms have always been about giving people more—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Mr Opperman, you may have been an amateur jockey, but I do not want you to fall short on this Budget.

[Mr Osborne]

My pension reforms have always been about giving people more freedom and more choice. So, faced with the truth that young people are not saving enough, I am today providing a different answer to the same problem. We know people like ISAs—because they are simple. You save out of taxed income, everything you earn on your savings is tax-free, and it is tax-free when you withdraw it too. From April next year, I am going to increase the ISA limit from just over £15,000 to £20,000 a year for everyone.

For those under 40, many of whom have not had such a good deal from the pension system, I am introducing a completely new, flexible way for the next generation to save. It is called the lifetime ISA. Young people can put money in, get a Government bonus, and use it to either buy their first home or save for their retirement.

Here is how it will work. From April 2017, anyone under the age of 40 will be able to open a lifetime ISA and save up to £4,000 each year. For every £4 you save, the Government will give you £1. So put in £4,000 and the Government will give you £1,000. Every year. Until you are 50. You do not have to choose between saving for your first home or saving for your retirement. With the new lifetime ISA, the Government are giving you money to do both.

For the basic rate taxpayer, that is the equivalent of tax-free savings into a pension, and unlike a pension, you will not pay tax when you come to take the money out in retirement. For the self-employed, it is the kind of support they simply cannot get from the pensions system today.

Unlike a pension, you can access your money anytime without the bonus and with a small charge. And we are going to consult the industry on whether, like the American 401(k), you can return the money to the account to reclaim the bonus—so it is both generous and completely flexible. Those who have already taken out our enormously popular Help to Buy ISA will be able to roll it into the new lifetime ISA—and keep the Government match. A £20,000 ISA limit for everyone. A new lifetime ISA. A Budget that puts the next generation first.

I turn now to my final measures. This Government were elected to back working people. The best way to help working people is to let them keep more of the money they earn. When I became Chancellor, the tax-free personal allowance was less than £6,500. In two weeks’ time, it will rise to £11,000. We committed in our manifesto that it would reach £12,500 by the end of this Parliament. Today we take a major step towards that goal. From April next year, I am raising the tax-free personal allowance to £11,500. That is a tax cut for 31 million people. It means a typical basic rate taxpayer will be paying over £1,000 less income tax than when we came into government five years ago. And it means another 1.3 million of the lowest paid taken out of tax altogether—social justice delivered by Conservative means.

We made another commitment in our manifesto, and that was to increase the threshold at which people pay the higher rate of tax. That threshold stands at £42,385 today. I can tell the House that from April next year I am going to increase the higher rate threshold to £45,000. That is a tax cut of over £400 a year. It is going to lift over half a million people who should never have been paying the higher rate out of that higher rate band altogether. It is the biggest above-inflation cash increase since Nigel Lawson introduced the 40p rate over 30 years ago. A personal tax free allowance of £11,500. No one paying the 40p rate under £45,000. We were elected as a Government for working people. And we have delivered a Budget for working people.

Five years ago, we set out a long-term plan because we wanted to make sure that Britain never again was powerless in the face of global storms. We said then that we would do the hard work to take control of our destiny and put our own house in order. Five years later, our economy is strong, but the storm clouds are gathering again. Our response to this new challenge is clear. We act now so we do not pay later.

This is our Conservative Budget. One that reaches a surplus so the next generation does not have to pay our debts. One that reforms our tax system so the next generation inherits a strong economy. One that takes the imaginative steps so the next generation is better educated. One that takes bold decisions so that our children grow up fit and healthy.

This is a Budget that gets the investors investing, savers saving, businesses doing business, so that we build for working people a low-tax, enterprise Britain, secure at home, strong in the world. I commend to the House a Budget that puts the next generation first.

Financial Statement

Debate between George Osborne and Lindsay Hoyle

Wednesday 8th July 2015 Commons Chamber

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

This is a Budget that puts security first. It is a Budget that recognises the hard work and the sacrifice of the British people over the past five years and says that we will not put that at risk; we have a job to do and we are here to get on with it. This will be a Budget for working people—a Budget that sets out a plan for Britain for the next five years to keep moving us from a low wage, high tax, high welfare economy to the higher wage, lower tax, lower welfare country we intend to create.

This is the new settlement. From a one nation Government, this is a one nation Budget that takes the necessary steps and follows a sensible path for the benefit of the whole of the United Kingdom. This is a Conservative Budget that can be delivered only because the British people trusted us to finish the job, because they know that the only way to have a strong NHS, strong schools and a strong defence is to build a strong economy. That is how we were elected, and that is exactly what we are now going to do.

The British economy that I report on today is fundamentally stronger than it was five years ago. We are growing faster than any other major advanced economy. Our businesses have created 2 million more jobs. Living standards are rising strongly. Our long-term economic plan is working. But the greatest mistake this country could make would be to think all our problems are solved. We have only to look at the crisis unfolding in Greece as I speak to realise that, if a country is not in control of its borrowing, the borrowing takes control of the country. Britain still spends too much; it borrows too much, and our weak productivity shows that we do not train enough, build enough or invest enough. This we are determined to change. We will be bold in transforming education, bold in reforming welfare, bold in delivering infrastructure and bold in building the northern powerhouse. We will be bold in backing the aspirations of working people. This is a big Budget for a country with big ambitions. It is a Budget that sets the way to secure Britain’s future.

Let me turn to the latest forecasts from our independent Office for Budget Responsibility. We thank Robert Chote and his colleagues for their hard work. We now have Budgets that fit the economic forecasts, instead of economic forecasts that were fixed to fit the Budget. At the March Budget, it was thought that the British economy had grown by 2.6% last year. We now know that it grew by 3%. But the global economic risks are rising. The US economy has slowed, so too has China, and even before the Greek crisis intensified this week, the forecasts for global growth had been revised down this year to 3.2%. It is all the more reason to get our own house in order.

For 2015, the OBR forecasts growth at 2.4%. That is faster than America, faster than Germany and twice as fast as France. For the second year in a row, Britain is expected to have the strongest economic growth of any major advanced economy in the world. In 2016, the OBR has growth unchanged at 2.3%, and then it is revised up to 2.4% in the following year—a level of strong, steady growth that it predicts for the rest of the decade. This growth is driven by stronger private consumption, and by stronger private investment, too. Indeed, business investment is now 31.9% higher than it was in 2010, and is revised up again this year. Now we need to see investment at home matched by exports abroad. Our decision to become a founder member of the new Asian Infrastructure Investment Bank is driven by our determination to connect Britain to the fastest-growing parts of the world, and our decision to seek reform to the EU is driven by our determination that this part of the world shall not price itself out of a prosperous future.

Higher investment leads to more jobs, which brings me to the OBR forecasts for employment. Over 2 million more people have the security of work as a result of this Government’s long-term economic plan. The OBR forecasts that under the current economic conditions, almost 1 million more jobs will be created over the next five years. Our ambition is to go further, and create 2 million more jobs on the road to full employment. To help achieve that progressive goal, we set out today how we will make work pay.

Jobs are not created by accident. They are created when businesses have confidence—the confidence to invest, to grow and to hire; confidence that comes because Britain is getting its house in order. So we seek to create a country that can truly pay its way. The budget deficit is now less than half the 10% we inherited, and economic security is returning, but all that progress is at risk if we do not finish the job. That means more than just eliminating the deficit; it means running a surplus to get our dangerously high levels of debt down.

That brings me to the first of the key judgments in this Budget—how fast do we cut the deficit? My answer is this: we should cut the deficit at the same pace as we did in the last Parliament. We should not go faster; we should not go slower. At this pace, the national debt is lower as a share of our national income in every future year than when I presented the Budget in March, and it is achieved without a rollercoaster ride in public spending.

This is why: first, our tax receipts are stronger than forecast, showing that the recovery is firmly entrenched; secondly, as a strong majority Government, we have been able to get on with making extra savings in this financial year; and thirdly, we can make faster progress in returning our banks, including RBS, to where they belong—the private sector. Indeed, the sale of Government assets this year will deliver the largest privatisation proceeds of all time, higher than the previous record in 1987. With stronger tax receipts, more asset sales and a strong Government who are getting on with the job, we can achieve a smoother path to the same destination, with a surplus a year later in 2019-20, but the national debt lower and that same surplus higher. For this is a Budget that puts economic security first.

Many difficult but necessary decisions are required to save money, and this will be done with moderation but determination. This is a one nation Government who do the best thing for the economy and the right thing for the country. This plan is reflected in the forecasts for debt and deficit produced today by the Office for Budget Responsibility. The deficit was 10.2% of national income in 2010. This year, it is forecast to fall to 3.7%—one third of the deficit we inherited. It then falls again to 2.2% in 2016-17, down to 1.2% the year after, and then to just 0.3% in 2018-19. The following year, 2019-20, we move into a budget surplus at 0.4%, which is then maintained the year after at 0.5% of GDP. In structural terms, the OBR judges that this will be the largest surplus in at least 40 years—Britain back in the black, and in its strongest position for almost half a century.

This is, of course, all reflected in the amount of cash Britain has to borrow each year. In 2010, Britain was borrowing a staggering and unsustainable £153 billion a year. In March, the OBR forecast that we would borrow less than half of that, or £75.3 billion, this year. In this Budget, it has revised borrowing down this year to £69.5 billion. Borrowing then falls to £43.1 billion next year, £24.3 billion in 2017-18, and down to just £6.4 billion the year after. In 2019-20, we move into a surplus higher than previously forecast of £10 billion, which rises to £11.6 billion the year after—Britain finally doing the responsible thing and raising more money than it spends.

Five years ago, we inherited a situation in which our national debt as a share of our national income was soaring. This year, that national debt share is falling, bringing to an end the longest continued rise in our national debt since the 17th century. It is falling now, and it continues to fall in every year of the forecast, down from 80.3% this year to 79.1% next year, then down again to 77.2% in 2017-18, 74.7% the year after, and 71.5% the year after that, before falling again to 68.5% in 2020-21. Britain has turned a corner and left the age of irresponsibility behind.

Having come this far, there can be no turning back. We should aim for a new settlement across the political spectrum where it is accepted that, without sound public finances, there is no economic security for working people; those who suffer when Governments run unsustainable deficits are not the richest, but the poorest; and therefore in normal economic times Governments should run an overall budget surplus, so that our country is better prepared for whatever storms lie ahead. In short, we should always fix the roof while the sun is shining.

Today, I publish the new fiscal charter that commits our country to that path of budget responsibility. While we move from deficit to surplus, this charter commits us to keeping debt falling as a share of GDP each and every year and to achieving that budget surplus by 2019-20. Thereafter, Governments will be required to maintain that surplus in normal times—in other words, when there is not a recession or a marked slowdown.

Only when the OBR judges that we have real GDP growth of less than 1% a year, as measured on a rolling four-quarter basis, will that surplus no longer be required. The Chancellor of the day will have to set out their plan with clear targets to restore the nation’s finances to health and the House of Commons will test the credibility of that plan and vote on those targets. This is sensible, pragmatic and keeps Britain secure. We will put the new fiscal charter to a vote in this House this autumn, and I invite broad cross-party support for it.

To meet the new charter, further difficult decisions need to be taken to live within our means. We will take these decisions in a balanced and fair way. I can confirm that the analysis produced today shows that the richest are paying a greater share of tax than they were at the start of the last Parliament. And more than that, we are continuing to devote a greater share of state support to the most vulnerable. As I said they would, those with the broadest shoulders are bearing the greatest burden, for we are all in this together. And in the last fortnight we have seen independent statistics showing that since 2010 child poverty is down, and so is inequality. That comes on top of a record number of women in work, and the gender pay gap at an all-time low—all good news that should be welcomed on both sides of the House.

The fiscal plan set out in the Budget requires around £37 billion of further consolidation over the Parliament. Today, I set out how we will find just under half of that—£17 billion. We have found annual savings of £12 billion from welfare and £5 billion from tackling tax evasion, avoidance and planning and imbalances in the tax system. The other half will largely come from Government Departments through savings and cuts and will be set out at the spending review that the Chief Secretary and I will conduct this autumn. However, no year will see cuts as deep as those required in 2011-12 and 2012-13.

Of course, I am conscious that a huge amount has already been done to increase efficiency across Whitehall, with administrative budgets down by more than 40% in real terms, but there is still much more we can do. There is also a simple trade-off between pay and jobs in many public services. I know that there has already been a period of pay restraint, but we said last autumn that we would need to find commensurate savings in this Parliament, so to ensure that we have public services we can afford, and to protect more jobs, we will continue recent public sector pay awards with a rise of 1% per year for the next four years.

Public spending should reflect public priorities and we have to make choices. Our priority is the national health service. We will fund fully the plan the NHS has itself produced for its future, the Stevens plan. That plan requires very challenging efficiency savings across the health service, which must be found, but it also requires additional Government funding. Our balanced approach means that I can today confirm that the NHS will receive, in addition to the £2 billion we have already provided this year, a further £8 billion. That is £10 billion more a year in real terms by 2020. It is proof that you can only have a strong seven-day NHS if you have a strong economy, and it is proof that the NHS is only truly safe in Conservative hands.

I have set out the difficult choices we are going to face on Government spending and the priority we will accord to our national health service. I turn now to combating tax evasion, avoidance and aggressive tax planning. In Budget after Budget, we have done more to combat that than any Government before us. We inherited a system where bankers boasted of paying lower tax rates than their cleaners and some multinationals shifted all their profits offshore. We have stopped these blatant abuses that were allowed to flourish, and many others, but we promised the British people we would do more and find a further £5 billion a year, and I can confirm we have done so.

We are boosting HMRC’s capacity, with three quarters of a billion pounds of investment to go after tax fraud, offshore trusts and the businesses of the hidden economy, tripling the number of wealthy evaders it pursues for prosecution and raising £7.2 billion in extra tax.

We are going to change the law to stop the use of losses that abuse our controlled foreign companies regime, and make sure investment fund managers pay the full capital gains tax rate on their carried interest.

We will stop corporates artificially increasing the value of stock for tax purposes, and to focus the employment allowance on employment we are restricting it so that companies where the director is the sole employee will no longer be able to claim.

We are consulting today on how to deal with the increasing abuse of the rules around disguised employment when working through a personal service company, and we are going to add tough new penalties to our general anti-abuse rule and name and shame serial users of failed avoidance schemes. These people should have nowhere to hide.

The non-domicile tax status is a long-standing feature of the UK tax system—in place since 1914—that plays an important role in allowing those from abroad to contribute to our economy before returning to their permanent home, and many countries have some version of this tax status.

Simply abolishing it altogether would, as Ed Balls correctly noted, probably cost the country money. Many of these people make a considerable contribution to our public life and to tax revenues, but there are some fundamental unfairnesses in the non-dom regime that I am putting a stop to today.

It is not fair that people who are born in the UK to parents who are domiciled here can later in life claim to be non-doms and live here. It is not fair that non-doms with residential property here in the UK can put it in an offshore company and avoid inheritance tax. From now on they will pay the same tax as everyone else. Most fundamentally, it is not fair that people live in this country for very long periods of their lives benefit from our public services and yet operate under different tax rules from everyone else.

Non-dom status was meant to be temporary, but it became permanent for some people. Not any longer. I am today abolishing permanent non-dom tax status. Anyone resident in the UK for more than 15 of the past 20 years will now pay full British taxes on all worldwide income and gains. We will consult to get the detail right. All these non-dom measures will come into effect in April 2017 and they will raise £1.5 billion in extra tax for the Exchequer over this Parliament. British people should pay British taxes in Britain, and now they will.

Turning to corporate tax rules, we will also broaden the base for corporation tax by removing, for future transactions only, the annual deduction for acquired reputational value. For big companies with profits over £20 million a year, we will bring forward corporation tax payment dates so that tax is paid closer to the point at which profits are earned. That is fair and more in line with what we are doing in personal tax, and it is what almost all other G7 nations do.

Banks make a key contribution to our economy, but they also need to make a fair contribution. It is important that they help pay down the debts built up during the banking crisis, but equally important that they go on creating jobs, not just in London but in Edinburgh, Leeds, Birmingham, Bournemouth and across the country. The new remit I am issuing today for the Financial Policy Committee highlights the importance of productive investment, innovation and competition in finance.

Our bank levy was introduced to raise revenue and increase the stability of balance sheets, and it has worked, but now it risks doing harm unless we change it. So I will, over the next six years, gradually reduce the bank levy rate, and after that make sure it no longer applies to worldwide balance sheets. But to maintain a fair contribution from the banks, I will introduce a new 8% surcharge on bank profits from 1 January next year. By getting this balance right, it means we will actually raise more money from the banks this Parliament, but at the same time make our country a more competitive place to do business.

We have also taken action to make sure that consumers get a better deal from another important industry: insurance. The costs of premiums are down for families, and today we are announcing a major review of the regulation of claims management companies and we will cap the charges they can apply to their customers.

Britain’s insurance premium tax is well below tax rates in many other countries. I am therefore today raising insurance premium tax, which applies to only one fifth of all premiums, to 9.5%, effective from this November. With these measures I am putting in place an approach for taxing banks and insurers over this Parliament which is sustainable, stable and fair.

In each year, we have been able to use money from the banking fines paid by those who represent the worst of values to support those in uniform who demonstrate the best of British values. Today we announce funding for the Defence Medical Welfare Service and the Royal Commonwealth Ex-Services League. We are supporting the incredibly courageous members of our special forces who are injured, and, in the 75th anniversary of the Victoria Cross and George Cross Association, quadrupling the annual annuity we pay to those who demonstrated the highest valour and whom I had the honour of meeting yesterday.

In the week of the poignant anniversary of the 7/7 attacks, we should recognise, too, that our victims of terrorism overseas have no permanent memorial. We will now fund one, as well as a specific memorial to those murdered in Tunisia. We are committing £50 million to expand the number of cadet units in our state schools to 500, prioritising schools in less affluent areas, and we are going to support the Children’s Air Ambulance by funding an extra helicopter.

In every Budget, I also find an opportunity to fund the commemoration of famous events from our history and the buildings that symbolise them. This Budget is no exception. The RAF’s group fighter command centre in west London was the place where the battle of Britain was directed from and it badly needs repair. I want to thank the new Member my hon. Friend the Member for Uxbridge and South Ruislip (Boris Johnson) for bringing to my attention the dilapidated state of his campaign bunker. Let its renovation stand as a monument to the heroes of the battle of Britain and the days when aeroplanes flew freely over the skies of west London.

I turn now to the great economic challenge we face on productivity, for this is the key to delivering the financial security that families see when living standards rise. And it will ensure that Britain becomes what we want it to be—the most prosperous major economy in the world by the 2030s. That is within the grasp of our generation, provided we take the big decisions. On Friday we will set out our plan for productivity, to help realise this ambition. I want to thank my new Treasury colleague Jim O’Neill for his work as a world-leading economist in putting it together. Major British businesses, led by Sir Charlie Mayfield, have told me that they want to be part of the solution to this great challenge and we very much welcome that.

Let me today set out the key parts of that plan. First, on transport, four fifths of all journeys in this country are by road, yet we rank behind Puerto Rico and Namibia in the quality of our network. In the past 25 years, France has built more than 2,500 miles of motorway and we have built just 300. In the last Parliament I increased road spending, even in difficult times, and set out a plan for £15 billion of new roads for the rest of this decade, but we need a long-term solution if we are going to fix Britain’s poor roads.

Vehicle excise duty was used to fund our roads, but not any more. And because so many new cars now fall into the low carbon emission bands, by 2017 over three quarters of new cars will pay no VED at all in the first year. That is not sustainable and it is not fair. If someone can afford a brand new car, including some of the most expensive models available, they can pay no VED. If they can afford only an older, second-hand car, they have to pay more tax. Only a Labour Government could have designed something so regressive.

So this is what we will do. From 2017, for brand-new cars only, we will introduce new VED bands. The duty in the first year will be set according to emissions, like today, but updated for new technology. Thereafter there will be three duty bands: zero emission, standard and premium. For standard cars—that covers 95% of all cars sold in the UK—the charge will be £140 a year. That is less than the average £166 that motorists pay today. There will be no change to VED for existing cars: no one will pay more in tax than they do today for the car they already own. In total, we will only raise the same amount of revenue from VED in the future as we do today, but that revenue will be secure for the long term.

And I will return this tax to the use for which it was originally intended. I am creating a new roads fund. From the end of this decade, every single penny raised in vehicle excise duty in England will go into that fund to pay for the sustained investment our roads so badly need. We will engage with the devolved Administrations on how the money is allocated there. Tax paid on people’s cars will be used to improve the roads that they drive on. It is a major reform to improve the infrastructure and productivity of our economy, and deliver a fairer tax system for the motorist.

We will also consult on extending the deadline for new cars and motorbikes to have their first MOT test from three years to four years, which would save motorists over £100 million a year. I can also confirm that there will be no changes to the plans for fuel duty I set out in March: fuel duty will remain frozen this year.

Productivity means building more roads. It also means giving people the skills they need to secure a better job. It is to our national shame that we are almost the only advanced country in the world where the skills of our 16 to 24-year-olds are no better than those of our 55 to 64-year-olds. The education reforms we started in the last Parliament have begun to address this problem, and we are going further in this Parliament by tackling the coasting schools that simply are not good enough.

We have already doubled the number of apprenticeships to 2 million; now we are committed to 3 million more. To fund these apprenticeships and make sure they are of high quality we have to confront this truth: while many firms do a brilliant job training their workforces, too many large companies leave the training to others and take a free ride on the system, so we are going to take a radical and, frankly, long overdue approach.

We are going to introduce an apprenticeship levy on all large firms. Firms that offer apprenticeships can get more back than they put in. Britain’s great businesses will train up the next generation—3 million more apprenticeships with the security that will bring. The money will be directly controlled by employers, and we will work with business on how to do this. It is exactly the sort of bold step we need to take if Britain is going to raise its game.

Next, we have got to secure the success of our university sector, which is one of the jewels in the crown of the British economy. When we reformed student funding in the last Parliament, we were told by those who so opportunistically opposed us that it would put people from low-income backgrounds off going to university. Instead, we now see a record number of these students applying and succeeding. It is a triumph of progressive reform.

Now we are removing the artificial cap on student numbers, so we do not have to turn away from our universities people who want to go and who have the right grades. But we cannot afford to do this unless we tackle the cost of student maintenance grants, which is set to almost double to £3 billion over this decade. There is also a basic unfairness in asking taxpayers to fund the grants of people who are likely to earn a lot more than them.

The previous Labour Government actually abolished these grants, before reintroducing them. These grants have now become unaffordable. If we do not tackle this problem, our universities will become underfunded and our students will not get places. I am not prepared to let that happen, so from the 2016-17 academic year we will replace maintenance grants with loans for new students. The loans only have to be paid back once they earn over £21,000 a year. To ensure university is affordable to all students from all backgrounds, we will increase the maintenance loan available to £8,200, the highest amount of support ever provided.

To ensure our university system is sustainable, we will consult on freezing the loan repayment threshold for five years, and we will link the student fee cap to inflation for those institutions that can show they offer high-quality teaching. We will open the whole sector to new entrants who can deliver the highest standards. It is a major set of reforms to make sure Britain continues to have the best universities in the world. It is fair to students, fair to taxpayers and vital to secure our long-term economic future.

Britain’s weak productivity is also driven by the fact that too much of our economic strength is concentrated in this capital city. This is unhealthy and unproductive, and we must achieve a better settlement for the future, but not by pulling London down. One of the first pieces of advice I received in the Treasury was to cancel the plan for the Crick Institute, the Tate Modern extension and Crossrail, but I rejected that advice, because I have always believed it is to our nation’s great advantage that we have one of the world’s great capitals. Now we are working with the Mayor on what this city will need in the future, with projects such as Crossrail 2 and the exciting development of the Olympic village.

What really drives this Government is building up other parts of the United Kingdom as a balance to London’s strength. For Scotland, we are now delivering, as promised, major devolution of tax and welfare powers. Instead of complaining endlessly about process in Westminster, the SNP Scottish Government will soon have to answer the question, “You’ve got the powers, when are you going to use them?” In Wales, we are honouring our commitments to a funding floor and to more devolution there, and investing in important new infrastructure such as the M4 and the Great Western line. In Northern Ireland, we are working with all parties to deliver the Stormont House agreement and sustainable public finances there.

Devolution to the nations of the United Kingdom is well established. In my view, devolution within England has only just begun. Today, we go further in building the northern powerhouse. I can today announce that I have reached agreement with the leaders of the 10 councils of Greater Manchester to devolve further powers to that city. These include putting fire services under the control of the new Mayor, establishing a land commission in the city and further collaboration on children’s services and employment programmes.

The historic devolution that we have agreed with Greater Manchester in return for a directly elected Mayor is available to other cities that want to go down a similar path. I can also tell the House that we are now working towards deals with the Sheffield and Liverpool city regions and with Leeds, West Yorkshire and partner authorities on far-reaching devolution of power in return for the creation of directly elected Mayors. We have created Transport for the North, and I am now putting it on a statutory footing. I can announce £30 million of funding to this new body as it connects northern England together, with seamless Oyster-style ticketing across the region.

Next, with the Secretary of State for Business, Innovation and Skills, my right hon. Friend the Member for Bromsgrove (Sajid Javid), we are pushing for more powers and responsibility to be devolved to the midlands—that engine of growth. The massive £7.2 billion investment in transport in the south-west is under way, and in the first of our new county deals, we are making progress on a major plan to give Cornwall a greater say over local decisions.

Across England, we are launching a new round of enterprise zones for smaller towns. To celebrate the Queen’s 90th birthday, a new set of prestigious regius professorships will be created in universities right across the country. To give more power to counties and to our new Mayors, we are going to give them the power to set the Sunday trading hours in their areas. Let us invest across our country, let people decide and let us put the power into the northern powerhouse.

Another key to raising the productivity of our country is building more homes and creating a fairer property market. This is a Government that are unwavering in their support for home ownership. That is why we are introducing the new Help to Buy ISA this autumn, that is why we are giving housing association tenants the right to buy and that is why we will set out further planning reforms on Friday.

Today, I will set out three important changes that will address unfairnesses in our taxation of property and put the security of home ownership first. First, we will create a more level playing field between those buying a home to let and those buying a home to live in. Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income whereas homebuyers cannot, and the better off the landlord, the more tax relief they get. For the wealthiest, for every pound of mortgage interest costs they incur, they get 45p back from the taxpayer. All this has contributed to the rapid growth in buy-to-let properties, which now account for over 15% of new mortgages, something the Bank of England warned us last week could pose a risk to our financial stability.

So we will act, but we will act in a proportionate and gradual way, because I know that many hard-working people who have saved and invested in property depend on the rental income they get. We will retain mortgage interest relief on residential property, but we will now restrict it to the basic rate of income tax. To help people to adjust, we will phase in the withdrawal of the higher rate reliefs over a four-year period, and only start withdrawal in April 2017.

Secondly, the rent-a-room relief is designed to help homeowners who rent out a room in their home. It is a good scheme, particularly in a world where more and more people are renting out rooms online, but the relief has been frozen at £4,250 for 18 years. Next year, we will raise it to £7,500.

The third change fulfils a long-standing promise that I made, and one that I was unable to fulfil in coalition. The left will never understand this, but we on the Conservative Benches know that the wish to pass something on to your children is about the most basic, human and natural aspiration there is. Inheritance tax was designed to be paid by the very rich, yet today more families are pulled into the inheritance tax net than ever before, and the number is set to double over the next five years. It is not fair and we will act.

From 2017, we will phase in a new £175,000 allowance for someone’s home when they leave it to their children or grandchildren. That sits on top of the existing £325,000 threshold, which will be fixed until the end of 2020-21. Both allowances can be transferred to a spouse or partner. From today, we will make sure that those who choose to downsize do not lose any of the allowance from the property that they used to own, but we will taper the relief away for estates worth more than £2 million.

The result for families is this: they can pass up to £1 million on to their children free of inheritance tax. No more inheritance tax on family homes: aspiration supported, the tax paid only by the rich, the security of home ownership restored—promise made; promise delivered.

The cut in inheritance tax will be more than paid for by changes which we have set out to the pensions tax relief that we give to the highest earners. From next year, their annual allowance will be tapered away to a minimum of £10,000.

Our pension reforms have given huge freedom to people who have worked hard and saved hard all their lives. Many thousands of people are, with the free guidance service we offer, making use of those freedoms to access their savings instead of buying annuities. Now it is time that we looked at the other end of the age scale—at those who are starting to save for a pension. For the truth is that Britain is not saving enough, and that is something we need to fix in our economy too.

While we have taken important steps with our new single-tier pension and generous new ISA, I am open to further radical change. Pensions could be treated like ISAs: people pay in from taxed income, it is tax free when they take it out and in between it receives a top-up from the Government. That idea, and others like it, need careful and public consideration before we take any steps, so I am today publishing a Green Paper that asks questions, invites views and takes care not to prejudge the answer. Our goal is clear: we want to move from an economy built on debt to an economy built on the more secure and productive foundations of saving and long-term investment.

If Britain wants to produce more, it needs to invest more. Many small and medium-sized businesses have benefited from our enhanced annual investment allowance. The allowance was set at £100,000 when we came to office. It is higher now, but without action it will fall to just £25,000 at the end of the year. That would especially hit middle-sized companies in areas such as manufacturing and agriculture, which we want to do more to build up in Britain, so I can confirm that the annual investment allowance will not fall to £25,000, but will be set at £200,000 this year and in every single year. That is a major, permanent boost to the incentives for long-term investment by small and medium-sized firms in Britain.

The large reductions in tax on North sea oil and gas that I announced in March are going ahead, and today we broaden the types of investment that qualify for allowances. Now that we have a long-term framework for investment in renewable energy in place, we will remove the outdated climate change levy exemption for renewable electricity that has seen taxpayer money benefiting electricity generation abroad.

We cut corporation tax from 28% to 20% over the last Parliament—one of the biggest boosts British business has ever seen. We cannot take it lower than that while such strong incentives are created for people to self-incorporate and pay the lower rates of tax due on dividends. The dividend tax system was designed partly to offset double taxation on profits, but the system has not changed despite sharp reductions in corporation tax. Lower rates are rapidly creating opportunities for tax planning. Irreparable damage was done when a previous Chancellor abolished the payable credit and deprived pension funds of billions of pounds.

We have inherited a complex and archaic system, so I am today undertaking a major and long-overdue reform to simplify the taxation of dividends. The dividend tax credit will be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers. The rates of dividend tax will be set at 7.5%, 32.5% and 38.1%—an increase of 7.5% where dividend income exceeds £5,000. Dividends paid within pensions and ISAs will remain tax free and unaffected by these changes. Those who either pay themselves in dividends or have large shareholdings worth typically over £140,000 will pay more tax; 85% of those who receive dividends will see no change or will be better off; and over a million people will see their tax cut.

That is an important reform. It comes into operation next year, and with our personal allowance and our new personal savings allowance, it means that from April, on top of the new ISA, people will be able to receive up to £17,000 of income a year tax free. The reforms that I have announced to dividend taxation also allow us to do something more, and go further in creating a Britain that is one of the most competitive economies in the world.

There are those in this House who said we were wrong to cut corporation tax in the last Parliament, but it created millions more jobs, brought businesses back to Britain and increased much-needed investment, so I profoundly disagree with them. Now at 20% for large and small businesses alike, we have the joint lowest rate of corporation tax in the G20, so there are those who say we do not need to do more. I profoundly disagree with them too. This country cannot afford to stand still while others rush ahead. I am not prepared to see that happen.

Today, I announce that I am cutting it again. Britain’s corporation tax rate will fall to 19% in 2017 and 18% in 2020. We are giving businesses lower taxes that they can count on, so that they can grow with confidence, invest with confidence and create jobs with confidence. A new 18% rate of corporation tax—sending out loud and clear the message around the world that Britain is open for business.

If we are to build a more productive economy, and our country is to live within its means, we have to make this fundamental change: we have to move Britain from a low-wage, high-tax, high-welfare society to a higher-wage, lower-tax, lower-welfare economy. For Britain is home to 1% of the world’s population, generates 4% of the world’s income, and yet pays out 7% of the world’s welfare spending. It is not fair to the taxpayers who are paying for it, and it needs to change.

Welfare spending is not sustainable and it crowds out spending on things such as education and infrastructure that are vital to securing the real welfare of the people. We legislated for savings of over £21 billion in the last Parliament, capped benefits for out-of-work families and started to introduce universal credit. Universal credit will transform the lives of those trapped in welfare dependency and deliver real social justice. It is the result of the Herculean efforts of my right hon. Friend the Secretary of State for Work and Pensions.

However, to live within our means as a country and better protect spending on public services, we need to find at least a further £12 billion of welfare savings. Let me set out the principles that we will follow and how they will be applied. First, the welfare system should always support the elderly, the vulnerable and disabled people. We will honour the commitments that we made to uprate the state pension by the triple lock and protect the other pensioner benefits. The BBC has agreed to take on responsibility for funding free TV licences for the over-75s. In return, we are able to give our valued public broadcaster a sustainable income for the long term.

In the last Parliament, we increased payments to the most disabled people, and we will not tax or means-test disability benefits. We will increase funding for domestic abuse victims and women’s refuge centres. We are also going to use the remaining funds available in our Equitable Life payment scheme, as it closes, to double the support that we give to those policyholders on pension credit who need this extra help most.

The second principle we will apply is that those who can work will be expected to look for work and take it when it is offered. The best route out of poverty is work. Our economic plan has created a record number of jobs, and now a third of a million fewer children are being brought up in workless families.

It is not acceptable that in an economy moving towards full employment, some young people leave school and go straight on to a life on benefits, so for those aged 18 to 21 we are introducing a new youth obligation that says that they must either earn or learn. We are also abolishing the automatic entitlement to housing benefit for 18 to 21-year-olds. Exceptions will be made for vulnerable people and other hard cases, but young people in the benefits system should face the same choices as other young people who go out to work and cannot yet afford to leave home.

To make sure that work pays for parents, I confirm that from September 2017 all working parents of three and four year-olds will receive free childcare of up to 30 hours a week. Once again: a promise made; a promise delivered. As a result, we now expect parents—including lone parents—with a youngest child aged three to look for work if they want to claim universal credit. That is all part of our progressive goal of securing full employment in Britain.

We also want to increase employment among those who have health challenges but are capable of taking steps back to work. The employment and support allowance, introduced by the last Labour Government, was supposed to end some of the perverse incentives in the old incapacity benefit, but instead it has introduced new ones. One of those is that those who are placed in the work-related activity group receive more money a week than those on jobseeker’s allowance, but get nothing like the help to find suitable employment. The number of JSA claimants has fallen by 700,000 since 2010, while the number of incapacity benefits claimants has fallen by just 90,000. That is despite 61% of claimants on the ESA WRAG benefit saying that they want to work. Therefore, for future claimants only, we will align the ESA WRAG rate with the rate of jobseeker’s allowance. No current claimants will be affected by that change, and we will provide new funding for additional support to help claimants return to work.

The third principle that we apply to welfare is this: the whole working-age benefit system has to be put on a more sustainable footing. In 1980, working-age welfare accounted for 8% of all public spending. Today it is 13%. The original tax credit system, introduced by the last Labour Government, cost £1.1 billion in its first year. This year, that cost has reached £30 billion. We in Britain spend more on family benefits than Germany, France or Sweden—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Both sides of the House have been very well behaved so far, so let us not spoil it as we get towards the end. I want the same dignity to be given to other speakers.

[Mr Osborne]

We in Britain spend more on family benefits than Germany, France or Sweden. It is, in the words of the right hon. Member for Birkenhead (Frank Field), the new Chair of the Work and Pensions Committee, simply “not sustainable”. As Alistair Darling has said, the sheer scale of tax credits is

“subsidising lower wages in a way that was never intended.”

Those who oppose any savings to tax credits will have to explain how on earth they propose to eliminate the deficit, let alone run a surplus and pay down debt.

We will take the following steps to put working-age benefits on a more financially sustainable footing. Since the crash, average earnings have risen by 11%, but most benefits have risen by 21%. To correct that, we will legislate to freeze working-age benefits for four years. That will include tax credits and local housing allowance, and it means that earnings growth will catch up and overtake the growth in benefits. Statutory payments such as maternity pay and the disability benefits—personal independence payment, disability living allowance and employment and support allowance group—will be excluded from the freeze.

We are also going to end the ratchet of ever higher housing benefit chasing up ever higher rents in the social housing sector. Those rents have increased by a staggering 20% since 2010. Rents paid in the social housing sector will not be frozen, but reduced by 1% a year for the next four years. That will be a welcome cut in rent for those tenants who pay it, and I am confident that housing associations and other landlords in the social sector will be able to play their part and deliver the efficiency savings needed.

We also need to focus tax credits and universal credit on those on lower incomes, if we are to keep the whole system affordable and support those most in need. From next year, we will reduce the level of earnings at which a household’s tax credits and universal credit start to be withdrawn. The income threshold in tax credits will be reduced from £6,420 to £3,850. Universal credit work allowances will be similarly reduced, and will no longer be awarded to non-disabled claimants without children. The rate at which a household’s tax credit award is reduced as it earns more will be increased by raising the taper rate to 48%. The income rise disregard will be reduced from £5,000 to £2,500—the same level at which it was originally set in 2003. Taken all together, the freeze in working-age benefits, the down-rating of social rents, and the focus of tax credits and universal credit on the lowest income households will reduce the welfare bill by £9 billion a year by 2019-20.

The fourth principle that we will apply to our welfare reform is this: the benefits system should not support lifestyles and rents that are not available to the taxpayers who pay for that system—[Interruption.]

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[Mr Deputy Speaker]

Order. This House will come to order. It may not be important to some Members, but it is to the rest of us and our constituents. I want to hear what the Chancellor says because it affects all the people we represent.

[Mr Osborne]

The benefits system should not support lifestyles and rents that are not available to the taxpayers who pay for that system—[Interruption.]

[Mr Deputy Speaker]

Order. Mr Gwynne, your constituents and mine need to hear this.

[Mr Osborne]

We have already introduced a cap on the total amount of benefits that any out-of-work family can receive at £26,000. When we introduced that, it was opposed by Labour Members who said that it would drive tens of thousands of people out of their homes. Instead it encouraged tens of thousands into work. We will now go further, and reduce the benefits cap from £26,000 to £23,000 in London, and to £20,000 in the rest of the country. We will also require those on higher incomes living in social housing to pay rents at the market rate. It is not fair that families earning over £40,000 in London, or £30,000 elsewhere, should have their rents subsidised by other working people. We will turn support for mortgage interest payments from a benefit to a loan.

Another decision that most families make is how many children they have, conscious that each extra child costs the family more. In the current tax credit system, each extra child brings an additional payment of £2,780 a year. It is important to support families, but it is also important to be fair to the many working families who do not see their budgets rise by anything like that when they have more children. This is the balance that we will strike: in future we will limit the support provided through tax credits and universal credit to two children. Families who have a third or subsequent child after April 2017 will not receive additional tax credit or UC support for that child. Support provided to families who make a new claim for universal credit—[Interruption.]

[Mr Deputy Speaker]

Order. We seem to have a little problem with the gang of three on the Opposition Benches. I believe that we need to hear the Chancellor. This measure will affect my constituents and yours. I want to listen—I think it important that we all listen.

[Mr Osborne]

Families who have a third or subsequent child after April 2017 will not receive additional tax credit or UC support for that child. Support provided to families who make a new claim to universal credit after that date will also be limited to two children, and we will make similar changes to housing benefit. There will be provisions for exceptional cases, including multiple births. In addition, those starting a family after April 2017 will no longer be eligible for the family element in tax credits, nor will new births and new claims be eligible for the first child premium in universal credit. We will make similar changes to housing benefit by removing the family premium for children born or claims made after April 2016. That approach means that no family sees a cash loss and, as promised, child benefit will be maintained. These changes to tax credits are not easy but they are fair, and they return tax credit spending to the level it was in 2007-08 in real terms.

When we came to office in 2010 this country had reached the point where a benefit that was intended to support lower income households was instead available to nine out of 10 families in this country. Now, our properly focused reformed tax credit system will provide support to five out of 10 families; a much more sustainable balance in our welfare system. Taken together, all the welfare reforms I have announced will save £12 billion by 2019-20 and will be legislated for in the year ahead, starting in the welfare reform and work Bill which will be published tomorrow.

We are moving Britain from a high welfare, high tax economy to a lower welfare, lower tax society. The best way to support working people is to let them keep more of the money they earn. We promised the British people at the election that we would introduce a tax lock to prohibit any increase in the main rates of income tax, national insurance and VAT for the next five years. We will not only keep that promise, but legislate for it in the coming weeks. Our priority is not to raise taxes on working people; it is to cut their taxes.

In the previous Parliament, we raised the tax-free personal allowance from the £6,500 left by the previous Labour Government to £10,600, taking almost 4 million of the lowest paid out of tax altogether. When we went to the British people this May, we said we would go much further. Our two commitments were these: we would raise the tax free personal allowance to £12,500, so that no one working 30 hours a week on the national minimum wage pays tax; and we would raise the threshold at which people pay the higher 40p rate of tax to £50,000. These were our priorities at the election and they are the priorities in this Budget, for we on this side deliver what we promise.

The rates of income tax in the Budget remain unchanged, but the thresholds do not. Today, I am taking the first major step towards delivering our promise: I am raising the tax-free personal allowance to £11,000 next year. That is £11,000 one can earn before paying any income tax at all, boosting wages by over £900 in total and a down payment on our goal of reaching £12,500. We will now legislate, so that after that the personal allowance will always rise in line with the minimum wage and we never ask the lowest paid in our society to pay income tax.

The higher rate threshold currently stands at £42,385. I am today raising it to £43,000 from next year. It marks a strong start to our commitment to raise the threshold to £50,000 and it will lift 130,000 people out of the higher rate of income tax altogether. A personal allowance of £11,000 and a higher rate threshold of £43,000: 29 million people paying less tax; a down payment for a country on the up.

I began this Budget statement by saying that I put security first. I have set out the steps we will take to deliver economic security for a country that lives within its means and a welfare system we can afford, but there is also the financial security of families and the national security of our country. I turn to that now.

The Prime Minister and I are not prepared to see the threats we face to both our country and our values go unchallenged. Britain has always been resolute in defence of liberty and the promotion of stability around the world. With this Government, it will always remain so. So today I commit additional resources to the defence and security of the realm. We recognise that in the modern world, the threats we face do not distinguish between different Whitehall budgets and nor should we. I will guarantee a real increase in the Defence budget every year and, on top of that, create a joint security fund of £1.5 billion a year by the end of the Parliament. Defence and intelligence services will have to demonstrate they are delivering real efficiency. The strategic defence and security review will allocate the money in the most effective way. I am also protecting our overall counter-terrorism effort, and I reaffirm our international aid budget that saves lives and supports our values around the world.

I said that this was a Budget that delivered security to the people of Britain and I said we had to choose our priorities. Well, today, this Government makes this choice: committing to our armed forces who fight to keep us free; committing to the intelligence agencies who keep us safe; committing to the values we hold dear and defend around the world; and committing today to meet the NATO pledge to spend 2% of our national income on defence, not just this year but every year of this decade. We will ensure that this commitment is properly measured, because we know that while those commitments do not come cheap the alternatives are far more costly.

Let me turn to the final measure of the Budget, which speaks to the values of this Government. We have been clear that we want Britain to move from a low wage, high tax, high welfare economy to a higher wage, lower tax, lower welfare society. I have set out my plans to move us to lower welfare and lower taxes. That leaves us with the challenge of higher wages. It cannot be right that we go on asking taxpayers to subsidise, through the tax credit system, the businesses who pay the lowest wages. Subsidised low pay contributes to our productivity problem and Conservatives are against unfair subsidies wherever we find them.

In the past five years, we have taken the tough choices to drive down our borrowing, to make our business taxes competitive and to reform welfare. It is because we have taken these difficult decisions, and overcome the opposition to them, that Britain is able to afford a pay rise. Let me be clear: Britain deserves a pay rise and Britain is getting a pay rise. I am today introducing a new national living wage. We will set it to reach £9 an hour by 2020. The new national living wage will be compulsory. Working people aged 25 and over will receive it. It will start next April at the rate of £7.20. The Low Pay Commission will recommend future rises that achieve the Government’s objective of reaching 60% of median earnings by 2020. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Mr Buckland, you should know better. Don’t get carried away—there’s more to come! We’ve not quite finished yet.

--- Later in debate ---

[Mr Osborne]

Mr Deputy Speaker, let me repeat myself, because I do not think the Opposition heard it. Britain deserves a pay rise and Britain is getting a pay rise. I am today introducing a new national living wage. The Low Pay Commission will recommend future rises that achieve the Government’s objective of reaching 60% of median earnings by 2020. That is the minimum level of pay recommended in the report to the Resolution Foundation by Sir George Bain, the man the last Labour Government appointed as the first chair of the Low Pay Commission.

Let me address the impact on business and employment. The Office for Budget Responsibility today says that the new national living wage will have, in their words, only a “fractional” effect on jobs. The OBR has assessed the economic conditions of the country and all the policies in the Budget. It says that by 2020 there will be 60,000 fewer jobs as a result of the national living wage, but almost 1 million more jobs in total. It also estimates that the cost to business will amount to just 1% of corporate profits. To offset that, I have cut corporation tax to 18%. To help small firms, I will go further now and cut their national insurance contributions. From 2016, our new employment allowance will now be increased by 50% to £3,000. That means a firm will be able to employ four people full time on the national living wage and pay no national insurance at all.

Let me be clear on what this means for the low paid in our country: two and a half million people will get a direct pay rise. Those currently on the minimum wage will see their pay rise by over a third this Parliament, a cash increase for a full-time worker of over £5,000. In total, it is expected that 6 million people will see their pay increase as a consequence. Taken together with all the welfare savings and the tax cuts in this Budget, it means that a typical family, where someone is working full time on the minimum wage, will be better off.

This is the first Conservative Budget for 18 years. It was the Conservatives who first protected working people in the mills. It was the Conservatives who took great steps towards state education. It was the Conservatives who introduced equal votes for women. It was the Conservatives who gave working people the right to buy. So, of course, it is now the Conservatives who are transforming welfare and introducing the national living wage. This is the party for the working people of Britain.

The Budget today puts security first: the economic security of a country that lives within its means; the financial security of lower taxes and a new national living wage; the national security of a Britain that defends itself and its values. A plan for working people. One purpose, one policy, one nation.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I now call upon the Chancellor of the Exchequer to move the motion entitled “Amendment of the Law”. It is on this motion that the debate will take place today and on the succeeding days. The remaining motions will be put at the end of the Budget debate on 14 July.

Financial Statement

Debate between George Osborne and Lindsay Hoyle

Wednesday 18th March 2015 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

Today I report on a Britain that is growing, creating jobs and paying its way. We made difficult decisions in the teeth of opposition, and it worked: Britain is walking tall again.

Five years ago, our economy had suffered a collapse greater than that suffered by almost any other country. Today I can confirm that in the last year we have grown faster than any other major advanced economy in the world. Five years ago, millions of people could not find work. Today I can report that more people have jobs in Britain than ever before. Five years ago, living standards were set back years by the great recession. Today the latest projections show that living standards will be higher than they were when we came to office. Five years ago, the deficit was out of control. Today, as a share of national income, it is down by more than a half. Five years ago, they were bailing out the banks. Today I can tell the House that we are selling more bank shares and getting taxpayers’ money back. We set out a plan, that plan is working, and Britain is walking tall again.

So the critical choice facing the country now is this: do we return to the chaos of the past or do we say to the British people, “Let’s go on working through the plan that is delivering for you”? Today we make that critical choice: we choose the future. We choose, as the central judgment of this Budget, to use whatever additional resources we have to get the deficit and the debt falling. No unfunded spending, no irresponsible extra borrowing; for no short-term give-away can ever begin to help people as much as the long-term benefits of a recovering national economy. In the emergency Budget I presented to this House five years ago, I said we would turn Britain around, and in this last Budget of the Parliament, we will not waver from that task, because we choose the future.

Our goal is for Britain to become the most prosperous major economy in the world, with that prosperity widely shared. So we choose economic security. This Budget commits us to the difficult decisions to eliminate our deficit and get our national debt share falling. We choose jobs. This Budget does more to back business and make work pay, so we create full employment. We choose the whole nation. This Budget makes new investments in manufacturing and science and the northern powerhouse for a truly national recovery. We choose responsibility. This Budget takes further action to support savers and pensioners. We choose aspiration. This Budget backs the self-employed, the small business owner and the home buyer. We choose families. This Budget helps hard-working people keep more of the money they have earned. This is a Budget that takes Britain one more big step on the road from austerity to prosperity. We have a plan that is working, and this Budget works for you. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I am struggling to hear what the Chancellor of the Exchequer is saying. I am sure that all Members in the House want to hear the Chancellor; but, more importantly, so do our constituents.

[Mr Osborne]

The British economy is fundamentally stronger than it was five years ago, and that is reflected in the latest forecasts from the Office for Budget Responsibility. It seems remarkable that until this Government came to office, our national forecasts were manipulated by Chancellors, to be fiddled and fixed in pre-election Budgets. Today they are produced with independence and integrity by Robert Chote and his team, and I want to thank them for their work. The OBR confirms today that, at 2.6%, Britain grew faster than any other major advanced economy in the world last year. That is 50% faster than Germany, three times faster than the eurozone and seven times faster than France. There are some who advise us to abandon our plan and pursue the French approach. I prefer to follow the advice of the secretary-general of the OECD, which he gave to us all last month. He said:

“Britain has a long term economic plan”

and

“it needs to stick with it.”

“A long-term economic plan”—now there’s someone with a way with words. We need to stick with that plan, at a time when global economic risks are rising.

The biggest development since the autumn statement has been the further sharp fall in the world oil price. This is positive news for the global economy, but the overall boost this provides has not yet offset the rising geopolitical uncertainty it causes, and the eurozone continues to stagnate. So at this Budget, the OBR has once again revised down the growth of the world economy, revised down the growth of world trade and revised down the prospects for the eurozone. It warns us that the current stand-off with Greece could be very damaging to the British economy. I agree with that assessment. A disorderly Greek exit from the euro remains the greatest threat to Europe’s economic stability. It would be a serious mistake to underestimate its impact on the UK, and we urge our Eurozone colleagues to resolve this growing crisis.

The problems in Europe remind us why Britain needs to expand our links with the faster growing parts of the world. We have made major progress in this Parliament. I can report that the trade deficit figures published last week are the best for 15 years, and we will do even more, so today I am again increasing UK Trade & Investment’s resources to double the support for British exporters to China. We have also decided to become the first major western nation to become a prospective founding member of the new Asian Infrastructure Investment Bank, because we think we should be present at the creation of these new international institutions.

Mr Deputy Speaker, you would expect weaker world growth, weaker world trade and weaker European growth to lead to weaker growth here in the UK. However, the OBR has not revised down Britain’s economic forecasts; it has revised them up. A year ago, it forecast growth in 2015 at 2.3%. In the autumn statement, that was revised up to 2.4%. Today I can confirm that GDP growth this year is forecast to be higher still, at 2.5%. It is also revised up next year, to 2.3%. That is where it remains for the following two years, before reaching 2.4% in 2019.

The OBR reports growth revised up, and its numbers confirm that growth is broadly based, for we are replacing the disastrous economic model we inherited. Between 1997 and 2010, investment accounted for less than one fifth of Britain’s economic growth—four fifths came from debt-fuelled household consumption. Meanwhile, manufacturing halved as a share of our national economy, and the gap between the north and the south grew ever larger.

I can report that since 2010 business investment has grown four times faster than household consumption; Britain’s manufacturing output has grown more than four and a half times faster than it did in the entire decade before the crisis; and over the last year, the north grew faster than the south. We are seeing a truly national recovery.

Let me turn now to the rest of the forecasts. This morning we saw the latest job numbers. It is a massive moment. Britain has the highest rate of employment in its history—a record number of people in work and more women in work than ever before—and the claimant count rate is at its lowest since 1975. For years, Governments have talked about full employment. This Government are moving towards achieving it.

Unemployment today has fallen by another 100,000, and compared with the autumn statement, the OBR now expects unemployment this year to be even lower. It is set to fall to 5.3%, down almost a whole three percentage points from the rate we inherited from the last Government. When we set out our plan, the Leader of the Opposition predicted that a million jobs would be lost. Instead, over 1.9 million new jobs have been gained, because our long-term plan is based on the premise that if we provide economic stability, if we reform welfare and make work pay, and if we back business, then we will create jobs too. Today’s figures show that under this Government 1,000 more jobs have been created every single day. The evidence is plain to see: Britain is working again.

What about all those who say, “The jobs aren’t real jobs; they’re all part-time; they’re all in London”? Nonsense. How many of the jobs are full time? Eighty per cent. How many of the jobs are in skilled occupations? Eighty per cent. Where is employment growing fastest? In the north-west of England. Where is a job being created every 10 minutes? In the midlands. Which county has created more jobs than the whole of France? The great county of Yorkshire. We are getting the whole of Britain back to work with a truly national recovery.

It is only by growing our economy, dealing with our debts and creating jobs that we can raise living standards. To the question whether people are better off at the end of this Parliament than they were five years ago, we can give the resounding answer yes. We can measure it by GDP per capita, and the answer is, yes, it is up by 5%. Or we can use the most up-to-date and comprehensive measure of living standards, which is real household disposable income per capita—in other words, how much money families have to spend after inflation and tax. This is the living standards measure used by the Office for National Statistics and by the OECD. On that measure, I can confirm that, on the latest OBR data today, living standards will be higher in 2015 than in 2010. They confirm that they are set to grow strongly every year for the rest of the decade.

The British people for years paid the heavy price of the great recession. Now the facts show that households on average will be about £900 better off in 2015 than they were in 2010—and immeasurably more secure for living in a country whose economy is not in crisis any more, but is instead growing and creating jobs.

Because we have strong growth and a strong economy, we can also afford real increases in the national minimum wage. This week we accept the recommendations of the Low Pay Commission that the national minimum wage should rise to £6.70 this autumn, on course for a minimum wage that, as the Prime Minister just said, will be over £8 by the end of the decade. And we have agreed the biggest increase ever in the apprentice rate. It is the oldest rule of economic policy: it is the lowest paid who suffer most when the economy fails and it is the lowest paid who benefit when you turn that economy around.

Household incomes also go further because we now have the lowest inflation on record. The OBR today revises down its forecast for inflation this year to just 0.2%, and revises it down for the following three years. It is driven by falling world oil and food prices, not by the kind of stagnation we have seen on the continent. But we will remain vigilant.

I am today confirming that the remit of the Monetary Policy Committee for the coming year remains the 2% symmetric CPI inflation target. I am also confirming the remit for our new Financial Policy Committee, so that this time we spot the financial risks in advance.

The fall in food prices is good for families, but it reminds us of the challenge our farmers face from volatile markets. The National Farmers Union has long argued they should be allowed to average their incomes for tax purposes over five years. I agree and in this Budget we will make that change.

We will also use this opportunity to lock in the historically low interest rates for the long term. I can tell the House that we will increase the number of long-dated gilts that we will sell. We will also redeem the last remaining undated British Government bonds in circulation. We will have paid off the debts incurred in the South Sea bubble, the first world war, the debt issued by Henry Pelham, George Goschen and William Gladstone; the debt issued by Gordon Brown will take a little longer to pay off. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We want to get through this Budget. The sooner we get through it, the better, and then we can debate it.

[Mr Osborne]

Since the pound goes further these days, now is a good time to confirm the design of the new £1 coin. Based on the brilliant drawing submitted by 15-year-old David Pearce, a school pupil from Walsall, the new 12-sided pound coin will incorporate emblems from all four nations—for we are all part of one United Kingdom.

I now turn to the national debt. Lower unemployment means less welfare. Compared with the autumn statement, welfare bills are set to be an average of £3 billion a year lower. Lower inflation means lower interest charges on Government gilts: those interest charges are now expected to be almost £35 billion lower than just a few months ago.

Rising unemployment and compounding debt interest contributed to our national debt problem, but they were not the only cause. The previous Government increased debt by £192 billion bailing out the banks and sent the national debt rocketing up by a third.

We have already sold the branches of Northern Rock and raised £9 billion from Lloyds shares. Now we go further. Today I can announce that we are launching a sale of £13 billion of the mortgage assets we still hold from the bailouts of Northern Rock and of Bradford & Bingley. Lloyds bank has returned to profit and is paying a dividend, so we can continue our exit from that bailout, too. We will sell at least a further £9 billion of Lloyds shares in the coming year. The previous Government put taxpayers’ money into the banks and this Government are getting it back.

The bank sales, the lower debt interest and the lower welfare bills present us with a choice. We could treat them as a windfall, even though we know the public finances need further repair. With an election looming, some of my immediate predecessors may have been tempted to do this, but that would be deeply irresponsible. We would be spending money we did not really have and racking up borrowing that our country could not afford. We would be repeating all the mistakes of the last Government instead of fixing those mistakes.

Today, the central judgment of this Budget is this: we will use the resources from the bank sales and the lower interest payments and the lower welfare bills to pay down the national debt. We put economic security first, for higher national debt leaves our nation exposed, harms potential growth and costs taxpayers billions of pounds in debt interest. That would be throwing away billions of pounds we should be using to fund our public services and lower taxes.

Five years ago, national debt was soaring. That was why in my first Budget I set a target that we would have the national debt falling as a share of GDP by 2015-16, the last year of this Parliament. The eurozone crisis made that task here at home all the more difficult and for much of the past five years it looked like we might fall short. The Leader of the Opposition confidently predicted we would fail and the shadow Chancellor repeated that prediction last week, but I can announce to the House that the hard work and sacrifice of the British people has paid off. The original debt target I set out in my first Budget has been met. We will end this Parliament with Britain’s national debt share falling. The sun is starting to shine and we are fixing the roof.

The OBR reports today that debt as a share of GDP falls from 80.4% in 2014-15 to 80.2% in 2015-16. It keeps falling to 79.8% in 2016-17, then down to 77.8% the following year, and to 74.8% in 2018-19 before it reaches 71.6% in 2019-20.

National debt as a share of our national income has been increasing every single year since 2001. Those 13 years amount to the longest year-on-year rise in our national debt since the end of the 17th century. Today we bring that shameful record of irresponsibility to an end and make sure we pay down our national debt. There is a consequence for our fiscal plans. As the national debt share is falling a year earlier than forecast at the autumn statement, the squeeze on public spending ends a year earlier too.

In the final year of this decade, 2019-20, public spending will grow in line with the growth of the economy. We can do that while still running a healthy surplus to bear down on our debt—a state neither smaller than we need nor bigger than we can afford. For those interested in the history of these things, that will mean state spending as a share of our national income of the same size as Britain had in 2000. That is the year before spending got out of control and the national debt started its inexorable rise.

When we came to office, the deficit stood at more than 10% of our national income, one of the highest of any major advanced economy and the largest in our peacetime history. The IMF says we have achieved the largest, most sustained reduction in our structural deficit of any major economy. Today, the OBR confirms that it now stands at less than half of the deficit we inherited, but at 5% this year, it is still far too high and it must come down. With our plan, it does. The deficit falls to 4% in 2015-16, then down to 2% the following year and down again to 0.6% the year after that. The deficit is lower in every year than at the autumn statement.

In 2018-19, Britain will have a budget surplus of 0.2%, followed by a forecast surplus of 0.3% in 2019-20. We will also comfortably meet our fiscal mandate and Britain will be running a surplus for the first time in 18 years. That leads to borrowing. Every one of the borrowing numbers is lower than at the autumn statement. We inherited annual borrowing of over £150 billion from the last Government. This year borrowing is set to fall to £90.2 billion, £1 billion lower than expected at the autumn statement. It falls again in 2015-16 to £75.3 billion, then to £39.4 billion the year after that, before falling to £12.8 billion. In total that is £5 billion less borrowing than we forecast just three months ago. In 2018-19, we reach an overall surplus of £5.2 billion, a £1 billion improvement compared with December. In 2019-20 we are forecast to run a surplus of £7 billion.

Growth is up; unemployment is down; borrowing is down in every year of the forecast; we reach a surplus—all contributing to a national debt now falling as a share of national income. Out of the red and into the black—Britain is back paying its way in the world today.

Lower borrowing and falling debt as a share of GDP will continue only with a credible plan to control public spending and welfare. As we end the Parliament, we can measure the scale of the achievement. The administrative costs of central Government will be down by 40%. We have legislated for welfare savings of over £21 billion a year, and because savings have been driven by efficiency and reform, the quality of public services has not gone down—it has gone up. Satisfaction with the NHS is rising year on year; crime is down 20%; 1 million more children attend good or outstanding schools—but the job of repairing our public finances is not done, and here is a very important point that the country needs to understand. National debt as a share of GDP is now falling and we will only keep it falling if we commit to the fiscal path set out in this Budget. If we deviate from this path, if we go slower or borrow more, the national debt share will not keep falling—it will start rising again.

After all the hard work of the British people over the past five years to reach this point, that reversal would be a tragedy. Britain is on the right track; we must not turn back. In order to deliver that falling debt share we need to achieve the £30 billion further savings that are necessary by 2017-18. I am clear exactly how that £30 billion can be achieved: £13 billion from Government Departments; £12 billion from welfare savings; and £5 billion from tax avoidance, evasion and aggressive tax planning. We have done it in this Parliament; we can do it in the next.

The distributional analysis we publish today confirms that the decisions across this Parliament mean that the rich are making the biggest contribution to deficit reduction. That has been true at every fiscal event under this Government. I said we would all be in this together and here is the proof—[Interruption.] Compared with five years ago, inequality is down, child poverty is down, youth unemployment—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We have to get to the end to hear what the Leader of the Opposition has to say. We will not do that if Members keep trying to shout the Chancellor down.

[Mr Osborne]

They do not like to hear it, Mr Deputy Speaker, but inequality is down, child poverty is down, youth unemployment is down, pensioner poverty is at its lowest level ever. The gender pay gap has never been smaller. Payday loans are capped, and zero-hours contracts regulated. Even more than that, opportunity has increased. The number of university students from disadvantaged backgrounds is at a record high, apprenticeships have doubled and there are fewer workless households than ever before. In this Budget we are providing funding for a major expansion of mental health services for children and those suffering from maternal mental illness. Those who suffer from these illnesses have been forgotten for too long. Not any more, because we stand for opportunity for all.

We have also created a fairer tax system—further proof that we are all in this together. The share of income tax paid by the top 1% of taxpayers is projected to rise from 25% in 2010 to over 27% this year. That is higher than in any one of the 13 years of the last Labour Government. We are getting more money from the people paying the top rate of tax because we understand that if you back enterprise, you raise more revenue. The House will also want to know that the lower paid 50% of taxpayers now pay a smaller proportion of income tax than at any time under the previous Government. [Interruption.] I will not accept lessons from those who impoverished the entire country and left millions of people out of work. We are delivering a truly national recovery.

In this Budget, everything we spend will be paid for, and that requires the following decisions. We have already taken steps to curb the size of the very largest pension pots, but the gross cost of tax relief has continued to rise through this Parliament, up almost £4 billion. That is not sustainable. So from next year, we will further reduce the lifetime allowance from £1.25 million to £1 million. This will save around £600 million a year. Fewer than 4% of pension savers currently approaching retirement will be affected. However, I want to ensure that those still building up their pension pots are protected from inflation, so from 2018 we will index the lifetime allowance.

We have had representations that we should also restrict the annual allowance for pensions and use the money to cut tuition fees. I have examined this proposal. It involves penalising moderately paid long-serving public servants, including police officers, teachers and nurses, and instead rewarding higher paid graduates. So I agree with most of the Opposition Front Bench that such a policy would be neither progressive nor fair, and we will not do that.

Nor will we take advice on tax evasion and avoidance from those who, in office, were the friends of the avoiders and the evaders. When we came to office, City bankers boasted of paying lower tax rates than their cleaners, the rich routinely avoided stamp duty and foreigners paid no capital gains tax. We have changed all that, and it was this Prime Minister who put tackling international tax evasion at the top of the agenda at the G8. We will now legislate for the new common reporting standard that we have got agreed around the world. Our new diverted profits tax is aimed at large multinationals that artificially shift their profits offshore. I can confirm that we will legislate for it next week and bring it into effect at the start of next month.

I am also today amending corporation tax rules to prevent contrived loss arrangements, and we will no longer allow businesses to take account of foreign branches when reclaiming VAT on overheads, making the system simpler and fairer. We will close loopholes to make sure that entrepreneurs relief is available only to those selling genuine stakes in businesses; we will issue more accelerated payments notices to those who hold out from paying the tax that is owed; and we will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies that abuse tax reliefs on travel and subsistence, while we will protect those who are genuinely self-employed. Taken together, all the new measures against tax avoidance and evasion will raise £3.1 billion over the forecast period.

I can also tell the House that we will conduct a review on the avoidance of inheritance tax through the use of deeds of variation. It will report by the autumn. We will seek a wide range of views, and we look forward to drawing on the particular expertise of the Leader of the Opposition—unless, that is, the Labour party has executed its own deed of variation by then. My right hon. Friend the Chief Secretary to the Treasury will tomorrow publish further details of our comprehensive plans for new criminal offences for tax evasion and new penalties for those professionals who assist them. Let the message go out: this country’s tolerance for those who will not pay their fair share of taxes has come to an end.

Because we seek a truly national recovery, today I also ask our banking sector to contribute more. Financial services are one of Britain’s most important and successful industries, employing people in every corner of the country. We take steps to promote competition, back FinTech and encourage new business such as global reinsurance, but as our banking sector becomes more profitable again, I believe it can make a bigger contribution to the repair of our public finances. I am today raising the rate of the bank levy to 0.21%. This will raise an additional £900 million a year. We will also stop banks deducting from corporation tax the compensation they make to customers for products they have been mis-sold, such as PPI. Taken together, these new banking taxes will raise £5.3 billion across the forecast. The banks got support going into the crisis; now they must support the whole country as we recover from the crisis.

In each Budget we have used the LIBOR fines paid by those who demonstrated the very worst values to support those who represent the very best of British values. Today I can announce a further £75 million of help. Last week’s service of commemoration reminded us all of the debt we owe to those brave British servicemen and women who served in Afghanistan. We will provide funds to the regimental charities of every regiment that fought in that conflict, and we will contribute funding to the permanent memorial to those who died there and in Iraq. In the 75th anniversary year of the battle of Britain, we will help to renovate the RAF museum at Hendon, the Stow Maries airfield and the Biggin Hill chapel memorial so that future generations can be reminded of the sacrifice of our airmen in all conflicts. We will provide £25 million to help our eldest veterans. That will include nuclear test veterans, and I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on his campaign on their behalf.

Many Members on the Government Benches have also written to me asking for support for their local air ambulances. We have backed these brilliant local charities in the past, and we do so again today, with funds for new helicopters for the Essex & Herts, East Anglian, Welsh and Scottish air ambulances, and for the Lucy air ambulance that transports children requiring urgent care. I pay tribute to many hon. Friends, including my hon. Friends the Members for Norwich North (Chloe Smith) and for Castle Point (Rebecca Harris) for their campaigns on this issue.

Our blood bike charities also do an incredible job. MPs from across the House have written to me about this campaign, and we are responding to it today by refunding the charities’ VAT. We are also setting aside £1 million to help to buy defibrillators for public places, including schools, and to support training in their use to save more lives.

Talking about people who save lives, and who sometimes sacrifice their own life to do so, we will also correct the historical injustice to the spouses of police officers, firefighters, and members of the intelligence services who lose their lives on duty. And there is additional money today to support the fight against terrorism.

The £15 million church roof fund that I set aside at the autumn statement to support church roof appeals has been heavily oversubscribed, so we are today more than trebling it. Apparently, we are not the only people who want to fix the roof when the sun is shining. Every weekend, thousands of people go out and raise sums for their local charities across Britain through sponsored events and high street collections. I am significantly extending the scheme that I introduced that allows charities to claim automatic gift aid on those donations, increasing it from the first £5,000 they raise to £8,000. That will benefit over 6,500 small charities.

We could not let the 600th anniversary of Agincourt pass without commemoration. The battle of Agincourt is, of course, celebrated by Shakespeare as a victory secured by a “band of brothers”, which is, sadly, not an option available to the Labour party. But it is, of course, when a strong leader defeated an ill-judged alliance between the champion of a united Europe and a renegade force of Scottish nationalists, so it is well worth spending £1 million to celebrate it.

Our country does not rest on its past glories. Within just 15 years we have the potential to overtake Germany and have the largest economy in Europe. Five years ago, that would have seemed hopelessly unrealistic; economic rescue was the limit of our horizons. Today, our goal is for Britain to become the most prosperous of any major economy in the world in the coming generation, with that prosperity widely shared across the country.

London is the global capital of the world and we want it to grow stronger still. Today, we confirm: new investment in transport; regeneration from Brent Cross to Croydon; new powers for the Mayor over skills and planning; and new funding for the London Land Commission to help address the acute housing shortages in the capital, for we do not pull the rest of the country up by pulling London down. Instead we will build on London’s success by building the northern powerhouse. Working across party lines, and in partnership with the councils of the north, we are this week publishing a comprehensive transport strategy for the north. We are funding the Health North initiative from the great teaching hospitals and universities there. We are promoting industries, from chemicals in the north-east to tech in the north-west. And I can today confirm agreement with the West Yorkshire Combined Authority for a new city deal.

Our agreement with Greater Manchester on an elected mayor is the most exciting development in civic leadership for a generation, with the devolution of power over skills, transport and now health budgets. I can announce today that we have reached provisional agreement to allow Greater Manchester to keep 100% of the additional growth in local business rates as we build up the northern powerhouse. For where cities grow their economies through local initiatives, let me be clear: we will support and reward them. We are also going to offer the same 100% business rate deal to Cambridge and the surrounding councils, and my door is open to other areas that want to proceed as well, for our ambition for a truly national recovery is not limited to building a northern powerhouse. We back in full the long-term economic plans we have for every region.

The midlands is an engine of manufacturing growth, so we are today giving the go-ahead to the £60 million investment in the new energy research accelerator that has been sought and confirming that the new national energy catapult will be in Birmingham. And we are going to back our brilliant automotive industry by investing £100 million to stay ahead in the race to driverless technology. To encourage a new generation of low-emission vehicles, we will increase their company car tax more slowly than previously planned, while increasing other rates by 3% in 2019-20.

We are also connecting up the south-west, with over £7 billion of transport investment, better roads, support for air links, and, I can confirm today, a new rail franchise which will bring new inter-city express trains and greatly improved rail services to the south-west. We are confirming the introduction of the first 20 housing zones that will keep Britain building, along with the extension of eight enterprise zones across Britain, with new zones in Plymouth and Blackpool, too. I congratulate my hon. Friends from those areas on their campaigns.

We are giving more power to Wales. We are working on a Cardiff city deal and we are opening negotiations on the Swansea bay tidal lagoon. The Severn crossings are a vital link for Wales. I can tell the House we will reduce the toll rates from 2018, and abolish the higher band for small vans and buses. It is a boost for the drivers of white vans—let me reassure the deputy leader of the Labour party that it will apply to pink vans, too.

The legislation devolving corporation tax to Northern Ireland passed the House of Lords yesterday and we now urge all parties to commit to the Stormont House agreement, of which it was part. In Scotland, we will continue working on the historic devolution agreement, implementing the Glasgow city deal and opening negotiations on new city deals for Aberdeen and, of course, for Inverness.

Although the falling oil price is good news for families across the country, it brings with it challenges for hundreds of thousands whose jobs depend on the North sea. Thanks to the field allowances we have introduced, we saw a record £15 billion of capital investment last year in the North sea. But it is clear to me that the fall in the oil price poses a pressing danger to the future of our North sea industry, unless we take bold and immediate action. I take that action today.

First, I am introducing, from the start of next month, a single, simple and generous tax allowance to stimulate investment at all stages of the industry. Secondly, the Government will invest in new seismic surveys in underexplored areas of the UK continental shelf. Thirdly, from next year, the petroleum revenue tax will be cut from 50% to 35% to support continued production in older fields. Fourthly, I am, with immediate effect, cutting the supplementary charge from 30% to 20%, and backdating it to the beginning of January. It amounts to £1.3 billion of support for that vital industry in the North sea. The OBR assesses that it will boost expected North sea oil production by 15% by the end of the decade. It goes without saying that an independent Scotland would never have been able to afford such a package of support. But it is one of the great strengths of our 300-year-old Union that just as we pool our resources, so we share our challenges and find solutions together—for we are one United Kingdom.

We back oil and gas, and we also back our heavy industry, such as steel and paper mills. I have listened to the engineering employers, and I will bring forward to this autumn part of our compensation for energy-intensive plants. But since we aim to be the most prosperous major economy in the coming generation, then we must support the latest insurgent industries too. So we take steps to put Britain at the forefront of the online sharing economy. Our creative industries are already a huge contributor to the British economy, and we back them again today: we make our TV and film tax credits more generous, we expand our support for the video games industry and we launch our new tax credit for orchestras. Britain is a cultural centre of the world, and with these tax changes I am determined we will stay in front. In the week after Cheltenham, we support the British racing industry by introducing a new horse race betting right. Local newspapers are a vital part of community life, but they have had a very tough time in recent years. Today, we announce a consultation on how we can provide them, too, with tax support.

Future economic success depends on future scientific success, so we will add to the financial support I announced at the autumn statement for postgraduates, with new support for PhDs and research-based masters degrees. We are also committing almost £140 million to world-class research across the UK into the infrastructure and cities of the future, and I can announce today that our national research institutes get new budget freedoms. We will also invest in what is known as the “internet of things”. This is the next stage of the information revolution, connecting up everything from urban transport to medical devices to household appliances, so should—to use a completely ridiculous example—someone have two kitchens, they will be able to control both fridges from the same mobile phone.

All these industries depend on fast broadband. We have transformed the digital infrastructure of Britain over the last five years. Over 80% of the population have access to superfast broadband and there are 6 million customers of 4G that our auction made possible. Today, we set out a comprehensive strategy so that we stay ahead. We will use up to £600 million to clear new spectrum bands for further auction, so that we improve mobile phone networks. We will test the latest satellite technology, so that we reach the remotest communities. We will provide funding for wi-fi in our public libraries, and expand broadband vouchers to many more cities, so that no one is excluded. And we are committing today to a new national ambition to bring ultrafast broadband of at least 100 megabits per second to nearly all the homes in the country, so that Britain is out in front.

We cannot create jobs without successful businesses. As well as the right infrastructure, businesses also need low, competitive taxes. In two weeks’ time, we will cut corporation tax to 20%, one of the lowest rates of any major economy in the world. There are those here who are committed to putting the rate of corporation tax up. They should know that that would be the first increase in this tax rate since 1973, and a job-destroying and retrograde step for this country to take.

Rather than increasing the jobs tax as some propose, we will go on cutting it. This April, we will abolish national insurance for employing under-21s. Next April, we will abolish it for employing a young apprentice. I can confirm today that 1 million small businesses have now claimed our new employment allowance.

From this April, we are also extending our small business rate relief and our help for the high street. In my view, the current system of business rates has not kept pace with the needs of a modern economy and changes to our town centres, and it needs far-reaching reform. Businesses large and small have asked for a major review of this tax, and this week that is what we have agreed to do.

The boost I provided to the annual investment allowance finishes at the end of the year. A better time to address that is in the autumn statement. However, I am clear from my conversations with business groups that a reduction to £25,000 would not be remotely acceptable and so it will be set at a much more generous rate. Today, I am announcing changes to the enterprise investment schemes and the venture capital trusts to ensure that they are compliant with the latest state aid rules and increasing support to high-growth companies.

Businesses, like people, want their taxes to be low. They also want them to be simple to pay. We set up the Office of Tax Simplification at the start of this Parliament, and I want to thank Michael Jack and John Whiting for their fantastic work in this regard. To support 5 million people who are self-employed and to make their tax affairs simpler, we will, in the next Parliament, abolish entirely class 2 national insurance contributions for the self-employed.

Today, we can bring simpler taxes to many more people. Some 12 million people and small businesses are forced to complete a self-assessment tax return every year. It is complex, costly and time-consuming. So, today I am announcing that we will abolish the annual tax return all together. Millions of individuals will have the information the Revenue needs automatically uploaded into new digital tax accounts. A minority with the most complex tax affairs will be able to manage their account online. Businesses will feel like they are paying a simple, single business tax, and again, for most, the information needed will be automatically received. This revolutionary simplification of tax collection will start next year, because we believe that people should be working for themselves, and not for the tax man. Tax really does not have to be taxing, and this measure spells the death of the annual tax return.

We want to help families with simpler and lower taxes, so let me turn now to duties. I have no changes to make to the duties on tobacco and gaming that have already been announced. Last year, thanks to the persistent campaigning of my hon. Friends the Members for Burton (Andrew Griffiths) and for Keighley (Kris Hopkins), I cut beer duty for the second year in a row, and the industry estimates that that helped to create 16,000 jobs. Today I am cutting beer duty for the third year in a row—taking another penny off a pint. I am also cutting cider duty by 2% to support our producers in the west country and elsewhere. To back one of the UK’s biggest exports, the duty on Scotch whisky and other spirits will be cut by 2% as well. Wine duty will be frozen. That will mean more pubs saved, jobs created, families supported, and a penny off a pint for the third year in a row.

I also want to help families with the cost of filling up a car. It is a cost that bears heavily on small businesses, too. The previous Government’s plans for a fuel duty escalator meant that taxes would rise above inflation every year. But I want to make sure that the falling oil price is passed on at the pumps, so I am today cancelling the fuel duty increase scheduled for September. Petrol is frozen again. It is the longest duty freeze in more than 20 years. It saves a family around £10 every time they fill up their car. That is £10 off a tank with the Tories.

We believe that work should pay and that families should keep more of the money they earn. When we came to office, the personal tax-free allowance stood at just £6,500. We set ourselves the goal—even in difficult times—of raising that allowance to £10,000 by the end of the Parliament, and we have more than delivered on that promise. In two weeks’ time, the allowance will reach £10,600. That is a huge boost to the incomes of working people, and one of the reasons why we have a record number of people in work. Today I can announce that we will go further. The personal tax-free allowance will rise to £10,800 next year, and then to £11,000 the year after. That is £11,000 that people can earn before paying any income tax at all. It means that the typical working taxpayer will be more than £900 a year better off. It is a tax cut for 27 million people, and means that we have taken almost 4 million of the lowest paid out of income tax all together.

As we pass on the full gains of this policy, I can make this announcement today: for the first time in seven years, the threshold at which people pay the higher tax rate will rise not just with inflation, but above inflation. It will rise from £42,385 this year to £43,300 by 2017-18. That means that an £11,000 personal allowance and an above-inflation increase in the higher rate have been delivered by a coalition Government and a Conservative Chancellor. That is a down-payment on our commitment to raise the personal allowance to £12,500 and the higher rate threshold to £50,000—it is an economic plan working for you.

In this Budget, the rate of the new transferable tax allowance for married couples will rise to £1,100, too. That is the allowance that is coming in just two weeks’ time to help more than 4 million couples. That is help that Labour would take away, but that we on this side are proud to provide.

This Budget takes another step to move Britain from a country built on debt to a country built on savings and investment. Last year I unlocked pensions with freedom for millions of savers, but there is more to do to create a savings culture. Today I announce four major new steps in our savings revolution. They are based on the principles that cutting taxes increases the return on savings, and that people should have freedom to choose how they use those savings. First, we will give 5 million pensioners access to their annuity. For many, an annuity is the right product, but for some it makes sense to access their annuity now, so we are changing the law to make that possible. From next year, the punitive tax charge of at least 55% will be abolished. Tax will be applied only at the marginal rate, and we will consult to ensure that pensioners get the right guidance and advice. That means freedom for 5 million people with an annuity.

Secondly, we will introduce a radically more flexible individual savings account. In two weeks’ time, the changes that I have already made mean that people will be able to put £15,240 into an ISA. But if they take that money out, they lose their tax-free entitlement, and so they cannot put it back in. That restricts what people can do with their own savings, but I believe that people should be trusted with their own hard-earned money. With the fully flexible ISA, people will have complete freedom to take money out, and put it back in later in the year, without losing any of their tax-free entitlement. It will be available from this autumn, and we will also expand the range of investments that are eligible.

Thirdly, we will take two of our most successful policies and combine them to create a brand new Help to Buy ISA. We do it to tackle two of the biggest challenges facing first-time buyers: the low interest rates when they build up their savings, and the high deposits required by the banks. The Help to Buy ISA for first-time buyers works like this: for every £200 they save for their deposit, the Government will top it up with £50 more. It is as simple as that. We will work hand in hand to help you buy your first home. This is a Budget that works for you. A 10% deposit on the average first home costs £15,000, so if you put in up to £12,000, we will put in up to £3,000 more. A 25% top-up is equivalent to saving for a deposit from your pre-tax income; it is effectively a tax cut for first-time buyers. We will work with industry so that it is ready for this autumn, and we will make sure that you can start saving for it right now.

So, there is access for pensioners to their annuities, a new flexible ISA, the backing of home ownership with a first-time buyer bonus—and one other reform. Today I introduce a new personal savings allowance that will take 95% of taxpayers out of savings tax altogether. From April next year, the first £1,000 of the interest earned on all savings will be completely tax-free. To ensure that higher rate taxpayers enjoy the same benefits but no more, their allowance will be set at £500. People have already paid tax once on their money when they earned it; they should not have to pay tax a second time when they save it. With our new personal savings allowance, 17 million people will see the tax on their savings not just cut, but abolished altogether—an entire system of tax collection can be scrapped. At a stroke we create tax-free banking for almost the entire population; and we build the economy on savings, not on debt.

Five years ago I had to present to this House an emergency Budget. Today I present the Budget of an economy that is stronger in every way than the one we inherited—the Budget of an economy taking another big step from austerity to prosperity. We cut the deficit, and confidence is returning. We limited spending, made work pay and backed business, and growth is returning. We gave people control over their savings and helped people own their own homes, and optimism is returning. We have provided clear and decisive economic leadership, and from the depths Britain is returning. The share of national income taken up by debt—falling; the deficit— down; growth—up; jobs—up; living standards—on the rise. Britain: on the rise. This is the Budget for Britain, the come-back country.

Provisional Collection of Taxes

Motion made, and Question put forthwith (Standing Order No. 51(2)),

That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—

(a) Alcoholic liquor duties (rates) (motion no. 27.); and

(b) Tobacco products duty (rates) (motion no. 28.).— (Mr George Osborne.)

Question agreed to.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I now call upon the Chancellor of the Exchequer to move the motion entitled “Amendment of the Law”. It is on this motion that the debate will take place today and on succeeding days. The Questions on this motion and on the remaining motions will be put at the end of the Budget debate on Monday 23 March.

The Economy and Living Standards

Debate between George Osborne and Lindsay Hoyle

Thursday 12th June 2014 Commons Chamber

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I think that the Chancellor has got the message.

[Mr Osborne]

Well, Mr Deputy Speaker, that was the definition of a cheap political pot shot, and it rather sums up the tone of Labour Members’ approach. They started with a whole spiel about new politics and having to engage with the disenchanted, but after only a few minutes, it has swiftly deteriorated.

Charter for Budget Responsibility

Debate between George Osborne and Lindsay Hoyle

Wednesday 26th March 2014 Commons Chamber

[Ed Balls]

I will make my speech on the welfare cap in a moment. I want to go back to the remark the Chancellor just made about last night’s vote. We have said that we do not think we should go ahead with the next cut in corporation tax and instead use all the money for a freeze in business rates for small businesses. Is the Chancellor really saying that large companies are business, but small businesses do not count? [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Just to remind everybody, shorter interventions would be helpful. We have 11 speakers to follow and I know the Front Benchers are desperate to hear the Back Benchers.

[Mr Osborne]

We are particularly keen to hear the Labour Back Benchers.

--- Later in debate ---

[Mr Deputy Speaker]

It is up to the Chancellor to give way.

[Mr Osborne]

If the right hon. Gentleman has something useful to say, let us hear it.

Financial Statement

Debate between George Osborne and Lindsay Hoyle

Wednesday 19th March 2014 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

I can report today that the economy is continuing to recover, and recovering faster than forecast. We set out our plan, and together with the British people we held our nerve. After the mess we were left, we are putting Britain right, but the job is far from done. Our country still borrows too much; we still do not invest enough, export enough or save enough, so today we do more to put that right.

This is a Budget for building a resilient economy. If you are a maker, a doer or a saver, this Budget is for you. It is all part of a long-term economic plan—a plan that is delivering security for the people of this country. I have never shied away from telling the British people about the difficult decisions we face, and just because things are getting better, I do not intend to do so today. Yes, the deficit is down by a third, and now in the coming year it will be down by a half, but it is still one of the highest in Europe, so today we take further action to bring it down.

Yes, investment and exports are up, but Britain has 20 years of catching up to do, so today we back businesses who invest and export. Yes, manufacturing is growing again, as my hon. Friend the Member for Pendle (Andrew Stephenson) just reminded us, and jobs are being created across the country, but manufacturing halved under the last Government, with all bets on the City of London. So today, we support manufacturers and back all regions of our country. While as a nation we are getting on top of our debts, for many decades Britain has borrowed too much and saved too little, so in this Budget we make sure hard-working people keep more of what they earn and more of what they save.

Yesterday we set out our support for parents with tax-free child care. Today support for savers is at the centre of this Budget, as we take another step towards our central mission: economic security for the people of Britain.

Let me turn to today’s forecasts from the Office for Budget Responsibility. I am grateful to Robert Chote, Steve Nickell and their team, and thank Graham Parker for agreeing to serve with them for another term. It is a credit to the OBR that we now take it for granted that the figures presented at this Dispatch Box are not fiddled but fair and independent. A year ago at the Budget, the OBR forecast the economy to grow by just 0.6% in 2013. It now confirms that it grew by three times as much. At the autumn statement, it significantly revised up its expectations for future growth. Today I can tell the House it is revising up its forecast again. A year ago, it predicted that growth in 2014 would be 1.8%; at the autumn statement, 2.4%; today, the OBR forecasts growth in 2014 of 2.7%. That is the biggest upward revision to growth between Budgets for at least 30 years. Growth next year is also revised up, to 2.3%; then, it is 2.6% in 2016 and 2017; and with the output gap closed around a year earlier than previously predicted, growth returns to around its long-term trend, at 2.5%, in 2018. Taken together, these growth figures mean our economy will be £16 billion larger than was forecast just four months ago.

There is another prediction the OBR makes today that the House will want to know about. Six years ago, Britain suffered a great recession. We had the biggest bank bail-out in the world. We had the biggest deficit since the war. We suffered the deepest recession in modern times—or as the shadow Chancellor put it, some mistakes were made. But later this year the OBR expects Britain to reach the point when our economy is finally larger than before it collapsed six years ago. That is because we are now growing faster than Germany, faster than Japan, faster than the United States—in fact, there is no major advanced economy in the world growing faster than Britain today.

But we should be alert to the risks. The euro area is slowly recovering, but as the OBR cautions today,

“further damaging instability remains possible”.

There is volatility in emerging markets, and while for now the OBR does not expect the situation in Ukraine to have a “large impact” on us, it does warn that an escalation risks higher commodity prices, higher inflation and lower growth. It is a reminder of why we need to build our economy’s resilience.

At home, the biggest risk is clear: abandoning the economic plan that is working. And nowhere is the success of that plan more evident than in job creation. Today again we are reminded that the most important consequence of our plan is more people in work, with each job meaning a family more secure. Some in this House predicted that our plan meant a million jobs would be lost. They were spectacularly wrong. The pace of net job creation under this Government has been three times faster than in any other recovery on record: 1.3 million more people in work. The latest figures today show a staggering 24% fall in the claimant count in just one year, and the fastest fall in the youth claimant count since 1997. The OBR now forecasts one and a half million more jobs over the next five years and unemployment down from the 8% we inherited to just over 5%., and the OBR predicts earnings will grow faster than inflation this year and in every year of the forecast. That is why the country can afford a real-terms increase in the national minimum wage. This is a Government whose plan is delivering jobs. We now have a record number in work; a record number of women in work; and for the first time in 35 years, a higher employment rate than the United States of America. That is what we mean when we say we are getting Britain working.

There can be no economic security if there is no control of the public finances. Before I presented my first Budget to this House, the Government were borrowing £1 in every £4 they spent, and we were faced with the threat of a sovereign debt crisis. We have taken difficult decisions, each and every one of which was opposed. But thanks to those decisions, the IMF now says that we are achieving the largest reduction in both the headline and the structural deficits of any major advanced economy in the world. There were those who said repeatedly that the deficit was going to go up. Instead, I can tell the House that the OBR has revised down the underlying deficit in every year of its forecast. Before we came to office the deficit was 11%. This year it says it will be 6.6%—lower than forecast and down a third; next year, 5.5%—down a half; then it will fall to 4.2%, 2.4% and reach 0.8% in 2017-18. In 2018-19, it is forecasting no deficit at all; instead, at plus 0.2%, a small surplus. But only if we work through the plan.

The Government’s fiscal mandate is met, and continues to be met a year early, yet while the underlying structural deficit falls, it falls no faster than was previously forecast, despite higher growth. This goes to the heart of the argument this Government have made: faster growth alone will not balance the books. Securing Britain’s economic future means there will have to be more hard decisions—more cuts. The question for the British people is: who has the credibility to deliver them?

Let me turn to the underlying cash borrowing numbers. Britain was borrowing £157 billion a year before we came to office. This year we expect to borrow £108 billion. That is £12 billion less than forecast a year ago. Indeed, even since the autumn statement the OBR has revised down borrowing in every single year. In 2014-15 it says it will fall to £95 billion. Then it falls again to £75 billion in 2015-16, then £44 billion, and then down to £17 billion. In 2018-19 we will not be borrowing at all—we will have a small surplus of £5 billion.

Taken together, these new figures mean Britain will be borrowing £24 billion less than was forecast. That is more than we spend in an entire year on the police and criminal justice system. Lower borrowing and a smaller deficit mean less debt. While we meet the debt target one year late as before, the OBR has revised down national debt in every single year of the forecast. It expects it to be 74.5% of GDP this year, 77.3% next year, peaking at 78.7% in 2015-16—lower than the 80% previously forecast—before falling to 78.3% in 2016-17, then falling to 76.5% and then 74.2% in 2018-19.

So, growth is up, the deficit is set to halve, debt is lower. and the biggest single saving of all is a £42 billion reduction in the interest payments we will have to make on that debt, saving every family in the nation the equivalent of almost £2,000, money that was going to creditors around the world, now going to pay for the NHS and other public services.

It is because we have a credible fiscal plan that the Bank of England can provide the support needed to businesses and families. Yesterday I confirmed the appointments of Anthony Habgood to chair the court and Ben Broadbent and Minouche Shafik to be the new deputy governors for monetary policy and for markets and banking respectively. All three make a strong team at the Bank stronger still.

I today reconfirm my remit for the Monetary Policy Committee, including the target of 2% CPI inflation, which the OBR expects will be met this year, next year and in the years ahead. I also set out the remit for the Financial Policy Committee, the body created by us to avoid the mistakes of the past. Although the OBR forecast that house prices will remain below their real-terms peak until at least 2018, I have asked the committee to be particularly vigilant against the emergence of potential risks in the housing market. To enhance our resilience and protect us from economic shocks, we will also continue rebuilding our foreign exchange reserves. Those reserves are now 50% higher than when we came to office.

Of course, the prerequisite of sound money is a sound currency, and the £1 coin has become increasingly vulnerable to forgery. It is now among the oldest coins in circulation, and one in 30 £1 coins is counterfeit. That costs businesses and the taxpayer millions each year, so I can tell the House that we will move to a new, highly secure £1 coin. It will take three years. We will consult industry. Our new £1 coin will blend the security features of the future with inspiration from our past. In honour of our Queen, the coin will take the shape of one of the first coins she appeared on: the threepenny bit. A more resilient pound for a more resilient economy.

Sound money depends, too, on sound public finances. We are entering a critical phase and we must learn from the past. Every time a post-war Government have embarked on public spending cuts, real spending has risen back to its previous heights within three years. Sure enough, there are those today who say: “Ease up, spend more, borrow more.” That would mean debt rising towards 100% of GDP, undermining growth. It would be a huge mistake, and we are not going to let that happen.

Many Chancellors faced with a recovering economy and improved borrowing forecasts before an election would be tempted to squander the gains. I will not do that today. These gains were hard won by the British people, and we are not going to jeopardise their economic security. Britain is not going back to square one, so in this Budget all decisions are paid for. Taxes are lower but so, too, is spending, for we must bring our national debt substantially down. Analysis published today shows that just running a balanced current budget does not secure that. Instead, Britain needs to run an absolute surplus in good years. We will fix the roof when the sun is shining, to protect Britain from future storms.

So I can confirm that, in addition to the cuts this year and next, there will be cuts in the next Parliament too. To lock in our country’s commitment to this path of deficit reduction, we will seek the support of Parliament in a vote, and I will bring forward a new charter for budget responsibility this autumn. We are taking further difficult decisions now so we can reduce the deficit and protect our NHS and schools and meet our obligations to the world’s poorest by contributing 0.7% of our national income to help them. I am proud that we are doing that.

On public service pensions, we implemented the reforms proposed by John Hutton. Once again the House will want to thank him for his work. We will ensure that schemes are properly valued, saving the taxpayer over £1 billion a year. We are continuing with pay restraint in the public sector—an essential part of maintaining sound finances and economic stability. We will also insist on the prudent management of departmental finances. Thanks to the efforts of my colleagues in Cabinet, these now regularly come in under budget. In order to lock in these underspends, I said in December that we would reduce spending by £1 billion in 2015-16. Today, I am making that overall billion-pound reduction permanent.

I look forward to the work my excellent colleague the Chief Secretary is now doing, with the Cabinet Office, to find further efficiencies. Difficult decisions on public service pay and pensions, further savings in Departments, a cap on welfare bills—none of these decisions is easy, but they are the right thing to ensure that Britain lives within her means.

We set out today the details of that welfare cap, and we will seek the support of Parliament for it in a vote next week. From housing benefit to tax credits, the full list of benefits included in the cap is published in the Budget document today. Only the state pension and the cyclical unemployment benefits are excluded. I am setting it at £119 billion in 2015-16. It will rise, but only in line with forecast inflation, to £127 billion in 2018-19.

Britain should always be proud of having a welfare system that helps those most in need, but never again should we allow its costs to spiral out of control and its incentives to become so distorted that it pays not to work. In future, any Government who want to spend more on benefits will have to be honest with the public about the costs, will need the approval of Parliament, and will be held to account by this permanent cap on welfare.

The distributional analysis published today shows that the Budget decisions, and the decisions across this Parliament, mean that the rich are making the biggest contribution to the reduction of the deficit, because we are all in this together. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. The right hon. Gentleman needs to get to the end of the speech without anybody having to intervene.

[Mr Osborne]

The independent statistics show that under this Government income inequality is at its lowest level for 28 years, lower than at any single moment under Labour. Thanks to my right hon. Friend the Prime Minister’s leadership we have driven the international efforts to develop tough new global tax rules that stop rich individuals hiding their tax and companies shifting their profits offshore. Here at home we are collecting twice as much as before through compliance—collecting the taxes that are due—and the number of registered tax avoidance schemes has fallen by half.

While the vast majority of wealthy people pay their taxes, there is still a small minority who do not. We will now require that those who have signed up to disclosed tax avoidance schemes pay their taxes, like everyone else, up front. This will apply in future to schemes covered by our general anti-abuse rule too. If people feel they have been wronged, they can of course go to court. If they win, they get their money back with interest. We have already consulted on this idea; now we will implement it. The OBR confirms that this will bring forward £4 billion of tax receipts and it will fundamentally reduce the incentive to engage in tax avoidance in the future.

Public tolerance for those who do not pay their fair share evaporated long ago, but we had to wait for this Government before there was proper action. Today we go further still. I am increasing the budget of Her Majesty’s Revenue and Customs to tackle non-compliance. We will block transfers of profits between companies within groups to avoid tax. We will increase tax credit debt recovery rates for those with sufficient earnings. We will give HMRC modern powers to collect debts from bank accounts of people who can afford to pay but have repeatedly refused to do so, like most other western countries. We will increase compliance checks to catch migrants who claim benefits that they are not entitled to, saving the taxpayer almost £100 million. We will take action to curb potential misuse of the enterprise investment and venture capital trust schemes, and we are expanding the new tax that we introduced to stop people avoiding stamp duty by owning homes through a company.

We will expand the tax on residential properties worth over £2 million to those worth more than £500,000, and from midnight tonight anyone purchasing residential property worth more than £500,000 through a corporate envelope will be required to pay 15% stamp duty. None of this applies to homes that are rented out. Many of these are empty properties held in corporate envelopes to avoid stamp duty. This abuse will end.

Another abuse has been the manipulation of the LIBOR rate. Our regulators are broadening their investigation to the foreign exchange markets and I will keep the House informed. Financial services are a hugely important industry to this country which I want to promote around the world. But I also want the fines paid by those who have demonstrated the worst values to support those who demonstrate the best of British values. I am talking about the men and women in our armed forces who risk their lives to keep us free. So I will continue to direct the use of the LIBOR fines to our military charities and our emergency service charities too. Because the sums continue to grow through the fines, I can today extend that support to our search and rescue and lifeboat services, and provide £10 million of support to our scouts, guides, cadets and St John Ambulance. I am today waiving inheritance tax for those in our emergency services who give their lives protecting us.

I will also relieve VAT on fuel for our air ambulances and inshore rescue boat services across Britain, and provide a new air ambulance for London, all in response to huge and heartfelt public demand and the campaigns of my hon. Friends the Members for Hexham (Guy Opperman), for Brentford and Isleworth (Mary Macleod) and for Argyll and Bute (Mr Reid).

Tomorrow is the 21st anniversary of the IRA bomb that killed young Tim Parry and Johnathan Ball. Survivors for Peace was set up by Tim’s parents, Colin and Wendy, and it no longer receives lottery funding. My hon. Friend the Member for Warrington South (David Mowat) and the right hon. Member for Dulwich and West Norwood (Dame Tessa Jowell) have both raised this issue, and I know myself what incredible work they do. To honour the memory of all victims of terrorism, we will provide the funding that this programme needs. Last month with the Under-Secretary of State for Scotland, my right hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell), I visited Lockerbie to pay my respects on the 25th anniversary of that tragedy. We will support the scholarships created for local people there to study in the United States.

Further, this summer, many services of remembrance will be held in our cathedrals to mark the great war, so we are providing £20 million to support the repairs that these historic buildings need. We will also support the celebration of the 800th anniversary of the signing of the Magna Carta next year. King John’s humbling defeat centuries ago seems unimaginably distant—a weak leader who had risen to the top after betraying his brother, compelled by a gang of unruly barons to sign on the dotted line. I will provide a grant to the Magna Carta Trust to ensure that today’s generation learns the lessons of the past.

We will not have a secure economic future if Britain does not earn its way in the world. We need our businesses to export more, build more, invest more and manufacture more. Our exports have grown each year and the OBR today forecasts rising export growth in the future. Our combined goods exports to Brazil, India and China have risen faster than those of our competitors, but we are starting from a low base and we have many lost years to catch up. Britain has to up its game on exports, and today we do. With Stephen Green, and now Ian Livingston, we are expanding the reach and support that UK Trade & Investment offers British businesses. For many firms the truth is that they can win the contract only if they are backed by competitive export finance. For decades the British Government have been the last port of call, when we should be backing British businesses wanting to sell abroad. Today, we fundamentally change that, and we are going to start with the finance we provide our exporters. We will double the amount of lending available to £3 billion, and I can announce that from today the interest rates we charge on that lending will be cut by a third. Instead of having the least competitive export finance in Europe, we will have the most competitive.

We will also reform air passenger duty to end the crazy system where you pay less tax travelling to Hawaii than you do travelling to China or India. It hits exports, puts off tourists and creates a great sense of injustice among our Caribbean and south Asian communities here in Britain. From next year, all long-haul flights will carry the same, lower, band B tax rate that you now pay to fly to the United States. Private jets were not taxed at all under the previous Government. Today they are, and I am increasing the charge so they pay more. And because we want all parts of our country to see better links with the markets of the future, we are going to provide start-up support for new routes from regional airports, such as Liverpool, Leeds or, indeed, Inverness. More support for businesses; competitive finance; cheaper global flights—I want the message to go out that we are backing our exporters, so that wherever you are around the world you cannot fail to see “Made in Britain”.

One key British export is the North sea’s oil and gas. We will take forward all recommendations of the Wood report, and we will review the whole tax regime to make sure it is fit for the purpose of extracting every drop of oil we can. We will introduce now a new allowance for ultra-high pressure, high temperature fields to support billions of pounds of investment, thousands of jobs and a significant proportion of our country’s energy needs. Even with these measures, the North sea is a mature basin, and the OBR has today revised down the forecast tax receipts by a further £3 billion over the period. The Scottish economy is doing well and jobs are being created, but this is a reminder of how precarious the budget of an independent Scotland would be. These further downgrades in the tax receipts would leave independent Scots with a shortfall of £1,000 per person—Britain is better together.

Our country needs to export more and it also needs to build more. House building is up 23%, but that is not enough. That is why we are making further reforms to our planning system and offering half a billion pounds of finance to small house building firms; it is why we are signing city deals across the country to get more built, with a new funding deal this week for Cambridge; it is why we are giving people a new right to build their own homes and providing £150 million of finance today to support that; it is why we are funding regeneration of some of the worst conditions in urban housing estates that we have in this country, and we are extending the current support for mortgage interest scheme to 2016; and it is why we have got Help to Buy.

We are extending the Help to Buy equity loan scheme for the rest of the decade, so that we get 120,000 new homes built. In the south-east, where the pressure is greatest, we are going to build new homes in Barking Riverside, regenerate Brent Cross and build the first new garden city in almost 100 years at Ebbsfleet. The Opposition have said they already announced the homes in Ebbsfleet a decade ago, and they did make the announcement. Do you know how many homes have been built since then? It is less than 300; it was more “ebb” than “fleet”. Instead, we are going to build 15,000 homes there, put in the infrastructure, set up the development corporation and make it happen. I thank my hon. Friends the Members for Dartford (Gareth Johnson) and for Gravesham (Mr Holloway) for their tremendous support. And we will be publishing a prospectus on the future of garden cities. Taken all together, the housing policies I announce today will support over 200,000 new homes for families—we are getting Britain building.

We are also going to get Britain investing. Britain has under-invested for decades. We are the first Government to have committed to long-term and rising capital budgets, and this autumn I will set out the detailed plans for the projects that will be supported for the rest of the decade. We have been reminded again this week of the benefits of high-speed rail and what that will bring to the north of our country, and I am determined that it goes further north faster. Today, I have approved a £270 million guarantee for the Mersey gateway bridge, thanks to the hard work of my hon. Friend the Member for Weaver Vale (Graham Evans). And, tomorrow we introduce legislation to give new tax and borrowing powers to the Welsh Government to fund their infrastructure needs, and they can start now on work to improve the M4 in south Wales.

Because of the exceptionally poor weather this winter, I am making an additional £140 million available, on top of what has already been provided, for immediate repairs and maintenance to damaged flood defences across Britain. Our roads have taken a battering, too. My hon. Friend the Member for Northampton North (Michael Ellis) has been a very persistent campaigner for resources to repair the potholes in his constituency and across the country. His persistence has paid off and I am making £200 million available, which local authorities can bid for—I trust Northampton will be making an application.

Modern infrastructure is part of a successful economy. So, too, is a modern industrial strategy. If Britain is not leading the world in science and technology and engineering, we are condemning our country to fall behind. So we will establish new centres for doctoral training, for cell therapy and for graphene—a great British discovery that we should break the habit of a lifetime with and commercially develop in Britain. To make sure we give young people the skills they need to get good jobs in this modern world, we have doubled the number of apprenticeships, and I will extend the grants for smaller businesses to support over 100,000 more apprentices. And we will now develop new degree-level apprenticeships, too.

In my maiden speech here in this House I spoke of Alan Turing, the code breaker who lived in my constituency, who did more than anyone else—almost—to win the war and who was persecuted for his sexuality by the country he helped to save. I am delighted that he has finally received a posthumous royal pardon. Now, in his honour, we will found the Alan Turing Institute to ensure that Britain leads the way again in the use of big data and algorithm research. I am determined that our country is going to out-compete, out-smart and out-do the rest of the world.

Government investment is part of the story, but we need business investment, too. When we came to office, Britain had one of the least competitive business tax regimes in Europe—now we have the most competitive. Thanks to the Office of Tax Simplification, we have already cut burdens on administration, and I am grateful to Michael Jack, John Whiting and their team for their hard work. Today, we accept their recommendation to move the collection of class 2 national insurance contributions into self-assessment, abolishing for 5 million people this wholly unnecessary bureaucracy. And we have cut business tax rates, too. Corporation tax was 28% when we came to office. In just two weeks, corporation tax will be down to 21%, high street stores will get £1,000 off their rates and every business in the country will get the employment allowance—a £2,000 cash-back on jobs. Next year, corporation tax will reach 20% and we take under-21s out of the jobs tax altogether.

So businesses are keeping more of their money to create jobs and invest in the future—today, I want to go further. Many of the enterprise zones we created are now flourishing, so the business rates discounts and enhanced capital allowances will be extended for another three years. And I can confirm that, with the Northern Ireland Executive, we will establish the first enterprise zone there near Coleraine. I am raising the rate of the research and development tax credit for loss-making small businesses from 11% to 14.5%. Two years ago, I launched the seed enterprise investment scheme to help finance start-ups. It has been a great success and I am making it permanent. We are backing investment into social enterprises with a social investment tax relief at a rate of 30%. And we are supporting our creative industries, too. The European Commission has today approved the extension of our film tax credit, and I will apply the same successful approach to theatre, especially regional theatre. From this September, there will be a 20% tax relief for qualifying productions—and 25% for regional touring. And we are expanding by a third the size of the cultural gift scheme.

But I want to do something today that helps all businesses to invest. In 2012, I increased the annual investment allowance tenfold to £250,000. This generous allowance was due to expire at the end of this year, but all the business groups urged me to extend it. So we will, but we will do more. We will double the investment allowance to £500,000, extend it to the end of 2015 and start it next month—99.8% of businesses will get a 100% investment allowance. Almost every business across Britain will pay no up-front tax when they invest in the future. It costs £2 billion in the short term, so when we say that we are going to get Britain investing and to back growth around the country, we mean it.

A resilient economy is a more balanced economy, with more exports, more building, more investment and more manufacturing too. We have got to support our manufacturers if we want to see more growth in our regions. To those who say that manufacturing is finished in the west, I say look at America, which will see up to 5 million new manufacturing jobs by the end of this decade, and I will tell you why. US industrial energy prices are half those in Britain. We need to cut our energy costs. We are going to do this by investing in new sources of energy, new nuclear power, renewables, and a shale gas revolution. We are going to do this by promoting energy efficiency. Today, we are tilting the playing field—extending the 2% increase in company car tax in 2017-18 and 2018-19 while increasing the discount for ultra low emission vehicles, and reducing the rate of fuel duty on methanol. But above all, we are going to have a £7 billion package to cut energy bills for British manufacturers, with benefits for families and other businesses too.

First, I am capping the carbon price support rate at £18 per tonne of carbon dioxide from 2016-17 for the rest of the decade. This will save a mid-sized manufacturer almost £50,000 on its annual energy bill, and it will save families £15 a year on their bills too, over and above the £50 we have already taken off.

Secondly, I am extending the existing compensation scheme for energy-intensive industries for a further four years to 2019-20. Our steelmakers, chemical plants, paper mills and other heavy energy users make up 35% of our manufacturing exports and employ half a million people. This scheme helps the companies most at risk of leaving to remain in the UK.

Thirdly, I am introducing new compensation worth almost £1 billion to protect these energy-intensive manufacturers from the rising costs of the renewables obligation and the feed-in tariffs, otherwise green levies and taxes will make up over a third of their energy bills by the end of the decade.

Fourthly, I am exempting from the carbon price floor the electricity from combined heat and power plants, which hundreds of manufacturers use. This entire package will be delivered without any reduction in the investment in renewable energy.

Today, I have cut the cost of manufacturing in Britain. Half of the firms that will benefit most are in the north of England, and a third are in Scotland and Wales. Thousands of good jobs are protected. We have a more resilient economy, a Government on the side of manufacturers and a Britain that makes things again.

We are backing exports, backing manufacturing and backing a Britain that builds. We also want to help hard-working people keep more of what they earn and of what they save. That is what we have done by freezing council tax, freezing fuel duty and raising the personal allowance to £10,000. From next year, there will be tax-free child care—20% off for up to £10,000 of child care costs for parents, and an early years pupil premium to help the most disadvantaged.

Today we can do more to help. Let me start with duties. I can confirm that the fuel duty rise planned for September will not take place. Petrol will be 20p lower per litre than it would have been under the plans of the previous Government.

Turning to gambling duties, fixed odds betting terminals have proliferated since gambling laws were liberalised a decade ago. These machines are highly lucrative, and therefore it is right that we now raise the duty on them to 25%. We will also extend the horserace betting levy to bookmakers who are based offshore, and we will look at wider levy reform and at introducing a “racing right” to support the sport.

While the number of betting machines have grown, the number of bingo halls has plummeted by three quarters over the last 30 years, yet bingo duty has been set at the high rate of 20%. Now that fuel duty is frozen, my hon. Friend the Member for Harlow (Robert Halfon) has turned his energy and talent into a vigorous campaign to cut bingo duty, ably assisted by my hon. Friend the Member for Waveney (Peter Aldous). They want the rate cut to 15%. I can go further. Bingo duty will be halved to 10% to protect jobs and to protect communities.

Let me turn now to tobacco and alcohol duties. Tobacco duty has been rising by 2% above inflation and will do so again today, as previously confirmed. This escalator was due to end next year, but there are no sound health reasons to end it, so it will be extended for the rest of the next Parliament.

We have introduced new laws to prevent alcohol from being sold below minimum tax rates, and this helps to prevent supermarkets from undercutting pubs and it helps to stop problem drinking. It is a far more targeted approach than the alcohol duty escalator, which was introduced by the previous Government and hated by so many responsible drinkers. Today, I am scrapping that escalator for all alcohol duties. They will rise with inflation, with these exceptions: Scottish whisky is a huge British success story. [Hon. Members: “Scotch whisky.”] To support that industry, instead of raising duties on Scotch whisky and other spirits, I am today going to freeze them, and with some cider makers in the west country, who have been hit hard by the recent weather, I am going to help them by freezing the duty on ordinary cider too.

Then there is beer. I know the industry, led so ably by my hon. Friend the Member for Burton (Andrew Griffiths), has been campaigning for a freeze, but beer duty next week will not be frozen; it will be cut again by 1p—pubs saved, jobs created and a penny off a pint for the second year running.

It is a central part of our long-term economic plan that people keep more of the money they have earned. When we came to office, the personal tax allowance was just £6,500. In less than three weeks time, it will reach £10,000. That is an income tax cut for 25 million people. Today, because we are working through our plan, we can afford to go further. Next year, there will be no income tax at all on the first £10,500 of your salary—£10,500 tax free and £800 less in tax every year for the typical taxpayer. Our increases in the personal allowance will have lifted over 3 million of the lowest paid out of income tax altogether, and I am incredibly proud of what we have achieved.

I can also confirm today that the higher rate threshold will rise for the first time this Parliament, from £41,450 to £41,865 next month, and then by a further 1% to £42,285 next year. Because I am passing the full benefit of today’s personal allowance increase on to higher rate taxpayers, people earning £42,000, £43,000, £50,000, £60,000—all the way up to £100,000—will be paying less income tax because of this Budget. We have tax cuts for those on low incomes, and those on middle incomes too—help for hard-working people as part of a long-term economic plan delivered by a coalition Government and a Conservative Chancellor. I am linking the rate of the transferable tax allowance for married couples to the personal allowance, so it will also rise to £1,050—help for 4 million families that they will take away and that we are proud to provide.

Our tax changes will help people in work, but there is a large group who have had a particularly hard time in recent years, and that is savers. This matters not just because they are people who have made sacrifices to provide for their own economic security in retirement. It matters too because one of the biggest weaknesses of the British economy is that it borrows too much and saves too little. This has been a problem for decades and we cannot fix it overnight. It is no surprise that the OBR forecasts the savings ratio falling, so today we put in place policies for savers that stand alongside deficit reduction as a centrepiece of our long-term economic plan.

The reforms I am about to announce are only possible because, thanks to this Government, we have a triple lock on the state pension; more people are saving through auto-enrolment; and we are introducing a single-tier pension that will lift most people above the means test. That secure basic income for pensioners means that we can make far-reaching changes to the tax regime to reward those who save. Here is how. First, I want to help savers by dramatically increasing the simplicity, flexibility and generosity of individual savings accounts. Twenty-four million people in this country have an ISA, and yet millions of them would like to save more than the annual limits of around £5,500 on cash ISAs, and £11,500 on stocks and shares ISAs. Three quarters of those who hit the cash ISA limit are basic rate taxpayers. So we will make ISAs simpler by merging the cash and stocks ISAs to create a single new ISA. We will make them more flexible by allowing savers to transfer all of the ISAs they already have from stocks and shares into cash, or the other way round, and we are going to make the new ISA more generous by increasing the annual limit to £15,000—that is £15,000 of savings a year tax free, available from 1 July. I am raising the limits for junior ISAs to £4,000 a year too.

But the £15,000 new ISA is just the first thing we are doing for savers today. Secondly, many pensioners have seen their incomes fall as a consequence of the low interest rates that Britain has deliberately pursued to support the economy. It is time Britain helped them out in return, so we will launch the new pensioner bond, paying market leading rates. It will be issued by National Savings & Investments, open to everyone aged 65 and over, and available from January next year. The exact rates will be set in the autumn, to ensure the best possible offer, but our assumption is 2.8% for a one-year bond and 4% on a three-year bond. That is much better than anything equivalent in the market today. Up to £10 billion of these bonds will be issued. A maximum of £10,000 can be saved in each bond. That is at least a million pensioner bonds. Because 21 million people also invest in premium bonds, I am lifting the cap for the first time in a decade from £30,000 to £40,000 this June, and to £50,000 next year, and I will double the number of million-pound winners.

I still want to do more to support saving, so, thirdly, we will completely change the tax treatment of defined contribution pensions to bring it into line with the modern world. There will be consequential implications for defined benefit pensions upon which we will consult and proceed cautiously, so the changes we announce today will not apply to them. But 13 million people have defined contribution schemes, and the number continues to grow. We have introduced flexibilities, but most people still have little option but to take out an annuity, even though annuity rates have fallen by half over the last 15 years. The tax rules around these pensions are a manifestation of a patronising view that pensioners cannot be trusted with their own pension pots. I reject that. People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances, and that is precisely what we will now do: trust the people. Some changes will take effect from next week. We will cut the income requirement for flexible draw-down from £20,000 to £12,000; raise the capped draw-down limit from 120% to 150%; increase the size of the lump sum small pot fivefold to £10,000; and almost double the total pension savings someone can take as a lump sum to £30,000. All of these changes will come into effect on 27 March.

These measures alone would amount to a radical change, but they are only a step in the fundamental reform of the taxation of defined contribution pensions I want to see.

I am announcing today that we will legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots. Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want: no caps; no draw-down limits. Let me be clear: no one will have to buy an annuity.

We are going to introduce a new guarantee, enforced by law, that everyone who retires on these defined contribution schemes will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have. Those who still want the certainty of an annuity, as many will, will be able to shop around for the best deal. I am providing £20 million over the next two years to work with consumer groups and industry to develop this new right to advice. When it comes to tax charges, it will be possible to take a quarter of your pension pot tax-free on retirement, as today, but instead of the punitive 55% tax that exists now if you try to take the rest, anything else you take out of your pension will simply be taxed at normal marginal tax rates, as with any other income—so not a 55% tax, but a 20% tax for most pensioners.

The OBR confirms that in the next 15 years, as some people use these new freedoms to draw down their pensions, this tax cut will lead to an increase in tax receipts. Government Members understand that when you cut a tax rate that is punitively high, that can increase revenues. These major changes to the tax regime require a separate Act of Parliament, and we will have them in place for April next year. What I am proposing is the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921.

There is one final reform to support savings that I would like to make. There is a 10p starting rate for income from savings. It is complex to levy and it penalises low- income savers. Today, I am abolishing the 10p rate for savers altogether. When I abolish a 10p rate, I do not sneakily turn it into a 20% rate like the last lot: I am turning it into a 0% rate: no tax on these savings whatsoever. We will almost double this zero-pence band to cover £5,000 of saving income. One and a half million low-income savers of all ages will benefit. Two thirds of a million pensioners will be helped.

The £15,000 new ISA; the pensioner bond; people given access to their own pension pots; a right to impartial advice; the 10p rate for savers abolished to zero—the message from this Budget is this: you have earned it; you have saved it; and this Government are on your side. Whether you are on a low or middle income, whether you are saving for your home, for your family or for your retirement, we are backing a Britain that saves. The central mission of this Government is to deliver economic security. We are not promising quick fixes. Instead we are taking the next steps in our long-term plan. The forecasts I have presented show growth up; jobs up; and the deficit down. Now we are securing Britain’s economic future with: manufacturing promoted; working rewarded; saving supported. With the help of the British people, we are turning our country around. We are building a resilient economy. This is a Budget for the makers, the doers, and the savers, and I commend it to the House.

Financial Statement

Debate between George Osborne and Lindsay Hoyle

Wednesday 20th March 2013 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

This is a Budget for people who aspire to work hard and get on. It is a Budget for people who realise there are no easy answers to problems built up over many years—just the painstaking work of putting right what went so badly wrong. And together with the British people, we are, slowly but surely, fixing our country’s economic problems. We have now cut the deficit not by a quarter, but by a third. We have helped business create not a million new jobs, but one and a quarter million new jobs. We have kept interest rates at record lows.

Despite the progress we have made, there is much more to do. Today, I am going to level with people about the difficult economic circumstances we still face and the hard decisions required to deal with them. It is taking longer than anyone hoped, but we must hold to the right track. By setting free the aspirations of this nation, we will get there.

Our economic plan combines monetary activism with fiscal responsibility and supply-side reform, and today we go further on all three components of that plan: monetary, fiscal and supply-side reform. We also understand something else more fundamental. Our nation is in a global race, competing alongside new centres of enterprise around the world for investment and jobs that can move anywhere. What was the response of those who came before us? It was to expand the state in a way that we could not afford; to drive businesses overseas with taxes that became more and more uncompetitive; to let schools fail; to deplete our skills base; to let a bloated welfare system pick up the human casualties and assume that an uncontrolled banking boom would pick up the bill. To win in the global race, we are doing the exact opposite. We are building a modern, reformed state that we can afford. We are bringing businesses to our shores with competitive taxes. We are fixing the banks. We are improving our schools, our skills—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Obviously the country is waiting to hear the Chancellor. I certainly want to hear the Chancellor, and I am sure that most people in the Chamber also want to hear the Chancellor. Please let us hear the Chancellor.

[Mr Osborne]

For years people have felt that the whole system is tilted against those who did the right thing: who worked, who saved, who aspired. Those are the very people whom we must support if Britain is to have a prosperous future. This is a Budget for those who aspire to own their own home, who aspire to get their first job or to start their own business. It is a Budget for those who want to save for their retirement and provide for their children. It is a Budget for our aspiration nation.

The forecast from the independent Office for Budget Responsibility today reminds us of the economic challenge at home and abroad, but it also—[Interruption.]

[Mr Deputy Speaker]

Order. Let us start as we mean to go on. The shadow Chancellor may not have been the Chancellor, but he should observe the courtesies, and should know better. [Interruption.] We want no advice from the Government, and they should know better than to display it. I do not wish to see it. That is not a good position to put us in. Let us continue, and let this not become the circus of the day.

[Mr Osborne]

Since the autumn statement, the OBR has again revised down its forecast for global economic growth, and has sharply revised down its forecast for world trade. Growth in the United States and Japan was flat in the last quarter, while the eurozone shrank by 0.6%. That was the largest fall since the height of the financial crisis. The problems in Cyprus this week are further evidence that the crisis is not over, and the situation remains very worrying. I can confirm that, as the Prime Minister said, people sent to Cyprus to serve our country, in our military or Government, will be protected in full from any tax on their deposits.

The OBR today sharply revised down its future growth forecast for the eurozone, and expects it to remain in recession throughout this year. In its words, “the underlying situation” in the eurozone “remains very fragile”. I will be straight with the country: another bout of economic storms in the eurozone would hit Britain’s economic fortunes hard. Forty per cent. of all we export, we export to the eurozone. There is a huge effort across the Government to grow Britain’s trade with the fast-growing parts of the world, and exports to Brazil, India and China are up by almost two thirds. United Kingdom firms now export more goods to non-European Union countries than to EU countries. This is the first time that that has happened in over two decades. However, we are still very exposed to what happens on the continent. Indeed, last year domestic demand was actually stronger than forecast, but it is the weakness of net trade that helps to account for much of the weakness in GDP. As the OBR makes clear,

“the unexpectedly poor performance of exports is more than sufficient on its own to explain the shortfall”.

GDP for last year has turned out to be a little higher than the OBR forecast in December, but this year its output forecast is reduced to 0.6% growth. Despite the recession in the eurozone, the OBR’s central forecast today is that we will avoid a second quarter of negative growth here in the UK. While it is less than we would like, our growth this year and next year is forecast by the International Monetary Fund to be higher than that of France and Germany. That is a reminder of the fact that all western nations live in very challenging economic times.

The OBR expects the recovery to pick up to 1.8% in 2014, 2.3% in 2015, 2.7% in 2016, and 2.8% in 2017. Crucially, jobs are being created. Indeed, in the words of the OBR, the picture on employment

“continues to surprise on the upside”

in this forecast.

When we started the unavoidable task of reducing the size of the public sector work force, some in the House expressed doubts that the private sector would be able to make up the difference. I am glad to report to the House that their lack of confidence in British businesses has been misplaced. It is a tribute to the energy and enterprise of British companies that for every one job lost in the public sector in the last year, six jobs have been created in the private sector; the employment rate has been growing faster than in the US and three times as fast as in Germany. So, despite the weaker GDP, at this Budget the OBR has now revised up further its forecasts for employment. Compared with this time last year, the OBR now expects 600,000 more jobs in 2013, and there will be 60,000 fewer people claiming unemployment benefit. We have seen more people in work than ever before, including a record number of women; there are a quarter of a million fewer workless households than two years ago; and the unemployment rate is lower than it was when we came to office.

The deficit continues to come down. Three years ago, the Government were borrowing £1 for every £4 they spent—that was completely reckless and unsustainable. We have taken many tough decisions to bring that deficit down, and we will continue to do so. The deficit has fallen from 11.2% of GDP in 2009-10 to a forecast of 7.4% this year—that is a fall of a third. It will then fall further to 6.8% next year, 5.9% in 2014-15, 5% in 2015-16 and 3.4% the following year, reaching 2.2% by 2017-18. Those numbers all exclude the transfer of the Royal Mail pension fund to the Government, which reduces the deficit still further for this year alone. It is sometimes asserted in this House that borrowing has gone up under this Government—[Interruption.] As we have just seen again. The facts show the opposite to be true. The previous Government borrowed—[Interruption.]

[Mr Deputy Speaker]

Order. We cannot have one side being told without the other. It is not a competition of who can shout the loudest. Let us hear the Chancellor. If you don’t want to hear your own Chancellor, I am sure your constituents would understand if you were to leave the Chamber. I suggest that nobody wants to leave the Chamber, so let us continue to hear the Chancellor of the Exchequer.

[Mr Osborne]

As I was saying, the facts show the opposite to be true. The previous Government borrowed £159 billion in their last year in office and this year this Government are forecast to borrow £114 billion. So that is not more borrowing—it is £45 billion a year less borrowing. Borrowing then falls from £108 billion next year, and falls again to £97 billion in 2014-15 and to £87 billion in the last year of this Parliament, before falling again to £61 billion and £42 billion in the following two years. To ensure complete transparency, the OBR publishes the numbers without the asset purchase facility cash transfers. They show that on that measure, too, borrowing is just forecast to fall.

We committed at the start of this Parliament to a fiscal mandate that said we would aim to balance the cyclically adjusted current budget over the following rolling five years. I can confirm that the OBR says we are on course to meet our fiscal mandate—and meet it one year early. However, the likelihood of meeting the supplementary debt target has deteriorated. Public sector net debt is forecast to be 75.9% of GDP this year, 79.2% next year, 82.6% the year after, 85.1% in 2015-16 and 85.6% in the year after, before falling to 84.8% in 2017-18.

In response, there are those who would want to cut much more than we are planning to and chase the debt target. I said in December that I thought that with the current weak economic conditions across Europe that would be a mistake. We have got a plan to cut our structural deficit. Our country’s credibility comes from delivering that plan, not altering it with every forecast—and that is why interest rates remain so low. Our judgment has since been supported by the International Monetary Fund, the OECD and the Governor of the Bank of England, and I do not propose to change that judgment three months later.

I have also had representations at this Budget for measures that would add £33 billion a year extra to borrowing on top of the figures I have announced. That is from people who seem to think that the way to borrow less is to borrow more. They would return us to the double-digit deficits of the last Government and give us far and away one of the highest deficits in the western world. That would pose a huge risk to the stability of the British economy, threaten a sharp rise in interest rates and leave the burden of debts to our children and our grandchildren. I will not take that gamble with the future of this country, especially when those representations came from the very same people whose previous gamble with our economy led to the mess that we are clearing up in the first place.

The spending reductions that we promised have been more than delivered. Welfare reforms have been legislated for and are taking place, and here is a clear sign of progress: the proportion of national income spent by the state has fallen from 47.4% three years ago to 43.6% today; and it is on course to reach 40.5% at the end of the period. We have set out the deficit plan, and we are delivering that plan. Taken together, the measures that I will announce today are fiscally neutral overall. Ask the British people and they will tell you: our problem as a country is not that we are taxed too little, but that the Government spend too much. I agree with them. So the tax cuts in this Budget are not borrowed; they are paid for. That is our way, and it is the only responsible way to lower taxes.

It is the central plank of our economic plan that a tough and credible fiscal policy creates the space for an active monetary policy. Recovering from the financial crisis has exposed the shortcomings of conventional monetary tools. We in Britain have had to innovate and develop new tools; so have other countries. I confirm today that the asset purchase facility will remain in place for the coming year. We are now actively considering with the Bank of England whether there are potential extensions to the successful funding for lending scheme that will boost lending still further. We are also setting out our plans for lending from our new business bank, but I want to make sure that an active monetary policy plays a full role in supporting the economy, so I am today setting out an updated remit for the Monetary Policy Committee. Alongside it, we are publishing a review of the monetary policy framework.

This Budget confirms the primacy of price stability and the inflation target in Britain’s monetary policy framework. The updated remit reaffirms the inflation target as 2% as measured by the 12-month increase in the consumer prices index. The target will apply at all times, but as we have seen over the last five years, low and stable inflation is a necessary but not sufficient condition for prosperity. The new remit explicitly tasks the MPC with setting out clearly the trade-offs that it has made in deciding how long it will be before inflation returns to target. To ensure a fuller communication between the Bank and the Treasury, I am changing the timing of the open letter system, so that when inflation is above target the Governor will write to me on the day the minutes of the next MPC meeting are published to allow for a more substantive exchange of views.

The new remit also recognises that the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy while keeping inflation stable, and it makes it clear that the committee may wish to issue explicit forward guidance, including using intermediate thresholds in order to influence expectations on the future path of interest rates. For example, that is what the US Federal Reserve has now done, making a commitment to keep interest rates low while unemployment is high, provided that inflation is not expected to rise too much. This can help the economy because it gives families planning their futures, and businesses wondering whether to invest, more confidence that interest rates will stay lower for longer. So I am asking the Monetary Policy Committee to provide an assessment of how intermediate thresholds might work in Britain, and to give that assessment in its August 2013 inflation report. That report will be the first issued under the governorship of Mark Carney. Whether intermediate thresholds are used will be an operational matter for the independent MPC. I can confirm that Mervyn King and Mark Carney have both seen the new remit and they have both agreed to it.

Active monetary policy can only operate freely when securely anchored by credible fiscal policy. That is the next component of our economic plan. We have instituted new public spending controls in government. When money is short, we make no excuses for the rigorous financial management we have run across Whitehall. Let me be clear with the House: that is one of the reasons why we have got forecast borrowing falling in this year and next. The traditional splurge of cash by Departments at the end of the financial year, just to get the money spent, has to be curtailed. And thanks to the tough financial control of my right hon. Friend the Chief Secretary, Government Departments are forecast to underspend their budgets by more than £11 billion this year. If you want to bring borrowing down, you have to control spending, and that is what we have done.

Now we want to ensure Departments have budgets that are more closely aligned to what they actually spend. So both next year and the year after, we will reduce resource departmental expenditure limits by the equivalent to a 1% reduction for most Departments. The schools and health budgets will remain protected, because our promise to our NHS is a promise we will keep. Local government and police allocations for 2013-14 have already been set out and will not be affected. We will also deliver in this coming year on this nation’s long-standing commitment to the world’s poorest to spend 0.7% of our national income on international development. We should all take pride, as I do, in this historic achievement for our country. As previously, the Department for International Development budget will be adjusted to ensure we do not spend more than 0.7%.

Departmental budgets have yet to be set for the year 2015-16, which starts before the end of this Parliament. This will be done in the spending round that will be set out on 26 June. I said last autumn that we would require around £10 billion of savings from that spending round. I confirm today that we will instead be seeking £11.5 billion of current savings. We have got to go on making difficult decisions so that Britain can live within its means. And because we make those decisions, we can get our deficit down and focus on our nation’s economic priorities.

Total managed expenditure for 2015-16 will be set at £745 billion. How the savings will be achieved will be a matter for the spending round, but existing protections apply. We are also taking steps to help all Departments to achieve the savings required. Together, my right hon. Friends the Chief Secretary and the Minister for the Cabinet Office have indentified that a further £5 billion of savings in efficiency and cutting the cost of administration can be made. This will go a huge way towards delivering the spending round in a way that saves money but protects services.

So too will action on pay. The Government will extend the restraint on public sector pay for a further year by limiting increases to an average of up to 1% in 2015-16. This will apply to the civil service and work forces with pay review bodies. Local government and devolved Administration budgets will be adjusted accordingly in the spending round. We will also seek substantial savings from what is called progression pay. These are the annual increases in the pay of some parts of the public sector. I think they are difficult to justify when others in the public sector, and millions more in the private sector, have seen pay frozen or even cut. I know that is tough, but it is fair. In difficult times with the inevitable trade-off between paying people more and saving jobs, we should put jobs first.

Today is also the 10th anniversary of the start of the Iraq war. The awarding of a posthumous Victoria Cross to Lance Corporal James Ashworth this week reminds us of the courage and sacrifice that all who serve in our armed forces are still making to defend our country. We will exempt our military from changes to progression pay. We are also accepting in full from 1 May this year the armed forces pay review body's recommended increase in the so-called X factor payment made to military personnel to recognise the particular sacrifices they make. And I can also announce that further awards from the LIBOR banking fines have gone to good military causes, with money for Combat Stress to help veterans with mental health issues and funds for Christmas boxes for all our troops on operations this year and next. Those who have paid fines in our financial sector because they demonstrated the very worst of values are paying to support those in our armed forces who demonstrate the very best of British values.

Ultimately as a country we will not be able to spend more on the services we all value, from our NHS to our armed forces, or invest in our infrastructure, unless we go on tackling the growth of spending on welfare budgets. The public spending framework introduced by the previous Government divided Government spending into two halves: fixed departmental budgets and what is called annually managed expenditure—except in practice it was annually unmanaged expenditure—and it includes almost the entire welfare budget as well as items like debt interest and payments to the EU. I can tell the House that according to the OBR forecast today, the European budget deal secured by my right hon. Friend the Prime Minister has saved Britain a total of £3.5 billion. We will now introduce a new limit on a significant proportion of annually managed expenditure. It will be set out in a way that allows the automatic stabilisers to operate, but it will bring real control to areas of public spending that had been out of control. We will set out more detail on how this new spending limit will work at the spending round in June. All decisions, on welfare, pay and Departments are tough, and they affect many people. But if we did not take them, what is a difficult situation for them and for the whole country would be very much worse.

Active monetary policy and a responsible fiscal policy are two components of our economic plan. We also need supply-side reform, to throw the full weight of our efforts behind the entrepreneurial forces in our society. Our fundamental overhaul of the planning laws are now helping homes to be built and businesses to expand. Our reform of schools, universities and apprenticeships is probably the single most important long-term economic policy we are pursuing. Our support for European free trade agreements with India, Japan and the US is a priority of our foreign policy. And we are building the most competitive tax system in the world. But now we need to do more.

First, we can provide the economy with the infrastructure it needs. We are already supporting the largest programme of investment in our railways since Victorian times, and spending more on new roads than in a generation. We are giving Britain the fastest broadband and mobile telephony in Europe. And the Treasury is now writing guarantees to major projects from supporting the regeneration of the old Battersea power station site to building the new power stations of tomorrow. We have switched billions of pounds from current to capital spending since the spending review to mitigate the sharp decline set in train by the last Government. But on existing plans, capital spending is still due to fall back in 2015-16, and I do not think that is sensible. So by using our extra savings from Government Departments, we will boost our infrastructure plans by £3 billion a year from 2015-16. That is £15 billion of extra capital spending over the next decade, because by investing in the economic arteries of this country, we will get growth flowing to every part of it. And public investment will now be higher on average as a percentage of our national income under our plans than it was in the whole period of the last Government.

In June, we will set out long-term spending plans for that long-term capital budget. And we will use the expertise of Paul Deighton, the man who delivered the Olympics and who now serves in the Treasury, to improve the capacity of Whitehall to deliver big projects and make greater use of independent advice.

The second thing we can do to support enterprise is to give our great regional cities and other local areas much greater control over their economic destiny and to back sectors that are a global success. Businesses have created more jobs in areas such as the west midlands in the first three years of this Government than they did in the first 10 years of the Labour Government. Private sector employment has been growing more quickly in the north-east, the north-west and Yorkshire than across the whole country.

But we can do much more, so I accept Michael Heseltine’s excellent idea of a single competitive pot of funding for local enterprise. I also fully endorse the report of Doug Richard to make the most of our apprenticeships. We have the second largest aerospace industry in the world. For the first time in 40 years, we manufacture for export more cars than we import, and our agritech business is at the global cutting edge. We are backing international successes like those with £1.6 billion of long-term funding for the industrial strategy that my right hon. Friend the Business Secretary launched this week.

Today we build on our new tax reliefs coming in this year for the creative industries such as high-end television and animation with new support for our world-class visual effects sector. To help small firms, we will increase fivefold the value of Government procurement budgets spent through the small business research initiative. We will fund the proposal to make growth vouchers available to small firms seeking advice on how to expand. We are putting new controls on what regulators can charge and giving the Pensions Regulator a new requirement to have regard to the growth prospects of employers.

A vital sector for our economy, and a cost of doing business for everyone, is energy. Creating a low-carbon economy should be done in a way that creates jobs, rather than costing them. The granting of planning permission yesterday at Hinkley Point was a major step forward for new nuclear. Today, with the help of my hon. Friend the Energy Minister, we are also announcing our intention to take two major carbon capture and storage projects to the next stage of development. We will support the manufacture of ultra-low emissions vehicles in Britain with new tax incentives. The hon. Member for Stoke-on-Trent Central (Tristram Hunt) has argued passionately, and on this occasion in a non-partisan way, about the damage that energy costs are doing to his city’s famous ceramics industry. He has persuaded me, so from next year we will exempt the industrial processes for that industry and some others from the climate change levy.

In the spending round, we will provide support for energy-intensive industries beyond 2015. For the North sea, we will this year sign contracts for future decommissioning relief, the expectation of which is already increasing investment there. But I also want Britain to tap into new sources of low-cost energy such as shale gas, so I am introducing a generous new tax regime, including a shale gas field allowance, to promote early investment. By the summer, new planning guidance will be available alongside specific proposals to allow local communities to benefit. Shale gas is part of the future, and we will make it happen.

We can help companies grow and succeed by building infrastructure, backing local enterprise and supporting successful sectors, but nothing beats having the most competitive business tax system of any major economy in the world. That is what this Government set out to achieve. That is what we are delivering. The accountants KPMG does a survey of investors that ranks the most competitive tax regimes in the world. Three years ago we were near the bottom of that table; now we are at the top. But in this global race we cannot stand still, so today we step up the pace. Our seed enterprise investment scheme offers generous incentives to investors in start-ups. My hon. Friend the Member for Braintree (Mr Newmark) and David Young have done a great job helping to promote it across the country. They have asked me to extend the capital gains tax holiday, and I will.

Employee ownership helps create an enterprise culture, so we are making our new employee shareholder status more generous, with national insurance contributions and income tax relief, and we are introducing capital gains tax relief for sales of businesses to their employees. Companies that look after their employees and help them return to work after periods of sickness will also get new help through the tax system, and we will double to £10,000 the size of the loans that employers can offer tax free to pay for items such as season tickets for commuters. That is a great idea from my hon. Friend the Member for Witham (Priti Patel) and I am happy to put it into practice. My hon. Friend the Member for Enfield North (Nick de Bois) and others have put forward proposals to help investment in social enterprises, and I have listened. We will introduce a new tax relief to encourage private investment in these social enterprises.

Research and development is absolutely central to Britain’s economic future, so today I am increasing the rate of the above-the-line R and D credit to 10%. Along with our new 10% corporation tax rate on profits from patents coming in next month, that will help make us one of the most internationally attractive places to innovate.

I also want Britain to be the place where people raise money and invest. Financial services are about much more than banking. In places such as Edinburgh and London we have a world-beating asset management industry, but they are losing business to other places in Europe. We act now with a package of measures to reverse that decline, and we will abolish the schedule 19 tax, which is payable only by UK-domiciled funds.

Many medium-sized firms and start-ups use the alternative investment market to raise funds to help them grow. Many observers of the British tax system complain that it has long been biased towards debt financing over equity investment, so today I am abolishing altogether stamp duty on shares traded on growth markets such as AIM. In parts of Europe they are introducing a financial transaction tax; here in Britain we are getting rid of one. From April next year, that will directly benefit hundreds of medium-sized UK firms, lowering their cost of capital and supporting jobs and growth across the UK.

We also set out to compete with the world in our headline rate of corporation tax. In Germany, the corporate tax rate is 29%; in France it is 33%; in the United States it is 40%. Here in Britain we have cut corporation tax from the 28% we inherited to 21% next year. But I want to go further. Today I want us to send a message to anyone who wants to invest and create jobs here that Britain is open for business, so in April 2015 we will reduce the main rate of corporation tax by another 1%. Britain will have a 20% rate of corporation tax, the lowest business tax of any major economy in the world. That is a tax cut for jobs and growth. We will have achieved in one Parliament, and in these difficult times, the largest reduction in the burden of corporation tax in our nation’s history, and with it we will achieve major simplification of our business tax system. By merging the small company and main rates at 20p, we will abolish the complex marginal relief calculations between them and give Britain a single rate of corporation tax for the first time since 1973. As with previous reductions in the corporate tax rate, I do not intend to pass the benefit on to the banking sector, so I will offset the reduction by increasing the bank levy rate next year to 0.142%.

Britain is moving to low and competitive taxes, but we should insist that people and business pay those taxes, rather than aggressively avoiding or evading them. That is the right way to succeed in the global race. Under Labour, we had the worst of both worlds: uncompetitive tax rates that were not paid. When the 50p rate was introduced, tax revenues fell by billions of pounds as the wealthy paid less. That is the wrong way round. Under this Government, the tax rates are more competitive and the wealthy pay more tax. That is the right way round. Here is an inconvenient truth for the Opposition: in every year of this Parliament the rich will pay a greater proportion of income tax revenues than in any one of the 13 years of the previous Labour Government. During those 13 years, too many people were allowed to get away with aggressive tax avoidance and abuse. They boasted that they were paying less tax then their cleaners, and Labour Members lauded them for it. We have stopped that, and that is what I call fair.

Today I am unveiling one of the largest ever packages of tax avoidance and evasion measures presented at a Budget. The details are set out in the Red Book. They include agreements with the Isle of Man, Guernsey and Jersey to bring in over £1 billion in unpaid taxes and new rules to stop the abuse of partnership rules, corporate tax losses and offshore employment intermediaries. That is another £2 billion. This year we are giving Britain its first ever general anti-abuse rule, and we will name and shame the promoters of tax avoidance schemes. My message to those who make a living advising other people how to aggressively avoid their taxes is this: this Government will not let you get away with it. This year we are leading international action on tax avoidance through our presidency of the G8 and with the OECD and the G20. We want the global rules governing the taxation of multinational firms to be updated from the 1920s, when they were first written, and made relevant to the global internet economy of the 21st century. This is the right and fair thing to do.

A tax system where people and businesses pay what is expected of them is part of the glue that holds our society together. So too is the expectation that those who work hard, who play by the rules, who save for their future and try to be independent of the state are not undermined but supported. So to the working parents struggling with the costs of child care, and the mother wondering whether it makes financial sense to get a job, we offer this: tax-free child care. The plans were set out yesterday: new tax-free child care vouchers for working families, with 20% off the first £6,000 of your child care costs for each child, and increased child care support for those low-income working families on universal credit.

For those who aspire to put aside money for their retirement, we offer this: a simple, flat-rate pension accessible to everyone and worth £144 a week. Any one pound you save will be a pound you can keep. We are bringing forward the introduction of the new single-tier pension to 2016. It will help the low-paid, the self-employed, and millions of women most of all. Of course, if there is no longer the old state second pension, there is no longer anything to contract out of. For employers, that means paying the same employer national insurance as those without defined-benefit schemes. Private sector employers can adjust their pension benefits to accommodate the extra cost; public sector employers will have to absorb the burden, as is always the case with tax changes. Any spending review in the next Parliament will of course take the £3.3 billion cost into account.

As we have already made clear, public sector employees, and the relatively small number of private sector employees in defined benefit schemes, will from 2016 pay more national insurance then they do today. They will pay the same rate of national insurance as the rest of the working population, and in return they will get a larger state pension than before. For example, someone who is 40 years old when the single-tier pension is introduced, and who has always been contracted out, will pay an extra £6,000 in national insurance over the rest of their working life—and in return get an extra £24,000 in state pension over the course of their retirement. That is a fair deal, and it is a progressive pension reform. We have also made it clear before that the extra £1.6 billion raised in employee national insurance will not be kept by the Treasury.

There is another group of savers I want to talk about today. I am proud to have been part of a Government who have helped to compensate the policyholders of Equitable Life, who have suffered a great injustice. But we have not extended help to those who bought their with-profits annuity before 1992. Now we can. I would like to acknowledge the work of my hon. Friend the Member for Harrow East (Bob Blackman) on behalf of these people. We will make ex gratia payments of £5,000 to those elderly policyholders, and we will make an extra £5,000 available to those on the lowest incomes who are on pension credit. We are not doing this because we are legally obliged to; we are doing it because, quite simply, it is the right thing to do.

Helping with aspiration also means helping those who want to keep their home instead of having to sell it to pay for the costs of social care. That is what our new cap will deliver, as Andrew Dilnot recommended. It will also come in in 2016. It will be set to protect savings above £72,000, and we will raise the threshold for the means test on residential care from just over £23,000 to £118,000 that year too. For decades, politicians have talked of doing something for savers and those who have to sell their homes to pay for care, and yet nothing has been done—until this week.

I want to do much more, for unless we fire up the aspirations of the British people—light the fires of ambition within our nation—we are going to be out-smarted, out-competed and out-performed by others in the world who are prepared to work harder for success than we are. So this Budget makes a new offer to our aspiration nation—and what symbolises that more than the desire to own your own home? Today I can announce Help to Buy. The deposits demanded for a mortgage these days have put home ownership beyond the great majority who cannot turn to their parents for a contribution. That is not just a blow to the most human of aspirations: it is a setback for social mobility, and it has been hard on the construction industry too. This Budget proposes to put that right—and put it right in a dramatic way.

Help to Buy has two components. First, we are going to commit £3.5 billion of capital spending over the next three years to shared equity loans. From the beginning of next month, we will offer an equity loan worth up to 20% of the value of a new build home to anyone looking to move up the housing ladder. You put down a 5% deposit from your savings, and the Government will loan you a further 20%. The loan is interest free for the first five years. It is repaid when the home is sold. Previous help was available only to those who were first-time buyers and who had family incomes below £60,000. Now help is available to all buyers of newly built homes on all incomes: available to anyone looking to get on or move up the housing ladder. The only constraint will be that the home cannot be worth more than £600,000—but this covers well over 90% of all homes. It is a great deal for homebuyers; it is a great support to home builders; and because it is a financial transaction, with the taxpayer making an investment and getting a return, it will not hit our deficit.

The second part of Help to Buy is even bolder and has not been seen before in this country. We are going to help families who want a mortgage for any home they are buying, old or new, but who cannot begin to afford the kind of deposits being demanded today. We will offer a new mortgage guarantee. This will be available to lenders to help them to provide more mortgages to people who cannot afford a big deposit. These guaranteed mortgages will be available to all homeowners, subject to the usual checks on responsible lending. Using the Government’s balance sheet to back these higher loan-to-value mortgages will dramatically increase their availability. We have worked with some of the biggest mortgage lenders to get this right; and we are offering guarantees sufficient to support £130 billion of mortgages. It will be available from the start of 2014 and run for three years. A future Government would need the agreement of the Bank of England’s Financial Policy Committee if they wanted to extend it.

Help to Buy is a dramatic intervention to get our housing market moving. For newly built housing, Government will put up a fifth of the cost; and for anyone who can afford a mortgage but cannot afford a big deposit, our mortgage guarantee will help them to buy their own home. That is a good use of this Government’s fiscal credibility.

In the Budget Book we also set out more plans for housing—plans to build 15,000 more affordable homes; plans to increase fivefold the funds available for building for rent; and plans to extend the right to buy so that more tenants can buy their own home.

People also have the aspiration to keep more of what they earn. That is a difficult aspiration for any Chancellor to help with when economic times are tough and money is short, but we are doing the hard work to reduce current spending. We have set out a tough package to raise money from tax avoiders. That means that with this Budget we can stick to the path of deficit reduction, increase capital spending, and still find ways to help families.

Let me turn to duties. We inherited a fuel duty escalator from the previous Government that would have seen above-inflation increases in every year of this Parliament. We abolished the escalator and we have now frozen fuel duty for two years. This has not been easy. The Government have forgone £6 billion in revenues to date, but oil prices have risen again, family budgets are squeezed, and I hear those who want me to do more to help them get by. My hon. Friend the Member for Harlow (Robert Halfon) has again spoken up for his hard-working constituents. He has been joined by many other hon. Friends, like the hon. Member for Argyll and Bute (Mr Reid). We have all listened to the people we represent. Today I am cancelling this September’s fuel duty increase altogether. Petrol will now be 13p per litre cheaper than if we had not acted over these last two years to freeze fuel duty. For a Vauxhall Astra or a Ford Focus, that is £7 less every time you fill up.

There is another duty escalator that we also inherited from the previous Government—the annual 2% above inflation increase in alcohol. We are looking at plans to stop the biggest discounts of cheap alcohol at retailers, but responsible drinkers in our pubs should not pay the price for the problems caused by others. The sad fact is that we have lost 10,000 pubs in the UK over the past decade. Many hon. Members, such as my hon. Friend the Member for Bristol North West (Charlotte Leslie), have raised their concerns with me, and my hon. Friend the Member for Burton (Andrew Griffiths) in particular has been a committed champion of the famous brewing industry that employs many of his constituents.

I intend to maintain the planned rise for all alcohol duties, with the exception of beer. We will now scrap the beer duty escalator altogether, and instead of the 3p rise in beer duty tax planned for this year by the previous Government I am cancelling it altogether.

That is the freeze people have been campaigning for, but I am going to go one step further and cut beer duty by 1p. We are taking a penny off the pint. The cut will take effect this Sunday night and I expect it to be passed on in full to customers. All other duties will remain as previously announced.

Of course, freezing petrol duty and cutting beer duty will not transform the finances of any family, but it helps a little to have some bills that are not going up. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. May I say to Back Benchers and to a couple of Members in particular that the panto season is not for another nine months, and if there are auditions could they take place outside the Chamber?

[Mr Osborne]

It helps a lot to be able to keep more of the money you earn before you pay tax on it. The Government support people who work hard and want to get on.

When we came to office the personal income tax allowance stood at under £6,500. In two weeks’ time, the allowance will reach £9,440, with the largest cash increase in its history. Twenty-four million taxpayers will see their income tax bill cut by an extra £200. More than 2 million of the lowest paid will be taken out of tax altogether.

In this Budget, the Government reconfirm their commitment to raising the personal allowance to £10,000, In fact, we go one better. We said we would raise the personal allowance to £10,000 by the end of the Parliament. Today I can confirm that we will get there next year. From 2014, there will be no income tax at all on the first £10,000 of your salary—£10,000 of tax-free earning. That is £700 less in tax for working families than when this Government came to office. Almost 3 million of the lowest paid will pay no income tax at all. It is a historic achievement for this Government and for hard-working families across the country.

I am aware that the concept of a 10p tax rate has caused problems for Labour Members. First, they introduced it before deciding that introducing it was a mistake and that it ought to be abolished. Then they decided that abolishing it was a mistake and that they ought to introduce it again. To put them out of their misery, we are going to turn their 10p band into a 0p band, so they do not have to worry about it any more. Every person who is paying at the 10p rate that Labour doubled will now pay no income tax at all.

There is one final tax change that I want to tell the House about. It is about jobs. In the end, aspiration is about living in a country where people can get jobs and fulfil their dreams. The ending of contracting out that I talked about generates extra employee national insurance revenues for the Exchequer. I want to put those revenues to good use. I want to support jobs and the small businesses that create them, and I want to do it with a reforming tax cut. In fact, it is the largest tax cut in this Budget.

The cost of employing people is a burden on small firms. It is a real barrier to taking an extra person on. To help create jobs and back small businesses in this country, I am today creating the employment allowance. The employment allowance will work by taking the first £2,000 off the employer national insurance bill of every company. It is a tax off jobs. It is worth up to £2,000 to every business in the country. It will mean that 450,000 small businesses—one third of all employers in the country—will pay no jobs tax at all.

For the person who has set up their own business and is thinking about taking on their first employee, a huge barrier will be removed. They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax. Ninety-eight per cent. of the benefit of this employment allowance will go to small and medium-sized enterprises. It will become available in April next year, once the legislation has passed. We will also make it available to charities and community sports clubs. The previous Government’s answer to Britain’s economic problems was to propose a tax on jobs. We stopped that and today this Government are taking tax off jobs.

A new employment allowance that helps small firms, a 20% rate of corporation tax and a £10,000 personal allowance are major achievements delivered by this Government in difficult times.

We understand that the way to restore our economic prosperity is to energise the aspirations of the British people. If you want to own your own home, if you want help with your child care bills, if you want to start your own business or give someone a job, if you want to save for your retirement and leave your home to your children, and if you want to work hard and get on, we are on your side. This is a Budget that does not duck our nation’s problems; it confronts them head on. It is a Budget for an aspiration nation. It is a Budget that wants to be prosperous, solvent and free, and I commend it to the House. [Interruption.]

[Mr Deputy Speaker]

Order. If Members want to debate the Budget, we had better make some progress.

LIBOR (FSA Investigation)

Debate between George Osborne and Lindsay Hoyle

Thursday 28th June 2012 Commons Chamber

[Mr Osborne]

The hon. Gentleman voted for 13 years for a Government who failed this country. We are changing the regulation, changing the structure of banking—[Interruption.] and we are dealing with this latest abuse— [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We have heard the question. The hon. Gentleman should have the courtesy to listen to the answer, even if he does not like it. There is no need to get so excited—

Financial Statement

Debate between George Osborne and Lindsay Hoyle

Wednesday 21st March 2012 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

This Budget rewards work. Britain is going to earn its way in the world. There is no other road to recovery. This Budget supports working families and helps those looking for work. It unashamedly backs business, and it is on the side of aspiration—of those who want to do better for themselves and for their families.

This Budget reaffirms our unwavering commitment to deal with Britain’s record debts, but because we have already taken difficult decisions this can also be a reforming Budget that seeks to repair the disastrous model of economic growth that created those debts—a model that saw manufacturing almost halved as a share of our national economy, while the national debt doubled.

This is how Britain will earn its way in the world: with far-reaching tax reform, with a simpler tax system where ordinary taxpayers understand what they are being asked to pay; with a tax system that is more competitive for business than any other major economy in the world; with a tax system where millions of the lowest paid are lifted out of tax altogether, while the tax revenues we get from the wealthiest increase.

Reforming tax is only part of the story. We will earn our way in the world by saying to all business, large and small, “We will provide you with modern infrastructure, new growth-friendly planning rules and employment laws and the kinds of schools, universities and colleges our future work force need. In return, you, British business, will have the self-confidence to invest, expand, hire, innovate and be the best.” We earn our way in the world if we stop being afraid to identify Britain’s strengths and reinforce them instead, backing industries such as aerospace, energy, pharmaceuticals, creative media and science—a deliberate strategy to create a more balanced national economy where financial services are strong, but are not the only string to our bow.

Stability comes first, and the report from the Office for Budget Responsibility reminds us today of the risks to stability. Despite the welcome action by the European Central Bank, the impact of the sovereign debt crisis on the European economy has been significant. Italy, the Netherlands, Belgium and others are now in recession, and Germany’s economy shrank in the last quarter. In today’s report, the OBR is sharply revising down its forecast for euro area growth this year by 0.8% to minus 0.3%. Its forecast for world economic growth is also revised down over the next two years, by 0.2% and 0.3% respectively.

Of course, Britain is not immune from those developments in our largest export markets, and the OBR says today that

“the situation in the euro area remains a major risk to our forecast”.

Another risk that it identifies is a

“further spike in oil prices”,

and there is no doubt that the high oil price, driven both by real demand and the Iranian situation, is of great concern across the world. It means that the OBR’s overall assessment of the outlook for, and risks to, the British economy is “broadly unchanged” since last November’s report.

Despite those head winds, there are some more positive signs. The OBR expects the British economy

“to avoid a technical recession with positive growth in the first quarter”

of this year. The British economy has, in its words,

“carried a little more momentum into the new year than previously anticipated”.

Indeed, the Office for Budget Responsibility is slightly revising up its growth forecasts for the UK this year to 0.8%. It then forecasts 2% next year—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I know that the House has to breathe, but we want to hear from the Chancellor of the Exchequer, and we cannot do that with too much noise on either side.

[Mr Osborne]

The OBR forecasts 2% next year, 2.7% in 2014, and 3% in both 2015 and 2016. Its forecast unemployment rate is the same as it was last autumn. It expects it to peak this year at 8.7%, before falling each year to 6.3% by the end of the forecast period, but it has revised down its estimate of the claimant count, which it now expects to be around 100,000 lower in each of the next four years than it previously forecast, peaking at 1.67 million this year, rather than the 1.8 million it forecast in November. It forecasts 1 million more jobs in the economy over five years.

Inflation is expected to fall throughout the period, from 2.8% this year to 1.9% next year, and then 2% by the end of the forecast period. I am today writing to the Governor of the Bank of England to reaffirm the consumer prices index inflation target of 2%. The Government’s credible and responsible fiscal policy allows the independent central Bank to pursue an activist monetary policy consistent with targeting low inflation. I confirm that the asset purchase facility will remain in place for the coming year.

Employment is growing, and inflation is coming down; so too is the deficit. When this Government came to office, the budget deficit stood at over 11%. The state was borrowing one in four of every single pound it spent. Today, I can report that the deficit is falling and is forecast to reach 7.6% next year. The share of national income taken by the state will have fallen from almost 48% when we took office to 43% next year. We must stick to the course, so there will be no deficit-funded giveaways today, but because we have taken difficult decisions we do not need to tighten further. Over the five-year period, this is a fiscally neutral Budget. This is achieved through a modest reduction in both taxation and spending.

Let me turn to those fiscal forecasts. The whole House will be pleased to know that these have improved a little from the forecasts that I presented in November. Borrowing this year is set to come in at £126 billion—£1 billion lower than I forecast in the autumn, and over £30 billion a year lower than its peak in the year before we came to office. Borrowing will then fall to £120 billion next year, if one excludes the transfer of Royal Mail pension assets. It will fall to £98 billion in 2013-14, then £75 billion, and then £52 billion, reaching £21 billion by 2016-17. So, in total, borrowing is £11 billion less than I last forecast, in the autumn, and this will be used to pay down debt.

In my first Budget, I set the Government the fiscal mandate of achieving a cyclically adjusted current balance by the end of the five-year horizon, and the OBR confirmed today that we are on course to achieve that mandate and to have eliminated the structural current deficit by 2016-17. It also confirmed that we are on course to reach our target for debt to be falling as a percentage of national income by the end of the Parliament in 2015-16. Public sector net debt is now set to peak at 76.3% in 2014-15, almost 2% lower than previously forecast, before falling the following year. With a balanced structural current budget and falling debt, our deficit reduction plan is on course, and we will not waiver from it. To do so would risk a sudden loss of confidence and a sharp rise in interest rates, and we will not risk that. Instead, we reinforce today our commitment to fiscal responsibility, not just this year, but in the years ahead.

The transfer of the £28 billion of assets from the Royal Mail pension fund to the Exchequer will free it from its crippling pension debts, ensure the pensions of hard-working staff are paid and help to bring in new, private sector investment. Some would have been tempted to spend the windfall. I do not propose to spend it; instead, I have used it to pay off debt.

We will also maintain our control on welfare spending. The passing of the Welfare Reform Act two weeks ago was an historic moment, and I pay tribute to my right hon. Friend the Work and Pensions Secretary, and to all my coalition colleagues for supporting him against determined opposition from those who defend unlimited welfare. But even with the Act, the welfare budget is set to rise to consume one third of all public spending. If nothing is done to curb welfare bills further, the full weight of the spending restraint will fall on departmental budgets. The next spending review will have to confront this, so I am today publishing analysis that shows that if in the next spending review we maintain the same rate of reductions in departmental spending as we have in this review, we would need to make savings in welfare of £10 billion by 2016.

We will also address the rising costs of an ageing population and the burden this places on future generations. We will publish a White Paper on social care. I have also said we would consider proposals to manage future increases in the state pension age, beyond the increases already announced. I can confirm today that there will be an automatic review of the state pension age to ensure it keeps pace with increases in longevity. Details of how this will operate will be published alongside the OBR’s long-term fiscal sustainability report this summer.

One area where Government spending is expected to be lower than planned is, as the Prime Minister just indicated, Afghanistan. We were reminded again yesterday of the sacrifice so many of our servicemen and women have made. As the Prime Minister made clear with the US President last week, UK forces will cease combat operations by the end of 2014. As a consequence, I can tell the House that the cost of operations—which are funded by the Government’s special reserve and are entirely separate from the Defence budget—is expected to be a total of £2.4 billion lower than planned over the remainder of the Parliament. Let me be clear today: the full cost of operations will continue to be met from the reserve, and our brave armed forces will get the equipment they need to complete the job.

But I can ensure that some of the benefit of the lower cost is felt by those who fight so hard and give so much for our nation’s security. We will fund an extra £100 million of improvements in the accommodation of our armed forces and their families. I will also double the families’ welfare grant, which is used to provide additional support to families left behind when people deploy. We have already doubled the operational allowance. Today, I am doubling the rate of council tax: the thousands serving our country in operations overseas will receive 100% relief on an average council tax bill.

Our commitment to reduce the deficit is keeping interest rates low. In this Budget, we take measures to ensure that the benefits of those low market interest rates are felt across the economy. They are certainly benefiting the taxpayer. Thanks to the reduction in the deficit and our low interest rates, this Government are saving a total of £36 billion in debt interest payments compared with their predecessor. This year is the 400th anniversary of the creation of the Treasury Board and the modern Treasury. There have been times recently when the Treasury has been borrowing money more cheaply than at any previous time in that 400-year history—few countries in Europe could say that at the moment. That reflects the confidence that investors have in Britain’s ability to pay its way.

I now want to test whether we can extend these benefits further into the future and diversify our portfolio. The longest gilt we currently offer to the market is 50 years. The Debt Management Office will consult on the case for issuing gilts with maturities longer than 50 years and the case for a “perpetual” gilt with no fixed redemption date— something that Britain last felt able to do six decades ago. We are also taking the opportunity to rebuild Britain’s reserves, which had fallen to historically low levels. I can confirm that our gold holdings have risen in value to £11 billion. Sadly, that does not include the 400 or so tonnes of gold sold a decade ago for £2 billion, which would now be worth six times that, at over £13 billion.

Working families are already being helped by historic low mortgage rates. The NewBuy scheme that we introduced last week uses the Government’s balance sheet to help those who cannot afford the larger deposits that some mortgage companies are now demanding. It comes alongside a new, reinvigorated right to buy, and to ensure that there are new homes to buy we are today expanding the get Britain building fund that provides up-front finance to construction firms.

We are also passing on our low interest rates to small businesses, through the national loan guarantee scheme, which started operation yesterday. Barclays, Lloyds, RBS, Santander and the new business bank, Aldermore, are all involved, and £20 billion of guarantees, in total, will be available. In the autumn statement, I also allocated £1 billion to invest in funds that lend directly to the mid-cap business that are the backbone of our economy. This is an alternative source of finance to the banks. The response has exceeded our expectations; 24 funds have submitted proposals. I am today shortlisting seven of them and, such has been the quality of the bids, I have also decided to increase the size of the finance partnership by 20%. I am also today expanding the enterprise finance guarantee.

Stability and credibility, the low interest rates they bring, and passing those low rates to families and businesses are necessary for growth, but alone they are not sufficient. As a nation, we have to make a choice. This country became seduced by large deficits and the illusion of cheap finance. Do we watch as the Brazils, Chinas and Indias of this world power ahead of us in the global economy or do we have the national resolve to say, “No, we will not be left behind. We want to be out in front”? That is this Government’s resolve.

Under this Government, Britain has moved into the top 10 of the most competitive places in the world in which to do business—but we have to do more, and here is how. First, on exports, over the last decade our share of world exports shrank as Germany’s grew. We sold more to Ireland than we did to Brazil, Russia, India and China put together. That was the road to Britain’s economic irrelevance, and we want to double our nation’s exports to £1 trillion this decade. So we are expanding UK Export Finance and setting out new plans to help smaller firms in new markets. Exports abroad must be accompanied by investment at home. Britain has a reputation as a remarkably open and welcoming place for investment. We must never allow protectionist rhetoric to creep into our political system.

Instead, we are actively seeking investment from overseas pension and sovereign wealth funds, and working to develop London as a new offshore market for the Chinese currency. We also want investment from British pension funds in British infrastructure, and we are now working with a dozen of the large pension schemes specifically on that. We are the first British Government to set out in a national infrastructure plan the projects we are going to prioritise in the coming decade: the roads, railways, clean energy and water, and broadband networks that we all need and that we have identified.

I believe that this country must confront the lack of airport capacity in the south-east of England. We cannot cut ourselves off from the fastest growing cities in the world, and my right hon. Friend the Transport Secretary will set out Government thinking later this summer. We want to look at the opportunities for increasing the role of private investment in the road network, learning lessons from the water industry. I confirm today that Network Rail will extend the northern hub, adding to the electrification of the trans-Pennine rail route by upgrading the Hope Valley line between Manchester and Sheffield and improving the Manchester to Preston and Blackpool and the Manchester to Bradford lines. For years transport investment in the north of England was neglected. Not under this Government.

We are working with our great cities to devolve decision-making powers and we are striking a ground-breaking deal this week with Manchester to support £1.2 billion in growth-enhancing infrastructure in that city. We will support £150 million of tax increment financing to help local authorities to promote development, and we will provide an extra £270 million to the Growing Places fund. In all this we are working with local areas to support their ideas for growing the private sector in parts of the country where the state has taken a larger and larger share of the economy.

The Mayor of London is a very effective champion for the city he runs so well. We will work with him on plans this summer to go on investing in London transport, lengthening commuter trains, extending the underground and exploring new river crossings in east London. So from the allocation made to the Mayor through the Growing Places fund, he will be creating a new £70 million development fund to attract new business and new jobs. The Mayor has persuaded me of the opportunities that the new Royal Docks enterprise zone offers our largest city if we offer enhanced capital allowances there, so we will.

Twenty-four enterprise zones are now going ahead across England. Chinese investment is pouring into the zone in Liverpool. The Marches zone in the west midlands is already expanding. I want other parts of the United Kingdom to benefit from these policies. My right hon. Friend the Chief Secretary can confirm today that we will offer enhanced capital allowances for businesses starting up in the new Scottish enterprise areas in Dundee, Irvine and Nigg, and there will be a new Welsh enterprise zone in Deeside, and we look forward to the first enterprise zone in Northern Ireland.

I want to see investment in our world-leading energy sector, including renewables. We have launched the Green investment bank, which will be open for business next month. We have introduced a carbon price floor into our tax system to encourage investment and we have set the rate today. Combined heat and power plants will not be liable to carbon price support rates on fuels used for heat.

Renewable energy will play a crucial part in Britain’s energy mix, but I will always be alert to the costs that we are asking families and businesses to bear. Environmentally sustainable has to be fiscally sustainable as well. The carbon reduction commitment was established by the previous Government. It is cumbersome and bureaucratic and imposes unnecessary costs on business, so we will seek major savings in the administrative cost of the commitment for business. If those cannot be found, I will bring forward proposals this autumn to replace the revenues with an alternative environmental tax.

Gas is cheap, has much less carbon than coal and will be the largest single source of electricity in the coming years, so my right hon. Friend the Energy Secretary will set out our new gas generation strategy in the autumn to secure investment. I want to ensure that we extract the greatest possible amount of oil and gas from our reserves in the North sea. We are today introducing a major package of tax changes to achieve this. We will end the uncertainty over decommissioning tax relief that has hung over the industry for years by entering into a contractual approach. We are also introducing new allowances, including a £3 billion new field allowance for large and deep fields to open up West of Shetland, the last area of the basin left to be developed—a huge boost for investment in the North sea.

We should not be shy about identifying our successful industries and reinforcing them. Around one fifth of the world’s top 100 medicines originate from UK research, so we are backing our life sciences sector by creating the Francis Crick institute at St Pancras and cutting taxes on patents to make this one of the most attractive places in the world to invent new medicines. We have protected the science budget. Now we are committing £100 million of support, alongside the private sector, for investment in major new university research facilities. With the world’s second largest aerospace industry, we will also establish a UK centre for aerodynamics to open next year, which will encourage innovation in aircraft design and commercialise new ideas.

Today we set Britain this industrial ambition—that we turn Britain into Europe’s technology centre. We will start with digital content. The film tax credit, protected in our spending review, helped to generate over £1 billion of film production investment in the UK last year alone. Today I am announcing our intention to introduce similar schemes for the video games, animation and high-end TV production industries. Not only will this help to stop premium British TV programmes like “Birdsong” being made abroad, but it will attract top international investors like Disney and HBO to make more of their premium shows in the UK. It will support our brilliant video games and animation industries too, because it is the determined policy of this Government that we keep Wallace and Gromit exactly where they are.

[Hon. Members]

More! More!

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I should have thought that Members on the Government Benches would want to hear more from the Chancellor, because the country does.

[Mr Osborne]

To be Europe’s technology centre we need to have the best technology infrastructure. Two years ago Britain had some of the slowest broadband speeds in Europe. Today our plans will deliver some of the fastest, with 90% of the population having access to superfast broadband, and improved mobile phone coverage for rural areas and along key roads across the UK. But we should not be complacent by saying it is enough to be the best in Europe when countries such as Korea and Singapore do even better, so today we are funding ultra-fast broadband and wi-fi in 10 of the UK’s largest cities—Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, Manchester, Newcastle and London. My hon. Friend the Member for Brighton, Kemptown (Simon Kirby) asked me to help small cities too, no doubt with his own city in mind. I agree; £50 million will be available for smaller cities too. The fastest digital speeds in the world available in our cities, with the most connected countryside in Europe and the most creative digital content anywhere—that is what a modern industrial policy looks like.

My right hon. Friend the Business Secretary and I have asked Michael Heseltine to review by the autumn how Government spending Departments and other public bodies can work better with the private sector on economic development. From Liverpool to Canary Wharf, Michael knows how it is done. Of course, these projects succeeded because they were not killed off by the planning system. No one can earn their future if they cannot get planning permission. Global businesses have diverted specific investments that would have created hundreds of jobs in some of the most deprived communities in Britain to countries such as Germany and the Netherlands, because they cannot get planning permission here. That is unacceptable.

Next week my right hon. Friend the Communities Secretary and the Minister of State, Department for Communities and Local Government, my right hon. Friend the Member for Tunbridge Wells (Greg Clark), the Minister with responsibility for planning, will publish the results of our overhaul of planning regulation. We are replacing 1,000 pages of guidance with just 50 pages. We are introducing a presumption in favour of sustainable development, while protecting our most precious environments. The new policy comes into effect when the national planning policy framework is published next Tuesday. This is the biggest reduction in business red tape ever undertaken.

As a country, we also want to make the most of the Olympic and Paralympic games. Some of the biggest events will be on a Sunday. When millions of visitors come to Britain to see them, we do not want to hang up a “Closed for Business” sign, so we will introduce legislation limited to relaxing the Sunday trading laws for eight Sundays only, starting on 22 July.

Earning our way in the world means giving young people the skills to compete. In time, the school reforms being introduced by my right hon. Friend the Education Secretary will do more to improve the long-term economic performance of our country than any Budget measure ever will. But we have got to help the young adults who have already been let down by the schools system. We are offering a record number of apprenticeships and our youth contract comes into force next month. I can tell the House that we are also exploring the idea of enterprise loans. Young people get a loan to go to university or college; now we want to help them get a loan to start their own business.

We are also looking to see whether we can make public sector pay more responsive to local pay rates. As we have just heard, that is something the last Government introduced in the Courts Service. London weighting already exists across the public sector. Indeed, the Opposition have proposed the interesting idea of regional benefit rates. So we should see what we can do to make our public services more responsive and help our private sector to grow and create jobs in all parts of the country. We have asked the independent pay review bodies to look at this issue. Today we are publishing the evidence the Treasury is submitting to them, and some Departments will have the option of moving to more local pay for those civil servants whose pay freezes end this year.

New infrastructure and investment and ambitious reforms of planning, education and welfare to help businesses create jobs will all help Britain to earn its way in the world, but we also need a tax system that supports work. Two hundred years ago Adam Smith set out the four principles of good taxation, and they remain good principles today: taxes should be simple, predictable, support work and be fair. The rich should pay the most and the poor the least. The tax system this Government inherited from our predecessor has drifted far from these principles. We have already addressed some of the problem. We have established an Office of Tax Simplification to drive out complexity. Companies are moving to Britain, not away. We stopped the jobs tax. We have taken 1 million low-paid people out of tax altogether. But now we need further reform. We need to give Britain a modern tax system fit for the modern world.

The first goal is a far simpler tax system that businesses can easily navigate and where ordinary taxpayers understand what they are being asked to pay, so we will radically change the administration of tax for our smallest firms. Last year I asked the Office of Tax Simplification for recommendations. It has proposed that we tax small firms on the basis of the cash that passes through their businesses, rather than asking them to spend a huge amount of time doing calculations designed for big businesses. I agree, so we will consult on this new cash basis for calculating tax for firms with a turnover of up to £77,000, double what the Office of Tax Simplification proposed. This will make filling in tax returns dramatically simpler for up to 3 million firms.

We are also pressing forward with our ambition to integrate the operation of income tax and national insurance, which I announced at last year’s Budget, so that we do not ask businesses to run two different payroll tax administrations. A detailed consultation on how we will do this will be published next month.

We will also address some of the loopholes and anomalies in our VAT system. For example, at present soft drinks and sports drinks are charged VAT, but sports nutrition drinks are not. Hot takeaway food on the high streets has been charged VAT for more than 20 years, but some new hot takeaway products in supermarkets are not. Some companies are using the VAT rules that exempt the rental of land to avoid the tax that their competitors are paying. We are publishing our plans today to remove loopholes and anomalies, but we will keep the broad exemptions on food, children’s clothes, printed books and newspapers.

We should also simplify the age-related allowances, which the Office of Tax Simplification recently highlighted as a particularly complicated feature of the tax system. The National Audit Office points out that many pensioners do not understand them. These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is already being eroded.

So over time we will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances for anyone reaching the age of 65 on or after 6 April 2013, and I will freeze the cash value of the allowance for existing pensioners until it aligns with the personal allowance. This will protect the existing level of allowance pensioners have while introducing a new single personal allowance for all. It is a major simplification, it saves money, and no pensioner will lose in cash terms.

Under this Government, pensioners next month will receive the largest ever cash increase in the basic state pension of £5.30 a week. Now we want to simplify the basic state pension and its interaction with the second state pension. I pay tribute to the work my hon. Friend the Pensions Minister has done on this. Such is the complexity of this means-tested system that only someone like our Pensions Minister can work out exactly what someone is entitled to and what they need to save, so I can confirm that we will introduce a new single-tier pension for future pensioners, set above the means test. This is currently estimated at around £140. It will be based on contributions and will cost no more than the current system in any year. We will bring forward further details later this spring. It will be a single, generous, basic state pension for those who have worked hard and saved hard all their lives, and a further major simplification of our tax and benefit system.

In the information age people should know what taxes they are paying and what their money is being spent on. My hon. Friend the Member for Ipswich (Ben Gummer) recently proposed to this House that we send taxpayers an annual statement showing them just that. I think this is an excellent idea and intend to put it into practice. HMRC contacts roughly half of taxpayers each year. From 2014, these 20 million taxpayers will at the same time receive a new personal tax statement. This will tell people how much income tax and national insurance they have paid, their average tax rates and how this contributes to public spending—in other words, how much, proportionately, of their tax bill goes to fund the healthcare, education, or welfare bills and how much is spent on servicing interest payments on the national debt. People will know what they are paying and what they are paying it for. A tax system that is simple and transparent: that is our first goal.

Our second goal is a tax system that is more competitive for business than any other major economy in the world. Our predecessors wanted to increase taxes on small businesses. Instead, we have cut the tax rate on small companies to 20%. Our predecessors wanted to increase national insurance on jobs, and we have cut it. Our new controlled foreign company rules will be legislated for in the coming Finance Bill and will stop global firms leaving Britain, as they were, and encourage them to start coming here.

This Government also support research and development here in Britain instead of abroad. We have already increased the generosity of the R and D tax credit for smaller firms. I confirm that from next year we will also introduce an above-the-line R and D tax credit that business organisations such as the Engineering Employers Federation, the Institute of Directors and the CBI have campaigned hard for. We will help new start-up businesses to recruit and retain talent by more than doubling the enterprise management incentive scheme grant limit to £250,000 and easing the rules so that academics in our universities can turn great ideas into great companies. The Treasury will review for this autumn what more we can do to encourage employee ownership.

All these tax reductions will help to win business for Britain, but the headline rate of corporation tax remains the most visible sign of how competitive our country is. We have already cut the rate from 28% to 26%. This April it is due to fall again to 25%. I can tell the House today that we will have a further cut of 1%, to be implemented right away.

From next month, Britain will have a corporation tax rate of just 24%, and we will continue with the two further cuts planned next year and the year after, so that by 2014 Britain will have a 22% rate of corporation tax. That is the biggest sustained reduction in business tax rates for a generation—a headline rate that is not just lower than our competitors, but dramatically lower: 18% lower than the US, 16% lower than Japan, 12% below France and 8% below Germany. That is an advertisement for investment and jobs in Britain, and it is a rate that puts our country within sight of a 20% rate of business tax that would align basic rate income tax, the small companies rate and the corporation tax rate.

I am also increasing the rate of the bank levy to 0.105% from next January, so that the additional corporation tax cuts do not benefit the banks, and so that our levy will in addition raise the £2.5 billion a year that we said it would.

That brings me to the main duties. Let me start with alcohol duty. The Government will shortly be publishing their alcohol strategy to address the growing problem of alcohol abuse, and the many billions of pounds it costs our NHS and criminal justice system, but today I have no further changes to make to the duty rates set out by my predecessor.

Turning to tobacco duty, smoking remains the biggest cause of preventable illness and premature death in the UK. There is clear evidence that increasing the cost of tobacco encourages smokers to quit and discourages young people from taking it up. So duty on all tobacco products will rise by 5% above inflation. That is 37p on a packet of cigarettes, and this will take effect at 6pm tonight.

One area where I am today making substantial changes is gambling duties. The VAT treatment of gaming machines is being repeatedly challenged by operators in the courts, so I will introduce a new machine games duty, with a standard rate of 20%, and a lower rate for low stakes and prize machines of 5%, of net takings. The current duty regime for remote gambling introduced by the last Government was levied on a “place of supply” basis. This allowed overseas operators largely to avoid it, and much of the industry has, as a result, moved offshore. Ninety per cent of online gambling consumed by our citizens is now supplied from outside the UK, and the remaining UK operations are under pressure to leave. This is clearly not fair—and not a sensible way to support jobs in Britain. So we intend to introduce a tax regime based on the place of consumption—where the customer is based, not the company—and, from this April, we will also introduce double taxation relief for remote gambling. These changes will create a more level playing field, and protect jobs here.

I turn now to fuel and vehicle excise duties. High oil prices have put real pressure on household budgets and on businesses. That is why we took action in last year’s Budget to cut fuel duty so that it is 6p lower than our predecessors planned. We have also scrapped the last Government’s fuel duty escalator of annual above-inflation rises, regardless of the oil price, and we are today confirming the fair fuel stabiliser. Above-inflation rises will return only if the oil price falls below £45 on a sustained basis—currently equivalent to about $75. These measures mean that this Government have eased the burden on motorists by £4.5 billion at a time when money is very short. I do not propose to make any further changes to the fuel duty plans already set out.

I am increasing vehicle excise duty by inflation only. To encourage fuel efficient fleets, we will extend the 100% first-year capital allowance for low-emission business cars, reduce the CO₂ threshold for the main capital allowance rates and increase the percentage list price of company cars subject to tax. I can also announce that I am again freezing vehicle excise duty for road hauliers.

I now turn to personal and property taxation. My goal is a tax system where the lowest paid are lifted out of tax altogether, while the tax revenues that we get from the richest increase. Most wealthy people pay their taxes, and without them we could not begin to afford the public services upon which this country depends, but under the last Government it was the boast of some high earners that, with the help of their accountants, they were paying less in tax than their cleaners.

I regard tax evasion and, indeed, aggressive tax avoidance as morally repugnant. We have increased both the resources and the number of staff working on evasion and avoidance at HMRC. Taken together, the anti-avoidance measures in this year’s Finance Bill will increase tax revenue over the next five years by around £1 billion, and protect a further £10 billion that could have been lost. This week we have signed a further agreement with the Swiss to stop UK residents evading tax.

We have done all these things, but today we do even more. On coming to office, I asked Graham Aaronson QC to establish whether a general anti-avoidance rule could work in the UK tax system. He recommended that such a rule would improve our ability to tackle tax avoidance without damaging the competitiveness of the UK as a place to do business. We agree, so we will introduce one. We will consult on the details of the new rule and legislate for it in next year’s Finance Bill.

A major source of abuse, and one that rouses the anger of many of our citizens, is the way in which some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop, and now we are taking action. I am increasing the stamp duty land tax charge applied to residential properties over £2 million that are bought into a corporate envelope. The charge will be 15%, and it will take effect today.

We will also consult on the introduction of a large annual charge on those £2 million residential properties that are already contained in corporate envelopes, and, to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes. We are also announcing legislation today to close down the subsales relief rules as a route of avoidance.

Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, we will expect stamp duty to be paid. This is the clear intention of Parliament, and I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned. It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more. From midnight tonight, we will introduce a new stamp duty land tax rate of 7% on properties worth more than £2 million.

I also intend to deal with the unlimited use of income tax reliefs. Let us be clear: most rich people pay a lot of tax. It is also right that we have tax reliefs that promote investment, support charitable giving and reflect genuine business loss. But it cannot be right that some people make unlimited use of these reliefs year after year. Everyone in this country, and particularly those with the highest incomes, should contribute a fair share to the Exchequer. Some reliefs, such as the enterprise investment scheme and pensions relief, are already capped, and I do not intend to make any significant changes to pensions relief in this Budget. But, to make sure that those on the highest income contribute a fair share, I am introducing a new cap on those reliefs that are currently uncapped.

From next year, anyone seeking to claim more than £50,000 of these reliefs in any one year will have a cap set at 25% of their income. We have capped benefits. Now it is right to cap tax reliefs too.

That brings me to the rates of income tax and the additional rate of 50p. This tax rate is the highest in the G20; it is higher not just than the tax rate of America, but also of major European countries like France, Italy and Germany. It is widely acknowledged by business organisations and international observers as harming the British economy. Like the previous Chancellor who introduced it, I have always said that it was temporary. But I also said, three years ago, that I would not be prepared to reduce it while we were asking the whole public sector to accept a pay freeze, and I will stick to those pledges.

A 50p tax rate, with all the damage it does to Britain’s competitiveness, can only be justified if it raises significant sums of money. In last year’s Budget, I asked Her Majesty’s Revenue and Customs to look at the evidence, and especially to look at the self-assessment tax receipts that have come in since this January. I am publishing its report today. What it reveals is that the 50p tax rate has caused massive distortions.

HMRC finds that an astonishing £16 billion of income was deliberately shifted into the previous tax year, at a cost to the taxpayer of £1 billion—something that the previous Government’s figures made no allowance for whatsoever. Self-assessment receipts this year are below forecast by some £3.6 billion, while other tax receipts have held up. The increase from 40p to 50p raised just a third of the £3 billion that we were told it would raise.

Of course, the previous Government initially proposed a rate of 45p and then increased that to 50p. Let me tell the House what HMRC says about the difference between 50p and 45p. Its figures—

[Mr Osborne]

I am coming on to the OBR, don’t you worry.

The HMRC figures tell the story. The direct cost is only £100 million a year. Indeed, HMRC calculates that the loss of other tax revenues may even cancel that out. In other words, it raises at most a fraction of what we were told, and may raise nothing at all. So from April next year, the top rate of tax will be 45p. No Chancellor can justify a tax rate—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We are nearly coming to the end, and I want the same respect to be given to the Leader of the Opposition.

--- Later in debate ---

[Mr Osborne]

No Chancellor can justify a tax rate that damages our economy and raises next to nothing—it is as simple as that. Thanks to the other new taxes on the rich that I have announced today, we will be getting five times more money each and every year from the wealthiest in our society. So the richest pay more—[Interruption.].

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Mr Flello, you are getting very excited at the back. I am sure that you want to calm down; it is not good for your health.

[Mr Osborne]

The richest pay more, the economy benefits and Britain is competitive again.

The shadow Chancellor and quite a few Labour Members have said that the HMRC report is not enough and that the Office for Budget Responsibility should pass judgment. It has, because these days the direct costing that the Treasury applies to every Budget measure is independently assessed and certified by the OBR. Unlike the previous Government, it also assesses the cash flow consequences of forestalling.

When it comes to the £100 million direct permanent costs of this measure, the OBR says this:

“we believe that this is a reasonable and central estimate”.

It also assesses as reasonable the estimate that the new taxes that I have introduced on the rich today directly raise five times that amount. That is half a billion pounds that we can now use to help people on lower and middle incomes keep more of their earnings.

In the spending review, we took the difficult decision to remove child benefit from families with a higher rate taxpayer. I said then that I simply could not justify asking those earning £15,000 or £30,000 a year to go on paying child benefit to those earning £80,000 or £100,000, and I stand by that principle. All sections of society must make a contribution to dealing with the deficit. Without this measure, we would not get the job done. But I said that I wanted to do this in a way that is fair and that does not involve setting up some new means-tested tax credit system for millions of families; and I said I would set out exactly how this measure would be implemented in this Budget.

We want to avoid a cliff edge that means that people lose all their child benefit when they earn just a pound more. So I can today confirm that, instead of withdrawing child benefit all at once when people earn more than the higher rate threshold, the benefit will only be withdrawn when someone in the household has an income of more than £50,000, and the withdrawal will be gradual—1% of child benefit for every extra £100 earned over £50,000, so there is no cliff edge and only those with an income of more than £60,000 lose all their child benefit.

This means that an extra 750,000 families will keep some or all of their child benefit, and 90% of all families will remain eligible for child benefit. We can afford to implement the child benefit policy in this way because instead of extending the full benefit of this Budget’s increase in the personal allowance to all higher rate taxpayers, as we did last year, we will pass on a quarter of the benefit to higher rate taxpayers and spend the rest on helping families with children towards the bottom of the higher rate band, as I have explained.

That brings me on to the personal allowance and the central goal of this Budget, which is to support working families. This coalition Government believe that the best way to support working people on the lowest incomes is to take them out of tax altogether, and the best way of getting money directly into the pockets of working families on middle incomes is to increase the amount of their earnings that they can keep before they pay tax.

That is why this Government have set themselves the goal of raising the personal tax-free allowance to £10,000, and we have promised real increases every year to reach that. In my last two Budgets, we made great strides forward. Last year, the personal allowance rose by £1,000; in two weeks’ time, it will go up by another £630 to £8,105. Together, these increases have taken over a million low-paid people out of tax altogether.

Today, I want to go much further and much faster. I am announcing the largest ever increase in the personal allowance—that is, the amount that people can earn tax free. From next April, that amount will increase by £1,100. Every working person on low or middle incomes will benefit. People will be able to earn up to £9,205 before they have to pay any tax. Millions of working people will be £220 better off every year; that is £170 better off after inflation. Because higher rate earners will also benefit, 24 million people earning less than £100,000 a year will gain from this measure. We are in touching distance of the goal of a £10,000 personal allowance that we all share.

I can tell the country that as a result of our Budgets, people working full time on the minimum wage will have seen their income tax bill cut in half. This coalition Government will have taken 2 million of the lowest paid people in our country out of tax altogether.

In the middle of this Parliament, in difficult economic times, this coalition Government have not settled for a do-nothing Budget. We have not ducked the difficult choices; we have taken them head on—a competitive top rate of tax; more revenues from those best able to pay; fewer reliefs; a tax cut for working people; support for families; and low-income earners taken out of tax altogether. Alongside it, we have one of the lowest rates of business tax in the world; a simpler tax code; and a country where its citizens know the taxes they are paying and what they are paying them for. We have achieved all this and kept to our deficit plan.

Let us be resolved. No people will strive as the British will strive. No country will adapt as the British will adapt. No country will value those who work as we will value those who work. Together, the British people will share in the effort and share the rewards. This country borrowed its way into trouble; now we are going to earn our way out. I commend the Budget to the House. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. [Interruption.] Order. [Interruption.] I think we have had enough. Thank you, Mr Baron; you may get a new job at this rate.

Under Standing Order No. 51, the first motion, entitled “Provisional Collection of Taxes”, must be decided without debate. I call on the Chancellor of the Exchequer to move it formally.

Sovereign Grant Bill

Debate between George Osborne and Lindsay Hoyle

Thursday 14th July 2011 Commons Chamber

[Paul Flynn]

I do not think it is fair to blame the monarch for the way in which the measures were rushed into the House. Normally, if there is a change to business, a business statement is made to the House as early as possible; I cannot remember one being made at all in this case. Most hon. Members had other pressing business on that day, and only those who were here in the morning had any idea that the measures were going ahead.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

Order. I have sympathy for the hon. Gentleman, but we have just decided on the process that we are following; we now have to stick with where we are.

[Mr Osborne]

All I would say is that I have followed the advice of the House authorities throughout. The procedure has been unusual. People have said that this is the most important change since 1760, but of course in the early 1970s the House made some significant changes, so we are partly following procedures laid down then.

Let me get on to the substance of the Bill. Everyone has now had a chance to read it. Amendments have been tabled by Opposition Back Benchers, Opposition Front Benchers, and Government Front Benchers, and I shall say something about that. We have basically accepted some of the amendments that the shadow Chancellor and his team tabled, and I will explain why later.

I will begin, as we should do on such occasions, by putting on the record the House’s gratitude for the service that the Queen has provided to our country over many decades. Indeed, her time on the throne recently exceeded that of George III and she now has Queen Victoria in her sights. The recent visit by the Duke and Duchess of Cambridge to Canada and California reminded us that other members of the royal family also make an enormous contribution. As I said a couple of weeks ago—it is a view shared by nearly everyone in the House—we want a system that provides the Queen with dignity and allows her and her family to do their official jobs, which in her case is Head of State, but to do so in a way that is accountable, transparent and delivers value for money for the taxpayer.

The current system of financial support has some very serious shortcomings. It is very inflexible, so money saved in one spending area such as travel cannot be spent in another area such as the maintenance of royal palaces. It is not very transparent, as the National Audit Office is not the auditor of royal finances; that is done by the permanent secretary to the Treasury. I pay tribute to my hon. Friend the Member for Gainsborough (Mr Leigh), the former Chair of the Public Accounts Committee, for the work it did in recent years to look at value for money studies on particular areas of royal financing, which has been quite opaque and which this Bill seeks to change. Critically, the current system has relied on a reserve of public money that was built up over the past 20 years and is now depleted. That was a crucial part of the royal household’s annual funding for the continuance of their official duties. That money has run out, so in other words the system is broken and we have to fix it.

The Economy

Debate between George Osborne and Lindsay Hoyle

Wednesday 22nd June 2011 Commons Chamber

[Chris Bryant]

Give way!

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Can we be a little calmer? Mr Bryant, I know you are very excited, but I am sure that people will give way.

[Mr Osborne]

The shadow Chancellor is a man with a past, but no ideas for the future. The Leader of the Opposition may be uncomfortable having him in the shadow Cabinet, but we are not, because he is going to be a living reminder that people can never trust Labour with the economy again. Meanwhile, the rest of us have got to get on and clear up the mess he left behind.

Financial Statement

Debate between George Osborne and Lindsay Hoyle

Tuesday 22nd June 2010 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

This emergency Budget deals decisively with our country’s record debts. It pays for the past, and it plans for the future. It supports a strong, enterprise-led recovery, it rewards work and it protects the most vulnerable in our society. Yes, it is tough, but it is also fair.

This is an emergency Budget, so let me speak plainly about the emergency that we face. The coalition Government have inherited from their predecessors the largest budget deficit of any economy in Europe, with the single exception of Ireland. One pound in every four we spend is being borrowed. What we have not inherited from our predecessors is a credible plan to reduce their record deficit—this at the very moment when fear about the sustainability of sovereign debt is the greatest risk to the recovery of European economies. Questions that were asked about the liquidity and solvency of banking systems are now being asked about the liquidity and solvency of some of the Governments who stand behind those banks. I do not want those questions ever to be asked of this country. That is why we have set a brisk pace since taking office.

In the past seven weeks, we have announced, conducted and completed a review of this year’s spending and identified £6 billion of savings. We have announced, established and received the report of the independent Office for Budget Responsibility. The power that the Chancellor has enjoyed for centuries to determine the growth and fiscal forecasts now resides with an independent body immune to the temptations of the political cycle. And we have examined, decided on and in some cases halted the mass of unfunded commitments, IOUs and overcommitted reserves that greeted us on entering office.

This is early, determined action, and it has earned us credibility in international markets. It has meant that our promise to deal decisively with the deficit has been listened to. Market interest rates for Britain have fallen over the past seven weeks, while those of many of our European neighbours have risen. Those lower market interest rates are already supporting our recovery.

But unless we now deliver on that promise of action with concrete measures, that credibility—so hard won in recent weeks—will be lost. The consequence for Britain would be severe: higher interest rates, more business failures, sharper rises in unemployment, and potentially even a catastrophic loss of confidence and the end of the recovery. We cannot let that happen. This Budget is needed to deal with our country’s debts. This Budget is needed to give confidence to our economy. This is the unavoidable Budget.

I am not going to hide hard choices from the British people or bury them in the small print of the Budget documents. The British public are going to hear them straight from me, here at this Dispatch Box. Our policy is to raise from the ruins of an economy built on debt a new, balanced economy, where we save, invest and export; an economy where the state does not take almost half of all our national income, crowding out private endeavour; an economy not overly reliant on the success of one industry, financial services—important as they are—but where all industries grow; an economy where prosperity is shared among all sections of society and all parts of the country. In this Budget, everyone will be asked to contribute. But in return, we make this commitment: everyone will share in the rewards when we succeed. When we say that we are all in this together, we mean it.

The first challenge for this Budget is to set the fiscal mandate—in other words, our overall objective for the public finances. The previous Government had two fiscal rules, one for debt and one for the current Budget. They were supposed to force Chancellors to set aside money in the good years so that they could borrow sustainably when the economy turned down. They completely failed in that task.

As this is the last Budget in which this golden rule will appear, I would like to be the last Chancellor to report on it. We are set to miss the golden rule in this cycle by £485 billion. We now know the intrinsic weakness in backward-looking fiscal rules: past prudence was an excuse for future irresponsibility; and the judge of the rules was the very same Chancellor they were supposed to be restraining. We propose a more credible approach.

Our fiscal mandate will be forward-looking, and the judge of whether we are on course to meet it will be not the Chancellor, but the independent Office for Budget Responsibility. On behalf of the House, I thank Sir Alan Budd and his fellow committee members, Geoffrey Dicks and Graham Parker, for their highly professional effort. In the space of just seven weeks, I believe we have established the Office for Budget Responsibility as a permanent improvement to economic policy making and the transparency of government. The legislation to put the office on a statutory footing will now be drawn up and I hope it will command all-party support.

I now turn to what that fiscal mandate will be. The view of the international community was clearly expressed at the latest G20 meeting, and we will be taking the same message to the G20 summit in Toronto this weekend. Surplus countries should do more to support global demand. So we welcome China’s announcement to come off the dollar peg. At the same time, the international community believes countries with high fiscal deficits need to accelerate the pace of fiscal consolidation. That is precisely what we now propose to do. The formal mandate we set is that the structural current deficit should be in balance in the final year of the five-year forecast period, which is 2015-16 in this Budget. This mandate is structural, to give us flexibility to respond to external shocks; current, to protect the most productive public investment; and credible, because the OBR, not the Chancellor, will decide on the output gap.

In order to place our fiscal credibility beyond doubt, this mandate will be supplemented by a fixed target for debt, which in this Parliament is to ensure that debt is falling as a percentage share of GDP by 2015-16. I can confirm that, on the basis of the measures to be announced in this Budget, the judgment of the OBR, which we published today, is that we are on track to meet those goals. Indeed, I can tell the House that, because we have taken a cautious approach, we are set to meet them one year earlier, in 2014-15. To put it another way, we are on track to have debt falling and a balanced structural current budget by the end of this Parliament.

At this point in the Budget speech, the Chancellor would normally read out their own set of economic and fiscal forecasts, and they normally tell the House more about the political cycle than the economic one. Those days have gone for good. Instead, I will give the House the latest forecasts from the independent OBR, taking into account the measures in the Budget.

Growth in the UK economy for the coming five years is estimated to be 1.2% this year and 2.3% next year; then 2.8% in 2012 followed by 2.9% in 2013; and then 2.7% in both 2014 and 2015. Consumer price inflation is expected to reach 2.7% by the end of the year before returning to target in the medium term, and let me take this opportunity to confirm that the inflation target remains at 2% as measured on the consumer prices index.

The unemployment rate is forecast by the OBR to peak this year at 8.1% and then fall for each of the next four years to reach 6.1% in 2015. Some have suggested that there is a choice between dealing with our debts and going for growth. That is a false choice. The crisis in the eurozone shows that unless we deal with our debts, there will be no growth. These forecasts demonstrate that a credible plan to cut our budget deficit goes hand in hand with a steady and sustained economic recovery, with low inflation and falling unemployment. What is more, the forecast shows a gradual rebalancing of the economy, with business investment and exports playing a greater role and Government spending and debt-fuelled consumption a smaller role—a sustainable private sector recovery built on a new model of economic growth, instead of pumping the debt bubble back up.

Part of the reason, as we have always argued, is that tighter fiscal policy can enable interest rates to stay lower for longer. As the Governor of the Bank of England confirmed this week at the Mansion House:

“If prospects for growth were to weaken, the outlook for inflation would probably be lower and monetary policy could then respond”.

The subject of interest rates brings me to say this about attempts to compare directly last week’s forecasts with this one. As the OBR notes in today’s Budget document, any such comparison would be “misleading”, because last week’s forecast included the lower interest rates that expectations of this week’s Budget have already brought about. So, as Sir Alan has written, actually to follow the fiscal path set out by the previous Government

“would lead to higher interest rates and…lower economic activity”

than his forecast showed.

Let me now turn to the measures in the Budget designed to deliver this accelerated reduction in the structural deficit. The coalition believes that the bulk of the reduction must come from lower spending rather than higher taxes. The country has overspent; it has not been under-taxed. Our approach is supported by the international evidence, compiled by the OECD, the International Monetary Fund and others, which found that consolidations delivered through lower spending are more effective at correcting deficits and boosting growth than consolidations delivered through tax increases.

That is the origin of our 80:20 rule of thumb—roughly, 80% through lower spending and 20% through higher taxes. This evidence has been available in the Treasury for some time, but was published only in a redacted form by the previous Government. We intend to follow international best practice and the Treasury’s own analysis. My measures today mean that 77% of the total consolidation will be achieved through spending reductions and 23% through tax increases. I believe this gets the balance right.

I now turn to the OBR’s fiscal forecasts. As a result of the measures I will announce today, public sector net borrowing will be £149 billion this year, falling to £116 billion next year, £89 billion in 2012-13 and £60 billion in 2013-14. By 2014-15, borrowing reaches £37 billion—exactly half the amount forecast in the March Budget—and in 2015-16, borrowing falls further to £20 billion. As a share of the economy, borrowing will fall from 10.1% of GDP this year to just 1.1% in 2015-16.

We now know, thanks to the OBR forecast, that the structural current deficit is significantly larger than we were told—0.8% of GDP or £12 billion higher next year. Thanks to my action today, the structural current balance will be minus 4.8% of GDP this year. That deficit will then be eliminated to plus 0.3% in 2014-15 and plus 0.8% in 2015-16. In other words, it will be in surplus.

Public sector net debt, as a share of GDP, will be 62% this year, before peaking at 70% in 2013-14. Because of our action today, it then begins to fall, to 69% in 2014-15 and then 67% in 2015-16, whereas under the plans we inherited, debt would have increased in every full year of this Parliament. The House will want to know that, as a result of our measures, debt interest payments will be £3 billion a year lower by the end of this Parliament than they would have been.

I have one further announcement to make regarding macro-economic policy. I can confirm that, as set out in the coalition agreement, the Government will not be joining the euro in this Parliament. I have therefore abolished the Treasury’s Euro Preparations Unit—yes, one does exist—and the official concerned has been redeployed to more productive activities.

Let me now turn to my other decisions on public spending. The state today accounts for almost half of all national income, which is completely unsustainable. All parties in the House now accept that spending needs to be cut, and we have made a start, but we need to go much further if we are to meet our fiscal mandate and see debt falling by the end of this Parliament. Today we are setting out the overall path of public spending that will achieve that.

Let me begin with current spending. Current expenditure will rise from £637 billion in 2010-11 to £711 billion in 2015-16. Although this is an increase, the House should remember that we inherit a rapidly rising bill for debt interest—a bill that will not start falling until the debt itself starts to fall. Debt interest payments alone will cost the taxpayer a quarter of a trillion pounds over this period. One of my predecessors used to call this spending the costs of social failure, but I say it is the price of economic failure. Compared with the plans set out by the previous Government, I am announcing today additional current expenditure reductions of £30 billion a year by 2014-15. The plans for public investment we inherit from our predecessors envisage a steep drop from £69 billion last year to £46 billion in 2014-15.

After the initial in-year reductions, the question we have been faced with is how much further to go on capital spending. Well-judged capital spending by Government can help provide the new infrastructure our economy needs to compete in the modern world. It supports the transport links we need to trade our goods, the equipment we need to defend our country and the facilities we need to provide quality public services. I think an error was made in the early 1990s when the then Government cut capital spending too much—perhaps because it is easier to stop new things being built than to cut the budgets of existing programmes.

We have faced many tough choices about the areas in which we should make additional savings, but I have decided that capital spending should not be one of them. There will be no further reductions in capital spending totals in this Budget, but we will make careful choices about how that capital is spent. The absolute priority will be projects with a significant economic return to the country. Assessing what those projects are will be an important part of the autumn spending review.

The Government can also dispose of assets that should rightly be in private ownership. Yesterday, we launched the sale of High Speed 1. We will look at how to dispose of our shareholding of NATS, the air traffic control services. We will aim to sell the student loan book and look at options around early repayment for individuals, and we will resolve the future of the Tote—at last. My right hon. Friend the Secretary of State for Business, Innovation and Skills will also facilitate a private capital injection into the Royal Mail Group, something that has been long overdue.

Before I turn to discuss departmental budgets, I need to say something first about another area of spending—the civil list. The civil list is the Government’s support for Her Majesty the Queen in her duties as Head of State, and I am sure that everyone in this House will want to join me in recognising the Queen’s loyal service and immense contribution to public life. The amount provided by the civil list has remained unchanged over the past 20 years, at £7.9 million. This has required careful management. Because of inflation, the annual payment is today worth only a quarter of what it was 20 years ago. I can announce that, with the full agreement of the Queen, the civil list will remain frozen at £7.9 million for the coming year, and I will propose a new means of consolidated support for Her Majesty for the future at a later date.

In addition, the royal household has agreed that, in future, civil list expenditure will be subject to the same audit scrutiny as other Government expenditure, through the National Audit Office and the Public Accounts Committee of this House of Commons. I believe that this will mean clear accountability in this House and that it will strengthen public confidence.

Let me turn now to my decisions on departmental expenditure limits. In recent years, Chancellors have been reluctant to explain what their total spending projections will mean for Whitehall Departments, and that is entirely self-defeating. It normally takes people at the Institute for Fiscal Studies less than 24 hours to work it out for themselves and let the public know the truth. I will save them the effort.

We have inherited from the previous Government spending plans to cut departmental budgets by £44 billion a year by 2014-15. This implies an average real reduction for unprotected Departments of 20%—not that this was ever said, or a single pound of cuts to programmes even identified. Because the structural deficit is worse than we were told, my Budget today implies further reductions in departmental spending of £17 billion by 2014-15. We have committed to providing the NHS with real increases throughout the Parliament, and we will honour our international aid obligations to the poorest in the world. Once these are taken into account, the Budget figures imply that other Departments will face an average real cut of around 25% over four years. Clearly, if we can find any additional savings to social security and welfare beyond those that I will outline shortly, then that will greatly relieve the pressure on these Departments and that 25% figure.

Of course, not all Departments will receive the same settlement. I recognise, for example, the particular pressures on our education system and on defence. Final departmental settlements, and the final split between departmental expenditure and annually managed expenditure on welfare, will be set in the spending review. Rather than follow the usual practice of keeping the date of that review a secret until a few weeks before it happens, let me tell the House that it will be presented on Wednesday 20 October.

A further way that we can ease the pressure on public services is to agree that we need to restrain public sector pay in these difficult times, and we need to do something about the spiralling costs of public sector pensions. Many millions of people in the private sector have in the past couple of years seen their pay frozen, their hours reduced and their pension benefits restricted. They have accepted that, because they knew that the alternative in many cases was further job losses. The public sector was insulated from those pressures but now faces a similar trade-off. I know that there are many dedicated public sector workers who work very hard and did not cause this recession, but they must share the burden as we pay to clean it up. The truth is that the country was living beyond its means when the recession came, and if we do not tackle pay and pensions, more jobs will be lost.

That is why the Government are asking the public sector to accept a two-year pay freeze, but we will protect the lowest paid. In the past, I have said that we would be able to exclude the 1 million public sector workers earning less than £18,000 from a one-year pay freeze. Today, because we have had to ask for a two-year pay freeze, I extend the protection to cover the 1.7 million public servants who earn less than £21,000 a year. Together, they make up 28% of the public sector work force. They will each receive a flat pay rise worth £250 in both years, so that those on the very lowest salaries will get a proportionately larger rise. In recognition of our armed services who are risking their lives for us all in Afghanistan, we have also doubled the operational allowance to £4,800. We have asked Will Hutton to draw up plans for fairer pay across the public sector without increasing the overall pay bill, so that those at the top of organisations are paid no more than 20 times the salaries of those at the bottom. The culture of excessive pay at the very top of the public sector simply has to end.

We also need to deal with the cost of public service pensions. This is one of the greatest long-term pressures facing our nation’s finances. The OBR today publishes figures showing that by 2015-16 we will be spending over £10 billion a year simply to meet the gap between pension contributions and payments to the unfunded pensions that they support. That is why I have asked John Hutton to carry out an investigation. As the Work and Pensions Secretary in the previous Government, he brings experience and an unbiased approach. He will provide an interim report in September this year to help inform any decisions required for the spending review, and a full report in time for next year’s Budget.

The Government will also accelerate the increase in the state pension age to 66. A call for evidence will be launched later this week, and we will consult on whether to phase out the default retirement age.

Let me now address the largest bill in Government—the welfare bill. It is simply not possible to deal with a budget deficit of this size without undertaking lasting reform of welfare. It has been a key component of most successful fiscal consolidations elsewhere in the world and, around Europe, countries are now tackling their benefits bill. Germany has already announced €30 billion-worth of cuts to welfare spending, and others are taking similar steps.

Here in Britain, the explosion in welfare costs contributed to the growing structural budget deficit in the middle part of this decade. Total welfare spending has increased from £132 billion 10 years ago to £192 billion today. That represents a real-terms increase of a staggering 45%, and it is one of the reasons why there is no money left. It has also left an increasing number of our fellow citizens trapped on out-of-work benefits for the whole of their lives. A greater proportion of our children grow up in workless households than any other country in Europe. We are wasting the talents of millions, and spending billions on it in the process, so we will increase the incentives to work, and reduce the incentives to stay out of work. We will focus our benefits more towards those in need, and we will end some one-off payments that the country cannot afford any more.

First, we need to put the whole welfare system on a more sustainable and affordable footing. So from next year, with the exception of the state pension and pension credit, we will switch to a system where we uprate benefits, tax credits and public service pensions in line with consumer prices rather than retail prices. The consumer prices index not only reflects everyday prices better, but it is of course now the inflation measure targeted by the Bank of England. This will save over £6 billion a year by the end of the Parliament. I believe that this is a fairer approach than a benefits freeze. In time for the next Budget, we will also publish proposals to move the indexation in the tax system from RPI to CPI in a way that protects revenues.

Tackling spiralling welfare costs means also addressing the bill for tax credits. Spending on tax credits has increased from £18 billion in 2003 to £30 billion this year, and that is an unsustainable rise. There are over 150,000 families with incomes over £50,000 receiving tax credits. Taking into account the various disregards means that families earning up to £83,000 are eligible for this means-tested benefit. The country simply cannot afford this any more.

We need to target tax credits on those who need the help most, so we will reduce payments to families earning over £40,000 next year and then align the thresholds for the child and family element. We will increase the taper rate at which awards are reduced, and remove the baby element for new children from April 2011. We will remove the one-off payment to new workers over 50 from April 2012, and reduce the income disregard from £25,000 to £10,000, and then to £5,000. We will introduce an income disregard for income falls, reduce backdating from three months to one month, and we will not introduce the pre-election promise of a new tax credit element for infants.

Sadly, there are further benefits that this country cannot afford. We will abolish the poorly targeted health in pregnancy grant from April 2011. At the same time, we will restrict the Sure Start maternity grant to the first child only, and we will expect lone parents to look for work when their youngest child goes to school. We have decided that we simply cannot afford to extend the saving gateway, and we have also had to take a difficult decision about child benefit. I have received many proposals about this benefit. Some have suggested that we means-test it; others that we tax it. All these proposals involve issues of fairness.

The benefit is usually claimed by the mother. To tax it would mean that working mothers received less than the non-working partner of higher earners. To means-test it, we would have to create a massively complex new system to assess household incomes. I do not propose to do those things. I know that many working people feel that their child benefit is the one thing that they get without asking from the state. So instead, to control costs, we have decided to freeze child benefit for the next three years. This is a tough decision, but I believe that it strikes the right balance between keeping intact this popular universal benefit, while ensuring that everyone across the income scale makes a contribution to helping our country reduce its debts.

That brings me to another universal benefit: disability living allowance. It is right that people who are disabled are helped to lead a life of dignity. We will continue to support them, and we will not reduce the rate at which this benefit is paid. However, three times as many people claim it today than when it was introduced 18 years ago, and the costs have quadrupled in real terms to more than £11 billion a year, making it one of the largest items of Government spending. We will introduce a medical assessment for DLA from 2013, which will be applied to new and existing claimants. For people with disabilities, that will be a simpler process than the complex forms that they have to fill out at present. That way, we can continue to afford paying this important benefit to those with the greatest needs, while significantly improving incentives to work for others.

Spending on housing benefit has risen from £14 billion 10 years ago to £21 billion today. That is close to a 50% increase over and above inflation. The costs are completely out of control. We now spend more on housing benefit than we do on the police and on universities combined. Among these enormous numbers for total spending, there are some equally enormous individual claims. Today there are some families receiving £104,000 a year in housing benefit. The cost of that single award is equivalent to the total income tax and national insurance paid by 16 working people on median incomes. It is clear that the system of housing benefit is in dire need of reform.

We will introduce that reform by resetting and restricting local housing allowances; uprating deductions; reducing certain awards; re-adjusting support for mortgage interest payments; and limiting social tenants’ entitlement to appropriately sized homes. Lastly, we will for the first time introduce maximum limits on housing benefit, from £280 a week for a one-bedroom property to £400 a week for a four-bedroom property or larger. Our package today will reduce the costs of housing benefit by £1.8 billion a year by the end of the Parliament—or by just 7% of the total budget—but it will improve incentives to work. At the same time, we will target more resources at those who need them most by increasing the budget for discretionary housing payments to deal with hardship cases by £40 million, and from now we will cover the cost of an additional room for those claimants with a disability who need a carer.

Taken together, all those measures to control the costs of welfare will save the country £11 billion by 2014-15. Governments in the past have said that they were going to get to grips with welfare and to reward work. We are delivering. My right hon. Friend the Secretary of State for Work and Pensions will bring forward proposals to further reform the benefits system as a tool to support work and encourage aspiration in time for the autumn spending review.

But as I said right at the start of this speech, this Budget is not just about paying for the bills of the past; it is also about planning for the future. It is my deeply held belief that a genuine and long-lasting economic recovery must have its foundations in the private sector. That is where the jobs will come from, and we will do absolutely everything to support their creation. We argued that imposing a jobs tax was the last thing that Britain needed in a recovery, and the businesses of the country agreed with us, so we will adopt a different approach. We will make it cheaper for companies to employ people. From April 2011, the threshold at which employers start to pay national insurance will rise by £21 a week above indexation. The cost of hiring people on incomes lower than £20,000 will be less than it is today; and in one move we will have lifted 650,000 employees out of this tax altogether.

But if we are to have a sustained, job-creating recovery, we need more than that. We need to see growth not just in one corner of our country, nor in just one sector, for we live in a world where the competition for business is growing ever more intense. I want a sign to go up over the British economy that says “Open for business”, and this is how I propose to do it. Corporation tax rates are compared around the world, and low rates act as adverts for the countries that introduce them. Our current rate of 28p is looking less and less competitive, so we will do something about it. Next year we will cut corporation tax by 1%, to 27p in the pound, the year after we will cut it again by 1%, and again the year after, and again the year after that—four annual reductions in the rate of corporation tax that will take it down to just 24%. That will give us the lowest rate of any major Western economy, one of the lowest rates in the G20 and the lowest rate that this country has ever known.

At the same time, we will agree with businesses a long-term approach to the taxation of foreign profits, the treatment of intellectual property and the proposals from James Dyson on research and development. We will also reduce the small companies tax rate. The previous Government were planning to increase that tax rate next year to 22%, at the very time when we should be encouraging small businesses to grow. Instead, we will cut the rate to 20%, which will benefit some 850,000 companies. And because small businesses are struggling to obtain credit at the moment, I will extend the enterprise finance guarantee scheme, which supports small and medium-sized businesses’ access to lending. Those changes will benefit at least 2,000 small businesses.

My right hon. Friend the Secretary of State for Business, Innovation and Skills will come forward in the summer with further proposals on expanding the availability of credit, to ensure that the economic recovery is properly financed. Also, there are many small businesses in the tourism industry today. To help them, I am reinstating the favourable tax rules for furnished holiday lettings, which our predecessors had planned to repeal. I can also announce that there will be measures to cancel certain backdated business rates bills, including for many businesses in ports.

In the current climate, with the deficit the size that it is, all those reductions in tax must be more than paid for by other changes to business taxation, so we will not go ahead with the poorly targeted tax relief for the video games industry. There will be a small reduction in the rates for capital allowances, which will remain broadly in line with economic depreciation. For the majority of plant and machinery assets, the rate of the allowance will fall from 20% to 18%, while the allowance for longer-lived assets will fall from 10% to 8%. In other words, businesses will still receive full tax relief on their qualifying expenditure, but over a longer time frame.

I have also decided to reduce the annual investment allowance to £25,000 a year, to ensure that support is focused on investment by smaller firms. Over 95% of businesses will continue to have all their qualifying plant and machinery expenditure fully covered by this relief. Manufacturing as a whole will pay less tax. I have listened to the argument that changing those crucial allowances during the early stages of the economic recovery could be disruptive, so I will delay the reductions in capital and investment allowances to April 2012. That will give businesses the extra early advantage of the tax cuts, which will start to come in from next year.

Our reforms today will also mean a greater contribution from the banking sector—one that far outweighs any benefit that it will receive from the lower tax rates that I have just announced. In putting the nation’s finances in order, we must remember that this was a crisis that started in the banking sector. The failures of the banks imposed a huge cost on the rest of society, so I believe that it is fair and right that in future banks should make a more appropriate contribution, reflecting the many risks that they generate. Such an approach has already been recommended by the International Monetary Fund. We are exploring the costs and benefits of a financial activities tax on profits and remuneration, and we will work with international partners to secure agreement, but today the British Government take the initiative in this global debate about the appropriate risks and rewards in international banking.

From January 2011, we will introduce a bank levy. It will apply to the balance sheets of UK banks and building societies, and to the UK operations of banks from abroad. There will be deductions for tier 1 capital and insured retail deposits, and a lower rate for longer maturity funding. Smaller banks with liabilities below a certain level will not be liable for the levy. Once fully in place, we expect the levy to generate over £2 billion of annual revenues.

There are those who have argued whether we should wait until every country in the G20 introduces a bank levy. I believe that is not reasonable or fair. Indeed, I can tell the House that the French and Germans have joined the UK today in committing to introduce a bank balance sheet levy. In a joint statement, our three Governments have pledged to ensure our banks make a fair contribution to reflect the risks they pose.

The message I hear from those in the business community is unequivocal: they want certainty and stability from Government so that they can start the long process of rebuilding their businesses. Today, I am offering them just that—a five-year plan to reform the corporation tax system, with lower rates, simpler rules and greater certainty. It provides the most fundamental and far-reaching reform of our corporate tax regime in generations. It offers a stable and consistent platform for a private sector recovery. It is a balanced package, which will send a clear signal that Britain is open for business. It will help companies invest, attract foreign investment and boost growth. Above all, it will help create jobs. By increasing the amount of business investment by an additional £13 billion between now and 2016, these reforms will help rebalance the economy away from household debt and Government consumption.

We will also take forward our plans to create a green investment bank, bringing forward private investment in clean energy and green technologies; and we will also need investment in our digital infrastructure. But the previous Government’s landline duty is an archaic way of achieving this, hitting 30 million households who happen to have a fixed telephone line. I am happy to be able to abolish this new duty before it is even introduced. Instead, we will support private broadband investment, including to rural areas, in part with funding from the digital switchover underspend within the television licence fee.

Over the past decade, the British economy has become deeply unbalanced, and nowhere are those disparities as marked as between the different regions of Britain. Between 1998 and 2008, for every private sector job generated in the north and the midlands, 10 were created in London and the south. We need a new approach—one that empowers local leadership, generates local economic growth and promotes job creation in all parts of the country, including Wales and Scotland. We will publish a White Paper on how we intend to deal with these issues later in the summer, followed by a consultation paper on rebalancing the economy of Northern Ireland.

As a step towards rebalancing our economy, we are today announcing the support for those regions more dependent on the public sector. First, even when money is so short, we will commit to the following important regional transport projects: the upgrade of the Tyne and Wear metro; the extension of the Manchester Metrolink; the redevelopment of Birmingham New Street station; and improvements to the rail lines to Sheffield and between Liverpool and Leeds.

Secondly, we will create a large regional growth fund to provide finance for regional capital projects over the next two years. We will announce the details shortly, but priority will be given to projects that have the greatest impact on improving innovation and creating jobs.

Thirdly, we will shortly announce a new tax scheme to help create new businesses in those regions where the private sector is not nearly strong enough. For the next three years, anyone who sets up a new business outside London, the south-east and the eastern region will be exempt from up to £5,000 of employer national insurance payments for each of the first 10 employees hired. We aim to have the scheme up and running by September, but any qualifying new business set up from today will also receive help. The Treasury estimates that some 400,000 new businesses will benefit, ensuring all parts of our country contribute to a more balanced and sustainable economic future.

Let me turn now to some further decisions we have made on taxation. I am someone who believes in the virtues of lower taxation, but the only sustainable route to lower taxes is by first achieving sound public finances. The sovereign debt crisis means we need to the reduce the deficit even more quickly in order to protect our economy. The Office for Budget Responsibility has revealed the size of the structural deficit to be even larger than we feared—£12 billion larger next year.

As a result, this Budget announces a further fiscal tightening of £40 billion a year by the end of this Parliament, including welfare and spending measures, over and above the previous Government’s plans. To achieve that additional tightening while maintaining the right “four-to-one” balance between spending and taxation means that I have to announce further tax rises today.

On 4 January next year, the main rate of VAT will rise from 17.5% to 20%. [Interruption.] The years of debt and spending make this unavoidable. This single tax—[Interruption.]

[Mr Deputy Speaker]

Order. Will hon. Members calm down? It is important to Members on all sides of the House that they can hear, but more important, the country takes this Budget very seriously, so I call for more calm and a little more restraint.

[Mr Osborne]

The years of debt and spending made this unavoidable. This single tax measure will by the end of this Parliament generate over £13 billion a year of extra revenues. That is £13 billion that we do not have to find from extra spending cuts or income tax rises. I can also give this House a commitment that we will keep everyday essentials such as food and children’s clothing, as well as other zero-rated items like newspapers and printed books, exempt from VAT over the course of this Parliament. In line with the increase in the main rate of VAT, the higher rate of insurance premium will also rise from 17.5% to 20%, while the standard rate will increase from 5% to 6%.

Let me turn to my decisions on duties. The March Budget included substantial increases in those, and I can tell the House that my Budget includes no new increases in duties on alcohol, tobacco or fuel. We will report back in the autumn on the scope for targeting alcohol duty at the products most associated with binge drinking and under-age consumption. We will explore changes to the aviation tax system, including switching from a per-passenger to a per-plane duty, and consult on major changes. This will help us to reduce our carbon emissions. We are examining the impact of sharp fluctuations in the price of oil on the public finances to see if pump prices can be stabilised, and we will also look at whether a rebate for remote rural areas could work.

I have one final announcement on duties. We have decided to reverse the previous Government’s plans to increase the duty on cider by 10% above inflation and the reduction will come into effect at the end of this month—just in time to celebrate England’s progress to the quarter finals, or else to drown our sorrows.

That brings me to council tax. At times like this when money is short, we think all parts of government should work hard to keep costs down, and we want to give councils every incentive to do just that. So we will offer a deal to local authorities in England: if they can keep their cost increases low, then we will help them to freeze council tax for one year from next April. That will mean that the average family will be some £35 better off next year, and every year thereafter. It will be one less rising bill for families to worry about, and it will drive value for money throughout all levels of government.

One of the most chaotic areas of tax that the new Government inherited from their predecessor is the capital gains tax regime. Some of the richest people in this country have been able to pay less tax than the people who clean for them. That is not fair, and it stems from the avoidance activity that has exploited the wider gap between the rate of capital gains tax and the top rates of income tax. Those practices are costing other taxpayers more than £1 billion every year.

It is therefore right, as set out in the coalition agreement, that capital gains tax should increase in order to help create a fairer tax system. I have listened carefully to everyone’s views and considered all the options. My concern has been to balance the competing demands of fairness, simplicity and competitiveness—and I believe my decision gets that balance right. Low and middle-income savers who pay income tax at the basic rate make up over half of all capital gains taxpayers. They will continue to pay tax on their capital gains at 18%. From midnight, taxpayers on higher rates will pay 28% on their capital gains. I have also decided that the annual exempt amount for capital gains tax will remain at £10,100 this year, and will continue to rise with inflation in future years.

I am acutely aware of how important it is to protect the incentives to succeed in business and to innovate, so to promote enterprise, the 10% capital gains tax rate for entrepreneurs, which currently applies to the first £2 million of qualifying gains made over a lifetime, will be extended to the first £5 million of lifetime gains. I asked the Treasury to examine what would have happened if we had increased the rate much further beyond 28%, and its dynamic analysis showed that that would have resulted in smaller total revenues. I also considered in great detail the options presented to me for introducing tapers or indexation allowances, and concluded that the complexity and administration involved would have been self-defeating.

The changes that I have made mean that the capital gains of the majority of taxpayers are protected; that we have a top rate that is in line with those of our international competitors; that we keep the system simple and easy for any taxpayer to understand; and that we reduce the incentives to convert income to capital gains. It is revealing that the great majority of the almost £1 billion of extra receipts that we expect to see as a result of this change will come from additional income tax payments. I believe that that is the right way in which to reform the taxation of capital gains.

Let me say something about the previous Government’s policy to reduce pension tax relief for people on high incomes, due to come in next year. Many businesses are alarmed at the complexity that it will introduce. I have listened to those concerns; however, I must also protect the £3.5 billion of revenues that the policy was set to raise from high-income people. I will therefore work with industry on alternative ways of raising the same amount of revenue, potentially by reducing the annual allowance.

Let me now turn to income tax. A responsible society is one that rewards the efforts of those who choose to work. The income tax system—in particular, the abolition of the 10% rate of income tax—has meant that many people on lower incomes face higher average tax rates. I believe that it is important to lift people out of the income tax system and allow them to keep more of their hard-earned money. It is especially important to make progress in this Budget, in which we are asking so much of so many, and this demonstrates that the coalition Government put fairness first.

In the current system, everyone under the age of 65 is eligible for a tax-free personal allowance of £6,475. That means that many thousands of people have their income taken away from them in tax, only to have to apply to get it back in benefits. That does not reward work. So today I can announce that we will increase the personal allowance by £1,000 in April. People will be able to earn £7,475 before they have to start paying income tax, 23 million people who are basic-rate taxpayers will each gain by up to £170 a year, and 880,000 of the lowest-income taxpayers will be taken out of tax altogether. Higher-rate taxpayers will not benefit from the change, and the higher-rate income tax threshold will have to remain frozen until 2013-14. Our long-term objective remains to increase the personal allowance to £10,000, as set out in the coalition agreement, and we will take real steps towards achieving that objective during the rest of this Parliament.

I do not disguise from the House that the combined impact of the tax and benefit changes that we make today are tough for people. That is unavoidable, given the scale of the debts that our country faces and the catastrophe that would ensue if we failed to deal with them. My priority in putting together this Budget has been to make sure that the measures are fair: that all sections of society contribute, but that the richest pay more than the poorest, not just in terms of cash but as a proportion of income as well. That is far from straightforward when the deficit is this high, and when the burden of reduction must rightly fall on Government spending.

Too often, when countries undertake major consolidations of this kind, it is the poorest—those who had least to do with the cause of the economic misfortunes—who are hit hardest. Perhaps that is a mistake that our country has made in the past. This coalition Government will be different. We are a progressive alliance governing in the national interest, and that requires us to make two final decisions.

First, we will provide lasting help for pensioners. The earnings link was broken by the last Conservative Government, and was never restored through 13 years of a Labour Government. That meant that each year more and more pensioners were drawn into the means test, which punished those who had done the right thing and saved for their retirement. I can announce today that from April next year we will re-link the basic state pension to earnings. Now pensioners can save with confidence. They will also be protected by our new triple lock, which will guarantee each and every year a rise in the basic state pension in line with earnings or prices or a 2.5% increase, whichever is the greater. There will be no more 75p increases in the basic state pension. With this coalition Government, pensioners will have the income to live with dignity in retirement.

Secondly, we will provide additional support for families in poverty. They are among the most vulnerable people in our society, and they need our help. I have decided to increase the child element of the child tax credit by £150 above indexation next year. That is a £2 billion a year commitment to low-income families, and we make it even now, in these difficult times. I can tell the House that the policies in this Budget, taken together, will not increase measured child poverty over the next two years. Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top. It is a progressive Budget.

Today we take decisive action to deal with the debts that we inherited, and confront the greatest economic risk facing our country. We have been tough, but we have also been fair. We have set the course for a balanced budget and falling national debt by the end of this Parliament. We have insisted that four pounds of every five needed to reduce our deficit will be found from Government spending. We have protected capital investment from additional cuts, and have got to grips with the soaring costs of welfare. We have provided the foundations for economic recovery in all parts of our nation, and have given our country some of the most competitive business taxes in the world. We have taken almost a million people out of income tax and half a million people out of national insurance, and we have done all that without increasing child poverty.

Sadly, in this unavoidable Budget we have had to increase taxes. We have had to pay the bills of past irresponsibility. We have had to relearn the virtue of financial prudence. But in doing so, we have ensured that the burden is fairly shared. Today we have paid the debts of a failed past and laid the foundations for a more prosperous future. The richest paying the most and the vulnerable protected: that is our approach. Prosperity for all: that is our goal.

I commend this Budget to the House.