indexclick here for index
The Financial Statement and Budget Report, with a number of press releases filling out the details of my proposals, will be available from the Vote Office as soon as I have sat down.
I have three priorities in my Budget this year. First, to keep the economy on track to achieve the great prize of sustainable growth. This recovery offers the best prospect that the British people have faced for many years to enjoy the benefits of growth that does not pass through illusory boom to painful bust.
My second priority has been to use this recovery wisely, to encourage the creation of more jobs particularly for people who have been out of work for some time. We must combine greater prosperity for the majority with measures to prevent the emergence of a deprived underclass excluded from the opportunity to work and dependent on welfare.
The third priority is to strengthen the economy in the longer term. We must aim for a modern economy in which the growth of enterprising companies will give people a greater sense of confidence in the flow of new jobs that will always be required to replace the old jobs eroded by technology and competition.
The background to this year's Budget is the healthy growth in output that we are seeing in Britain and overseas. The recovery has been underway at a modest pace for over 2½ years.
It is now stronger and output has grown by over 4 per cent over the past year. That is easily the fastest rate of growth of any of the major European economies.
The forecasts I am publishing with this Budget show the economy expected to grow by 3¼ per cent next year.
As the recovery has got stronger, growth has come increasingly from exports. Over the last year, exports have grown by over 8 per cent. Investment in plant and machinery has grown by over 5 per cent. Consumer demand has increased by a more modest 2 to 3 per cent.
That is a very healthy shape for this stage of the recovery and bodes well for our long term future as a competitive industrial economy.
Our exporters have been able to take advantage of the pick-up in growth overseas, by keeping their costs down and raising their productivity. Our producers have succeeded in improving their performance in domestic markets, so that while exports continue to rise, imports are little changed. Overall, I expect our balance of payments on current account to improve by over £6 billion this year.
An improving balance of payments is remarkable at a time when the economy is growing strongly. More encouragingly still, inflation has remained low.
Underlying inflation has fallen to levels we have not seen for a generation. Indeed, only about one-third of the population of this country have ever experienced such low inflation during their adult life. The other two-thirds are still finding it difficult to adjust to the change.
Unemployment is on a clear downward trend, having fallen by over 450,000 since December 1992. The UK is the only major economy in Europe where unemployment has fallen over the past year.
The unemployment rate in this country is lower than the European Union average. And the number of people in work is rising. The Labour Force Survey shows an increase of 226,000 in the last 12 months. That means real new jobs for people up and down the country.
Mr Deputy Speaker, we are seeing strong output growth, strong export growth, falling unemployment, an improving balance of payments and low inflation. This combination is almost unique in this country since the war.
But let us be under no illusions. These promising conditions have to be sustained if they are to deliver higher living standards and secure jobs for men and women. And these promising conditions have only arisen at all because of the difficult decisions this Government has been prepared to take in recent years.
We must not throw away the gains that have been made by turning to some short-term dash for yet faster growth. Growth will only be sustained if we keep the lid on inflation, get public borrowing down further, and push ahead with measures which strengthen the economy. That is the way to convert growth into prosperity and jobs.
That way lies the virtuous circle of improved competitiveness, rising productivity, economic growth, low inflation, and more jobs. We must not change our minds now for the sake of short-term popularity. Only by keeping our nerve and sticking to the determined policies that we have put in place over the past couple of years will we be able to enjoy the full fruits of improved economic performance in rising prosperity and lower unemployment.
Mr Deputy Speaker, let me deal first with inflation. Low inflation creates a climate of stability which encourages savings and investment in the future of this country. Nothing would be more damaging than if we let inflation off the leash again, only to have to take another dose of bitter anti-inflationary medicine.
The British experience is that high inflation has brought economic recovery to a halt three times over the past twenty years. That is three times too often for my liking.
And while we have succeeded in bringing inflation down to levels last seen when England won the World Cup, we must never take that for granted. Before that game I had lived in a low inflation economy.
I live in one again now and I am glad to say that our inflation rate is well below the European average. We need to keep up this performance, if we are to be a competitive manufacturing nation enjoying the living standards of the best in future.
I will therefore continue to set interest rates to meet our objective of keeping underlying inflation in a range of 1-4 per cent, and in the lower half of that range by the end of the present Parliament. That is a tough target by Britain's recent standards, though not by those of some of our best competitors.
To make sure we achieve it, I have backed good intentions and resolve, with a number of important decisions over the last year that have strengthened the framework for policy.
The Bank of England's quarterly Inflation Report is now fully independent of the Treasury. The Governor decides the precise timing of interest rate changes. And, most importantly, I decided in the Spring to publish the minutes of my meetings with the Governor.
As a result we now have one of the most open frameworks for monetary policy-making in the world. This will stand us in good stead in keeping inflation permanently low.
It will most certainly not avoid the need to take tough decisions at times. In September the Governor and I agreed that, with the recovery strengthening at home and prices rising abroad, there was a sufficient risk of inflation picking up here to justify raising interest rates by half a percent. By acting before retail price inflation itself picks up, we aim to nip inflation in the bud.
I expect inflation to rise slightly over the next year, reaching a temporary plateau of around 2½ per cent, as a result of higher commodity prices and stronger profit margins in our buoyant manufacturing industries. But continuing competitive pressures will ensure that producers and retailers keep costs under control and pass on the benefit to consumers. I expect that underlying inflation should then resume its downward trend.
Gilt Market Repos
Before I turn to the public finances, I can announce an important further development of the gilts market. The Bank of England is publishing today a consultative document on the establishment of an open sale and repurchase - repo - market.
This should improve both liquidity and efficiency, reducing yields and hence the government's debt interest costs. Each reduction in yields of just one basis point - one hundredth of one per cent - will eventually save more than £25 million pounds a year of public expenditure.
I turn now to the public finances.
Last year, I continued the process started by my rt hon Friend the Member for Kingston Upon Thames. I announced measures which cut the Public Sector Borrowing Requirement by 1¼ per cent of GDP by the end of this Parliament.
Combined with the healthy growth in the economy that we are now enjoying, those measures have helped bring down the PSBR from £45½ billion in 1993-94 to an expected £34½ billion this year. My objective remains the same: to balance the Budget over the medium-term.
We remain on course to eliminate Government borrowing entirely by the end of the decade. By 1996-97 borrowing will be approximately equal to the Government's net capital expenditure.
About half of my own cuts in public borrowing last year were achieved through cutting public spending plans. But, because of the length of the recession, my rt hon Friend and I also had to raise taxes to meet the objective of healthy public finances.
Delay and failure to act would have caused intolerable additional pressures to raise interest rates faster and to raise taxation still further. We would not have had strong and sustainable recovery now if we had failed to cut spending and raise taxes last year.
For that reason, the public spending cuts and the tax increases that I announced last year remain, of course, quite essential to the strategy of achieving economic recovery. We have restored confidence in our ability to achieve sustained recovery by taking firm measures. We would damage that confidence again if we now seemed to falter or even go back on any of the measures that we have already put in hand.
VAT on Fuel Compensation Package
I am able to improve the package of help that I announced last year to cushion the effects of VAT on fuel on all pensioners and on vulnerable groups - enormous though that package was.
Last year I doubled public spending on the very effective Home Energy Efficiency Scheme so that, for the first time, everyone over the age of 60 became eligible for a grant. This has been a huge success and soon over a million people will have received grants to improve the insulation of their homes, reducing their excessive heating bills and improving their comfort.
That is still not enough. I am therefore, on top of last year's doubling which will carry forward each year, adding another £10 million a year to the resources to fund grants. Soon British homes will at last be a match for the British weather in every part of the United Kingdom, especially for the elderly.
Cold weather payments were set at £6 each week only two years ago. I now intend to increase them to £8.50p each week in order to reassure people that they will get help with their bills when spells of freezing weather occur.
Furthermore, next year, 1995-96, there will be an additional £52 for single pensioners and £73 for couples built into all retirement pensions as compensation for VAT on fuel.
From April 1996 there will be £68 extra on the single pensioner rate and £96 for pensioner couples. This is more than the whole of the VAT on fuel bills for a significant number of them.
In addition electricity prices have been falling for many people. Gas prices are to be raised for the first time since 1991 but this will be coupled with discounts for prompt payment that will reduce many peoples' bills.
So far, inclusive of the first stage of VAT, both gas and electricity bills have fallen by 1 per cent in real terms over the last two years. That real terms fall is before taking into account the package of help for pensioners so far in payment.
The full burden of the tax is, of course, only borne by people of working age not receiving means-tested benefits. I have made it quite clear that people of working age cannot expect tax cuts or a reverse of previously announced tax increases this year.
I would like to turn now to the Government's new plans for public spending.
Last year's Budget set a new milestone in the control of public spending. We managed to reduce the control totals that had been set in the previous spending round, by £8 billion over 3 years, and General Government Expenditure by £15 billion over the same period.
This was a measure of the success of the new system of public expenditure control introduced in 1992, and the first fruits of the programme of fundamental reviews of all departments.
The reaction to this new approach was predictable. A welcome from this side of the House. Criticism and alarmist nonsense from the Party opposite. And scepticism from the so-called experts who doubted whether the plans could be delivered in practice.
In fact, for the current year, 1994-95, we expect to do better than the plans that were set, and underspend by more than £1 billion.
At the start of this year's Survey, Cabinet decided that we should also keep within last year's planned totals for 1995-96 and 1996-97 and allow no more than one per cent real growth for 1997-98.
The plans I am about to announce deliver that remit. But it has not been easy. Last year's settlement was extremely tight. I am grateful to my rt hon Friend the Chief Secretary for his skilful handling of what has been a difficult spending round.
We have been guided by four basic principles this year. First, we have taken advantage of the welcome fall in inflation since the last Budget.
Thanks to lower inflation the price level in 1995-96 will be 2½ per cent lower than we expected when we decided on spending plans last year.
We have not let that feed through into a higher level of real resources for Government departments but have reduced our cash plans for almost all programmes. Lower inflation needs to be matched in the public sector by lower cash spending.
Second, we have built on the increasingly important role played by private finance. All government departments are now looking actively at private finance options.
Third, we have focused our search for savings on administrative and running costs, cutting the back office and protecting the frontline delivery of key public services. Our aim has been to provide a better output of public services, for fewer inputs.
Fourth, we have taken a close look at the Government's own spending priorities. We have looked for savings on some programmes so that resources can be channelled into the services and policies to which the Government attaches most importance.
Mr Deputy Speaker, privatisation and private finance for capital investment are rapidly becoming the chosen method for raising the quality of public services in the majority of countries in every continent in the world. They started in this country. Although the political debate here has been transformed since I first became a Minister, an irritating amount of post-Socialist resistance still persists. Fortunately, the Government's Private Finance Initiative remains alive and well and is growing rapidly.
Last year I announced that a number of transport schemes would go ahead under the private finance initiative. Significant progress has been made.
£370 million of private capital has been invested in transport projects over the past two years, with a further £760 million already committed. In addition some £3.5 billion of projects are currently out to competition and the value of contracts placed will steadily build up from a stream to a significant flow.
But the private finance initiative runs much wider than transport. There are now over 50 health projects either approved or completed bringing in over £100 million of new capital into the NHS. Bids have been received for the first two privately financed prisons and over £1 billion of Information Technology projects are now following or considering the private finance route.
In higher education, universities now get approaching a third of their revenue from the private sector. And the Environment Secretary announced on 31 October new proposals to make it easier for local authorities to form joint ventures with the private sector.
New projects are constantly emerging as the initiative breaks new ground and today I can announce that we are course to let contracts in 1995 under the private finance initiative leading to around £5 billion of capital investment.
The growing importance of private finance has helped us to find significant savings in the transport programme. Over recent years we have seen a huge increase in public expenditure on the trunk roads and motorway programme which has risen by one half in real terms over the last 10 years. This was essential to tackle traffic bottlenecks and to reduce costs on British industry seeking to get goods to markets at home and abroad.
Now that the main need of the economy is control of public spending and borrowing, we cannot carry on pumping in the same amount of taxpayer's money. We have therefore significantly reduced the planned public spending on trunk roads and motorways.
Even so, public spending on such roads - without taking account of the expected contribution from private finance - will be considerably higher in real terms than the average level of provision in the 1980s. Rapid progress with private finance of Design, Build, Finance and Operate roads will take provision still higher and four schemes will shortly go out to tender.
Private finance will also now play an increasingly major role in London Underground investment. In particular, I am pleased to report that the private finance competition for the provision of a new Northern Line train service has proceeded apace. My rt hon Friend, the Secretary of State for Transport, will be able to announce a decision very soon.
This, together, with future deals, should improve the quality of London Underground investment as well as its quantity. In addition to the contribution from private finance, the plans in the Budget imply total investment in the Underground network next financial year of around £1 billion.
The Budget also takes account of the key effects expected to arise from rail privatisation, not least the privatisation of Railtrack within the lifetime of this Parliament, as announced by my rt hon Friend the Secretary of State for Transport last week.
As has been the case with other privatisations, rail privatisation will bring benefits to passengers, from more efficient management bearing down on costs and being more responsive to passenger needs.
Mr Deputy Speaker, private finance will play an increasingly important role in financing better infrastructure for public services in coming years. I now turn to the need for firm control of the government's current, as opposed to capital, spending.
One of our key objectives this year has been to intensify the search for savings on administrative and running costs. My rt hon Friend the Chief Secretary came to the Treasury from the Ministry of Defence where he played a lead role in preparing the Defence Costs Study. That experience served him well.
The success of the Defence Costs Study is just one example, a very successful one, of how key programme objectives can be protected by bearing down on the administrative costs of delivering them.
The outcome has been a substantial benefit both for the taxpayer and for the front line.
The defence plans in the Budget fully cover the costs of the important equipment orders the Secretary of State for Defence announced in his statement in July.
Indeed, taking account of the changes in inflation since last year, these plans actually allow a slightly higher real terms level of spending than implied by the plans last Budget, accommodating the costs of military redundancies associated with the Defence Cost Studies.
Improvements in the efficiency of delivering services is a policy that must apply throughout the public service, and the plans in this Budget reflect the results of a rigorous scrutiny of the Government's own administrative costs. It must be right for Government to modernise its own management structures and to get its own overhead costs down.
As last year, we have maintained the policy that the pressure from pay and price increases should be met by greater efficiency or other economies. This has allowed public services to achieve very reasonable pay settlements that reflect low levels of inflation and allow modest increases in real earnings. It is ridiculous to describe this long overdue sensible practice as a pay freeze.
In total, the plans in this Budget are for central Government running costs not to rise in cash terms over the four year period from 1993-94 to 1997-98 taken as a whole. This represents a real terms reduction of more than 10 per cent in the cost of Government. It is consistent with the Civil service White Paper expectation that total civil service staff numbers will fall significantly below 500,000 over the next four years to their lowest levels since the war.
It is only right that local government should follow central Government and take a similarly tough approach to containing its costs. The Government's proposals for local authorities have been set on this basis.
1995-96 total standard spending in England will be 2.2 per cent higher than this year, including provision for Community Care. This is perfectly reasonable after a year in which provision was far better than local authorities had expected or planned for because of the Government's success in reducing inflation.
As in central government, local authorities will need to pursue opportunities for savings rigorously. Local authorities have substantial scope for improvements in efficiency, and for other economies.
Through this, and by concentrating on priority areas, they will be able to protect key services. The Government will use its powers to cap excessive Local Authority budgets should that prove necessary.
My rt hon Friend the Secretary of State for the Environment will announce the detailed settlement proposals on Thursday.
We have managed to find savings in housing capital expenditure, in particular that of the Housing Corporation. The Government will comfortably exceed its Election Manifesto commitment on the provision of new social housing up to 1994-95.
The new plans will still allow a substantial social housing programme to continue, assisted by the Corporation's success in levering in private finance.
Against the background of steadily falling unemployment, it has also been possible to make economies in the Employment programme while improving the quality of the programmes provided. A major reform of training for unemployed adults based on payment by results will seek to ensure that more trainees get jobs when they finish their courses.
As a result of the announcements in last year's Budget, we are already well down the track of a thoroughgoing reform of the Social Security benefit system. We intend to ensure that it is better targeted on today's real needs, and to make it simpler and less susceptible to abuse.
Legislation to reform statutory sick pay and to introduce a new incapacity benefit was enacted last session. And this session will see the passage of the Jobseeker's Allowance Bill, and a major Pensions Bill to modernise the framework for both state and occupational provision.
Tomorrow, my rt hon Friend the Secretary for Social Security will announce the details of the next phase of this programme of reform. I wish to mention now three of the initiatives he will be announcing from which I expect substantial public spending savings to flow.
First, Housing Benefit.
My rt hon Friend will be announcing tomorrow a reform of the arrangements through which the general taxpayer subsidises local authorities' payment of housing benefit to the tenants of private landlords. The effect of this will be that authorities will not be fully reimbursed if they pay housing benefit on rents significantly above the average for the area and type of property.
Local authorities will therefore scale back the benefit they actually pay in line with the new restriction on central government subsidy. They will however retain discretion and have some funding to pay the full rent in individual circumstances which they consider justify it.
The previous arrangements meant that neither the landlord nor the tenant usually had any incentive to negotiate a lower rent because housing benefit would usually pay the rent in full. This has had the inevitable effect of driving up rents and public expenditure.
The Social Security budget sometimes pays the rent in full in cases where the rent is far above the average rent for property of that type in that neighbourhood. In future, people on housing benefit will have an incentive to make the same judgements about what they can afford as people who have to pay all their own rent. The system will no longer be a prey to the unscrupulous landlord. The reform will take effect from October 1995. Existing claimants remaining in the same property where they live now will not be affected.
Second, my rt hon Friend will be announcing tomorrow further measures to limit support for mortgage interest through the income support system, so as to constrain the cost to the taxpayer and minimise the distortion to work incentives.
Most people are readily able to insure their mortgage interest payments if they wish against periods of sickness or unemployment and many already do so. For new mortgages taken out by people of working age after October 1995, support will not normally be available for the first 9 months though my rt hon Friend will be consulting on the precise arrangements, including different treatment for circumstances in which insurance might not be available. There will also be some scaling back of support for existing borrowers.
One reason why insurance has not become more widespread is because the taxpayer has picked up the interest bill too readily in too many cases. This change will give more borrowers an incentive to ensure that the mortgage costs of people who are temporarily unable to keep up with their payments will be met by borrowers themselves and lenders rather than by the state.
Third, my rt hon Friend will also be announcing a major intensification of the war against fraud in the social security system. We are already saving £700 million a year from existing efforts.
These further measures, which include a major project to pay benefits in post offices by electronic means rather than by paper transactions, will at a cost of £300 million save another £2½ billion over the next three years.
Mr Deputy Speaker, the Government know that firm control of public spending and reduced public borrowing is essential to sustained recovery, prosperity and jobs. We will also show that strong control of public spending overall can be combined with improvements in key public services.
The Department for Education provision will increase in real terms by almost 1 per cent next year. The Government is intent on extending its significant achievements in education but we have also managed to find savings in parts of the education programme.
Almost one in three young people are now going to university, compared with one in eight in 1979. That is a remarkable achievement. A period of consolidation to secure quality and standards is now required after a period of very rapid expansion. However the overall package of student grants and loans will once again increase in line with inflation.
There will be continued growth in student numbers in further education, again to record levels. The new plans also allow for further growth in the number of grant-maintained schools and additional capital spending in schools.
The Government continues to attach high priority to spending on law and order. The new plans for the Home Office increase provision for the police by 3 per cent in 1995-96. Major efficiency improvements from the Sheehy proposals will enable more police officers to be released for frontline duties. Reforms to be implemented next year will give Chief Constables much greater freedom to manage their own resources, and to respond more effectively to the public's priorities.
Single Regeneration Budget
As a former Minister with responsibilities for the Inner Cities, I am pleased to say that within the Single Regeneration Budget we have found extra resources to support new projects in our run-down urban areas and elsewhere. My rt hon Friend the Secretary of State for the Environment will be providing for more projects under the current bidding round and will be able to conduct a second round with funding starting in 1996-97. In all, there will be over £800 million for new regeneration projects over the next three years.
This brings me finally to the Government's plans for the Health Service. With inflation so much lower than expected this year than last, it would have been possible for us to reduce our previous plans for health and still meet our manifesto commitment to real growth in resources each year.
Because of the high priority we give to the National Health Service, we have decided not to do this. Instead the health service will keep the unplanned bonus it has had this year from lower inflation.
This means that next year spending on the health service will grow by £1.3 billion, 1 per cent in real terms, against the ½ per cent increase allowed for in last year's Budget. That comes on top of a real increase of 3¾ per cent this year.
In addition to the extra money from the taxpayer, the health service continues to benefit from the improvements in performance flowing from the Government's reforms. Further improvements in efficiency are expected to release at least £600 million extra for patient care next year.
All these savings, including gains from rationalising management and administration costs throughout the Department and the NHS are ploughed back into patient care. These extra funds achieved from savings come from a variety of measures, which have only one thing in common. They have all so far been opposed by the Party opposite.
All this means that next year we shall all benefit from an even better financed health service which has seen real increases in spending upon it by the taxpayers in every year since the Government took power. It will be delivering even better standards of patient care, with further improvements in patients' charter standards, and more progress in reducing waiting times.
HELPING PEOPLE BACK TO WORK
Mr Deputy Speaker, at the beginning of this speech I said that the combination of healthy growth and low inflation we are now seeing is virtually unprecedented in Britain's recent past. Few doubt the strength of the recovery.
But everyone in touch with the real world knows that the benefits of recovery have yet to feed through to many people in this country. Unemployment remains far too high.
Thanks to the labour market and Trades Union reforms of the 1980s, unemployment did start falling at a much earlier stage of this recovery than it had in recent previous recoveries. And, unlike other European countries, we have resisted pressures to add social costs on top of wage costs for employers.
Unemployment will fall further as the economy recovers. But, I have long believed, as my Panel of Independent Forecasters points out and as is now widely recognised, that demand expansion on its own is not enough to produce a sufficient fall in unemployment. We have to do more to reduce unemployment in ways which are consistent with sustained growth and low inflation.
I have been making speeches and giving lectures ever since I became Chancellor on the need to ensure that we do not have recovery without jobs. As well as giving speeches, I have already done something about it. In my last budget, I did three things.
I announced measures to make it harder for people who are quite capable of working to stay on benefit without looking for a job. That is at the heart of the Jobseeker's Allowance.
I made it easier for people with children to take jobs, by introducing a child care allowance into family credit.
I made it cheaper for employers to give people work, by cutting the lower rates of employers' national insurance contributions by a full percentage point.
In this budget I want to do more on all three fronts. We must get people back into work and out of dependency. We must reduce the cost to employers of employing people who have been out of work. I aim to ensure that we do not have a class of people in this country who are excluded from economic activity.
Incentives for employers
The first step is to encourage employers to look more favourably on people who have been out of work some time.
I can announce, therefore a wholly new incentive to encourage employers to take on more people who have been unemployed for two years or more. In future, employers will get a full national insurance rebate for up to a year after taking on such a person. That will provide employers with an important new reason to give a second chance to someone who has been unemployed for some length of time.
This national insurance contribution holiday will run from April 1996. More immediately, my rt hon Friend the Secretary of State for Employment intends to develop new pilots under the Workstart scheme. This offers employers a grant to recruit people who have been unemployed for over two years.
There will be around 5,000 new job opportunities. Experience with existing pilots suggests that the scheme helps to break down the prejudice which can blight the long-term unemployed.
I know that some employers will still worry that people who have been unemployed a long time may have lost the habit of working. We introduced the Work Trials scheme to counter that. It allows unemployed people to try out a new job for three weeks, while keeping their benefit.
It costs employers nothing and it lets employers see for themselves whether the people they take on can be relied on to hold down a steady job. The record so far is impressive. A large number of people are kept on at the end of the trial period. So I propose to expand the scheme to provide 150,000 job opportunities over the next three years.
In addition, I propose a further cut in the lower rates of employers' national insurance contributions for every employee. From next April, they will come down by another 0.6 per cent.
This will reduce the cost to employers of providing lower paid jobs by another £230 million in 1995-96, on top of the reduction of £940 million carried through from 1994-95. It must make sense to keep on cutting the burden on employers who create jobs and in particular on those employers who provide jobs for less skilled people.
Incentives to look for work
I need to match these incentives to employers with measures to ensure that people get the rewards to which they are entitled when they move from unemployment into work.
First, we need to ensure that people are kept in touch with the labour market and do not stay on benefit unnecessarily. The Jobseeker's Allowance will reinforce the link between claiming benefit and looking for work. It will be supported by an unprecedented range of measures to help the unemployed.
One of our existing measures, Community Action, was due to finish next year. My rt hon Friend the Secretary of State for Employment has decided to extend the scheme in revised form. It will provide work experience and a route back to jobs for around 40,000 long-term unemployed people each year.
We introduced Restart when I was Minister of Employment in 1986. That required people who had been on benefit for a long time to come in for an interview and advice. It gave positive help to many people and got many back into work. It also revealed that some could not be bothered to come for the interview. They lost benefit.
For young unemployed people, we have been experimenting with similar schemes called Workwise and 1-2-1. We propose to extend them nationwide.
Helping employees with the transition to work
But it has to be worth people's while to take jobs. I also intend to introduce new measures to ensure that people are not deterred by short-term financial problems when they move from unemployment into work.
Anyone moving from benefit into a low paid job is likely to be better off, but it may not seem like it. The first thing that happens is that income support disappears, and with it all help with the cost of housing and their council tax. In due course, the person in the new job may be entitled to family credit and housing benefit. But it can be hard to find out how much that will be, or when it will come.
And in the meantime, there are all the expenses of getting to work - buying clothes or tools, travelling to work, and so on. Time and time again, I have had people tell me that this is a major deterrent to work and they cannot afford to take a job because of these gaps in the system. I have a number of measures to help.
I propose to speed up the payment of family credit, so that anyone who takes a job can be sure of getting the benefit to which they are entitled, and getting it quickly.
I propose to enable people who take a job to go on getting the same help with their rent and council tax as they had on income support, for their first four weeks in the new job. I propose to speed up the payment of housing benefit, so they can be quite sure where they stand at the end of the four weeks.
I propose to exempt from tax the back to work bonus which my rt hon Friend the Secretary of State for Social Security announced in October. That will give people who have been unemployed, but have managed to do a bit of part-time work, a lump sum when they leave benefit and take a job.
I also propose to expand the number of grants available to people who take jobs, to cover their start-up costs. These are known as Jobfinder's Grants. I propose to make available around 25,000 grants of an average of £200 for those who have been unemployed for more than two years.
Family credit has been an important and effective way of encouraging lone parents and couples with children to take employment. By providing top-up benefit for those in work it makes it worthwhile to give up unemployment and benefit dependency. It now helps half a million people. Last year, I improved it by announcing the new childcare allowance which was introduced in October.
I now intend to give low-paid and unemployed people with families an incentive to take full-time work. The existing structure of Family Credit strongly favours part-time over full-time working. But the majority of the long-term unemployed are people who need to find full-time work.
I intend, therefore, to introduce a £10 a week premium for full-time workers on Family Credit to give a new incentive to take full-time work rather than stay on benefit. This will also give a substantial boost to the incomes of 345,000 low paid families with children.
But childless couples and single people account for two-thirds of the long-term unemployed. These people cannot, at present, claim family credit. I would like to examine whether introducing a new in-work benefit for childless people would be effective.
This is obviously a very big step and I have agreed with my rt hon Friend the Secretary of State for Social Security that we should try it out on an experimental basis. We intend to test run a new benefit through a pilot scheme covering 20,000 people. If the pilot shows that the benefit helps to get childless couples and single people back into work we will consider introducing a national scheme.
I have also been impressed by an imaginative scheme pioneered by the Training and Enterprise Council in Lincolnshire. This helps people build up full-time work by parcelling together a number of part-time jobs. The scheme is known as Jobmatch. I propose to extend it to help up to 3,000 people a year.
Overall, these measures constitute a very important and carefully thought-out package of support for unemployed people in this country. It is no longer credible for some people to campaign for reductions in long term unemployment without having effective policies to deal with it.
The days of priming the pump to cut unemployment are long since past. The Government is building reforms on reforms to remove the distortions and anomalies from the benefit system which discourage so many unemployed people from taking jobs.
This package aims to lift people from dependency into work and to smooth the transition from out of work benefits to modest in-work benefits. These measures will work because they are carefully put together and affordable and because they are being introduced at a time of strong economic recovery based on our sound economic policies so that more jobs are becoming available.
They are a set of effective policies to tackle the big problem of structural unemployment which faces the whole western world. I am sure they will gain widespread support - even from those who have no practicable ideas of their own.
Let me turn now to my proposals for taxation. Happily, in this year's Budget, I have no need to raise revenue overall in order to secure the public finances. The action in last year's Budget, combined with a firm approach to public spending, will see to that. Nor - as I have already made clear publicly - are significant tax cuts justified this year. But I do have a number of proposals to ensure that we raise the necessary revenue in ways which do least damage to the economy while helping vulnerable groups.
I am delighted that there now appears to be a wide political consensus in this House on the need to close loopholes and prevent the artificial avoidance of taxation. There is in some quarters a tendency to exaggerate the extent of tax avoidance by including proposals that would impose extra taxes on legitimate business under the guise of a crackdown on so-called loopholes.
I have said before that we are no friends to the tax avoidance industry. Last year, I announced a number of measures to close genuine loopholes, raising £2 billion over three years.
This year, I intend to go further by tackling the artificial avoidance of VAT on property transactions and share issues, stopping the purchase of companies simply to make use of their surplus management expenses; and preventing tax avoidance through operations with discounted securities.
In total, the anti-avoidance measures in this Budget will yield an additional £1.5 billion in the next three years. We will continue to close down genuine loopholes wherever we may find them.
Vehicle Excise Duties and VAT on cars
I have some major proposals on vehicle excise duty this year. Few things annoy honest motorists more than knowing that many people still drive without a tax disc and waste the time of police and the authorities in trying to track them down.
Earlier this year my rt hon Friend the former Secretary of State for Transport announced that the Government intended to move to continuous licensing. That means licensing on possession rather than use of a vehicle. We will be issuing a consultation paper setting out how we intend to do this.
The move is designed to combat evasion and help fight crime by enabling the police accurately to check the ownership of vehicles.
I can however reassure the House that we will not seek to disadvantage those motorists, including classic car owners, who do not pay vehicle excise duty now because their cars are genuinely off the road.
I also intend to bring up to date the system of concessions and exemptions from vehicle excise duty. The existing highly complex arrangements go back, in some cases, to before the Second World War and have little relevance to the modern world.
The number of different concessionary classes will be reduced from 132 to 9, a simplified and sensible handful. This will come into effect from 1 July 1995, and will yield about £30 million a year.
But the House will be pleased to hear that special treatment will still apply to cars for disabled drivers and emergency vehicles. Moreover, I have also decided that accessories for the disabled fitted in company cars will no longer be taxed as a benefit-in-kind from next April.
I propose to increase the rate of vehicle excise duty for cars - the tax disc - by £5, to £135. But to avoid adding to industry's costs, lorry duty rates will again remain unchanged.
I propose to introduce a significant change to one part of VAT relating to cars. Since 1992 taxi and car hire firms, unlike most businesses, have been able to recover the VAT on their cars.
In response to industry's concerns about market distortion, I propose to extend this to cars bought by any business wholly for business use. This will mainly affect leased cars, with consequential changes to their VAT treatment when sold or leased on. The change should be revenue neutral in the long-run, but will cost £140 million in the first year.
In my last Budget, I announced that road fuel duties would increase on average by at least 5 per cent in real terms in future Budgets. This year, I intend to stick to that commitment.
It is an essential part of the plans that I set out last year to deliver healthy public finances as quickly as possible and forms an important part of the Government's strategy to return carbon dioxide emissions to their 1990 level in the year 2000. From 6.00 pm tonight petrol taxes will therefore go up by 2½ pence a litre for both leaded and unleaded petrol, taking into account the effect of VAT.
In recent years there has been a small differential between the duty on diesel and unleaded petrol. This differential is difficult to justify in economic, health or environmental terms. I therefore propose to tax diesel at the same rate as unleaded petrol. This means an increase of about 3 pence a litre on diesel.
I also propose to increase the duty on gas oil and fuel oil by ½ pence a litre, which will raise £70 million a year, and to freeze the duty on road fuel gases.
I turn next to duties on tobacco. The Government is committed to reducing smoking. I continue to believe that higher tax is the most effective and fair means of doing so.
Last year I said that I intended to increase tobacco duties by at least 3 per cent in real terms on average a year. I intend to stick to that commitment today.
Tax on cigarettes will therefore increase by 10 pence on a packet of 20 from 6.00 pm tonight. Duty on other tobacco products will go up by a similar proportion.
Mr Deputy Speaker, the Single European market has brought real benefits to British industry, through an expanded market for business, increased competition, reduced bureaucracy at frontiers and cheaper transport costs. These have all greatly benefited consumers.
But one of the most widely publicised other effects of the single market has been the increase in legitimate cross-border shopping in alcohol and tobacco, and in smuggling.
Both have inevitably meant some loss of duty to the Exchequer and pressures on the British drinks industry. No Chancellor can remain unmoved in the face of this but neither can any Chancellor simply adopt popular measures to cut taxes on alcohol that would threaten the revenue and require taxes on other goods to be raised.
In the longer-term, the Government must work with our European partners to bring duties more in line. The forthcoming review of Europe-wide minimum excise duties gives us the opportunity to make a start.
This year, I have once again listened to the concerns of the industries and I propose no increase in the duties on beer, table wine and spirits. This will mean that the proportion of the cost of an alcoholic drink represented by tax in this country will continue to fall. Ten years ago 37 per cent of the price of a pint of beer was tax. Today it is only 30 per cent.
Betting and gaming duties
The Government also intends to modernise and deregulate betting and gaming. This process is, in my opinion, welcome and much overdue. The coverage of taxation must also keep up-to-date with the modern world. I therefore propose to widen the coverage of gaming machine licence duty to cover amusement machines, such as arcade video games.
It is anomalous that we should tax amusement machines with prizes, but not those without. I am sure this measure will be welcomed by parents although maybe not by children.
Gaming machine licence duty has only been increased once since 1987. I propose to restore its real value to the 1987 level and to allow payment by instalments.
These measures will raise around £60 million in a full year.
In 1991 my rt hon Friend the Member for Kingston upon Thames announced a reduction in pools' betting duty of 2½ per cent. Since then, this has helped to fund the Foundation for Sport and the Arts. My rt hon Friend the Secretary of State for National Heritage and I have now reviewed this reduction.
We have agreed that it should continue for a further five years provided that the pools companies also continue to fund sport and the arts at their present level. The Foundation continues to support a number of worthwhile projects to encourage participation in sport and the arts. I am delighted that the pools companies have generously reaffirmed their commitment.
Mr Deputy Speaker, a strong and thriving business community is the only way to ensure a strong and thriving economy. This Government has a record of achievement in developing the tax system in ways which improve competitiveness, sharpen incentives, simplify administration and encourage the small and medium-sized businesses which are so important to the future development of the economy.
I would like to announce a package of measures today which will add further to the strength of British industry. Decisions on many of the measures I shall be announcing today have been informed by the Industrial Finance Initiative undertaken last year by my hon Friend the Minister of State and my rt hon Friend the Financial Secretary and his predecessor.
Corporation tax and capital allowances
First, I would like to say a few words about corporation tax and capital allowances.
We have one of the lowest corporation tax rates in the industrialised world. Low tax rates are good for incentives. They mean businesses can keep more of their profits to use as they want.
Since 1984 we have cut the main corporation tax rate from 52 per cent to 33 per cent while scaling back capital allowances to a level broadly matching commercial depreciation.
I have considered again all the calls for increased allowances to encourage investment. They have a simplistic appeal.
But I remain firmly of the opinion that increasing capital allowances would distort investment decisions and not encourage the high quality investment needed to improve economic performance. A narrower tax base would jeopardise our ability to maintain the low tax rates which have helped to transform British industry over the last decade.
The change from high capital allowances to low rates of corporation tax has been very successful. I propose to maintain that emphasis on low rates for the successful rather than high allowances for all in our system of business taxes. I also have no changes to announce on the rate of advance corporation tax or the value of the tax credit on dividends.
I would now like to deal with business rates. We are about to implement the first five-yearly review of valuations of properties for rating purposes.
Without these five-yearly reviews the rate base would become hopelessly out of date. The property market has changed a lot over the past five years with wide regional variations.
As a result of the review, many properties in the south of England will begin to see reductions in their rates bills. Some businesses in the Midlands, the North, Scotland and Wales will benefit as well but others will discover that up-to-date valuations will raise their liability.
I am glad to say that I will be able to continue to find resources to help businesses through this new transition period in the same way that we have been helping business through the transition from the last revaluation. My rt hon Friend the Environment Secretary and my rt hon Friends the Secretaries of State for Scotland and Wales will announce details of the scheme later today.
But I can tell the House now that increases in bills will be limited to 10 per cent in any one year for large properties, once adjusted for inflation. Small business properties account for three-quarters of those receiving protection.
We have decided to limit real increases for such properties to 7½ per cent. This protection will in part be financed by limiting real reductions in rates bills for large properties to 5 per cent and for small properties to 10 per cent.
But the revenue from limiting gains is not enough to help those businesses who happen to find themselves worse off as a result of more up-to-date valuations. I have therefore decided to provide assistance of £605 million next year to finance the transitional relief. This is similar to the amount we are spending on the former transitional relief scheme this year.
I laid stress at the beginning of this speech on our improved export performance. We need to build on this and not become complacent. Strong export growth will be essential if healthy recovery is to be sustained.
My rt hon Friend the President of the Board of Trade and I have taken a closer look at the services provided by the Export Credit Guarantee Department. We have agreed that a reduction in premiums of around 10 per cent on average is possible while still protecting taxpayers' interests. This will improve our competitiveness, building on the premium reductions on the past two years.
Furthermore, we have agreed to increase the amount of ECGD cover available to many important developing markets by £300 million for 1997-98. These measures will provide an added incentive for British exporters to play an even greater role in the most successful, and rapidly growing economies in the world.
As I said earlier, one of my main objectives for the tax system is that it should raise revenue in ways which do the least possible damage to the economy. In some cases, taxes actually do some good, by helping markets work better and by discouraging harmful or wasteful activities.
Taxes can play an important role in protecting the environment. One major problem is the disposal of waste. I would like to make an announcement today to help tackle this problem.
My rt hon Friend the Secretary of State for the Environment and I will issue shortly a consultation paper setting out details of a new tax to be collected by Customs & Excise on waste disposed in landfill. We propose that a new landfill tax should come into effect in 1996. It should raise several hundred million pounds a year.
But I am determined not to impose additional costs on business overall. I shall therefore be looking at ways to offset the impact of the new tax by making further compensatory reductions in the level of employer national insurance contributions when the new tax is introduced. In brief, I want to raise tax on polluters to make further cuts in the tax on jobs.
Mr Deputy Speaker, I have more measures to help small businesses in particular. The need to focus on smaller firms with growth potential has been an important theme of the Industrial Finance Initiative. It is certainly essential that we have a healthy and vigorous small firms sector for the future economic well-being of the country and to achieve higher levels of employment.
One important way in which we can help small businesses is by encouraging the venture capital industry. A flourishing venture capital industry plays a key role in promoting job creation, innovation and growth. The UK venture capital industry has been growing in recent years and I am determined that this growth should continue.
In my Budget last year I announced the introduction of the Enterprise Investment scheme, consultation on a new Venture Capital Trust scheme and an extension of capital gains tax reinvestment relief.
All three of these measures were aimed at encouraging equity investment in small companies. I want to build on them today.
Enterprise Investment Scheme
The new Enterprise Investment Scheme is now in place offering tax relief for investment in unquoted trading companies. Over 40 per cent of the schemes set up so far involve so-called business angels who want to invest their expertise, as well as their money, in a business.
This is a good start but the scheme has some complex rules and I have decided to simplify them. I am also extending Capital Gains Tax reinvestment relief to the Enterprise Investment Scheme which should increase greatly its attractiveness.
Venture Capital Trusts
I have consulted widely on Venture Capital Trusts and the response has been very positive. I have accepted suggestions for change on some details and I propose to implement the scheme in full.
And I want to go further by making investment in risk capital even more attractive than I originally proposed. Investment up to £100,000 a year in new shares in a Venture Capital Trust will offer 20 per cent up-front income tax relief and capital gains tax reinvestment relief, in addition to tax-free dividends and capital gains. I believe that Venture Capital Trusts will make a successful contribution to filling a gap in our enterprise economy, by encouraging more people to become venture capitalists.
The cost of the new scheme is expected to be £150 million next year, rising to £290 million in 1996-97. This will, of course, depend on the take up. But it could mean that funds of £2.5 billion might be raised over the next three years, providing much more investment where it is most needed.
My proposals go significantly beyond what I first set out twelve months ago. They now put in place an effective and imaginative set of measures aimed at generating equity investment in dynamic, innovative growing businesses.
They should be widely welcomed by everyone who understands how a modern free market economy works and how new jobs are created. Unlike some hon Members, I do not describe tax reliefs of this kind to stimulate investment in business and enterprise as tax loopholes.
During the recent recession, businesses particularly small businesses, were too often being closed down by their creditors and jobs lost before rescue options had been properly explored.
Following consultation, my rt hon Friend, the President of the Board of Trade, will shortly issue a paper setting out the Government's main conclusions on company rescue procedures in future.
To give management more time to reorder their affairs, we will introduce a 28 day moratorium binding upon all parties. This will give companies a breathing space to assess rescue prospects and come to an arrangement with creditors.
We are also consulting further on a mechanism to help substitute equity for debt of firms in Administration or Receivership.
These measures will contribute further to the creation of a rescue culture, discouraging wasteful liquidation of sound businesses.
Loan guarantee scheme
The impact of the 1993 changes to the Loan Guarantee Scheme has been encouraging but its rules have quite rightly been criticised as too complex. Together with my rt hon Friend, the President of the Board of Trade, I intend to review these rules with a view to make the scheme simpler and more attractive.
Lifting burdens on business
Mr Deputy Speaker, the tax system not only imposes a financial burden on business, but a regulatory burden and an overhead cost as well. I want to reduce those burdens.
Simply running PAYE and NICs is difficult for many small businesses. From next April, I propose to increase by more than 30 per cent the threshold for businesses to make quarterly rather than monthly payments to the Inland Revenue.
This will benefit around 100,000 employers at a one-off cost of £75 million. Nearly two-thirds of all employers in the country will now be able to make quarterly payments.
I also propose to consult on a move to annual VAT payments for small traders, and simplification of VAT accounting.
Furthermore, I intend to improve the administration of the tax system by encouraging closer working between the two revenue departments, Inland Revenue and Customs & Excise, as well as closer cooperation between the Inland Revenue and the Contributions Agency. This will be particularly directed at improving the service offered to business.
I would also like to make some progress towards closer alignment of tax and National Insurance. From next April clearances given by the Inland Revenue concerning non-taxable expenses will also count for National Insurance purposes. My rt hon Friend the Secretary of State for Social Security will give details of this and other measures in his statement tomorrow.
I also intend to raise the registration threshold for VAT to £46,000 tomorrow in line with inflation. This will help a number of the smallest businesses.
Finally, I turn to self-assessment. I am publishing today for consultation some details of the remaining legislation for self-assessment.
The Inland Revenue has been consulting widely on the changes. The response has been positive and my rt hon Friend the Financial Secretary and I intend to go ahead with our proposals which will aim to keep any burden placed on employers as low as possible.
Taken together this latest package of tax reliefs and deregulatory measures provide a substantial package of support for the business community. They aim to strengthen British businesses by easing cashflow problems, cutting back red tape and providing targeted help for small businesses. They should maintain our improved business performance, help to sustain the recovery and help to create more jobs.
Mr Deputy Speaker, higher savings also have an important role to play in helping sustain growth, by providing additional resources for investment. I have already announced measures to encourage savings into unquoted companies. There are two further measures I would like to announce today.
PEPS and corporate bonds
Personal Equity Plans have been very successful since their introduction in 1986. Over £15 billion has been invested in over 4 million plans to date. They have widened share ownership and played an important role in providing finance to industry. I want to take that success further and in particular to widen the type of finance available to industry through PEPs.
I propose that, from next year, people will be able to invest through PEPs in a range of corporate bonds, convertibles and preference shares, and not simply equities. This change is expected to cost £10 million in 1995-96 rising to £40 million in 1997-98.
When my rt hon Friend the Prime Minister introduced tax exempt special savings accounts, or TESSAs, it was understood that tax-free interest would be allowed to build up over a 5 year period. For some of those accounts, the 5-year period will soon be coming to an end.
I have had to consider whether this tax exemption for savings should be extended. TESSAs have been very popular, allowing many people to catch the savings habit and build a nest-egg for their future. Over 4 million people have invested over £20 billion since they were first introduced.
Given their success and popularity, I have decided that all or part of the capital accumulated in a TESSA at maturity can be reinvested straightaway in a new TESSA. Anyone who wants to continue to save tax free will therefore be able to do so up to an overall limit of £9,000. This measure will cost £150 million in 1996-97.
Finally, I turn to income tax.
The lower, basic and higher rates of income tax will remain unchanged in 1995-96. However we can at last begin to benefit from our steady return to healthy public finances. This means that I can fully index the personal allowance, the threshold for higher rate tax, and the income limit for the age-related allowances.
I have been able to provide some additional help in two important areas.
First, I want to do a little bit more for pensioners. I propose to increase the age-related personal allowance by more than indexation. The allowances for everyone aged 65 and over will be increased by £430. Nearly 3 million pensioners will gain from this, at a cost of £200 million in a full year.
Second, I propose to widen the 20p band to £3,200. This increase is twice the amount necessary for indexation. One in five of all taxpayers will now only pay tax at the lowest rate.
The tax measures that I am announcing in this Budget reduce revenue by £1 billion in 1995-96 because I have had to provide £605 million for the transitional relief for business rate payers. I have said many times that I would like to go further and that I will in due course go further. We on this side of the House are tax-cutters by instinct. But I have also made clear over and over again that tax cuts can only come when we can afford them and when it is in the interests of our industrial economy that we should make them.
That means two things. First, we have to improve further our long-term economic performance. That is why in my Budget today I have introduced yet again numerous measures designed to strengthen the economy and make sure that recovery is sustained.
The second requirement is firm control of public spending.
PUBLIC SPENDING AGGREGATES
All my efforts to help businesses and help the unemployed would be to no avail if I did not keep a firm grip on public spending.
I have already dealt with spending by each department. But I have not described what will happen to spending overall as a result of our decisions.
Last year's spending round delivered substantial cuts in overall public spending. This year's has not been easy because of that.
Public spending control is not only about controlling costs. It is about choice of priorities. That is the language of politics.
Within this year's settlement, my rt hon Friend the Chief Secretary and I have succeeded in producing real increases in resources for priority programmes such as health and the police. We have also managed to protect the delivery of public services generally by focusing our search for savings on administrative costs.
We have avoided our tight settlement last year being turned into a wasteful one by ensuring that success in lowering inflation does not simply increase the volume of spending on programmes.
I am glad to tell the House that this approach has allowed us to make overall savings which are even greater than those achieved last year.
Last year, we managed to reduce the control total by £8 billion. This year we have done a bit better. Not 10, not 15, not 20, but another £24 billion off the control total over the next three years on top of last year's reductions.
Last year we reduced public spending plans so as to reduce General Government Expenditure by £15 billion over a three year period. This year, on top of last year's reductions, we will reduce General Government Expenditure by £28 billion. That is a total reduction over the four years covered by my two Budgets, of £43 billion.
These savings have allowed me to reduce my projection for the Public Sector Borrowing Requirement. Taking into account the tax and public spending measures, I now expect to be able to reduce borrowing from £30 billion to £21½ billion in 1995-96, from £21 billion to £13 billion in 1996-97, and from £12 billion to £5 billion the year after that. This reduced borrowing should provide an added stimulus to business confidence and strengthen the recovery further.
This Budget keeps Britain firmly on track for growth that can last.
It will strengthen British businesses.
It will create more jobs.
And it will lay the foundations for sustained rises in prosperity.
I commend it to the House.
Return to top of document Return to speech index Return to main index