THE CHANCELLOR'S BUDGET STATEMENT 1995
Index
I have already said publicly that I have been looking forward to this year's Budget.
1. I am enjoying each a little more as I get nearer my goals.
2. The British economy has now been growing for almost four years.
3. The recovery has created more than half a million new jobs.
4. We have more of our people in work than in any other major country in the European Union.
5. Inflation is enjoying its best run for almost 50 years.
6. All the major western economies have slowed down this year but our recovery remains stronger than most.
7. The IMF has forecast that next year we will be joint top, with Germany, of the G7 growth league table.
8. Few Chancellors have delivered their Budget against a background of such strong economic fundamentals.
9. But getting this far has not been easy. It has required tough decisions on tax and spending over the past three years.
10. This Budget builds on the hard-won gains this Government has made and keeps Britain on course to be the enterprise centre of Europe.
11. A Britain that creates more jobs and generates the greater wealth and personal prosperity in which all can share. A Britain in which everyone can keep more of what they earn or save to spend as they choose not as the State chooses. A Britain where more money is spent on the things that everyone cares about - our schools, our hospitals, our police.
12. The people of this country believe in these goals. Only this Government is committed to the means of achieving them. We are keeping inflation low. We are keeping control of public spending. We are keeping government borrowing on a downward path. And we believe in the policies of low taxation which all countries must follow if they want to be world class economic powers.
13. The people of Middle England, Middle Scotland, Middle Wales and Middle Ulster understand that these policies address their needs and meet their concerns in a rapidly changing and ever more competitive world.
14. These are the people of Britain who are hard working and take responsibility for themselves and their families. The people who want to get on in life, who run their own businesses and who create jobs.
15. And the people with that great British virtue - a social conscience - who want to see a successful economy first earn the wealth, in order to give the weak and the less fortunate a helping hand.
16. This Budget addresses the aspirations of the people of this country in an economically and socially responsible way.
17. It controls public spending overall while shifting more money towards schools, hospitals and the police.
18. It keeps government borrowing on a clear downward path and fiscal policy tight so that the recovery will be sustained.
19. And it cuts taxes.
20. For all these reasons, that is why I have been looking forward to this year's Budget.
22. In 1994 the economy grew by around 4 per cent, fuelled by the success of British exporters overseas.
23. No mature industrial economy could easily sustain these rates of growth without risking a rise in inflation. That is why towards the end of last year I raised interest rates.
24. In the event, slower growth in the world economy has reduced the growth of British exports. British exporters are well placed to compete in markets overseas. For example, we now have a current account surplus with the so-called tiger economies of South East Asia. But our key markets in America and Europe are growing by less than they were in 1994.
25. Growth in this country will be sustained because the fundamentals of the economy are strong as a result of our economic policies. We have low inflation, sound public finances and more competitive businesses.
26. The change in the pace of growth this year is not unique to Britain and has been seen in the US, Germany and elsewhere. No recovery ever proceeds at a constant rate of growth throughout. In fact, this recovery is proving to be the steadiest seen in Britain for a generation.
27. Many commentators confidently predicted that the higher tax and lower public spending of the last three Budgets would knock the recovery off-track. They were wrong. Consumer spending has been on a firm upward trend since the recovery began. With the tax increases behind us, consumer spending should grow further next year and the year after.
28. Businesses have responded to the economic recovery by investing for the future. Manufacturing investment has grown by 12 per cent over the past year. The conditions for further increases in investment - low inflation, low interest rates, low corporate tax rates, and healthy company balance sheets - remain in place.
29. For the economy as a whole, the forecasts published in the Red Book are for growth of 2 3/4 per cent this year and 3 per cent in 1996.
30. My last two Budgets have strengthened the foundations of the economy and put the recovery onto a secure footing. I have reduced public spending and borrowing plans to create more room for the wealth-creating part of the economy to grow. I have helped businesses. And I have improved the working of the labour market.
31. The decisions I took and the policies I pursued in those Budgets have helped to reduce pressure on me to increase interest rates further, without jeopardising my inflation target.
35. I have no intention of throwing away the gains we have made in recent years in getting public borrowing down. We will keep on track towards balance in the medium-term because I do not want the future strength of the recovery put at risk. Overall, our decisions on public spending and the tax measures I shall describe shortly will be broadly neutral in their impact on the downward path for the PSBR over the next three years.
36. This downward profile for government borrowing sets the overall framework for my Budget this year. I am not prepared to take any action which would put at risk my fiscal target of moving towards balance in the medium-term. I had to make the difficult judgements and decisions about the balance between the levels of taxation and public spending. This year, as in previous years, I have made those judgements and taken those decisions with the dominant priority of improving the long-term health of the British economy. Our tax and spending policies must promote our aim of becoming the enterprise centre of Europe.
38. My RHF and I have at least three things in common.
39. We have both been in charge of big spending departments so we are both poachers turned gamekeepers.
40. Neither of us could be described as adopting the slash and burn approach to public spending.
41. But we are both convinced that the share of national income taken by the State in public expenditure must be reduced to below 40 per cent if we are to remain competitive in today's world. It is essential to give the private sector more room to generate the jobs, the investment and the wealth that will make people and their families more prosperous.
42. This goes hand in hand with our commitment to a modern welfare state. In the rapidly changing world of technological advance and a more flexible labour market, the British people need to be prepared and equipped to embrace change in a flexible way. They will be more willing to do this if they know that high quality schools, health care and a safety net for the unemployed, the disabled and the old are there if and when they need them. That is why we are modernising the welfare state so that it underpins the British economy, and does not undermine it. We are changing the welfare state to ensure that it serves the needs of today not of 40 years ago. That it serves those who genuinely need it. And that it is affordable to the taxpayer.
43. These objectives are being achieved in the face of huge pressures for higher public spending year after year. But this Budget proves that we can have good quality public services and spending control. Unlike our critics we understand that good services depend not only on how much you spend, but on the way that you spend it.
44. This realistic but socially responsible approach has guided me this year. I have limited the growth of spending overall. But I have also provided more money for the public services the British people care about most - schools, hospitals and the police. To pay for this my RHF the Chief Secretary and I have found savings elsewhere from our continuing drive to modernise government.
45. Let me deal first with the priority areas where I have been able to increase spending plans.
47. Public spending on the NHS will increase by over 1 billion pounds next year. In addition, patients will benefit from improvements in efficiency, including reductions in NHS management costs. All these savings - around 650 million pounds next year will be ploughed back into patient care. And privately financed projects will bring nearly 700 million pounds of extra investment over the next three years without in any way undermining the fundamental principle that health-care should be free at the point of service. This money is on top of the additional 1 billion pounds public expenditure and it all represents additional resources for our free National Health Service.
49. Our achievements have been impressive. Post-16 staying-on rates have risen dramatically, from 42 per cent in 1979 to 72 per cent now. Almost one in three young people go on to higher education, up from one in eight in 1979. We have the highest graduation rate of any major European country. We have achieved many improvements in our schools - introduction of the national curriculum, more rigorous schools inspection, measures to tackle failing schools, greater choice for parents, better vocational education, and extension of free nursery education. This is not just good for our children, it is good for our future and good for our economy.
50. Our reforms have delivered better standards of education for each pound we spend. But we are also spending more pounds. The plans I am publishing today allow for an increase in spending on schools of 878 million pounds. Within this over 770 million pounds will be channelled through the local authority settlement. Parents will rightly expect local authorities to carry this funding through to school budgets and they should ask their local authorities how this extra money will be spent on their children.
52. I have found these extra resources for important programmes because we are changing government to make sure it meets the needs of people today, not of 20, 30 or 40 years ago. We are cutting government bureaucracy, cracking down on fraud, getting government out of activities it need not be involved in and using private sector skills and finance to provide better public services. That is the hallmark of a government that is looking to the future needs of a modern industrial state.
54. The cash cost of Whitehall will be 860 million pounds lower in three years time than it is today. In real terms, this represents savings of 12 per cent, which is equivalent to a saving of nearly 2 billion pounds a year.
55. But we must never delude ourselves that more resources for schools, hospitals and police as well as tax cuts can be paid for just by eliminating waste in the public sector. Life is not that simple. We have also had to look elsewhere.
57. My RHF the Secretary of State for Social Security will announce the details of this year's settlement to the House tomorrow. The main points are as follows.
58. Increases in social security spending next year will be well within the growth of the economy.
59. We will ensure that all that spending represents legitimate spending on people in genuine need.
60. That is why my RHF will give details of a further intensive campaign against fraud.
61. He will also announce measures which will mean people who apply for asylum on arrival in the country will cease to receive benefits after an unfavourable adjudication.
62. My RHF will announce steps to close the gap between single parent's benefit and those paid to other families. The right approach to single parents is neither to penalise them nor to favour them. The costs and responsibilities of having children are the same for couples as they are for single people.
63. We intend to build on our previous measures to help more mothers move from benefit dependency into work. My RHF will announce a package of measures to encourage work including a further increase in the childcare allowance in family credit from 40 pounds to 60 pounds a week.
64. Next, housing benefit. The housing benefit system should not be an inducement for young people to leave their families before they need to. My RHF will announce measures to restrict the amount of housing benefit paid to single people under 25 to a maximum that more sensibly reflects their circumstances. The benefit system should offer a real incentive to young people to rent within their means, improving their incentives to work.
65. It is by restricting spending in these areas that we can protect people in greatest need and stand by our pledges on pensions and child benefit. Others may claim to be thinking the unthinkable. I am glad that they have at last started thinking. This Government has acted decisively to put in place policies to bring social security spending under control. Let no one underestimate what we have done. Measures announced in my three Budgets will reduce planned social security expenditure by 5 billion pounds a year by the end of the century.
67. We are also doing more to get the Government out of activities it simply need not be involved in. My RHF the Secretary of State for Defence is today announcing his intention to transfer ownership of the MoD married quarters estate to the private sector. This will improve the management of the estate which will be good for the Services, and good for Service families. We plan to privatise the Housing Corporation Loan Book, and to encourage the banks to provide Student Loans.
69. This is where the Private Finance Initiative comes in.
70. Under the Private Finance Initiative the public sector does not simply sign a contract to buy a prison, a train or a computer system. It pays to have specific services supplied at guaranteed levels of performance - available prison places, trains running reliably on the Northern Line, national insurance records kept up to date. The government chooses the quality services the public require, and then goes out and acquires those services from private companies with the finance and expertise to deliver.
71. The key point is that the initiative delivers infrastructure projects of higher quality at a lower overall cost to the British taxpayer. That is because the private sector puts its own money at risk and brings its own management skills to bear.
72. The initiative means that better public services will be provided by better private means. The service remains a public service and the taxpayers gets a better deal. No wonder some of our critics have decided to copy our innovative policy.
73. We are now far beyond the stage of simply identifying projects. The money is starting to flow. We expect actual capital spending under the Private Finance Initiative to be around 2 billion pounds per year and rising over the next three years. We expect to have agreed contracts worth at least 14 billion pounds by the end of 1998-9.
74. This money is replacing old-style public-sector capital spending and can deliver big gains in value for money for the taxpayer. In the past, cost overruns and delays were typical of public sector capital projects. The Private Finance Initiative is delivering better quality projects. For example, the PFI contract for Northern Line trains specifies reliability levels nearly four times above the best fleet currently operating on London Underground. The service we will get from the new National Insurance records system could have cost up to twice what we will pay under the privately financed deal we have struck. As a result of these flows of private finance, we have been able to find savings in publicly-financed capital while maintaining overall high levels of investment activity and high-quality investment.
75. Let me just illustrate progress with another four projects that demonstrate the extent to which the Private Finance Initiative is spreading to all parts of Government. First, I can announce a huge new package of privately financed roads, 5 new projects with a capital value totalling 500 million pounds Second, my RHF the Secretary of State for Health has announced today that a 35 million pounds deal is going ahead to modernise two hospitals for the South Buckinghamshire NHS Trust. Third, we are tendering for the refurbishment of Lowdham Grange prison, a 50 million pounds project to add to the two new prison building contracts at Bridgend and Fazakerley which will be signed shortly. Finally, full bids will be due on 5 December for the 45 million pounds water project in Inverness and Fort William. My HF the Financial Secretary will be publishing more details tomorrow on the progress of the PFI.
76. In the 1980s, our privatisation programme brought enormous benefits to the British economy. Our Private Finance Initiative can do the same in the 1990s and beyond.
79. In the mid-1970s, total public spending peaked at 47 1/4 per cent of national income. The next peak reached 45 1/2 per cent in the early 1980s and the last peak was 43 1/2 per cent in the recession of the early 1990s. I now expect total public spending to be 42 per cent of national income this year.
80. When I became Chancellor two and a half years ago I said we should aim to push the ratio below 40 per cent and keep it there. The decisions I am announcing today will achieve that aim. The ratio will be below 40 per cent from 1997-98 onwards. That is far below the ratio in any other major European country. Controlling public spending is crucial to our goal of making the economy more successful and the enterprise centre of Europe.
81. I have now taken 53 billion pounds out of projected public spending in my three Budgets. I judged this necessary to reduce government borrowing following the international recession of the 1990s. Even with the extra money for schools, hospitals and the police, I now expect planned public spending to be kept broadly unchanged in real terms over the next three years.
82. When we first set out our public spending control totals three years ago, most of the pundits did not believe we would stick to them. The doubters have been proved wrong.
83. Not only have we stuck to our plans, I have managed to reduce them again, for the third year running. Next year, the control total will be 3 1/4 billion pounds below the level set in last year's Budget. That is 12 billion pounds below the level we expected it would be for that year when I became Chancellor.
84. Having carefully reviewed the latest projections for public borrowing in the light of those decisions I have concluded that we can now return to the task of starting to cut taxes again. I am able to make tax cuts broadly equivalent to the spending reductions, with Government borrowing still falling to zero by the end of the decade.
85. After the Budget measures are taken into account I expect the PSBR to continue to fall at roughly the rate we have now achieved in the last 2 years. I expect it to fall from 29 billion pounds this year to 22 1/2 billion pounds in 1996-97 and 15 billion pounds in 1997-98. Broad balance should be reached after a further 2 years. The financial deficit is now expected to be close to the Maastricht reference level of 3 per cent of GDP in 1996-97, and to fall well below it in subsequent years.
86. So fiscal policy will remain tight. That is why the measures in this year's Budget are economically and socially responsible. I have made clear all along that every Budget I deliver will be dominated by the long-term interests of the British economy.
87. Let me now turn to my tax proposals.
90. This is a tax on waste in order to reduce the tax on jobs. The money raised by the Landfill tax will allow for a matching cut in the main rate of employers' national insurance contributions by a further 0.2 per cent to 10 per cent from April 1997. This will cut the cost of employment by 1/2 billion pounds and make it cheaper for businesses to create new jobs.
92. Last year I froze the duty on gas used in road vehicles, that is liquid petroleum gas and compressed natural gas, pending further work on their impact on the environment. Studies since then have confirmed these are relatively clean fuels. The Government would like to help encourage further use of these fuels, and I propose to reduce duty on them by 15 per cent.
94. This year, the tax disc for cars will rise by 5 pounds. But I am freezing the rates for lorries for the sixth consecutive year.
95. Honest motorists are irritated by tax disc evaders. The Secretary of State for Transport and I are publishing today a revised proposal on continuous licensing which will make it easier to enforce the collection of vehicle excise duty. But we will not be requiring licenses for vehicles when they are kept off the road. To make sure that the new system does not penalise vintage and classic car enthusiasts, many of whom only run their cars the road occasionally, we will be exempting from duty all cars and motorcycles over 25 years old, taking 150,000 historic vehicles out of tax.
97. I am satisfied that the industry's concerns are genuine and I propose to cut general betting duty by one per cent. The benefits should be spread between the betting industry and horse and greyhound racing. If satisfactory agreement can be reached quickly the duty cut can take effect from 1 March.
98. The pools companies have also been affected by the success of the National Lottery. I propose to reduce pool betting duty by a further five per cent from 3 December on top of a similar cut I made last year. I am willing to reduce pool betting duty by a another one per cent from 5 May, if the pools companies will agree to pass on that extra one per cent equally to the Football Trust and the Foundation for Sport and the Arts. This reduction would help the Trust and the Foundation to continue their valuable work and I am sure that would be welcomed on all sides of the House.
101. Our duty levels are higher than those of our continental neighbours. Each member state must retain its freedom to set its own tax levels and we accept the downward competitive pressures on tax in a single market. We therefore have to address the legitimate concerns of the British drinks industry but at the same time minimise losses of revenue that would otherwise have to be raised by other taxes.
102. This year I propose to freeze duty on beer and wine. Tax as a share of the cost of a pint of beer is now the lowest for over 20 years.
103. There are two changes I propose to make to other duty rates here at home. Very strong cider is presently under-taxed compared with other drinks and I intend to raise its duty by 8p a pint from next October, without disturbing the rate for ordinary ciders.
104. High rates of duty at home have made it difficult for the Scotch whisky industry to press their excellent case for lower duty rates in other countries. Scotch is one of our most important exports. Spirits duty will therefore be reduced by 4 per cent from 6.00pm today. This is equivalent to 27p off a bottle of whisky.
106. Of course, it is nothing of the kind. A windfall tax would damage investment and threaten the quality of customer service. It is an illusion that a windfall tax is paid by the company. It is paid by its shareholders, including many small shareholders and pension funds. And it would mean higher future prices for customers. The whole point of privatisation is to benefit consumers, not simply the Exchequer. I do not intend to introduce such a tax.
110. We therefore have a target in our Housing White Paper of a further 1 1/2 million home owners over the next 10 years. I reaffirm that mortgage interest relief will remain unchanged for the lifetime of this Parliament.
111. We have already introduced measures for mortgage lenders to make it easier for people with negative equity to move home.
112. The Finance Bill will pave the way for Housing Investment Trusts which will encourage investment in private rented housing.
113. I have considered carefully the case urged upon me for special measures to revive the housing market. Many housing experts sadly are forced to the same conclusion as me that none of the affordable proposals would actually make any difference. The problem is not the cost of house purchase. There have never been such bargains on the market. An average mortgage costs only around 180 pounds per month, far less than renting an equivalent property, and houses are more affordable than they have been for years. I remain convinced that what the housing market needs above all is steady growth and low inflation. That is what this Budget delivers. This Budget will reinforce my ability to keep interest rates and mortgage costs down. That matters most of all to the housing market. All the major lenders expect prices to start to rise next year and, as confidence grows, I expect the market to start to move soon.
115. I want to give people more security by ensuring that their needs will be met in old age.
116. I want to help people have a greater personal share in the prosperity and success of the businesses for which they work.
117. I want to encourage enterprise, particularly small businesses.
118. And I want to allow people to keep more of the money they earn or save to spend as they choose, not as the State chooses. This is essential in a modern, dynamic economy.
120. To help people who have already put money aside it was recently decided to exempt from VAT some forms of care provided in someone's own home. I now have two important further proposals.
121. First, I intend to exempt from tax the benefits from a range of insurance policies which provide long-term care benefits. We should encourage, not penalise, people who decide to take responsibility for themselves.
122. Second, at present, only people with assets worth less than 3,000 pounds are not asked to make any contribution from their capital. People with assets worth more than 8,000 pounds receive no financial support from the Government. When applied to care in residential and nursing homes, these limits are far too low.
123. From April, and sooner if practicable, we will more than treble the lower threshold from 3,000 pounds to 10,000 pounds and double the upper threshold from 8,000 pounds to 16,000 pounds. That means that people in residential care who have worked hard and saved will now keep more of their own money.
124. This will give many elderly people and their families more financial security and greater peace of mind.
125. But we also want to find more ways of helping people who are now in work or recently retired and want to plan ahead to prepare for their old age.
126. We will be consulting shortly on an innovative range of proposals to encourage people to make provision for long-term care. We are studying in particular the concept of so-called partnership schemes. The essence of these will be that individuals who plan ahead to meet a proportion of long-term care costs themselves will be able to retain more of their assets above the 16,000 pounds capital threshold.
127. State funded care will, of course, still be there for all those who need it, but those who have provided for themselves will be able to keep more of their savings.
128. The partnership approach combines state provision for the needy with reward for the thrifty who make provision for themselves.
129. In addition, I have asked the Inland Revenue to consult on the possibility of extending to members of occupational pension schemes the option to take a variable pension. This could provide a larger pension in later years, when people are more likely to need long-term care, in exchange for a smaller pension earlier on.
130. For future generations long-term care will be a growing problem for the finances of many families. The Government has put in a lot of work to put together a package to meet their concerns. We will now go out and consult and explain our ideas in detail.
131. For all retired people living on their savings, Pensioners Bonds have proved a very popular National Savings product since I introduced them two years ago. I am today announcing that we are reducing the qualifying age for purchases of these bonds from 65 to 60.
132. Taken together, these measures are the mark of a Government that cares about our elderly, their families and their sense of security. It also shows yet again that we are a Government that looks to the long-term in all these difficult areas of social policy.
134. All of the old-fashioned distinctions between employee and employer, between capital and labour, are being broken down in our modern enterprise economy. Most employees understand that their rewards depend on the success of the businesses for which they work. Most businesses believes that the best way to motivate staff is to let them share in the rewards of success. The public's willingness to embrace and understand these principles has been a major culture change over the past 16 years.
135. An important part of this change has been the spread of employee share ownership, which is one of the most attractive features of what has become known as popular capitalism. Holding shares in the company for which they work gives people a stake in the company's future success. Nobody in this House has advocated the cause of performance related rewards and employee share ownership more than I have over the years and I started doing so well before these ideas become fashionable.
136. We have two tax-privileged schemes to encourage share ownership for all employees. Saye-As-You-Earn schemes which encourage share ownership through share options linked to savings plans and profit sharing schemes which allow employees to receive free shares. There are around one million people in each scheme. I want to build on these successes by improving both schemes.
137. The minimum period for saving under a SAYE scheme will be reduced from five years to three and the minimum contribution will be halved to 5 pounds a month. The holding period under profit sharing schemes will also be reduced from five to three years.
138. These changes will increase significantly the attractiveness of these schemes. But I am going to do more.
139. In July I withdrew the tax privileges attaching to some so-called "executive" share options. The overwhelming majority of companies used these options for their more senior employees. I approved of such options so long as they were linked to genuine performance but I did not see any justification for maintaining their tax privileges.
140. The resulting debate brought out that there was a demand for a third type of wider share ownership scheme to provide a more flexible basis of granting options to lower paid employees. I am, therefore, introducing a new tax relief which will enable companies to grant options, under a scheme approved by the Inland Revenue, up to a limit of 20,000 pounds.
141. The conditions for the new relief will be similar to the conditions which applied for the old one. The relief will also be available to schemes in existence at 17 July 1995 which qualified under the old rules subject to the 20,000 pound limit.
142. These changes go further than ever before in creating a climate in which employee share ownership can become the norm. I hope that companies will offer all their employees, not just their executives, the chance to enjoy the economic benefits and the sense of ownership that shareholding can bring.
144. We are encouraging more innovation, investment and growth. That means allowing people to keep more of the income that they earn, and I shall have more to say about that in a moment. It means encouraging people to save more, to invest more and to build up more personal wealth. It also means helping small businesses. The backbone of our modern, dynamic successful economy is an active small businesses sector. Small businesses are the seed corn of our future prosperity.
145. I have some important measures this year to help businesses, and in particular, small businesses.
147. Many businesses faced lower rates bills following the five- yearly revaluation of rateable values. But others faced higher bills. To help this group I announced in last year's Budget that real terms increases in rates bills would be capped to a maximum of 10 per cent a year. I have looked at this cap again and no longer consider it to be low enough. For 1996-97 the maximum real terms increase in rates bills for all businesses will be reduced from 10 per cent to 7 1/2 per cent. Small businesses will get extra help. The maximum increase for small properties will be 5 per cent instead of 7 1/2 per cent. 1.2 million business properties will benefit from these changes, including 870,000 small properties.
149. The starting point must be help for those who have built up their own businesses and want to be sure they can sell up and enjoy the rewards of their own hard work
150. Tax relief for the owners of businesses selling up on retirement was substantially increased in 1991 and 1993 so that capital gains of up to 1 million pounds now benefit from this relief. This year I am going to extend further the relief for owners who have worked hard and created their own businesses by reducing the qualifying age from 55 to 50.
151. This will reward the success of more of those people who own and manage their own business. It will increase incentives for those who are going to work in their own business in the future. It is the mark of a Government that backs enterprise.
153. Many people, who do not consider themselves rich, work hard and save for their families throughout their whole lives. They pay their taxes when they work. They want to pass on their family capital without having it taxed again when they die. Many people want to pass on an inheritance to their children and their grandchildren to give them a better start in life than they had. That is a natural instinct in families. Inheritance is now an issue for middle Britain. It is to help middle Britain that we aim to abolish inheritance tax as soon as we can afford to do so.
154. It is a myth that inheritance tax is paid only by the very rich. In fact, the very rich are well placed to dispose of their wealth in their own lifetime. Most people hit by inheritance tax are those who would not consider themselves rich at all. These are people who will bequeath not much more than the present tax free allowance of 154,000 pounds. They may be people who own their home and a few modest investments. There are many more people like them who fear their assets will be hit by inheritance tax. I therefore propose to increase the tax free allowance substantially to 200,000 pounds. The number paying inheritance tax will be reduced by one third and only 1 in 45 estates will now pay this tax.
155. Inheritance tax can also have a direct effect on enterprise. A family company may have to be broken up when the owner dies. We already recognise this problem through the existence of business property relief for qualifying unquoted companies. I now propose to remove the problem altogether by extending 100 per cent relief to unquoted shareholdings whatever their size.
157. In the post-War era, when Britain went into comparative economic decline, Britain had high rates of taxation on income. That damaged the economy and stifled prosperity. It was a tax policy based on envy.
158. When this Government came to power the basic rate was 33 per cent. The top rate on earnings was 83 per cent. Rates on so-called unearned income were as high as 98 per cent. There was nothing fair about taxation before we started to make it fairer.
159. During the past 16 years we have cut the basic rate by around one quarter to 25 per cent and abolished all rates of income tax above 40 per cent.
160. But the income tax burden is about more than just tax rates. Tax allowances matter as well.
161. I propose to increase allowances for married couples and people receiving related allowances by 70 pounds, in line with indexation. It is a myth that the tax system penalises marriage and that single people are better off than married couples. Any young couple contemplating living together and starting a family will pay less tax by getting married.
162. As the economy continues to grow and create jobs, more people - as they return to work - will find themselves earning more than the tax threshold.
163. I believe we should relieve as many of the lower paid as possible from the burden of income tax. I therefore propose to increase the basic personal allowance by 240 pounds, that is 100 pounds more than indexation. This will provide an incentive to work to those at the bottom of the income scale. More than 200,000 people will be kept out of tax compared with indexation of allowances.
164. People who do not consider themselves rich now find that their incomes may bring them into the top rate of tax. That has a lot to do with the growth of the economy over sixteen years and the growth in personal incomes. I do not want more people to be taken into the 40 per cent band this year. I therefore propose to raise the higher rate threshold by 1200 pounds, 200 pounds more than indexation.
165. But, in the longer term, of course, we have a clear and achievable goal for income tax - moving to a basic rate of 20 per cent as soon as we can.
166. This year I can move much faster towards that goal. I propose to increase the 20 per cent band by a further 700 pounds, that is 500 pounds more than indexation, bringing an extra one million people into that band. Around a quarter of all taxpayers - that is over 6 million people - will pay tax on their income at just 20 per cent. There were many who doubted the credibility of our goal of a 20p basic rate when it was first set out in 1992. We are now making big strides towards achieving it. Some people are even having to resort to trying to outbid us.
167. But widening the lower rate band is not the only route to 20p. I want to make progress on another front. I therefore also propose to reduce the rate of tax on all savings income for basic rate taxpayers to just 20 per cent. This will apply to the tax deducted from interest on bank and building society accounts, and is equivalent to an increase in interest rates for savings' income. Around 14 million savers will gain from this change and see the income from their savings increase. As a result of this measure, people will gain an extra 5 pounds from every 100 pounds they receive in interest. Many of those who benefit will be pensioners, who will gain 75 pounds a year on average. Some could stand to gain 500 pounds a year more. Those who have earned and saved will be able to keep more of their own money. And this measure is another important and decisive step to a 20 per cent basic rate for all income.
168. I propose to reduce the small companies rate of corporation tax to 24 per cent. The reason I am able to do this is that the small companies rate has for many years been pegged to the basic rate of income tax. My final proposal in this Budget is therefore to reduce the basic rate of income tax by one penny to 24 pence in the pound.
169. These three steps - widening the 20p band, a 20p tax rate for savings' income and 1p off the basic rate - move us much closer to a 20 per cent basic rate of tax for all income. We have a clear commitment to the 20p basic rate, we believe in it and we can achieve it.
170. As a result of the measures in this Budget, a married couple with only one earner on average earnings with two children will pay 190 pounds less tax. Overall, their real take-home pay after tax will rise by around 450 pounds next year. They will be 700 pounds a year better off than they were at the time of the last Election. That is extra money for families to spend as they wish. My Budgets of the last two years have kept us on the course we said we would follow. We have cut taxes, we are cutting taxes and, when we can afford it and when it is in the interests of the economy, we will cut taxes again. Good economics is good politics.
172. A Britain that creates more jobs and more wealth in which all can share, because business can flourish here in a secure climate of low borrowing, low taxation, deregulation and free trade.
173. That is why this Budget controls overall public spending while shifting more money towards schools, hospitals and the police.
174. That is why this Budget keeps Government borrowing on a downward path.
175. That is why this Budget cuts taxes.
176. I have only achieved this hat-trick because the Government has followed a consistent economic policy.
177. Only we have clear objectives and only we know how to achieve them.
178. Borrowing falling to zero.
179. Public spending below 40 per cent of national income.
180. Inflation below 2 1/2 per cent.
181. A 20 per cent basic rate of income tax.
182. This Budget puts us on a path to meet all these goals.
183. I commend it to the House.
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