CHECK AGAINST DELIVERY

STATEMENT BY THE CHANCELLOR OF THE EXCHEQUER ON THE PRE-BUDGET REPORT ON TUESDAY 9^TH NOVEMBER 1999

Madam Speaker.

The challenge a year ago amid global turbulence and predictions of recession was to steer a course of stability.

Now with this year's Pre-Budget Report, the challenge is to lock in that stability and - by pressing ahead with our economic reforms - to set the course for a Britain of stability and steady growth.

The reforms made and the reforms to be made today reflect our resolve: that Britain must leave behind the sterile century-long conflict between enterprise and fairness - between the left, which promoted the good society at the expense of the good economy, and the right which promoted the good economy at the expense of the good society, and too often achieved neither.

Only by pursuing both enterprise for all and fairness for all can we equip all of Britain for the future and secure rising living standards for all.

Having laid the foundations with our monetary and fiscal reforms, Britain can now aspire to a new economic ambition for the next decade: a faster rise in productivity than our main competitors, as we close the productivity gap.

Making the most of our economic potential depends upon employing all the talents of all the people.

So, building on our educational reforms and 19 billion pounds of new investment, the Government's second ambition for the next decade is that all people gain the highest qualifications they can, with a majority of our school-leavers going on to degrees for the first time in our history.

And, having modernised with the New Deal and our reforms to make work pay, Britain can now reach for a third ambition in the next decade: a higher percentage of people in work than ever before.

Because a fair society and the strongest possible economy depend upon leaving no one behind, Britain must build on the reforms taking nearly one million children out of poverty and give every child the best possible start in life.

So our fourth ambition is - by the end of the next decade - child poverty reduced by half - on our way to ending child poverty within twenty years.

Decisions for a decade of reform - to create a Britain of prosperity for all - as together we create a Britain where there is opportunity for all.

Stability

The foundation, our first priority, yesterday, today and tomorrow, is to lock in fiscal and monetary stability.

The economy of 1997 was characterised by rising inflationary pressures; unsustainable consumer spending; a large structural deficit in the public finances with public sector borrowing of 28 billion pounds; indeed, Madam Speaker, Britain was set to repeat the same old cycle of boom and bust.

Since then we have created and rigorously adhered to a new framework of modern economic management: a clearly defined inflation target and clear fiscal rules - based on legislating for an independent Bank of England and a regime of fiscal stability.

Over the last year, inflation has remained around or at our target. And today underlying inflation is at 2.1 per cent. Expectations of inflation ten years on were 4.3 per cent when we came to power. They are now at two and a half per cent.

Having come this far we will not relax our discipline.

Our Pre-Budget Report is based on meeting the inflation target of 2.5 per cent, not just this year but next year and the year after that.

Early action on interest rates now prevents a return to the drastic action of the past.

Those who would refuse to take the necessary pre-emptive decisions to meet the inflation target would risk returning our economy to the days of inflation out of control, unbalanced economic growth and 15 per cent interest rates. Under this Government, Britain will not return to the boom and bust of the past.

Discipline is even more essential because of the changed global context. Last year, North America was the engine for world growth.

Now this year, Europe and Japan are once again making their contribution. But, while the 1998 challenge to avoid recession has been met, the new challenge to grow while controlling inflation must make us all vigilant.

I come now to the economic forecasts.

Last November I said that I expected growth in 1999 to be 1-1.5 per cent, a forecast I reaffirmed in the Budget I presented last March.

I have been re-reading the debates that took place at that time.

There were predictions of recession from experts and others.

The whole House will be pleased to know that, as the Government forecast, the economy has continued to grow.

The Treasury forecast is that growth this year will be 1. 75 per cent.

I can also report to the House that the Treasury forecast for next year is that the economy will grow by 2.5-3 per cent, and in 2001 and 2002 it will grow by 2.25-2.75 per cent - at all times consistent with meeting the inflation target.

Britain is steering a course of stability and steady growth. And we will not take risks with the future of the economy.

In our first two years, public borrowing has been reduced by 30 billion pounds - a cumulative fiscal tightening of 3 per cent of GDP - and we will continue to lock in that fiscal tightening by keeping the public finances under control.

Our first fiscal rule - the golden rule - is that over the cycle there is a current surplus.

At this stage in the financial year I can provide an interim update on the Budget figures.

The Treasury forecast for this financial year, 1999-2000, is that the current Budget will be in surplus by nine and a half billion pounds.

I have said we will not make the old mistake of confusing a cyclical surplus with a structural surplus.

In subsequent years, the surplus is forecast to be plus 11, 13, 13, 12 and 11.

I can therefore report that based on prudent and cautious assumptions audited by the National Audit Office we are on course to balance the current Budget over the cycle.

Our second fiscal rule - the sustainable investment rule - is that debt is set at a sustainable and prudent level.

Under the last Government national debt doubled from 166 billion pounds to 348 billion pounds.

In the last three years, debt's share of national income has fallen from 44 per cent to 42 per cent to an estimated 38.2 per cent at the end of this financial year, and to 37 per cent next year.

Over the economic cycle we will keep debt below 40 per cent of national income.

As a result of falling levels of debt and lower long term interest rates, interest payments are down each year by over 4 billion pounds. Money available for public services.

For all those who have an interest in EMU, I can report - following in the tradition of my predecessor - that this year and in future years Britain will be well within the Maastricht criteria.

Having inherited a deficit of 28 billion pounds, I can now report that in the year ending March 1999 we repaid debt by a total of 2.5 billion pounds.

This year we expect to repay debt by a total of 3.5 billion pounds.

A total of 6 billion pounds in debt repaid in two years.

At the right time in the economic cycle.

Consistent with our fiscal rules that we balance the current Budget and borrow only for investment, our forecasts for public sector net borrowing in future years are -3,-3, plus I and plus 4.

The British economy is clearly on track to meet our fiscal rules.

In the past, as figures for surpluses and deficits were reported, Budget debates too complacently focussed on dividing up the national wealth.

Today, in a competitive global economy, Budgets must meet the long term challenge of expanding the national wealth.

Indeed, living standards can continue rising only if Britain continues modernising.

So, on the foundation of monetary and fiscal reform, we must build a pro-investment, pro-competition, pro-enterprise Britain to meet our first economic ambition, to raise our productivity towards the world's best.

Enterprise for all

For too long British investment has been too low, productivity increases too slow, the potential of new markets, new technologies and new skills too often squandered.

Today, Britain has only half the rate of business start-ups and only half the rate of share ownership of the USA, where nearly 50 per cent of people own shares.

The British economy needs high levels of investment and entrepreneurship and I now propose new measures to encourage more investment and to give more people the chance to invest.

We have already cut small companies tax from 23p to 20p, introduced a starting rate of small business tax at 10 pence in the pound, cut mainstream corporation tax from 33p to 30p to its lowest ever level, and introduced first year investment incentives that are of special help to manufacturing.

I now propose to go further.

Under Governments of both parties capital gains tax for every investment, from the most productive to the most speculative, has been at 40 per cent.

For years as a country we have debated why long term investment in Britain has been so low.

A 40 per cent rate of tax on long term investment discourages the capital formation and sustained re-investment Britain needs to reach our full economic potential.

In the 1998 Budget we took the first step by reducing capital gains tax on investments of 10 years or more.

Subject to consultation on the details, the Budget will make a more radical reform to promote not just hi-tech investment, but long term investment across the economy in Britain.

I will say to Britain's prospective and actual investors and entrepreneurs: invest for three years and the capital gains tax rate will not be 40 per cent but 22 per cent.

Invest for five years and the tax rate will not be 40 per cent, or 22 per cent - it will be 10 per cent.

Having cut taxes for individuals who invest in businesses, my second major tax reform is to cut taxes for companies which invest.

In competitor countries, growing companies do well because large companies invest in them.

Tomorrow the Secretary of State for Trade and Industry will give full details of a substantial tax incentive to generate new jobs in Britain from corporate venturing.

Large companies that invest in growing companies for a specified period will, from next year, receive a tax relief of 20 per cent, underwriting one fifth of their investment.

And companies which reinvest gains in new ventures will be able to defer tax on capital gains.

This 100 million pound incentive can bring Britain additional investment of 500 million pounds every year.

I turn now to the details of a third tax reform designed to create both a high investment economy and a wealth-owning democracy open to all.

I can announce that, under our new employee share ownership reform, all shares held for five years will be exempt from both income tax and capital gains tax.

From April, four months from now, employees will be able to receive shares worth up to 3,000 pounds in their companies, free of income tax, giving a tax saving of up to 1,200 pounds.

Employees will be able to purchase 1500 pounds of additional shares from their pre-tax salary - giving a tax saving of up to 600 pounds a year.

And for those who purchase shares, employers will able to award an additional 3,000 pounds of shares, another tax saving of up to 1,200 pounds.

This is the most generous all-employee shares incentive a British Government has ever introduced. And it is open to all in every firm.

I urge employees and employers together to consider long term investments in their firm's success.

In preference to inflationary wage rises, which in the end bring higher interest rates, choose stake-holdings which can bring real gains.

Enterprise for all calls for a larger number of small businesses - and so the Pre-Budget Report provides details of new incentives for small businesses - the backbone of our economy: a new enterprise grant, enterprise incentives for managers, and a new research and development tax credit targeted to small business, the most generous this country has ever seen, worth 150 million pounds a year.

Enterprise for all demands balanced economic growth across all the regions and nations of Britain.

So, through Regional Development Agencies, and the work of the Scottish, Welsh and Northern Ireland administrations, locally-based Venture Capital Funds will now be set up in every region of our country.

Yesterday, the Massachusetts Institute of Technology announced it will locate its European centre in Britain.

From next year the new regionally based Enterprise Centres attached to our universities will be able to draw on the management and research expertise of the new MIT-Cambridge partnership and put it to work for every region of Britain.

Enterprise for all depends on opening up competition to all.

It is time to build on this Government's decision to create a new independent Competition Authority.

For cartels and anti-competitive behaviour, the Office of Fair Trading will, from March next year, be given new investigative resources and trust-busting weapons, including the power to impose fines of up to 30 per cent of turnover.

For banking and financial services, the Financial Services Authority will now, for the first time, be required to facilitate competition - with a new scrutiny role for the competition authorities.

For the professions, the Government will examine how best to ensure that the rules of professional bodies do not unnecessarily restrict or distort competition.

For the regulatory system, and following the Cruickshank Interim Report, the Government will consider how to scrutinise regulatory bodies and review existing and proposed regulations to ensure that they are promoting - not impeding - new entrants and competitive forces.

For the planning system, the Deputy Prime Minister is today announcing a series of changes in planning guidelines that will, for the first time, facilitate the formation of hi-tech clusters. For the first time the planning system will be required to promote competition.

For high tech businesses that need key skills, we will reform the rules on work permits and open them up to essential workers in information technologies and to entrepreneurs.

And for the utilities, the forthcoming Utility Reform Bill will explicitly require the regulators for gas, electricity and water to promote competition. In sum, Britain open to competition, fair to consumers and at the leading edge of change.

We are determined that Britain will break out of the closed circle which in the past has too often restricted enterprise to a few.

We want to encourage those who start with nothing and who, in the past, thought they could never reach higher or rise far - and tell them too that there is not only a chance to do better but no limit on their ambitions for themselves and their children.

Our poor communities do not need more benefit offices - they need more businesses creating more jobs.

So we are resolved to extend the opportunities of enterprise to people and places the economy has too long forgotten.

The New Deal will now offer help for long term unemployed to become self employed and to start a business. For the over-50s, up to 3,000 pounds during the first year in business and in work.

Help for prospective businesses will be available from a new Enterprise Development Fund which we are creating and we will also provide cash help for people moving from benefits to business including support for micro-loans for small business investment.

Our proposals will also include new scholarships for dynamic business people in our poorest areas to learn new management skills.

To encourage the next generation of young entrepreneurs,we aim to double to 200,000 the number of pupils able to benefit from entrepreneurship courses in our schools.

And with support already pledged from our most successful businessmen and women we will launch a new national campaign for enterprise, under which schools and colleges will be directly partnered with local companies.

Britain needs radical improvements not only in enterprise but also in education.

For we are determined to achieve another ambition by the end of the next decade - to realise the Prime Minister's commitment to education - the highest standards in our schools, all young people gaining the highest possible qualifications, the majority of school-leavers gaining degrees.

In addition to the University for Industry, individual learning accounts, the expansion of further and higher education places by 800,000 and meeting new targets for literacy and numeracy in our schools, the Secretary of State for Education, who has pioneered these reforms, will announce a major new expansion in IT education and skills - including 50,000 new college places, because in the new knowledge economy no one should be left out.

Employment

I turn now to our ambition of work for all. A higher percentage of men and women employed than ever before.

I can report that after two and a half years of this Government, unemployment is now lower than at any time in the last twenty years.

This Government has not only delivered the New Deal, but delivered new jobs - 700,000 more since 1997.

And the minimum wage and working families tax credit are making work pay.

But we need to go further.

There are today one million job vacancies waiting to be filled and vacancies are at record levels, not in one region alone, but in every region of the United Kingdom.

We need to equip the unemployed with all the skills they need for all the jobs that exist.

So I can announce to the House that the New Deal first introduced for the under-25s will be extended to all those over-25 in every part of the country.

Options will include :

- the offer of a job with a private sector employer;

- self employment;

- work based retraining;

- or college training.

Backed up by advice counselling and mentoring.

I can also announce today new choices for lone parents to get new skills, go to college and go to work.

From now on, lone parents will not only be able to train for jobs while receiving income support, but I can announce that they will also benefit from college-based childcare places for 10,000 more children, making a total of 37,000 in all. All lone parents with children above 3 will receive notice of these new choices.

In 1909 Britain created the first Labour Exchange in the world - to link potential employees to vacant jobs. And today, with one million vacancies spread throughout the country, Britain must use the most modern technology to match the jobs without workers to the workers without jobs.

We will now create a national jobs phone-line under which, for the first time, in every locality, the employment service will continuously update unemployed men and women about new vacancies suitable for their skills.

For every constituency in the country, the Government will provide assistance for Members of Parliament, irrespective of political party, to bring the unemployed and potential employers together.

Our reforms since 1997 have cut youth and long term unemployment by half.

A return to full employment was once a dream. It is now not only a promise but a possibility. In the next decade if we stay the course of reform it can become one of our country's proudest achievements.

And, as we extend opportunities to those who are out of work, we will extend the responsibility to take up the work on offer. The informal or hidden economy is now draining billions of pounds in fraudulent benefit claims and unpaid taxes.

This loss of revenues, this incidence of fraud, this waste of resources, cannot be allowed to continue and especially when there are jobs that benefit claimants could take.

Lord Grabiner QC, will chair a task force bringing together the Treasury, the Inland Revenue, Customs and Excise, the Department of Social Security and the Employment Service. He will investigate the scale of the problem and the cost to the taxpayer, recommend a plan of action and set a timetable to crack down on the hidden economy.

He will examine ways to move economic activity from illegitimate to legitimate businesses. He will consider increased fines for fraud and new requirements specifically for those suspected of being in the hidden economy - to sign on for benefit not every fortnight, but every single day.

I say to the unemployed who can work: we will meet our responsibility to ensure there are job opportunities and the chance to learn new skills.

You must now meet your responsibility - to earn a wage. And we are ensuring work pays more than benefits.

All our measures for work, taken together, mark a new dividing line. This Government believes that the way to help the unemployed is extending the New Deal not abolishing it.

As we pursue our ambitions for growth and jobs, we can and must keep our environmental commitments.

Under the Deputy Prime Minister, Britain took the lead in successfully negotiating the Kyoto Agreement.

And I am today announcing the results of our consultation with business on the climate change levy.

Our original proposal cut carbon environmental pollution by 2010 by 1.5 million tonnes a year.

Our consultation has shown that we can cut environmental pollution even further, by 2010 - by a total of over 2 million tonnes a year - and at the same time cut the levy from 1.75 billion pounds to 1 billion pounds.

I have decided that renewable energy sources and combined heat and power will be exempt from the levy.

The main rate per kilowatt hour will be cut from 0.21 to 0.15 pence. And there will now be an 80 per cent discount to energy intensive sectors signing energy efficiency agreements.

Taken together, these changes approach a 90 per cent discount on the levy published at Budget time in return for agreed industry action to cut emissions.

All the revenues raised will be recycled to business.

I can confirm that every business will receive a tax cut of 0.3 percentage points in employer national insurance contributions.

And I have ensured that this package is not only revenue neutral for business and revenue neutral between manufacturing and services but even after the national insurance change there is no gain to the public purse.

In the run up to the Budget we will consult on a new 100 per cent first year investment allowance for companies moving from environmentally unfriendly to environmentally friendly technologies and processes.

I propose to make available not, as originally announced, 50 million pounds, but in its first year a total of 150 million pounds to support energy efficiency in British industry.

With all our measures, Britain is on track to meet our country's Kyoto target.

The fuel escalator was inherited from the previous Government.

Since 1997 the escalator has been needed to reduce the 28 billion pounds deficit we inherited as we put in place our new measures to protect the environment.

Those who have opposed the escalator - including some who originally imposed it - have to explain how, without it, they would have cut the deficit, made money available for public services and in the last two years been meeting our environmental commitments.

Having cut the deficit and introduced our new environmental policies, we are now in a position - instead of the pre-announced 6 per cent escalator - to make our decisions Budget by Budget with the following commitment: if there are any real term rises in road fuel duties, they will be lower and the revenues will go straight to a ring-fenced fund for the modernisation of roads and public transport.

Now that the return leg exemption of air passenger duty has been declared in breach of single market law I am today starting a Pre-Budget consultation on replacing it with a new lower rate for lower fares. These changes will be revenue neutral.

Today I am also implementing recommendations that have come from Martin Taylor to prevent, detect and punish tobacco smuggling.

Smuggling is now costing us 2.5 billion pounds a year. The Pre-Budget Report contains details of our decisions - new scanners at major ports to detect contraband goods; new cigarette pack marks; and new and tougher fines and penalties for those who smuggle and those who sell smuggled goods.

I turn now to our next ambition - to reduce and then abolish child poverty in Britain. The promise of the next decade and the new century should be not just for some children but for every one of Britain's children.

By April, child benefit for the first child will be 15 pounds.

By the next April, for the typical family, child benefit and the children's tax credit will be 23 pounds. And with our 10p starting rate of income tax and the cut from 23p to 22p in the basic rate, the tax burden - national insurance as well as income tax - for the average family will be cut to its lowest level for 25 years.

Our intention is to integrate the children's tax credit and the child elements of working families tax credit and income support into one single credit paid direct to the mother - built on the foundation of universal child benefit.

At today's prices it would mean child payments starting at 15 pounds a week in contrast to 11.05 pounds in 1997 and, for the poorest child, rising to over 40 pounds a week.

In our Pre-Budget consultations we will also examine whether through the working families tax credit or other measures we can give more help to the mother who wishes to stay at home in the first months after her child is born.

Government must do more, but Government on its own cannot win the war against child poverty.

It can only be won by the combined energies of public private and voluntary sectors working together.

We need not only cash but caring.

So the Pre-Budget Report will consult on new reforms to support the community organisations that are closest to people and where dedicated staff and volunteers can offer one-to-one help.

First a new Children's Fund which will provide project grants for community action to tackle all aspects of child poverty.

Second, so we can develop new and innovative ways to support families and children, Sure Start will now see resources devolved not just to local Government but to local partnerships led by neighbourhoods and the voluntary sector.

Third, for too long the voluntary sector has been held back by outdated tax laws.

We propose that in future, for every pound a British citizen donates to charity, the government will contribute to that charity an additional 28 pence.

And for every pound contributed through payroll-giving, the Government will contribute not 28 pence but up to 50 pence worth of tax relief.

And there will now be tax relief, not just for cash donations to charities, but for gifts of quoted shares.

The British people's willingness to give can give all our children a better chance and all of us a better society.

From a platform of a stable economy and sustainable finances we are delivering 40 billion pounds extra for health and education.

And it is only by continuing our policies for stability and steady growth that we will be able to achieve a further ambition for Britain, to build the best public services.

In our second Comprehensive Spending Review, to be completed next year, we will match investment with reform - increasing the amount of resources available for the NHS and education in our public services.

I can announce two decisions that can be made now.

Through the windfall levy, 5,000 schools throughout Britain have already been modernised.

With the addition of a further 150 million pounds, to the four billion pounds already allocated for schools capital, the Secretary of State for Education will be able to treble that figure.

By 2001 the number of schools modernised or being modernised will total 15,000, half the schools of Britain, benefiting over 5 million pupils.

There is a strong public health case for year-on-year real term increases in the price of cigarettes.

While we will now make our decisions Budget by Budget, I can announce a new approach: the extra revenues from a 5 per cent real terms rise in cigarette duties would go straight to additional investment in the National Health Service, worth 300 million pounds a year, 300 million pounds extra for hospitals and health care which could start next April.

I have a further announcement to make.

From this week the 100 pound winter allowance is being paid to every pensioner household in Britain.

The Secretary of State for Social Security will announce later today that the winter allowance will not just be paid this year but next year and every year from now on.

For pensioners with incomes above benefit level who are not wealthy, we propose a better deal on savings. The elderly especially will benefit from my proposal to cut the starting rate of tax on savings from 20p to 10p - 1.5 million pensioners will benefit.

I have one final announcement.

All Governments have agreed that we ought to provide the most help for our most elderly citizens - those over 75 or 80 who are more likely to be in poverty and more likely to have special needs.

Some have suggested a new age-related addition to benefits.

Some have suggested the way to do this is to provide the very elderly with a reduction in the TV licence fee. I have rejected that option.

Instead, from next Autumn, pensioners 75 or over - every pensioner aged 75 or more - will receive their television licence free of charge.

At a cost of 300 million pounds a year, every one of the 3 million households with a pensioner over 75 will be able to save 101 pounds a year.

Madam Speaker, this Government is demonstrating that enterprise and fairness can go hand in hand. This Government's work for Britain has only just begun and I commend this Report to the House.

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