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Tuesday, 16 March, 1999, 10:24 GMT
Full text of the chancellor's speech
The full text of Chancellor Gordon Brown's Budget speech.
"Today's Budget is a Budget for Britain to succeed in the new economy and lead in the new century: a Budget that builds on a strong foundation of economic stability, advances a modern framework of efficient public services and encourages a dynamic Britain of enterprise and fairness.
With this, the last Budget of the 20th Century, we also leave behind the century-long sterile conflicts between governments of the left that have too often undervalued enterprise and wealth creation - and governments of the right too often indifferent to public services and fairness.
In contrast this is a Budget built on the central idea that our future depends on enterprise and fairness together.
Enterprise and wealth
The more enterprising Britain is, the more wealth we create, the higher our standard of public services and our standard of living can be - not just for the few but for all of us.
The fairer Britain is, the more open Britain is to the talents of all, from whatever class or background, the more enterprising and prosperous all of Britain will be.
Because enterprise and fairness are founded on securing sound economic fundamentals, this Budget locks in monetary and fiscal stability for the long term.
Because enterprise and fairness depend on modern public services, we are not only providing the £40bn extra we promised to health and education but today I will announce more money and more capital investment in schools, hospitals, transport and fighting crime.
And this Budget implements far-reaching tax reform that will deliver a better deal for enterprise, a better deal for families, a better deal for work.
Because for too long the tax system has undervalued entrepreneurship and investment, we will cut taxes on enterprise.
And we will champion the needs of small business and introduce a new competition policy and a new computer strategy for Britain.
Because for too long the tax system has undervalued the family, failing to reward those who take on the most important responsibility of all - bringing up children - we will cut taxes for families, helping parents when they need help most.
To recognise the contribution to our country of our senior citizens, this Budget will increase the income of all our pensioners.
And because for too long governments have taken too much in taxes from people who work hard but are not wealthy, this Budget now reforms tax and benefits and delivers tax cuts that reward work and make work pay for everyone in Britain.
So in a better deal for Britain that puts work, enterprise and families first, this Budget will cut tax rates and at the same time boost public investment - and it will do both at the right time for the British economy.
Two years ago Britain faced the threat of rapidly rising inflation.
So our first priority, and our continuing obligation, has been and is to build a solid foundation of economic stability.
We took decisive action in 1997 and 1998, and as a result inflation is under control and for the last seven months has been at or around 2.5%.
In the 1980s inflation went as high as 21%. Our forecast is for inflation of 2.5% this year, next year and the year after.
For the first time in our generation, Britain can look forward to sustained low inflation.
In our first week in government, we made the Bank of England independent, freeing monetary policy from the politically-driven control that in the last economic cycle led to 15% interest rates for an entire year and interest rates at 10% or over for four years.
Now, because together we are steering a course of stability, long term interest rates have come down from over 7% in May 1997 to 4.5% - our lowest long term interest rates in over 40 years.
And, after five interest rate cuts in five months, saving the typical homeowner around £900 a year on their mortgage, Britain now has the lowest mortgage rates in 33 years.
All of this has happened against a background of great uncertainties in the global economy.
One quarter of the world is now in recession.
World growth has been cut in half. World export growth has fallen even faster. And, as a result of failures in many of East Asia's economies, our exports to them have fallen by 50% or more.
"Economy is better prepared"
And this year, as trade imbalances worsen, and threats of protectionism grow, it will be even more important to hold to our course of stability.
Britain, with other G7 nations, has rightly assumed a leadership role to address the root causes and contain the spread of future global crises.
The storms may come again. But because of what we have done, our economy is now better prepared to weather them.
With public investment set to rise and interest rates coming down, both at precisely the right time in the economic cycle, Britain's fiscal and monetary policies - often at odds in previous economic cycles - are now working together to promote growth with low inflation.
I can confirm our growth estimate for 1999 of 1% to 1.5%, which is what I told the House in November, followed by stronger growth - in 2000 of 2.25% to 2.75% and then in 2001 of 2.75% to 3.25%.
Despite world conditions, more men and women are in jobs than at any time in our history, and unemployment in the last year has been at its lowest rate for 20 years.
Since May 1997, youth unemployment has fallen by 57%, and long term unemployment has been cut in half.
And because more lone parents are now in work, the numbers claiming out of work benefit - rising for 30 years, over one million when we took office - have now fallen by nearly 100,000.
As we entered office we inherited a budget deficit of £28bn. We said in our manifesto we would work within the existing spending plans for our first two years.
In our first year the deficit was reduced by £19bn.
In my Budget last year, I promised we would reduce the deficit further. As a result of our prudence, our first two years' spending is £2bn lower than the spending plans we inherited.
This year, the Budget will be in surplus. The current surplus this year is forecast to be £4bn.
And public sector net borrowing will be in surplus by £1bn - in contrast to the £28bn deficit we inherited.
I am determined to continue locking in this fiscal tightening for the years to come so that we continue to meet our fiscal rules and so deliver sound public finances.
I have had to offset the impact of slower world growth on our corporate tax revenues, and lower indirect tax revenues.
But, as a result of sound economic management, debt interest payments next year have been cut by £2.5bn from their previous forecast, and in total by £4bn over the next three years.
Because less of our social security budget is being wasted on paying for past failures in employment policy, social security spending as a whole has not been rising as in previous years.
New investment in health
And over the next three years social security spending including unemployment - even after adjusting for the economic cycle - is set to be significantly lower than previously forecast, freeing resources for new help for families and pensioners.
At the time of the Comprehensive Spending Review there were those who said we could not afford the £40bn for new investment in health and education and still meet our fiscal rules.
I can report that the entire £40bn investment in health and in education will be fully delivered and will be delivered fully within our fiscal rules.
Not only that, but still meeting the test of fiscal prudence I will today allocate from our Capital Modernisation Fund even more investment for hospitals and schools.
And still meeting the test of fiscal prudence, I will be able to afford tax cuts to reward work, encourage enterprise and strengthen the family.
Even after all the measures in today's Budget, next year's current surplus is expected to be £1bn higher than previously forecast - and £1bn more in 2000-2001.
For the coming five years the current surpluses are forecast to be - successively - £2bn, £4bn, £8bn, £9bn and £11bn.
"Our golden rule"
In line with our golden rule, even under our most cautious assumptions, we are balancing the current budget over the economic cycle.
And for the first time in a generation we are eliminating the current structural deficit.
We are also meeting the second fiscal rule, that of sustainable investment, a prudent ratio of debt to national income.
Debt as a proportion of national income has already fallen from the 44% we inherited to under 41% this year, and it will fall below 40% to 39.5% next year, then to 38%, then to 37% in 2001-2002.
Britain's fiscal position is not only sound today but on the soundest possible footing for the future.
"Cut debt payments"
For the coming five years, the estimated current Budget surplus totals plus £34bn - in contrast with the last government's deficit over the last economic cycle of minus £149bn and the last government's doubling of the national debt.
So, as we cut debt payments and the bills of economic failure, I will further lock in the fiscal tightening we have achieved over the last two years, I will continue to meet our fiscal rules, and I am also able, with my Budget measures today, to boost purchasing power over the next three years by £6bn at exactly the right time for the economy.
Even after these measures take effect, public sector net borrowing will be lower than previously forecast in each of the next three years - at £3bn in the coming year, and then £3bn, £1bn, £3bn and £4bn in the years after.
And for those who take a special interest in European issues - in particular the Maastricht Treaty- I can confirm that Britain is well within the Maastricht criteria.
I have often told this House that our prudence is for a purpose. And so I am now able to announce a new boost to purchasing power of £6bn over the next three years as a result of my Budget measures - net tax cuts of £4bn targeted to working families - and on top of that, for families and public spending, more than £2bn of additional public investments.
Investment in health and education
And I will also today announce major allocations from our £2.5bn Capital Modernisation Fund, adding more resources to the extra £40bn pounds we have already committed to invest in health and education over the next three years.
Let me turn to the details of my measures beginning with the tax and other reforms that deliver a better deal for enterprise.
To those who argue that getting interest rates and inflation down is enough, I say that stability is the essential foundation but it is only the foundation.
We must build on that foundation a modern knowledge based economy.
Britain must make a quantum leap in skills, innovation, competition, information technology and small business.
So today, we bring forward seven major reforms for a new enterprise economy open to all.
First, tax cuts for business. So that more businesses - large and small - will invest, grow and prosper, so that the many and not just the few will have the chance of starting businesses, we today cut business taxes, and introduce a special enterprise management incentive scheme to reward the risk takers.
When we came into government, corporation tax for companies was 33%. Today it is 31%.
I confirm that from April 1 we will further reduce the main rate of corporation tax from 31p to 30p, the lowest rate in the history of British corporation tax, the lowest rate of any major country in Europe and the lowest rate of any major industrialised country anywhere, including Japan and the US.
When we came into Government, small companies tax was 23p. In my first Budget, to encourage enterprise and investment, we reduced it to 21p, backdated to April 1997.
From April this year the rate will be 20p - 350,000 companies will benefit.
But I want to do more by creating an even lower rate that will give new incentives for men and women to start their own business and work their way up.
I believe the whole House will want to welcome what I announce today - a new starting tax rate for small business of 10p in the pound.
Every company making profits up to £50,000 will benefit.
The legislation will ensure that the beneficiaries are genuinely those who take risks.
And 85% of the firms gaining from the new 10p tax rate have fewer than 10 employees - the very firms we most want to see grow, the very firms whose growth will create the greatest number of new jobs.
This is the lowest starting rate for small businesses in the entire history of UK corporation tax.
Where we inherited business tax rates of 33p and 23p, the rates will now be 30p, 20p and 10p, and I give to all companies - large and small - an assurance not just for a year but for the rest of this parliament: there will be no return to the higher tax rates of the previous Parliament.
For the life of this Parliament the rates will be 30p, 20p and 10p - or lower.
Cut cost of investing
We will not only cut the tax rate but also cut the cost of investing. I am particularly keen to strengthen the ability of manufacturing industry to invest in new equipment and new technology with targeted tax advantages for doing so.
I recognise the difficulties faced by manufacturing as a result of global instability and the strong pound.
And so I will set aside an additional £325m to allow small and medium sized companies to write off 40% of all they invest in the coming year.
In other areas I am extending the tax allowance for new films made in Britain.
And the shipping industry has put to me the case for enhanced training incentives and for a lower rate ring-fenced tonnage tax.
While I am attracted to these options I have to be satisfied that lower tax rates will not become a vehicle for tax avoidance and I am grateful to Lord Alexander of Weedon for agreeing to conduct an independent study of the national and international tax issues involved.
Second, I propose a tax reform that will reward risk and stimulate new enterprise at the cutting edge of technology. I want to recruit, motivate and reward Britain's risk-takers, the innovators capable of creating wealth and jobs in the Britain of tomorrow.
In the past, share option schemes, subsidised by the taxpayer, have rewarded those already at the top whose risks are low and rewards already high - such as utility chief executives often operating in a monopoly environment.
Tomorrow I will publish details of a very different kind of targeted tax cut for those who are prepared to move from secure jobs and venture their time and effort to create wealth for our country.
The new enterprise management incentive will allow the award of equity worth up to £100,000 for success in building up the new path-breaking companies our economy needs.
Our capital gains tax reforms reward committed long term investment. For the first time, Britain now has a long term rate of only 10%.
I now announce the level at which capital gains tax will begin. There is no requirement for me to raise the threshold. But I have decided to do so. For all individuals, from April, the first £7,100 will be free of capital gains tax.
This measure will exempt 10,000 more people from capital gains tax altogether.
Britain now has the lowest long term rate of capital gains tax with the most generous threshold in its history.
I now turn to the rate and threshold for inheritance tax.
The rate will be unchanged and fewer people will pay the tax as I raise the threshold by £8,000 to £231,000. 97% of estates will now be exempt from tax.
Third, targeted tax cuts and public investment to put Britain and British enterprise at the forefront of innovation.
R&D tax credit
I propose a new R&D tax credit which will give new business and small business - the biggest source of innovative ideas - cash help to research and develop their innovations even before they make their first profits.
At a cost of £150m a year, this targeted tax cut will underwrite almost one third of research and development costs for small business.
Britain now has one of the best incentives for innovation anywhere in the industrialised world.
Scientific innovation is a prime catalyst of growth. And I want a winner's circle of innovation - inventions in Britain, that are then developed in Britain and manufactured in Britain, creating growth and jobs in Britain.
Investment in science labs
The seedbed is basic science. I can announce a £100m new investment in university science laboratories and equipment, part of our £1bn upgrading of British science.
To transform British inventions into British-made products, I propose a 30% increase to £65m in the budget of our University Challenge Fund.
To encourage large companies to invest venture capital in innovative small companies we will tomorrow publish proposals for a new corporate tax incentive.
To ensure the necessary flow of finance to high-risk companies, I am allocating £20m for start-up funding for high tech venture capital funds for England, Scotland, Wales and Northern Ireland.
Fourth, a new competition policy for Britain. The sharpest spur to enterprise, the ingredient too often missing in our country today, is competition.
The productivity review has concluded that competition is not only the best stimulus for innovation and efficiency but the best prospect for a better deal for consumers.
And it is time for more competition and lower prices in basic essentials like the utilities, financial services, indeed the whole range of consumer goods, where too often British people are paying far more than they should for what they need to buy.
It is wholly unacceptable that consumer goods can still cost up to twice as much in Britain as in America.
In 1997, so that interest rate decisions would be set for the long-term needs of the economy, the Government made the Bank of England - Britain's monetary authority - independent. Tomorrow so that competition will be encouraged for the long-term needs of the economy and consumers, the Secretary of State for Trade and Industry plans to set out a new competition policy for Britain.
With the setting aside of 20 per cent extra resources, the Office of Fair Trading will now be charged with a pro-active remit to root out cartels and restrictive behaviour. Obstructing investigations will be a criminal offence.
Wherever there is monopoly power we will open the way to competition and new entrants.
The Deputy Prime Minister will review competition in airports and in the water industry, starting with industrial and commercial consumers.
The Financial Services Authority will now publish league tables of costs and charges in savings, insurance and pension products, to guarantee a better deal for consumers and to avoid the mis-selling of the past. To help homeowners, all building societies and banks will, for the first time, be obliged to publish reliable price information on mortgages.
Britain will have the most open competition policy the country has seen.
Fifth, to match our small business tax cuts with a new champion for small business in government, we will simplify help for small businesses and establish, for the first time in our country, a single Small Business Service, devoted entirely to the needs of small business.
This one-stop, open-door service - the Small Business Service - will have new resources to offer loan guarantees, support innovation, advise on electronic commerce and deliver, for the first time, an automated payroll service to help new small companies starting out. Small businesses who file their tax returns electronically will be offered a discount.
Sixth, to open Britain's economy to the enterprise of all, we propose employee shares for all.
Britain can and must become a democracy of enterprise, that gives all who create wealth a greater stake in the wealth they create.
Under our new programme of shares for all, employees will be able, for the first time, to buy shares in their own companies from their pre-tax income. Every employer will be able to match, tax-free, what each employee buys.
This will be the most tax-advantaged all-employee share ownership scheme Britain has ever had.
Our only stipulation is that it really must be shares for all - offered across the company's entire workforce.
Our seventh measure for enterprise.
New targeted tax cuts and public investment to equip all our companies and all our people for the newest and most decisive economic challenge of the 21st century - mastering information technologies, from the PC to the internet, from e-mail to e-commerce.
This industry is the great driver of world economic growth today.
And Britain can no longer afford to lag behind America.
So today, we allocate an additional half a billion pounds from our Capital Modernisation Fund to launch a 1.7 billion pound computers for all initiative, a nationwide effort enlisting schools, colleges and companies, public and private sectors across the board to make Britain a leader in the information economy.
Our target is a national network of 1,000 computer learning centres, one for every community in Britain. They will be in schools, colleges, libraries, in internet cafes and on the High Street.
A whole new network of computer learning with one purpose only, that the whole of Britain is equipped for the information age.
Our targets for the new economy are ambitious.
Within three years, one million small businesses able to benefit from e-commerce.
32,000 schools connected to the internet, with 370,000 teachers computer-trained.
New help worth 20 million pounds making it possible for more teachers to have computers for home use.
Inequality in computer learning today will mean inequality in earning power tomorrow. So to bring more computers into more British homes, we will legislate so that employees will be able to borrow computers from their companies as a tax-free benefit.
Anyone left out of the new knowledge revolution will be left behind in the new knowledge economy. So we will pioneer a system under which local partnerships will be able to loan computers and software in the new century the way local libraries have loaned books in the last century.
In the new economy the more individual talent we nurture the more economic growth we will achieve.
The tax system will offer further incentives to upgrade old skills and learn new ones.
From this year a million men and women will start to receive 150 pounds to set up their own Individual Learning Accounts - putting the power to plan and prepare for their own careers in their own hands.
In this Budget we expand Individual Learning Accounts and open up tax-free learning in computers, in basic skills and advanced skills, to millions more.
We will legislate so that employers will be able to contribute tax-free to the new Individual Learning Accounts.
Employees will also pay no tax on such payments.
And this will be skills for all because, to secure the tax relief, the opportunity to learn must be offered across the company's entire workforce.
But we need to do more. And this Budget will go further, offering not just tax cuts but discounts for learning.
Any adult with an Individual Learning Account will be able to claim a discount of 20 per cent, an additional grant of up to 100 pounds, on the cost of their learning.
For all adults signing up to improve on their basic education - including computer literacy - there will be a discount of 80 per cent on course fees.
And we will pay for this measure in tax-free learning by phasing out existing Vocational Tax Relief which has been subsidising non-vocational courses like diving and flying lessons.
This century, Britain has achieved universal free education for children. This Budget introduces the opportunity for universal education at every age, lifelong learning so everyone will have the chance to succeed in the new economy.
As Britain works to lead in the new economy we must resolve to lead in respecting the environment.
Our Government's target is to reduce greenhouse emissions by 12.5 per cent by 2010. And today I will announce a programme of measures that will cut carbon pollution by 3 million tonnes.
My first proposal alone will reduce carbon pollution by 1.5 million tonnes. The Government has received Lord Marshall's Report, for which I thank him, on the role of economic instruments and the business use of energy.
We will now implement Lord Marshall's recommendations and introduce a levy on business use of energy from April 2001. And it will be brought in, after further consultation with industry, on a revenue neutral basis, with no overall increase in the burden of taxation on business. Because we intend at the same time to cut the main rate of employers' national insurance contributions from 12.2 to 11.7 per cent.
We also intend to set significantly lower rates of tax for energy intensive sectors that improve their energy efficiency. Today we are inviting them to submit their proposals. In pursuit of our policies for sustainable development we will also allocate an extra 50 million pounds to encourage business to invest in the new environmental technologies and in renewable fuels.
In line with the fuel escalator first introduced by the previous Government at 5 per cent above inflation and now 6 per cent, petrol duty will rise from 6.00 pm today.
Vehicle Excise Duty for smaller cars will, from June 1st this year, be cut by 55 pounds - the first cut in the license fee in 50 years. Other cars' rates are only increased in line with inflation.
I will freeze Vehicle Excise Duties for 98 per cent of all lorries, and for lorries and buses with clean engines I am cutting the license fee by up to 1,000 pounds.
Last year, to encourage a switch to cleaner fuels, I promised to give an additional tax advantage to ultra-low sulphur diesel. By the end of the year almost all producers will have switched to this cleaner fuel. This alone will cut emissions by 20 per cent. At a revenue cost of over 400 million pounds a year I will maintain the favourable tax treatment for cleaner diesel.
I propose a reform to reward the use of fuel efficient company cars and remove today's counter-productive incentive to drive more miles in order to get bigger discounts. So I start in this Budget with a measure that will cost the company car user with a typical car around one pound a week. This reform - to link tax to emissions - will be implemented in 2002 on a revenue neutral basis.
Further, to reduce pollution, employees will from this year be able for the first time to secure tax-free the benefits from employer-run or employer-subsidised buses, car sharing schemes and other environmentally friendly means of transport to work.
Last year we set up a new rural transport fund. To build on its success in extending the range of public transport services in rural communities we will now increase funding for the next two years by 20 per cent to 120 million pounds.
To reduce the amount of waste going to landfill, the landfill tax, 10 pounds per tonne in 1999, will, in future, rise by one pound per tonne per year.
Taking into account all these tax changes and all the changes I have yet to announce there will be a net tax cut of 4 billion pounds in this Budget.
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