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Tuesday, 21 March, 2000, 18:37 GMT
The chancellor's speech: part one
The Chancellor of the Exchequer's Budget statement, 21 March 2000
A year ago the Government forecast the British economy would grow at 1-1.5%.
Today, I can report that in 1999, instead of the recession that many forecast, the British economy grew by 2%.
And Britain has been growing steadily while meeting our inflation target.
Today inflation is 2.2%.
For the third year running inflation is in line with our target. And the target of 2.5% - which I reaffirm - will be met this year, next year and the year after that.
Because of the action we took in 1997 to stop inflation getting out of control, inflation in Britain has now been lower for longer than at any time since the 1960s.
For almost thirty years, Britain's long term interest rates were, on average, three per cent higher than Germany's. Now British long term rates are down to the levels in Germany and today lower than in the USA.
Amid the risks of an uncertain and often unstable global economy, we are determined to maintain our disciplined approach: determined not to make the old British mistakes of paying ourselves too much today at the cost of higher interest rates and fewer jobs tomorrow, determined not to make the old mistake of putting consumption before investment, the short term before the long term. Britain does not want a return to boom and bust.
That is why the Bank of England has been right to take pre-emptive action on interest rates and to be vigilant on wage inflation.
It is because the foundations on which we build are strong that the economy can meet our inflation target and achieve steady growth.
Our forecast is that growth this year will rise to 2.75-3.25%, and next year and the year after it is forecast to be 2.25 to 2.75% - in line with our view of trend growth.
Manufacturing is growing by 1.75 to 2.25% this year and next.
And business investment grew by 7.7% last year to 14.5% of national income, with Britain since 1998 for the first time investing more of our national income than our major European competitors, and more than America.
This Budget is built on the realities of this new economy - that we will meet and master a new tide of unprecedented technological change by continuing to remove the old barriers to business investment and by continuing to expand employment opportunity for hard working families.
I can report that unemployment today is at its lowest for 20 years, that there are 800,000 more people in work since 1997 and that there are one million vacancies on offer.
Take-home pay is rising - by next year, for the typical family, a real terms rise in living standards of 10% since 1997.
Britain's economic success depends not only on monetary stability but on fiscal stability.
Today, I can report that because of tough decisions to cut the deficit in our first two years and lower long term interest rates, debt interest payments will be £4bn a year lower.
'Sound public finances'
Because of the Welfare to Work reforms that have cut unemployment, social security spending on economic failure this year is a total of £3bn less than the plans we inherited.
Today, Mr Deputy Speaker, the state of the public finances is sound.
In 1997 we inherited a current deficit exceeding £20bn pounds.
A year ago I estimated that this year's current surplus would be £2.5bn.
I can report that we have not only balanced the current Budget but our current surplus this year is forecast to be £17bn.
We have met and we will continue to meet, even on the most cautious of cases, our first rule of fiscal prudence, the golden rule.
And we are also meeting our second rule, the sustainable investment rule.
This year debt as a share of national income will fall well below the 44% we inherited - to 37.1%.
Last year we forecast that the overall budget would be in deficit for this financial year - that public sector net borrowing would be £3bn.
I can now report that due to the performance of the economy and to prudent management, the Budget is not in deficit by £3bn but in surplus by £12bn.
'Learned from mistakes'
Mr Deputy Speaker, we inherited a deficit of £28bn in 1997. This year we will make a debt repayment of £12bn.
Too often in the past, at the first sign of a cyclical surplus, governments have fallen back into imprudent ways.
It is because we have learned from the mistakes of the last 40 years that this government will maintain its prudent and responsible approach.
The figures I am announcing today show that we will meet our fiscal rules over the cycle. We will meet our fiscal rules even in the most cautious case, on the most cautious assumptions, including the most cautious view of trend growth at 2.25%.
And Mr Deputy Speaker, I can announce today that I have decided to lock in a greater fiscal tightening next year and the year after than we promised in last year's Budget and Pre-Budget Report.
After the measures I announce today our projection is for a current surplus next year of £14bn and for the years after, surpluses of plus £16bn, plus £13bn, plus £8bn and plus £8bn.
Debt to GDP, which was 44% in 1997, will fall to 35% next year, then 34%, and then 33% in each of the next three years.
Net borrowing will be minus £6.5bn next year, that is, we will make a debt repayment next year of £6.5bn.
Then net borrowing in 2001-2 will be minus £5bn, a debt repayment of £5bn, with net borrowing for the years after 2002-3 of plus £3bn, plus £11bn, plus £13bn, well within our fiscal rules.
So from this stable platform of sound finances I am able to set out today our prudent and responsible approach for future years.
Having met all of our fiscal rules, paid off £18bn of debt this year and next, and locked in a greater fiscal tightening, we are able both to set a new envelope for public spending and investment for the years from 2001 and to cut taxes for hard working families.
I can report that our fiscal rules enable us to increase current public spending by 2.5% a year in real terms for the three years from 2001 and double net public investment as a share of national income from 0.9% next year to 1.8% in 2004.
Mr Deputy Speaker, I have always said that our prudence is for a purpose.
And in this Budget, because of our continuing prudence, we can now take the next steps towards that purpose - a Britain of opportunity and security not just for a few but for all:
'Remove old barriers'
First, I announce major reforms today to reward enterprise and entrepreneurship; open up competition in banking; promote new and growing businesses and e-commerce - and balanced growth across all the regions and nations of the United Kingdom.
To remove more of the old barriers to new investment, I have decided on radical reforms of capital gains tax - beyond the tax cuts I set out in the Pre-Budget Report.
When we came into Government capital gains tax was fixed at 40% and we cut the long term rate of capital gains tax for business assets held for ten years or more.
I have now decided to radically cut rates.
I am announcing that from 6 April this year the new capital gains rates for business assets will be cut from 40% to 35% after one year.
To 30% after two years.
To 20% after three years.
And down to 10% after four years.
I will make further tax cuts to remove the barriers that hold small and growing businesses back.
Today business investors who own between 5% and 25% of a new and growing business do not benefit from the 10p rate.
I will now cut their rate to 10% for all investments above 5% held for four or more years.
I will make a further radical change - this time for Britain's unquoted companies. All investments held for four years will benefit from the 10% rate.
With both the lowest corporate tax rates for businesses ever and the lowest ever capital gains tax rates for long term investors, Britain is now the place for companies to start, to invest, to grow and to expand.
I have a decision about one other tax on capital - inheritance tax.
The threshold for inheritance tax is £231,000. I will next year raise it to £234,000. Ninety-six per cent of people will be exempt from inheritance tax.
I have one further cut in capital gains tax to be introduced from 6 April.
So that millions more hard working people have a stake in the businesses whose wealth they create, we will remove the old barriers to a new share owning democracy.
The all employee shareholding scheme which starts on 6 April has one defining requirement: that shareholding should be open to all employees.
Share option incentives
I can confirm that the 1.7 million people now in the 'Save As You Earn' scheme will continue to enjoy its benefits.
I have also decided that high tech firms recruiting essential personnel will be able to offer share option incentives of £100,000 for up to 15 employees.
And the Financial Secretary will now consult on a technical solution to the tax treatment of share options in unapproved schemes.
I can go further. In future all employee shareholders will secure all the benefits of the 10% capital gains tax rate.
Taken together, our measures are the biggest boost for employee shareholding our country has seen.
The next step on our road to a wealth-owning democracy.
Yesterday in response to the Cruickshank Report, my Rt Hon Friend the Secretary for Trade and I referred small business banking to the Competition Commission.
Mr Cruickshank estimates that competition can reduce banking costs and charges by up to 10% or £3bn - £5bn a year.
The money transmission system affects every cheque, every credit card and every debit transaction and reaches from every local cash dispenser to every corporate inter-bank transfer.
Today I am announcing that we will legislate to ensure the UK payments system is open to new competition.
The international competitiveness of the bond market in the City of London depends upon a level playing field.
That is why today I am announcing the abolition from April 2001 of the withholding tax on the interest paid on international bonds. We will legislate so we can proceed on the basis of exchange of information nationally and internationally.
This change should be widely welcomed in all parts of the House. There is no clearer indication of our determination to stand up for what is right for Britain.
Since 1997 the number of small businesses in Britain has risen from 1.2 million to 1.3 million - a 100,000 increase.
Today I continue to remove the old barriers to small business growth.
Having already cut small business corporation tax from 23% to 20% and, for the first £10,000 of their profits, to just 10%, I am today making a further tax reduction. For all small and medium sized businesses the 40% capital allowances - which I introduced in my 1997 Budget - will be made permanent.
This will be of special help to manufacturing companies.
Half manufacturing employment is in small and medium sized firms. So manufacturing will derive further benefit from the £150m I am allocating to our new research and development tax credit, introduced on 6 April, to finance 30% of their R and D costs.
I want to make Britain the best environment for e commerce and catch up with America as swiftly as possible.
To encourage one million small companies to go on line, I will introduce a special tax reduction.
For the next three years any small business buying computers, or investing in e commerce and new information technology, will be able to immediately write off against tax the full 100% of the cost in the year of purchase.
Side by side with this incentive, the small business service will offer consultancy, advice and planning to help small businesses get on line and become e companies, and with the additional resources the Secretary for Employment is providing the University for Industry, which starts this Autumn, will offer small business employees training on the Internet.
'Promote use of internet'
We are determined to lead in e-commerce and the internet. Today we are introducing new rules for work permits in areas of highly skilled information technology where there is a global shortage.
And to promote the use of the internet we will legislate for other tax cuts - a £100 tax cut for electronic filing of tax and VAT returns, and a further £50 tax cut for electronic filing for those paying the working families tax credit.
Tax cuts since 1997 are worth £1bn a year for small businesses alone.
After today's measures, Britain now has the lowest small business corporation taxes we have ever had, the lowest in the industrialised world: since 1997, for small companies an average tax cut of almost 25%.
And to encourage the next generation of entrepreneurs, we are forming a partnership with the CBI, the Institute of Directors and the Chambers of Commerce to encourage enterprise in all communities.
Two new enterprise funds will target business loans and management scholarships to high unemployment areas.
Stage by stage we are moving from the Britain where enterprise was a closed circle for the few, to a Britain where enterprise will be open to all.
21 Mar 00 | Budget2000
21 Mar 00 | Budget2000
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