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 Wednesday, 17 April, 2002, 17:34 GMT 18:34 UK
Budget speech in full
Here is a full text of Chancellor Gordon Brown's speech.

Five years ago this government's first Budget set out long-term objectives and far reaching reforms to achieve economic stability and higher employment.

And today I can report that, in the last year, Britain has experienced the lowest inflation and lowest interest rates since the 1960s.

For the first time for half a century unemployment in Britain is lower than in America, Japan and Europe; and in the year just ended Britain had the highest growth of any of our major competitors.

We have, despite the difficulties, been able to safeguard both stability and growth.

And just as in 1997 we had the strength to set a course, not just for a year but for the Parliament, so too in this Budget - the first of the new Parliament - our task is to address, through reform, three long-term challenges:

  • the challenge of enterprise: with new incentives to raise investment and reward entrepreneurship;

  • the challenge of family prosperity for all: with a new child tax credit paid to mothers for all families with incomes up to 58,000 pounds;

  • the challenge of renewing our public services: with, for a reformed NHS, a secure long term financial foundation.

    And with those whose priority is fairness recognising the need for enterprise, and those whose priority is enterprise accepting the need for fairness with strong public services, I believe, Mr Deputy Speaker, that just as Britain built in the last Parliament a national consensus for stability and full employment, Britain can in this Parliament build a consensus that we advance enterprise and fairness together.

    I turn first to the economic outlook.

    Trade decline

    From growth in 2000 of three-and-a-half per cent, the G7 economies as a whole grew by just 1% in 2001.

    World trade - which grew by 12% in 2000 - failed to grow at all in 2001 with manufacturing output falling across the world - falling by 3.6% in the G7 countries, 4.3% in America, 7.6 % in Japan and in Britain by 2.3%: a decline all round that started in the American information technology and electronics sector, mirrored in Britain by a 45% fall in semi-conductors and a 54% fall in telecommunications.

    Last autumn in the wake of September 11th, the world saw a fall in business confidence, declining markets and volatile oil prices - major and simultaneous challenges to the stability and continued growth of the British economy.

    In the past, when the world faced a downturn, it was Britain that usually entered weaker and suffered longer with higher unemployment - successive governments unable to sustain economic growth because they were constrained by high inflation and high borrowing.

    But this time, from a platform of low inflation and fiscal discipline, both delivered through the new monetary and fiscal framework, we have been able to steer a steady course of stability, the Bank of England able to adjust policy at the right time and in the right way, last year cutting interest rates seven times.

    While it is important to remain vigilant, we were cautiously optimistic

    And supported by fiscal policy we have, despite the difficulties, been able to safeguard both stability and growth.

    Last Budget we forecast British growth in 2001 would be within a range of two-and-a-quarter to two-and-three-quarters per cent. And we based our public finance projections on two-and-a-quarter per cent.

    I can tell the house that while Germany grew by only 0.6%, America by 1.2%, the euro area by 1.5% and Japan contracted by 0.5%, Britain grew by 2.2%.

    I have written today to the Governor of the Bank of England stating that in 2002 we will continue to pursue a symmetrical inflation target of 2.5% - a target that, because it takes deflation as seriously as inflation, is not only pro-stability but also pro-growth - and monetary policy will continue to be backed by a sound and long term approach to fiscal policy.

    And nothing we do or propose in this Budget will undermine that platform of stability.

    Cautious optimism

    At the time of the Pre-Budget Report, we drew attention to the downside risks to world recovery, not just from the possibility of further terrorist incidents and instability in the oil price which has since December ranged from $17 to $27 per barrel, but from the durability of the US recovery.

    And I said, while it is important to remain vigilant, we were cautiously optimistic.

    Increasingly, independent forecasters now expect the world economy to grow faster than they did a few months ago - the United States to grow by 2.6%, the euro area by 1.3% while Japan contracts by more than 1 per cent - the G7 growth 1.6% overall.

    We hold to the cautious optimism of our forecast of November last year that, while meeting our inflation target, Britain will achieve growth from two to two-and-a-half per cent this year - and then rising in 2003 to three to three-and-a-half per cent with growth in 2004 from two-and-a-half to three per cent.

    Over the last few years independent forecasters have revised upwards their view of the trend rate of growth of the British economy, with the majority suggesting a range of 2.5 to 2.8% and with the International Monetary Fund at the upper end of this range.


    The Treasury now estimates trend growth at two-and-three-quarters per cent but, as before, we will continue to base our public finance forecasts on a more cautious assumption for economic growth - two-and-a-half per cent, which the National Audit Office has audited as "reasonable and cautious".

    While the British economy has been stable it can and must be stronger: its growth not only sustained but more balanced.

    In the last year, as world trade fell, consumer spending and public investment supported growth in the British economy.

    Now, as world trade turns around and industrial production rises, our forecast shows consumer spending returning closer to trend as we achieve more balanced growth.

    In 2002 we expect world trade to grow by two-and-a-quarter per cent, and in 2003 by eight-and-a-half per cent.

    UK manufacturing output returned to growth in February and, while global risks remain, we expect further rises in the coming months. Business investment is expected to follow, with growth rising in 2003 to between five-and-a-half and six-and-a-quarter per cent.

    Fiscal rules

    I now turn to the public finances.

    Our fiscal rules are set not for a year or even two but for the entire economic cycle.

    And because from 1997 we tightened fiscal policy by 4.5% of national income, we have been able to reduce net debt well below 40 per cent, not just in one year but across the economic cycle.

    So, while the Pre-Budget Report showed that tax receipts were 7 billions less last year - and 10 millions less this year - than forecast because of the global economic downturn, the underlying state of our public finances remains strong.

    In the year to last April we repaid 37 billions of debt.

    Debt reductions

    In 1997, net debt was 44% of British national income. Last year it was down to 30.4 per cent - in contrast to 41% in the US, 53% in the euro area as a whole and 59% in Japan.

    So, as we approach the decisions of this Budget, Britain's debt has been reduced to the lowest level of national income in the G7 and the lowest of all our major European competitors.

    Debt interest payments were running at 29 billions a year when we came to power, with more paid out for debt than all the money spent on schools.

    I can report that debt interest, which fell to 26 billion pounds in 2000-1, fell again to 22 billions in 2001-2 and we expect it to fall again this year to 21 billions, just 2 per cent of our national income.

    So, just as we paid off more debt in one year than all previous governments paid off in all of the previous half century, so this year debt interest payments will take less of our national income than at any time in nearly a century - since the beginning of the First World War.

    Sticking to stability

    In the early 1990s imprudent assumptions about debt and related mistakes in fiscal policy contributed to the boom and bust that did so much damage.

    So today, I propose to reinforce our commitment to stability and sustainable public finances by committing, now and for the future, to publish figures for core debt, prudently adjusting debt for the effects of the economic cycle.

    Our approach also includes, since 1997, cautious assumptions for equity prices, oil prices, unemployment and VAT receipts.

    And while some have suggested that having established a prudent approach in the last Parliament we no longer need to plan on the same rigorous basis for this Parliament, I can tell the House that we will, in the coming Spending Review, maintain our cautious assumptions and meet our rules including in the cautious case.

    Indeed today we will do more than that.

    In the interests of fiscal discipline I will not only maintain our cautious rules and lock in the tight fiscal stance this year and over the next two years that we set out in the Pre-Budget Report, but I will go further and implement - compared to the Pre-Budget Report - a small tightening of the fiscal stance over the next 2 years.

    After all the measures I will announce today, the current budget which was 10.6 billion pounds in surplus last year is projected to be in surplus this financial year by 3 billion pounds and in future years by 7 billions, 9 billions, 7 billions and 9 billions.

    Net public borrowing was 1.3 billion pounds last financial year and is projected to be 11 billions this financial year and in future years 13, 13, 17 and 18 billions as we borrow to invest well within our sustainable investment rule - that debt be at or below 40% of national income over the economic cycle.


    Debt, which was 30.4% of national income last year, is projected to be 30.2 per cent this year and in the following financial years 30.4, 30.4, 30.7 and 31.0.

    All my Budget and public spending decisions will be made within this framework of fiscal discipline.

    Mr Deputy Speaker: by keeping a steady and firm hand on the public finances, and debt and debt interest payments low, we continue to free up more resources for our public services.

    Spending conditions

    And after all the Budget measures I will announce today, I am able to meet our fiscal rules even on the cautious case, and set a new envelope for public spending up to 2006, while able to release an extra 4 billion pounds for public services next year.

    Precise allocations for Departmental Expenditure Limits will be made in the forthcoming Spending Review - and as we make provision for necessary increases in public spending I will set three conditions:

  • first, money must be matched with modernisation leading to results;
  • second, just as sustained economic growth demands responsibility in setting private sector pay, so a sustained commitment to better public services demands responsibility in setting public sector pay; and

  • third, at all times - now and in the future - we will never compromise our commitment to meet our fiscal rules and disciplines.

    The monetary and fiscal figures I am publishing today show we are also well within the Maastricht criteria for the Euro and, as the House knows, the Treasury is undertaking the preliminary and technical work necessary to allow our assessment of our five economic tests.

    Innovation and investment

    Our first long-term challenge is, through higher productivity and investment and a stronger national consensus on the importance of enterprise to build a more prosperous Britain.

    And as we press ahead with supply-side reforms to remove barriers to growth - a new competition policy, a new approach to physical planning policy, new rules for work permits, our education reforms - my focus in this Budget is on two further sets of measures: that encourage higher levels of innovation and investment, and that help small and growing businesses.

    Over recent years, British business investment levels have risen significantly, from just over 10% of national income to nearly 14%.

    To encourage higher levels of investment we have, in past Budgets, cut Corporation Tax from 33 to 30 pence, the lowest rate in our history.

    In this Budget - specifically to help British manufacturers invest in the technologies of the future - I have decided, following consultation, that we will legislate - for large companies - a new volume-based Research and Development Tax Credit.

    The rate will be set at 25%: a 400m boost to innovation and research in Britain and to modern manufacturing.

    To continue to build a modern corporation tax regime for British firms operating in a global economy I will exempt companies from corporation tax on the gains from the sale of substantial shareholdings - benefiting businesses by 150 million pounds a year.

    Taxing foreign companies

    I will modernise the tax treatment of intellectual property- giving further long-term savings to business of 200 million pounds a year.

    The UK's current treatment of branch capital means that some profitable foreign companies operating in the UK pay little or no tax on their profits here.

    From January 1st, at a revenue gain of 350 million pounds in its first full financial year, I will bring the treatment of capital for UK branches of foreign companies into line with international practice by applying similar corporation tax rules as America, Germany, France and most other major countries.

    Small businesses account for nearly half the economy's output and 55 per cent of all jobs in the private sector - over 10 million jobs in all.

    And the small firms of today are the big firms of the future.

    We want to see a more enterprising Britain where, in every region, more small businesses are starting up and where you can work your way up - a ladder of opportunity from employment to self-employment, from micro business to growing business - with government on businesses' side as firms hire for the first time, as they invest, as they seek equity, as they export and grow.

    A sound economy and low inflation provide the stability people need to start a new enterprise. This Budget seeks to build from this a culture of entrepreneurship in every community.

    Help for small companies

    In 1997 we cut the small companies tax rate from 23 pence to 21 pence. And then in 1998 we cut it again to 20 pence with a starting rate of 10 pence.

    I propose in this, the first Budget of the new Parliament, to go further. The small companies tax rate will be cut yet again - cut from 20 pence to 19 pence.

    And I propose to do this with immediate effect, for this tax year 2002-3.

    To send out the strongest signal about the importance we attach to small businesses and the creation of wealth I propose to reduce the starting rate of corporation tax

    And to send out the strongest signal about the importance we attach to small businesses and the creation of wealth I propose to reduce the starting rate of corporation tax - also with immediate effect - from 10 pence to zero.

    Small companies with taxable profits of less than 10,000 will pay no corporation tax.

    With the starting rate of tax cut from 10 pence to zero and the small companies rate down from 23 pence in 1997 to 19 pence this is now the most favourable corporation tax regime for small companies in any of the advanced industrial countries.

    And the Finance Bill will match this by legislating for a cut in capital gains tax, from this April, to 20 per cent for business assets held for one year or more.

    And for business assets held for more than two years, capital gains tax will be cut to 10%.

    US parallels

    In 1997 all transactions were subject to a 40 pence rate.

    From this year three quarters of taxpayers with business assets will pay only a 10 pence rate, rewarding entrepreneurship and giving Britain overall a capital gains tax regime more favourable to enterprise than that of the United States.

    Small firms have scarce resources and, having cut corporation and capital gains tax, I now propose to reform the administration of VAT to abolish a set of regulations.

    I start by removing, for thousands of small businesses, the burdensome requirement - in place since 1973 when VAT was introduced - of having to record the VAT charged on each individual purchase and sale.

    So, with immediate effect and for a total of 500,000 small businesses with turnover of up to 100,000 pounds a year, I am introducing a new flat rate calculation for VAT payments.

    Rather than them filling in forms we will introduce a flat rate calculation and save a typical small business hours of administration a year.

    I can announce that, from next April, I plan to extend this scheme to include almost half VAT-registered firms: in total 700,000 small firms with turnovers of up to 150,000 able to save time and form-filling by making flat rate VAT payments.

    Second, automatic fines imposed by Customs and Excise are a source of grievance because they are often applied regardless of circumstances.

    Importers' costs

    So, for 700,000 small businesses we will abolish automatic fines for late payment.

    Third, importers incur 175m a year in unnecessary costs because they have to make up front payment of VAT on goods imported into Britain before they sell them to customers.

    To cut those compliance costs and improve cash flow for businesses, I propose a new system - on which I will consult on the detail - under which we will allow approved companies to defer paying VAT on imports until they submit their VAT return.

    Fourth, automatic relief from VAT on bad debts is a persistent request from the small business community and, until now, no government has responded.

    When a business has to account for VAT on a sale to another company but that company does not pay up, VAT recovery has proved difficult, costly and time consuming.

    I propose a new rule for bad debt relief to give business an automatic entitlement to recover the VAT after six months.

    Fifth, I will offer small companies direct help with administration of their tax and payroll.

    The Carter Report recognised the strong long-term case for small firms bringing their payroll systems on-line and the equally strong case for cash help to enable them to do so. So we will set aside 40m in the first year, 110m in the two subsequent years - and 420m in all - to give direct cash help to small firms going on line, as we move in stages over the next 8 years to universal e-filing.

    Thousands of employers are unable to recruit the skilled staff they need because training is so poor.

    Last month, we accepted the Competition Commission's recommendations for more competition in banking services - and, in the interim, for free banking services or interest paid on current accounts - but we can do more to help not just the start-up firm but the hard working family business by creating a level playing field in every respect.

    Thousands of employers are unable to recruit the skilled staff they need because training is so poor.

    Employees, employers and the government must each accept their responsibilities, and we will finance pilot projects where - in return for government providing free access to training courses and support for wage costs - participating firms give staff time off to gain new skills.

    Motors for growth

    And I can today respond to joint work by the CBI and TUC by announcing an additional 30m so more small businesses can reach investors in people standards.

    Small businesses are the motor for future growth everywhere, but nowhere more so than in high unemployment areas where, starting in our schools curriculum, we must do more to ensure that an enterprise culture is able to flourish.

    By supporting new business activity for places and people prosperity has so far passed by, we advance enterprise and fairness together.

    So in 2000 designated enterprise neighbourhoods we will supplement our small business tax cuts with two further tax cuts.

    In the Pre-Budget Report I implemented the first stage of stamp duty relief in 2000 of our high unemployment areas - the abolition of stamp duty on all home and business property transactions up to 150,000 pounds.

    Now, for commercial transactions, I will seek state aid approval to abolish this limit altogether.

    There is not only no necessary conflict between growing the economy and protecting the environment

    And, from this month, to match our other measures to regenerate local high streets and urban estates - 5% VAT for residential conversions, 100% first year tax allowances for converting vacant space above shops into flats, and accelerated 150% tax relief for cleaning up contaminated land - we will introduce a new Community Investment Tax Credit backed up by a Community Development Venture Capital Fund that will provide an additional 40 million pounds to invest in our most deprived areas.

    There is not only no necessary conflict between growing the economy and protecting the environment, indeed there is a huge potential for British firms to capture new world markets by investing in environmentally-friendly technologies and creating new businesses and jobs as a result.

    I propose a series of new incentives for business investing in energy efficiency.

    To boost the use of combined heat and power in all areas of our country I can announce that we will exempt all electricity produced by this technology from the Climate Change Levy.

    Encouraging green investment

    Electricity generation from coalmine methane offers new employment opportunities as well as environmental gains, and this too will, from this summer, be exempted from the Climate Change Levy.

    I can now extend capital allowances for further investment in green technologies at an enhanced rate of 100%: strengthening not weakening our economy, as we meet our Kyoto targets and make Britain a leader in the vast new global market that is emerging for green technologies.

    To encourage more environmentally friendly fuels, I will, from next year, introduce a fuel duty incentive for sulphur-free fuel.

    Having already cut fuel duty for projects on hydrogen, bio-gas and methanol fuels, I am now inviting British business to come forward with further proposals for pilots that would encourage new fuels and which we would support with fuel duty cuts and exemptions.

    Charging overseas hauliers

    I am also announcing a cut of 55 in the license fee for the least polluting vans, cuts of 30 pounds for the least polluting cars and cuts of up to 35 pounds for motorcycles.

    Hauliers from overseas should pay their fair share towards the cost of using our roads.

    I propose to go ahead with a road user charge for lorries that is distance-based with offsetting tax cuts for the UK haulage industry.

    The Financial Secretary (to the Treasury) will consult with the industry on the precise details of the scheme.

    North Sea oil is vital to Britain. For North Sea oil, my aim is to deliver a tax regime which promotes long-term investment while giving a fair return to the British people.

    So the Finance Bill will legislate for two changes. To raise revenues, I will introduce a supplementary charge at a rate of 10 per cent on North Sea oil profits.

    Bingo and beer

    At the same time, to support new investment, I will raise first year capital allowances from 25% to 100% and, subject to consultation, we will set a date for abolishing, in its entirety, the royalty on North Sea oil, so we can create a stable long-term framework into the next Parliament for the next stage of the development of the North Sea.

    While in each Budget I have proposed the abolition of one tax, in this Budget - in addition to abolishing North Sea royalties - I propose, for consideration, extending the successful betting and pools tax regime to bingo, to tax only the profits and not the players, so that I can abolish the tax paid by millions of bingo players.

    To encourage one group of small businesses: the nation's small brewers - often village pubs, some two centuries old - I have decided that the duty paid on their own beer will be halved: a cut equal to 14 pence off each pint to be implemented for village pubs and small breweries by this summer - in time for the World Cup.

    Having weathered the world downturn of the last year Britain is moving closer to our goal of full employment than for a generation

    This will also be available in Scotland, Wales and Northern Ireland.

    From April 28th premium package coolers which contain spirits not wine will be taxed, not as low alcohol wine, but as they should be - at the same rate as spirits.

    To ensure fairness for taxpayers and businesses, we also must act swiftly to close tax loopholes and be vigilant against tax avoidance.

    I have decided to act, with immediate effect, on the avoidance of stamp duty on property, to put an end to three artificial schemes for VAT avoidance, and I am reviewing the complex rules of residence and domicile.

    At the very core of creating a more enterprising, fairer Britain is our policy of moving more people from welfare to work.

    This morning's unemployment figures confirm that, since 1997, there are now 1.5m more people in work, giving Britain the best unemployment figures for 25 years.

    In the mid 1980s, 350,000 young people between 18 and 24 had been unemployed for more than a year. Today the figure is just 4,700.

    Stepping up to jobs

    Having weathered the world downturn of the last year Britain is moving closer to our goal of full employment than for a generation.

    And the Secretary of State for Work and Pensions and I are agreed that we must not relax, but accelerate our efforts in pursuit of that goal.

    Starting two weeks from now, in six - and by December, twenty - of Britain's high unemployment areas the introduction of the Step-Up scheme will oblige the long-term unemployed to accept a guaranteed job which will offer, instead of the dole, secure waged employment.

    I can announce that we will also, in London and selected cities, match this new regime by introducing mandatory work preparation courses for long-term unemployed.

    Making work pay

    Many who have come on to the unemployment register recently have a history of not being able to hold down jobs so - starting in pilot areas - the unemployed who are recurrently in and out of work will now come within the same rights and responsibilities of the New Deal.

    And, in return for new obligations, new opportunities to ensure that work will pay significantly more than benefits.

    Building on the increase in the Minimum Wage from October, working families with children will have a guaranteed minimum income of 237, over 6 an hour for a 35 hour week - 97 more than Income Support and substantially more even when all benefits are taken together.

    National campaign

    Lone parents working 16 hours will be guaranteed 179 a week as well as help with child care. Lone parents working full time will be guaranteed 237 a week - making work pay 70 pounds more than Income Support. The Secretary of State for Work and Pensions will shortly announce the details of a national campaign with employers, lone parent organisations and Jobcentre Plus to make people aware of the jobs on offer, the higher income possible and the child care help available, backed up by a new mentoring scheme for lone parents.

    A single person with a disability moving into work of 35 hours will be guaranteed 194 a week - 22 a week more than today.

    And today I want to announce the details of our next reform to make work pay: to extend the benefits of the Working Families Tax Credit - currently received by 1.3 million families with children, 450,000 more than Family Credit.

    For the first time single persons and couples aged 25 or over without children will be eligible for in-work support that makes jobs pay. We know that the problems that, particularly those over 50, face not just in getting work but the doubts they express about whether it is worth their while working.

    Couples' credit

    The Working Tax Credit tackles this problem. Couples with wages less than 280 a week, or 14,000 a year - and single people with wages less than 200 a week, or 10,500 a year - stand to gain from this tax cut.

    For a couple with no children full time work will pay not just 130 a week - the minimum today - but 53 more at 183 a week.

    For a single person work will pay at least 154 a week - 25 more than today.

    So, in return for the responsibility to take up the opportunities that are available, the Working Tax Credit fulfils our promise to make work pay.

    We have been so powerfully reminded of the enduring contribution of public service by our older generation,

    I turn now to pensions. Mr Deputy Speaker, last November the Secretary of State for Work and Pensions and I set out the new financial measures to ensure pensioners have dignity in retirement. No matter what the rate of current inflation, the Basic State Pension will increase by at least 100 a year every year. And this year it is rising by even more than that: 3 a week for singles, 4.80 for couples.

    From next year 5 million pensioners stand to gain from the Pension Credit by on average 400 a year more per household: 8 pounds a week extra. And for the poorest single pensioner, extra help will guarantee a minimum income this year of 98.15 and from next year at least 100 a week.

    For pensioners who have occupational pensions, small earnings or savings and who pay tax I am also able to do more with my announcements today.

    The age related personal allowances will be raised in 2003-4 far faster than inflation.

    An elderly taxpayer will be able to set the first 6,610 of their income against tax - and the first 6,740 of their income for those aged 75 or more.

    As a result of this rise in the personal allowance, 170,000 pensioners will no longer be liable to pay income tax.

    'Real terms' benefits

    And as we maintain the free TV licences for all pensioners aged 75 and over, the Winter Fuel Allowance will be paid this year at 200 pounds and in every year of this Parliament.

    With the Minimum Income Guarantee, the new Pension Credit and new pensioner tax allowances the average pensioner household will next year be 1,150 better off in real terms since 1997.

    And following this period when we have been so powerfully reminded of the enduring contribution of public service by our older generation, we are determined to give more opportunities for community service especially among young people.

    Later this year the Home Secretary and I will publish a joint discussion document on fiscal and other changes we can make to promote volunteering and community service.

    Gift Aid now provides a 28% addition to every donation by taxpayers to recognised charities to encourage more giving.

    Sports clubs

    I can announce that taxpayers will be able to carry back tax relief on their donations to the previous year and, from 2004, taxpayers filing a return will be able to direct the Inland Revenue to send any refund to a charity of their choice.

    Amateur sports clubs are the mainstay of local sports in our country and the pride of every strong community.

    The Secretary of State for Culture, Media and Sport and I are determined to do all we can to support sport throughout the whole country.

    So, backdated to 1st April, new tax reliefs - the details of which are published today - will enable amateur sports clubs to reduce tax bills and gain additional benefit from donations made by local supporters.

    And, to further boost local sports, we will match this tax relief with an extra 20 million pounds this year for renovation and improvement of local sports club facilities.

    Family as the bedrock

    Mr Deputy Speaker, this Budget is about building a Britain of greater enterprise and greater fairness and nothing is more important to an enterprising fairer Britain than that, through education and through support for the family, we invest in the potential of every single child in our country. A family friendly tax and benefit system should be founded - as Beveridge wrote in his 1942 report - on the principles that nothing should be done to remove from parents the responsibility of maintaining their children, and that it is in the national interest to help all parents to discharge their responsibility properly.

    But for years there was no recognition in the tax system of the existence of children or of the sheer costs of bringing them up, and our tax and benefit system had ceased to reflect our values.

    This Budget applies the Beveridge principles to the realities and needs of modern family life.

    Today many families rely on two incomes and most women work.

    Some of the greatest pressures parents face were almost unknown to Beveridge's time: the loss of income because one parent ceases employment and is at home or works part time after the birth of a child, or the costs of child care when the mother goes out to work.

    A tax and benefit system that puts families first in the modern world would not just recognise the family as the bedrock of society, and the rights and responsibilities of parents, but also the very real pressures parents face right up the income scale.

    It would materially help them balance the needs of work and family and it would be generous enough to ensure for each child a good start in life.

    To create a truly family friendly tax system we must integrate tax and benefits.

    Instead of the old argument between those who favoured only universal benefits and those who supported narrow means-testing, our reforms ensure one seamless system that supports all families through universal child benefit, recognises the costs of raising children that middle income families face, and gives most to those who need it most - those on lower incomes.

    I will make one of the biggest single additional investments in children and families since the welfare state was formed in the 1940s

    And, I have decided that in line with universal Child Benefit, all support will be paid to the main carer, normally the mother - the best way to support families to get money directly to the children and tackle child poverty.

    And to support this I will make one of the biggest single additional investments in children and families since the welfare state was formed in the 1940s.

    I propose two and a half billion pounds of extra support for families - a family tax cut that will help nearly 6 million families.

    As a result, the direct tax burden on a family on average earnings with 2 children will be below 20%, lower than it was in 1997 or any previous year since 1979.

    I can now give the details.

    Because the tax system should recognise all the everyday pressures on middle as well as lower income families, the new Child Tax Credit will be available right up the income scale for families with incomes of 58,000 or below, and for the first year of a child's life families earning up to 66,000 will receive some help.

    Income test

    With our maternity reforms, including the rise in maternity benefits to 100 in April 2003 and the extension of maternity pay to 26 weeks, families will receive up to 2,200 extra to help cover the costs of the first year of a child's life.

    Because the test is overall family income, the income of one earner families is treated in the same way as two earner families. And 90% of families will benefit from the new system.

    Recognising the pressures on families, I have decided on additional help for child care in the new system.

    To deal with a particular grievance of parents who work irregular hours or have disabled children, I have decided that support for child care costs should include help with approved child care in your own home.

    And under the new tax credit system a family with two children on 35,000 a year could receive child care help of as much as 50 pounds a week.

    Lone parents

    And in return for this new support we will also do everything to ensure parental responsibilities to children are met.

    Where there are lone parents under-18 who cannot live with their family, the policy is that - instead of independent tenancies - they will have supported housing that combines accommodation with counselling and help with child care.

    And in the minority of cases where a Parenting Order has to be imposed, checks will be made to ensure that, as well as proper supervision, parents are meeting their children's basic practical needs.

    With these changes, I will now set a rate for the new Child Tax Credit that, introduced in April next year, will give proper recognition of the costs of raising a child.

    For all families with overall incomes of 50,000 pounds or less, the Child Tax Credit with Child Benefit will be 1400 a year - or 26.50 a week - for the first child.

    This compares to just or 575 a year - 11.05 pence a week - in 1997.

    For those in the 50,000 to 58,000 range, minimum support is 800 a year, maximum support 1400.

    Child support

    Our changes will mean that, from next April, mothers who wish to leave work and be with their children at home but have found it financially difficult to do so will find it easier.

    For single earner families more help is now available and for those on incomes between 43,000 and 58,000 help is available for the first time - an essential part of a more family friendly tax and benefit system.

    And for two million of the poorest families in this country, child support - which was 28 pounds a week in 1997 - will now be 54 pounds 25 pence a week for the first child, a near doubling of support since 1997.

    Support for a two child family will be 92.75.

    And because the Child Tax Credit must ensure that the poorest families share in rising prosperity, I can announce that our policy will be to raise the child rates at least in line with earnings for the rest of the Parliament.

    Public services

    As we pursue our goals, all families will receive more support for bringing up their children, families who need it most will receive most help when it is most needed: fairness to families throughout.

    And I turn now to public services.

    With debt and debt interest payments down, it has been possible, even with lower than expected corporate and other revenues, to maintain our three year spending plans for hospitals, schools transport and public services, and respond to the challenges since September 11th at home and abroad while still meeting our fiscal rules.

    Since September 11th we have made provision of 50m for our domestic security responsibilities and, over the last year, 950m for defence.

    We will continue to meet our responsibilities internationally and to our armed services.

    Education will receive the priority it requires to deliver further substantial improvements

    In the last year an additional 120m has been allocated for the Secretary of State for International Development's work in providing emergency aid.

    This summer we will set spending plans for every department until 2006 and, in the coming Spending Review, education will receive the priority it requires to deliver further substantial improvements, not just in our schools but also in our universities and colleges.

    Direct to head teachers

    Having raised the share of education in our national income during the last Parliament, we are pledged to increase significantly the share of national income devoted to education over the course of this Parliament.

    In advance of the announcements in the Spending Review, the Secretary of State for Education and Skills is announcing today that, for this year, additional payments for capital investment will be made direct to every school in the country and every head teacher.

    For a typical school, total direct payments to secondary head teachers will rise from 98,500 last year to 114,000 this year.

    And payments to a typical primary school will rise from 33,750 last year to 39,300 this year.

    Money to be spent for the school's priorities, on the school, by the school itself.

    Tackling street violence

    Overall levels of crime have fallen in the past five years, according to both the police recorded crime statistics and the British Crime Survey.

    But there is a serious problem with levels of street crime and associated offences of violence.

    No kind of crime, and no level of crime, is acceptable.

    And it is not acceptable that repeat offenders are continually bailed or, when convicted, not given appropriate sentences through lack of prison places and secure accommodation for juveniles.

    For street crime, policing and counter-terrorism, 100m has been drawn down from the Criminal Justice Reserve, and another 180m is being allocated this year, including an extra 110m from the Reserve.

    Building health consensus

    I now turn to the NHS.

    The fundamental long-term choice our generation must make is whether the national consensus that existed for the last half century for an NHS freely accessible to all is to be renewed for the years ahead.

    What we decide will not only determine the condition of our public services but define the character of our country. The report by Derek Wanless states that the NHS needs a long- term sustainable financial framework in support of reform and modernisation and it sets out the financial needs for the next two decades - starting with a five year period of high and sustained growth and, once we have tackled decades of underinvestment, moving to lower rates of growth - 4.4 to 5.6%, 2.8 to 4% and 2.4 to 3.5% a year in real terms - in the three five year periods after 2008.

    What we decide will not only determine the condition of our public services but define the character of our country.

    The NHS ten year reform plan proposed:

  • the local devolution of power and, in time, 75 per cent of NHS budgets, to Primary Care Trusts;

  • new national standards for treating cancer, heart and other diseases;

  • a modern system for evaluating new drugs;

  • a Commission for Health Improvement, now reporting on performance;

  • proposed new contracts for consultants, family doctors and an Agenda for Change for nurses and other staff; and

  • in partnership with the private sector, 71 major hospital developments are either completed or planned.

    Reform and investment will bring booked appointments for operations and are reducing maximum waiting times in stages from 18 months to 15 months, then 12 months, then 6 months, then 3 months.

    I said at the time of the Pre-Budget Report that the precondition of new resources was reform.

    New reform targets

    And, in furtherance of the NHS Plan, the Secretary of State for Health will tomorrow announce for England:

  • new financial incentives for hospital performance;

  • greater freedoms for high performing hospitals and trusts;

  • powers and resources devolved to front-line staff in primary care trusts;

  • reform of social services care for the elderly; and

  • a series of measures increasing choice for patients.

    In order to make sure that money invested yields the best results, for the first time in the history of the NHS, the health secretary will enshrine in statute, independent audit, independent inspection, and independent scrutiny of patient complaints - with a duty to account and report to the public on money spent and standards achieved.

    Ringfenced tax idea

    In considering reforms I have also considered the hypothecation of revenues to the NHS. But I have concluded that it would make the public services subject to the ups and downs of the economic cycle and unpredictable changes in revenues.

    And it would achieve the opposite of what its supporters wish and the NHS needs: a sound long term and sustainable stream of funding.

    It is right however to show where money is spent and the results achieved and in future an annual report to Parliament

    It is right however to show where money is spent and the results achieved and in future an annual report to Parliament prepared by the new independent auditor, will account for the money allocated to the NHS, where it has been spent and what the results of the expenditure have been.

    This will be accompanied by local reports stating, for each local community, the link between money spent and results achieved.

    'Taxes are the way'

    Mr Deputy Speaker: everyone agrees - indeed there is an all party consensus - that in the years to come we, as a nation, will have to spend more on healthcare and the question is not whether we have to pay more but how we pay more.

    While we believe the best provision is through general taxation. the alternatives are social insurance, private insurance, or charging where people would still pay but pay directly.

    There is no free way of increasing health spending and the question for Britain today is whether a case has been made for moving to paying through social insurance, private insurance or charging.

    This Budget and the Review's documents published today contain detailed information on alternative systems of financing:

  • funding by private insurance where, in the case of the US, family premiums average around 100 pounds a week and are set to rise next year on average by 13 pounds a week, and because of its costs insures only some of the people for some of their care;

  • funding by social insurance whose narrower base for contributions means - in France for example - the typical employer paying 60 a week;

  • charging for clinical services which also means patients paying rising bills for individual operations and treatments - basing our healthcare system on medical charges would mean, in effect, the sick pay more for being sick.

    Treatment costs

    There is another consideration as we look to the long-term.

    With advanced technology and life saving drugs, the cost of treating one individual falling ill can today run into tens of thousands of pounds.

    Because none of us knows when costs could overwhelm our family budgets - if we had to pay privately - we seek to pool risks and, more than ever, it is important to have health coverage with the minimum of ifs buts and small print and exclusions

    It is the government's view that the NHS system of funding is not just the most equitable but that a reformed NHS, by offering the most comprehensive insurance policy to meet the rising costs from medical advances, can give British people the greater security they need.

    When everyone benefits from the insurance provided by the NHS, everyone who can should make a fair contribution.

    And while meeting the challenges and costs of future health care costs money, it is my hope that we can renew a shared national consensus around an NHS, freely accessible at the point of need, paid for from taxation - not for its own sake - but for the purpose of delivering for British people a better public service.

    And my duty now is to set out what we, as a nation, need to pay in tax to fund, for the long term, the health service that we want.

    Mr Deputy Speaker, since 1997 by cutting debt unemployment and waste, I have transferred 7 billions a year to the NHS and public services and I can announce that, in the year 2002-3, I have been able to invest an additional 1bn through cutting debt and unemployment.

    Prudent management and economic stability and growth have also made it possible to spend an additional 5 billion pounds more each year on the NHS.

    But rising costs of technology, and rising expectations, mean that, if we are to put the NHS on a sustainable foundation for the long term, then, as a nation, we must invest more.

    I know that - as Chancellor - I have to assure the British people not just that everything has been done to ensure prudent finances but to ensure proper value for money; and to show that any tax paid is linked to the benefits received, and that it is fair.

    National insurance rise

    Having agreed NHS reforms including a new audit system that will link the money paid to benefits received, and having also resolved to exempt the elderly and vulnerable, I have decided that, for the year 2003-4, there will be a freeze of the non-pensioner income tax personal allowance and National Insurance thresholds at 4615 pounds.

    And, from April next year, there will be an additional 1% National Insurance contribution from employers, employees and the self-employed on all earnings above 4615 pounds.

    All other National Insurance and income tax allowances will be indexed in line with inflation. Save for the 1% contribution, the ceiling of 30,420 remains in place and will be indexed in line with inflation to 30,940.

    But I believe it is right that when everyone - employees and employers - benefits from the insurance provided by the National Health Service, everyone who can should make a fair contribution.

    The two tax changes I have made will mean a full time earner on median income of 21,400 pounds a year - 410 a week - will pay 3.70 a week: those on higher incomes will pay more, those on lower income less.

    On 150% of median income - 32,100 - 5 pounds 75 pence a week.

    Employer share

    On 50% of median income - that is 10,700 - 1.65 a week.

    Employers will contribute a similar amount per employee.

    Families with children will pay less than that because of the introduction at a cost of 2.5 billion pounds of the Child Tax Credit.

    For single earner families from 35,000 to 50,000, currently excluded from the maximum Children's Tax Credit, the 1% on National Insurance will be reduced, or more than eliminated, because they receive up to 10 a week extra.

    Better-off families

    After taking National Insurance increases into account, a single earner family with two children on 21,400 will be 3.90 a week better off.

    And taking National Insurance and the Child Tax Credit together, half Britain's families with children will be better off as a result of the tax and benefit changes in the Budget.

    To budget effectively for our long term spending plans including our major commitments to the NHS, I have also to make major decisions about other taxes.

    I have to make this year's decision on duties on beer, spirits and wine - I have decided to freeze them.

    My decision on cigarettes is, for public health reasons, to go ahead with the annual inflation increase at a cost of 6 pence per packet of 20. Today all estates below 242,000 are not subject to inheritance tax.

    Fuel duties

    From today I am exempting all estates below 250,000. 96% of estates will pay no tax.

    I have also to make a decision for this year for fuel duties.

    As I said in the 2000 Pre-Budget Report, I would respond to rises in oil prices. Given the high and volatile oil price I have decided to freeze fuel duties this year.

    I have to make a decision too on licenses for cars, vans and lorries. I will freeze them too.

    The overall effect of the tax and other decisions I have made today is to raise net revenues by 6.1 billions in 2003-4, 7.6 billion in 2004-5 and 8.3 billion in 2005-6.

    And I am now able to set the envelope for public spending for the years to 2006.

    I propose to raise current public spending from 390 billions this year to 420 billions next year, to 444 billions in 2004-5 and 471 billions in 2005-6.

    And I propose to raise our historically low levels of net public investment which were at 0.6 per cent in 1997 to 2% by 2005-6. Mr Deputy Speaker: because of the modernisation programme agreed in health and social services, I am able to announce today the resources that will follow reform.

    Raising spending

    Social services have been, for too long, a neglected part of the caring services. To finance better care for the elderly and to reduce pressures on the NHS, I propose to raise the rate of real terms growth to 6 per cent a year.

    Details will be given tomorrow on this and other changes by the Secretary of State for Health. Separate announcements will come from Scotland, Wales and Northern Ireland.

    Mr Deputy Speaker: in the last 20 years real terms rises in UK health spending have averaged 3.6 per cent a year.

    I propose to raise UK NHS spending by twice as much every year, on average by 7.4 per cent in real terms each year - an annual cash rise of 10%.

    I have always said that our prudence was for a purpose.

    But to put our health service on a secure long term and sustainable foundation and to give the NHS the long term stability it needs, I propose - within our fiscal rules - not just a three year financial settlement but a five year settlement.

    With year on year rises, UK health spending will grow from this year 65.4 billions to 72.1 billions to 79.3 billions to 87.2 to 95.9 billions and then to 105.6 billions in 2007-8: even after inflation a 43 per cent rise over five years.

    Since 1997, a real terms doubling in health service investment.

    With the scale of long term reform advanced tomorrow matching the scale of long term investment agreed today, we now have the best chance in a generation to secure the NHS, not just for a year or two but for the long term.

    UK health spending will rise from 6.7 per cent of national income in 1997 and 7.7 per cent of national income this year to 8.7 per cent by 2005-6 and to 9.4 per cent by 2007-8 - rises year on year well into the next Parliament.

    'Best insurance policy'

    I have always said that our prudence was for a purpose.

    Last year we invested 2370 for the average household on the NHS.

    By 2007-8 we will be investing 4,060 per household: after inflation, a 48% real terms increase.

    My Deputy Speaker, we have made our choice.

    A Budget to make our NHS the best insurance policy in the world.

    A British ideal --- free at the point of need, for everyone, in every part of Britain.

    Fairness and enterprise together.

    And I commend this Budget to the House.

    The Budget: Has the chancellor got it right?



    25637 Votes Cast

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    17 Apr 02 | Politics
    16 Apr 02 | Politics
    16 Apr 02 | Business
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    26 Mar 02 | Business
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