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Wednesday, 27 November, 2002, 16:58 GMT
Pre-Budget report speech in full
Chancellor Gordon Brown delivered his pre-Budget report on Wednesday. Here is the full text of his speech.
Mr Speaker, last year, of the major economies, the British economy was the fastest growing This year, 2002, amidst the worst global slowdown for nearly thirty years, the British and North American economies will grow faster than all other major economies
I can report that next year - in 2003 - Britain and North America are now forecast, even in a still uncertain and unstable world, to continue to be the fastest growing of all the major economies.
And as Britain meets the challenges of the wider global economy, the Pre Budget Report will also outline:
I start with the international economic outlook. Twenty of the world's biggest economies accounting for 60 per cent of the world's output - the United States, Japan, much of Europe and Latin America - have been in or are in recession after the sharpest slowdown in global economic activity for almost thirty years, indeed the biggest contraction in industrial output in the world's major economies since 1975.
World trade talks
World trade growth which held up throughout both world recessions of the early 1980s and 1990s fell twelve percentage points last year.
And while trade growth resumed early this year it has faltered yet again, one of the many reasons why at an international level the British Government is working for the early resumption of the world trade talks and why at a European level we must curb industrial and agricultural protectionism.
With 175,000 more in employment in the British economy over the past year, and in total 1.5 million more workforce jobs since 1997, I can report that our unemployment rate this year is lower than in Japan, America and the euro area for the first time for fifty years.
Our monetary and fiscal foundation, based on the independence of the Bank of England:
And it is because the Bank of England has established credibility through year after year meeting our 2.5% symmetrical inflation target that it has been able, supported by fiscal policy, to sustain growth.
And it is this same symmetrical inflation target designed to prevent both deflation and inflation which explains why the Bank of England is not only rightly:
We will continue to give steadfast backing to the Bank of England and the Governor, Sir Edward George, who retires next June, in all the difficult decisions that have to be made.
And it is because we are determined both to have stability and value for money in reformed public services that - just as in the private sector - public sector pay rises must be set at a sustainable rate and justified by productivity.
When inflation is around 2%, we should not put our hard won stability at risk by yielding to inflationary and unaffordable pay settlements - whether in the private or public sector - that would put low inflation and low interest rates in jeopardy and damage the wider economy.
To continue to steer a steady course we must hold firm in our demand for discipline in pay setting across the economy.
Let me give the detail of the economic forecasts.
'Platform of stability'
I can report that inflation will meet our target of 2.5% this year, and we now forecast inflation to be 2.25% next year and 2.5% from 2003 for every subsequent year of our forecast period - having met our inflation target in each of the last five years, continuing to do so in the future.
With this platform of domestic stability and an expected world trade recovery, rising next year by an expected five and a half per cent, we can forecast consumption to grow in 2003 at a sustainable pace of 2.25% to 2.5% with the housing market slowing, and we forecast manufacturing output rising by 1.75 to 2.25% and business investment by 2.75 to 3.25% to make for more balanced economic growth.
Mr Speaker, across the industrialised world including in Britain, since the further slowdown since this spring, forecasts for growth this year have been downgraded:
In the euro area GDP growth is forecast to be 0.8%; In France 1%; In Italy 0.4%; In Germany just 0.4%; and In Japan -0.9%.
For the UK, GDP growth is forecast to increase by 1.6% this year, rising to 2.5 to 3% next year, rising again to 3 to 3.5% in 2004.
Some have argued Britain is least well placed to cope with global slowdown.
In fact taking growth last year, this year and next year together, Britain is not the weakest but the strongest of the major economies.
And while Japan, America and Germany have all been in recession, Britain has now grown consistently in every quarter for the last five and a half years.
As with monetary policy, so also our fiscal policy is designed to help sustain growth at every stage in the economic cycle, with our fiscal rules set for the long term and based on deliberately cautious assumptions including for revenues.
These assumptions which are independently audited by the National Audit Office mean that when stock market values fall we take this fully into account, not just in assessments of the current year's stamp duty, capital gains tax revenues and corporate tax returns, but build these falls fully into revenue projections for future years.
And the assumptions include not only a cautious view of tax receipts from growth, of oil prices and of the impact of revenue gains from, for example, our VAT anti-fraud strategy, but cautious assumptions about unemployment, where we claim no social security savings when unemployment is forecast to fall.
From 1997 we also took decisions:
So while some have, in the past, criticised this long-term and deliberately cautious approach we are, with current surpluses and historically low debt, able at every stage of the economic cycle to meet our fiscal rules including in the cautious case.
Meeting golden rule
Let me provide the detailed figures.
Figures for our current budget for this year, 2002-3, and for the five years to 2007-8 are minus £6 billion, minus £5 billion, plus £3 billion, plus £5 billion, plus £8 billion and plus £10 billions.
So we meet our golden rule over the cycle - not just achieving a balance but with an estimated surplus at £46 billion. And we meet the golden rule on the cautious case.
Taking the full economic cycle into account the current surplus for each year is forecast to be 0.2% of GDP this year, 0.3% next year, 0.6%, 0.5%, 0.6% and 0.7%.
Our second rule - the sustainable investment rule - is that over the cycle net debt should be kept below 40% of GDP.
Debt this year is 41% of GDP in the USA, rising to 43% in France, 45 per cent in Germany, 54% in the euro area, 68% in Japan and in Italy to almost 100%.
I can tell the House that in Britain, net debt this year and in future years will be at 31.0 %, 32.1, 32.4, 32.6, 32.7 and 33.0 - comfortably meeting our sustainable investment rule, doing so over the cycle and in every year.
Our commitment to meeting our fiscal rules is not just for this year and this economic cycle but for the long term and so I am also publishing today a report which examines the sustainability of Britain's fiscal position decade by decade and compares our position with other countries.
It shows that taking account of population changes and the cost of ageing on public spending the British fiscal position in this period is sustainable - and in a strong long-term position compared to other countries.
No spending cuts
Mr Speaker, I have said our fiscal framework is designed so that we not only make the right decisions when the world economy is growing, but that it is robust so that at all times we meet our fiscal rules.
An alternative approach has been put to us: that, instead of holding firm to our long-term course, this stage of the economic cycle would be the time to cut spending and borrowing.
I have examined such an approach. It would lead directly to depressed demand, rising unemployment and the old boom and bust approach of capital investment slashed with hard won stability put at risk.
In the last world downturn ten years ago, Britain was bound into such a position when inflation was high, debt rising fast and the fiscal disciplines were not being met.
Today, in this world downturn, with a foundation of historically low levels of inflation and debt, such an option would be neither competent nor prudent because, after the decisions we have taken, we can meet our fiscal rules, fulfil our public spending plans and borrow for investment across the economic cycle.
Away from defecit
Figures for net borrowing for this year and future years are £20 billions, £24 billions, £19 billions, £19 billions, £19 billions and £20 billions -- that is 1.9, 2.2, 1.6, 1.6, 1.5 and 1.5% of GDP.
This compares with a deficit 10 years ago of 8%, equivalent to an £80 billion deficit today, and to an average deficit of 6% over the early nineties
I can confirm that this year and each year in our forecast period we are well within the Maastricht criteria and that the Treasury will publish its assessment of the five tests on the euro by June next year.
Taking the full economic cycle into account, net borrowing which is forecast this year, cyclically adjusted, at 2.7% in the USA, 2.5% in France, 2.7% in Germany, and 7.1% in Japan is - in Britain - just 1.2% this year and in future years 1.5%, 1.3%, 1.5%, 1.5% and 1.5% of GDP.
New bank governor
So, in both monetary and fiscal policy, with the lowest inflation and long-term interest rates for forty years the right approach is to hold firm to our long term course.
And Mr Speaker, as I conclude this section on monetary and fiscal policy, I want to thank Sir Edward George whose period of office as Governor of the Bank of England ends in June next year for the steady hand he has consistently shown in the leadership of the Monetary Policy Committee since we made the Bank independent in 1997.
And in welcoming the announcement this afternoon of the appointment by Her Majesty the Queen of the new Governor of the Bank of England - the Deputy Governor for the last five years Mr Mervyn King - I can assure the House that the same steady grip will continue.
And it is that steady hand, that long-term strength of purpose in monetary and fiscal policy, that in testing times is keeping our economy stable and growing to meet our long term goal of rising prosperity for all - and we will do nothing to put that steady approach and our hard won stability at risk.
Mr Speaker, if stability is the precondition for economic progress, enterprise is its driving force.
And Britain today is also challenged by a long-term global restructuring of industry - low value added production shifting from the highly industrialised to the industrialising countries, but competitive advantage in manufacturing and services increasingly coming from high value added technology driven products.
And in this next wave of globalisation, now upon us, it is the flexibility of our product, capital and labour markets, the strength of Britain's science base, the level of British research and development, and the scale and dynamism of knowledge transfer from our universities to our businesses that will drive our productivity growth and thus future prosperity.
Building upon the independence of the competition authorities, the surest route to British companies becoming global champions is to extend competition and open up new markets at home.
The public sector must also meet the competition test and the investment we make must be matched by continuing reform:
In January we will receive and respond to the Higgs Report on the role of non-executive directors.
Closing tax loopholes
Having cut corporation tax to 30p and consulted business on further corporate tax reform we will now consider detailed proposals to reform the tax treatment of capital assets, use of losses, and trading and investment companies.
To stop tax avoidance, measures announced today will root out abuse of the VAT regime and tighten rules governing employee benefit trusts, industrial building allowances and profits on sales of extended warranties
I turn to measures to help small and medium sized businesses.
Following our cut in small business corporation tax to 19p from April and our cut in the starting rate from 10p to zero, the Secretary of State for Trade and Industry is today announcing the extension of eligibility to the small firm loan guarantee scheme to include businesses with turnovers of up to £3 million a year in a wider range of sectors: 400,000 business in all.
Following our deregulatory measure for flat rate payment of VAT, under which from April, 650,000 firms are no longer required to report on each VAT transaction, the pre Budget report will consult small businesses on extending and improving this scheme.
And following the exemption for 200,000 firms of the requirement for a statutory audit we will consult next year on the same deregulation for medium sized firms.
New manufacturing advice
To help small and medium sized manufacturers export and build modern manufacturing strength, the Secretary of State for Trade and Industry is also ensuring that, from today, the special manufacturing advice service will now extend to every region of the country; and in response to concerns about rising insurance costs, the Department for Work and Pensions will also now undertake a formal review of the operation of employers¿ liability insurance.
To build stronger local economies in each region and devolve decision-making out of Whitehall, in the North-West, East Midlands and West Midlands we are devolving business support services from Whitehall to the regions; and in the North-East, North-West, South-East and East, devolving management of skills' budgets.
Because the enterprise culture starts in our classrooms, the Education Secretary is, following the Davies Report, announcing, over three years, £75 million to promote enterprise education in our schools and colleges.
To encourage local initiatives in enterprise, we will consult on allowing local authorities to keep additional rates income from the creation of new businesses in their area.
And to match the proposed greater flexibility in the planning system with measures to increase the numbers and affordability of houses, the Deputy Prime Minister will publish his Communities Plan in January.
New enterprise zones
And for high unemployment communities, where the answer is more economic activity and enterprise as the route to more jobs, we are today - jointly with the Small Business Service - publishing details of two thousand new Enterprise Areas in which we will not only - following state aids clearance which we expect in January - abolish, from Budget Day, stamp duty for all business property transactions in these areas and - with the 25% community investment tax credit - cut the cost of investing; but also give local authorities powers to relax requirements for detailed planning permission.
And in pilot projects in high unemployment areas we will test a more intensive estate by estate approach of interviews, training and job search services, matched by benefit sanctions to help the long term unemployed back to work.
I have two further announcements on business taxes. From January 1st we will abolish all royalty taxes on North Sea oil and gas.
And following the consultation I began in my last Budget on the future of bingo tax on player stakes and whether to replace it with a tax simply on bingo companies¿ profits, I am sure that my decision to abolish in the Budget bingo duty will be welcomed on all sides of this House.
Our charity tax reliefs are worth an additional £2 billion a year and I can announce today that I will extend for one more year the Government supplement on payroll giving.
To match our initiatives on giving with initiatives encouraging volunteering, the Home Secretary and I will consult business on a new corporate volunteering initiative; and based on the success of the United States¿ "Americorps", pilot a financial scheme to help British young volunteers from lower income backgrounds taking a year out after school to undertake community service.
We have a commitment to protect the environment for our children and future generations and so we are publishing today a detailed paper setting out our approach to the environment.
We will now consult on a revenue neutral proposal - to raise the landfill levy by £3 per tonne per year from 2005-6.
And on environmentally based fuels I can announce we will, for bioethanol road fuel, reduce the duty rate by 20p per litre.
Mr Speaker, the modern route to competitiveness also demands that Britain¿s most innovative companies work ever more closely with Britain¿s most enterprising research universities.
Today the Secretary of State for Trade and Industry is beginning a review of Government support for innovation and she and I have also asked the former editor of the Financial Times, Richard Lambert, to examine how building on the research and development tax credit and our successful University Challenge and Higher Education Innovation Funds, the long-term links between British business and British universities can be strengthened to the benefit of the British economy.
While in our first five years the New Deal has been helping the young, lone parents and many disabled people move into work, the priority now is to focus also on how we help young people and adults move up the skills ladder.
So I can announce that we will use the remaining surplus from the Windfall Tax and, at a cost of £130 million, extend to around a quarter of local Learning and Skills Council areas the new Employer Training Pilots: Government support for wage and training costs in return for employers providing time off for training.
To spearhead the expansion of Modern Apprenticeships to nearly a third of young people aged between 16 and 22 by 2004, a new Modern Apprenticeship Taskforce will be headed by the Chief Executive of Centrica and Chairman of Manchester United Football Club, Sir Roy Gardner.
And following the success of our new University for Industry, with, already, half a million students, and talks with the banks, we will now consult in detail on how we expand training and management courses for small businesses.
Immigrant work permits
To further increase flexibility in Britain's labour markets, we will continue the expansion of work permits for managed migration begun by the Home Secretary.
He and I are extending the highly skilled migrant programme, and through a new unit at Work Permits UK we will help small firms seeking to to recruit skilled workers from overseas.
Our policy is to combine enterprise with fairness. And to continue to make work pay more than benefits we are, from April, extending the principle of the working families tax credit to single adults and couples aged 25 and over without children.
I can now state that 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 receive more money - taking forward our belief that an enterprising economy and a fair society advance together.
A flexible, efficient labour market must not only promote employment but also be fair to parents.
And next month a joint Treasury-DTI Report will publish proposals for enabling parents to make real and effective choices on balancing work and family life.
And building on:
we will consider further reforms: new tax and national insurance incentives to expand employer supported child care; paying the child care credit for approved home child care by carers who are not already childminders; and increased flexibility in parental time off including giving fathers time off to attend ante-natal care.
Our goal, stability and prosperity for all, also means fulfilling our goals to tackle child and pensioner poverty.
And following last week's annual social security uprating, the starting level for the new child tax credit taken with child benefit and now paid direct to the mother will be:
We will now proceed to detailed discussions with a range of providers - banks, building societies and friendly societies - on the fund and on incentives for lower income families to save for their children's future.
Mr Speaker, now that the Secretary of State for Work and Pensions has announced the pension rise next April from £75.50 to £77.45, and in April 2004 by at least 2.%% to £79.40, the Government can also announce the levels of the new pension credit from next October that, instead of penalising modest savings and small work pensions, will reward them.
In the typical constituency of Members, 7,000 pensioner households - couples with total incomes of £200 a week or less, single elderly with £139 a week or less - stand to benefit from this £2 billion extra paid out in pensions.
Let me give the House the figures: a pensioner couple with income of £150 a week will receive £21.50 extra, £1100 more a year.
On an income of £160 a week - £17.50 extra, or £900 a year more
With an income of £170 a week - £13.50 extra, or £700 more a year.
A single pensioner with £110 a week income will receive £11.60 a week, or £600 a year, more on top of their pension rise.
And on £120 - £7.60 extra.
For five million pensioners this will be the biggest increase in pensions since the old age pension was introduced.
And I can also announce that the minimum income guarantee for single pensioners will be £102.10 a week as we seek security and dignity in retirement for every pensioner in our country.
When next month the Secretary of State for Work and Pensions publishes the Government's Green Paper on Pensions, this will include our proposals to simplify the tax treatment on pensions.
I can confirm that the tax free lump sum payment to retirees will remain.
Existing tax reliefs for pension contributions for employees, the self-employed and employers will also remain.
I have two more announcements to make.
Plans to go ahead
Because we have built sound foundations of low debt and low inflation, and are today meeting our fiscal rules in every phase of the economic cycle, we have rejected the view that we should cut back our spending plans at home and abroad.
So I can not only confirm that we will fund our planned investments:
Defence money set aside
But we can also amidst global uncertainty do more to meet our international obligations.
So it is right in the new figures presented today, consistent with past Treasury practice, to set aside to meet our international defence responsibilities - a provision of £1 billion to be drawn on if necessary.
But we must not only meet the global security challenge; there is today not only a new imperative but also a new opportunity to meet the global poverty challenge.
In the last five years, through the Prime Minister¿s Africa Initiative and through the tireless work of the International Development Secretary, Britain has spearheaded the fight for debt relief and social justice for the poorest countries and I can tell the House that having already agreed $62 billion of debt relief for 26 of the poorest countries, our aim is now $100 billion for the 38 countries in total that stand to benefit from the cancellation of debt.
And I thank all Members on all sides of the House and all churches, faith groups and NGOs in our constituencies for their tremendous work.
Because at this critical time we must move forward, I have held discussions over recent days with Finance Ministers from America, France, Germany, Italy and other European countries, as well as the Heads of the IMF and World Bank, and I can tell the House that Britain is proposing a new International Finance Facility, with public finance leveraged up by long-term international commitments, to raise the amount of development aid for the years to 2015 from $50 billion a year to $100 billion per year - so that we can meet by 2015 the Millennium Development Goals - including that poverty be halved, that child mortality be reduced by two thirds, and that every child has the right to primary education.
And having written as Chairman of the International Monetary and Finance Committee to all fellow Finance Ministers, and to the World Bank and United Nations, I can tell the House that we will - as a Government - be prepared to provide a British commitment to help underpin this plan and the Secretary of State for International Development and I are now asking other countries to join with us.
And I believe all parties in the House will wish to support this British initiative for global justice, so that we can not only win the fight against terrorism but also win the peace.
And so in conclusion Mr Speaker:
I commend this statement to the House.
26 Nov 02 | Science/Nature
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