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Last Updated: Thursday, 2 December, 2004, 17:35 GMT
Full text of Gordon Brown's speech
This is the full text of Gordon Brown's statement on the pre-Budget report:

At the core of this pre-Budget report is the belief that the Britain of long term economic strength will be:

the Britain that at a time of rapid global change and uncertainty locks in our economic stability for the long-term;

the Britain that, as by 2015 Asia acquires a growing share of low cost production, resolves to invest in hi-tech, high value added manufacturing and services through world leadership in science and technology;

the Britain that, with enterprise and high skilled jobs now the key to long term prosperity, takes the tough decisions to achieve American levels of business creation and has, at every level, the best educated and most flexible workforce in the world;

a Britain of opportunity for all that, with today's long-term Budget measures, supports families and ensures every child and young person the best start in life. First, Mr Speaker, measures to entrench stability.

In last year's Budget I forecast growth for this year between 3 and 3 and a half per cent.

When I made our forecast the Leader of the Opposition said it was not just wrong but a deliberate misrepresentation of Britain's economic position and not to meet it would destroy credibility.

I can report today to the House that growth this year will be, as I forecast, above 3 per cent - three and a quarter per cent.

In other words Britain will extend the longest period of uninterrupted growth in the industrial history of our country.

Let me give the House the detailed figures.

First, even after the doubling of oil prices, CPI inflation this year is one and a quarter per cent.

In any other decade a 100 per cent increase in oil prices, a 50 per cent rise in industrial materials prices and a 70 per cent rise in metal prices would have led to inflation and instability.

But with continued and necessary discipline among wage bargainers in the private and public sector and the resilience of our new monetary and fiscal framework, inflation is expected to be just 1.75 per cent next year and 2 per cent in the years to follow.

All policy makers will keep a close eye on continuing risks from global trade imbalances, exchange rate movements and an uneven world recovery, but with manufacturing output growing this year and next, British business investment is expected also to rise - this year by five and three quarters per cent and next year by four and a half to five per cent.

With the expected moderation in house price inflation now underway and as export and industrial production strengthens, domestic demand which has been growing by four per cent this year is forecast to grow by three to three and a half per cent in 2005; and we expect consumption to grow by three and a quarter per cent this year and by two and a quarter to two and three quarters per cent in 2005.

And with overall domestic investment growing next year by six and three quarters to seven and a quarter per cent, exports rising in line with world trade at more than six per cent, and inflation below its target, growth overall is projected for 2005 at three to three and a half per cent, in line with the average growth rate of G7 countries.

We will remain vigilant to inflationary pressures, both globally and in Britain. But Mr Speaker it is the success of the Bank of England's forward looking approach that is key to sustaining growth with low inflation, just as since 1997 it has maintained both inflation and interest rates at historic lows.

The Pre Budget Report shows that since 1997 interest rates have averaged 5.3 per cent, at half the 10.4 per cent average from 1979 to 1997.

And mortgage rates have averaged 6.1 per cent since 1997, almost half the 11.4 per cent average from 1979 to 1997.

Since 1997 Britain has 1.2 million additional homeowners. And as we take forward the Barker Review and the Deputy Prime Minister publishes his five year housing and sustainable communities strategy, we will pilot mixed communities in deprived estates and provide further support for first-time buyers.

Mr Speaker, since 1997 mortgage rates have been lower than in any seven year period since the late 1960s.Interest rates have been lower than in any seven year period since the early 1960s.

Inflation has been lower than in any seven year period since the 1930s.And employment has been higher than in any seven years since records began.

Back to top Mr Speaker, let me sum up for the benefit of the House.

Inflation at 1.2%, claimant unemployment 2.7%, interest rates 4.75%, growth rising by 3%, living standards by 3%.

The best combination of low inflation, low unemployment and rising living standards for decades.

The strength of our economy is matched by strength that comes from the decisions we made after 1997 to cut our national debt.

Yesterday I announced £520 million for the Special Reserve for Iraq and our international obligations. And I thank our armed forces for their dedication and courage.

Having since September 11th doubled the budget to 2008 for security at home, I am releasing a further £105 million for necessary security measures to counter terrorism, enhance surveillance at ports and improve civil resilience.

The pre-Budget report sets out detailed savings achieved of £2 billions in procurement; an additional one third of a billion saved in NHS drugs procurement; and, on target, the reduction of the first 9,000 civil service posts ---- as we implement the Gershon principles: a £21 billion efficiency saving while at the same time accepting his recommendation that to go beyond this figure would put the delivery of front line services at risk.

I can also announce the relocations of 1,230 Ministry of Defence posts from the South East to North Yorkshire; 2,300 DWP posts to Liverpool, Wrexham, Newcastle and elsewhere; 600 from the Office of National Statistics to South Wales; 220 from Revenue and Customs to Cardiff, Liverpool, Bournemouth, Truro and Manchester ¿ further steps on the way to a total by 2010 of 20,000 civil service jobs relocated to the regions.

Sir Michael Lyons is also setting out today departmental guidelines for the disposal by 2010 of £30 billions of public assets.

And because there remains scope for further rationalisation and sale of public sector spectrum, I have asked Professor Martin Cave to lead a comprehensive audit of public sector spectrum with the aim of releasing the maximum amount of spectrum to the market.

Mr Speaker, lower debt has meant that debt interest payments each year are £4 billion less than in 1997. And because we have more people in work than other countries - 75 per cent of adults in work compared to 71 per cent in the US, 69 per cent in Japan, 65 per cent in Germany and 63 per cent in France - social security bills for unemployment are also down by £4 billion a year.

Having previously set both the fiscal numbers and the detailed spending plans for the years 2005 to 2008, the public finance projections I have set out today are based on our cautious view of trend growth in the years to 2010 and on public spending rising from £579 billions in 2007-8 to £606 billions in 2008-9 and then to £634 billions in 2009-10.

When in the Budget I estimated borrowing at £37.5 billions some external commentators suggested this was an underestimate. At the same point in the economic cycle ten years ago the equivalent figure was £90 billions. But I can report that our final outturn for the year to April is not £37.5 billions but £35 billions.

And even after taking into account additional expenditure on defence and security, and other decisions I will announce today including on fuel duties and on the council tax, the cash figures for net borrowing for this year will fall to £34 billions and in future years fall further to £33 billions, falling again to £29 billions, then falling to £28 billions, £24 billions and £22 billions.

The deficit in 2004 is 3.9 per cent of GDP in Germany, 3.7 per cent in France, 4.4 in America and 6.5 in Japan.

In Britain the figure is 2.9 per cent and in future years falling to 2.7, 2.2, two, 1.6 and 1.5 per cent.

Our first fiscal rule is to balance the current budget over the economic cycle. For the years to 2009-10 the current balance is minus 13 billion, minus 7 billion, plus 1 billion, plus four billion, plus nine billion and plus twelve billion¿so we are meeting our first fiscal rule in this economic cycle -- and in the next economic cycle too.

Our second rule is our sustainable investment rule - that we should borrow for investment while keeping debt at a low and sustainable level.

Because of the world downturn, debt has now risen to 45 per cent of national income in France, 48 per cent in America, 55 per cent in Germany, 85 per cent in Japan and in Italy it is nearly 100 per cent of national income. But in Britain this year debt is 34.3 per cent of our national income and in future years will be 35.4, 36.2, 36.8, 37.0 and 37.1 per cent ¿ meeting our rule that debt should be kept below 40 per cent of national income.

So with our deficits lower than our competitors, lower than in past decades - and with our debt lower than our competitors and lower than past decades ¿ we are meeting both our fiscal rules ----- in this cycle our first rule with a margin of £8 billions and our second rule with a margin of £59 billions - and we are on course to meet both our rules in the next cycle.

Mr Speaker, the measures in this Pre Budget Report are informed by the Treasury's assessment ¿ published today ¿ of long-term global economic challenges to 2015 : that to succeed in the global economy Britain should build on our strengths - our stability, global reach, scientific genius and world class universities - with a concerted national mission to invest long term and establish world leadership in science, education and skills, and enterprise.

To build on our new ten year science framework with its £2.5 billion investment in science and to make Britain the best place for R and D, I will re-examine the R&D tax credit for the mid sized science based firms;

remove tax barriers to the formation of university spin off companies;

pilot a matched funding scheme to help build up university resources through new endowments;

to benchmark progress in raising business R&D, establish an industry-led Science Forum chaired by the Chief Executive of Astra Zeneca Sir Tom Mckillop;

and as part of their £100 million technology investment programme, the northern Regional Development Agencies will promote 'Science Cities' for the North, starting with Manchester, Newcastle and York.

By 2015 Asia will be responsible for as much as 25 per cent of world trade. Yet only 1 per cent of British exports go to China and just 1 per cent to India. So having set an objective to build trade links with Asia that match those in Europe and America, we propose that the China-UK Financial Dialogue now expand its role with enhanced private sector participation and the new UK-India Financial Dialogue is also broadened to include private business.

And a new Asia Task Force will bring together experts from industry, education and government to focus on boosting British exports to, and investment in, Asian countries.

In the years to 2015, the greatest number of new jobs will come from a larger number of small businesses so we must achieve American rates of business creation and success.

For long term investments I have already reduced capital gains tax from 40 pence to 10 pence. And I have cut corporation tax from 33 pence to 30 pence and cut small business tax from 23 pence to 19 pence.

We will legislate for tax relief for the renovation of empty business premises in our 2000 enterprise areas; and through deregulation and self-certification of business angels remove barriers to high net worth investors investing directly in small businesses.

We will align the tax treatment of leasing with other forms of finance.

For new and ambitious start-ups and high growth businesses we have asked the RDAs to make available in every region tailored coaching and support.

And building on Britain's first ever Enterprise Week, detailed guidance is being issued for schools on the content of enterprise lessons.

Mr Speaker, in recent Budgets we have removed the independent audit requirement on small firms; introduced a simplified VAT flat rate payment scheme; removed or reformed over 400 separate regulations; and I am today publishing the interim report of Philip Hampton on rationalising inspection and enforcement regimes.

Having concluded that outside high risk areas the regulatory focus should be on advice not inspection and that data sharing should avoid duplication of requirements on business, his final report will include recommendations on reform of the regulators charged with inspection and enforcement and of penalty regimes.

In parallel, the new Executive Chairman of the integrated Inland Revenue and Customs and Excise David Varney is also today announcing the creation of a small business unit; consulting on the scope for a single tax return that would bring together all taxes; and setting as his long term objective a single account for payments

I am announcing further detailed reforms including deregulation in the financial services industry; common commencement dates from 2005 for all new health and safety, company and consumer legislation; and building on what he has already announced, the Foreign Secretary is setting out new rules guiding implementation of European Union regulations.

In the coming decades as populations age and the dependency ratio grows, the most successful economies will be those who encourage the maximum number of people of working age into the labour force.

And alongside greater regional and local pay flexibility the Secretary of State for Work and I agree it is time to do more to attract into work lone parents and incapacity benefit recipients with the capacity to work.

So, extending our successful in work credit, 250,000 lone parents will be offered a £40 a week - £2,000 a year ¿ first year return to work bonus. For incapacity benefit claimants the successful Pathways to Work scheme ¿ the £40 a week return to work credit allied to rehabilitation help which has been the most effective in helping incapacity benefit claimants into work - will now cover a third of the country on the road to making this a nationwide offer.

We will build on successful experience by also locating employment advisers in GP's surgeries. And we are allocating £30 million more to expand the numbers who can benefit from the New Deal for Disabled People.

To make work pay I am also raising the national minimum income guarantee for a single earner couple with one child to a guarantee of £258 a week and for a lone parent working part time with one child to £199 a week, the equivalent of £12 an hour.

And with unemployment among ethnic minorities twice that of the rest of the population - the proportion in work just 59 per cent - I have asked the National Employment Panel, working with the Ethnic Minority Business Forum, to report by the Budget on measures to address this waste of potential by encouraging employment, self employment and the growth of small businesses.

Mr Speaker, because of the environmental challenges all nations confront our 2005 G8 Presidency will give priority to climate change.

It is the view of this Government that all industrialised nations - from the smallest to the largest - must accept their responsibilities and each must bear its share of the burden in reducing greenhouse gas emissions.

Oil prices have declined from the peak of $50 but today are $41 ¿ well above their long run average of $23 - making promotion of energy efficiency and alternative lower carbon sources of energy more urgent.

For Britain's part, the Secretary of State for the Environment is announcing a review into the innovative technologies and policies that can deliver a step change in energy efficiency, and as a first step she is today announcing measures to accelerate innovation in energy efficient technologies with the creation of a £20 million development fund, managed by the Carbon Trust.

It is our policy that each year fuel duties should rise at least in line with inflation as we seek to meet our targets for reducing polluting emissions and fund our public services.

But this financial year because of the sustained volatility in the oil market I propose to match the freeze in car vehicle license duty with a continuation of the freeze on the main road fuel duties.

While we will not set a duty differential this year for sulphur free fuels, we will go ahead with the 20 pence per litre lower duty differential for bioethanol on 1st January 2005, matching the equivalent duty differential for biodiesel.

And because of oils fraud and the tax evasion that has resulted from the lower rate of duty for rebated oils, it is not right to delay the planned increase on this duty but I will set it not at the expected 2.4 pence but at just 1 pence a litre.

Further anti avoidance measures published in detail today include action against avoidance on contrived remuneration arrangements, financial and international transactions, VAT, and abuse of the 1992 film tax legislation. The limit on the value of overseas purchases from outside the EU brought back through customs duty and tax free into the country has been set by the European Union at £145 excluding alcohol, tobacco and perfume. I have written today to the European Commission and other Member States stating that this limit was last reviewed in 1994, is out of date and that we should now raise it.

With the Africa Commission reporting next year and with the focus for our G8 Presidency on debt relief and development, I have written today on behalf of myself and the International Development Secretary to G7 Finance Ministers that our priorities for 2005 will be to institute the International Finance Facility designed to double aid to halve poverty; 100 per cent multilateral debt relief; delivering the Doha development round; and as the second largest global donor in the fight against HIV/AIDS, maximising efforts to develop an infrastructure for coordinating research in AIDS, increase funding for AIDS research, and develop innovative advance purchasing agreements for both AIDS and malaria drugs.

Britain making its G8 Presidency count to meet the needs of the developing world.

2005 is also the Year of the Volunteer. And to encourage voluntary work the Home Secretary and I are ready to take forward the Russell Commission proposals for national youth volunteering and community service.

Mr Speaker, the long-term review of English local government finance under Sir Michael Lyons will report next year. But it is also right to take action where there are immediate pressures this year.

In order that English council tax rises will be substantially below last year's 5.9 per cent rise, I am able to release an extra £125 million resources for England, alongside £512 million reallocated to councils from departments and a further one third of a billion from the reduction in ring fencing and other obligations --- in total £1 billion to reduce pressures on the council tax.

The Minister for Local Government will later this afternoon give details, including on the position of pensioners.

Since 1997 1 million pensioners have been lifted out of poverty.

Raising the basic state pension by earnings would have provided an average of £5 a week more for the poorest pensioners.

The pension credit and our other measures have ensured they are over £40 a week better off. I can confirm that next year the pension credit will rise faster than inflation - by average earnings ¿ meeting our obligation to take more pensioners out of poverty.

To help savers it is right to extend the tax free advantages for the first £7000 of savings - £3000 for the cash component - in Individual Savings Accounts each year.

So I will consult on extending the ISA limit for another five years to 2009.

Second, we will proceed from April with the low cost savings and investment products recommended by the Sandler Report.

And third, we will extend our Savings Gateway - the scheme where the Government matches the savings of low income families - to a wider range of income groups.

2 million families have no bank account. It costs them more to pay their bills. Credit costs more.

It makes it harder for them to get a job. I can announce that the banks and Government have agreed to work together to reduce by half the number of families without bank accounts.

And I am now setting aside £120 million to tackle financial exclusion, including:

more face to face money advice;

support for not-for-profit lenders;

with the possible extension of the Community Investment Tax Relief.

Our Child Trust Fund will build savings and wealth for every child in the country.

I can announce today that in addition to the £250 and £500 downpayments families will receive early next year we will now consult on extending the Child Trust Fund ¿ so that at the age of 7 we add to the £250 and £500 with another £250 for every child and another £500 for the poorest.

And I hope that given the long term investment that this proposal involves for every child every Party will now support it.

So Mr Speaker it is because of sustained growth and - after 1997 - the prudent reduction of debt and debt interest payments that:

we can make extra resources available to local authorities;

make special provision for the elderly;

meet the costs of Iraq and the fight against terrorism;

freeze fuel duties to deal with the impact of the oil price rise;

do more to equip this country for the long term by investing more in enterprise, science and our children's future;

and are still able to meet all our fiscal rules with levels of debt and deficits below all of our main competitors. And within the overall fiscal figures set out today, I am now also able to move forward our long-term agenda for opportunity for all:

to make Britain ready to meet the global challenges by moving people from low skilled jobs to high skilled jobs, with a new programme to improve skills and employment;

and to ensure opportunity for every child while meeting the modern demands of family life, a ten year childcare child strategy.

Since 1997, with Educational Maintenance Allowances, Apprenticeships and the New Deal, our priority has been to ensure that no teenager after 16 should be outside employment, education or training.

And with the Queen's Speech legislation to extend benefits to teenagers staying on in unwaged training as well as in college or school, we are removing for teenagers the remaining financial barriers so that every young person can stay on in education or training after 16 to get the qualifications they need.

But we know that 80 per cent of the 2015 workforce has already left school and is today in the world of work.

And it is their skill levels and qualifications that will, over the next decade, determine the prosperity of our country.

So a policy of opportunity for all must provide opportunity for those who have missed out and should, in the economic interests of the country, have a second chance.

Today 30 per cent of employees have very low skills or no skills at all.We have the highest proportion of unskilled of any major European union country.

And the unskilled worker is four times less likely to be offered training in work than the highly qualified.

For decades low skills have been our 'Achilles Heel' as a modern economy ¿ and the post war 'laissez faire' training system has not, and will not, meet the skills needs of the future.

Learning from successful training policies amongst our European competitors and building on the 100,000 individual success stories of those given time off for training through the Employer Training Pilots - the majority of them women, the majority of them with no prior skills, the vast majority of them successfully attaining their qualifications - we are able to announce today their roll out to the whole country creating for the first time a national Employer Training Programme.

Employers recognising their responsibilities to offer time off.

Employees recognising their responsibilities to take up the opportunities.

Government recognising our responsibility to fund the training.

Since the Budget, lower spending on unemployment has released resources which means that, together with money reallocated by the Secretary of State for Education, the funds are now available for every employer to make an offer to every adult employee.

In future every adult who has missed out at school will have the funds and the opportunity to acquire skills - starting with a first Level 2 qualification equivalent to GCSEs at A to C - through time off, free training and help for employers.

With this national Employer Training Programme and the New Deal for Skills, the offer is for every adult without skills, in or out of work:

a skills check-up;

and free training provision to achieve Level Two qualifications.

And to extend this offer more widely to the unskilled out of work and on benefit, up till now debarred from training beyond 16 hours, we propose to pilot an additional £10 a week Learning Allowance. Britain's future as a productive nation depends upon a shared determination - from parents and teachers to management and trades unionists - that the acquisition of skills by all and their continuous upgrading is a shared national purpose. And in furtherance of this, the Education Secretary and I have asked the Chairman of the National Employment Panel Sandy Leitch to build on today's decisions, report on the long term skills needs of the economy including for intermediate and degree level skills, and work with employers to ensure every employee is offered new opportunities.

Mr Speaker, the successful economies and societies of the next twenty years will also invest in the potential of all children and transform the way parents are enabled to balance work and family life.

A long term strategy starts from recognising two facts of modern life:

that the life chances of children are critically determined by the care support and education they receive in the years before five;

and that while fifty years ago less than a third of married women were working, today over two thirds of two parent families have two earners striving to balance work and family life.

And the Government's response to this new reality must start from the enduring Beveridge Report principles:

that the family is the bedrock of society; that nothing should be done to remove from parents their responsibilities to their children; and that it is in the national interest to help parents meet their responsibilities.

As part of our new ten year framework for childcare this Government sets out and makes the choice to allocate funds for new reforms for the coming Parliament:

first, that parents should be able to stay at home longer when their child is born and have the means to do so;

second, parents should enjoy more flexibility in the workplace when their child is young;

third, parents should be guaranteed more accessible, affordable and safe childcare while they are at work;

and fourth, at all times their children ¿ no matter their background - should enjoy the highest quality education and care, a welfare state that is truly family friendly for the first time.

The first choice that parents want is more choice to stay at home at the start of their child's life.

Building on our extension of maternity leave from 18 weeks to 26 weeks, the increase in maternity pay from £56 a week to more than £100 a week, and the introduction of two weeks paid paternity leave, we will for the first time respond to the case made to us for greater choice and make paid maternity leave transferable from mothers to fathers.

Parents want more flexibility to be with their children not just in the infant years but as their children grow up.

So the Secretary of State for Industry will consult on extending the successful right to request flexible working, which has already helped 800,000 parents, to parents of older children -- again creating more choice and more flexibility for today's parents.

Second, having taken the best educational advice about the learning needs of children, and building on the successful introduction of free nursery education for three and four year olds by this Government, the Secretary of State for Education and the Minister for Children will, from April 2007, extend our free nursery education offer to 15 hours a week ¿ as we move towards our long term goal of 20 hours free nursery care for 38 weeks a year for all 3 and 4 year-olds.

Third, improvements in the availability, affordability and quality of pre school and after school care are required to meet the needs of working parents struggling to balance the demands of employment and of family life.

So the Education Secretary is today setting aside extra resources so that schools can be open from 8am to 6pm and to improve the quality and career prospects of those who undertake childcare.

It is right that working parents make a contribution towards out of school childcare costs. But it is also right, in both the interests of the children and the economy, that we do more for all parents.

From April employers will be able to offer employees, right up the income range, £50 a week extra for childcare free of tax or national insurance.

For those on lower and middle incomes we will raise and extend the childcare tax credit.

It will cover up to 80 per cent of costs up to £175 a week for the first child and £300 for two or more children - benefiting families on incomes up to £59,000 a year and for a two earner household on median earnings of £34,000 with typical childcare costs it will be worth an extra £700 a year.

Our fourth goal is that every child has the best start in life.

There are now 600 sure start children's centres. And anyone who has visited them know that they provide not just children's services but a focus for community life.

By 2008 instead of just 600 centres we plan 2500.And today I can go further and announce that by 2010 in England alone there will be 3500 - one for every community, on average 5 in each constituency.

And as a result of these announcements today there will be another 1 million new childcare places by 2010.

A commitment to children and childcare ¿ in total £600 million more by 2007-8.

Money which could not be delivered if public spending plans were cut by £35 billion.

Mr Speaker, I have one further announcement to make for families.

So that mothers and fathers can spend more time at home with their young children, I am today allocating £285 million so that from April 2007 we will extend paid maternity leave.

Instead of the 4 and a half months maximum in 1997 it will rise from six months today to nine months.

And we set a goal of an entire year of paid leave.

And I can also announce that where the maximum maternity pay and child benefits for mothers at home with their first baby was in 1997 just £2,610 for the first year it will rise by 2007 to £8,300 - even after inflation £5,000 more.

The most generous maternity support and support for young children ever in the history of our country.

Mt Speaker, you judge a society by its generosity to children - and the elderly, those who have served the community all their lives

So I can also announce that next year, at a cost of an additional £260 million, for those over 70 we will add to the Winter Fuel Payment with an additional £50 payment. Pensioners aged over 70 will receive a total of £250.

And pensioners aged over 80 will receive a total of £350.

Mr Speaker,

Stability the foundation

More investment not less

Now and into the next Parliament

Opportunity not just for some but for all

A progressive Britain we can be proud of

And I commend this statement to the House


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