Budget 2016: George Osborne's speech
The Budget speech in full.
Mr Deputy Speaker,
Today I report on an economy set to grow faster than any other major advanced economy in the world.
I report on a labour market delivering the highest employment in our history.
And I report on a deficit down by two thirds, falling each year and – I can confirm today – on course for a budget surplus.
The British economy is stronger because we confronted our country’s problems and took the difficult decisions.
The British economy is growing because we didn’t seek short term fixes but pursued a long term economic plan.
The British economy is resilient because whatever the challenge, however strong the headwinds, we have held to the course we set out.
I must tell the House that we face such a challenge now.
Financial markets are turbulent.
Productivity growth across the west is too low.
And the outlook for the global economy is weak.
It makes for a dangerous cocktail of risks.
But one that Britain is well-prepared to handle, if we act now so we don’t pay later.
Mr Deputy Speaker,
Britain has learnt to its cost what happens when you base your economic policy on the assumption you have abolished boom and bust.
Britain is not immune to slowdowns and shocks.
Nor as a nation are we powerless.
We have a choice.
We can choose to add to the risk and uncertainty, or we can be a force for stability.
In this Budget we choose to put stability first.
Britain can choose, as others are, short term fixes and more stimulus.
Or we can lead the world with long term solutions to long term problems.
In this Budget we choose the long term.
We choose to put the next generation first.
Sound public finances to deliver security,
Lower taxes on business and enterprise to create jobs,
Reform to improve schools, investment to build homes and infrastructure – because we know that’s the only way to deliver real opportunity and social mobility.
And we know that the best way we can help working people is to help them to save and let them keep more of the money they earn.
That is the path we followed over the past five years.
And it’s given us one of the strongest economies in the world.
And that is the path we will follow in the years ahead.
In this Budget we redouble our efforts to make Britain fit for the future.
Mr Deputy Speaker, let me turn to the economic forecasts.
I want to thank Robert Chote and his team at the Office for Budget Responsibility.
To make sure they have available to them the best statistics in the world I am today accepting all of the recommendations of Sir Charlie Bean’s excellent report.
I also want to take this moment to thank another great public servant, Sir Nicholas Macpherson.
He has served as Permanent Secretary to the Treasury for ten years, under three very different Chancellors, and throughout he has always demonstrated the great British civil service values of integrity and impartiality.
He’s here today to watch the last of 34 Budgets he’s worked on, and on behalf of the House and the dedicated officials in the Treasury, I thank him for his service.
Mr Deputy Speaker,
The OBR tell us today that in every year of the forecast our economy grows and so too does our productivity.
But they have revised down growth in the world economy and in world trade.
In their words, the outlook is “materially weaker”.
They point to the turbulence in financial markets, slower growth in emerging economies like China, and weak growth across the developed world.
Around the globe, they note that monetary policy – instead of normalising this year as expected – has been further loosened.
We’ve seen the Bank of Japan join Sweden, Denmark, Switzerland and the European Central Bank with unprecedented negative interest rates.
The OBR also note that this reflects concerns across the West about low productivity growth.
The Secretary General of the OECD said last month that “productivity growth… has been decelerating in a vast majority of countries”.
As a result, the most significant change the OBR have made since their November forecast is their decision to revise down potential UK productivity growth.
The OBR had thought that what they describe as the “drag from the financial crisis” on our productivity would have eased by now, but the latest data shows it has not.
The OBR acknowledge today that this revision is, in their words, a “highly uncertain” judgement call.
But I back them 100%.
We saw under the last government what happened when a Chancellor of the Exchequer revised up the trend growth rate, spent money the country didn’t have, and left it to the next generation to pick up the bill.
I’m not going to let that happen on my watch.
These days, thanks to the fact we have established independent forecasts, our country is confronted with the truth as economic challenges emerge, and can act on them before it’s too late.
We fix our plans to fit the figures; we don’t fix the figures to fit the plans.
The IMF have warned us this month that the global economy is “at a delicate juncture” and faces a growing “risk of economic derailment”.
Eight years ago, Britain was the worst prepared of any of the major economies for the crisis we then faced.
Today, Britain is among the best prepared for whatever challenges may lie ahead.
That is what our long term economic plan has been all about.
When I became Chancellor we borrowed £1 in every £4 we spent. Next year it will be £1 in every £14. Our banks have doubled their capital ratios.
And we have doubled our foreign exchange reserves.
And we have a clear, consistent and accountable monetary policy framework, admired around the world.
The hard work of fixing our economy is paying off.
In 2014, we were the fastest growing major advanced economy in the world.
In 2015, we were ahead of everyone but America.
So let me give the OBR’s latest forecasts for our economic growth – in the face of the new assessment of productivity and the slowing global economy.
Last year, GDP grew by 2.2%.
The OBR now forecast it will grow by 2% this year, then 2.2% again in 2017, and then 2.1% in each of the three years after that.
The House will want to know how this compares to other countries.
I can confirm that, in these turbulent times, the latest international forecast expects Britain to grow faster this year than any other major advanced economy in the world.
Mr Deputy Speaker, the OBR are explicit today that their forecasts are predicated on Britain remaining in the European Union.
Over the next few months this country is going to debate the merits of leaving or remaining in the European Union, and I have many colleagues whom I respect greatly on both sides of this argument.
The OBR correctly stay out of the political debate and do not assess the long term costs and benefits of EU membership.
But they do say this, and I quote them directly: “a vote to leave in the forthcoming referendum could usher in an extended period of uncertainty regarding the precise terms of the UK’s future relationship with the EU.
This could have negative implications for activity via business and consumer confidence and might result in greater volatility in financial and other asset markets”.
Citing a number of external reports, the OBR say this:
“There appears to be a greater consensus that a vote to leave would result in a period of potentially disruptive uncertainty while the precise details of the UK’s new relationship with the EU were negotiated.”
Mr Deputy Speaker, the House knows my view.
Britain will be stronger, safer and better off inside a reformed European Union.
I believe we should not put at risk all the hard work that the British people have done to make our country strong again.
Mr Deputy Speaker,
Let me turn to the OBR forecast for the labour market.
Since the Autumn Statement just four months ago, the businesses in our economy have created over 150,000 more jobs than the OBR expected.
That’s 150,000 extra families with the security of work.
That’s 150,000 reasons to support our long term economic plan.
This morning unemployment fell again, employment reached the highest level ever, and the data confirms that we have the lowest proportion of people claiming out-of-work benefits since November 1974.
Now the OBR are forecasting a million more jobs over this Parliament.
Mr Deputy Speaker, in the last Parliament:
They claimed a million jobs would be lost.
Instead two million were created.
When the jobs started coming we were told they’d be low skilled.
But today we know almost 90% of the new jobs are in skilled occupations.
We were told the jobs would be part time.
But three quarters are full time.
We were told the jobs would all be in London.
But the unemployment rate is falling fastest in the North East.
Youth unemployment is falling fastest in the West Midlands.
Employment is growing fastest in the North West.
And in today’s forecast real wages continue to grow and outstrip inflation in each and every year.
The OBR forecasts lower inflation, at 0.7% this year and 1.6% next year.
I am today confirming in a letter to the Governor of the Bank of England that the remit for the Monetary Policy Committee remains the symmetric CPI inflation target of 2%.
I am also publishing the new remit for the Financial Policy Committee, the body we created to keep an eye on emerging long term risks in our financial system, asking them to be particularly vigilant in the face of current market turbulence.
Because in this Budget we act now so we don’t pay later.
Mr Deputy Speaker, that brings me to our approach to public spending and the OBR forecasts for our public finances.
In every year since 2010, I have been told that now is not the right time to cut government spending.
When the economy is growing, I’m told we can afford to spend more.
When the economy isn’t growing, I’m told we can’t afford not to.
Today, I’m publishing new analysis that shows that if we hadn’t taken the action we did in 2010, then cumulative borrowing would have been £930 billion more by the end of the decade than it is now forecast to be.
If we’d taken the advice, Britain would not have been one of the best prepared economies for the current global uncertainties; we would have been one of the worst prepared.
Now the very same people are saying to us we should spend more again.
I reject that dangerous advice.
The security of families and businesses depends on Britain living within its means.
Last autumn’s Spending Review delivers a reduction in government consumption that is judged by the OBR to be the most sustained undertaken in the last hundred years of British history – barring the periods of demobilisation after the first and second world wars.
My spending plans in the last parliament reduced the share of national income taken by the state from the unsustainable 45% we inherited, to 40% today.
My spending plans in this Parliament will see it fall to 36.9% by the end of this decade.
In other words, the country will be spending no more than the country raises in taxes.
And we are achieving this while at the same time increasing resources for our NHS and schools, building new infrastructure and increasing our security at home and abroad.
The OBR now tells us that the world has become more uncertain.
So we have two options.
We can ignore the latest information, and spend more than the country can afford.
That’s precisely the mistake that was made a decade ago.
Or we can live in the world as it is, and cut our cloth accordingly.
I say we act now, so we don’t pay later.
So I am asking my RHFs the Chief Secretary and the Paymaster General to undertake a further drive for efficiency and value for money.
The aim is to save a further £3.5 billion in the year 2019-20.
At less than half a percent of government spending in four years’ time, that is more than achievable while maintaining the protections we have set out.
At the same time we will continue to deliver sensible reforms to keep Britain living within its means.
On welfare, last week my RHF the Secretary of State for Work and Pensions set out changes that will ensure that within the rising disability budget, support is better targeted at those who need it most.
Let me confirm that this means the disability budget will still rise by more than £1 billion, and we’ll be spending more in real terms supporting disabled people than at any point under the last government.
On international aid, I am proud to be part of the government that was the first to honour Britain’s commitment to spend 0.7% of national income on development.
We won’t spend more than that, so the budget will be readjusted, saving £650 million in 2019-20.
We’re also going to keep public sector pensions sustainable.
We reformed them in the last Parliament which will save over £400 billion in the long term.
To ensure those pensions remain sustainable, we have carried out the regular revaluation of the discount rate and public sector employer contributions will rise as a result.
This will not affect anyone’s pension, and will be affordable within spending plans that are benefitting from the fiscal windfall of lower inflation.
Each of these decisions are a demonstration of our determination that the British economy will stay on course.
We will not burden our children and grandchildren. This is a Budget for the next generation.
Mr Deputy Speaker, let me now give the OBR’s forecasts for the debt and the deficit.
The combination of our action to reduce borrowing this year, along with the revisions to our nominal GDP driven by lower inflation, have produced this paradoxical result.
In cash terms the national debt is lower than it was forecast to be in the autumn, but so too is the nominal size of our economy.
We measure the fiscal target against debt to GDP.
So while debt as a percentage of GDP is above target and set to be higher in 2015-16 than the year before;
Compared to the forecast, the actual level of our national debt in cash is £9 billion lower.
In the future, debt falls to 82.6% next year, then 81.3% in 2017-18, then 79.9% the year after.
In 2019-20, it falls again to 77.2%, then down again the year after to 74.7%.
Let me turn to the forecast for the deficit.
When I became Chancellor, the deficit was forecast to reach 11.1% of national income – the highest level in the peacetime history of Britain.
Thanks to our sustained action, the deficit is forecast to fall next year to just over a quarter of that – at 2.9%. In 2017-18, it falls to 1.9%. Then it falls again to 1.0% in 2018-19.
In cash terms, in 2010, Britain was borrowing a totally unsustainable £150 billion a year.
This year we are expected to borrow less than half that, at £72.2 billion.
Indeed our borrowing this year is actually lower than the OBR forecast at the Autumn Statement.
Borrowing continues to fall – but not by as much as before - to £55.5 billion next year, £38.8 billion the year after that and £21.4 billion in 2018-19.
I know there has been concern that the challenging economic times mean we would lose our surplus the following year.
And that would have been the case if we had not taken further action today to control spending and make savings.
But because we have acted decisively, in 2019-20 Britain is set to have a surplus of £10.4 billion.
The surplus is then set to rise to £11.0 billion the year after. That’s 0.5% of GDP in both years.
We said we would take the action necessary to give Britain’s families economic security.
We said our country would not repeat the mistakes of the past – and instead live within its means.
Today we maintain that commitment to long term stability in challenging times.
Decisive action. To achieve a £10billion surplus.
We act now, so we don’t pay later.
We put the next generation first.
Mr Deputy Speaker,
In every Budget I’ve given, action against tax avoidance and evasion has contributed to the repair of our public finances.
And this Budget is no different.
In the Budget book we set out in detail the action we will take to:
Shut down disguised remuneration schemes;
Ensure that UK tax will be paid on UK property development;
Change the treatment of freeplays for remote gaming providers;
Limit capital gains tax treatment on performance rewards; and
Cap exempt gains in the Employee Shareholder Status.
Public sector organisations will have a new duty to ensure that those working for them pay the correct tax rather than giving a tax advantage to those who choose to contract their work through personal service companies.
Loans to participators will be taxed at 32.5% to prevent tax avoidance.
And we’ll tighten rules around the use of termination payments.
Termination payments over £30,000 are already subject to income tax. From 2018, they will also attract employer national insurance.
Taken altogether, the further steps in this Budget to stop tax evasion, prevent tax avoidance and tackle imbalances in the system will raise £12 billion for our country over this Parliament.
People talked about social justice but left enormous loopholes in our tax system for the very richest to exploit.
While the independent statistics confirm that since 2010:
Child poverty is down;
Pensioner poverty is down;
Inequality is down;
And the gender pay gap has never been smaller.
The distributional analysis published today shows that the proportion of welfare and public services going to the poorest has been protected.
And I can report that the latest figures confirm the richest 1% paid 28% of all income tax revenue. Proof that we are all in this together.
So Mr Deputy Speaker
I can report solid steady growth.
An economy on course for a surplus.
And all done in a fair way.
A Britain prepared for whatever the world throws at us.
Because we’ve stuck to our long term economic plan.
Credible fiscal policy and effective monetary policy has only ever been part of our plan.
A crucial ingredient has always been the lasting structural reforms needed to make our economy fit for the future.
And with new risks on the horizon, and with all Western countries looking for ways to increase living standards, now is not the time to go easy on our structural reforms.
It’s time to redouble our efforts.
My Budgets last year delivered key improvements to productivity like the Apprenticeship Levy, lower corporation tax and the National Living Wage.
My Budget this year sets out these further bold steps we need to take.
One. Fundamental reform of the business tax system. Loopholes closed. Reliefs reduced but so too are rates. And the result: a huge boost for small business and enterprise.
Two. A radical devolution of power so more of the responsibility and the rewards of economic growth are in the hands of local communities.
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