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Budget Statement to the House of Commons delivered by The RT Hon George Osborne MP,Chancellor of the Exchequer,Wednesday 21 March 2012
Check against delivery.
Mr Deputy Speaker, this Budget rewards work.
Britain is going to earn its way in the world.
There is no other road to recovery.
This Budget supports working families and helps those looking for work.
It unashamedly backs business.
And it is on the side of aspiration: those who want to do better for themselves and for their families.
This Budget reaffirms our unwavering commitment to deal with Britain's record debts.
But because we've already taken difficult decisions, this can also be a reforming Budget that seeks to repair the disastrous model of economic growth that created those debts.
A model that saw manufacturing almost halve as a share of our national economy, while the national debt doubled.
Mr Deputy Speaker, this is how Britain will earn its way in the world: with far reaching tax reform.
With a simpler tax system, where ordinary taxpayers understand what they are being asked to pay.
With a tax system that is more competitive for business than any other major economy in the world.
A tax system where millions of the lowest paid are lifted out of tax altogether, while the tax revenues we get from the wealthiest increase.
But reforming tax is only part of the story.
We will earn our way in the world by saying to all businesses -
large and small: We will provide you with the modern
infrastructure; new growth-friendly planning rules and employment
laws; the kinds of schools and universities and colleges our
future workforce needs.
And in return, you, British businesses, have the self-confidence to: invest, expand, hire, innovate and be the best.
We earn our way in the world if we stop being afraid to identify Britain's strengths and reinforce them, backing industries, like aerospace, energy and pharmaceuticals, creative media and science.
A deliberate strategy to create a more balanced national economy,
where financial services are strong, but they are not the only
string to our bow.
Mr Deputy Speaker,Stability comes first.
And the Report from the Office for Budget Responsibility reminds us today of the risks to stability.
Despite the welcome action by the European Central Bank, the impact of the sovereign debt crisis on the European economy has been significant.
Italy, the Netherlands, Belgium and others are now in recession - and Germany's economy shrank in the last quarter.
In today's Report, the OBR are sharply revising down their forecast for euro area growth this year by 0.8% to - 0.3%.
Their forecast for world economic growth is also revised down over the next two years - by 0.2% and 0.3% respectively.
Of course, Britain is not immune from these developments in our largest export markets.
And the OBR say today that "the situation in the euro area remains a major risk to our forecast".
Another risk they identify is a "further spike in oil prices", and there is no doubt that the high oil price - driven both by real demand and the Iranian situation - is of great concern across the world.
It means that the OBR's overall assessment of the
outlook and risks for the British economy is "broadly
unchanged" since last November's report.
Despite these headwinds, there are, however, some more positive signs.
The OBR expect the British economy "to avoid a technical recession with positive growth in the first quarter" of this year.
They say that the British economy has "carried a little more momentum into the new year than previously anticipated".
Indeed, the Office for Budget Responsibility is slightly revising up in their growth forecast for the UK this year to 0.8%.
They then forecast 2% next year;
2.7% in 2014;
And 3% in both 2015 and 2016.
The OBR's forecast unemployment rate is the same as it was last autumn.
They expect it to peak this year at 8.7 per cent before falling each year to 6.3 per cent by the end of the forecast period.
But they have revised down their estimate of the claimant count, which they now expect to be around 100,000 lower in each of the next four years
than they previously forecast - peaking at 1.67 million this year rather than the 1.8 million they forecast in November.
And they forecast one million more jobs in the economy over five years.
Inflation is expected to fall throughout the period, from 2.8% this year to 1.9% next year, and then 2% by the end of the forecast period.
I am today writing to the Governor of the Bank of England to reaffirm the CPI inflation target of 2%.
The Government's credible and responsible fiscal policy allows the independent central bank to pursue an activist monetary policy consistent with targeting low inflation.
I confirm that the Asset Purchase Facility will remain in place for the coming year.
So employment is growing, inflation is coming down.
And so too is the deficit.
When this Government came to office, the budget deficit stood at over 11%.
The state was borrowing one in four of every single pound it spent.
Today, I can report that the deficit is falling and is forecast to reach 7.6% next year.
The share of national income taken by the state will have fallen
from almost 48% when we took office to 43% next year.
We must stick to the course.
So there will be no deficit funded giveaways today.
But because we've taken difficult decisions, nor do we need to tighten further.
Over the five year period, this is a fiscally neutral Budget.
This is achieved through a modest reduction in both taxation and spending.
So, Mr Deputy Speaker, let me turn to those fiscal forecasts.
The whole House will be pleased to know that these have improved a little from the forecasts I presented in November.
Borrowing this year is set to come in at £126 billion, £1 billion lower than I forecast in the autumn.
And over £30 billion a year lower than its peak the year before we came to office.
Borrowing will then fall to £120 billion next year, if you exclude the transfer of Royal Mail pension assets.
It will then fall to £98 billion in 2013-14;
Then £75 billion;
Then £52 billion;
Reaching £21 billion by 2016-17.
So in total, borrowing is £11 billion less than I last forecast in the Autumn.
This will be used to pay down debt.
In my first Budget, I set the Government the fiscal mandate of achieving a cyclically-adjusted current balance by the end of the five year horizon.
The OBR confirm today that we are on course to achieve that mandate, and have eliminated the structural current deficit by 2016-17.
They also confirm that we are also on course to reach our target for debt to be falling as a percentage of national income by the end of the Parliament in 2015-16.
Public Sector Net Debt is now set to peak at 76.3% in 2014-15, almost 2% lower than previously forecast - before falling the following year.
A balanced structural current budget and falling debt: our deficit reduction plan is on course.
Mr Deputy Speaker, we will not waiver from it.
To do so would risk a sudden loss of confidence and a sharp rise in interest rates - and we will not risk that.
Instead we reinforce today our commitment to fiscal responsibility, not just this year - but in the years ahead.
The transfer of the £28 billion of assets from the Royal Mail pension fund to the Exchequer will free it from its crippling pension debts, ensure the pensions of hard-working staff are paid and help to bring in new private sector investment.
Some would have been tempted to spend the windfall.
I do not propose to spend it.
Instead, I have used it to pay off debt.
We will also maintain our control on welfare spending.
The passing of the Welfare Reform Act two weeks ago was an historic moment.
I pay tribute to my RHF the Work and Pensions Secretary and to all my coalition colleagues for supporting him against determined opposition from those who defend unlimited welfare.
But even with the Act, the welfare budget is set to rise to consume one third of all public spending.
If nothing is done to curb welfare bills further, then the full weight of the spending restraint will fall on departmental budgets.
The next Spending Review will have to confront this.
So I am today publishing analysis that shows that if in the next Spending Review we maintain the same rate of reductions in departmental spending as we have done in this review, we would need to make savings in welfare of £10 billion by 2016.
We will also address the rising costs of an ageing population, and the burden this places on future generations.
We will be publishing a White Paper on social care.
I've also said that we would consider proposals to manage future increases in the state pension age, beyond the increases already announced.
I can confirm today that there will be an automatic review of the state pension age to ensure it keeps pace with increases in longevity.
Details of how this will operate will be published alongside the OBR's long term fiscal sustainability report this summer.
One area where future government spending is expected to be lower than planned is Afghanistan.
We were reminded again yesterday of the sacrifice so many of our servicemen and women have made.
As the Prime Minister made clear with the US President last week, UK forces will cease combat operation by the end of 2014.
As a consequence, I can tell the House that the cost of operations - which are funded by the Government's Special Reserve and entirely separate from the defence budget - are expected to be a total of £2.4 billion lower than planned over the remainder of the Parliament.
Let me be clear today, the full cost of operations will continue to be met from the Reserve - and our brave armed forces will get the equipment they need to complete the job.
But I can ensure that some of the benefit of the lower cost is felt by those who fight so hard and give so much for our nation's security.
We will fund an extra £100 million of improvements in the accommodation of our armed forces and their families.
I will also double the families welfare grant which is used to
provide additional support to the families left behind when people deploy.
We've already doubled the operational allowance.
Today, I am doubling the rate of Council Tax Relief.
The thousands serving our country in operations overseas will receive 100% Relief on an average Council Tax bill.
LOW INTEREST RATES/GILTS
Mr Deputy Speaker, our commitment to reduce the deficit is keeping interest rates low.
In this Budget, we take measures to ensure that the benefits of those low market interest rates are felt across our economy.
They are certainly benefitting the taxpayer.
Thanks to the reduction in the deficit, and our low interest rates, this Government is saving a total of £36 billion in debt interest payments compared to its predecessor.
This year is the 400th anniversary of the creation of the Treasury Board and the modern Treasury.
There have been times the Treasury has been borrowing money more cheaply than at any previous time in that 400 year history.
Few countries in Europe could say that.
This reflects the confidence investors have in Britain's ability to pay its way.
I now want to test whether we can we can extend these benefits further into the future and diversify our portfolio.
At present, the longest gilt we currently offer to the market is 50 years.
The Debt Management Office will consult on the case for issuing gilts with maturities longer than 50 years, and the case for a "perpetual" gilt with no fixed redemption date - something Britain last felt able to issue six decades ago.
We are also taking the opportunity to rebuild Britain's reserves, which had fallen to historically low levels.
I can confirm our gold holdings have risen in value to £11 billion.
This does not include the 400 or so tonnes of gold sold a decade ago for £2 billion, and which would now be worth six times that at over £13 billion pounds.
Working families are already being helped by historic low mortgage rates.
The New Buy Scheme that we introduced last week uses the Government's balance sheet to help those who cannot afford the larger deposits that some mortgage companies are now demanding.
It comes alongside a new, reinvigorated Right to Buy.
And to ensure that there are new homes to buy, we are today expanding the Get Britain Building Fund that provides upfront finance to construction firms.
We are also passing on our low interest rates to small businesses, through the National Loan Guarantee Scheme.
This started operation yesterday.
Barclays, Lloyds, the RBS, Santander and the new business bank Aldermore are all involved.
£20 billion of guarantees in total will be available.
In the Autumn Statement I also allocated £1 billion to invest in funds that lend directly to the mid-cap businesses that are the backbone of our economy.
This is an alternative source of finance to the banks.
The response has exceeded our expectations.
24 funds have submitted proposals.
I am today short-listing seven of them.
And such has been the quality of the bids, I have also decided to increase the size of the Finance Partnership by 20% and I am also expanding the Enterprise Finance Guarantee.
Stability. Credibility. The low interest rates they bring.
And passing on those low rates to families and businesses.
These are necessary for growth.
But alone they are not sufficient.
We as a nation have to make a choice.
This country became seduced by large deficits and the illusion of cheap finance.
Do we watch as the Brazils and the Chinas, and the Indias of this world power ahead of us in the global economy; or do we have the national resolve to say: "No, we won't be left behind. We want to be out in front".
That is this Government's resolve.
Under this Government, Britain has moved into the top ten of the most competitive places in the world to do business.
But we have to do more.
EXPORTS AND INVESTMENT
Over the last decade, our share of world exports shrank as Germany's grew.
We sold more to Ireland than to Brazil, Russia, India and China - put together.
That was the road to Britain's economic irrelevance.
We want to double our nation's exports to one trillion pounds this decade.
So we're expanding UK Export Finance and setting out new plans to help smaller firms in new markets.
Exports abroad must be accompanied by investment at home.
Britain has a reputation as a remarkably open and welcoming place
We must never allow protectionist rhetoric to creep into our political system.
Instead, we're actively seeking investment from overseas pension and sovereign wealth funds - and working to develop London as a new offshore market for the Chinese currency.
We also want investment from British pension funds in British
infrastructure - and we're now working with a dozen of
the largest pension schemes specifically on that.
We're the first British government to set out in a National Infrastructure Plan the projects we are going to prioritise in the coming decade.
The roads, railways, clean energy and water, and broadband networks we need are all identified.
I also believe this country must confront the lack of airport capacity in the South East of England - we cannot cut ourselves off from the fastest growing cities in the world.
The Transport Secretary will set out Government thinking later this summer.
We want to look at the opportunities for increasing the role of private investment in the road network, learning lessons from the water industry.
I confirm today that Network Rail will extend the Northern Hub, adding to the electrification of the transpennine rail route, by upgrading the Hope Valley line between Manchester and Sheffield - and improving the Manchester to Preston and Blackpool, and Manchester to Bradford lines.
For years, transport investment in the north of England was neglected. Not under this Coalition Government.
We are working with our great cities to devolve decision making powers - and we are striking a ground-breaking deal with Manchester to support £1.2 billion in growth-enhancing infrastructure.
We will support £150 million of Tax Increment Financing to help local authorities promote development.
And we will provide an extra £270m to the Growing Places fund.
In all this we are working with local areas to support their
ideas for growing the private sector in parts of the country where
the state has taken a larger and larger share of the economy.
The Mayor of London is also a very effective champion for the city he runs so well.
We will work with him on plans this summer to go on investing in London transport, lengthening commuter trains, extending the Underground and exploring new river crossings in east London.
So from the allocation made to the Mayor through the Growing
Places Fund he will be creating a new £70 million development fund
to attract new business and new jobs.
And the Mayor has persuaded me of the opportunities the new Royal Docks Enterprise Zone offers our largest city if we offer enhanced capital allowances there - so we will.
24 Enterprise Zones are now going ahead, across England.
Chinese investment pouring into the zone in Liverpool.
The Marches Zone in the West Midlands is already expanding.
I want other parts of the United Kingdom to benefit from these policies.
The Chief Secretary can confirm today that we will offer enhanced capital allowances for businesses starting up in the new Scottish enterprise areas in Dundee, Irvine and Nigg and there will be a new Welsh Enterprise Zone in Deeside, while we look forward to the first Enterprise Zone in Northern Ireland.
I also want to see investment in our world-leading energy sector, including renewables.
We've launched the Green Investment Bank; open for business next month.
We've introduced a Carbon Price Floor into our tax system to encourage investment and set the rate today.
Combined Heat and Power plants will not be liable to carbon price support rates on fuels used for heat.
Renewable energy will play a crucial part in Britain's energy mix - but I will always be alert to the costs we are asking families and businesses to bear.
Environmentally sustainable has to be fiscally sustainable too.
The Carbon Reduction Commitment was established by the previous Government.
It is cumbersome, bureaucratic and imposes unnecessary cost on business.
So we will seek major savings in the administrative cost of the Commitment for business.
If those cannot be found, I will bring forward proposals this autumn to replace the revenues with an alternative environmental tax.
Gas is cheap, has much less carbon than coal and will be the largest single source of our electricity in the coming years.
And so my RHF the Energy Secretary will set out our new gas generation strategy in the autumn to secure investment.
I also want to that ensure we extract the greatest possible amount of oil and gas from our reserves in the North Sea.
We are today introducing a major package of tax changes to achieve this.We will end the uncertainty over decommissioning tax relief that has hung over the industry for years by entering into a contractual approach.
We are also introducing new allowances including a £3 billion new field allowance for large and deep fields to open up West of Shetland, the last area of the basin left to be developed.
A huge boost for investment in the North Sea.
We shouldn't be shy about identifying our successful industries and reinforcing them.
Around one fifth of the world's top 100 medicines originate from UK research.
So we're backing our life sciences sector through creating the Francis Crick Institute at St Pancras and cutting taxes on patents to make this one of the most attractive places in the world to invent new medicines.
We've protected the science budget.
Now we're committing £100m of support, alongside the
private sector, for investment in major new university research
And with the world's second largest aerospace industry, we will also establish a UK centre for aerodynamics, to open next year that will encourage innovation in aircraft design and commercialise new ideas.
Today we also set Britain this industrial ambition.
That we turn Britain into Europe's technology centre.
We will start with digital content.
The film tax credit, protected in our spending review, helped generate over £1 billion of film production investment in the UK last year alone.
Today I am announcing our intention to introduce similar schemes for the video games, animation and high-end TV production industries.
Not only will this help stop premium British TV programmes like Birdsong being made abroad, it will also attract top international investors like Disney and HBO to make more of their premium shows in the UK.
It will support our brilliant video games and animation industries too.
Because, Mr Deputy Speaker, it is the determined policy of this
Government to keep Wallace and Gromit exactly where they are.
To be Europe's technology centre we also need the best technology infrastructure.
Two years ago Britain had some of the slowest broadband speeds in Europe; today our plans will deliver some of the fastest - with 90 per cent of the population having access to superfast broadband, and improved mobile phone coverage for rural areas and along key roads across the UK.
But we should not be complacent by saying it is enough to be the best in Europe when countries like Korea and Singapore do even better.
So today we're funding ultra fast broadband and wifi in ten of the UK's largest cities.
Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, Manchester, Newcastle and London.
My HF for Brighton Kempton asked me to help small cities too - no doubt with his own city in mind.
I agree. £50m will be available for smaller cities too.
The fastest digital speeds in the world available in our cities, with the most connected countryside in Europe - and the most creative digital content anywhere.
That's what a modern industrial policy looks like.
And the Business Secretary and I have asked Michael Heseltine