§ The Government have led Britain towards our clear goal of a low-tax economy in which private enterprise has the incentive to generate jobs, investment and wealth to make people and their families more prosperous. We are 171 moving towards a low-tax economy in which individual living standards continue to rise and the Government can afford the excellent public services that people want.
Low direct taxes are the most effective way to encourage enterprise and hard work—a message to which we have not converted Labour Members, but one that they no longer dare to deny. Under this Government, those who do an honest day's work and those who take entrepreneurial risk will keep more of what they earn and save by their own efforts.
This year, people have taken more heed of my speeches on the overriding priority of securing future prosperity and jobs and financing key public services. Sensible people already expected my cuts in direct taxation to be modest before they read the one leak and many guesses this morning. They know that their well-being depends on lasting growth and more jobs and that living standards rise from a combination of steadily rising incomes in a successful economy and steadily lowering taxes. Tax cuts matter a lot to low-paid people and to men and women in ordinary jobs.
I announced my income tax cuts last year as a return to our tax cutting agenda and, for the second year in succession, as a result of all the steps that I have announced, I can afford to deliver an instalment of that agenda. The choice is how best to do so. It is the old dilemma between thresholds and rates. Today it is between The Guardian, the Daily Mirror, The Independent or The Sun.
I want to ensure that tax does not start to be paid at too low a level of income and I want to improve work incentives. Therefore, I propose to raise the threshold below which no income tax is paid at all.
In this Budget, I am making an increase in the basic personal allowance of £280. That is 3½ times more than necessary to cover the rate of inflation. It will also ensure that each and every person who pays any income tax at all will get a direct benefit out of the Budget.
I am also increasing the married couple's and related allowances by £40, maintaining the extra tax allowance to all married couples. It will now be worth nearly £275 each year for married couples. The tax system does recognise marriage, contrary to popular belief.
We also give a special tax allowance to blind people. This year, I am increasing that by the rate of inflation. I am also moving to put indexation of that allowance on to the same statutory basis as for the other income tax allowances. I also propose to raise the threshold above which people start to pay the 40p higher rate tax by £600.
One of the Government's most important pledges is that we will move to a basic rate of income tax of 20p as soon as we can. We are proving that we can move towards the delivery of that promise and still maintain healthy public finances. Every step that we take makes that more credible and makes it more affordable to reach the ultimate goal to which we are getting tantalisingly near and which a Conservative Government will achieve. As a further step towards that, I propose to widen the lower rate band of 20p tax by £200—twice as much as is required to meet indexation.
172 That will mean that the slice of income on which a 20p tax rate is paid will have more than doubled during the lifetime of this Parliament. More than one in four of all taxpayers will now pay a marginal rate of tax at 20p in the pound.
They are wide thresholds, so were the newspapers wrong? Am I indeed going to cut a penny off the basic rate of income tax? What the newspapers did know was that my control of public spending and borrowing and the responsibility of my Budget means that I can raise thresholds, widen the 20p band and also responsibly afford to reduce income tax as well. If I had put it all on tax rates, I could have taken 2p off the basic rate of income tax, but I preferred instead to raise personal allowances and widen the 20p band for those at the bottom end of the scale. In addition, I am able to reduce the basic rate of income tax by one penny to 23p in the pound.
The small companies rate of corporation tax will be reduced to 23p in line with that, helping 400,000 companies. The main rate of corporation tax of 33p is already lower than in any other major industrialised country. I look forward to hearing what the Labour party says about the basic rate of income tax.
Seventeen years of steady progress—so far—means that the basic rate of income tax is now a full 10p lower than the rate that we inherited in 1979. The standard rate is now the lowest for nearly 60 years—since Stanley Baldwin was Prime Minister and Wally Hammond scored a double century at the Oval.
Another penny off the basic rate is a significant further step towards this Government's target of a 20p basic rate of tax. For more than 7 million people, our promise of a 20p basic rate is already a reality. I am bringing other income taxpayers ever closer to that reality. A basic rate of 20p is a realistic and attainable goal for the next Parliament. We shall not be content until we have completed the task of getting it down to 20p and every Budget that I have presented has shown step by step how we shall get there.
With increases in real earnings and all the tax changes in the Budget, a family on average earnings will be another £370 better off next year over and above inflation. We said it last time and it happened. The same family will have more than £1,100 more to spend each year after tax and inflation than they did before they voted Conservative at the last general election. In 1992, the background was one of a worldwide slowdown, but now we are enjoying strong growth and rising living standards, and we shall enjoy more of the same.
In November 1993, I promised that I would put Britain firmly on course for a sustained period of rising prosperity and falling unemployment, based on low inflation and healthy public finances. I have done what I clearly said I would have to do and I have delivered on those promises.
The Budget cuts public spending next year by £2 billion, and it generates an extra £½ billion in revenue through "spend to save". It contains a balanced tax package—it includes tax cuts of £2 billion while it secures the tax base by £1 billion. Taken together, the effect of the Budget is to tighten fiscal policy and so protect healthy lasting recovery—and still achieve our target of cutting the basic rate towards our 20p goal.
I am a man of the world: I realise that virtue does not always brings its own rewards. I am probably not a particularly virtuous Chancellor, but this virtuous Budget 173 will bring rich rewards—the rewards of economic success to the hard-working men and women who are now in the best economic circumstances for years. It will also bring rewards to the Government. We should never forget that good economics is good politics.
This is not a Budget just for the next few months; it is a Budget for many prosperous years to come. It is a Budget that the Government will build on again in 12 months' time and I commend it to the House.