§ For years, as a nation our capacity to consume has not been matched by our capacity to produce. And it is because we have had insufficient capacity to sustain anything other than low long-term rates of growth that our upturns have been too short and too fragile, and our 1100 downturns too deep and too destructive. But with a platform of stability in place and with lower long-term interest rates, 1 believe we are now in a position to establish, for the first time for decades, a virtuous circle of low inflation, high investment and a higher level of sustainable growth.
§ Over the next few years we must seize this opportunity by challenging ourselves to lift our productivity in each and every industry towards the levels of the world's best. I want us to be as determined to raise productivity as we have been tough-minded about the need for stability.
§ Breaking free from old ideas of state control on the one hand and crude laissez faire on the other, our new ambition for Britain must be to encourage enterprise and entrepreneurship, to boost education and skills and, as our Competition Bill will ensure, to open markets to competition and new opportunities—in other words to implement for our country a medium-term strategy for growth.
§ First then, our proposals to help businesses invest and grow. To encourage long-term investment, today we will put in place the company taxation reform that we started last year, by abolishing one tax in its entirety.
§ From April next year, companies will no longer have to pay advance corporation tax. A new instalments system of payment for larger companies' corporation tax will be introduced. In the last Budget we reduced the main rate of corporation tax by 2p to 31p. In this Budget we reduce it further by another 1p to 30p from April 1999. This is the lowest main rate of corporation tax of any major industrialised country and the lowest rate in the history of corporation tax in Britain. When it is finally in place companies will pay over £1.5 billion less in corporation taxes each year.
§ The lower and fairer tax regime to encourage investment that business has wanted for years is now in place under a Labour Government. It will contribute to making Britain the best place in the industrialised world in which to invest.
§ Businesses need to plan for the long term, so today I make a commitment that for the rest of this Parliament corporation tax will be at 30p or less.
§ Stability is important, not least in our North sea oil industry, where planning horizons are long. Next month we will publish a consultative document on the future of the North sea fiscal regime.
§ In the new economy, however, jobs will come not simply from a small number of large businesses, but from a large number of small and growing businesses. Today we will make five changes that will help small business: we will cut the costs of investing; we will cut the burden of red tape; we will promote research and innovation; we will increase the rewards for doing well; and we will cut tax.
§ First, following the consultation on our corporate tax proposals, 1 will exempt medium-sized as well as small companies from paying corporation tax by instalments. Taken together with the abolition of advance corporation tax, that will improve the cash flow for small and medium-sized companies paying dividends by about £1 billion.
§ But I want to do more; 85 per cent. of taxpaying companies in our country—350,000 companies—are covered by the small companies' rate of tax. In the last 1101 Budget, I cut the small companies' tax rate from 23p to 21p. I have now decided to go further. From April next year small companies' tax will be cut again to 20p, and we will keep the rate at that level or below not just for a year, but for the Parliament.
§ We are cutting not only the tax rate, but the costs of investing. For 12 months from July, first year capital allowances for small and medium-sized businesses will be set at 40 per cent., continuing our commitment to boosting long-term investment.
§ I want to make it easier and cheaper for small businesses also to take on their first employees, but setting up payroll systems costs those businesses money and time, so from April next year the Inland Revenue will offer businesses help in setting up their payroll systems, and will do so on a nationwide basis.
§ For too long the great scientific advances of British universities have gone on to become the manufacturing successes not of Britain, but of rival countries. To help turn British inventions into success for British businesses, 1 am announcing today plans for a new £50 million venture capital fund open to all universities—a new university challenge fund that will invest today in the innovative businesses that will create wealth and jobs in our country tomorrow.
§ Encouraging greater research and development investment is also crucial to higher productivity, so the Government are today publishing a consultative document indicating a determination to help businesses to achieve greater research and development.
§ Our venture capital industry is proportionately much smaller than that in America. By merging the enterprise investment scheme and capital gains tax reinvestment relief, 1 am now able to provide more generous, more efficient and better targeted help to encourage the venture capital industry in Britain. I propose a 50 per cent. rise in tax reliefs. From now on investors will be able to secure income tax reliefs for investment up to £150,000 a year.
§ We must do more to increase the quantity and quality of long-term investment. The capital gains tax regime that we inherited rewards the short-term speculator as much as the committed long-term investor. It is time also for a fundamental reform of capital gains tax.
§ In a low inflation environment a complex system of indexation is no longer necessary. Indexation will continue until April 1998 and will then be frozen. The annual exempt amount will rise in line with prices. Following extensive consultation, 1 have decided to phase out complex allowances, and instead I will introduce a new structure of capital gains tax which will explicitly reward long-term investment, and which is based on a downward taper and lower tax rates.
§ The short-term rate of capital gains tax will remain at 40p. For investors holding non-business assets, who invest long-term for 10 years, the rate of capital gains tax will fall from 40p to 24p in the pound. For those who build businesses or stake their own hard-earned money in them, the long-term rate will be reduced even more from 40p to 10p in the pound—the lowest rate ever achieved.
§ So with a 30p main rate of corporation tax, a 20p rate for small business tax, and a 10p long-term rate of capital gains tax, this Government today send a clear signal of support for enterprise to those who invest in the United Kingdom. My message to business is: "When you are ready to start out, start up, start investing or start hiring, this Government are on your side".
1102§ When half the population have only £200 or less in savings, there is broad agreement that we must do more to encourage savings by everyone. There is broad agreement also that an easy-to-access individual savings account, available over the counter in supermarkets and post offices as well as from banks, building societies and financial services providers, can encourage the savings habit among many more people.
§ I can now report the conclusions from our consultation on the individual savings account. First, the individual savings account will, as promised, offer complete freedom to move cash in and out, and so savers know their cash will always be accessible when they need it. Secondly, in response to suggestions from prospective providers, the cash holding for the first year of the new product will be raised to £3,000. Thirdly, the individual savings account will receive a 10-year guarantee that savings of up to £5,000 a year can be invested with all existing tax reliefs.
§ Fourthly, even when new TESSAs and contributions to PEPs cease next year, the entirety of capital accumulated in them will be able to continue, with all the accumulated gains, to enjoy tax reliefs. There is no retrospective element. Whatever accumulated capital there is will remain entirely free of tax, so existing PEP holders will be able to keep their accumulated savings free of capital gains tax and, at the same time, they will be able to save an additional, tax-free £5,000 each year in the new individual savings account.