§ Just as the modern tax system should encourage investment, so too the tax and benefit system should reflect the value we place upon the responsibilities and rewards of work. For far too long in our country, too many men and women have found themselves working harder and longer, and have still been unable to lift themselves out of poverty into even modest prosperity. For too long, we have done too little to help those who work hard to advance up the ladder of opportunity from lower income into middle income jobs and upwards. The cap on aspirations in Britain must now be lifted.
§ While Budgets in the 1980s acknowledged the need for incentives, the incentives given to the few ignored the even greater problem of disincentives for the many. So it is time to reward the efforts of those who want to work their way up. First, there is welfare reform through welfare to work. The new deal is the most ambitious programme of employment opportunities our country has seen. From 6 April, every young person unemployed for more than six months will have the offer of work or training. From now on, no young person in Britain will be without opportunity.
§ It is now time to take two further steps that broaden the scope and ambition of the new deal—steps that will open up new opportunities to long-term unemployed adults in our country. From June, every one of the 225,000 men and women who have been unemployed for two years or more can benefit from a £75 a week employers' subsidy which, for them, will be a passport to work. But the Government are determined to do more, and we will offer—initially to 70,000 men and women—an individual service of expert help and advice to find work. In this way, we will take another step forward in tackling long-term unemployment in our country.
1103§ Past employment programmes have helped men but often ignored employment opportunities for women. From this year, the new deal will be extended to thousands of women previously denied chances of work, and it will do so in three ways.
§ First, for a quarter of a million women, who are partners of unemployed men, we will offer expert and personalised help to find work through pilot programmes to be launched in every region of Britain, paid for from the windfall tax.
§ Secondly, my right hon. Friend the Secretary of State for Social Security will announce next week the personal help that will now be available on a national basis for all lone parents who want to work and whose children are at school. And we will implement a 12-week linking rule so that they do not risk losing benefits as a result of a brief period in work.
§ Thirdly, partners of the unemployed under 25 without children, who are not allowed to register as unemployed, will now be given exactly the same opportunities for training and work that others under 25 now enjoy.
§ With these proposals, equality of employment opportunity for women in our country is now far closer to becoming a reality. Unemployment blights not just individuals' lives, but whole communities. So we need a new deal for communities which recognises that the answer to social exclusion is economic opportunity. Working with the new social exclusion unit, my right hon. Friend the Deputy Prime Minister and other Ministers will announce a series of pathfinder projects that will put employment at the centre of initiatives to improve education, health and other services in our poorest communities.
§ But there is one group of young people who are the most excluded and most discouraged: young people who find themselves homeless. These vulnerable young people do not just need homes: they need jobs. So I want help to be linked to training and preparing them for jobs. Today, to help finance the advice available to the most disadvantaged young people and to create a nationwide network of mentors ready and willing to help advise and motivate young people who could get back to work, £50 million from the windfall fund is being allocated.
§ And we must do more. Today, while many are unemployed, extensive skill shortages are holding back our economy. I can also announce extra help in this Budget to promote investment in skills and lifelong learning.
§ But our priority must be to provide training in areas such as computers and the high technology skills, not least to help prepare for the millennium. Over £100 million extra will be allocated in the coming year to tackle the skills gaps in Britain. My right hon. Friend the Secretary of State for Education and Employment will announce details of this new skills initiative for our country. Our review of post-16 benefits and maintenance will continue along the lines that we have already set down.
§ Having provided new opportunities for work, it is now time to create a modern tax system that will help create jobs and reward work. So I want to announce today a tax reform to cut the costs of hiring at the wage levels where most new jobs are created. I want to make it easier for 1104 companies that are prepared to take on young people looking for a first step on the ladder of employment opportunity, and to take on men and women who want to return to work.
§ The tax and benefit task force headed by Martin Taylor, chief executive of Barclays, will publish its full report this afternoon. I am sure that the whole House will join me in thanking him for the work that he has done. One of his central recommendations—on which he has already consulted employers—is for a simpler, fairer and more employment-friendly national insurance system; one that makes it easier for employers to hire new employees, and one that also cuts the costs and red tape associated with the two separate and unaligned systems of income tax and national insurance.
§ Martin Taylor's proposal is radically to restructure employers' national insurance on a revenue neutral basis, which for business as a whole will involve no additional cost, and to set a rate of employer's national insurance of 12.2 per cent, but only after the first £81 of wages.
§ I have accepted the proposals. From next year, the Government will abolish the distorting entry fee for employers' national insurance. We will also abolish the multiplicity of separate national insurance rates. We will therefore cut the cost of hiring lower-paid employees. Employers will pay no national insurance on any employee earning less than the starting point of the personal tax allowance—£81 a week. The right to benefit for all employees earning between £64 and £81 a week will be upheld in all the changes we make.
§ With these changes, we are cutting the costs to business of employing 13 million of our lower and middle-income employees. We are taking up to 1 million of the lowest-paid employees out of employers' tax altogether and we are cutting the cost of hiring someone on half average earnings by more than £250 a year.
§ The Taylor report also recommends similar changes to national insurance contributions for the self-employed. This and other matters will be discussed and examined after the Green Paper on welfare reform is published next week by my right hon. Friend the Minister for Welfare Reform.
§ Employers and employees will also benefit from a further institutional reform: the establishment of a single organisation to deal with both income tax and national insurance. My right hon. Friend the Secretary of State for Social Security and I have agreed that the Contributions Agency will be transferred to the Inland Revenue with effect from April 1999. We are a Government who do not simply talk about cutting the costs of red tape and bureaucracy, but take the decisive action necessary to achieve it.
§ Welfare to work is stage 1 of the reform of the welfare state. Today's Budget moves us into stage 2—ensuring that work pays more than benefits and raising the rewards from work.
§ When it is right for the economy, I will introduce a 10p starting rate of income tax, but today I announce a tax cut for hundreds of thousands of working families on low income and we will do it through the introduction of a new working families tax credit.
§ Under the present system of family credit there is, quite simply, a ceiling on aspirations for women and men wanting to work their way up. In Britain today 1105 there are nearly three quarters of a million working families who are held back by marginal tax rates in excess of 70 per cent. There are nearly half a million working families, with children, whose pay is so low that they receive in-work benefits and yet still are required to pay income tax.
§ From October 1999, the working families tax credit will not only be a tax cut for hundreds of thousands of working men and women with children, but will abolish the grotesque distortion where some low-paid employees have had to pay back more than £1 for every extra £1 they earn.
§ Instead of the state paying out benefit through the social security system to working families on lower incomes, in future they will receive cash directly through the tax system. Families will be able to choose to whom the credit is paid—either directly or through the pay packet.
§ By tackling the unemployment trap and increasing the help available to families, the working families tax credit ensures that work will always pay more than benefits and by tackling the poverty trap—through cutting the rate at which help is withdrawn as incomes rise, the working families tax credit ensures that the more you earn, the more you take home.
§ I say to those who can work: this is our new deal. Your responsibility is to seek work. My guarantee is that if you work, work will pay. Let me spell out in hard cash the difference that that guarantee will make.
§ For families with children where someone works full-time there is now a guaranteed income of at least £180 a week, and to the same working families there is a second guarantee: that no income tax at all will be paid on earnings below £220 a week.
§ The Government inherited a tax system whereby a family with two children paid tax even when they earned only 25 per cent. of average earnings. Under our proposals they will have no income tax bill until they earn over 50 per cent. of average earnings.
§ It is a transformation in the rewards for work in our country, and, because, in future, work will pay, those with an offer of work can have no excuse for staying at home on benefits.
§ I said in the last Budget that, in the new Britain, everyone had a contribution to make. Now, with these new guarantees for working families, we can also say that, in the new Britain, for millions more people, we will make work pay.
§ I have one further tax and benefit integration to announce. For decades, thousands of disabled people have been denied a basic right—the right to work—and the tax and benefit system is one of the barriers that have denied them opportunity.
§ As a Government, we will never compel to work disabled men and women who cannot work, and for those who want to work we will systematically remove the obstacles that, at present, prevent them from achieving their potential.
§ So, alongside the working families tax credit, the Government will introduce a new tax credit for disabled people in work, paid through the wage packet, and a new 12-month linking rule to improve the incentives for those on long-term benefits to take a job. Together, these measures will ensure higher rewards for disabled men and women if they choose to enter work, making work pay.
1106§ Today, I also want to make one further change that sends a signal to every employee in the country about the importance that the Government attach to work and fair rewards from work for men and women on lower incomes, middle incomes and upper incomes, right up the income scale.
§ We said at the election that we would not raise the basic or top rate of income tax, and we will keep this promise, not just for one year, but for the Parliament. But I am abolishing the perverse entry fee that every employee pays to be part of the national insurance system and, in doing so, I am cutting national insurance for every employee in the country.
§ Further reforms will also ensure that no one pays national insurance for the first £81 of their weekly earnings. All employees earning between £64 and £81 will have their right to benefits protected.
§ So, from next April, 20 million employees in Britain will benefit by paying £1.28 a week, or £66 a year, less in national insurance. This is not just a tax cut for lower-income Britain, it is a tax cut for middle-income Britain; a tax cut for everyone in work.
§ Our reforms—the merging of the Contributions Agency and the Inland Revenue, the radical restructuring of employers' national insurance contributions and the changes that I have announced in employees' national insurance—are the biggest change in the structure of national insurance for a generation.
§ I have one further change that will make thousands of men and women better off, and in particular make a difference to family incomes.
§ For too many parents, the cost of child care has meant that parents either cannot afford to work or find themselves paying out most of their wages on the cost of child care. So we will introduce a new child care tax credit as part of the working families tax credit, and put high quality child care within the reach of people who have never been able to afford it. For spending on child care of up to £100 a week for the first child and £150 for two or more children, the tax credit will cover up to as much as 70 per cent. of the cost.
§ The rules that we draw up, which will be reviewed after two years of experience, will be designed to ensure that parents have access to high quality child care: child minders, day nurseries and out-of-school clubs. That is a change that today makes a reality of choice for hard-working families previously denied it. Child care will from now on be affordable for the many and not just the few.