Budget Statement (Hansard, 21 March 2000)

§ The Chancellor of the Exchequer (Mr. Gordon Brown)

A year ago the Government forecast the British economy would grow at 1 to 1.5 per cent.

Today, I can report that in 1999, instead of the recession that many forecast, the British economy grew by 2 per cent.

And Britain has been growing steadily while meeting our inflation target.

Today inflation is 2.2 per cent.

For the third year running inflation is in line with our target. And the target of 2.5 per cent.—which I reaffirm today—will be met this year, next year and the year after that.

Because of the action we took in 1997 to stop inflation getting out of control, inflation in Britain has now been lower for longer than at any time since the 1960s.

For almost 30 years, Britain's long-term interest rates were, on average, 3 per cent. higher than those of Germany. Now British long-term rates are down to the levels of Germany and today they are lower than those of the USA.

Amid the risks of an unstable and often uncertain global economy, we are determined to maintain our disciplined approach: determined not to make the old British mistakes of paying ourselves too much today at the cost of higher interest rates and fewer jobs tomorrow, determined not to make the old mistakes of putting consumption before investment, the short term before the long term. Britain does not want a return to boom and bust.

That is why the Bank of England has been right to take pre-emptive action on interest rates and to be vigilant on wage inflation.

It is because the foundations on which we build are strong that the economy can both meet our inflation target and achieve steady growth.

Our forecast is that growth this year will rise to 2.75 to 3.25 per cent., and next year and the year after that it is forecast to be 2.25 to 2.75 per cent.—in line with our view of trend growth. Manufacturing is growing by 1.75 to 2.25 per cent. this year and next year.

And business investment grew by 7.7 per cent. last year to 14.5 per cent. of our national income, since 1998 Britain for the first time investing more of our national income than our major European competitors, even more invested as a proportion of national income than America.

859 This budget is built on the realities of the new economy—that we will meet and master a new tide of technological change by continuing to remove the old barriers to investment and enterprise and by continuing to expand employment opportunity for hard-working families.

I can report that unemployment today is at its lowest for 20 years, that there are 800,000 more people in work since 1997 and that there are 1 million vacancies on offer.

Take-home pay is rising—by next year, for the typical family, a real-terms rise in living standards of 10 per cent. since 1997.

Britain's economic success depends not only on monetary stability but on fiscal stability.

Today, I can report that because of tough decisions to cut the deficit in our first two years and lower long-term interest rates, debt interest payments will be £4 billion a year lower.

Because of the welfare-to-work reforms that have cut unemployment, social security spending on economic failure this year is a total of £3 billion less than the plans we inherited.

Today, Mr. Deputy Speaker, the state of the public finances is sound.

In 1997 we inherited a current deficit exceeding £20 billion.

A year ago I estimated that this year's current surplus would be £2.5 billion.

I can report today that we have not only balanced the current budget but our current surplus this year is forecast to be £17 billion.

We have met and we will continue to meet, even on the most cautious of cases, our first rule of fiscal prudence, the golden rule.

And we are also meeting our second rule, the sustainable investment rule.

This year debt as a share of national income will fall well below the 44 per cent. we inherited—to 37.1 per cent.

Last year we forecast that the overall budget would be in deficit for this financial year—that public sector net borrowing would be £3 billion.

I can now report that due to the performance of the economy and to prudent management, the budget is not in deficit by £3 billion but in surplus by £12 billion.

We inherited a deficit of £28 billion. This year we will make a debt repayment of £12 billion.

Too often in the past, at the first sign of a surplus, Governments have fallen back into imprudent ways.

It is because we have learned from the mistakes of the last 40 years that this Government will maintain their prudent and responsible approach. The figures I am announcing today show that we will meet our fiscal rules over the economic cycle. We will meet our fiscal rules even in the most cautious case, on the most cautious assumptions, including the most cautious view of trend growth at 2.25 per cent.

And Mr. Deputy Speaker, I can announce today that I have decided to lock in a greater fiscal tightening next year and the year after than we promised in last year's Budget and pre-Budget report.

860 After the measures I announce today, our projection is for a current surplus next year of £14 billion and for the years after that surpluses of plus 16, plus 13, plus 8 and plus 8.

Debt to GDP, which was 44 per cent. in 1997, will fall to 35 per cent. next year, then 34 per cent. and then 33 per cent. in each of the next three years.

Net borrowing will be minus £6.5 billion next year, that is, we will make a debt repayment next year of £6.5 billion.

Then net borrowing in 2001–02 will be minus 5, a debt repayment of £5 billion, with net borrowing for the years after 2002–03 of plus 3, plus 11, plus 13, well within our fiscal rules.

So from this stable platform of sound finances I am able to set out today our prudent and responsible approach for future years. Having met all of our fiscal rules, having paid off £18 billion of debt this year and next, and locked in a greater fiscal tightening, we are able both to set a new envelope for public spending and investment for the years from 2001 and to cut taxes for hard-working families.

I can report that our fiscal rules enable us to increase current public spending by 2.5 per cent. a year in real terms for the three years from 2001 and double net public investment as a share of national income from 0.9 per cent. next year to 1.8 per cent. in 2004.

Mr. Deputy Speaker, I have always said that our prudence is for a purpose.

And in this Budget, because of our continuing prudence, we can now take the next steps towards that purpose—a Britain of opportunity and security not just for a few but for all: with stability locked in and enterprise growing, we can meet our prosperity goal—to close the productivity gap; with 800,000 more people in jobs and the work ethic being restored in every community, our full employment goal—employment opportunity for all; with 50,000 more students already and standards rising, our education goal—50 per cent. of young people in higher education by 2010; with 800,000 children already lifted out of poverty and Britain's civic society renewing itself, we can meet our anti-poverty goal—to halve child poverty by 2010, on the way to ending it by 2020.

First, I announce major reforms today to reward enterprise and entrepreneurship, to open up competition in banking, to promote new and growing businesses and e-commerce, and to promote balanced growth across all the regions and nations of the United Kingdom.

To remove more of the old barriers to new investment, I have decided on radical reforms of capital gains tax, beyond the tax cuts that I set out in the pre-Budget report. When we came into government and cut the long-term rate of capital gains tax for business assets held for 10 years or more, capital gains tax had been fixed at 40 per cent. for nearly 10 years. I have now decided that, to promote enterprise, we should radically cut these rates.

I am announcing that from 6 April this year, the new capital gains tax rates for business assets will be cut from 40 per cent. to 35 per cent. after one year, to 30 per cent. after two years, to 20 per cent. after three years, and down to 10 per cent. after four years.

I will make further tax cuts to remove the barriers that hold small and growing businesses back. Today, business investors who own between 5 per cent. and 25 per cent. 861 of a new and growing business do not benefit from the 10p rate. I will now cut their rate to 10 per cent. for all investments above 5 per cent. held for four or more years.

I will make a further radical change, this time for Britain's unquoted companies. All investments held for four years in them will benefit from the 10 per cent. rate.

With both the lowest corporate tax rates for businesses ever and the lowest ever capital gains tax rates for long-term investors, Britain is now the place for companies to start, to invest, to grow and to expand.

I have a decision about one other tax on capital—inheritance tax. The threshold for inheritance tax is £231,000. I will raise it next year to £234,000—96 per cent. of people will be exempt from inheritance tax.

I have one further cut in capital gains tax to be introduced from 6 April. So that millions more hard-working people have a stake in the businesses whose wealth they create, we will remove the old barriers to a share-owning democracy. The all-employee shareholding scheme, with the best tax incentives on offer, which starts on 6 April this year, has one defining requirement: that shareholding should be open to all employees.

I can confirm that the 1.7 million people now in the save-as-you-earn scheme will continue to enjoy its benefits.

I have also decided that high-tech firms recruiting essential personnel will be able to offer share option incentives of £100,000 for up to 15 employees.

The Financial Secretary will now consult on a technical solution to the tax treatment of share options in unapproved schemes.

I can go further. In future, all employee shareholders will secure all the benefits of the 10 per cent. capital gains tax rate.

Taken together, these measures are the biggest boost for employee shareholding that our country has ever seen. It is the next step on our road to a wealth-owning democracy.

Yesterday, in response to the Cruickshank report, my right hon. Friend the Secretary of State for Trade and Industry and I referred small business banking to the Competition Commission. Mr. Cruickshank estimated that competition could reduce banking costs and charges by up to 10 per cent., or between £3 billion and £5 billion a year.

The money transmission system affects every cheque, every credit card and every debit transaction. It reaches from every local cash dispenser to every corporate inter-bank transfer. Today I am announcing that we will legislate to ensure that the UK payments system is open to new competition.

The international competitiveness of the bond market in the City of London depends upon a level playing field. That is why today I am announcing that from April 2001 we will abolish the withholding tax on the interest paid on international bonds. We will legislate so that we can proceed on the basis of exchange of information nationally and internationally. This change should be widely welcomed in all parts of the House. There is no clearer indication of our determination to stand up for what is right for Britain.

Since 1997, the number of small businesses in Britain has risen from 1.2 million to 1.3 million—a 100,000 increase.

862 Today I want to continue to remove the old barriers to small business growth.

Having already cut small business corporation tax from 23 per cent. to 20 per cent. and, for the first £10,000 of their profits, to just 10 per cent, I am today making a further tax reduction. For all small and medium-sized businesses the 40 per cent. capital allowances—which I introduced in the 1997 Budget—will be made permanent.

This will be of special help to manufacturing companies.

Half manufacturing employment is in small and medium-sized firms, so manufacturing will derive further benefit from the £150 million I am allocating to our new research and development tax credit, which will be introduced on 6 April, to finance 30 per cent. of the research and development costs of small firms.

I also want to make Britain the best environment for e-commerce and for us to catch up with America as swiftly as possible.

To encourage 1 million small businesses to go on line, we will introduce a special tax reduction. For the next three years, any small business buying computers, or investing in e-commerce and new information technologies, will be able immediately to write off against tax the full 100 per cent. of the cost in the year of purchase.

Side by side with this incentive, the Small Business Service will offer consultancy, advice and planning to help small businesses get on line and become e-companies—and with the additional resources that my right hon. Friend the Secretary of State for Education and Employment is providing for the university for industry, which starts this autumn, it will be able to offer small business employees training on the internet.

We are determined to lead in e-commerce and the internet. Today we are introducing new rules for work permits in areas of highly skilled information technology where there is a global shortage.

To promote the use of the internet we will legislate for other tax cuts—a £100 tax cut for electronic filing of tax and VAT returns, and a further £50 tax cut for electronic filing for those paying the working families tax credit.

Tax cuts since 1997 are now worth £1 billion a year for small businesses alone.

After today's measures, Britain now has the lowest small business corporation taxes we have ever had, the lowest in the industrialised world. Since 1997, for small companies there has been an average tax cut of almost 25 per cent.

To encourage the next generation of entrepreneurs, we are forming a partnership with the CBI, the Institute of Directors and the chambers of commerce to encourage enterprise in all communities. Two new enterprise funds will target business loans and management scholarships to high unemployment areas.

Stage by stage we are moving from the Britain where enterprise was a closed circle for the few, to a Britain where enterprise will be open to all.

We must also remove the old barriers of under-investment and neglect that for too long have held our regions back.

Working with the new regional development agencies and the Small Business Service, our aim is balanced economic development across all the regions and nations 863 of the United Kingdom, with a modern regional policy supporting local innovation, investment and improved infrastructure.

To finance a network of regional venture capital investment funds, we are today announcing a partnership with the European investment bank and the private sector—with a target of £1 billion for new economic development for our regions and nations.

The regional targets will be £85 million for the south-west, £120 million for the north-west, £130 million for the north-east and Yorkshire, £250 million for the midlands and the east, and £250 million for London and the south-east. Scotland, Wales and Northern Ireland will have their own funds.

To promote further a modern regional policy, the Secretary of State for Trade and Industry will be announcing a regional innovation fund to facilitate the formation of local clusters in high-tech industries.

For years, Britain has lagged behind America in business access to venture capital investment. It is only half as much per head here as in the United States.

I am grateful to Mr. Paul Myners, who has agreed to head a review of institutional investment, to report to me in time for the next Budget.

Our goal for the whole of the United Kingdom is to remove the old barriers to full employment.

We know that greater opportunity for all means greater prosperity for all.

Since 1997 the number of unemployed on benefits has fallen by 30 per cent.

Youth unemployment is down 70 per cent. and nearly 200,000 more young people have now found jobs.

Long-term youth unemployment, which in the mid-1980s was 500,000, and even in 1997 was as high as 200,000, is already down to 50,000.

The new deal demonstrates how false was the old choice between enterprise and fairness, between efficiency and equality. By delivering employment opportunity for all, we are making Britain more enterprising and more fair, to the benefit not just of the high unemployment areas, but the whole country.

And because we have succeeded in this Parliament in removing the old barriers to employing the young, I can announce that starting from April next year we will extend the opportunities and the obligations of the new deal to the long-term adult unemployed with four options: work, work-based training, work experience including in the voluntary sector, and self-employment—but no fifth option, no staying at home on benefit doing nothing.

The relationship we are forging between rights and responsibilities is firmly rooted in both economic opportunity and individual responsibility.

Instead of being left to draw benefit at a social security office, the unemployed who are able to work will sign on to seek work, with the long-term unemployed offered the help of a personal employment adviser.

To ease the transition back to work, the Government will introduce a new job grant for long-term unemployed starting at £100 and help with rent or mortgage.

864 Instead of benefits paying more than work, work will pay. And we will extend the principle of the working families tax credit.

From 1 April, as a first stage, all long-term unemployed over 50 who want to return to work will be guaranteed a minimum income for their first year back—for wages of up to £15,000 a year, an extra payment of £60 a week.

And building on the forthcoming rise in the national minimum wage, I am today also increasing the working families tax credit. It is already being paid to 1 million families in our country. And with today's family tax cut, the minimum family income will rise next April from £200 a week by 7 per cent. to £214 a week.

Full employment is not just about the right to work, but, where there are jobs, the responsibility and the requirement to do so.

We will implement the report of Lord Grabiner QC.

Starting in May, a confidential phone line will advise claimants on how to move from the hidden economy and end fraudulent benefit or tax claims, and how to get work, register as a business, or become self-employed. After six months, from 1 January, for those who fail to respond, tougher rules and penalties will be imposed.

From October, in the 20 highest unemployment areas of Britain covering 120,000 unemployed, local special action teams will be set up to help local unemployed people into nearby vacancies.

The number of lone parents on income support has fallen by almost 100,000 since 1997.

But the employment rate among lone parents in Britain is still only 45 per cent., far below the 70 per cent. to 80 per cent. rates of America, France and Scandinavia.

In this Budget we also remove old barriers to work and I can today announce an extension of the new deal in a new way to half a million lone parents.

Piloted from this autumn, and starting nationally from next April, lone parents with children over five will be invited to work-focused interviews and encouraged to take up new choices: the choice to train for work with a new cash payment of £15 a week on top of benefits for training; the choice of a few hours work a week, with the first £20 of earnings allowed with no reduction in benefit; the choice of part-time work with a guaranteed £155 for 16 hours of work, or the choice of full-time work on a guaranteed £214 a week; and on every rung of this ladder of opportunity there will be help with back-to-work costs and with child care.

Just as we remove old barriers to lone parents working when their children go to school, so we will help mothers who want to be at home in the first months of their child's life.

Today, too many children are born into poverty because the family income drops when the mother stops work. Yet this is the time when many mothers feel they need to be at home with their young child.

The Secretary for Trade is announcing today he will review what improvements can be made in maternity pay and parental leave to improve family friendly employment.

Today I can announce immediate decisions which recognise the extra costs families face when a child is born.

865 For all low-income mothers who meet the basic requirement of health check-ups for their young child, we will increase the maternity grant from £200 to £300—helping over 200,000 low-income mothers.

Mothers on paid maternity leave who would otherwise fall into income support will now stay on working families tax credit.

Families receiving the credit where the mother wants to stay at home will no longer have to wait as long as six months for additional support after the child is born and this support will be worth up to £30 pounds a week for a mother.

I have examined the alternative that has been put to me of a transferable tax allowance for husbands and wives when mothers stay at home.

Under this system, a family with two children on £15,000 a year would receive £965 a year. The working families tax credit is far better. With the improvements in it announced today the same couple would receive not £965 a year but £2,200 a year.

The Prime Minister has set a national goal for our country—to abolish child poverty in 20 years, and to halve it by 2010.

A sure start for all Britain's children is not only right but it is the best anti-crime, the best anti-drugs, the best anti-unemployment and the best anti-dependency policy for this country's future.

Our strategy starts from the foundation of universal child benefit for all 7 million families with children.

When we came to office, child benefit was just £11.05 for the first child.

Child benefit will now be £15.50 from April 2001, 40 per cent. more than in 1997.

For young children in the poorest families, weekly support in 1997 was just £28.

We have raised that in every Budget and today the Social Security Secretary is announcing a further increase for the poorest children of £4.35 a week.

So maximum support is up from the £28 of 1997 to up to £50 a week next year.

As a result of all our measures, the poorest two-child family on income support will be £1,500 a year better off. The low-paid family with two children on a wage of £10,000 will now be £2,700 a year better off.

This is what we mean by tackling child poverty and making work pay.

I can now report that the numbers of children lifted out of poverty this year will rise beyond 1 million, and next year reach 1.2 million children—it is the greatest reduction in child poverty in 50 years and our country is now at last fulfilling this generation's obligations to the next.

As we move forward to take the second million children out of poverty, I can confirm that the Social Security Secretary and I have agreed on the next major reform.

Over the next three years, building on the foundation of universal child benefit, we will create an integrated and seamless system of support for children paid to the mother.

The war against child poverty needs more than finance and it needs more than the efforts of government alone.

866 It can only be won by the combined efforts of private, voluntary, charitable and public sectors all working together.

After consultation with charities and voluntary organisations, we will proceed to set up, in every region of our country, and with cash allocated in our spending review, not just one children's fund but a network of local and regional children's funds to support work by the voluntary sector in meeting the needs of children.

A strong civic society is built not by rights alone but by rights and responsibilities and by the shared pursuit of the common good—which every year in this country enlists the energies and realises the idealism of more than 22 million citizens.

It is time for government to do more to extend and encourage this civic patriotism.

All voluntary organisations and charities will benefit from the tax reforms we are announcing to make it easier to give money and to give time.

From 6 April this year for every pound any taxpayer gives to charity, the Government will add an extra 28 pence.

To encourage payroll giving, for every pound contributed through the pay packet, the Government will add up to 50 pence worth of tax relief.

Tax relief will be available not just for cash donations, but for gifts of shares.

To encourage corporate giving, any company, from 1 April, can receive tax relief on the full amount of any donation.

Within prescribed limits, I will go further in exempting ticket sales for charitable fund-raising events from VAT, so that the contributions people make will go straight to the charities they support.

And each of these measures will also help those charities and non-governmental organisations which, with the Churches, have for decades led the crusade to combat third-world poverty and secure debt relief.

With these reforms, the Government match their commitment because the Government share their cause which is a virtuous circle of debt reduction, poverty relief and economic development for the poorest countries of the world.

A strong civic society takes seriously its obligations to our elderly: to the very poor pensioners whom we must help out of poverty; to those just above benefit levels whose lifetime savings should not—as in the past—be a barrier to securing a better retirement income; and to those who, while better off, are on fixed incomes.

The Secretary of State for Social Security is to launch a consultation on how, for the next Parliament, we can develop a new pensioners credit designed not only to lift the poorest out of poverty, but also to do more for those with modest occupational pensions and those with savings who should not be penalised for having worked hard all their lives and saved for their retirement.

Under the framework on which we will consult, an older pensioner with income, for example, of less than £100 a week, or a couple with less than £150 a week, would qualify for a credit to raise their income.

While we consult on this reform, we will also make immediate changes. The pensioners tax allowance will be set this year at £5,790, and for those over 75 at £6,050. 867 Nearly 6 million pensioners will not pay any income tax at all. With the new 10p rate on savings, one and a half million pensioners will, for the first time, pay tax at half the rate of the past—at 10p, not 20p.

And I have decided to do more today for elderly citizens with modest savings whose thrift has perversely and unfairly debarred them from receiving the income they need. For years any pensioner with savings over £3,000 has lost out on income support. The last Government froze the limit at £3,000 in 1988. I have decided from next April to double the limit, raising it from £3,000 to £6,000.

The cut-off point for income support was frozen at £8,000 of savings in 1990. We will raise that to £12,000. As a result, 500,000 elderly people—previously penalised for their thrift and savings—will be on average £250 a year better off. Many will be better off by £1,000 a year.

Fuel poverty has scarred our country for too long. That is why in our first Budget we cut VAT on fuel, and why in the second Budget the winter allowance was introduced at £20. Then in our third Budget it was raised to £100, available to all eight and a half million households with a resident over 60.

Under this Government, the winter allowance will be paid this year, and it will be paid every year. I have considered whether to raise the allowance in line with inflation, which would put it up by £3 to £103, or in line with earnings, which would raise it to £104.50. I have decided in this Budget not to raise it by £4 or even £5, but to raise it by £50 to £150. This winter allowance, at £150, will now cover up to four winter months of a hard-pressed pensioner's fuel bill.

I can also announce that 600,000 of our elderly will benefit from the new affordable warmth programme to install fuel-efficient central heating in a million homes throughout Britain.

Beginning on 1 November, all pensioners over 75 will receive the free TV licence, worth £104. And I can announce that any pensioner over 75 who has an unexpired licence which runs beyond 1 November will be eligible for a refund for every unexpired month.

These new measures will complement next year's rise in the retirement pension. Based on forecast rates of inflation, we can expect the pension rise in April 2001 to be more than £2 for single pensioners and over £3 for couples.

Of all the measures to lift our poorest pensioners out of poverty, the minimum income guarantee is the most essential. We will raise it in line with earnings next year. For a single pensioner it will be worth £82 a week, for those over 80 it will be £90 a week, for couples it will be £127, and for those over 80 it will be £137.

Taking these measures together—the winter allowance, the TV licence and the higher minimum guarantee—by April next year 1 million pensioners in our country, compared with 1997, will be £20 a week, or £1,000 a year, better off.

As we look to the future, I want all to be able to achieve the security of a wealth-owning democracy, with prosperity reaching the people and places the economy has too long forgotten.

868 We want to do more to help people start a bank account and start saving, more to help people invest in their pension, more to help people get on the first rung of the savings ladder and make provision for their future.

Today in Britain, unfortunately, up to 3.5 million adults have no bank account. The Cruickshank report has revealed that a basic affordable bank account would be profitable for the banks and that using banking facilities—and not the cash economy—just to pay gas and electricity bills alone could save families £50 a year, or £1 a week.

So I am now inviting the banks and the Post Office to work together to offer this basic banking service to all, and I want working families to be able to move seamlessly from starting an account to starting to save.

I have already announced measures to reward pensioner savings.

This year 6.5 million individual savings accounts have already been started. For the coming year, the ceiling was announced at £5,000 of savings. Instead, for one more year I will keep the ceiling at £7,000.

I said last November that I would, in future, make an annual Budget decision on one matter: real-terms rises in road fuel duties—the money to go to a new ring-fenced fund for roads and public transport.

Since the pre-Budget report, world oil prices have risen rapidly from $23 to $30 a barrel.

So, in this Budget I have decided that, beyond the automatic inflation rise of 2p a litre, there will be no real-terms rise in road fuel duties.

To encourage the use of ultra-low sulphur petrol, I will set that fuel duty at 1p per litre below other petrol from 1 October.

An extension to the new lower rate vehicle excise duty comes in on 1 March next year. Until that date and for the rest of this year, I have decided—for all cars—to freeze vehicle excise duty.

At present, the lower rate—at £55 below the standard rate—is available for 1.5 million cars.

From next year I will extend the reduced rate of vehicle excise duty to cars at 1200 cc or below.

This will cut vehicle excise duty to £105 for 2.2 million additional cars and the reduced rate will now cover almost 4 million cars.

I am also introducing from 1 March next year, for newly purchased cars, a four band vehicle excise duty rewarding the most environmentally friendly vehicles.

Under the rates I am publishing this afternoon, 95 per cent. of new cars will pay less than they would under the current vehicle excise duty system. Half of them will pay at least £30 less.

We will also cut the vehicle excise duty for 40,000 38-tonne and 41-tonne lorries by £500; the 40-tonne class lorries will have their rate cut by £1,800; for all other heavy lorries rates will be frozen.

The environmental impact of these tax cuts—taken together with the revenue neutral proposal for company cars—will be a reduction in carbon emissions of 1 million tonnes by 2010, helping to meet the Kyoto targets that were negotiated by my right hon. Friend the Deputy Prime Minister.

This is on top of the 5 million tonnes reduction in carbon emissions by 2010 as a result of the climate change levy, which is also revenue neutral and on which the Financial Secretary to the Treasury is publishing further details today.

869 To further cut pollution we will legislate the aggregates levy, which will again be made revenue neutral through a further 0.1 per cent. cut in employers' national insurance.

These two measures taken together cut employers' national insurance contributions by £1.35 billion.

There is also a strong environmental case for reducing stamp duty for development of brown-field sites, as recommended by the Rogers report. The Paymaster General will now consult in detail on that measure.

For the property market, in addition to the previously announced withdrawal of mortgage interest tax relief, stamp duty on property sales will be raised for sales above £250,000 to 3 per cent. and for sales above £500,000 to 4 per cent. For properties below £250,000 I propose no change and I also propose to freeze insurance tax.

Last year I froze duties on all spirits.

This year an inflation rise would push the price of whisky up by 22p a bottle.

Because of the competitive position of the industry, I will this year continue to freeze duty on all spirits.

Beer will rise only by inflation—by 1p a pint—and wine only by inflation—by 4p a bottle.

Now that the return-leg exemption for air fares has been found in breach of single market law, I am taking the opportunity to introduce a new, fairer and lower air passenger duty—at an overall cost to the Exchequer of £80 million a year. The tax on economy flights within the UK will be the same or lower. For economy flights outside Europe the rate will remain at £20 and there will be a new business-class rate of £40.

Thirty million economy passengers travelling to Europe will have air passenger duty cut in half—from £10 to £5—and on flights from the Scottish highlands and islands, I will abolish air passenger duty altogether.

On tobacco, my hon. Friend the Paymaster General will tomorrow announce tough new measures to tackle smuggling.

Cigarette taxes will rise by 5 per cent. above inflation from tonight by 25p a packet—with every penny of the extra revenue going, as I promised, to funding our hospitals and the national health service.

I am also commissioning a long-term assessment of technological, demographic and medical trends over the next two decades that will affect the health service, to report to the Treasury in time for the start of the next spending review in 2002.

I have a number of other fiscal decisions to make. Debt interest payments are down by £4 billion a year and because we have not spent and we will not spend more at the expense of being prudent, we have also made the tough decisions to tackle benefit fraud, to move people from welfare to work, and to control the social security budget.

Social security spending, which grew by nearly 4 per cent. a year in the last Parliament, will grow by less than 1 per cent. a year in this Parliament.

In fact, compared with last year's Budget forecast, social security spending is lower this year by £2 billion and will be another £2 billion lower next year, a saving of £4 billion in all.

Because we have cut borrowing and reformed the welfare state, cutting the costs of social and economic failure, and because we have been financially disciplined, extra resources are now available for our priorities. A Budget is about priorities.

870 In my pre-Budget consultations I have read carefully detailed Budget representations and examined proposals from both sides of the House, including one from the current shadow Chancellor, who said on 6 March he can either reduce taxes or increase public spending. What I would recommend is that he use that money to reduce … taxes. I have examined proposals for transferable tax allowances costing £4.25 billion, for private health insurance tax reliefs at £½ billion, for abolishing capital gains tax at £3.9 billion and top rate tax cuts at £690 million for every 1p and I have established that, for these last two alone, 75 per cent. of such tax cuts would go to the wealthiest 5 per cent. of the population, leaving us nothing extra for public services like the national health service. Because the proposals are made irrespective of economic circumstances, they would risk a return to boom and bust.

I have decided instead on a prudent and responsible approach that allows us to repay debt and lock in an even greater fiscal tightening, and that allows us, even after meeting our fiscal rules, to target tax cuts on hard-working families and to release for our public services in the coming year alone additional resources of £4 billion. These extra resources are not at the expense of our prudence; they arise because of our prudence.

I can announce an immediate new investment of £280 million in transport, £250 million of it to a ring-fenced fund for improving roads and public transport, including transport in rural areas. My right hon. Friend the Deputy Prime Minister will be making a statement on individual allocations for the coming year later this week.

I am able to announce an additional £285 million to be spent from April on fighting crime. Later this week my right hon. Friend the Home Secretary will announce further details.

I am also announcing additional investment in UK education starting on 1 April of an additional £1 billion.

Under the leadership of the Secretary of State for Education and Employment, class sizes for 5–7 year olds in primary schools are being cut and significant improvements in reading, writing and maths achieved. Last year, he made a payment to every primary school for books of £2,000. Now this year, cash also will go directly into the classroom. To support his drive for literacy and numeracy, every one of the country's 18,000 primary schools will, from 1 April, receive a new payment for books, equipment and staffing of £3,000 for the smallest school, rising to £9,000 for schools with more than 200 pupils. This money will go straight to the head teacher. Schools offering special tuition to help the weakest pupils catch up will be able to draw on an extra £20 million to boost pupil results.

The Secretary of State is also proposing to back up reforms in secondary schools with new measures to boost the performance of those falling behind and to raise the performance of all pupils by the age of 14. To support these reforms in our secondary schools, he will now make a payment to every head teacher for books, equipment and staffing.

Last year, we were able to make an extra payment for books and equipment of £2,000. This April, every one of these 3,500 secondary schools will receive a minimum payment of £30,000, and £50,000 for schools with over 1,000 pupils.

Those measures alone amount to £300 million in new investment—money paid direct to the school for use in the classroom.

871 To advance our goal of 50 per cent. of young people in higher education, the Secretary of State for Education and Employment will announce that three times as many 16-year-olds will, from this autumn, benefit from the new educational maintenance allowances, which are worth up to £30 a week, to persuade people to stay on at school. Next month, he will launch a national campaign to raise school staying-on rates.

Further announcements on the full allocation of additional moneys for education will be made by the Secretary of State, on Thursday, and by the Scottish and Welsh Administrations and the Northern Ireland Secretary. However, I can announce that, for the year from 1 April, the real-terms rise in the UK's educational expenditure will next year be 8 per cent.

After these new spending decisions, I have a decision to make on income tax. Our prudent approach allows us to repay debt, invest in public services, and cut taxes for hard-working families. So I will proceed from 6 April with our 1p cut in the basic rate of income tax, from 23p to 22p—the lowest basic tax rate for 70 years. I am also combining this cut in income tax with a further direct tax cut—a family tax cut.

Next April, for 5 million families with children, the new children's tax credit will be increased from £416 to £442. For those families, this credit will now be worth twice as much as the old married couples allowance it replaces. It reduces the family tax bill, from next April, by a total of £8.50 a week, on top of rises in child benefit. Taken with the 10p income tax rate, the 22p basic rate and the normal indexation of tax allowances and thresholds, next year's tax burden for the working family will be the lowest since 1972—a fall from the 21.5 per cent. we inherited, to 18.8 per cent.

As I said, a Budget is about priorities. A choice has been posed in these last few months between investing in a national health service financed by public expenditure with access based on need, and privatised health care dependent on private insurance. This Government are committed to a publicly funded national health service true to the original principles of its founders. Securing the long-term future of the NHS is one of the great challenges this country must and will meet.

Tomorrow, the Prime Minister will make a statement to the House on the work he and the Health Secretary will lead over the next four months on reforms and modernisation of the health service. The Government's plan, to be published in July alongside the detailed public spending allocations, will address long-standing variations in efficiency performance and health outcomes, and the right balance between preventative, primary and hospital care.

Now that the overall public spending total is set for the years until 2004, I have decided that we can back long-term reform with long-term resources for the health service by today announcing the NHS allocations not just for one year, but for the next four years.

Since its creation, national health service spending has risen by an average 3.3 per cent. a year above inflation. Under the last Government, it rose by 2.9 per cent.

872 We have decided that in the years from now until 2004 the NHS will grow by twice as much—by 6.1 per cent. a year over and above inflation; by far the largest sustained increase in NHS funding of any period in its 50-year history.

Last year, the equivalent of just over £1,850 per household was spent on the NHS. By 2004, more than £2,800 per household will be spent—half as much again for health care for every family in the country.

In the last year alone, there has been an increase of 4,500 in the nurses working in the health service. This is just a start. With today's extra resources, and the reforms still to come, we can plan next year and the year after to recruit at least 10,000 more nurses, and with new money announced today, we will train and recruit even more in the years to come.

Let me emphasise that more resources must mean more reform and modernisation. The Prime Minister, in his statement to the House tomorrow, will set out how, with the guarantee of sustained investment, the Government, the professions and the whole of the NHS can come together to rise to the challenge of delivering better health care for all.

I can make one further announcement. In 10 days' time—at the beginning of the new financial year—the NHS was scheduled to have a £2.9 billion addition on last year.

I have decided that we should raise that figure with immediate effect by allocating not only the £300 million in tobacco revenues I promised last autumn, but by adding to that to achieve in total an extra £2 billion, making a rise next year of £4.9 billion—extra money the NHS can start using from 1 April.

So health service spending will rise from last year's £45.1 billion, and this year's £49.3 billion to: next year, £54.2 billion; the year after, £58.6 billion; then £63.5 billion; and then from April 2003, £68.7 billion—over these five years, a cash increase of 50 per cent., a real-terms increase of 35 per cent.

This is new money we can provide because we have made our choice. It is a Budget that unites the whole country, a Budget for all the people.

We have been prudent for a purpose: a stronger, fairer Britain. I commend this Budget to the House.