- Enterprise & productivity
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- Taxation, work and welfare
- UK economy
- Pre-Budget Report
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A year ago the Government forecast the British economy would grow at 1-1.5 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 - 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 thirty years, Britain's long term interest rates were, on average, 3 per cent higher than Germany's. Now British long term rates are down to the levels in Germany and today lower than in the USA.
Amid the risks of an uncertain and often unstable 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 mistake 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 meet our inflation target and achieve steady growth.
Our forecast is that growth this year will rise to 2.75-3.25 per cent, and next year and the year after 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.
And business investment grew by 7.7 per cent last year to 14.5 per cent of national income, with Britain since 1998 for the first time investing more of our national income than our major European competitors, and more than America.
This Budget is built on the realities of this new economy - that we will meet and master a new tide of unprecedented technological change by continuing to remove the old barriers to business investment 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 one 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 four billion pounds 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 billions 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 pounds.
A year ago I estimated that this year's current surplus would be 2.5 billion pounds.
I can report that we have not only balanced the current Budget but our current surplus this year is forecast to be 17 billion pounds.
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 pounds.
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 pounds.
Mr Deputy Speaker, we inherited a deficit of 28 billion pounds in 1997. This year we will make a debt repayment of 12 billion pounds.
Too often in the past, at the first sign of a cyclical surplus, governments have fallen back into imprudent ways.
It is because we have learned from the mistakes of the last forty years that this Government will maintain its prudent and responsible approach. The figures I am announcing today show that we will meet our fiscal rules over the 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.
After the measures I announce today our projection is for a current surplus next year of 14 billion pounds and for the years after, 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 next year, then 34, and then 33 in each of the next three years.
Net borrowing will be minus 6.5 billions next year, that is, we will make a debt repayment next year of 6.5 billion pounds.
Then net borrowing in 2001-2 will be minus 5, a debt repayment of 5 billion pounds, with net borrowing for the years after 2002-3 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, paid off 18 billions 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 3 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:
First, I announce major reforms today to reward enterprise and entrepreneurship; open up competition in banking; promote new and growing businesses and e-commerce - and 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 I set out in the Pre-Budget Report.
When we came into Government capital gains tax was fixed at 40 per cent and we cut the long term rate of capital gains tax for business assets held for ten years or more.
I have now decided to radically cut rates.
I am announcing that from 6th April this year the new capital gains 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 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 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 pounds.
I will next year raise it to 234,000 pounds. 96 per cent of people will be exempt from inheritance tax.
I have one further cut in capital gains tax to be introduced from 6th 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 new share owning democracy.
The all employee shareholding scheme which starts on 6th April 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 pounds for up to 15 employees.
And 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, our measures are the biggest boost for employee shareholding our country has seen.
The next step on our road to a wealth-owning democracy.
Yesterday in response to the Cruickshank Report, my Rt Hon Friend the Secretary for Trade and I referred small business banking to the Competition Commission.
Mr Cruickshank estimates that competition can reduce banking costs and charges by up to 10 per cent or 3 - 5 billion pounds a year.
The money transmission system affects every cheque, every credit card and every debit transaction and reaches from every local cash dispenser to every corporate inter-bank transfer.
Today I am announcing that we will legislate to ensure 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 the abolition from April 2001 of the withholding tax on the interest paid on international bonds. We will legislate so 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.
Today I 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 pounds 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 my 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 pounds I am allocating to our new research and development tax credit, introduced on 6th April, to finance 30 per cent of their R and D costs.
I want to make Britain the best environment for e commerce and catch up with America as swiftly as possible.
To encourage one million small companies to go on line, I will introduce a special tax reduction. For the next three years any small business buying computers, or investing in e commerce and new information technology, will be able to immediately 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 the Secretary for Employment is providing the University for Industry, which starts this Autumn, will 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.
And to promote the use of the Internet we will legislate for other tax cuts - a 100 pounds tax cut for electronic filing of tax and VAT returns, and a further 50 pounds tax cut for electronic filing for those paying the working families tax credit.
Tax cuts since 1997 are worth one billion pounds 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 an average tax cut of almost 25 per cent.
And 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 of the United Kingdom - a modern regional policy supporting local innovation, more 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 one billion pounds 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 East, 250 million for London and the South East. Scotland, Wales and Northern Ireland will have their own funds.
To further promote a modern regional policy, the Secretary for Industry will be announcing a regional innovation fund to facilitate the formation of local clusters in hi tech industries.
For years Britain, as a whole, has lagged behind America in business access to venture capital investment. Here only half as much is invested per head.
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-eighties was at 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 both 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 of: work, work-based training, work experience including in the voluntary sector, 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 up 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 pounds and help with rent or mortgage.
Instead of benefits paying more than work, work will now pay. And I can announce that we will extend the principle of the working families tax credit.
As a first stage, from 1st April, 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 up to 15,000 pounds a year, an extra payment of 60 pounds a week.
And building on the forthcoming rise in the national minimum wage, I am today increasing the working families tax credit. It is already being paid to one million families in our country. And with today's family tax cut, the minimum family income will rise next April - from 200 pounds a week by 7 per cent to 214 pounds a week.
Full employment is not just about the right to work, but, where there are jobs, the responsibility and the requirement to work.
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; 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 127,000 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 70-80 per cent rates of America, France and Scandinavia.
In this Budget we 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:
Just as we remove old barriers to lone parents working when their children go to school, so too 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 that he will review what improvements can be made in maternity pay and parental leave to improve family friendly employment.
But today I can announce immediate decisions which recognise the extra costs families face when a child is born.
For all low income mothers who meet the basic requirement of health check ups for their young child, we will increase the Sure-Start maternity grant from 200 to 300 pounds. 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 a child is born - this will be worth up to 30 pounds a week.
I have examined the alternative 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 pounds a year would receive 965 pounds a year. The working families tax credit is far better. With the improvements in it announced today the same couple will receive not 965 pounds a year but 2,200 pounds 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 the best anti-crime, the best anti-drugs, the best anti-unemployment and the best anti-dependency policy for this country's future.
And our strategy starts from the foundation of universal child benefit for all seven million families with children.
When we came to office, child benefit was just 11 pounds five pence for the first child.
Child benefit will be 15 pounds fifty pence from April 2001, 40 per cent more than in 1997.
For young children in the poorest families, weekly support in 1997 was just 28 pounds.
We have raised it in every Budget and today the Secretary for Social Security is announcing a further increase for the poorest children of four pounds 35 pence a week.
So maximum support is up from the 28 pounds of 1997 to up to 50 pounds a week next year.
As a result of all our measures, the poorest two child family on income support will now be 1,500 pounds a year better off than in 1997.
And the low paid family with two children on a wage of 10,000 pounds a year will now be 2,700 pounds a year better off.
This is what we mean by tackling child poverty while making work pay.
I can now report that the numbers of children lifted out of poverty will this year rise beyond one million, and next year reach 1.2 million children - the greatest
reduction in child poverty in 50 years, our country now at last fulfilling this generation's obligations to the next.
And as we move forward to take the second million children out of poverty, I can confirm today that the Secretary for Social Security 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 more than the efforts of government acting alone.
The war against child poverty can only be won by the combined efforts of private, voluntary, charitable and public sectors working together.
I can confirm that after consultation with charities and voluntary organisations we will proceed to set up, in every region of our country, and with new 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 enlists the energies and realises the idealism of more than 22 million British citizens.
It is time for Government to do more to encourage and extend this civic patriotism.
All voluntary organisations and charities will benefit from the tax reforms I am announcing to make it easier to give money and time.
From 6th April this year for every pound any taxpayer gives to charity, the Government will add an extra 28 pence.
And 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 can, from 1st April, 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.
Each of these measures will also help those charities and non-governmental organisations who, with the churches, have, for decades, led the crusade to combat Third World poverty and secure debt relief.
With these reforms, this Government matches their commitment because it shares their cause - a virtuous circle of debt reduction, poverty relief and economic development for the poorest countries.
A strong civic society takes seriously its obligations to our elderly:
The Secretary 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 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 pounds a week, or a couple with less than 150 pounds a week, would qualify for a pension credit to raise their income.
As we consult on this reform, we are making immediate changes.
The pensioners tax allowance will be set this year at 5,790 pounds and for those over 75 at 6,050 pounds.
Nearly 6 million pensioners will not pay any income tax at all.
And with the new 10p rate on savings, 1.5 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 very thrift has perversely and unfairly debarred them from receiving the income they need.
For years any pensioner with savings over 3,000 pounds has lost out on income support.
The last Government froze the limit at 3,000 pounds in 1988.
I have decided from next April to double the limit - raising it from 3,000 pounds to 6,000 pounds.
The cut off point for income support was frozen at 8,000 pounds of savings in 1990. We will raise that to 12,000 pounds.
As a result, 500,000 elderly people - previously penalised for their thrift and savings - will be on average 250 pounds a year better off, many better off by 1,000 pounds a year.
Fuel poverty scarred our country for too long. That is why in our first Budget we cut VAT on fuel; why in our second the winter allowance was introduced at 20 pounds and then in our third Budget raised to 100 pounds, available to all 8.5 million households with a resident over 60.
Under this Government the winter allowance will be paid this year and paid every year.
I have considered whether to raise the allowance in line with inflation, which would put it up to 103 pounds, or in line with earnings, which would raise it to 104 pounds fifty.
But I have decided in this Budget not to raise it by 4 or even 5 pounds but to raise it by 50 pounds to 150 pounds.
This winter allowance, at 150 pounds, will now cover up to four winter months of a hard pressed pensioner's fuel bill.
I can further announce that 600,000 of our elderly will benefit from the new 'affordable warmth' programme to install fuel efficient central heating in one million homes throughout Britain.
Beginning on 1st November all pensioners over 75 will receive the free TV licence, worth 104 pounds. And I can announce today that any pensioner over 75 who has an unexpired licence which runs beyond 1st November will also be eligible for a refund for every unexpired month.
Of all the measures to lift our poorest pensioners out of poverty, the minimum income guarantee is the most essential.
We will raise the minimum income guarantee in line with earnings next year.
For a single pensioner it will be worth 82 pounds a week, and for pensioners over the age of 80 it will be 90 pounds a week. For a couple it will be 127 pounds a week and for over-80s, 137 pounds a week.
Taking these measures together - the winter allowance, the TV licence and the higher minimum guarantee - by April next year 1 million pensioners will be, compared with 1997, 20 pounds a week, or 1,000 pounds 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.
So 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 to the first rung of the savings ladder and make provision for their future.
Today in Britain up to 3.5 million adults have no bank account. The Cruickshank Report has revealed that a basic affordable bank account for everyone would be profitable for the banks and that using banking facilities - and not the cash economy - just to pay gas and electricity bills could save families 50 pounds a year, or one pound a week.
I am now inviting the banks to work with the Post Office 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 pounds of savings. Instead, for one more year I will keep the ceiling at 7,000 pounds.
I said last November that I would, in future, make an annual Budget decision on real term 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 dollars to 30 dollars a barrel.
So, in this Budget I have decided that, beyond the automatic inflation rise of two pence a litre, there will be no real terms increase in road fuel duties.
And to encourage the use of ultra-low sulphur petrol, I will set fuel duty at 1p per litre below other petrol from 1st October.
An extension to the new lower rate vehicle excise duty comes in on 1st March next year. Until that date I have decided - for all cars - to freeze vehicle excise duty.
At present the lower rate - at 55 pounds 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 ccs or below.
This will cut vehicle excise duty to 105 pounds for 2.2 million additional cars, the reduced rate will now cover almost 4 million cars.
I am also introducing from 1st 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 today, 95 per cent of new cars will pay less than they would under the current system, half of them at least 30 pounds less.
We will also cut the vehicle excise duty for forty thousand 38 tonne and 41 tonne lorries by 500 pounds; the 40 tonne class lorries will have their rate cut by 1,800 pounds; for all other heavy lorries rates will be frozen.
The environmental impact of these tax cuts - taken together with the revenue neutral proposals for company cars - will be a reduction in carbon emissions of one million tonnes by 2010.
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 is publishing further details today.
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 will together cut employers' national insurance contributions by 1.35 billion pounds.
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 the 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. But 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 22 pence 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 1 pence a pint- and wine only by inflation, by 4 pence 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 pounds 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 pounds and there will be a new business class rate of 40 pounds.
30 million economy passengers travelling to Europe will have air passenger duty cut in half - from 10 pounds to 5 pounds. And on flights from the Scottish Highlands and islands I will abolish air passenger duty altogether.
On tobacco, 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 25 pence a packet - with every penny of the extra revenue going - as I promised - to funding our hospitals and the National Health Service.
And 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 pounds 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.
Compared to last year's Budget forecast, social security spending is lower this year by 2 billion pounds and will be another 2 billions lower next year, a saving of 4 billions 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.
And, Mr Deputy Speaker, a Budget is about priorities.
In my Pre-Budget consultations I have read carefully detailed Budget representations and examined proposals from all sides of the House.
I have examined proposals for transferable tax allowances at 4.25 billion, private health insurance tax reliefs at half a billion and 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 the tax cuts would go to the wealthiest five per cent of the population, leaving us nothing extra for public services like the NHS.
And 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 four billion pounds.
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 pounds in transport, 250 million of it to a ring fenced fund for improving roads and public transport including transport in rural areas. 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 pounds to be spent from April for fighting crime. Later this week the Home Secretary will announce further details.
And I am also announcing additional investment in UK education starting on 1st April of 1 billion pounds.
Under the Secretary for Education and Employment's leadership, 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 pounds.
Now this year more cash will go directly into the classroom.
To support the Secretary of State's drive for literacy and numeracy, every one of these 18,000 primary schools will from 1st April receive a new payment of 3,000 pounds for the smallest school and rising to 9,000 for the largest.
The money will go straight to the head teacher.
And schools offering special tuition to help the weakest pupils catch up will be able to draw on an extra 20 million pounds to boost pupil results.
The Secretary of State is proposing to back up reforms in our 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 he was able to make an extra payment for books and equipment of 2,000 pounds.
This April every one of these 3,500 secondary schools will receive a minimum payment of 30,000 pounds and the largest schools will receive 50,000 pounds.
A total of 300 million in new investment through these measures alone, money paid direct to the school and to the head teacher for use in the classroom.
And to advance our goal of 50 per cent of young people in higher education, the Secretary for Education will also announce that three times as many 16 year olds will, from this Autumn, benefit from education maintenance allowances - worth up to 30 pounds a week and that next month he will launch a national campaign to raise staying on rates.
Further announcements on the full allocation of additional money for education will be made by the Secretary of State on Thursday, and by the Scottish and Welsh Administrations and the Northern Ireland Secretary. I can announce today that for the year from 1st April the real terms rise in the UK education spending will 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. . I will proceed from 6th April with our one pence cut in the basic rate of income tax from 23 per cent to 22 per cent, the lowest basic tax rate for 70 years.
I am also combining the cut in income tax with a further tax cut - this time for families.
Next April for 5 million families with children, the new children's tax credit will be increased from 416 pounds to 442 pounds a year. For these families this credit will now be worth twice as much as the old Married Couples Allowance it replaces. And it reduces the family tax bill from April next year by a total of 8.50 pounds a week, on top of the 60p rise in child benefit this April for every mother.
Taken with the 10p income tax rate and 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 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 is 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 this House on the work he and the Health Secretary will lead over the next 4 months to reform and modernise 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.
And now that the overall public spending total is set for the years until 2004, I have decided that I can back long term reform with long term resources for the Health Service by today announcing the NHS allocation 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.
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 the 50 year history of the Health Service.
Last year the equivalent of just over 1,850 pounds per household was spent on the NHS.
By 2004 more than 2800 pounds per household will be spent on the NHS.
Half as much money again for health care for every family in our country.
In the UK there has been an increase of 4,000 in the number of nurses working in the Health Service. That was just a start. With today's extra resources, and the reforms still to come, we can plan to recruit and train up to 10,000 more nurses.
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 NHS can together 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 billions addition on last year.
I have decided to 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 pounds - making a rise next year of 4.9 billion pounds - extra money the NHS can start using from 1st April.
So health spending will rise from last year's 45.1 billion, and this year's 49.3 billion to next year: 54.2 billions; the year after 58.6 billion; then 63.5 billion; and then from April 2003, 68.7 billion pounds - over these five years a cash increase of over 50 per cent, a real terms increase of 35 per cent.
New money we can provide because we have made our choice: a Budget that unites the whole country, a Budget for all the people.
We have been prudent for a purpose: a stronger fairer Britain. And I commend this Budget to the House.