2005 Chancellor's Budget Full Speech Text The Chancellor rose to his feet at 12.30pm on 16 March 2005: "Britain is today experiencing the longest period of sustained economic growth since records began in the year seventeen hundred and one.
And the foundation of this Budget is our determination to maintain British stability and growth. Facing a future of intense global competition Britain must be prepared and be equipped: long term prosperity secured only if we make the right decisions to be world leaders in science, enterprise and education; family prosperity secured only if we also match a strong economy with investments to help parents balance work and family life, to give every child the best possible start in life, and to deliver a fair deal for pensioners.
So my Budget choice is to lock in stability and never put it at risk; and to strike the right balance between tax cuts that are affordable, investments that are essential and stability that is paramount: at all times putting Britain's hard working families first. I start with the economic forecasts.
In any other period an oil price rise of over 100 per cent and rises in industrial materials and metals of around 50 per cent would have led to a surge of British inflation. But inflation, which went as high as 20 per cent in the 1980s and 10 per cent in the early 90s - has, every year in the last eight years, been 3 per cent or less - the least volatile and most stable of all the major industrialised economies. And with Bank of England independence and continued wage discipline, I can report that inflation is today just 1.6 per cent. And we expect it to be just one and three quarters per cent this year and 2 per cent in 2006 and beyond as we continue to meet our 2 per cent inflation target.
I can also report that overall domestic demand is now forecast to continue to grow this year by three and a quarter to three and a half per cent, and by two and a half to three per cent in 2006. The key to a sustained improvement in manufacturing is the rising level of business investment - which grew by five and a quarter per cent last year and is forecast to grow by four and a quarter to four and three quarters per cent this year. And as trade and industry strengthen, we expect overall domestic investment to grow this year by six to six and a quarter per cent and exports to also rise at more than six per cent.
Before each Budget time we have heard predictions of a recession - predictions wrong in 1997, wrong in 1998, wrong in 1999, and wrong again in the years from 2000 to now. Most recently the Budget forecast for 2004 of growth at or above 3 per cent was said to be a deliberate misrepresentation of Britain's economic position. Not to meet it - it was said - would destroy credibility. I can report that growth in 2004 is as forecast - 3.1 per cent. In December I reported 49 quarters of consecutive growth.
Today I can report economic growth for the fiftieth consecutive quarter. The Budget forecast is continued growth in quarters 51, 52, 53 and 54. This year and next the euro area is forecast to grow at 1.5 per cent and then just over 2 per cent, Japan even more slowly at less than 1 per cent. Again North America and Britain will see the fastest growth in the G7. And our forecast for British growth this year is 3 to 3.5 per cent and in 2006 2.5 to 3 per cent. So it is Britain and North America that have over the last eight years grown at twice the rate of most of our G7 competitors, our living standards also rising twice as fast.
And unlike the United States, Australia, Canada and New Zealand there is no quarter in which the British economy has not registered growth. In each Budget I consider the uncertainties and risks to Britain from the world economy. Vulnerabilities come today not only from high oil prices, exchange rate volatility and current account imbalances but also from long term differential growth rates between our major continents. Always vigilant to these risks the key to British stability and growth is that we sustain for the long term low inflation and low interest rates. In the eighteen years from 1979 to 1997 inflation averaged 6 per cent. In the last eight years inflation has been 2.4 per cent - half as much.
In the eighteen years from 1979 to 1997 interest rates averaged 10.4 per cent. In the last eight years interest rates have averaged 5.3 per cent - half as much. And one fact tells the story of progress since the days of mortgage repossessions and negative equity: in the eighteen years to 1997, mortgages rates averaged 11.5 per cent, in the last eight years just 6.1 per cent - half as much. To sum up: Inflation has been the lowest for thirty years Interest rates the lowest for thirty five years Employment the highest ever and with living standards since 1997 rising on average by 3 per cent each year, Britain has today the best combination of low inflation, high employment and rising living standards in a generation. Since 1997, 150,000 more self employed, 300,000 more businesses, 1.5 million more homeowners. A 50 per cent increase in personal wealth
A doubling in the numbers of those earning over 30,000, over 50,000 and over £100,000 a year, while 2 million children and almost 2 million pensioners are no longer trapped in absolute poverty. Not that long ago Britain seemed locked in a debate not just about inflation and stop go but also about intractable levels of unemployment. Indeed in other countries high unemployment remains today the dominant economic issue. If Britain today had German, French or euro area levels of unemployment we would have 2 million fewer jobs and if we had America's higher level of unemployment, there would be one third of a million fewer jobs in Britain. The official figures published today show that since 1997 we have created two million one hundred thousand jobs. This week, every working week, another 125,000 men and women are finding new jobs, an additional 50,000 new vacancies are advertised and almost 4000 new business are starting up. And with a total of 650,000 vacant jobs needing people with skills to take them, the answer is not to abolish the New Deal which has helped 1.2 million people into work but to extend it to become a New Deal for jobs and skills.
And so the Secretary of State for Work and Pensions is today announcing new rules to encourage incapacity benefit claimants into work and reforms in housing benefit to help job creation. Building on the 40 per cent increase in the numbers of lone parents in work since 1997, we will next month extend to new areas the £2000 first year return to work bonus for lone parents. We are today announcing for areas of high ethnic minority unemployment new centres for vocational qualifications and for entrepreneurship. And alongside a new Union Learning Academy, the Secretary for Education and I are today also allocating £65 million for the coming year to employers for our successful employer training pilots. The Home Secretary is today announcing targeted early intervention for young people at risk of offending in their school years, such as mentoring or tuition, to help prevent them becoming both long term unemployed and persistent offenders later in life.
Mr Deputy Speaker, the foundation of fiscal strength and soundness is our decision in 1997 to radically reduce national debt. In one year alone Britain paid off more debt than all the debt cumulatively repaid in all the previous 50 years. And with the national debt reduced from 44 per cent of national income in 1997 to 34 per cent today, Britain now has the lowest debt burden of all our major competitors. Lower debt and lower interest rates mean debt interest payments consume a lower share of national income than at any time since 1915. Our bill for debt interest payments is now £4 billion a year less than 1997. The lowest debt interest payments for a century are matched by the lowest unemployment costs for a generation. So social security bills for unemployment have been halved since 1997, saving another £5 billions a year. As recently as 1994, 75 per cent of all new public spending went to debt interest and social security --- paying the bills of economic failure.
Today 75 per cent of new money goes to investment in hospitals, schools and public services. To build upon that fiscal discipline, I can report that following the Lyons Report on public sector assets £14 billion of asset disposals have already been identified, £4 billions to be sold this year. I can also report the first 7,800 civil service jobs to be relocated out of London and the South East to Yorkshire, South West, the North East and West, the Midlands and East England, and Scotland and Wales. I can report - ahead of target - the first £2 billion of value for money Gershon savings, on top of £2 billion savings in procurement announced in December. And I can also report - on target - the reduction of the first 12,500 civil service posts. And having examined, in detail, representations put to me, I hold to Sir Peter Gershon's recommendation that to go beyond his proposal for £21 billion savings would, in Sir Peter's words, put the delivery of front line services at risk. I turn to the fiscal figures. After all my announcements today, borrowing which in the early 1990s reached the equivalent of £90 billions, will be £34 billions this year falling to £32 billions next year, then falling again to £29 billions, falling to £27 billions, then to £24 billions and then £22 billions. The deficit for this year is now forecast to be 3.1 per cent of national income in France, 3.5 per cent in Germany, 4.1 in America and 6.4 in Japan. In Britain the figure is forecast to be 2.6 per cent, falling in successive years to 2.2, 2.0, 1.6 and 1.5 per cent of national income. And for those who take an interest in these matters I can inform the house that in every year our figures meet the Maastricht criteria. In this Budget the Treasury does not propose to initiate a further euro assessment. Our first fiscal rule is to balance the current budget over the economic cycle. For the years to 2009-10 the current balance is minus 16 billion, minus 6 billion, plus 1 billion, plus four billion, plus nine billion and plus twelve billions. So we are meeting our first fiscal rule - the golden rule - in this economic cycle with a margin of 6 billion. And our second rule - to keep debt below 40 per cent of national income - is met with a margin of 57 billions. While debt is now forecast to rise to 46 per cent of national income in America, 48 per cent in France, 57 per cent in Germany and 90 per cent in Japan, in Britain this year debt is forecast to be 34.4 per cent of our national income and in future years will be 35.5, 36.2, 36.8, 37.1 and 37.1 per cent - at all times debt below 40 per cent of national income. So with our deficits lower than our competitors, lower than a decade ago - and with our debt lower than our competitors and lower than a decade ago - we are meeting both our fiscal rules both in this economic cycle and the next.
And it is because our public finances are strong that in this Parliament we have also been able to meet the extra and unanticipated costs of Iraq, Afghanistan and the fight against terrorism - in total £4.9 billion - and today I am able to set aside for additional defence expenditure for the year ahead an extra £400 million. Those in this House who have forecast recession and those who have called our spending unaffordable have been consistently wrong and with the most recent figures published today for both economic growth and receipts, they are wrong again. Indeed those who call spending unaffordable must explain why last year, this year, next year and the year after the British deficit is lower than the projected deficits in Germany, Japan and the USA. And last year, this year and in each and every year ahead the level of British debt is also lower than debt levels in Germany, Japan and the USA. Today Britain strong among our main competitors where in the early 1990s we were weak. And it is because we have entrenched stability for the longer term that I can announce that, from May, we will now issue long term bonds with maturities for the first time in a generation of up to fifty years - only possible because of our long term stability - now locking in low borrowing costs and simultaneously benefiting taxpayers and investors. Mr Deputy Speaker, I turn now to measures for enterprise. Faced with the accelerating pace of technological change and the rapid expansion of global competition as I found in China - developing countries on course to produce half the world's manufacturing exports - Britain's economic destiny cannot be founded upon a low skilled, low tech economy but depends upon establishing British leadership in skills, science and the knowledge economy. For decades the neglect of investment damaged growth and prosperity. And today like every advanced nation Britain faces a stark economic choice: we could repeat the mistakes of the past, once again failing to invest long term in our science, infrastructure and skills, or, just as together we forged a British way to stability in the global economy, together we forge a British way to success in the new economy.
After listening to business and industry - management and workforces - I firmly believe that a shared British national purpose can be built across our country to meet the great economic challenges to our future: that we never again take risks with stability; that through greater flexibility we remove unnecessary barriers to profitable enterprise; and that we move ahead with public investments vital to business success ----- in education and our infrastructure. This Budget sets out the British way to long term stability. I will set out the right choices for Britain for investment. But first I turn to how Britain can lead the way in removing barriers to enterprise. Mr Deputy Speaker, Britain now has one of the most open competition policies in the world. We are the most active advocate of free trade. And today the enterprise challenge is to enhance the flexibility needed for a successful economy and tackle the regulatory concerns all industrial economies face while securing the standards required in a successful society. Some say the only way to cut the burdens facing business is to cut standards for consumers or employees. Today the report of Philip Hampton rejects this course. When now China has, and Hong Kong plans, a minimum wage, it is right not to diminish or destroy minimum wage protections in Britain but to uphold them. But it is also right to lessen the burden of regulation and enhance our flexibility while still ensuring high standards. So instead of a one size fits all approach which can mean that unnecessary inspections are carried out while necessary ones are not carried out, the best practice risk-based regulation now means more inspection only where there is more risk and a light and limited touch where there is less risk. Adopting, in full - and legislating for - the Hampton Review recommendations for this risk-based approach, for consumer and trading standards a single body will take over the responsibilities of the four inspection bodies we inherited in 1997. The Secretary of State for the Environment is announcing that there will now be five inspection bodies for food safety, the countryside, agriculture, animal health and environmental protection - compared with 22 separate bodies in 1997.
Five existing agencies will be merged into the Health and Safety Executive. The Insolvency Service Agency will take over the responsibilities of the DTI's Companies Investigation Branch. In total we will reduce 35 agencies to just 9 - a reduction of 26. For companies meeting high standards the Hampton Report estimates a major reduction in the number of inspections - a million fewer inspections every year, a reduction in inspections of one third. But for companies persistently breaking the rules there will be tougher penalties. Our next aim is that companies trading throughout the country and meeting the rules should no longer be subject to hundreds of different local inspections. And to reduce the burdens on business by also cutting back on the flow of regulation the Government is accepting the recommendations of the Arculus Report, published today, setting requirements for every department for year by year reductions in the burden on business. And in addition to reducing inspection bodies from 35 to just nine I can also announce a further reduction. We are today bringing forward proposals for a reduction in public sector inspectorates from 11 to 4 - with single inspectorates for criminal justice, for education and children's services, for social care and health, and for local services. The Inland Revenue and Customs will also now consult on a single tax account for small business where information need be provided only once, a single point of contact for both VAT and corporation tax, and flexible payment options.
70,000 firms no longer have to provide forms that account for every VAT transaction but make just one calculation and pay one flat rate. Working with the Chambers of Commerce we will encourage take up among the 600,000 companies now eligible to benefit from this VAT simplification. Because half the major new regulations are from the European Union we will propose the same risk based approach for Europe and to avoid what is called gold plating the Foreign Secretary is today publishing new guidelines for the implementation of EU law into the UK. But meeting the global challenge demands we match reforms improving the competitive environment with the sustained investments business is calling for in infrastructure, science and education: investments that our competitors are now making; investments which if not made would put the future prosperity and stability of our economy at risk. Mr Deputy Speaker, our aim must be that Britain becomes the world's leading location for research-based, science-based and knowledge-based industries. Stem cell research holds the key to tackling some of the world's most intractable diseases from diabetes to Parkinsons. I firmly believe that Britain can be a world leader. Building on the £40 million Research Council investment and £20 million committed by the Wellcome Trust, and supported by the new UK Stem Cell Foundation, Britain will - with a ten year development plan - create a new national network for stem cell research. The NHS is potentially the richest source of medical knowledge in the world. With the Health Secretary we are setting the goal that Britain become the world's premier location for tracking diseases and developing drugs to treat them.
Because British businesses can also be world leaders in environmentally-friendly technologies, such as in carbon capture and storage, we propose, at the request of business, to bring public and private sectors together in a new national energy research network. I also want Britain to be a world leading location for the next wave of research and development. So with Bristol, Nottingham and Birmingham today joining Newcastle Manchester and York as 'Science Cities', I intend to: after consultation, enhance the R and D tax credit for the mid sized research company; stimulate small technology intensive companies with a guaranteed £100 million share of public sector research contracts; offer funding incentives for universities opening their research facilities to business; and with regional development agencies today announcing more support for growing businesses, offer help for manufacturers on design including establishing a new Design Centre in Newcastle; and in 2000 enterprise areas the time limited incentive for commercial property purchases which will now end will be followed by a new incentive: over 3 years I will make available a total of £300 million to drive forward local business led regeneration. Having rejected the representations to reduce help for small businesses, I am not cutting small business support I am enhancing it, so that it serves all communities of our country. And I am determined that in every area of our creative industries - now 8 per cent of our national income - Britain supports the talents of our young people and promotes excellence. To promote young British entrepreneurial talent in business, we will expand our new entrepreneur scholarships and I have set aside funds to ensure that by 2006 we meet our target that every school pupil has enterprise education.
To ensure help direct for British film makers, we will replace existing reliefs with new tax reliefs for both low budget and larger budget films. To promote excellence in management and leadership within the arts - with training for the next generation of leaders - the Secretary for Culture is providing over two years an extra £12 million for the Arts Council and other arts bodies. Winning the Olympics for Britain in 2012 would itself be a major boost to British sports and the British economy. And to encourage young sports talent the Secretary for Culture is announcing a £27 million initial investment to bring private and public sectors together to create for our country a new National Sports Foundation. Mr Deputy Speaker, having doubled transport investment since 1997, and with the railways carrying more than 1 billion passengers last year, it is right to examine Britain's long term needs and priorities. And the Transport Secretary is announcing today that the outgoing Chief Executive of British Airways Rod Eddington will work with his Department and the Treasury in this task. So having announced decisions on investment I come to my decisions on tax. I have examined rates of corporation tax and capital gains tax. I have no need to raise them so I propose to freeze rates. On air passenger duty, I will freeze rates. On insurance premium tax, I propose to freeze rates. On the climate change levy and the aggregates levy, I will freeze rates. On company car tax, I will freeze rates. I will implement from midnight on Sunday the normal annual inflation rise of 1p on a pint of beer, 4p on a bottle of wine but I will freeze duty on spirits, cider and sparkling wine. My decision on cigarettes is, for public health reasons, to go ahead with the annual inflation rise of 7p a packet from 6 o'clock this evening. I have today written to the European Commission proposing that the tax free limit on goods brought into the UK from outside the European Union should rise from £145 to £1000. I will maintain the duty differential for rebated oils as we continue to tackle oils fraud and tax evasion but because of the sustained volatility in the oil market, for the third successive budget I will this year defer this and the usual inflation increase for fuel duty until September 1st. For environmental reasons, I will continue, for three years, the lower duties planned for natural gas, bioethanol, biodiesel and liquified petroleum gas. While implementing the normal inflation rise for vehicle excise duty, there will be no increase for medium sized and small cars which are more environmentally efficient - almost half our cars.
I am aligning the timing of oil companies' corporation tax payments more closely with petroleum revenue tax. Anti avoidance measures published in detail today include action against avoidance of capital gains tax, stamp duty land tax and VAT; and against schemes using financial products, double taxation relief and international arbitrage. Churches and sacred places are at the centre of our religious life and the history and the fabric of our country. I propose to extend for a further three years until 2008 the 100 per cent VAT refund for renovation of buildings and to give the same refund to the construction and repair of memorials. The whole House will wish to thank our armed forces for the service they give in peace and in war. From next month servicemen and women injured in the line of duty will be entitled to new compensation payments. Currently such compensation payments would be taxed where recipients stay on in the forces but not taxed if they leave. The Secretary for Defence is announcing that in future no serviceman or woman will be penalised when they continue to serve our country. Mr Deputy Speaker it is right to honour the life and service of the Queen Mother with a permanent memorial to her. After approval from Her Majesty the Queen I can announce that the Treasury will allocate the proceeds from a new coin celebrating the Queen's eightieth birthday to a memorial to the Queen Mother to be situated on the Mall. In the last year under the Chairmanship of Ian Russell, a Commission has examined how we can encourage young people into community service including for gap years. And I can now announce that the Heritage Lottery Fund, Sports England, the Government and the private sector are joining together to create Britain's first national community service for young people: with private finance matching public, up to £150 million to recruit one million young volunteers, matching their idealism and their willingness to serve with the needs of communities across our country and internationally. And having accepted the recommendations of the Commission for Africa we will work throughout our G8 Presidency to secure their implementation. The International Development Secretary is announcing today that by July he plans to sign new debt reduction agreements with 19 of the world's poorest countries - Britain unilaterally providing our share of 100 per cent relief on multilateral debts, the money used to fund urgently needed health and education.
Mr Deputy Speaker with both our economy and public finances strong I can afford tax cuts for hard working families. For homebuyers I propose to set a new threshold for stamp duty from midnight tonight. I will raise the residential stamp duty starting threshold, doubling it to £120,000. I will exempt more estates from inheritance tax. I will raise the starting point for tax from just over £260,000 to - from April 6th - £275,000 and, in successive years, £285,000 and then £300,000. 94 per cent of estates will pay no inheritance tax. A record 18 million people now own their own homes in the United Kingdom. But we want to do more to help young people buy their first home. So the Government proposes to match the stamp duty cut with two important public investments to encourage more homeowners. First, we propose in a new partnership with the Council for Mortgage Lenders - together typically financing 25 per cent of the purchase price - a shared equity scheme that will raise the numbers eligible for low cost homeownership schemes to 100,000 new homebuyers.