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Social Security
One third of all public spending goes on social security. Our social security system is there to provide an income when people cannot earn because of sickness, disability, unemployment, caring for relatives or old age. People on the left and the right of politics continue to search for a radically different and better way of meeting those needs in our wealthy nation. I have studied many of their proposals closely and so far, I am afraid, nobody has yet come up with anything remotely sensible or practicable.
Until people come up with a radical alternative, if they ever do, our welfare safety net must remain affordable. We must not allow the welfare state to damage the incentives of individuals or businesses in the private sector, because it is the wealth-creating enterprise economy that sustains our entire social security system.
In the post-war period social security has grown in real terms by around 5 per cent. each year. In recent Budgets we have taken action to bring that growth under control. We now expect future growth of 1½ per cent. a year--well below the growth of the economy.
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Year after year, this Government have also vigorously attacked fraud and reformed benefits to target them on those in genuine need. The measures that I now propose in this Budget intensify those efforts yet again.
We plan a further move to align the benefits paid to lone parents and couples with children, because both care for children. From April 1998, new awards of family premium and child benefit will be the same in value for lone parents as for couples. We are introducing a number of measures on housing benefit and council tax benefit to ensure that those on benefits do not have a more comfortable life style than some of those who are supporting themselves on modest incomes. The contrary would be unfair and unwise. Full details will be made available later today by my right hon. Friend the Secretary of State for Social Security who, with your permission, Mr. Deputy Speaker, will speak later in the Budget debate.
In my Budget two years ago, I announced a whole package of measures to help the unemployed get back to work--from improvements to the family credit system to national insurance holidays for employers taking on long-term unemployed people. Those are contributing to the steadily improving jobs position.
In this Budget I am providing another £100 million worth of new money for new measures mainly targeted on people who have been unemployed for two years or more. First, they will be required to attend a compulsory programme of interviews with the Employment Service to give them a helping hand to compete in our ever improving market for jobs.
We are expanding Project Work pilots to a further 28 areas. That will create up to 100,000 new opportunities, on a programme with a good track record for getting long-term unemployed people back to work. The pilots have been successful.
I can also announce pilots for a new scheme called Contract for Work. Private contractors will help people to find work. Those firms will be paid by results. As with Project Work, if the scheme works better than the existing approach, we will expand it. We have drawn on some American experience. We will adapt it to Britain and, if it works, we will widen its application. We must tackle the problem.
Dependency on welfare impoverishes us all. The welfare system should provide a safety net. It must provide the support that a caring society wants to give to our less fortunate fellow citizens. But the welfare system must never be allowed to become a way of life. We do not want our social security system to be undermined by resentment.
We have to take these careful measures. We must move people from dependency to responsibility for themselves and their families, because we are serious about protecting those in genuine need and we want to go on delivering that protection for the future.
We want to combine a strong, affordable welfare system with a successful low-tax economy. That means that when we spend money on social security, it must go only to those who need it. It also means that when we levy taxes, we must make sure that they are paid and not evaded by those who ought to pay them.
As part of our continuing fight against tax and benefit fraud and tax loopholes, I am introducing a package of measures called "spend to save". That involves the
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Inland Revenue tax experts will be redeployed to investigate even more rigorously how some big, sophisticated companies seem to pay so little tax. They will make sure that companies are paying what they owe, and what we intended they should owe. In short, we intend to do more about companies being "economical with their tax".
There will be more resources in the Revenue and Customs to stem the growth of the shadow economy. Tax cheats put law-abiding small entrepreneurs out of business, and we all lose from that. There will be more Customs and Excise officers to tackle value added tax and other tax abuse, including yet more to target the smuggling of alcohol and tobacco.
The "spend to save" package will cost £800 million over the next three years to secure, in a well-planned and measured way, revenue and expenditure savings of well over eight times that amount--£6.7 billion. These measures are additional to the effective steps that we have taken previously.
"Spend to save" protects the ordinary taxpayer and the people in genuine need of benefits. It is certainly not about more bureaucracy or more red tape.
We remain a Government committed to deregulation, and we are committed to a more efficient civil service. We have cut overall central Government Departments' running costs by 8 per cent. in real terms since the start of this Parliament and we are going to reduce them by a further 7 per cent. by the end of the decade. Civil service numbers are already below half a million, and we expect this fall to continue.
The first duty of Government is to make sure that people can live their lives as they want and that businesses can flourish. People must have the opportunity of a good quality job to go to, a good standard of living, good schools and hospitals, and safe streets to live in. It is only when those essentials are secure and only when the Government have made sure that they are not borrowing more than they should, that a responsible Government can start to think about tax cuts.
Last year I cut taxes paid by the ordinary family and this year I am able to cut a little more. I think that the message I have repeated over recent months has now been understood. If there are to be tax cuts, in my opinion they must be for keeps. That means that they must be backed not only by sound spending decisions but by a sound fiscal judgment.
Consumer spending is strong and inflation remains in check. But a fiscal stimulus to the economy at this stage could be just as damaging as letting go of monetary policy. So, in setting my Budget, I have struck a careful balance.
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I want to cut taxes, but first I have to continue my drive to secure the tax yield. I want to make sure that the tax due is turned into tax paid. The balance of the tax burden must be distributed sensibly and fairly and it must not distort decisions or competition.
I am introducing a number of measures which will help us to achieve this. I am plugging some loopholes to raise revenue, I am ending some tax reliefs that have done their job to raise revenue and I am adjusting some indirect tax rates.
Even though VAT revenues have revived in recent months, they are still coming in significantly below what was expected last year. This Budget includes a crackdown on some of the rather ingenious wheezes that have sprung up to get around paying VAT. The measures I am announcing will raise £¾ billion in revenue next year, but they also protect a further £1½ billion a year of existing revenue from further attack from ingenious accountants, acting lawfully and acting to take our revenue.
Customs will restrict access to special VAT schemes for retailers. We will also tighten up the rules of VAT relief schemes for bad debts and the option to tax commercial property to prevent widespread abuse of these reliefs. I also propose to take steps against retailers who reduce their VAT bills when selling insurance with their products.
We have already announced a three-year limit on repayments of VAT claims. This was a sensible precautionary measure in the national interest--not just that of the Exchequer. Recent high-profile court cases have revealed the potential exposure of the Exchequer to enormous claims for tax going back to when VAT was first introduced. No responsible Government could leave the Exchequer and, ultimately, all taxpayers exposed in that way. Government needs to strike a balance between what is fair to the individual taxpayer, and what is fair to the whole body of other taxpayers. The three-year cap that I have announced strikes that balance.
But one feature that attracted particular criticism from not only accountants and their clients but others was that Customs and Excise retains the right to claim underpaid tax going back six years. That argument was rather disingenuous, because Customs and Excise does not claim underpaid tax on unexpected changes to the interpretation of the law when they go against taxpayers. However, Government must not only be fair--it must be seen to be fair. I have, therefore, decided that Customs' right to claim underpaid tax, in cases where no fraud or malpractice is involved, should be restricted to three years as well.
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