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We know extra savings are achievable because independent reviewers have identified new efficiencies across public sector operations, coming through lowering the cost of back-office operations, better procurement, and examining property holdings and asset sales. By continuing to make efficiency savings, we can help to
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fund the action needed to help families and business, but we will also ensure that spending continues to rise from £584 billion last year to £682 billion by 2010-11. In the next spending review thereafter, we will continue to put money into public services and investment, to maintain the gains of the last decade, by increasing current spending by an average 1.2 per cent in real terms. As businesses and families across the country watch what they spend, it is only right that the Government work even harder to make savings.

I now want to turn to a wide range of measures that I am taking to support the economy and the people of this country. They will help businesses, support home owners and boost people’s incomes now. Bringing forward capital spending on major projects supports jobs and businesses, and I want to do more. It is right that, at this time, we reprioritise investment from within the existing three-year limits, so that more money is being spent now, when the economy is weaker.

I can announce today that £3 billion of capital spending will be brought forward from 2010-11 to this year and next. That money will be used to increase capacity in the motorway network, improve and build new social housing, renew primary and secondary schools, and invest in energy efficiency measures. I have looked at these programmes in detail, and I know that they can be delivered on this revised time scale. It will put people to work; it will renovate infrastructure; and it will modernise schools and create more fuel-efficient homes. That is all vital for the future prosperity of the country, supporting jobs in key industries. It is only possible because I am prepared to take action now.

This spending will help to put the money into the economy in the coming months, but to prevent the recession from deepening, we also need to take action to put money into the economy immediately. I have looked at a wide range of ways in which we might achieve this. I have decided that the best and fairest approach is a measure which will help everyone, including millions of households that pay no direct tax at all, and it is to deliver a much-needed extra injection of spending into the economy right now. I therefore propose to cut VAT from 171/2 to 15 per cent. until the end of next year. This reduction will come into effect next Monday, 1 December. It will continue for 13 months before returning to the present level of 171/2 per cent. at the beginning of 2010, by which time we expect the recovery to be under way. This temporary reduction is equivalent to the Government giving back some £121/2 billion to consumers to boost the economy. We would like retailers to pass it on as soon as they can. It will make goods and services cheaper and, by encouraging spending, will help stimulate growth. Again, this is possible only because I have rejected advice to take no action.

I am also taking additional measures to help people on modest, low and middle incomes. In May, I announced an increase, for this year alone, in the income tax personal allowance—a benefit of £120 a year for basic-rate taxpayers. I have decided to make that temporary tax cut permanent, and I have also decided to increase it to £145 a year in April. That will benefit 22 million basic-rate taxpayers. My announcement in May helped 4.2 million households that were affected by the abolition of the 10p rate, and this announcement will help another half a million households—not just this year, but for good.


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Along with those immediate steps to help businesses and families now, I am also announcing measures to ensure sustainable public finances in the medium term. I have considered a number of options to raise revenue in future years, and I have chosen those that are fairest and affect those who have done best out of the growth of the past decade. By 2011, we expect the economy to be recovering strongly, profits to be rising and incomes to be growing at close to 4 per cent., as they have done over the past decade. Today’s pre-Budget report shows that the tax burden, as a share of gross domestic product, will fall from 36.3 per cent. last year to 35 per cent. in 2011-12. Against that background, I propose from April 2011 to increase by 1/2 per cent. all rates of national insurance contributions for both employees and employers.

To ensure that the increase does not fall on those on low or modest incomes, I have decided, at the same time, to raise the starting point for national insurance to align it with that for income tax, so that no one on under £20,000 will pay any more national insurance contributions as a result. Secondly, those with the highest incomes have seen their earnings almost double since 1996, so—again from April 2011—I intend, only on income over £150,000, to introduce a new rate of income tax of 45 per cent. This higher rate of tax will affect only the top 1 per cent. of incomes.

I also intend to withdraw the long-standing anomaly of the income tax system under which the personal allowance is worth twice as much to higher-rate than to basic-rate taxpayers. Again, I will protect those on middle incomes; this will affect only those earning over £100,000—that is, the top 2 per cent. So from April 2010, those with incomes between £100,000 and £140,000 will see the value of their personal allowance reduced, so that they get the same benefit as basic-rate taxpayers. For people with incomes above £140,000, I will withdraw the full value of that personal allowance. I also intend to maintain the ceiling on tax relief given to people with pension funds of up to £1.8 million until and including 2015-16.

The reduction in VAT lowers the amount of tax paid on tobacco, alcohol and petrol. In addition, of course, petrol prices have come down by about 7p a litre since last month alone, so I will offset the VAT reduction by increasing those duties to an amount that will keep the overall cost to consumers the same this year. Of course, if we see a stronger economy and increased tax revenues— [Interruption.]

Mr. Speaker: Order. Let the Chancellor speak.

Mr. Darling: If we see a stronger— [Interruption.]

Mr. Speaker: Order. Mr. Robathan, I expect better from the shadow deputy Chief Whip.

Mr. Darling: If we see a stronger economy and increased tax revenues, we will review whether we need to take these tax raising measures, but I believe that it is right that, as we all benefit fairly from the exceptional measures we take today, we should all share fairly the burden of the future. Taken together, these steps will ensure that
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there is extra money flowing into the economy now when it is needed most, but we can reduce borrowing as growth returns. And as a result of my decisions today to provide support now and to balance the books in the future, I will bring the current budget back into balance by 2015-16: fiscal support now and fiscal sustainability both now and in the future.

Small and medium-sized firms are the engine of our economy. They make up the vast majority of businesses and employ around 60 per cent. of the private sector work force. They also face continuing difficulties with cash flow and credit. I know that many profitable businesses are concerned that those twin problems threaten their future, and I want to help them. So, my objectives today for businesses are threefold: first, to help equip them for the challenges of the future; secondly, to improve access to credit and ease cash flow; and thirdly, to reduce burdens on them at this difficult time. I will maintain a focus on the long-term competitiveness of the UK, to increase our attractiveness as a base for global businesses. To do so, I will introduce an exemption for foreign dividends in 2009 for large and medium businesses, and improve our rules for taxing controlled foreign companies. To build on that, I have also today published an analysis of the long-term global trends impacting on the UK economy, and the Government’s response to them.

Small businesses need help to reduce their costs, and I have two announcements to ensure that they receive this help. First, to help small firms meet their running costs, I can announce a temporary increase in the threshold for empty property relief. From 2009-10, all empty commercial properties with a rateable value below £15,000 will be exempt from business rates. This exemption covers an estimated 70 per cent. of all empty properties.

Secondly, at this time of real difficulties for many small businesses, they need time to pay when meeting their tax bills, and I intend to meet that need. From today, Her Majesty’s Revenue and Customs will enable firms facing difficulties to spread their tax on a timetable that they can afford. This will cover not just VAT, as some have suggested, but all business taxes—VAT, corporation tax, income tax and national insurance; and not for six months, but for as long as they need. That is real help when businesses need it most. I will also allow several hundred businesses in ports to spread out their payment of backdated business rate bills.

We must continue to address the difficulty that many small and medium-sized firms face in getting loans. As part of the recapitalisation scheme, we agreed that banks receiving Government funding would maintain the availability of lending to small and medium-sized enterprises at 2007 levels, and I welcome the commitment announced at the weekend by Royal Bank of Scotland, one of the recapitalised banks, not to increase pricing on SME overdraft prices for at least a year. That will give security and reassurance to up to 1 million small businesses, and it should become the benchmark for all UK banks. We are closely monitoring the commitments given by banks to treat business customers fairly and decently, and I will take whatever action is necessary to make sure that that happens.

We are also acting directly to improve access to finance. First, we have agreed a £4 billion deal with the European Investment Bank to provide money to the
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banks to pass on to small and medium-sized enterprises, and I can report today that seven UK banks have already asked the EIB for that money, and £1 billion will be available to their customers by the end of this year.

Next, I can also announce that the Government are able to offer credit through a temporary small business finance scheme, and that is worth another £1 billion to small businesses. It should allow small businesses to borrow sums from £1,000 to £1 million on more flexible terms than before, making lending more affordable and easily accessible. That will help SMEs experiencing short-term cash-flow problems to get the funding that they need. We are also going to support companies that export, through the Export Credits Guarantee Department. From January, it will offer a temporary facility to support the availability of short-term working capital for smaller exporters, and that will mean yet another £1 billion worth of support to help ease the financing constraint faced by firms trading in the current difficult circumstances. So that is real support, quickly, for all types of small business, and it is possible only because we have made a deliberate choice to support businesses through this crisis.

I have two more measures to announce to help business save tax. First, I have decided to defer the increase in the small companies rate of corporation tax that firms pay on their profits. That will provide a boost to small companies, leaving their tax rate in 2009 unchanged. Secondly, I want to support viable small companies that are finding it harder to make a profit at the moment. We already have a system of tax repayments, which are available to help those businesses, previously profitable, but now making losses. Currently, companies are able to offset losses only against profits made in the last year, but it is important to offer more support to businesses at the moment. So I am today extending this repayment scheme so that losses of up to £50,000 can be offset against profits made for the last three years. An estimated 75,000 businesses will benefit from this change, by receiving tax repayments. And of these, 90 per cent. will have their full current losses wiped out.

This is a comprehensive package of support, which business has been asking us to provide. A package to support businesses—£1 billion-worth of tax cuts and £2 billion in loan guarantees, along with £4 billion of European money. That is a £7 billion package of measures—real help. It is funding that we can provide because we have decided to take action to support our economy through this recession.

I believe that these steps will help businesses through their current difficulties and enable them to invest so that they can make the most of the opportunities that will arise when the global economy recovers. I am also determined that the present economic uncertainty will not push aside the importance of protecting the environment and our long-term needs for a greener and secure energy future. We are already on track to exceed our emissions reduction targets under the Kyoto protocol, and we are further ahead than all the other G7 countries. We have now increased our commitment for emissions reductions to be at least 80 per cent. by 2050—by far the most ambitious in the G7. Through the Climate Change Bill and the new five-year carbon budgets, the UK becomes the only country in the world where legislation sets a binding commitment to cut emissions. The
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Government will set out detailed proposals for meeting that new carbon budget, laid before Parliament in the summer of next year.

Our climate change strategy is based on a range of policies—encouraging more fuel-efficient businesses and transport; better energy use at home; and targets for renewable energy generation. Central to that is the European Union emissions trading scheme. Last week, we conducted the first auction of carbon allowances in Europe, which gives firms the incentive to cut overall emissions. As the Government have demanded, aviation will now be included in the emissions trading scheme from 2012. That is a major step towards achieving our environmental objective of reducing the impact of aviation on climate change. It has enabled me to look again at our proposals for reforming air passenger duty.

Last year, there was cross-party support for a reform of air passenger duty and converting it to a tax per plane. Much as I am in favour of a bipartisan approach, it seems in this case not to have reached the right conclusion. I believe that this proposal could harm the aviation industry at a time when it is facing huge problems. So instead, I have decided to reform air passenger duty into a four-band tax system, ensuring that those who travel further and have a larger environmental impact meet the cost. I believe that this will be a better and more effective way of reducing emissions from aviation.

Improving insulation and energy efficiency will also help us reduce emissions, as well as cutting energy bills for families. In September, we announced a £6.8 billion home energy-saving programme. This is expected to lead to a 70 per cent. increase in installation rates for cavity wall and loft insulations this winter. The Warm Front scheme has already used its additional £50 million to help modest-income households get free energy efficiency measures. Today I can announce that I am providing an additional £100 million in new money and bringing forward another £50 million, to help up to 60,000 more households insulate their homes.

The most pressing energy problem for many families is paying heating bills. We have already tripled cold weather payments for this year, up to £25 a week, for those on modest incomes. But I know that there is widespread concern that the fall in the price of wholesale energy has not been reflected quickly enough in reduced household bills. I can tell the House that Ofgem, the regulator, is to monitor price changes and publish quarterly reports detailing the link between wholesale and retail prices. Alongside that, if sufficient progress is not made in the next few months in closing gaps in pricing between payment methods, the Government will use statutory powers to end unjustifiable pricing differentials.

Oil and gas from the North sea remain an important part of our energy supply. I am consulting closely with the industry over how, together, we can put in place the right incentives to increase production from marginal oil fields.

The economic recovery must support our environmental objectives, and not come at their expense. Government policies will drive more than £50 billion of investment and activity in the low-carbon sector over the next three years. This year, we became the world leader in offshore wind energy capacity, but we must make even more of our transition to a low-carbon world. As part of our
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commitment to bring forward capital spending, the Government will invest £535 million more quickly on energy efficiency, rail transport, and environmental protection. That will mean more homes benefiting from better heating and insulation, better flood defences as well as 200 additional trains. That is one of the many steps we are taking to secure high-value green-collar jobs—a potential 1 million jobs in the low-carbon industries in the next 20 years.

I have one further announcement in this context. Renewable energy, along with nuclear power, will play an increasing role in meeting our energy future. I can announce today that the Government will, therefore, extend the renewables obligation for an additional 10 years to 2037. By requiring energy companies to generate a share of energy from renewable sources, that obligation will underpin investor confidence and support the development of renewable energy. We are taking the right long-term decisions to protect the environment, to ensure low-carbon jobs, and to provide energy security.

I also want to take steps to improve the supply of mortgages, to avoid repossessions, and to increase the number of new homes. Today, I can set out proposals to do that. The current problems in the housing market are a result of the credit crisis, which has drastically reduced the opportunities for people to get a mortgage loan. Last month, we took decisive action to recapitalise the banks so that they could maintain the availability of lending, including mortgages. Today, I welcome the publication of Sir James Crosby’s report on finance in the mortgage markets. His principal recommendation is that the Government should support the mortgage market by providing, for a temporary period, guarantees for securities backed by new mortgages. I share Sir James’s concerns about the availability of mortgage finance. To implement his recommendation, the Government would need to obtain state aid approval from the European Commission and resolve some of the technical and practical considerations. However, we will work up a detailed scheme based on his recommendations and seek state aid approval to proceed. I will also take into consideration the interaction between that proposal and the credit guarantee scheme, and I will report back by the time of the Budget.

I am also setting up a new body, a lending panel, which will monitor lending both to businesses and households. It will bring together the Government, lenders, trade bodies, consumer groups, regulators and the Bank of England to monitor lending levels and practices by the banks. We intend to consider how else we can help to ensure that those in work but facing financial difficulties can remain in their homes. It is not just the availability of new mortgages that is a problem in the housing market; it is also fears about meeting the cost of existing loans.

It is right in these cases that repossession should be the last resort, and I am pleased to say that this has been recognised by the lenders. The major lenders have agreed today that when someone is facing repayment difficulties with their home mortgage, they will wait at least three months after the borrower falls into arrears before initiating repossession proceedings. That will give many home owners time to work with lenders to find a solution. I also welcome the commitment, lenders to explore all possible options, including accepting a minimum payment, or mortgage rescue products, before and after
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home owners get into difficulty. It is also important that families worried about their finances and mortgages can get expert and impartial advice, so I am announcing today £15 million of new funding for free debt advice, available to everyone, regardless of their circumstances, and available across the whole country.

I intend to take two further steps to help home owners facing financial difficulties. First, in September we extended the support for the mortgage interest scheme, which covers mortgage interest payments for those who have lost their jobs. Today I can announce that we will increase the upper limit of that scheme for mortgages up to £200,000 from the present limit of £100,000. That will, I hope, ease worries for home owners who have lost their jobs as they look for new employment. I have also agreed that, for six months, the level of interest rates covered by the scheme will remain, despite the recent base rate fall, at just over 6 per cent.

Secondly, I can also announce new mortgage support for people in work. In September, we set up a mortgage rescue scheme, which is helping vulnerable home owners who face difficulties to stay in their homes. Today, I am extending that scheme so it will also cover those at greater risk as a result of taking out second mortgages. Together, that provides help against repossession worth £200 million.

First-time buyer demand, and long-term housing supply, are the two essential cornerstones of the housing market. In September, to boost the market as a whole, I agreed £700 million of Government spending for new social-rented homes and shared equity schemes, and we agreed that they should be brought forward to this year and the next.

Today, as part of the acceleration of capital spending, we will bring forward an additional £775 million this year and next to invest in thousands of new and modernised social homes as well as regeneration projects. Overall, this is a package of support for housing worth £1.8 billion—support that can be provided only because I have decided that we must act to give people real help. It will help home owners of today to stay in their homes, and help the home owners of tomorrow to buy their first home.

As the economy slows, it is crucial that the Government minimise the impact of that on employment. Unemployment has started to rise and people’s worries have increased about losing jobs and the difficulty of finding another one. I am determined to do what I can to ease those concerns and to help those who are made redundant move quickly into a new job.

The evidence shows that the longer people are out of work, the more difficult it becomes to re-enter the labour market. Since 1997, we have made good progress on offering people the individual support that they need to find a job. We have halved the time it takes to find new work. Even as unemployment has been rising over the last three months, 1.2 million people have found new jobs.


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