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The Prime Minister:
I think the whole House will want to pay tribute to the right hon. Gentleman for a long and distinguished career, not just in this House but in a number of forums. That includes his position as First Minister of Northern Ireland. I believe that the part he played in bringing the Unionist community together-indeed, bringing the whole community together
in Northern Ireland-to ensure that we had devolution of power, and to ensure that the process of devolution of power was completed, will adorn the history books in many decades and centuries to come. On this day and on this occasion, I want the whole House to thank him for his service to the House and to the whole community.
Q10. [323611] Mr. David S. Borrow (South Ribble) (Lab): Does my right hon. Friend agree that no Member of this House or the other place should seek to prevent, through censorship, the BBC or the Independent newspaper from questioning the involvement of Lord Ashcroft in alleged corruption scandals in the Turks and Caicos islands? [Interruption.]
The Prime Minister: They do not like hearing the name "Lord Ashcroft", Mr. Speaker, but he is chairman of the Conservative party. Perhaps the Conservatives' zeal for investigations should extend to an investigation into Lord Ashcroft.
Ways and Means
Financial Statement
Mr. Deputy Speaker (Sir Alan Haselhurst): Before I call the Chancellor of the Exchequer, it may be for the convenience of Members if I remind them that at the end of the Chancellor's speech, copies of the Budget resolutions will be available to them in the Vote Office.
12.32 pm
The Chancellor of the Exchequer (Mr. Alistair Darling): This Budget takes place as the UK is emerging from the deepest global recession for over 60 years. It has been a testing time, which has required Governments across the world to make difficult decisions and difficult choices, and to take unprecedented actions. We had to decide whether to intervene to rescue the financial system or to stand on the sidelines, and whether we should support the economy, business and families, or let the recession take its course. The record shows that the right calls were made.
Global recession has not turned into depression. Unemployment here in the UK has not risen as much as was feared. Borrowing, as I will explain later, is lower than forecast last year. But the recovery is still in its infancy, and there are equally tough choices ahead: choices that will shape our economy and society for decades to come. The task now is to bring down borrowing in a way that does not damage the recovery, or front-line services on which people depend. The challenge now is how we invest as a country to support the industries of the future and allow the talent of the British people to flourish.
At the heart of our decisions is a belief that Government should not stand aside, but should help people and business to achieve their ambitions. My Budget today builds on that belief, and on our confidence in this country. This will be a Budget to secure the recovery, to tackle borrowing, and to invest in our industrial future. It will continue targeted support for businesses and families where and when it is needed. It will set out how we will stick to our plan to halve the deficit within four years.
Our economy is at a crossroads. Having come through this global recession, this Budget will set out a route for the country to long-term prosperity. At its heart is a £2.5 billion one-off growth package to help small businesses, promote innovation, and invest in national infrastructure and key skills. This package will be paid for by switching spending from within existing allocations and the extra proceeds from the tax on bank bonuses, in line with a Budget that is balanced over the period.
The world is still recovering from the severest economic shock of our lifetime. Despite what some try to suggest, the recession has not been restricted to the UK, nor did it begin here. A storm which began in America spread rapidly around the world. It was the biggest test that countries had faced in modern times. When I presented my Budget a year ago, world leaders had just met in London to agree unprecedented action to rescue the global economy. Governments of all political colours acted to stabilise their banking systems and to use fiscal and monetary policy to boost demand and protect jobs.
Not everyone here supported the action taken, but with hindsight it is even clearer that the right calls were made: economic disaster was averted; growth has begun to return across the major world economies; and the prospects for the global economy are much more positive than they were a year ago. But there is nothing preordained about continued recovery. There are still uncertainties. Financial markets are febrile, oil prices have increased by over 50 per cent., bank credit, while improved, remains weak in many parts of the world, and confidence has not fully returned to either businesses or consumers.
That is particularly the case in Europe, which is the market for 60 per cent. of our exports. Germany saw no growth in the last quarter. Ireland, another key trading partner, has contracted by over 10 per cent. Spain is still in recession. Italy has slid back into negative growth. Unemployment at 10 per cent. across the euro area is adding to uncertainty. All these factors are having an impact, particularly on an open trading economy like the UK. So it is imperative that EU countries act with renewed energy and vigour to get the European economy moving forward again. We need to support trade, discourage protectionism and take forward structural reforms. Such continued international action is crucial not only to global prospects but to each and every country's future. Over the last two years we have been reminded of the force for good that Governments can be in protecting people. The role of government is now equally critical in regulating the global financial system and putting in the right foundations for future growth, jobs and prosperity.
The crisis in the world economy started in the banking sector, so improved global financial regulation must be the key priority. Our first test here in the UK came with the problems of Northern Rock. The Government intervened to protect savers and underpin the financial system. The unprecedented decision to nationalise a high-street bank was controversial, as was our action later that year to recapitalise the banking system. Other Governments right across the globe also acted to stabilise the financial system, and I believe this judgment has been proved correct. In the UK, the latest figures from Northern Rock show it is returning steadily to normality. RBS is now being restructured and is rebuilding. Last week Lloyds predicted a return to profitability this year. We will sell our shares in RBS and Lloyds, as well as Northern Rock, in a way that maximises value for the taxpayer and recoups the money we have invested.
We intend to get all taxpayers' money back. In the meantime, I can tell the House that the Treasury has already received over £8 billion in fees and charges from the banks, in return for our support. At the time of the pre-Budget report I put in place a one-off 50 per cent. tax on the excessive bonuses of bankers. I made it clear that banks had a choice of whether to pay bonuses or not-but that if they did, given the amount of taxpayer support that had been provided, I believed it was right that the country as a whole should benefit. I can tell the House that that tax has raised £2 billion-more than twice as much as was forecast. That is money paid by the banks, and those receiving bonuses will, of course, also have to pay income tax at the highest rate.
As well as supporting the banking system during the crisis, we need long-term reform to prevent excessive risk-taking. Under our presidency of the G20 last year, we put in place a plan to reform the international regulatory system, but we still need to do more to
strengthen global banking. The G20 countries must put in place new rules on capital and liquidity by the end of the year. We also need to reform remuneration practices, improve cross-border resolution for when banks fail, and ensure that international standards are implemented. We cannot continue with a situation where the banks are rewarded for creating excessive risk, but the taxpayer foots the bill when things go badly.
More countries now agree on the need for an international systemic tax on banks, which must be brought forward quickly, as I will urge international Finance Ministers in Washington when they meet next month. I agree with all those who think that such a tax should be internationally co-ordinated. Going it alone, as some have suggested, would costs thousands of jobs, not just in London but across the whole country. Global efforts must be complemented in each country with a drive to implement existing banking reforms, as we are doing in the UK.
As part of the reform of banking, I want to make it easier for everyone to access banking services. Since 2003, the number of people without a bank account has been halved. I can today announce that we will do more to combat financial exclusion, through a guarantee that everyone can have a basic bank account. That will mean that over the next five years up to 1 million more people will have access to bank accounts-something essential in the modern world.
We must be careful that, as banks begin to return to profit, the sense of urgency around reform is not diminished. There can be no return to business as usual for the banks, but we also must remember that their success is vital not just for the global economy but for Britain's future. London is the world's leading financial centre. Across the country, the sector supports over 1 million jobs, including in Edinburgh, Leeds, Manchester, Cardiff and other cities. A healthy, strong financial services industry is essential for our long-term prosperity.
The crisis might have started in the financial sector, but it spread rapidly to the entire global economy, underlining why intervention was essential. The impact has meant that the UK economy has contracted by around 6 per cent. over the course of the recession. That compares with 8 per cent. in Japan, 7 per cent. in Germany and 4 per cent. in the United States. Businesses in the UK have taken painful decisions. Many families have seen their incomes squeezed. Given the intensity of the global storm, no Government could prevent all jobs from being lost, or all businesses from closing.
However, I believe that Governments have the ability to act and the responsibility to reduce the length and severity of the recession, which is why we took decisive action to stimulate the economy, cutting taxes for families and business, as well as bringing forward capital spending. We also introduced initiatives such as the car scrappage scheme to protect jobs and skills. I can tell the House that this helped to drive an increase in sales of nearly 30 per cent. in the past year, and this in the middle of a recession.
Of course those decisions have a cost, but the cost would have been far greater, for families and the economy, if we had failed to act. We could have followed previous Governments and watched from the sidelines; we could have listened to those who opposed all those measures
last year. But if we had, I believe that we would still be in recession. I am also certain that the pain caused would have been worse and more widely felt.
Indeed, in the recession of the 1990s the rate of home repossessions was twice as high as now. That would have been the cost of abandoning families to their fate. Double the rate of business failures: that would have been the cost of failing to support business through this recession. And because of the policy decisions that we made, the Bank of England has been able to take decisive monetary policy action during the downturn. Interest rates have been held at record lows-below 1 per cent.-although they were at double figures for almost three years in the early 1990s. But more than anywhere else, we can see the impact of our choices in the state of the jobs market here. Unemployment has been rising in this country, as it has been around the world. Last week's figures, however, showed that UK unemployment had fallen, and is lower than unemployment in the euro area and unemployment in the United States. Even after the severity of this recession, the claimant count stands today at 1.6 million people. This compares with 3 million people in the recessions of the early 1980s and 1990s. Nor, because of a decade of welfare reform, has there been the massive increase in the numbers on inactivity benefits that we saw in the 1980s and 1990s.
I can tell the House that the claimant count today is still lower than the number we inherited in 1997. That has not happened by chance; it has happened because of the choices that we made. It is because of the tremendous efforts by business and work forces to keep people in jobs. It is also because, as the global storm hit our country, we responded with an additional £5 billion to help people find new work more quickly. We expanded the Jobcentre Plus network and offered support through the rapid response service at firms hit by redundancies.
It is clear that our approach is making a difference. Nearly 4 million people have been helped off the claimant count in the last year alone. With personalised support, around three quarters of those losing a job are leaving the claimant count within six months. Indeed, if this recession had followed the course of the last one, four times as many jobs would have disappeared.
The flexibility of the tax credits system has also provided automatic support, compensating families for loss of income due to shorter working hours and part-time working. I can tell the House that this year 440,000 families have benefited from this extra help-on average by £38 more per week-when they need it most. Despite all this support, there are groups that are likely to need more help, even as the economy recovers. For older workers, I want to extend the support provided by tax credits. To make it easier for those over 60 to receive working tax credit, we will reduce the minimum number of hours they need to work to be eligible. To enable people who want to work longer to do so, we are now consulting on reform of employers' right to make people retire at 65. We are looking at options that include scrapping the default retirement age, raising it or giving employees stronger rights.
For younger workers, I have introduced a guarantee of a job or training for every 18 to 24-year-old after six months out of work, which is already proving a success. This was to run until March next year, but with recovery still in its infancy, we should not withdraw this support
too soon. Because unemployment has been lower than forecast, the cost has been lower than expected. I have therefore decided to use the money saved to extend the guaranteed offer to young people until March 2012. So for the next two years I can guarantee that no one under 24 will need to be unemployed for longer than six months before being offered work or training: help with jobs now and, as I will outline later, help with jobs for the future.
Low mortgage rates have reduced costs for home owners, but many families still face fears over repossession. The support for mortgage interest scheme, which I enhanced during the recession, is already helping 220,000 homeowners who lost their jobs. To maintain this help during the recovery, I will continue to pay this support at the higher rate for another six months.
I am also determined to do more to help families take that first crucial step on the housing ladder. We have introduced new help through shared equity schemes, and in 2008 we also brought in a stamp duty holiday on all transactions under £175,000, which ended in December. By helping 260,000 home buyers, it supported the entire housing market when it needed it most. The housing market is now stabilised and has begun a slow recovery, but many first-time buyers, particularly those without large deposits, still find it hard to get a mortgage. I want to help them, but to do so in a way that is properly funded.
I can announce that I will double the stamp duty limit for first-time buyers from midnight tonight from £125,000 to £250,000 for this year and next. This means that nine in 10 first-time buyers will pay no stamp duty at all. But to ensure this measure does not become a burden on public finances, this relief will be funded through an increase in the stamp duty to 5 per cent. for residential property over £1 million from April next year.
Tax-free individual savings accounts have been an extraordinarily popular way to save, including for those saving for a deposit on their first home. Since their introduction in 1999, 19 million people have taken them out, saving over £270 billion. From next month, the annual ISA limit will rise from £7,200 to £10,200, of which half can be saved in cash. To help encourage saving further, I have decided that ISA limits will increase annually in line with inflation. These changes come at a time when the savings ratio has already risen strongly over the past year, to the highest it has been since 1998.
The last year has been tough for many people, but the evidence shows it would have been harder still without the choices we made and the action we took to support the economy. We need the same good judgement and decisive action to secure and strengthen the recovery, and to provide the right basis for the country to seize the opportunities ahead.
I want now to return to my forecasts. As I have said on many occasions, the world economy is still in a period of great uncertainty. In the absence of Government action to support the economy, the weakness in some of our overseas markets, particularly Europe, could result in a substantial downward revision of our growth prospects, but because of the action we have taken through the recession, and the measures that I am announcing today, I believe that only a small reduction is needed.
This year, as I said in last year's Budget speech and last year's pre-Budget report, I expect the economy to grow by between 1 and 1.5 per cent. I have decided to
revise slightly downwards my forecast for 2011 to bring it into line with those of the Bank of England, to growth of between 3 and 3.5 per cent. Projections for the public finances are based, as is normal, on the lower end of these forecast ranges. As the economy continues to rebalance following the recession, my forecast for the following years is unchanged.
We have already seen inflation rise above 3 per cent. in the first month of this year, increasing the cost of living. The inflation figures released yesterday show a rise of 3 per cent. Although high compared to recent years, this is a far lower sum than the peaks in inflation of over 10 per cent. in the 1990s and 20 per cent. in the 1980s, and as the Governor of the Bank of England has said, the present increase in inflation should be temporary, and results from the ending of the VAT cut and other one-off factors.
I want, however, to help families and business through this period, so I have decided to stage next month's increase in fuel duties. Instead of the planned increase, fuel duty will rise by a penny in April, which is less than inflation, and it will be followed by a further one penny rise in October, and the remainder in January. The staging will ease the pressure on businesses and family incomes at a time when other prices are increasing. By the time the full rise comes in at the beginning of next year, I am forecasting that inflation will be back at 2 per cent. I am today writing to the Governor of the Bank of England in the usual way to confirm that the inflation target remains unchanged at 2 per cent. With interest rates also expected to remain low and stable, this is essential for future growth.
The cost of stabilising the financial system and stimulating economies has meant an inevitable increase in Government borrowing here and around the world. This has been exacerbated by the sharp fall in tax revenues during the recession. The importance of our financial industry, which provided £1 in every £4 of corporation tax, has meant that we have been particularly badly hit. In the pre-Budget report I forecast that public sector net borrowing would reach £178 billion this year.
We now have hard data rather than forecasts on tax revenues for 11 months of this financial year, and as a direct result of the action we took in supporting the economy at a difficult time, tax receipts in December, January and February have been better than expected. More resilient consumers and retailers have meant that VAT receipts are now £3 billion higher, better company profits have led to higher corporation tax receipts, and with more people having stayed in work, income tax revenues are stronger.
These are the results of the deliberate choices we made over the last two years. At the same time, spending-including spending on benefits and tax credits-has been broadly in line with my forecast. As a result, I can tell the House that borrowing this year should now be £11 billion lower, at £167 billion. In 2010-11, in part because of one-off factors boosting receipts-such as this year's tax on bank bonuses-borrowing will be £163 billion.
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