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It would not be sensible to assume that this year's surplus in receipts will be maintained in full in the medium term, but with the economy recovering in later years, together with the revenue from tax increases already announced, borrowing will fall to £131 billion in 2011-12, then to £110 billion; in 2013-14 it will be
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£89 billion; and it will reach £74 billion in 2014-15-£8 billion lower than was forecast in December. This will mean that debt is £100 billion lower by 2013-14 than was expected at the time of last year's Budget.

As a share of the economy, borrowing is forecast at 11.8 per cent. of gross domestic product this year. It will fall to 11.1 per cent. next year, then 8.5 per cent. In 2012-13 it will be 6.8 per cent., then 5.2 per cent., and fall to 4 per cent. in 2014-15. This means a reduction in the deficit from 11.8 per cent. to 5.2 per cent. It will have more than halved over a four-year period.

The structural deficit, which takes into account the economic cycle, is estimated to be 8.4 per cent. of GDP this year and to fall to 2.5 per cent. by the end of the period. That is a reduction in the structural deficit of over two thirds, removing the bulk of the structural deficit by the end of the next Parliament. And as I have said before, should the economy perform better than expected, we will be able to do more to reduce the deficit.

In 2007 Government debt as a share of the economy was lower in the UK than in every other G7 country except Canada. Debt has increased across the world as a result of this global recession. According to the International Monetary Fund, net debt as a share of GDP is expected to reach 82 per cent. in Germany, 83 per cent. in France and 85 per cent. in America. As a result of our action to support the economy, I can forecast that public sector net debt here will reach 54 per cent. of GDP this year. It will then increase to 75 per cent. by the end of the forecast period in 2014-15, but net debt as a share of GDP will begin to fall the year after that. Even at its peak, debt will be in line with the average of the G7 economies. This is the fastest deficit reduction plan of any G7 country and we will meet our statutory obligations. To start cutting now risks derailing the recovery, which is already bringing down borrowing more rapidly than expected. To go faster, in the face of uncertainty, would mean taking a huge risk with people's jobs and incomes, and with our country's future. I am not prepared to take that risk. We have worked too hard as a country to come through this recession to throw it away now.

I know there are some demanding immediate cuts to public spending. I believe that such a policy would be both wrong and dangerous.

We will need to work as hard to establish a platform for sustained growth, jobs and prosperity in the long term. Since the start of the global crisis, I have always been clear that support for the economy now must go hand in hand with a clear plan to reduce borrowing. Our plan is to reduce borrowing by £78 billion in cash terms over the next four years. We are set to achieve that goal by a combination of three elements: tax; public spending cuts; and, of course, growth in the economy.

First, on taxes, I have already made difficult decisions, and I have been guided by our values of fairness and the need not to undermine the recovery. The one penny increase in the main rate of national insurance contributions will not affect anyone earning under £20,000 a year; nor will it come into effect until April next year, by which time I expect that the recovery will be stronger and more secure. The 50 per cent. rate of income tax will
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come in next month, but it affects only those with earnings over £150,000 a year-the top 1 per cent. of earners. For people with incomes over £100,000 a year-the top 2 per cent.-we will gradually remove the value of their personal allowances. Tax relief on pensions will be restricted from next year, but again only for those with incomes above £130,000 a year.

Among all the tax rises since the beginning of this global crisis, 60 per cent. of them will be paid for by the top 5 per cent. of earners. We have not raised these taxes out of dogma or ideology; we are determined to ensure that our overall tax regime remains competitive. But I believe that those who have benefited the most from the strong growth in incomes in the past years should now pay their fair share of tax. I have no further announcements on VAT, on income tax or on national insurance rates.

I can confirm that duty on beer, wine and spirits will increase as planned from midnight on Sunday. Alcohol duties will also be increased by 2 per cent. above inflation for two further years from 2013, and the planned increase in fuel duty and landfill tax will continue for one year from 2014.

A long-standing anomaly has meant that cider has been under-taxed in comparison with other alcoholic drinks. I intend to correct that, so duty on cider will be increased by 10 per cent. above inflation from midnight on Sunday, and in September changes will be made to the definition of "cider" to ensure that specific strong ciders are taxed more appropriately.

Tobacco duty will increase from today by 1 per cent. above inflation and then increase by 2 per cent. in real terms each year until 2014. I have also decided to freeze the inheritance tax threshold for a further four years, and this will help to meet the cost of care for older people. My right hon. Friend the Secretary of State for Health will shortly set out further proposals. Altogether, our tax plans will raise £19 billion towards reducing borrowing.

The next element of our fiscal plan is to control public spending. But to cut spending now, before the recovery is self-sustaining, would be short-sighted and counter-productive. That is not just my view, but that of Governments around the world, the International Monetary Fund, the World Bank and the OECD. I know that others take an opposite view. Indeed, the House will remember that in his Budget response last year the Leader of the Opposition even then demanded immediate action to cut spending. If we had listened to him, the result would have been to deepen the recession and delay the recovery, and to see more businesses closing and many more jobs lost. As a result, borrowing would have been higher, not lower. We did not follow that course; nor did any other G20 country. Cutting support now would take demand out of the economy, pull the rug from under the recovery and delay our return to sustained growth.

So we will stick to our spending plans for next year, which will see a 2.2 per cent. real-terms increase. That will allow more time for the private sector to invest and create jobs, ensuring that the recovery will continue and strengthen. It will also mean that we can maintain the improvements that we have put in place for our front-line services over the past 13 years-improvements that have seen 118 new hospitals, 1,600 new schools, and tens of thousands of extra doctors, nurses, police and teachers.

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In December, I set out how we will protect spending on those front-line public services, on which we depend. That enabled us to guarantee NHS health checks every five years for the over-40s; referral to a cancer specialist within two weeks; extra maths and English tuition for all seven to 11-year-olds who fall behind; a place in education or training for every 16 and 17-year-old; and to maintain funding for police officer numbers. I can confirm that we will honour those guarantees.

I can also confirm that we will allocate over £4 billion from next year's reserve to fund operations in Afghanistan. I know that the whole House will want to join me again in paying tribute to the courage, commitment and professionalism of our armed forces, who represent all that is best in our country.

We can offer these guarantees for front-line services-and deliver our plan to reduce the deficit-only through continued reform and efficiencies, and through holding down increases in spending overall. If unemployment is lower than predicted, as has already been the case, the cost of paying benefits will be lower. Debt interest costs have also been lower than expected. Even so, it is clear that the next spending settlement from 2011 onwards will be very tough-it will be the toughest for decades. Even before the spending review has been held, we have already identified cuts and efficiencies of over £20 billion, through limiting pay, reducing programmes and making savings. In December, I set out savings of £4.4 billion in public sector pay and pensions by 2012-13. There will be reductions in the pay bill for senior civil servants. Overall, we intend that public pay settlements will be held at a maximum of 1 per cent. for the two years from 2011. We will also implement reforms to ensure that public pensions are affordable.

Secondly, we need to identify savings across every part of the public sector by delivering services more efficiently; they will be tough and challenging, but they are achievable. We have already saved £26.5 billion from departmental budgets between 2005 and 2008, but we need to go further. At the pre-Budget report we committed Government Departments to find over £11 billion of new savings through reforms, without damaging the front-line services. Departments will publish today details of how they will make these savings from 2011, as we work towards the spending review. We will also find savings by relocating civil servants from expensive London offices to elsewhere in the country. In the long term, I am announcing that the number of civil servants in London will be reduced by a third. As a first step, 15,000 posts will be relocated within the next five years. I can tell the House today that 1,000 posts from the Ministry of Justice will be moved out of central London, saving £41 million.

Thirdly, on top of those savings, we have already identified £5 billion of cuts in specific programmes, which were announced in December. I can confirm that they will go ahead as planned. Fourthly, it has always been our goal to reform the benefits system so that it makes work pay. The current approach to calculating housing benefit pays very high rates to a small number of tenants in expensive areas. That discourages employment and is unfair. I can tell the House that we are taking steps to address that, so from October next year the most expensive properties across the country will be excluded from the housing benefit calculation in each
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area. In addition to measures to prevent fraud and error, that will save nearly £250 million a year by the end of the forecast period.

That is over £11 billion from greater efficiencies, £5 billion from scaling back or cutting lower priorities, and over £4 billion from reducing the cost of public sector pay and pensions. In total, that is £20 billion-worth of savings to reduce borrowing and protect front-line services-even before the spending review.

There is one other area that can help to reduce Government debt. I announced at last year's Budget a programme to secure £16 billion through asset sales, and we are making considerable progress. On the student loan book, we are looking to appoint advisers in the next couple of months to develop a sales proposal. On the Tote, we are on track to launch the sale process this summer. We are also finalising options on the sale of the Dartford crossing. The proceeds from these sales will make a significant contribution to reducing debt.

The third element of our plan to reduce borrowing is economic growth. As we have already seen in the enhanced tax receipts since December, a stronger economy can make a major contribution to reducing borrowing. The raw materials to fuel growth are here in abundance. No country has more talent, and we remain the world's sixth biggest manufacturing nation. We have world-class industries, advanced manufacturing, bioscience, aerospace and the creative sector, whose products are in demand across the globe. We have worked hard to create the environment where that ingenuity and entrepreneurial flair can thrive, doubling investment in our science base, and having low interest rates and inflation and the lowest rate of corporation tax in the G7.

However, our competitors are not standing still. The opportunities and jobs of the future will come from the new markets and new locations, particularly in the east. We cannot take growth for granted. Again we have a choice: we can sit back and hope for the best or we can recognise the role that Government can play in providing a launch pad for businesses to succeed. Of course, it is the private sector, with its drive and ingenuity, that will create jobs and prosperity, but just as the Government have been critical in reducing the severity of the recession, it is the Government who have a crucial role in building our country's strengths. Together with the Secretary of State for Business Innovation and Skills, I have been working to find effective ways to enable small businesses to grow, to invest in key national infrastructure and skills, and to promote research, innovation and enterprise.

Access to finance is vital for small businesses. It was understandable that banks reduced lending to repair their balance sheets, but it caused problems for companies and the wider economy. In return for support during the financial crisis, we have made banks accept their obligations to lend more. In the past 12 months, RBS and Lloyds, which make up half the market, have lent £38 billion to small and medium-sized businesses. However, as recovery gets under way, we need to ensure that viable small and medium-sized enterprises continue to get the credit that they need. So, over the next year, I have agreed that RBS and Lloyds will provide a total of £94 billion of new business loans, with nearly half going to SMEs.

There are still companies that are unfairly denied credit and that feel powerless to challenge such decisions. I want to change that position and to give them the
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right to have their credit complaints properly examined. To help them and the economy, I will set up a new service to fast-track credit complaints from SMEs. This new credit adjudication service will examine lending decisions to see whether they are fair. It will have legal powers to enforce its judgments if it believes that credit has been wrongly denied. But, ultimately, the best way to open up credit for business is to boost competition. We have already made sure that the restructuring of Lloyds and RBS, which will see 900 branches change hands, will bring new entrants into the market. At least five new banks have already either established themselves as business lenders or are in the final stages of setting up. We want even more competition, so the Financial Services Authority will improve and speed up the licensing processes for new banks.

We want successful businesses to be able to attract equity and venture capital, as well as bank loans. The Government already offer a wide range of support for businesses to help to unlock additional private investment, but businesses find that the wide variety of options can be daunting, so we are bringing together all those initiatives under a new national investment corporation to be called UK Finance for Growth, which will streamline and improve our offer to the SME sector. The new body will oversee the Government's £4 billion range of finance support for businesses. That will also include a new growth capital fund, which will have a specific role in providing fast-growing companies with the private capital that they need. Commercial banks have so far agreed to contribute more than half of the £200 million committed to that fund. It will eventually provide £500 million of finance.

In addition, in this Budget, I am taking forward a range of proposals to help larger firms to access non-bank sources of lending. Small businesses throughout the country count central Government as one of their key clients. Building on the recommendations of the Glover review, I will increase by 15 per cent. the proportion of central Government contracts that go to small and medium-sized firms. That could mean new business worth an extra £3 billion from central Government alone and up to £15 billion across the wider public sector. In addition, we are taking steps to speed up payments to businesses from Government Departments, so that 80 per cent. of invoices will be paid within five days.

I will also provide extra support to small businesses through the tax system. The improved time to pay scheme has helped businesses to spread £5 billion-worth of tax payments over a timetable that they can afford. Between them, those businesses employ more than 1.4 million people. The extra time has also helped businesses to pay more of the tax that they owed. That double benefit has convinced me that the scheme should be extended for the whole of the next Parliament.

On top of giving small businesses more time to pay taxes, I want to reduce their taxes, and to help them invest and expand. First, business rates are a fixed cost from the moment a company moves into its premises. The Federation of Small Businesses says that that is the third biggest cost after salaries and rents. To help fledging businesses set up, as well as existing ones, I have decided to cut business rates for one year from October. That
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means a tax reduction for more than half a million small businesses in England, 345,000 of which will pay no business rates at all. That includes 90,000 industrial premises, 60,000 offices and almost 100,000 shops.

Secondly, I am determined to make sure that the tax system does not hold back decisions to invest during the economic recovery. Scrapping investment allowances, as some have proposed, in order to pay for an overall rate of corporation tax, makes no sense at all. It would mean, for example, that manufacturers and many smaller companies would see their tax bills increase, whereas banks would get a windfall profit. So, instead, I want to help small businesses to expand by doubling the annual investment allowance to £100,000. As a result, 99 per cent. of businesses will be able to deduct from their taxable profits in the first year all investments in plant and machinery.

Thirdly, I am going to make it more attractive for wealth creators and innovators to set up their own businesses. To do that, I am doubling entrepreneurs' relief for capital gains tax. At the moment, the first £1 million of lifetime gains are taxed at a lower rate of 10 per cent., rather than at the main rate of 18 per cent. That threshold will now increase to £2 million, enabling entrepreneurs to benefit more from their effort and investment. I can also confirm today that I am not increasing the main rate of capital gains tax.

Better access to finance, improved procurement, lower taxes and more time to pay-this is benefiting hundreds of thousands of small businesses and providing the backbone of future economic growth and jobs.

Investment in both traditional and new infrastructure is also vital if our economy is to grow and our businesses are to succeed. We have to move goods and people around the country and around the globe. It is no good supporting high-speed rail links in principle but declining to back plans that might lead to local controversy. The Government are taking forward plans for a high-speed rail link from London to the midlands and then to the north and Scotland. In government, we have taken the tough decisions to improve our transport links and to cut delays in our planning system. Plans for Crossrail and Heathrow, along with high-speed trains, will improve transport in this country and will support some 100,000 jobs over the coming years.

Roads, of course, are an essential part of our transport network. The bad weather of the past few months has taken a damaging toll on their condition, so I am providing £100 million to pay for repairs to local roads throughout the country and £285 million to pay for improvements in the motorway network, including by expanding capacity by allowing hard-shoulder running. For that and other measures there will be consequential provisions, where appropriate, for Scotland, Wales and Northern Ireland.

Improving our infrastructure also requires us to renew and modernise our energy supplies. Again, our competitors are not standing still. China is building a new power station every week to meet its growing energy needs. We need to take long-term decisions to secure our supplies, while moving to a low-carbon economy. That means replacing our ageing nuclear power stations and investing in renewable energy along with sustainable transport.

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