The prosperity of this country does not stem from government but from the enterprise and initiative of the British people and of British business. A recurrent theme of the Budgets delivered by my distinguished predecessors has been the desire to create a framework in which economic decisions are taken on their own merits, and not in response to distortions created by the tax system. In continuing that tradition today, my Budget will ensure that recovery is not based on some short-term boost from Government but on the decisions taken by the private sector.
The proposals that I shall be presenting today should be seen in the context of the benefits that business will receive from the measures I announced last year. In my last Budget, I cut the main rate of corporation tax by a full two percentage points, to 33 per cent., for profits earned in the 1991 financial year. That has given Britain a lower rate of corporation tax than any of our major competitors, and I propose to leave it unchanged for the year ahead.
Because corporation tax is paid in arrears, companies will feel the full impact of last year's cut only in the coming year. Combined with the other corporation tax measures that I announced last year, it will benefit businesses by some £1 billion in 1992–93.
In my autumn statement I announced substantial increases in public sector investment. In the financial year beginning 1 April investment in roads and public transport will be £5 billion, and capital spending on the national health service will be more than £2 billion. Next year, public sector asset creation—in other words, total investment spending by the public sector—will amount to nearly £30 billion.
Over the last decade, this Government have fully demonstrated their commitment to investment in our public infrastructure. It would be wholly wrong to allow the impact of the recession on the fiscal deficit to lead to cuts in our long-term investment programmes, as occurred in the 1970s. But it would be equally wrong to expect public investment or an ever-expanding public sector to lead the recovery. The recovery will be sustainable only if it is led by the private sector. Investment does not take place in a vacuum. Good quality private-sector investment will come not from artificial subsidies or incentives but in response to consumer demand.
One suggestion that has been put to me is that I should raise first year capital allowances. I have considered this proposition very carefully. I would be as concerned as anyone if I thought that the corporation tax system introduced in 1984 was acting as a drag on profitable investment. But, on average, the current tax rules allow capital investment to be written off more quickly than economic depreciation would imply. In current circumstances, any general increase in capital allowances would primarily benefit large and profitable businesses. Moreover, given the way that the corporation tax system works, those benefits would not flow through into companies' cash flow until the year after next.
The evidence suggests that the cost of higher capital allowances to the Exchequer would be several times greater than the resulting increase in investment over the next few years. I have therefore concluded that, whatever its superficial attractions, an increase in capital allowances would not be a sensible use of the resources available.