Before I call the Chancellor of the Exchequer, it is convenient to remind hon. Members that copies of the Budget resolutions will be available in the Vote Office at the end of the Chancellor’s speech. It may also be appropriate to remind hon. Members that it is the norm not to intervene on the Chancellor of the Exchequer or the Leader of the Opposition.
This is a Budget for people who aspire to work hard and get on. It is a Budget for people who realise there are no easy answers to problems built up over many years—just the painstaking work of putting right what went so badly wrong. And together with the British people, we are, slowly but surely, fixing our country’s economic problems. We have now cut the deficit not by a quarter, but by a third. We have helped business create not a million new jobs, but one and a quarter million new jobs. We have kept interest rates at record lows.
Despite the progress we have made, there is much more to do. Today, I am going to level with people about the difficult economic circumstances we still face and the hard decisions required to deal with them. It is taking longer than anyone hoped, but we must hold to the right track. By setting free the aspirations of this nation, we will get there.
Our economic plan combines monetary activism with fiscal responsibility and supply-side reform, and today we go further on all three components of that plan: monetary, fiscal and supply-side reform. We also understand something else more fundamental. Our nation is in a global race, competing alongside new centres of enterprise around the world for investment and jobs that can move anywhere. What was the response of those who came before us? It was to expand the state in a way that we could not afford; to drive businesses overseas with taxes that became more and more uncompetitive; to let schools fail; to deplete our skills base; to let a bloated welfare system pick up the human casualties and assume that an uncontrolled banking boom would pick up the bill. To win in the global race, we are doing the exact opposite. We are building a modern, reformed state that we can afford. We are bringing businesses to our shores with competitive taxes. We are fixing the banks. We are improving our schools, our skills—[Interruption.]
Order. Obviously the country is waiting to hear the Chancellor. I certainly want to hear the Chancellor, and I am sure that most people in the Chamber also want to hear the Chancellor. Please let us hear the Chancellor.
For years people have felt that the whole system is tilted against those who did the right thing: who worked, who saved, who aspired. Those are the very people whom we must support if Britain is to have a prosperous future. This is a Budget for those who aspire to own their own home, who aspire to get their first job or to start their own business. It is a Budget for those who want to save for their retirement and provide for their children. It is a Budget for our aspiration nation.
The forecast from the independent Office for Budget Responsibility today reminds us of the economic challenge at home and abroad, but it also—[Interruption.]
Order. Let us start as we mean to go on. The shadow Chancellor may not have been the Chancellor, but he should observe the courtesies, and should know better. [Interruption.] We want no advice from the Government, and they should know better than to display it. I do not wish to see it. That is not a good position to put us in. Let us continue, and let this not become the circus of the day.
Since the autumn statement, the OBR has again revised down its forecast for global economic growth, and has sharply revised down its forecast for world trade. Growth in the United States and Japan was flat in the last quarter, while the eurozone shrank by 0.6%. That was the largest fall since the height of the financial crisis. The problems in Cyprus this week are further evidence that the crisis is not over, and the situation remains very worrying. I can confirm that, as the Prime Minister said, people sent to Cyprus to serve our country, in our military or Government, will be protected in full from any tax on their deposits.
The OBR today sharply revised down its future growth forecast for the eurozone, and expects it to remain in recession throughout this year. In its words, “the underlying situation” in the eurozone “remains very fragile”. I will be straight with the country: another bout of economic storms in the eurozone would hit Britain’s economic fortunes hard. Forty per cent. of all we export, we export to the eurozone. There is a huge effort across the Government to grow Britain’s trade with the fast-growing parts of the world, and exports to Brazil, India and China are up by almost two thirds. United Kingdom firms now export more goods to non-European Union countries than to EU countries. This is the first time that that has happened in over two decades. However, we are still very exposed to what happens on the continent. Indeed, last year domestic demand was actually stronger than forecast, but it is the weakness of net trade that helps to account for much of the weakness in GDP. As the OBR makes clear,
“the unexpectedly poor performance of exports is more than sufficient on its own to explain the shortfall”.
GDP for last year has turned out to be a little higher than the OBR forecast in December, but this year its output forecast is reduced to 0.6% growth. Despite the recession in the eurozone, the OBR’s central forecast today is that we will avoid a second quarter of negative growth here in the UK. While it is less than we would like, our growth this year and next year is forecast by the International Monetary Fund to be higher than that of France and Germany. That is a reminder of the fact that all western nations live in very challenging economic times.
The OBR expects the recovery to pick up to 1.8% in 2014, 2.3% in 2015, 2.7% in 2016, and 2.8% in 2017. Crucially, jobs are being created. Indeed, in the words of the OBR, the picture on employment
“continues to surprise on the upside”
in this forecast.
When we started the unavoidable task of reducing the size of the public sector work force, some in the House expressed doubts that the private sector would be able to make up the difference. I am glad to report to the House that their lack of confidence in British businesses has been misplaced. It is a tribute to the energy and enterprise of British companies that for every one job lost in the public sector in the last year, six jobs have been created in the private sector; the employment rate has been growing faster than in the US and three times as fast as in Germany. So, despite the weaker GDP, at this Budget the OBR has now revised up further its forecasts for employment. Compared with this time last year, the OBR now expects 600,000 more jobs in 2013, and there will be 60,000 fewer people claiming unemployment benefit. We have seen more people in work than ever before, including a record number of women; there are a quarter of a million fewer workless households than two years ago; and the unemployment rate is lower than it was when we came to office.
The deficit continues to come down. Three years ago, the Government were borrowing £1 for every £4 they spent—that was completely reckless and unsustainable. We have taken many tough decisions to bring that deficit down, and we will continue to do so. The deficit has fallen from 11.2% of GDP in 2009-10 to a forecast of 7.4% this year—that is a fall of a third. It will then fall further to 6.8% next year, 5.9% in 2014-15, 5% in 2015-16 and 3.4% the following year, reaching 2.2% by 2017-18. Those numbers all exclude the transfer of the Royal Mail pension fund to the Government, which reduces the deficit still further for this year alone. It is sometimes asserted in this House that borrowing has gone up under this Government—[Interruption.] As we have just seen again. The facts show the opposite to be true. The previous Government borrowed—[Interruption.]
Order. We cannot have one side being told without the other. It is not a competition of who can shout the loudest. Let us hear the Chancellor. If you don’t want to hear your own Chancellor, I am sure your constituents would understand if you were to leave the Chamber. I suggest that nobody wants to leave the Chamber, so let us continue to hear the Chancellor of the Exchequer.
As I was saying, the facts show the opposite to be true. The previous Government borrowed £159 billion in their last year in office and this year this Government are forecast to borrow £114 billion. So that is not more borrowing—it is £45 billion a year less borrowing. Borrowing then falls from £108 billion next year, and falls again to £97 billion in 2014-15 and to £87 billion in the last year of this Parliament, before falling again to £61 billion and £42 billion in the following two years. To ensure complete transparency, the OBR publishes the numbers without the asset purchase facility cash transfers. They show that on that measure, too, borrowing is just forecast to fall.
We committed at the start of this Parliament to a fiscal mandate that said we would aim to balance the cyclically adjusted current budget over the following rolling five years. I can confirm that the OBR says we are on course to meet our fiscal mandate—and meet it one year early. However, the likelihood of meeting the supplementary debt target has deteriorated. Public sector net debt is forecast to be 75.9% of GDP this year, 79.2% next year, 82.6% the year after, 85.1% in 2015-16 and 85.6% in the year after, before falling to 84.8% in 2017-18.
In response, there are those who would want to cut much more than we are planning to and chase the debt target. I said in December that I thought that with the current weak economic conditions across Europe that would be a mistake. We have got a plan to cut our structural deficit. Our country’s credibility comes from delivering that plan, not altering it with every forecast—and that is why interest rates remain so low. Our judgment has since been supported by the International Monetary Fund, the OECD and the Governor of the Bank of England, and I do not propose to change that judgment three months later.
I have also had representations at this Budget for measures that would add £33 billion a year extra to borrowing on top of the figures I have announced. That is from people who seem to think that the way to borrow less is to borrow more. They would return us to the double-digit deficits of the last Government and give us far and away one of the highest deficits in the western world. That would pose a huge risk to the stability of the British economy, threaten a sharp rise in interest rates and leave the burden of debts to our children and our grandchildren. I will not take that gamble with the future of this country, especially when those representations came from the very same people whose previous gamble with our economy led to the mess that we are clearing up in the first place.
The spending reductions that we promised have been more than delivered. Welfare reforms have been legislated for and are taking place, and here is a clear sign of progress: the proportion of national income spent by the state has fallen from 47.4% three years ago to 43.6% today; and it is on course to reach 40.5% at the end of the period. We have set out the deficit plan, and we are delivering that plan. Taken together, the measures that I will announce today are fiscally neutral overall. Ask the British people and they will tell you: our problem as a country is not that we are taxed too little, but that the Government spend too much. I agree with them. So the tax cuts in this Budget are not borrowed; they are paid for. That is our way, and it is the only responsible way to lower taxes.
It is the central plank of our economic plan that a tough and credible fiscal policy creates the space for an active monetary policy. Recovering from the financial crisis has exposed the shortcomings of conventional monetary tools. We in Britain have had to innovate and develop new tools; so have other countries. I confirm today that the asset purchase facility will remain in place for the coming year. We are now actively considering with the Bank of England whether there are potential extensions to the successful funding for lending scheme that will boost lending still further. We are also setting out our plans for lending from our new business bank, but I want to make sure that an active monetary policy plays a full role in supporting the economy, so I am today setting out an updated remit for the Monetary Policy Committee. Alongside it, we are publishing a review of the monetary policy framework.
This Budget confirms the primacy of price stability and the inflation target in Britain’s monetary policy framework. The updated remit reaffirms the inflation target as 2% as measured by the 12-month increase in the consumer prices index. The target will apply at all times, but as we have seen over the last five years, low and stable inflation is a necessary but not sufficient condition for prosperity. The new remit explicitly tasks the MPC with setting out clearly the trade-offs that it has made in deciding how long it will be before inflation returns to target. To ensure a fuller communication between the Bank and the Treasury, I am changing the timing of the open letter system, so that when inflation is above target the Governor will write to me on the day the minutes of the next MPC meeting are published to allow for a more substantive exchange of views.
The new remit also recognises that the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy while keeping inflation stable, and it makes it clear that the committee may wish to issue explicit forward guidance, including using intermediate thresholds in order to influence expectations on the future path of interest rates. For example, that is what the US Federal Reserve has now done, making a commitment to keep interest rates low while unemployment is high, provided that inflation is not expected to rise too much. This can help the economy because it gives families planning their futures, and businesses wondering whether to invest, more confidence that interest rates will stay lower for longer. So I am asking the Monetary Policy Committee to provide an assessment of how intermediate thresholds might work in Britain, and to give that assessment in its August 2013 inflation report. That report will be the first issued under the governorship of Mark Carney. Whether intermediate thresholds are used will be an operational matter for the independent MPC. I can confirm that Mervyn King and Mark Carney have both seen the new remit and they have both agreed to it.
Active monetary policy can only operate freely when securely anchored by credible fiscal policy. That is the next component of our economic plan. We have instituted new public spending controls in government. When money is short, we make no excuses for the rigorous financial management we have run across Whitehall. Let me be clear with the House: that is one of the reasons why we have got forecast borrowing falling in this year and next. The traditional splurge of cash by Departments at the end of the financial year, just to get the money spent, has to be curtailed. And thanks to the tough financial control of my right hon. Friend the Chief Secretary, Government Departments are forecast to underspend their budgets by more than £11 billion this year. If you want to bring borrowing down, you have to control spending, and that is what we have done.
Now we want to ensure Departments have budgets that are more closely aligned to what they actually spend. So both next year and the year after, we will reduce resource departmental expenditure limits by the equivalent to a 1% reduction for most Departments. The schools and health budgets will remain protected, because our promise to our NHS is a promise we will keep. Local government and police allocations for 2013-14 have already been set out and will not be affected. We will also deliver in this coming year on this nation’s long-standing commitment to the world’s poorest to spend 0.7% of our national income on international development. We should all take pride, as I do, in this historic achievement for our country. As previously, the Department for International Development budget will be adjusted to ensure we do not spend more than 0.7%.
Departmental budgets have yet to be set for the year 2015-16, which starts before the end of this Parliament. This will be done in the spending round that will be set out on 26 June. I said last autumn that we would require around £10 billion of savings from that spending round. I confirm today that we will instead be seeking £11.5 billion of current savings. We have got to go on making difficult decisions so that Britain can live within its means. And because we make those decisions, we can get our deficit down and focus on our nation’s economic priorities.
Total managed expenditure for 2015-16 will be set at £745 billion. How the savings will be achieved will be a matter for the spending round, but existing protections apply. We are also taking steps to help all Departments to achieve the savings required. Together, my right hon. Friends the Chief Secretary and the Minister for the Cabinet Office have indentified that a further £5 billion of savings in efficiency and cutting the cost of administration can be made. This will go a huge way towards delivering the spending round in a way that saves money but protects services.
So too will action on pay. The Government will extend the restraint on public sector pay for a further year by limiting increases to an average of up to 1% in 2015-16. This will apply to the civil service and work forces with pay review bodies. Local government and devolved Administration budgets will be adjusted accordingly in the spending round. We will also seek substantial savings from what is called progression pay. These are the annual increases in the pay of some parts of the public sector. I think they are difficult to justify when others in the public sector, and millions more in the private sector, have seen pay frozen or even cut. I know that is tough, but it is fair. In difficult times with the inevitable trade-off between paying people more and saving jobs, we should put jobs first.
Today is also the 10th anniversary of the start of the Iraq war. The awarding of a posthumous Victoria Cross to Lance Corporal James Ashworth this week reminds us of the courage and sacrifice that all who serve in our armed forces are still making to defend our country. We will exempt our military from changes to progression pay. We are also accepting in full from 1 May this year the armed forces pay review body's recommended increase in the so-called X factor payment made to military personnel to recognise the particular sacrifices they make. And I can also announce that further awards from the LIBOR banking fines have gone to good military causes, with money for Combat Stress to help veterans with mental health issues and funds for Christmas boxes for all our troops on operations this year and next. Those who have paid fines in our financial sector because they demonstrated the very worst of values are paying to support those in our armed forces who demonstrate the very best of British values.
Ultimately as a country we will not be able to spend more on the services we all value, from our NHS to our armed forces, or invest in our infrastructure, unless we go on tackling the growth of spending on welfare budgets. The public spending framework introduced by the previous Government divided Government spending into two halves: fixed departmental budgets and what is called annually managed expenditure—except in practice it was annually unmanaged expenditure—and it includes almost the entire welfare budget as well as items like debt interest and payments to the EU. I can tell the House that according to the OBR forecast today, the European budget deal secured by my right hon. Friend the Prime Minister has saved Britain a total of £3.5 billion. We will now introduce a new limit on a significant proportion of annually managed expenditure. It will be set out in a way that allows the automatic stabilisers to operate, but it will bring real control to areas of public spending that had been out of control. We will set out more detail on how this new spending limit will work at the spending round in June. All decisions, on welfare, pay and Departments are tough, and they affect many people. But if we did not take them, what is a difficult situation for them and for the whole country would be very much worse.
Active monetary policy and a responsible fiscal policy are two components of our economic plan. We also need supply-side reform, to throw the full weight of our efforts behind the entrepreneurial forces in our society. Our fundamental overhaul of the planning laws are now helping homes to be built and businesses to expand. Our reform of schools, universities and apprenticeships is probably the single most important long-term economic policy we are pursuing. Our support for European free trade agreements with India, Japan and the US is a priority of our foreign policy. And we are building the most competitive tax system in the world. But now we need to do more.
First, we can provide the economy with the infrastructure it needs. We are already supporting the largest programme of investment in our railways since Victorian times, and spending more on new roads than in a generation. We are giving Britain the fastest broadband and mobile telephony in Europe. And the Treasury is now writing guarantees to major projects from supporting the regeneration of the old Battersea power station site to building the new power stations of tomorrow. We have switched billions of pounds from current to capital spending since the spending review to mitigate the sharp decline set in train by the last Government. But on existing plans, capital spending is still due to fall back in 2015-16, and I do not think that is sensible. So by using our extra savings from Government Departments, we will boost our infrastructure plans by £3 billion a year from 2015-16. That is £15 billion of extra capital spending over the next decade, because by investing in the economic arteries of this country, we will get growth flowing to every part of it. And public investment will now be higher on average as a percentage of our national income under our plans than it was in the whole period of the last Government.
In June, we will set out long-term spending plans for that long-term capital budget. And we will use the expertise of Paul Deighton, the man who delivered the Olympics and who now serves in the Treasury, to improve the capacity of Whitehall to deliver big projects and make greater use of independent advice.
The second thing we can do to support enterprise is to give our great regional cities and other local areas much greater control over their economic destiny and to back sectors that are a global success. Businesses have created more jobs in areas such as the west midlands in the first three years of this Government than they did in the first 10 years of the Labour Government. Private sector employment has been growing more quickly in the north-east, the north-west and Yorkshire than across the whole country.
But we can do much more, so I accept Michael Heseltine’s excellent idea of a single competitive pot of funding for local enterprise. I also fully endorse the report of Doug Richard to make the most of our apprenticeships. We have the second largest aerospace industry in the world. For the first time in 40 years, we manufacture for export more cars than we import, and our agritech business is at the global cutting edge. We are backing international successes like those with £1.6 billion of long-term funding for the industrial strategy that my right hon. Friend the Business Secretary launched this week.
Today we build on our new tax reliefs coming in this year for the creative industries such as high-end television and animation with new support for our world-class visual effects sector. To help small firms, we will increase fivefold the value of Government procurement budgets spent through the small business research initiative. We will fund the proposal to make growth vouchers available to small firms seeking advice on how to expand. We are putting new controls on what regulators can charge and giving the Pensions Regulator a new requirement to have regard to the growth prospects of employers.
A vital sector for our economy, and a cost of doing business for everyone, is energy. Creating a low-carbon economy should be done in a way that creates jobs, rather than costing them. The granting of planning permission yesterday at Hinkley Point was a major step forward for new nuclear. Today, with the help of my hon. Friend the Energy Minister, we are also announcing our intention to take two major carbon capture and storage projects to the next stage of development. We will support the manufacture of ultra-low emissions vehicles in Britain with new tax incentives. The hon. Member for Stoke-on-Trent Central (Tristram Hunt) has argued passionately, and on this occasion in a non-partisan way, about the damage that energy costs are doing to his city’s famous ceramics industry. He has persuaded me, so from next year we will exempt the industrial processes for that industry and some others from the climate change levy.
In the spending round, we will provide support for energy-intensive industries beyond 2015. For the North sea, we will this year sign contracts for future decommissioning relief, the expectation of which is already increasing investment there. But I also want Britain to tap into new sources of low-cost energy such as shale gas, so I am introducing a generous new tax regime, including a shale gas field allowance, to promote early investment. By the summer, new planning guidance will be available alongside specific proposals to allow local communities to benefit. Shale gas is part of the future, and we will make it happen.
We can help companies grow and succeed by building infrastructure, backing local enterprise and supporting successful sectors, but nothing beats having the most competitive business tax system of any major economy in the world. That is what this Government set out to achieve. That is what we are delivering. The accountants KPMG does a survey of investors that ranks the most competitive tax regimes in the world. Three years ago we were near the bottom of that table; now we are at the top. But in this global race we cannot stand still, so today we step up the pace. Our seed enterprise investment scheme offers generous incentives to investors in start-ups. My hon. Friend the Member for Braintree (Mr Newmark) and David Young have done a great job helping to promote it across the country. They have asked me to extend the capital gains tax holiday, and I will.
Employee ownership helps create an enterprise culture, so we are making our new employee shareholder status more generous, with national insurance contributions and income tax relief, and we are introducing capital gains tax relief for sales of businesses to their employees. Companies that look after their employees and help them return to work after periods of sickness will also get new help through the tax system, and we will double to £10,000 the size of the loans that employers can offer tax free to pay for items such as season tickets for commuters. That is a great idea from my hon. Friend the Member for Witham (Priti Patel) and I am happy to put it into practice. My hon. Friend the Member for Enfield North (Nick de Bois) and others have put forward proposals to help investment in social enterprises, and I have listened. We will introduce a new tax relief to encourage private investment in these social enterprises.
Research and development is absolutely central to Britain’s economic future, so today I am increasing the rate of the above-the-line R and D credit to 10%. Along with our new 10% corporation tax rate on profits from patents coming in next month, that will help make us one of the most internationally attractive places to innovate.
I also want Britain to be the place where people raise money and invest. Financial services are about much more than banking. In places such as Edinburgh and London we have a world-beating asset management industry, but they are losing business to other places in Europe. We act now with a package of measures to reverse that decline, and we will abolish the schedule 19 tax, which is payable only by UK-domiciled funds.
Many medium-sized firms and start-ups use the alternative investment market to raise funds to help them grow. Many observers of the British tax system complain that it has long been biased towards debt financing over equity investment, so today I am abolishing altogether stamp duty on shares traded on growth markets such as AIM. In parts of Europe they are introducing a financial transaction tax; here in Britain we are getting rid of one. From April next year, that will directly benefit hundreds of medium-sized UK firms, lowering their cost of capital and supporting jobs and growth across the UK.
We also set out to compete with the world in our headline rate of corporation tax. In Germany, the corporate tax rate is 29%; in France it is 33%; in the United States it is 40%. Here in Britain we have cut corporation tax from the 28% we inherited to 21% next year. But I want to go further. Today I want us to send a message to anyone who wants to invest and create jobs here that Britain is open for business, so in April 2015 we will reduce the main rate of corporation tax by another 1%. Britain will have a 20% rate of corporation tax, the lowest business tax of any major economy in the world. That is a tax cut for jobs and growth. We will have achieved in one Parliament, and in these difficult times, the largest reduction in the burden of corporation tax in our nation’s history, and with it we will achieve major simplification of our business tax system. By merging the small company and main rates at 20p, we will abolish the complex marginal relief calculations between them and give Britain a single rate of corporation tax for the first time since 1973. As with previous reductions in the corporate tax rate, I do not intend to pass the benefit on to the banking sector, so I will offset the reduction by increasing the bank levy rate next year to 0.142%.
Britain is moving to low and competitive taxes, but we should insist that people and business pay those taxes, rather than aggressively avoiding or evading them. That is the right way to succeed in the global race. Under Labour, we had the worst of both worlds: uncompetitive tax rates that were not paid. When the 50p rate was introduced, tax revenues fell by billions of pounds as the wealthy paid less. That is the wrong way round. Under this Government, the tax rates are more competitive and the wealthy pay more tax. That is the right way round. Here is an inconvenient truth for the Opposition: in every year of this Parliament the rich will pay a greater proportion of income tax revenues than in any one of the 13 years of the previous Labour Government. During those 13 years, too many people were allowed to get away with aggressive tax avoidance and abuse. They boasted that they were paying less tax then their cleaners, and Labour Members lauded them for it. We have stopped that, and that is what I call fair.
Today I am unveiling one of the largest ever packages of tax avoidance and evasion measures presented at a Budget. The details are set out in the Red Book. They include agreements with the Isle of Man, Guernsey and Jersey to bring in over £1 billion in unpaid taxes and new rules to stop the abuse of partnership rules, corporate tax losses and offshore employment intermediaries. That is another £2 billion. This year we are giving Britain its first ever general anti-abuse rule, and we will name and shame the promoters of tax avoidance schemes. My message to those who make a living advising other people how to aggressively avoid their taxes is this: this Government will not let you get away with it. This year we are leading international action on tax avoidance through our presidency of the G8 and with the OECD and the G20. We want the global rules governing the taxation of multinational firms to be updated from the 1920s, when they were first written, and made relevant to the global internet economy of the 21st century. This is the right and fair thing to do.
A tax system where people and businesses pay what is expected of them is part of the glue that holds our society together. So too is the expectation that those who work hard, who play by the rules, who save for their future and try to be independent of the state are not undermined but supported. So to the working parents struggling with the costs of child care, and the mother wondering whether it makes financial sense to get a job, we offer this: tax-free child care. The plans were set out yesterday: new tax-free child care vouchers for working families, with 20% off the first £6,000 of your child care costs for each child, and increased child care support for those low-income working families on universal credit.
For those who aspire to put aside money for their retirement, we offer this: a simple, flat-rate pension accessible to everyone and worth £144 a week. Any one pound you save will be a pound you can keep. We are bringing forward the introduction of the new single-tier pension to 2016. It will help the low-paid, the self-employed, and millions of women most of all. Of course, if there is no longer the old state second pension, there is no longer anything to contract out of. For employers, that means paying the same employer national insurance as those without defined-benefit schemes. Private sector employers can adjust their pension benefits to accommodate the extra cost; public sector employers will have to absorb the burden, as is always the case with tax changes. Any spending review in the next Parliament will of course take the £3.3 billion cost into account.
As we have already made clear, public sector employees, and the relatively small number of private sector employees in defined benefit schemes, will from 2016 pay more national insurance then they do today. They will pay the same rate of national insurance as the rest of the working population, and in return they will get a larger state pension than before. For example, someone who is 40 years old when the single-tier pension is introduced, and who has always been contracted out, will pay an extra £6,000 in national insurance over the rest of their working life—and in return get an extra £24,000 in state pension over the course of their retirement. That is a fair deal, and it is a progressive pension reform. We have also made it clear before that the extra £1.6 billion raised in employee national insurance will not be kept by the Treasury.
There is another group of savers I want to talk about today. I am proud to have been part of a Government who have helped to compensate the policyholders of Equitable Life, who have suffered a great injustice. But we have not extended help to those who bought their with-profits annuity before 1992. Now we can. I would like to acknowledge the work of my hon. Friend the Member for Harrow East (Bob Blackman) on behalf of these people. We will make ex gratia payments of £5,000 to those elderly policyholders, and we will make an extra £5,000 available to those on the lowest incomes who are on pension credit. We are not doing this because we are legally obliged to; we are doing it because, quite simply, it is the right thing to do.
Helping with aspiration also means helping those who want to keep their home instead of having to sell it to pay for the costs of social care. That is what our new cap will deliver, as Andrew Dilnot recommended. It will also come in in 2016. It will be set to protect savings above £72,000, and we will raise the threshold for the means test on residential care from just over £23,000 to £118,000 that year too. For decades, politicians have talked of doing something for savers and those who have to sell their homes to pay for care, and yet nothing has been done—until this week.
I want to do much more, for unless we fire up the aspirations of the British people—light the fires of ambition within our nation—we are going to be out-smarted, out-competed and out-performed by others in the world who are prepared to work harder for success than we are. So this Budget makes a new offer to our aspiration nation—and what symbolises that more than the desire to own your own home? Today I can announce Help to Buy. The deposits demanded for a mortgage these days have put home ownership beyond the great majority who cannot turn to their parents for a contribution. That is not just a blow to the most human of aspirations: it is a setback for social mobility, and it has been hard on the construction industry too. This Budget proposes to put that right—and put it right in a dramatic way.
Help to Buy has two components. First, we are going to commit £3.5 billion of capital spending over the next three years to shared equity loans. From the beginning of next month, we will offer an equity loan worth up to 20% of the value of a new build home to anyone looking to move up the housing ladder. You put down a 5% deposit from your savings, and the Government will loan you a further 20%. The loan is interest free for the first five years. It is repaid when the home is sold. Previous help was available only to those who were first-time buyers and who had family incomes below £60,000. Now help is available to all buyers of newly built homes on all incomes: available to anyone looking to get on or move up the housing ladder. The only constraint will be that the home cannot be worth more than £600,000—but this covers well over 90% of all homes. It is a great deal for homebuyers; it is a great support to home builders; and because it is a financial transaction, with the taxpayer making an investment and getting a return, it will not hit our deficit.
The second part of Help to Buy is even bolder and has not been seen before in this country. We are going to help families who want a mortgage for any home they are buying, old or new, but who cannot begin to afford the kind of deposits being demanded today. We will offer a new mortgage guarantee. This will be available to lenders to help them to provide more mortgages to people who cannot afford a big deposit. These guaranteed mortgages will be available to all homeowners, subject to the usual checks on responsible lending. Using the Government’s balance sheet to back these higher loan-to-value mortgages will dramatically increase their availability. We have worked with some of the biggest mortgage lenders to get this right; and we are offering guarantees sufficient to support £130 billion of mortgages. It will be available from the start of 2014 and run for three years. A future Government would need the agreement of the Bank of England’s Financial Policy Committee if they wanted to extend it.
Help to Buy is a dramatic intervention to get our housing market moving. For newly built housing, Government will put up a fifth of the cost; and for anyone who can afford a mortgage but cannot afford a big deposit, our mortgage guarantee will help them to buy their own home. That is a good use of this Government’s fiscal credibility.
In the Budget Book we also set out more plans for housing—plans to build 15,000 more affordable homes; plans to increase fivefold the funds available for building for rent; and plans to extend the right to buy so that more tenants can buy their own home.
People also have the aspiration to keep more of what they earn. That is a difficult aspiration for any Chancellor to help with when economic times are tough and money is short, but we are doing the hard work to reduce current spending. We have set out a tough package to raise money from tax avoiders. That means that with this Budget we can stick to the path of deficit reduction, increase capital spending, and still find ways to help families.
Let me turn to duties. We inherited a fuel duty escalator from the previous Government that would have seen above-inflation increases in every year of this Parliament. We abolished the escalator and we have now frozen fuel duty for two years. This has not been easy. The Government have forgone £6 billion in revenues to date, but oil prices have risen again, family budgets are squeezed, and I hear those who want me to do more to help them get by. My hon. Friend the Member for Harlow (Robert Halfon) has again spoken up for his hard-working constituents. He has been joined by many other hon. Friends, like the hon. Member for Argyll and Bute (Mr Reid). We have all listened to the people we represent. Today I am cancelling this September’s fuel duty increase altogether. Petrol will now be 13p per litre cheaper than if we had not acted over these last two years to freeze fuel duty. For a Vauxhall Astra or a Ford Focus, that is £7 less every time you fill up.
There is another duty escalator that we also inherited from the previous Government—the annual 2% above inflation increase in alcohol. We are looking at plans to stop the biggest discounts of cheap alcohol at retailers, but responsible drinkers in our pubs should not pay the price for the problems caused by others. The sad fact is that we have lost 10,000 pubs in the UK over the past decade. Many hon. Members, such as my hon. Friend the Member for Bristol North West (Charlotte Leslie), have raised their concerns with me, and my hon. Friend the Member for Burton (Andrew Griffiths) in particular has been a committed champion of the famous brewing industry that employs many of his constituents.
I intend to maintain the planned rise for all alcohol duties, with the exception of beer. We will now scrap the beer duty escalator altogether, and instead of the 3p rise in beer duty tax planned for this year by the previous Government I am cancelling it altogether.
That is the freeze people have been campaigning for, but I am going to go one step further and cut beer duty by 1p. We are taking a penny off the pint. The cut will take effect this Sunday night and I expect it to be passed on in full to customers. All other duties will remain as previously announced.
Of course, freezing petrol duty and cutting beer duty will not transform the finances of any family, but it helps a little to have some bills that are not going up. [Interruption.]
Order. May I say to Back Benchers and to a couple of Members in particular that the panto season is not for another nine months, and if there are auditions could they take place outside the Chamber?
It helps a lot to be able to keep more of the money you earn before you pay tax on it. The Government support people who work hard and want to get on.
When we came to office the personal income tax allowance stood at under £6,500. In two weeks’ time, the allowance will reach £9,440, with the largest cash increase in its history. Twenty-four million taxpayers will see their income tax bill cut by an extra £200. More than 2 million of the lowest paid will be taken out of tax altogether.
In this Budget, the Government reconfirm their commitment to raising the personal allowance to £10,000, In fact, we go one better. We said we would raise the personal allowance to £10,000 by the end of the Parliament. Today I can confirm that we will get there next year. From 2014, there will be no income tax at all on the first £10,000 of your salary—£10,000 of tax-free earning. That is £700 less in tax for working families than when this Government came to office. Almost 3 million of the lowest paid will pay no income tax at all. It is a historic achievement for this Government and for hard-working families across the country.
I am aware that the concept of a 10p tax rate has caused problems for Labour Members. First, they introduced it before deciding that introducing it was a mistake and that it ought to be abolished. Then they decided that abolishing it was a mistake and that they ought to introduce it again. To put them out of their misery, we are going to turn their 10p band into a 0p band, so they do not have to worry about it any more. Every person who is paying at the 10p rate that Labour doubled will now pay no income tax at all.
There is one final tax change that I want to tell the House about. It is about jobs. In the end, aspiration is about living in a country where people can get jobs and fulfil their dreams. The ending of contracting out that I talked about generates extra employee national insurance revenues for the Exchequer. I want to put those revenues to good use. I want to support jobs and the small businesses that create them, and I want to do it with a reforming tax cut. In fact, it is the largest tax cut in this Budget.
The cost of employing people is a burden on small firms. It is a real barrier to taking an extra person on. To help create jobs and back small businesses in this country, I am today creating the employment allowance. The employment allowance will work by taking the first £2,000 off the employer national insurance bill of every company. It is a tax off jobs. It is worth up to £2,000 to every business in the country. It will mean that 450,000 small businesses—one third of all employers in the country—will pay no jobs tax at all.
For the person who has set up their own business and is thinking about taking on their first employee, a huge barrier will be removed. They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax. Ninety-eight per cent. of the benefit of this employment allowance will go to small and medium-sized enterprises. It will become available in April next year, once the legislation has passed. We will also make it available to charities and community sports clubs. The previous Government’s answer to Britain’s economic problems was to propose a tax on jobs. We stopped that and today this Government are taking tax off jobs.
A new employment allowance that helps small firms, a 20% rate of corporation tax and a £10,000 personal allowance are major achievements delivered by this Government in difficult times.
We understand that the way to restore our economic prosperity is to energise the aspirations of the British people. If you want to own your own home, if you want help with your child care bills, if you want to start your own business or give someone a job, if you want to save for your retirement and leave your home to your children, and if you want to work hard and get on, we are on your side. This is a Budget that does not duck our nation’s problems; it confronts them head on. It is a Budget for an aspiration nation. It is a Budget that wants to be prosperous, solvent and free, and I commend it to the House. [Interruption.]
Order. If Members want to debate the Budget, we had better make some progress.