The Secretary of state was asked—

[Relevant documents: The Second Report from the Treasury Committee, Session 1998–99, on the World Economy and the Pre-Budget Report (HC 91-I), and the Fourth Report from the Environmental Audit Committee, Session 1998–99, on the Pre-Budget Report (HC 93).]

3.31 pm

Two years ago, Britain faced the threat of rapidly rising inflation. So our first priority, and our continuing obligation, has been, and is, to build a solid foundation of economic stability.

We took decisive action in 1997 and 1998 and, as a result, inflation is under control and for the last seven months has been at or around 2 ½ per cent.

In the 1980s, inflation went as high as 21 per cent. Our forecast is for inflation of 2 ½ per cent. this year, next year and the year after. For the first time in our generation, Britain can look forward to sustained low inflation.

In our first week in government, we made the Bank of England independent, freeing monetary policy from the politically driven control that, in the last economic cycle, led to 15 per cent. interest rates for an entire year and interest rates at 10 per cent. or more for four years.

Now, because together we are steering a course of stability, long-term interest rates have come down from over 7 per cent. in May 1997 to 4 ½ per cent. now—our lowest long-term interest rates for 40 years.

And, after five interest rate cuts in five months, saving the typical home owner around £900 a year on their mortgage, Britain now has the lowest mortgage rates in 33 years.

All of this has happened against a background of great uncertainties in the global economy. One quarter of the world is now in recession. World growth has been cut in half. World export growth has fallen even faster. And, as a result of failures in many of east Asia's economies, our exports to them have fallen by more than 50 per cent.

And this year, as trade imbalances worsen, and threats of protectionism grow, it will be even more important to hold to our course of stability. Britain, with other G7 nations, has rightly assumed a leadership role to address the root causes and contain the spread of future global crises.

The storms may come again. But, because of what we have done, our economy is now better prepared to weather them.

With public investment now set to rise and interest rates coming down, both at precisely the right time in the economic cycle, Britain's fiscal and monetary policies— often at odds in previous economic cycles—are now working together to promote growth with low inflation.

I can confirm our growth estimate for 1999 of 1 per cent. to 1½ per cent. which is what I told the House in November, followed by stronger growth—in 2000 of 2¼ per cent. to 2¾ per cent. and then in 2001 of 2¾ per cent. to 3¼ per cent.

Despite world conditions, more men and women are in jobs in Britain than at any time in our history, and unemployment in the last year has been at its lowest rate for 20 years. Since May 1997, youth unemployment has fallen by 57 per cent, and long-term unemployment has been cut in half.

And because more lone parents are now in work, the numbers claiming out-of-work benefit—rising for 30 years, over 1 million when we took office—have now fallen by nearly 100,000.

As we entered office, we also inherited a Budget deficit of £28 billion.

We said in our manifesto we would work within the existing spending plans for our first two years.

In our first year, the deficit was reduced by £19 billion.

In my Budget last year, I promised we would reduce the deficit further.

As a result of our prudence, our first two years' spending is £2 billion lower than the spending plans we inherited.

This year, the Budget will be in surplus. The current surplus this year is forecast to be £4 billion. Public sector net borrowing will be in surplus by £1 billion—in contrast to the £28 billion deficit we inherited.

I am determined to continue locking in this fiscal tightening for the years to come so that we continue to meet our fiscal rules and so deliver sound public finances. I have had to offset the impact of slower world growth on corporate tax revenues and lower indirect tax revenues.

But, as a result of sound economic management, debt interest payments next year have been cut by £2½ billion from their previous forecast and, in total, debt interest payments have been cut by £4 billion over the next three years.

Because less of our social security budget is being wasted on paying for past failures in employment policy, social security spending as a whole has not been rising as in previous years. And, over the next three years, social security spending, including unemployment—even after adjusting for the economic cycle—is set to be significantly lower than previously forecast, freeing resources for new help for families and pensioners.

At the time of the comprehensive spending review last July, there were those who said that we could not afford the £40 billion for new investment in health and education and still meet our fiscal rules.

I can report that the entire £40 billion of investment in health and in education will be fully delivered, and will be delivered fully within our fiscal rules. Not only that, but still meeting the test of fiscal prudence, I will today allocate from our capital modernisation fund even more investment for hospitals and schools.

And, still meeting that test of fiscal prudence, I will be able to afford tax cuts to reward work, encourage enterprise and strengthen the family.

Even after all the measures in today's Budget, next year's current surplus is expected to be £1 billion higher than previously forecast and £1 billion more in 2000–01. For the coming five years, the current surpluses are forecast to be—successively—£2 billion, £4 billion, £8 billion, £9 billion and £11 billion.

In line with our golden rule, even under our most cautious assumptions, we are balancing the current Budget over the economic cycle and, for the first time in a generation, we are eliminating the current structural deficit.

We are also meeting the second fiscal rule, that of sustainable investment—a prudent ratio of debt to GDP.

Debt as a proportion of national income has fallen from the 44 per cent. that we inherited to under 41 per cent. this year, and it will fall below 40 per cent. to 39½ per cent. next year, then to 38 per cent, and then to 37 per cent. in 2001–02.

Britain's fiscal position is therefore not only sound today, but on the soundest possible footing for the long term.

For the coming five years, the estimated current Budget surplus totals £34 billion, in contrast with the last Government's deficit over the last economic cycle of minus £149 billion and their doubling of the national debt.

For those who take a special interest in European issues, in particular the Maastricht treaty, I can confirm that Britain is well within the Maastricht criteria.

So, as we cut debt payments and, at the same time, the bills of economic failure, I will further lock in the fiscal tightening that we have achieved over the past two years, I will continue to meet our fiscal rules and I am also able, with my Budget measures today, to boost purchasing power over the next three years by £6 billion at exactly the right time for the economy.

Even after these measures take effect, public sector net borrowing will be lower than previously forecast in each of the next three years—at £3 billion in the coming year and then £3 billion, £1 billion, £3 billion and £4 billion in the years after.

I have often told this House that our prudence is for a purpose. And so, I am now able to announce: a new boost to purchasing power of £6 billion over the next three years as a result of my Budget measures—net tax cuts of £4 billion targeted to working families; and, on top of that, for families and public spending, more than £2 billion of additional public investments.

And I will also today announce major additional allocations from the £2½ billion capital modernisation fund, adding more resources to the extra £40 billion that we have already committed to invest in health and education over the next three years.

Let me turn to the details of measures, beginning with the tax and other reforms that deliver a better deal for enterprise.

To those who argue that getting interest rates down and getting inflation down is enough, I say that stability is the essential foundation, but it is only the foundation. We must build on that foundation for Britain a modern knowledge-based economy.

Britain must make a quantum leap in skills, innovation, competition, information technology and small business. So, today, we are bringing forward seven major reforms for a new enterprise economy open to all.

First, our tax cuts for business.

So that more businesses—large and small—will invest, grow and prosper; so that the many and not just the few will have the chance of starting their businesses, we today cut business taxes and introduce a special enterprise management incentive scheme to reward the risk-takers.

When we came into government, corporation tax for companies was 33 per cent. Today, it is 31 per cent. I confirm that, from April, we will further reduce the main rate of corporation tax from 31p to 30p—the lowest rate in the history of British corporation tax, the lowest rate of any major country in Europe, and the lowest rate of any major industrialised country anywhere, including Japan and the United States.

When we came into government, small companies tax was 23p in the pound.

In my first Budget, to encourage enterprise and investment, we reduced it to 21p, backdated to April 1997.

From April this year, the rate will be 20p. Three hundred and fifty thousand companies are benefiting, but I want to do more. I want to create an even lower rate, which will give new incentives for men and women to start their own businesses and work their way up.

I believe that the whole House will want to welcome what I am announcing: a new starting tax rate for small businesses of 10p in the pound. Every company making profits of up to £50,000 will benefit.

The legislation will ensure that the beneficiaries are genuinely those who take risks. And 85 per cent. of the firms gaining from the 10p tax rate will have fewer than 10 employees—the very firms that we most want to see grow; the very firms whose growth will create the greatest number of new jobs.

This is the lowest starting rate for small businesses in the entire history of United Kingdom corporation tax.

Where we inherited business tax rates of 33p and 23p, the rates will now be 30, 20 and 10. I give to all companies—large and small—an assurance not just for a year, but for the rest of this Parliament: there will be no return to the higher rates of the previous Parliament. For the life of this Parliament, the rates will be 30, 20, 10, or lower.

We will cut not only the tax rate but the cost of investing.

I am particularly keen to strengthen the ability of manufacturing industry to invest in new equipment and new technology, with targeted tax advantages for doing so. I recognise the difficulties faced by manufacturing as a result of global instability and the strong pound. And so I will set aside an additional £325 million to allow small and medium-sized companies to write off 40 per cent. of all they invest in the coming year.

In other areas, I am extending the tax allowance for new films made in Britain. And the shipping industry has put to me the case for enhanced training incentives and for a lower rate ring-fenced tonnage tax. While I am attracted to these options, I have to be satisfied that lower tax rates will not become a vehicle for tax avoidance and I am grateful to Lord Alexander for agreeing to conduct an independent study of the national and international issues involved.

Secondly, I propose next a tax reform that will reward risk and stimulate new enterprise at the cutting edge of technology. I want to recruit, motivate and reward Britain's risk-takers—the innovators capable of creating wealth and jobs in the Britain of tomorrow.

In the past, share option schemes, subsidised by the taxpayer, have rewarded those already at the top whose risks are low and rewards already high—such as utility chief executives, often operating in a monopoly environment.

Tomorrow, we will publish details of a very different kind of targeted tax cut for those who are prepared to move from secure jobs to venture their time and effort to create wealth for our country. The new enterprise management incentive will allow the award of equity worth up to £100,000 for success in building the new path-breaking companies our economy needs.

Our capital gains tax reforms will reward committed long-term investment.

For the first time, Britain now has the long-term rate of only 10 per cent.

I now announce the level at which capital gains tax will begin. There is no requirement for me to raise the threshold. But I have decided to do so.

For all individuals, from April, the first £7,100 will be free of capital gains tax. This measure will exempt 10,000 more people from capital gains tax altogether. Britain now has the lowest long-term rate of capital gains tax with the most generous threshold in history.

I now turn to the rate and threshold for inheritance tax. The rate will be unchanged and fewer people will pay the tax as I raise the threshold by £8,000 to £231,000.

Ninety-seven per cent. of estates will now be exempt from tax.

Third, I turn to targeted tax cuts and public investment to put Britain and British enterprise at the forefront of innovation.

I propose a new R and D tax credit, which will give business and small business—the biggest source of innovative ideas—cash help to research and develop their innovations even before they have made their first profits.

At a cost of £150 million a year, this targeted tax cut will underwrite almost one third of research and development costs for small businesses. And Britain therefore now has one of the best incentives for innovation anywhere in the industrialised world.

Scientific innovation, as we know, is a prime catalyst of growth. I want a winner's circle in innovation— inventions in Britain, that are then developed in Britain and manufactured in Britain, creating growth and jobs in Britain.

The seedbed is basic science, so I can announce £100 million new investment in university science laboratories and equipment, and this will be part of our £1 billion plus upgrading of British science.

To transform these British inventions into what we want—British-made products—I propose a 30 per cent. increase in the budget of the university challenge fund. To encourage large companies to invest venture capital in innovative small companies, we will tomorrow publish proposals for a new corporate tax incentive. To ensure the necessary flow of finance to high-risk companies, I am allocating £20 million for start-up funding for high-tech venture capital funds for England, Scotland, Wales and Northern Ireland.

My fourth measure is a new competition policy. The sharpest spur to enterprise, the ingredient too often missing in our country, is—as we found in our productivity review—competition.

The productivity review has concluded that competition is not only the best stimulus to innovation and efficiency but gives the best prospect of a better deal for all consumers. It is time for more competition and lower prices in basic essentials like the utilities, financial services, indeed the whole range of consumer goods, where too often British consumers are paying far more than they should for what they need to buy.

It is wholly unacceptable that consumer goods can still cost up to twice as much in Britain as in America.

In 1997, so that interest rate decisions would be set for the long-term needs of the economy, the Government made the Bank of England—Britain's monetary authority—independent. Tomorrow, so that competition will be encouraged for the long-term needs of the economy and consumers, the Secretary of State for Trade and industry will set out a new competition policy for our country.

With 20 per cent. extra resources, the Office of Fair Trading will now be charged with a proactive remit to root out cartels and restrictive behaviour. Obstructing investigations will be a criminal offence. Wherever there is monopoly power, we will open up the way to competition and to new entrants.

The Deputy Prime Minister will review competition in airports and in the water industry, starting with industrial and commercial consumers.

The Financial Services Authority will now publish league tables of costs and charges in savings, insurance and pension products, to guarantee a better deal for consumers and to avoid the mis-selling of the past. To help all home owners, all building societies and banks will, for the first time, be obliged to publish reliable price information on mortgages.

Britain will have the most open competition policy the country has seen.

Fifth, to match our small business tax cuts with a new champion for small businesses in government, we will establish for the first time in our country a single small business service, devoted entirely to the needs of small business.

This one-stop open-door service—the small business service—will have new resources to offer loan guarantees, to support innovation, to advise on electronic commerce and deliver, for the first time, an automated payroll service to help new small companies starting out. Small businesses that file their tax returns electronically will be offered a discount.

Sixth, to open Britain's economy to the enterprise of all, we propose employee shares for all. Britain can and must become a democracy of enterprise, that gives all who create wealth a greater stake in the wealth they create.

Under our new programme of shares for all, employees will be able for the first time to buy shares in their own company from their pre-tax income. Every employer will be able to match, tax-free, what each employee buys.

This will be the most tax-advantaged all-employee share ownership scheme that Britain has had. Our only stipulation is that it really must be shares for all, offered right across the company's entire work force.

My seventh measure for enterprise. New targeted tax cuts and public investment to equip all our companies and all our people for what is the newest and most decisive challenge of the 21st century—the mastering in our economy of the new information technologies, from the PC to the internet, from e-mail to e-commerce.

This industry is the greatest driver of world economic growth today. Britain can no longer afford to lag behind America.

So, today, we are allocating an additional half a billion pounds from our capital modernisation fund to launch a £1.7 billion "Computers for AH" initiative, a nationwide effort enlisting schools, colleges and companies, public and private sectors together, across the board, so that Britain can lead in the information economy.

Our target is a national network of 1,000 computer learning centres, one for every community in Britain. They will be in schools, colleges, libraries and internet cafes in the high street. It is a whole network of computer learning with one purpose only: that the whole of Britain is equipped for the information age.

Our targets for the new economy are ambitious: within three years, 1 million small businesses able to benefit from e-commerce; 32,000 schools connected to the internet, as a result of the work of my right hon. Friend the Secretary of State for Education and Employment, and 370,000 teachers computer trained; new help worth £20 million making it possible for more teachers to have computers for home use.

Inequality in computer learning today will mean inequality in earning power tomorrow, so to bring more computers into more British homes, we will legislate so that employees will be able to secure computers on loan from their companies as a tax-free benefit.

Anyone left out of the new knowledge revolution will be left behind in the new knowledge economy. So we will pioneer a system under which local partnerships will be able to loan computers and software in the new century, in the way that local libraries loaned books in the past century.

In the new economy, the more individual talent we nurture, the more economic growth we will achieve. The tax system will offer further incentives for people to upgrade old skills and learn new ones.

From this year, 1 million men and women will start to receive £150 to set up their own individual learning accounts. This puts the power to plan and prepare for their careers in their own hands.

In this Budget, we will expand individual learning accounts and open up tax-free learning in computers, in basic skills and advanced skills to millions more people.

We will legislate so that employers will be able to contribute tax-free to the new individual learning accounts.

Employees will also pay no tax on such payments.

And this will be skills for all, because the opportunity to learn must be offered across the company's entire work force.

We need to do more and the Budget will go further, offering discounts for learning.

Any adult with an individual learning account will now be able to claim a discount of 20 per cent., an additional grant of up to £100, on the cost of vocational learning.

For all adults signing up to improve their basic education—including computer literacy—there will be a discount of 80 per cent. on course fees.

We will pay for this measure in tax-free learning by phasing out the existing vocational tax relief which, among other things, has been subsidising non-vocational courses like diving and flying lessons. [Interruption.] It was introduced by the Conservative party.

This century, Britain has achieved universal free education for children. This Budget introduces the new opportunity for universal education for adults—lifelong learning so that everyone will have the chance to succeed in the new economy.

As Britain works to lead in the new economy, we must resolve to lead also in respecting the environment.

Our Government's target is to reduce greenhouse emissions by 12½ per cent. by 2010. So today, I am announcing a programme of measures that will cut carbon pollution by 3 million tonnes.

My first proposal alone will reduce carbon pollution by 1.5 million tonnes. The Government have received Lord Marshall's report, for which I thank him, on the role of economic instruments and the business use of energy.

We will now implement Lord Marshall's recommendations and we will introduce a levy on business use of energy from April 2001. And it will be brought in, after further consultation with the industry, on a revenue-neutral basis, with no overall increase in the burden of taxation on business. Because we intend at the same time to cut the main rate of employers' national insurance contributions from 12.2 per cent. to 11.7 per cent.

We also intend to set significantly lower rates of tax for energy-intensive sectors that improve their energy efficiency. Today, we are inviting these companies to submit their proposals. In pursuit of our policies for sustainable development, we will allocate an extra £50 million to encourage business to invest in the new environmental technologies and in renewable fuels.

In line with the fuel escalator first introduced by the previous Government at 5 per cent. above inflation and now 6, petrol duty will rise from 6 pm today.

Vehicle excise duty for smaller cars will, from 1 June this year, be cut by £55—the first cut in the licence fee in 50 years. Other cars' rates are only increased in line with inflation.

I will freeze vehicle excise duty for 98 per cent. of all lorries, and for lorries and buses with clean engines I am cutting the licence fee by up to £1,000.

To encourage a switch to cleaner fuels, last year I promised to give an additional tax advantage to ultra-low sulphur diesel. By the end of the year, almost all producers will have switched to this cleaner fuel. This alone will cut their emissions by 20 per cent. and at a revenue cost of over £400 million, I will maintain this favourable tax treatment for cleaner diesel.

I also propose a reform to reward the use of fuel-efficient company cars and to remove today's counter-productive incentive to drive more miles in order to get bigger discounts. So I start in this Budget with a measure that will cost the company car user with a typical car around £1 a week. This reform—to link tax to emissions—will be implemented finally in 2002 on a revenue-neutral basis.

To reduce pollution, employees from this year will be able for the first time to secure tax-free from their employer the benefit from employer-run or employer-subsidised buses, car-sharing schemes and other environmentally friendly means of transport to work.

Last year, we set up the new rural transport fund. To build on its success in extending the range of public transport services in rural communities, we will increase its funding—and, therefore, its accessibility for rural services—for the next two years by 20 per cent. to £120 million.

To reduce the amount of waste going to landfill, the landfill tax, £10 per tonne in 1999, will in future rise by £1 per tonne per year.

Taking into account all these tax changes and all the changes that I have yet to announce, there will be a net tax cut of £4 billion in this Budget.

I turn now to policy for families. Children are 20 per cent. of the British people, but they are 100 per cent. of Britain's future. To build that future, this Budget provides a better deal for families and children.

Family life is the foundation of society, and our first principle in society's support for the family is that the interests of children must be paramount.

For the last third of this century, families with children have been losers in the tax system. Their tax burden has risen by nearly 20 per cent. under successive Governments—even though the time when children are growing up is the time when families need tax help most.

So it is time to reform the tax and benefit system to strengthen the family by putting children first.

What is today called the married couple's allowance is in fact neither restricted to marriage, nor restricted to couples; nor is it strictly an allowance. It is in fact a tax credit paid at the same flat rate to married couples, single parents and unmarried parents living together.

Far from recognising marriage, it is now so confused that it can even be paid at twice the rate in the year of separation or divorce. A married couple's allowance that can pay more for separation or divorce cannot be said to uphold the institution of marriage.

The last Government called the married couple's allowance an anomaly and reduced it from 40 per cent. to 15 per cent., cutting its value in half.

If we were now to restrict the married couple's allowance to married couples only, as some propose, we would unfairly exclude, for example, widows with children, and wives who have been deserted and left to bring up their children alone.

So I have responded to many representations and views, including one that said that

"if we were going to phase out the married couple's allowance we should have replaced it at the same time with a new allowance, better targeted on families who really need the help"—

the words of the Leader of the Opposition.

So we will replace the married couple's allowance with a new family tax cut that will increase the amount that goes to help families with children. This children's tax credit will give more—not less—help to families at the time when they need it most, when they have their children and when their children are growing up.

Today's pensioner couples will retain the married couple's allowance. Couples without children, or whose children have grown up, will benefit from other changes I will shortly announce.

The married couple's allowance is today worth £190 to married couples. The children's tax credit, the tax cut for families to be introduced from April 2001, will be worth £416, and, as a result, the typical family with children will be over £200 a year better off.

This tax cut for families represents the first recognition in the tax system for over 20 years of the extra costs of bringing up children. Under my proposals, the tax burden on the typical family will fall to its lowest level for 25 years. I will introduce similar improvements in the working families tax credit and income support for children.

In the Budget last year, I set down the two principles that govern my approach: we must substantially increase support for families with children and we must do so in the fairest way. It is in fulfilment of those two principles that the children's tax credit will be tapered away for the higher-earning family where there is a top-rate taxpayer.

In the light of this reform, my Budget decision is that child benefit will not be taxed for taxpayers on the basic rate, or on the higher rate. As our manifesto promised, child benefit itself will remain as it is, paid to all mothers, rising annually with inflation.

When we came to power, child benefit for the first child was £11.45 a week. Next month, it will rise to £14.40.

It has risen by 25 per cent. since we came to Government—an increase of £150 a year.

I now propose a further increase in child benefit, well above the rate of inflation. It will rise next April to £15 a week for the first child, £780 year. I will also raise the rate for the second and further children beyond inflation to £10 a week.

Support for children as a result of all the measures that I am announcing will be twice as high at the end of this Parliament as it was at the beginning.

With the children's tax credit added to child benefit, families who were receiving £11 a week in 1997 for their first child will be receiving £23 a week, £1,200 a year.

And, taking all our reforms together, the maximum support for the first child will be £40 a week for families when they need it most.

Every child in the country in every family will get more, not less, support under this system—support ranging from £780 a year to £2,000 a year, and every child will receive more year on year.

When we came into power, we found a chaotic, even counter-productive system of child support. It gave far too little help to mothers. It did not provide enough to those who needed it most.

Child benefit had not been increased every year in line with inflation. The married couple's allowance could not fulfil its intended purpose. Income support for children was based on family status, not on family need. Family credit failed to guarantee a living wage for working families. What the benefits system gave with one hand, the tax system was taking with the other.

Our long-term goal is to bring together the different strands of our support for children in the working families tax credit, in income support, in our children's tax credit and so create an integrated and seamless system of child financial support paid to the mother, building on the foundation of universal child benefit.

Already, with the changes that we are making today, we are creating the best system of family support in the history of this country.

I also had to consider the alternative case that has been advocated for a transferable tax allowance for mothers who stay at home. The better deal for mothers who stay at home is what we are doing from October this year—the working families tax credit. A family with two children on £15,000 a year where the mother stays at home would have received nothing under the old system of family credit. Transferable tax allowances, as some propose, would give them £997. Under the working families tax credit, they will receive £1,460.

Where both parents need to work, we will do more to help them to balance the demands of making a living and having children.

With 1 million new child care places now being created and, from October, our new child care tax credit set at a maximum of £70 for one child and £105 for two children, Britain has a national child care strategy for the first time in our history.

From December 1999, all parents will be entitled to three months' unpaid leave for each child.

But currently up to 15 per cent. of working mothers-to-be are not entitled to any maternity pay. That is wrong. Today's Budget will ensure that all mothers in work earning £30 a week or more—90 per cent. of all women in work—are entitled to maternity pay and to 18 weeks of maternity pay. That is family-friendly employment in action.

Every year, a quarter of a million children—even at the minute they are born—are born into poverty. This, too, is wrong.

Our sure start programme for the under-threes, beginning next month, will ensure that the full resources of health visitors, primary care and schools are there to give every young child a better chance.

Today, we are announcing a new sure start maternity grant: Government offering more help to parents, but in return for parents meeting their responsibilities. Help amounting to £200 will be conditional, linked to keeping appointments for child health advice and child health check-ups.

When we came into power, one child in every three in our country was in poverty. With our measures today, 700,000 children are being lifted out of poverty. Families with children are better off. Instead of a past that developed only some of the potential of some our children, the future depends on developing all of the potential of all of our children.

As the Budget creates a better deal for those starting out, the Budget will today provide a better deal for all those who have worked hard all their lives: the elderly. Today, I am announcing new measures that will help all pensioners—help for those who are poor, for those with incomes above benefit level but who are not wealthy, indeed for every retired person and every retired couple, taxpayers and non-taxpayers alike: a better deal in the minimum pension guarantee, in the winter allowance, and on savings and tax.

This Government created the minimum income guarantee for pensioners. Today, I can confirm that, next April, that minimum guarantee will be increased not just in line with prices but in line with earnings. As a result of the changes we are making, the minimum income guarantee for the single pensioner will be £78 a week— which is nearly £500 a year, or £10 a week, higher than when the Government came to office.

Pensioner couples will have a minimum income guarantee of over £120 a week—which is nearly £800 a year, or £16 a week higher than in 1997.

As a result of measures already taken—our cut in VAT on fuel, with tougher regulation and the winter allowance—pensioners are saving £108 on their fuel bills; the poorest pensioners have been saving £140.

But I can announce today that we will do more.

The winter allowance is currently paid to all 8 million elderly households, at £20.

I have decided to raise it to £100 for all 8 million elderly households.

And this is not a one-time need or a one-time decision. In future years, the winter allowance will be £100 for all 8 million elderly households.

To help the elderly to get more out of their savings, I have asked National Savings to issue a new National Savings pensioners bond. With the shorter-term deposits that pensioners seek, the new bond will offer the returns that pensioners need.

I have a further improvement: a tax cut for the elderly. I am announcing a reform that will ensure that a total of 7 million elderly men and women will now be outside the income tax system.

For pensioners, I have decided to raise the personal tax allowance in excess of inflation.

Single pensioners will not pay any tax until they have an income of £5,720. Older pensioner couples who both use their personal allowances to the full will now not pay tax until they have income above £15,000.

Therefore, 200,000 more pensioners will not have to pay income tax.

In total, two thirds of pensioners will now not pay income tax.

Taken together, the measures I have already announced add up to an additional £3 billion for the elderly—a better deal for the elderly that makes the typical pensioner household £240 a year better off.

To help pay for that, from today, excise duty on tobacco will rise by the normal escalator: 5 per cent. above inflation. Organised smuggling, which is now a £1(½) billion a year racket, will not be permitted to undo a policy on cigarettes that successive British Governments have adopted for good and urgent health reasons. As the Government strengthen their anti-smuggling strategy, we will target new resources to detect, prevent and punish this costly form of organised crime.

And I had a decision to make on beer and spirits. I have decided to freeze the duty on spirits, on beer and on wine at its current level. There will be no tax rise on alcohol this side of the millennium.

I will cut the tax on pools from 28 March by one third from 26.5 per cent. down to 17.5 per cent. On this basis, the pools companies have agreed future funding of around £20 million a year for the Football Trust and the Foundation for Sport and the Arts. Details of this, of minor duty changes and of measures to combat tax avoidance are published this afternoon.

Insurance premium tax will rise by lp in the pound from 1 July, although 80 per cent. of insurance underwritten in Britain will remain exempt.

On VAT, today I propose there will be no increase in rates and no extension of VAT.

I have decided to make no change to stamp duty on property sales up to £250,000. For property sales above that, the rates will be raised by ½ per cent. from next Tuesday. Ninety six per cent. of home sales are unaffected.

I now turn to our review of charities. A Britain of strong families is also a Britain of strong communities.

Each year, more than 1 million people give up their time in voluntary work.

Millions more give money to our national charities.

The Prime Minister has rightly called for our age to become a giving age.

I want to mark the millennium in the best way by making 2000 the giving year.

In the last Budget, we introduced millennium gift aid.

For every £100 a British citizen donates to third world causes before the end of the year 2000, the Government will contribute £30.

When millennium gift aid is launched on 18 March, I urge British people to give more to those who have too little.

As Governments make their contribution to third world debt relief, all of us can make a contribution to third world poverty relief.

Today, in our consultation document on tax and charities, we propose extending the tax advantages of millennium gift aid. We propose that every charity, national and international, should be able to benefit from this new tax relief.

We propose in future for every £100 a British citizen donates to any charity, through tax relief the Government will contribute £30.

Instead of charities seen in the old way, the rich bestowing favours on the poor, I want a democracy of giving where all those who can, help all those who cannot.

Most fundamentally, the tax reforms of this Budget provide a better deal for the hard-working majority—a ladder of opportunity for those who want to work, a chance to keep more of what they earn and, for all, a fundamental guarantee that work will pay.

Our reforms in national insurance will give employers an overall tax cut of £1.5 billion and employees an overall tax cut on work of £2.5 billion—an average of £130 per year per employee.

This April, as I implement the report by Martin Taylor, I am abolishing the perverse tax on work, the entry fee that every employee has to pay simply to be part of the national insurance system. From this cut on work worth over £1.4 billion a year, every one of 20 million employees will gain £69 a year from April.

Over the two financial years to follow, I will further align the starting point with that of income tax so that no one will have to pay either national insurance or income tax on the first £87 of their weekly earning. From this tax cut on work worth £1.8 billion a year, every employee will gain £99 a year.

From April 2001 therefore, the lower limit for employees, self-employed and employers national insurance will be harmonised at £87 a week—the same as income tax. As with the lower earnings limit which is rising faster than inflation, the upper limit will rise to £575 and to complete our reforms we will also align employers national insurance and income tax in the treatment of benefits in kind.

I also propose to extend to the self-employed national insurance rights to the full maternity allowance.

Again, to implement the recommendations of the Taylor report, we will align national insurance arrangements for the self-employed closer to those of employees. We will reduce the unfair entry fee from £6.35 a week to £2 and we will set the class four threshold at the same point as the personal income tax allowance. But I will set contributions at a lower rate than envisaged by the Taylor report, at 7 per cent. in contrast with the 10 per cent. employees pay.

Some 230,000 young people are now benefiting from the new deal. Now we must bring in those young unemployed who, for whatever reason, have yet to join.

I say to them, this is our new deal for 1999: there will be better provision but there will be tougher conditions. Our responsibility is to offer training and intensive coaching to help young people get jobs. In return, their responsibility is to come into the new deal, get the skills and prepare to take a job.

We will also help lone parents make the transition into jobs. Benefits will continue when they first start work.

For them and others, the working families tax credit will make work pay more than benefits.

Every working family will be guaranteed a minimum income. It will be introduced in October not at the previously announced rate of £190 a week, but at £200 a week—more than £10,000 a year. No income tax will be paid until earnings reach £235 a week.

This is a tax cut available to 1.4 million families that will help 3 million children in our country.

I propose that, over time, we seek to extend this principle.

The old tax system that we inherited set a personal allowance that failed to ensure that work paid, and also made thousands pay tax even when they were forced to claim benefits.

Not just families but all who work should be guaranteed a minimum income, and this minimum income will be paid through targeted tax cuts and credits. No one who is in work should in future have to go to the benefits office to receive a living income.

We start in this Budget with a minimum income guarantee—a new deal for over-50s returning to work.

Nearly 30 per cent. of men over 50 are outside the labour force—twice as many as 20 years ago.

We need their talents. For those unemployed for six months or more, we will create a new employment credit which will guarantee a minimum income of £9,000 a year, for their first year back in full-time work—at least £170 a week.

And, over time, I want this better deal for work to include help with housing costs—not just help with rent but also help for home owners going back to work. Taking a job should not put them in danger of losing their homes.

Successive Governments have lowered mortgage tax relief from 40 per cent. to 10 per cent. of interest costs and they have frozen the limits at the first £30,000 of a mortgage.

Today the allowance is worth an average of £2.50 a week.

In the last year, mortgage rates have come down significantly and I now recognise that there is a consensus across this House.

I have had many Budget representations and read many contributions to the long-standing debate about the housing market. One of them said that MIRAS has

"outlived its usefulness … it should be abolished the sooner it happens, the better."

Those are the words of the now shadow Chancellor.

For our part, as we complete the phasing out of MIRAS, we will ensure that families are better off.

We said in our manifesto that we would introduce a 10p starting rate of income tax for individuals when it was prudent to do so.

I repeated in the last Budget that we would introduce the 10p starting rate when it was prudent to do so.

However, I have to tell the House that the 10p rate will not start in April 2000, like other income tax changes we are making today.

It is prudent instead for people to get the benefit of the 10p starting rate now.

So it will take effect in April 1999, a 10p starting rate on the first £1,500 of income, the lowest starting rate of tax since 1962, and it will be delivered a few weeks from today. People will see it in their pay packets in May.

Nearly 2 million people will see their income tax bills cut in half, and take home 90p of every pound they earn.

The new income tax structure will this year be 10, 23, and 40. And income tax allowances, income limits and tax thresholds will rise as usual in line with inflation. The tax rates on savings will remain unchanged.

So this is a Budget with a 10p starting rate of income tax, a 10p starting rate of small business tax, a 10p long-term rate for capital gains tax. The maximum small business tax is now down to 20p and corporation tax for big companies is down to 30p in the pound.

As a result of all the tax reforms we are making, the typical one-earner family on the average wage with two children will be £460 a year better off and a two-earner family on 175 per cent. of the average wage will be £500 a year better off.

The tax cuts I have made today are tax cuts to encourage work and make work pay, tax cuts for a purpose. They help all middle and lower-income families. They are tax cuts for the many and they are being made at the best time for the economy.

I can confirm that the share of tax in national income next year will fall. The tax burden on the typical family with children will fall below 20 per cent. for the first time in 20 years, after our reforms.

I have one further set of announcements to make.

After long years of neglect, step by step this Government are rebuilding our public services.

On top of the £40 billion we are already investing in education and health, we can today allocate increased resources for key public services.

We have identified specific areas where step changes can be made through additional investment from our capital modernisation fund.

We are allocating an additional £170 million for crime prevention in areas where crime is highest. The Home Secretary will make a detailed statement on this to the House.

For public transport, in addition to the rural transport fund we have created, we will make a further allocation that will be announced by the Deputy Prime Minister.

For Northern Ireland, today we allocate additional capital spending of £50 million; for Wales, £80 million; for Scotland, £165 million. Full details of the new investments will be given by the Secretaries of State.

The £19 billion we are already providing for education will finance smaller class sizes, more nursery education, better pay for better teachers, our drive to improve literacy and numeracy and we will help 700,000 more young people to go on to further and higher education.

But, so that every child will have that chance, we need specific and targeted help for our inner-city schools. For upgrading their technology, the Secretary of State for Education and Employment will receive an additional £100 million.

And for every school in the country, we will not only invest in new technology. As a result of our prudence in the last year, and following the huge take-up of the additional money provided last year, we are able this month to make another extra and larger allocation for school books: £2,000 to every school in every constituency in every part of the country; immediate new resources of £60 million; a total of 10 million new books in all.

I turn to the health service.

The £21 billion extra money is making possible the largest hospital-building programme since the war; a £1 billion investment in modern technology taking place in the NHS; the recruitment of 7,000 new doctors; 15,000 more nurses; and a fair pay award for nurses.

The Government's new programme, NHS Direct, is a proven success.

And the Secretary of State for Health will announce detailed proposals not only to extend it to all of the country by the end of next year, but to carry NHS Direct right into communities, with a network of health and drop-in centres where people can get immediate advice about treatment.

We have already provided additional resources for upgrading one third of all accident and emergency units that need modernisation.

Today, we can go further.

To enhance in every part of the United Kingdom the health care that people most urgently require, we today make an additional and immediate cash allocation, to be spent in the next 12 months, for the upgrading of every single accident and emergency unit that needs it, in every part of the country.

For this and other improvements that the Secretaries of State for Health, for Scotland, for Wales and for Northern Ireland will announce, I am providing for the NHS almost half a billion pounds of extra investment today.

Throughout the public services, more than £1 billion of additional new investment, on top of the £2 billion that I have allocated to families and pensioners.

Public services in the months and years ahead, safe in this Government's hands.

I have one final announcement.

We promised to get inflation and interest rates under control, to sort out the public finances, to make this the Government of economic competence, and we have.

We promised to invest billions more in health and education, and we have.

We promised we would cut youth unemployment, and we have.

I can confirm to the House that, while rebuilding our public services, our prudence in office also enables us to hold to our pledge made at the election not to raise the basic rate of income tax.

In fact, to reward work and ensure that working families are better off, I will match the new 10p starting rate of income tax this April with a cut from next April in the basic rate of income tax to 22p, the lowest basic rate of tax for 70 years and under this Government.

Today's Budget is a better deal for work, a better deal for the family, a better deal for business. It is for a Britain now united around values of fairness and enterprise. This is a better deal for Britain and I commend this Budget not only to the House but to the country.

Motion made, and Question,

That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—

put forthwith, pursuant to Standing Order No. 51 (Ways and Means Motions), and agreed to.

Motion made, and Question proposed,

That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

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