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We cannot know, of course, but 2013 looks like it is going to be a year of quiet, sullen adjustment. We are moving from an era when we thought we could repair the economy, the energy and transport systems, the welfare system, the discredited institutions, even our own personal health, to a new age in which we will have to rebuild everything along completely different lines.

We will have to get used to low economic growth, part-time working, high pension contributions, more angry weather, intractable wars, the politics of blame and avoidance, and a new realisation that we are responsible for our own health. In Scotland in particular, we are in a transition period between the years of recession and the year of the referendum. It may not be easy looking forward but the future becomes even more frightening if you look back.

In 2012, the British economy shrunk by 0.1 per cent. In 2013 it is forecast to grow, but only by 1.2 per cent, (according to the Office of Budget Responsibility). That is well below the 2 per cent (or so) to which we have become accustomed over the last 40 years. Unemployment is forecast to rise to 8.3 per cent, despite a huge increase in part-time employment. And we are still only half-way through the government’s austerity programme of spending cuts and public sector job losses. There’s still another quarter of a million jobs to go.

The search is on for different ways of providing public services – cooperatives, arms length agencies, private contracts, increased charges, preventive spending, means testing. Meanwhile, the private sector is supposed to be getting on with creating jobs – a million so far, but another million to go.

The trouble is that demand in the economy is just not there. And the export prospects don’t look good for 2013, with the Euro-zone only expected to grow by 0.2 per cent (says the IMF), the US economy facing tough times – even it does not fall over the “fiscal cliff ” – and the Chinese economy slowing down.

The banks, which have brought us to this sorry state, are reluctant to invest us out of it – which is why the government should be spending instead. The banks, of course, face their own year of transition. There’s talk of them considering their “social impact” and conducting a “moral overhaul” and linking bonuses to long term success. New laws are expected to set up firewalls between a bank’s retail activities and its investment department. And the Bank of England, under its new governor, Mark Carney from Canada, will be taking on a bigger regulatory role.

In the political world, the strains in the coalition at Westminster can only get worse. The Conservative right is getting restless over Europe. The Liberal Democrats are wondering when is the right time to jump ship. Britain is hosting the G8 in June this year at Enniskillen in Northern Ireland and there is pressure on David Cameron to give a lead in restoring the global economy to robust health and a measure of fairness over trade and tax.

There are general elections due this year in Israel, Italy and Germany. Everyone is waiting to see if the new US secretary of state John Kerry will have a go at settling the Palestinian question and whether he can break the UN deadlock over Syria. It’s hard to believe that the Assad regime can hold out much longer.

In Afghanistan, the gradual withdrawal of Allied troops is due to continue in 2013, ready for full withdrawal in 2014. British troops are to be reduced from 9,000 to 6,000. It’s an important year of transition, as Afghan forces take over the 12 year struggle against the Taliban.

Here in Scotland, we will move inexorably towards the referendum in 2014. Alex Salmond says the full details of independence will be spelt out in a white paper to be published in November. The referendum bill itself will be making its way through the Scottish parliament over the next nine months. The SNP will be asking what sort of country we want to live in. The opposition parties will be asking awkward questions about Scotland’s membership of the European Union, NATO and Sterling zone.

Meanwhile, the Scottish finance minister John Swinney will be getting on with trying to restore the economy and keep public services running, all on a restricted budget given to him by Westminster. Over this year we should see some of his “shovel ready” projects getting under way – new housing, replacement schools, road improvements and dockside developments.

In the important business of sport, again it’s to be a year of transition. All the focus will be preparing for the Commonwealth Games in Glasgow in July 2014. Golf’s Ryder Cup will follow at Gleneagles in September 2014. Scottish rugby goes back to the drawing board this year after a disastrous 2012. In football, Celtic will be battling its way through the European champions league, starting with the match against Juventis on 12th February. And the shinty men make an early start on the new year with the first big competition, the Lovat Cup, taking place in Beauly on 2nd January.

This is to be the “Year of Natural Scotland” when all government agencies will be promoting our fine countryside, fresh air, clear blue lochs, rivers and seas. Industry leaders will be urged to make the most of our natural resources – wind, tide and wave power – with the new £3b Green Investment Bank coming to Edinburgh. But there is a lot of work to be done to get back on track to meet our CO2 targets and to save our seabird population, which has fallen by 50 per cent in the last 25 years. And our changing climate will, I fear, have many a storm and flood to throw at us in the coming year.

Appropriately, the UN has chosen 2013 to be the “Year of Water Co-operation.” Conservationists will be celebrating the first John Muir Day on 21st April, the 175th anniversary of his birth. The European Union has declared that it is going to be “the Year of the Citizen” when it will try to win its 500m people around to believing in the European ideal again. In China, it will be the “Year of the Snake” which begins on 10th February. The snake in question is said to be “enigmatic, intuitive and introspective.” It doesn’t sound good.

In 2013, we will be marking a number of strange anniversaries, recalling times that seem so far away. It will be a hundred years since we learnt of Captain Scott’s death in the Antarctic, a hundred years since the suffragette Emily Davison threw herself in front of the king’s horse at the Epsom Derby and 200 years since the publication of “Pride and Prejudice.” It will also be 500 years since the Battle of Flodden Field. But we don’t talk about that, instead we are looking forward to the 700th anniversary of the Battle of Bannockburn in 2014. As I say, it’s a year of transition.

And of course, we are expecting a new monarch to be born in the summer. Like every baby, he or she will remind us that we are all in a state of quiet transition from one age to the next. Perhaps that is why the coming of the new year, in the middle of winter, is such a strange and emotional time.

It’s been a year of reckoning

We’ve all been counting up the cost of the bankers’ recession, which shows every sign of going on and on. The bankers and the tax avoidance companies are finally being made to pay for their misdeeds. So too are the press. European leaders have been counting up the cost of the crisis in the euro-zone.

The dreadful death-count has continued to rise in the wars in Syria, Afghanistan and Gaza. Climate change has begun to exact its price, with mighty storms and floodings and the wettest summer for 100 years. Scotland is in the countdown to the referendum. The Queen is also in the counting house, reckoning up her 60 years on the throne. And the British Olympians have counted up their 65 medals.

As I look back over my diary, I feel bruised by this tough old year of 2012. It began with the storms of January, the worst for 13 years. The wind blew at over 100 mph on my local Blackford Hill in the centre of Edinburgh. It ended with an icy snap in December, which brought me skidding off my bike, and then another storm which blew in over the harbour walls along the whole east coast. But it is the events in the wider world that have shaken me more.

Where have all the jobs gone ?

Economic growth was virtually non-existent in Britain in 2012. The unemployment rate hovered around 8 per cent all year, with youth unemployment at over 20 per cent. And this while the number of part-timers has risen to a quarter of the workforce and hundreds of thousands have given up looking for work altogether. Average wage rises are well below inflation, 1.4 per cent compared to inflation at around 3 per cent. So consumer spending, especially in Scotland, is down, leading to even less growth in the economy.

The Chancellor’s budget in March did little to change this. In fact, it became known as the “omni-shambles” with u-turns becoming necessary on the pasty tax, the charities tax, and the caravan tax. But there was no turning on the 5 per cent cut in income tax for the highest earners. By the time he came to his autumn statement in December, George Osborne had to admit that national debt was rising, not falling, and that his austerity programme of public sector cuts would have to continue until 2018.

To be seen to be doing something to get the economy growing again, he announced an extra £5 billion of capital spending over the next two years. £330m of that is coming to the Scottish government for new schools, road improvements and house-building.

In the euro-zone, things are even worse. Growth in 2012 is expected to be minus 0.4 per cent. Unemployment is over 11 per cent. In Greece and Spain it’s over 25 per cent. They’ve had to be bailed out, along with Portugal and Ireland, by the European Central bank. The row over whether the European Union budget should be one for growth or austerity has led to increasing calls in Britain for a referendum on our continued membership of the EU.

Bashing the bankers

The banking year began with Fred “the shred” Goodwin having his knighthood taken away by the Queen for his disservices to banking. Stephen Hester, the new man at the Royal Bank of Scotland, was forced by public opinion to forgo his bonus (don’t worry, he still gets a basic salary of £1.2m.) Peter Cummings at HBOS was fined £500,000 for helping to bring the bank to the edge of collapse. Bob Diamond, the quiet American, was forced to quit as chief executive of Barclays Bank when it was caught fiddling the Libor interest rate. And that’s not all the banks have been up to. Alliance and Leicester was fined £7m for mis-selling payment protection insurance. Standard Chartered and Lloyds were fined for sanctions-busting. HSBC was fined for money laundering.

No wonder, the government is tightening up the regulations and bringing in a Canadian Mountie Mark Carney to police the Bank of England and wake it from its slumbers.

Blaming the press

Lord Leveson spent much of the year listening to tales of misbehaviour by the press. Milly Dowler’s parents had indeed a dreadful tale to tell. A parade of celebrities said they too had suffered press intrusion. The inquiry found that reporting by elements of the press had been “reckless and outrageous” and it recommended a strengthened press complaints council, backed up by new legislation. It seems to me, as a humble journalist myself, that Lord Leveson overlooked the fact that the main culprit, the News of the World, has been shut down and two of its editors are facing criminal charges. Phone-hacking is already illegal, so is bribing the police. And he appeared to forget that it was a newspaper, The Guardian, which broke the story that Milly Dowler’s phone had been hacked in the first place.

And it wasn’t a good year for the broadcasters either. The BBC got caught up in the Jimmy Savile scandal. And both the BBC and ITV had to apologise and pay damages for wrongly suggesting that “a senior Conservative of the Thatcher era” was guilty of child abuse.

A year is a long time in politics

The SNP chose Burns Day, of course, to published their white paper on an independence referendum. It suggested the vote should take place sometime in the autumn of 2014 and that the Scottish Parliament should determine the question, or questions, and that 16 and 17 year-olds should be allow to vote. After several months of wrangling, a deal was signed on 15th October in Edinburgh in which David Cameron promised to introduce legislation at Westminster giving the referendum protection against legal challenges, in exchange for Alex Salmond agreeing to have just one question – independence yes or no ?

The “devo-plus” campaign, launched in February, was disappointed that the option trending best in the opinion polls – more devolution – was not being put on the ballot paper. The Yes campaign was duly launched in May and the first march and rally was held in Edinburgh in September. The No campaign, preferring to be called the Better Together campaign, was launched by the three main opposition parties in June.

All things political in Scotland are now seen through the prism of potential independence. In the local council elections in May, for instance, the SNP emerged as the largest party, winning 424 seats to Labour’s 394. It is now involved in running 13 of Scotland’s 32 districts.

At Westminster more cracks in the coalition have emerged. The Liberal Democrats are unhappy with the Conservatives over Europe, the welfare reforms and the NHS. Nick Clegg even insisted on making a separate speech from the Prime Minister on the Leveson inquiry. But the Liberal Democrats have gone along with the Chancellor’s austerity programme and his tax cuts for the rich, in exchange for lifting low-earners out of income tax altogether.

Abroad, France turned decisively left, electing a Socialist president. In Russia, Vladimir Putin won a third presidential term, claiming 64 per cent of the vote. The United States saw its most expensive and divisive election campaign ever. In contrast, Xi Jinping walked stiffly onto the stage at the Chinese Communist Party Congress in Beijing and was declared supreme leader of over a billion people.

In Japan, the chaos caused by the tsunami has scared the voters back to the old regime. And in the emerging democracies in the Middle East there’s a cauldron of tribal, Islamic and secular parties and no one knows which will finally bubble to the top.

War and peace

The civil war in Syria has now claimed the lives of 40,000 people. The West has been forced to stand by and watch as the Assad regime clings to power and pounds rebel areas with heavy artillery and aircraft fire. The UN has been unable to act because Russia and China have vetoed any direct intervention, for reasons which are still unclear.

But Syria is only one of a dozen major conflicts which have been raging this year, each one causing more than a thousand deaths – in Burma, Afghanistan, NW Pakistan, Iraq, Somalia, Yemen, Sudan, Libya, Mali and the drug war in Mexico.

In Afghanistan, more than 3,000 people have been killed this year, 44 of them British soldiers including Captain Walter Barrie (right). It brings the total number of British troops killed in the 12 year-long-war against the Taliban to 438. This year there’s been a dramatic rise in the number of insider attacks by Afghan army and police recruits on Western soldiers sent there to train them. These so-called “green on blue” attacks now constitute 15 per cent of all foreign troop deaths. The latest Scottish soldier to die in this way was Captain Walter Barrie from Glasgow. He was shot dead after a friendly football match with Afghan troops on Remembrance Sunday.

On the peace side of the equation there is not much to report. But Israel did conclude a peace agreement of sorts with Hamas in the Gaza strip. There are talks going on between the government of Sudan and some elements of the rebel fighters in Darfur. And the Colombian government has begun talks with the Farc rebels to bring an end to a conflict that has cost 600,000 lives since it began in the 1960s.

It was the Norwegians who brought the two sides together. And it was again the Norwegians who decided that this year’s Nobel Peace Prize should go to the European Union for keeping the peace in Europe since the Second World War (except, of course, for the conflicts in the former Yugoslavia).

Shocking and inexplicable events

What possessed the captain of the Costa Concordia to take his cruise ship so close to the Italian coast on the night of 13th January ? Although 4,000 passengers and crew were rescued, 32 died. What caused the driver of a Belgian school coach to crash inside a tunnel in the Alps on the way to an Easter ski-ing holiday ? Twenty two children and six adults were killed. What secrets did the Lockerbie bomber Abdelbassset al Megrahi take to his grave when he died at the end of May ? Why were two policewomen shot dead when all they did was attend a routine call at a house in Manchester ? Why was the al-Hilli family gunned down on a remote road in the French Alps ? And how was the school shooting in Newtown Connecticut allowed to happen ?

Another bad year for the environment

Ice caps melted. Sea levels rose. Storms intensified. Records on rainfall and temperatures were broken. CO2 emissions grew. Fewer birds flew. And still the politicians did nothing much about it.

According to a study in the journal Science, ice melting in the Arctic and Antarctic has caused an 11mm rise in sea levels across the globe in the last 20 years. Arctic sea ice is less than half what it was 40 years ago. And although there has been a pause in global temperature rises, CO2 emission are still rising by 3 per cent a year, according to researchers in the Netherlands where sea level rises matter rather a lot.

Britain had its wettest summer for a hundred years. The United States had its warmest year since records began in 1895. Globally, it was the 9th warmest year on record. Hurricane Sandy struck the Caribbean and the eastern seaboard of America in November and caused over a hundred deaths. It was closely followed by typhoon Bopha in the Philippines which killed over 900 people.

Here in Scotland, over a hundred homes were flooded in the village of Comrie in Perthshire. There was flooding too in the Borders and in Dumfries. In Aberdeen, strange brown/white foam whipped up by the worst September storm for 30 years blanketed the seafront. Then in December, the east coast was swamped again by high tides and stormy seas. The changing climate has brought sea bird numbers tumbling. According to Scottish Natural Heritage, the number of breeding birds has dropped by half in the last 25 years. This year saw continued declines in the number of kittiwakes, fulmars and arctic terns.

The Scottish government missed its interim target for cutting CO2 emissions. It abandoned its new energy efficiency standards for new homes. And yet the environment minister Paul Wheelhouse set out for the UN Climate Change Conference in Doha saying Scotland would be catching up and meeting its world-beating emissions reduction target of 42 per cent by 2020. He doesn’t have much competition, since the 197 countries represented at Doha could only agree on postponing the targets fixed in Kyoto from 2015 to 2020.

The achievements of 2012

The Queen has had a remarkably successful Jubilee year, touring the countries of her United Kingdom, attending everything from pop concerts to cathedral services. And who can forget her standing for four hours in the rain while a flotilla of boats paraded up the Thames ? And it looks like her succession is assured with the Royal Wedding at the end of April and now a great-grandchild on the way.

The London Olympics were another remarkable triumph. As team GB accumulated the medals, it dawned on us Scots that we are quite a sporting nation afterall. We won seven gold medals. Sir Chris Hoy won two of them in cycling. Andy Murray won a gold in London and went on to win the US tennis open championship in New York. The rowers Katherine Grainger and Heather Stanning both won gold. And also on the water Tim Baillie took a gold medal in the canoeing. Finally Scott Brush from the Borders helped Britain win the team event in the horse jumping.

In other sports, Scotland has not done so well. In rugby, we have had a disastrous year, falling to 12th place in the world rankings. Eve Muirhead’s ladies curling team just failed to hold on to their gold medal at the top of the European league, losing out to Russia in the final extra “end”. And in football, we came bottom of our group in the World Cup qualifying rounds.

Celtic, though, have done us proud by winning a place in the final round of the European champions league – beating the mighty Barcelona on the way. It didn’t matter they were held to a draw by St Johnstone the following week.

Rangers meanwhile have had an “annus horribilis” being forced into administration in February over a huge tax bill. Ironically, when it came to court, the tax authorities lost the case but everyone realised the taxman had won a moral victory and that Rangers had been indulging in a tax avoidance scheme which, while it may have been legal, was unfair. The club was demoted to the third division. But it has been reborn under a new owner Charles Green. It has attracted £20m of new investment and is winning its games, hoping to be back in the premier league before too long.

But looking beyond our small world, one of man’s great achievements this year has been to land another spacecraft on Mars. The car-sized “Curiosity” landed in the Gale Crater at 6.14 BST on 6th August, after a 350m mile journey lasting eight months. One of the first areas it explored was Glenelg, now twinned with the Highland village of the same name.

Also leaving the Earth this year were two other space explorers, Neil Armstrong, the first man on the Moon, and Sir Patrick Moore, the eccentric Englishman who presented “The Sky at Night” for over 50 years. He would have enjoyed one of the last achievements of 2012, the discovery, by astronomers at Edinburgh University, of a new galaxy out on the very edge of the universe. The exciting thing about Galaxy UDFj- 39546284 is that it was formed very soon after the big bang 13 billion years ago and it apparently shows us that our universe rolled out from the central bang in a fairly orderly fashion and not in one instant outburst, but rather like one of those spectacular mortar-style fireworks on Hogmanay.

And so we enter a new year, reckoning that we have learnt the lessons of the old one.

The automatic teller machine (ATM) was invented around 45 years ago. Today, the “hole in the wall” can be found in virtually every country in the world.

The ATM has also become increasingly sophisticated. No longer are they just cash dispensers, although that’s what most of us still use them for. The most advanced have become a key point of contact between the bank and its customers.

That means that the software needed has had to be developed from relatively simple programs to a series of highly complex ones. One of the leading developers of these is the Edinburgh-based ATM software company, KAL. Today, it has been announced that KAL has won the highly esteemed Queen’s Award for Enterprise in the International Trade category.

Founder and chief executive of KAL, Dr Aravinda Korala, spoke to The Caledonian Mercury about this little known but highly successful firm.

Want to discuss other issues? Join the debate on our new Scottish Voices forum

Iraq war protest, London, 2003 <em>Picture: Simon Rutherford</em>

Iraq war protest, London, 2003 Picture: Simon Rutherford

Interesting to watch the coverage of the carry-on in London – the big anti-cuts protest march, the occupation of Fortnum & Mason (one would hope the protesters took tea at some stage) and the general trashing of various perceived symbols of capitalist badness – bank windows, Topshop, the Ritz and so on.

The BBC – both on its news channel and also online – has reported the attendance at the main march as “more than 250,000”. This figure was credited to “The TUC, which organised the event”.

It may well have been 250,000 – but it’s not long since various other mass-protest marches and gatherings saw the BBC use the police estimate as their primary source of educated guesswork. Indeed, taking the police estimate as the first and most reliable source in such matters has been the tradition for a couple of decades, if not longer.

The Stop The War rallies ahead of the Iraq assault in February 2003 were a case in point. At the 2003 London rally, according to the BBC, “Police said it was the UK’s biggest ever demonstration with at least 750,000 taking part, although organisers put the figure closer to two million.”

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Similarly, in Glasgow in 2003, the BBC reported that “Strathclyde Police estimated that 30,000 people took part in the march … However, David Mackenzie of march organisers Scottish Coalition for Justice Not War put the figure at more than 80,000.”

Accurate, reliable estimates for large open-air gatherings in complex public spaces such as city centres and parks are notoriously hard to obtain. The lack of tickets and turnstiles means it’s all very amorphous, and those who are trying to control and contain the protest (the police and – usually – the government of the day) traditionally want to downplay the numbers, while organisers and participants want to big them up.

As regards the 2003 Glasgow protest, the “low” official figure of 30,000 was widely ridiculed – and, as one who was present that day (and who has attended various other large gatherings – protests, sporting events and stadium-sized gigs), I too found it laughably small.

However, the actual numbers at any of these events – whether in 2003, or today in London, or earlier protests when Margaret Thatcher was in power – are by-the-by as regards the point I want to make here.

My point is this: rightly or wrongly, the BBC has, over recent years, come to be regarded as having an inbuilt, institutional left-liberal bias, in much the same way that many SNP supporters regard it as having an inbuilt pro-Union bias.

Whether that left-liberal bias exists is for others more qualified than me to assess, but it is a widely held notion, both in the blogosphere and in parts of the mainstream media. There is even a website, Biased BBC, set up to research this exact question.

So how does the way the corporation choose to report march numbers relate to this? Well, during the Iraq protests, the top-line figures used by the BBC were the “low” ones provided by the police and undoubtedly favoured by the government of the day – which was Labour. Similarly, if memory serves, when any of those protests turned violent round the fringes, there was no particular attempt by the BBC to differentiate between the aggressive minority and the peaceful majority.

And today, in London? The BBC opts for top-line “high” figures provided by the unions and undoubtedly favoured by the main opposition party of the day – which happens to be Labour. And the mid-evening anchor on the BBC News channel took great care to differentiate between the aggressive minority and the peaceful majority.

Spot the difference? It might just be coincidence – it should be added, for instance, that Sky News, not a outlet reckoned to be left-leaning, has gone for an even higher estimate of today’s march numbers: “up to half a million”.

But if the BBC is keen to avoid accusations of bias, then this particular change in editorial policy – if that is what lies behind the difference between the 2003 and 2011 methods of counting – doesn’t seem likely to help when it comes to conveying a sense of impartiality.

Oh, and the second observation from today’s news? It’s the 70th birthday of Richard Dawkins – described by the Guardian in its weekend birthdays slot as “ethologist, evolutionary biologist and writer”. And today is also the day when William Hague – “Conservative MP and foreign secretary” – turns 50.

There’s evolution for you.

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Alcopop by Dan FoyColin Borland, Federation of Small Businesses

Cast your mind back a few years– when we thought top bankers were masters of the universe and credit crunch was a breakfast cereal. Back then, the big worry on the economic front was inflation and high commodity prices.

Of course, well-documented events soon sorted that out: demand dropped and the issue faded as we battled to save our financial systems from meltdown.

But, as things begin to pick up – and oil is back at over $100 a barrel – worries about inflation and rising overheads return. And, here in the UK, matters have not been helped by the rise in VAT and the ever-upward trend in fuel duty – at a time when business and consumer confidence is fragile.

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So, with cash-flow tight, it’s important that governments think hard before passing legislation which will either squeeze margins even more or put plans on hold by creating uncertainty.

Which brings me neatly to the Social Responsibility Levy. This was resurrected and tacked on to the Alcohol etc (Scotland) Bill as it neared the end of its legislative journey at Holyrood. In essence, it lets councils apply to the Scottish Parliament to charge alcohol retailers a supplement which would compensate for the public service costs associated with alcohol abuse.

The problem, though, is that the rationale for the levy hinged on the increased profits alcohol retailers were likely to enjoy as a result of minimum pricing and the subsequent desire to balance profit with social responsibility. Now, with minimum pricing defeated, any additional charges will have to be met from somewhere else in the business.

And it’s not simply the affordability. Uncertainty about how it will actually work in practice has left businesses worried.

Indeed, the Scottish Government has issued an initial consultation asking how the levy should be implemented, to which the Federation of Small Businesses (FSB) will be responding later this month. While not spelled out, the consultation questions suggest that there are basically three options on the table: a levy on the bad, irresponsible retailers; a blanket levy on everyone; a blanket levy, with exemptions and discounts for good practice.

It seems fair that, if a scheme must be brought forward, it should specifically target problem premises. The other two options either simply declare the licensee guilty, or assume their guilt until it’s proved otherwise.

But this still leaves problems. How, for example, do you identify who is an “irresponsible” licensee? To audit every licence holder regularly would be resource intensive. And how does one determine which premises should be held responsible for public disorder in an area with several nightclubs, pubs, off licences, hotels, wine shops etc.?

And, with all three options, there is the question of how, if this levy is set to mitigate the cost of alcohol abuse, the extra money will actually get to the police and NHS.

I’ve long said I’m proud that the Scottish Parliament has a Rolls Royce legislative system. Perhaps, though, laws like this mean it’s time it went in for a service.

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Field Marshal George Wade: Coming to an anthem near you

Field Marshal George Wade: Coming to an anthem near you

By James Browne

I have finally worked out what’s wrong with Scotland. To do this I eschewed the normal method – staring through the bottom of an empty bottle of Ardbeg at the highlights of the ‘78 World Cup and then screaming in the dark about giving Margaret Thatcher a state funeral right sodding now.

No, it comes down to our National Anthem. Let me quickly point out here that I do not refer to the music hall doggerel that the Southern British have foisted on us. However, that ditty neatly illustrates my core argument.

In essence the lyrics of the National Anthem of the United Kingdom of Great Britain and Northern Ireland and the Falklands and Maybe Gibraltar, translate as the following.

God, we are servile.
We are very servile.
Let’s hope we stay servile for a long time.
God bless those that keep us servile.

In the words of the great father of Enlightenment, David Hume: “What a load of baws, by the way.” Do you see how it works? This song, which is supposed to encapsulate our national spirit, is all about how we should shut up and do what we’re told.

You might not think that matters but music creeps into the spirit in a way that, say, manifestos singularly fail to.

Of course, these days the powers what be tend to omit the contentious “fourth verse”:

Lord, grant that Marshal Wade
May, by thy mighty aid,
Victory bring.
May he sedition hush
And, like a torrent, rush
Rebellious Scots to crush.
God save the [delete as applicable].

With that torrent of keech flowing underneath our national consciousness no wonder that A) all Brits are supine and B) Scotland is treated as an unwelcome, benefits-guzzling periphery.

If you doubt that British are a supine people, look at our attitude to bankers and City bonuses. This week we learn that the cowboys who wrecked the economy and then needed bailing out by rest of us will be trousering bonuses totalling £7bn.

Those of you who have been paying attention will note that that figure is not unadjacent to the cuts being banded about by Westminster’s ruling coalition. If you have really been paying attention then you will further remember that that club of very rich people assured us “we’re all in this together”. All of us apart from their very rich banking chums, apparently, who have not been troubled by the government over their bonus plans, even though we paid for their bloody institutions to stay in business.

The prevailing view among the rich and powerful from the City of Westminster to the City of London is that unemployment, salary freezes and financial pain are just for the little people.

You know what? The little people sit there and take it. In other European countries, people are on the streets building barricades, blocking roads and setting fire to things in shows of furious civil disobedience that make the student fees protests look like a Women’s Institute outing.

What should have happened is that after days and days of angry protests, the bankers agreed, in a show of good will, to donate their bonuses to the running of the country. And, we the people, in a matching show of good will, agreed not to roll out the guillotine. Yet.

But no, God Save the Exploiters works its oxymoronic magic and Brits shug their shoulders and get on with being servile.

Scots, however, are different. We aren’t servile. We are impotently despairing. Again, we can see deficiencies in our choice of anthem.

Flower of Scotland is a lovely, moving song. However its core message is this: “The baw’s up on the slates. A’ the guid ones are deid. Mebbe one day, if we’re really, really lucky, we can be a bit less shite.”

Doesn’t really get the blood thumping does it? We’re not, as a nation, good at the concept of “rousing”. We’re too cynical and hudden-doon for that. The other contenders for our national anthem bear this out. A Man’s a Man for a’ That, Scots Wha Hae, Dick Gaughan’s Workers’ Song and Freedom Come-All-Ye all have fantastic lyrics but sound like dirges.

There is a fantastic song, however, that provides us with the perfect template for a national anthem. It is an anthem fit for a nation with fire in its belly and a brain in its head.

It calls on the country’s citizens – note: citizens, not subjects to the house of Hanover or Stuart or Saxe-Coburg-Gotha – to grab weapons to defend their liberty, not yesterday, not tomorrow, but now until the blood of freedom’s enemies runs in the fields. It finishes off with a spirited vision of the foe’s “expiring eyes” witnessing freedom’s triumph and our glory. That, mon brave, is a national anthem to inspire and not overwhelm with inferiority.

Of course, somone else has got there first. The song was used as the national anthem of revolutionary Russia. But that was merely a pit-stop in its fine tradition of upholding freedom, equality and cooperation. Literally translated, its name is the “Song of Marseille” but you know it better as La Marseillaise – the French national anthem.

(Before we get bogged down in “we surrender” rubbish. The Marseillaise greeted the Sun of Austerlitz, was heard ringing out during the appalling heroism of Dien Bien Phu and bravely came forth from the doomed lips of Resistants during the Second World War. It, of course, is predated by the famous history-changing French victories at Tours, Hastings and Formigny.)

It also features a stirring tune. It’s full of pomp and attitude – as shown by the fact that it still scans when you replace every line with: “Up your arse, we’re the French.” It also reflects the famous French unreasonableness. If their government suggests they might shave 20 minutes off their four-hour lunches, Paris erupts with burning barricades of amouse-bouches blocking evey thoroughfare.

We need some of that attitude, citizenship and self-belief. Scotland needs a musical heart with a bit of backbone to it. Something upbeat, something optimistic, something outward looking.

Of course, Scotland being Scotland, no such song exists. But we’re an inventive people. If we can clone sheep can we not cross the tune of the old National Anthem of the Soviet Union with the lyrics of The Corries’ Scotland Will Flourish?

Amid fears of a possible cash-flow crisis as a result of the severe weather, the Federation of Small Businesses in Scotland has contacted three of the leading banks and urged them to show some common sense with their small firm clients. It’s asked them to help by offering whatever flexibility they can to viable businesses hit with short-term cash-flow problems.

This is likely to be a real problem, with roads out of action, deliveries stranded and staff unable to report for work. Transport Scotland and the police have been advising drivers in the Central Belt to make journeys only if “absolutely essential”. As a result, many businesses across Scotland have either closed or had their productivity severely reduced through no fault of their own.

The banks’ response has been quite positive. Donald Kerr, commercial banking director at Bank of Scotland, acknowledged that there had been “the worst winter weather since the 1960s and this will no doubt have had an impact on small and medium sized businesses across the country. We urge any small business that faces difficulties as a result of the cold snap to contact their relationship manager.”

At the Clydesdale Bank, Scott McKerracher, its regional director (North), also advised businesses to get in touch as soon as they encountered problems. “We are committed to being as supportive as possible to businesses facing particular difficulties caused by the severe weather,” he said. “They should be assured that we take a common sense approach and that few banks have done more to continue to support Scottish businesses in these challenging times.”

For the Royal Bank of Scotland, Graham Galloway, managing director of business and commercial banking, agreed that early contact was essential. “The weather has hit many businesses at a time when cashflow is critical, stock has to be ordered, suppliers and staff need to be paid. Businesses should talk to us as soon as possible so we can help, for example through increasing overdrafts or providing loan repayment holiday”

The FSB has reinforced the message about talking not just to the banks but also to suppliers if the travel disruption and a drop in trade has left small firms temporarily out of pocket. As Andy Willox, the organisation’s policy convenor explained, “Scotland’s business community, especially in the central belt, has taken a real hit over the past two weeks – and there’s the possibility of more trouble to come.

“Our members are doing what they can to battle through these conditions and keep delivering services to their customers. And most of our members do have severe weather contingency plans in place. But even the most robust plans need to be re-thought when our motorway network is closed, other roads are treacherous and goods, customers and staff can’t reach them.”

He would also like to see a similarly flexible approach taken by utility companies, regulators and big businesses. “As the severe weather eases, the financial damage caused by the recent disruption can’t be forgotten,” he said.

Read the full text of George Osborne’s Budget speech.

George Osborne. <em>Picture: MHolland</em

George Osborne. Picture: MHolland

Business leaders from across all sectors of Scotland warned today of serious problems from the Chancellor’s decision to raise VAT to 20 per cent.

George Osborne, the Chancellor, announced a raft of new spending cuts and tax rises in his emergency Budget which, he claimed, would help curb Britain’s spiralling deficit.

  • VAT will rise from 17.5 per cent to 20 per cent on 4 January 2011.
  • Income tax, the personal allowance will rise by £1,000 in April to £7,475.
  • Capital Gains Tax, this will rise for higher rate taxpayers to 28 per cent, but stay at 18 per cent for middle-income savers.
  • Corporation tax, this will be cut for the next three years.
  • No change in alcohol, fuel and cigarette duties but proposed cider duty rise to be stopped.
  • Child benefit will be frozen for three years.
  • Housing benefit will be curbed with maximum limits applied, health in pregnancy grant will be abolished, there will be a crackdown on disability living allowance.
  • The basic state pension will be linked to earnings from April 2011.
  • There will be a two-year pay freeze for public sector workers, but rises for the poorest paid.
  • A bank levy will be introduced.
  • The government will investigate switching air passenger duty to tax planes, not passengers.
  • Businesses setting up outside London and the southeast will get tax relief.

Business leaders accepted the need to curb public spending and welcomed some parts of the Budget, particularly the cuts in corporation tax. But they warned of the adverse effects of the VAT rise.

Andy Willox, of the Federation of Small Businesses in Scotland, said: “Many in the Scottish small business community understand the need to grapple with the public finances and understand some of the tough decisions that the Chancellor had to make today. However, the increase in VAT will pose problems to many small firms who may find it difficult to absorb the financial and administrative costs associated with this move. “

Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said she welcomed plans to cut corporation tax but had “serious concerns” over the lack of support for Scotland’s video games industry.

“With home-grown developers such as Dundee ’s Realtime Worlds and Ruffian Games about to launch major new products across the world over the coming weeks, the Government have made a bad decision in reversing the planned tax breaks for one of our key industries of the future,” she said.

And she added: “This was always going to be a painful Budget as the new coalition Government seek to make early inroads into tackling the UK ’s budget deficit. Despite assurances from all the political parties that raising the rate of VAT was not in their immediate plans, I think we all expected an increase to 20 per cent sooner rather than later. For Scotland , this will undoubtedly cause concerns in our retail and tourism sectors, as it will serve to dampen consumer demand in the economy next year.”

The overall message – of promotion for the private sector at the expense of the public sector – was one that she praised.

She said: “It is the shift away from reliance on the public sector towards a recognition that it will be the private sector which delivers future growth that characterises this Budget.

“From that perspective, and for its clear direction in tackling the deficit, it is welcome. Nonetheless there will undoubtedly be fierce battles ahead to ensure that Scottish business receives the recognition and support it needs going forward.”

John Drummond, chief executive of the Scottish Grocers Federation, said: “An increase in VAT not only impacts sales but also creates costly operational disruption. For a typical convenience store a VAT change requires price and signage changes on approximately 50 per cent of the range.

“An increase on the 4th January 2011, which is a bank holiday in Scotland, will place a major bureaucratic burden on retailers during the busiest time of the year.”

However, he added: “We do welcome plans to reduce the headline rate of corporation tax and in particular plans to lower the small companies rate of corporation tax to 20 per cent.”

Gavin Hewitt, chief executive of the Scotch Whisky Association said the government had made a “sensible and welcome” decision to freeze alcohol duty.

He said: “We encourage the Government to look closely at taxing all drinks at the same rate according to alcohol content, coupled with a ban on below tax sales. We believe this route would help the Government address its concern over the pricing of alcohol, would secure greater social responsibility and would offer increased revenue.

“Today’s announcement on corporation tax will also help Scotch Whisky play its part in growing the UK’s manufacturing and export sector.”

The British Retail Consortium’s director general, Stephen Robertson, said: “We didn’t want a VAT increase. It’ll hit jobs, consumer spending, the pace of recovery and add to inflation but we accept the Government has no easy options.

“It’s some consolation that the range of VAT-able products isn’t being extended.

“Changing computer systems and shelf prices on tens of thousands of products is a huge, costly exercise for retailers. Planning for catalogues is a particular nightmare.

“The start date, in the middle of the busy and crucial post-Christmas sales period, will be difficult but retailers would rather have more notice than less. Six months to prepare is better than the rise coming-in this summer.

“Retailers will work hard to implement the increase smoothly but there must be a light-touch to enforcement at the time of introduction.”

STUC unhappy at ‘unwise and unfair’ measures

By David Calder
The strongest protests north of the border came from the STUC which described the Budget as “unwise and unfair”. It promised to coordinate a Scotland-wide campaign against those measures which will hit the poor hardest. General Secretary Grahame Smith also claimed that it was “…likely to fail in its central purpose of reducing the deficit.

“Neither softer language nor the fig-leaf of Lib-Dem support,” he said, “can hide the fact that this is a largely ideological budget hiding behind the fallacy there is only one path to deficit reduction. And of course, the coalition’s central argument that cuts are required now to appease the markets doesn’t stand up to the merest scrutiny.

“Raising VAT and cutting core services amounts to a direct attack on the poorest in society. The public sector pay freeze amounts to a real terms wage cut – including for those the lowest paid who the Chancellor purported to protect.”

Read the full text of George Osborne’s Budget speech.

Here’s the full text of George Osborne’s Budget speech.

Mr Deputy Speaker, this emergency Budget deals decisively with our country’s record debts. It pays for the past.
And it plans for the future. It supports a strong enterprise-led recovery.

It rewards work. And it protects the most vulnerable in our society.

Yes it is tough; but it is also fair.

This is an emergency Budget, so let me speak plainly about the emergency that we face.

The coalition Government has inherited from its predecessor the largest budget deficit of any economy in Europe with the single exception of Ireland.

One pound in every four we spend is being borrowed.

What we have not inherited from our predecessor is a credible plan to reduce their record deficit.

This at the very moment when fear about the sustainability of sovereign debt is the greatest risks to the recovery of European economies.

Questions that were asked about the liquidity and solvency of banking systems are now being asked of the liquidity and solvency of some of the governments that stand behind those banks.

I do not want those questions ever to be asked of this country.

That is why we have set a brisk pace since taking office.

In the last seven weeks:

  • We have announced, conducted and completed a review of this current year’s spending and identified six billion pounds of savings.
  • We have announced, established and received the report of the independent Office for Budget Responsibility. The power the Chancellor has enjoyed for centuries to determine the growth and fiscal forecasts now resides with an independent body immune to the temptations of the political cycle.
  • And we have examined, decided on and in some cases halted the mass of unfunded commitments, IOUs and overcommitted reserves that greeted us on entering office.

This early, determined action has earned us credibility in international markets.

It has meant that our promise to deal decisively with the deficit has been listened to. Market interest rates for Britain have fallen over the last seven weeks, while those of many of our European neighbours have risen.

Those lower market interest rates are already supporting our recovery.

But unless we now deliver on that promise of action with concrete measures, that credibility – so hard won in recent weeks – will be lost.

The consequence for Britain would be severe.

Higher interest rates, more business failures, sharper rises in unemployment, and potentially even a catastrophic loss of confidence and the end of the recovery.

We cannot let that happen.

This Budget is needed to deal with our country’s debts.

This Budget is needed to give confidence to our economy.

This is the unavoidable Budget.

I am not going to hide hard choices from the British people or bury them in the small print of the Budget documents.

You’re going to hear them straight from me, here in this speech.

Our policy is to raise from the ruins of an economy built on debt a new, balanced economy where we save, invest and export.

An economy where the state does not take almost half of all our national income, crowding out private endeavour.

An economy not overly reliant on the success of one industry, financial services – important as they are – but where all industries grow.

An economy where prosperity is shared among all sections of society and all parts of the country.

In this Budget everyone will be asked to contribute.

But in return we make this commitment.

Everyone will share in the rewards when we succeed.

When we say that we are all in this together, we mean it.

Mr Deputy Speaker, the first challenge for this Budget is to set the fiscal mandate – or in other words, our overall objective for the public finances.

The previous Government had two fiscal rules, one for debt and one for the current budget.

They were supposed to force Chancellors to set aside money in the good years so they could borrow sustainably when the economy turned down.

They completely failed in that task.

And as this is the last budget in which this golden rule will appear, I would like to be the last Chancellor to report on it.

We are set to miss the golden rule in this cycle by 485 billion pounds.

We now know the intrinsic weakness in backward-looking fiscal rules.

Past prudence was an excuse for future irresponsibility.

And the judge of the rules was the very same Chancellor they were supposed to be restraining. We propose a more credible approach.

Our fiscal mandate will be forward-looking, and the judge of whether we are on course to meet it will be not the Chancellor but the independent Office for Budget Responsibility.

On behalf of the House, I want to thank Sir Alan Budd and his fellow Committee members, Geoffrey Dicks and Graham Parker, for their highly professional effort.

In the space of just seven weeks I believe we have established the Office for Budget Responsibility as a permanent improvement to economic policy making and the transparency of government.

The legislation to put the Office on a statutory footing will now be drawn up and I hope it will command all party support.

I now turn to what that fiscal mandate will be.

The view of the international community was clearly expressed at the latest G20 meeting, and we will be taking the same message to the G20 summit in Toronto this weekend.

Surplus countries should do more to support global demand.

So we welcome China’s announcement to come off the dollar peg.

At the same time the international community believes countries with high fiscal deficits need to accelerate the pace of fiscal consolidation.

That is precisely what we now propose to do.

The formal mandate we set is that the structural current deficit should be in balance in the final year of the five-year forecast period, which is 2015-16 in this Budget.

This mandate is:

  • Structural – to give us flexibility to respond to external shocks;
  • Current – to protect the most productive public investment;
  • And credible – because the Office for Budget Responsibility, not the Chancellor, will decide on the output gap.

In order to place our fiscal credibility beyond doubt, this mandate will be supplemented by a fixed target for debt, which in this Parliament is to ensure that debt is falling as a share of GDP by 2015-16.

I can confirm that, on the basis of the measures to be announced in this Budget, the judgement of the Office for Budget Responsibility published today, is that we are on track to meet these goals.

Indeed, I can tell the House that because we have taken a cautious approach, we are set to meet them one year earlier – in 2014-15.

Or to put it another way, we are on track to have debt falling and a balanced structural current budget by the end of this Parliament.

Mr Deputy Speaker, at this point in the Budget speech, the Chancellor would normally read out their own set of economic and fiscal forecasts.

They normally tell you more about the political cycle than the economic one.

Those days have gone for good. Instead I will give the House the latest forecasts from the independent Office for Budget Responsibility, taking into account the measures in the Budget.

Growth in the UK economy for the coming five years is estimated to be:

1.2 per cent this year and 2.3 per cent next year;

Then 2.8 per cent in 2012 followed by 2.9 per cent in 2013;

Then 2.7 per cent in both 2014 and in 2015.

Consumer price inflation is expected to reach 2.7 per cent by the end of the year before returning to target in the medium term.

And let me take this opportunity to confirm that the inflation target remains at 2 per cent as measured by the Consumer Prices Index.

The unemployment rate is forecast by the Office for Budget Responsibility to peak this year at 8.1 per cent and then fall for each of the next four years, to reach 6.1 per cent in 2015.

Some have suggested that there is a choice between dealing with our debts and going for growth.

That is a false choice.

The crisis in the Eurozone shows that unless we deal with our debts there will be no growth. And these forecasts demonstrate that a credible plan to cut our budget deficit goes hand in hand with a steady and sustained economic recovery, with low inflation and falling unemployment.

What is more the forecast shows a gradual rebalancing of the economy, with business investment and exports playing a greater role and government spending and debt-fuelled consumption a smaller role.

A sustainable private sector recovery built on a new model of economic growth, instead of pumping the debt bubble back up.

Part of the reason, as we have always argued, is that tighter fiscal policy can enable interest rates to stay lower for longer.

And as the Governor of the Bank of England confirmed this last week at the Mansion House, “if prospects for growth were to weaken, the outlook for inflation would probably be lower and monetary policy could then respond.”
The subject of interest rates brings me to say this about attempts to directly compare last week’s forecasts with this one.

As the Office for Budget Responsibility notes in today’s Budget document, any such comparison would be “misleading”, because last week’s forecast included the lower interest rates that expectations of this week’s Budget have already brought about.

So as Sir Alan Budd and his colleagues have written, to actually follow the fiscal path set out by the previous Government “would lead to higher interest rates and so lower economic activity” than his forecast showed.

Mr Deputy Speaker, let me now turn to the measures in the Budget designed to deliver this accelerated reduction in the structural deficit.

The coalition Government believes that the bulk of the reduction must come from lower spending rather than higher taxes.

The country has overspent; it has not been under-taxed.

Our approach is supported by the international evidence, compiled by the Organisation for Economic Cooperation and Development, the International Monetary Fund and others, which found that consolidations delivered through lower spending are more effective at correcting deficits and boosting growth than consolidations delivered through tax increases.

This is the origin of our 80:20 rule of thumb – roughly 80 per cent through lower spending and 20 per cent through higher taxes.

This evidence has been available in the Treasury for some time, but was only published in a redacted form by the previous Government.

We intend to follow international best practice and the Treasury’s own analysis.

My measures today mean that 77 per cent of the total consolidation will be achieved through spending reductions and 23 per cent through tax increases.

I believe this gets the balance right.

Mr Deputy Speaker, I now turn to the Office for Budget Responsibility’s fiscal forecasts.

As a result of the measures I will announce today, public sector net borrowing will be:
- £149 billion this year,

- falling to £116 billion next year,

- then £89 billion in 2012-13,

- and then £60 billion in 2013-14.

By 2014-15 borrowing reaches £37 billion, exactly half the amount forecast in the March Budget.

In 2015-16, borrowing falls further to £20 billion.

As a share of the economy, borrowing will fall from 10.1 per cent of GDP this year to just 1.1 per cent in 2015-16.

We now know, thanks to last week’s Office for Budget Responsibility forecast, that the structural current deficit is significantly larger than we were told – 0.8 per cent of GDP or £12 billion next year.

Thanks to my action today, the structural current balance will be minus 4.8 per cent of GDP this year.

That deficit will then be eliminated to plus 0.3 per cent in 2014-15 and plus 0.8 per cent in 2015-16. In other words, it will be in surplus.

Public sector net debt as a share of GDP will be 62 per cent this year, before peaking at 70 per cent in 2013-14.

Because of our action today, it then begins to fall, to 69 per cent in 2014-15 and then 67 per cent in 2015-16.

While under the plans we inherited, debt would have increased every full year of this Parliament. And the House will want to know that as a result of our measures debt interest payments will be £3 billion a year lower by the end of this Parliament.

Mr Deputy Speaker, I have one further announcement to make regarding macroeconomic policy.

I can confirm that, as set out in the coalition agreement, this Government will not be joining the euro in this Parliament.

Therefore, Mr Deputy Speaker, I have abolished the Treasury’s Euro Preparations Unit.
Let me now turn to my other decisions on public spending.

Mr Deputy Speaker, the state today accounts for almost half of all national income.
That is completely unsustainable.

All parties in this House now accept that spending needs to be cut.

And we have made a start.
But we need to go much further if we are to meet our fiscal mandate and see debt falling by the end of this Parliament.

Today we are setting out the overall path of public spending that will achieve that.
Let me begin with current spending.

Current expenditure will rise from £637 billion in 2010-11 to £711 billion in 2015-16.

Although this is an increase, the House should remember that we inherit a rapidly rising bill for debt interest – a bill that won’t start falling until the debt itself starts to fall.

Debt interest payments alone will cost the taxpayer a quarter of a trillion pounds over this period.
One of my predecessors used to call this spending the costs of social failure – I say it is the price of economic failure.

Compared to the plans set out by the previous Government, I am announcing today additional current expenditure reductions of £30 billion a year by 2014-15.
The plans for public investment we inherit from our predecessors envisage a steep drop from £69 billion last year to £46 billion in 2014-15.

After the initial in-year reductions, the question we have faced is how much further to go.
Well-judged capital spending by government can help provide the new infrastructure our economy needs to compete in the modern world.

It supports the transport links we need to trade our goods, the equipment we need to defend our country, and the facilities we need to provide quality public services.
I think an error was made in the early 1990s when the then Government cut capital spending too much – perhaps because it is easier to stop new things being built than to cut the budgets of existing programmes.

We have faced many tough choices about the areas in which we should make additional savings, but I have decided that capital spending should not be one of them.
There will be no further reductions in capital spending totals in this Budget.

But we will still make careful choices about how that capital is spent.

The absolute priority will be projects with a significant economic return to the country.
Assessing what those projects are will be an important part of the autumn spending review.
Mr Deputy Speaker, the Government can also dispose of assets which should rightly be in private ownership.
Yesterday we launched the sale of High Speed 1.

We will look at how to dispose of our shareholding of NATS, the air traffic control services.
We will aim to sell the student loan book, and look at options around early repayment for individuals.
And we will resolve the future of the Tote – at last.

My Right Honourable Friend the Business Secretary will also facilitate a private capital injection into the Royal Mail Group, something that has been long overdue.
Before I turn now to discuss departmental budgets, I need to say something first about another area of spending – the Civil List.

The Civil List is the Government’s support for Her Majesty the Queen in Her duties as Head of State.
I am sure everyone in this House will want to join me in recognising The Queen’s loyal service and immense contribution to public life.

The amount provided by the Civil List has remained unchanged over the last twenty years at £7.9 million.

This has required careful management.
Because of inflation, the annual payment is today worth only a quarter of what it was twenty years ago.
I can announce that, with the full agreement of The Queen, the Civil List will remain frozen at £7.9 million for the coming year.

I will propose a new means of consolidated support for Her Majesty for the future, at a later date.
In addition, the Royal Household have agreed that in future Civil List expenditure will be subject to the same audit scrutiny as other government expenditure, through the National Audit Office and the Public Accounts Committee.
I believe this will mean clear accountability in this House and it will strengthen public confidence.
Let me turn now to my decisions on departmental expenditure limits.

In recent years, Chancellors have been reluctant to explain what their total spending projections will mean for Whitehall departments.

This is entirely self-defeating.
It normally takes the Institute for Fiscal Studies less than 24 hours to work it out for themselves and let the public know the truth.

I will save them the effort.
We have inherited from the previous Government spending plans to cut departmental budgets by £44 billion a year by 2014-15.

This implies an average real reduction for unprotected departments of 20 per cent.
Not that this was ever said. Nor was a single pound of cuts to programmes even identified.
Because the structural deficit is worse than we were told, my Budget today implies further reductions in departmental spending of £17 billion by 2014-15.
We have committed to providing the National Health Service with real increases throughout the Parliament and we will honour our international aid obligations to the poorest in the world.

Once these are taken into account, the Budget figures imply that other departments will face an average real cut of around 25 per cent over four years.

Clearly, if we can find any additional savings to social security and welfare beyond those which I will shortly outline, then that will greatly relieve the pressure on these departments and that 25 per cent figure.
Of course, not all departments will receive the same settlement.

I recognise, for example, the particular pressures on our education system and on defence.
Final departmental settlements, and the final split between departmental expenditure and annually managed expenditure on welfare, will be set in the spending review.
Rather than follow the usual practice of keeping the date of that review a secret until a few weeks before it happens, let me tell the House that it will be presented on Wednesday 20th October.

A further way we can ease the pressure on public services is to agree that we need to restrain public sector pay in these difficult times.

And we need to do something about the spiralling costs of public sector pensions.
Many millions of people in the private sector have in the last couple of years seen their pay frozen, their hours reduced, and their pension benefits restricted.
They have accepted this because they knew that the alternative in many cases was further job losses.
The public sector was insulated from these pressures but now faces a similar trade off.
I know there are many dedicated public sector workers who work very hard and did not cause this recession – but they must share the burden as we pay to clean it up.
The truth is that the country was living beyond its means when the recession came. And if we don’t tackle pay and pensions, more jobs will be lost.

That is why the Government is asking the public sector to accept a two-year pay freeze.
But we will protect the lowest paid.

In the past I have said that we would be able to exclude the one million public sector workers earning less than £18,000 from a one year pay freeze.

Today, because we have had to ask for a two year freeze, I extend the protection to cover the 1.7 million public servants who earn less than £21,000.
Together they make up 28 per cent of the public sector workforce.

They will each receive a flat pay rise worth £250 in both these years, so that those on the very lowest salaries will get a proportionately larger rise.
In recognition of our armed services who are risking their lives for us all in Afghanistan, we have also doubled the operational allowance to £4,800.
And we have asked Will Hutton to draw up plans for fairer pay across the public sector, without increasing the overall pay bill, so that those at the top of organisations are paid no more than 20 times the salaries of those at the bottom.
The culture of excessive pay at the very top of the public sector simply has to end.
Mr Deputy Speaker, we also need to deal with the cost of public service pensions.
This is one of the greatest long term pressures facing our nation’s finances.
The Office for Budget Responsibility today publishes figures showing that by 2015-16 we will be spending over £10 billion a year simply to meet the gap between pension contributions and payments to the unfunded pensions they support.
That is why I have asked John Hutton to carry out an investigation.

As the Work and Pensions Secretary in the previous Government, he brings experience and an unbiased approach.
He will provide an interim report in September this year to help inform any decisions required for the spending review, and a full report in time for next year’s Budget.
The Government will also accelerate the increase in the State Pension Age to 66. A call for evidence will be launched later this week.

And we will consult on whether to phase out the Default Retirement Age.

Mr Deputy Speaker, let me now address the largest bill in government – the welfare bill.
It is simply not possible to deal with a budget deficit of this size without undertaking lasting reform of welfare.

It has been a key component of most successful fiscal consolidations elsewhere in the world.
And around Europe, countries are now tackling their benefits bill.

Germany has already announced 30 billion euros worth of cuts to welfare spending.
And others are taking similar steps.

Here in Britain, the explosion in welfare costs contributed to the growing structural budget deficit in the middle part of this decade.

Total welfare spending has increased from £132 billion ten years ago to £192 billion today.
That represents a real terms increase of a staggering 45 per cent.

It’s one reason why there is no money left.

It has also left an increasing number of our fellow citizens trapped on out-of-work benefits for the whole of their lives.

A greater proportion of our children grow up in workless households than any other country in Europe.
We are wasting the talent of millions, and spending billions on it in the process.
So we will increase the incentives to work, and reduce the incentives to stay out of work.
We will focus our benefits more towards those in need.

And we will end some one-off payments that the country cannot afford anymore.

First, we need to put the whole welfare system on a more sustainable and affordable footing.
So from next year, with the exception of the state pension and pension credit, we will switch to a system where we up-rate benefits, tax credits and public service pensions in line with consumer prices rather than retail prices.
The consumer price index not only reflects everyday prices better, it is of course now the inflation measure targeted by the Bank of England.

This will save over £6 billion a year by the end of the Parliament.

I believe this is a fairer approach than a benefits freeze.

In time for the next Budget we will also publish proposals to move the indexation in the tax system from RPI to CPI in a way that protects revenues.

Tackling spiralling welfare costs means also addressing the bill for tax credits.
Spending on tax credits has increased from £18 billion in 2003 to £30 billion this year.
This is unsustainable.
There are over 150,000 families with incomes over £50,000 receiving tax credits.
Taking into account the various disregards means that families earning up to £83,000 are eligible for this means tested benefit.

The country can simply not afford this.

We need to target tax credits on those who need the help most.

So we will:
- Reduce payments to families earning over £40,000 next year and then align the thresholds for the child and family element;

- Increase the taper rate at which awards are reduced;

- Remove the baby element for new children from April 2011;

- Remove the one-off payment to new workers over 50 from April 2012;

- Reduce the income disregard from £25,000 to £10,000, and then £5,000;

- Introduce an income disregard for income falls;

- Reduce back-dating from three months to one month;

- And we will not introduce the pre-election promise of a new tax credit element for infants.
Sadly, there are further benefits which the country can no longer afford.

So we will abolish the poorly-targeted Health in Pregnancy Grant from April 2011.

At the same time we will restrict the sure start maternity grant to the first child only.
And we will expect lone parents to look for work when their youngest child goes to school.
We have decided that we simply cannot afford to extend the Saving Gateway and we have also had to take a difficult decision about child benefit.

I have received many proposals about this.

Some have suggested we means test it; others that we tax it.

All these proposals involve issues of fairness. This benefit is usually claimed by the mother.
To tax it would mean the working mothers received less than the non-working partner of a millionaire.
Means test it and we would have to create a massively complex new system to assess household incomes.
I do not propose to do these things. I know many working people feel that their child benefit is the one thing they get without asking from the state.
So instead, to control costs, we have decided to freeze child benefit for the next three years.
This is a tough decision, but I believe it strikes the right balance between keeping intact this popular universal benefit while ensuring that everyone, across the income scale, makes a contribution to helping our country reduce its debts.
That brings me to another universal benefit, Disability Living Allowance.

Mr Deputy Speaker, it is right that people who are disabled are helped to lead a life of dignity.
We will continue to support them, and we will not reduce the rate at which this benefit is paid.
But three times as many people claim it today than when it was introduced eighteen years ago.
And the costs have quadrupled in real terms to over £11 billion, making it one of the largest items of government spending.

We will introduce a medical assessment for Disability Living Allowance from 2013, which will be applied to new and existing claimants.

This will be a simpler process than the complex forms they have to fill out at present.
That way we can continue to afford paying this important benefit to those with the greatest needs, while significantly improving incentives to work for others.
Mr Deputy Speaker, spending on housing benefit has risen from £14 billion ten years ago to £21 billion today.

That is close to a 50 per cent increase over and above inflation.

Costs are completely out of control.

We now spend more on housing benefit than we do on the police and on universities combined.
And among these enormous numbers for total spending there are some equally enormous individual awards.
Today there are some families receiving £104,000 a year in housing benefit.

The cost of that single award is equivalent to the total income tax and national insurance paid by 16 working people on median incomes.

It is clear that the system of housing benefit is in dire need for reform.

We will do that by:
- Re-setting and restricting Local Housing Allowances;

- Up-rating deductions;

- Reducing certain awards;

- Re-adjusting Support for Mortgage Interest payments;

- Limiting social tenants’ entitlement to appropriately sized homes;

- And, lastly, we will for the first time introduce maximum limits on housing benefit – from £280 a week for a one-bedroom property to £400 a week for a four-bedroom or larger.

Our package today reduces the costs of Housing Benefit by £1.8 billion a year by the end of the Parliament, or 7 per cent of the total budget.

It will also improve incentives to work.

But at the same time we will target more resources to those who need it most, by increasing the budget for Discretionary Housing Payments, to deal with hardship cases, by £40m.

And from now we will cover the cost of an additional room for those claimants with a disability who need a carer.

Mr Deputy Speaker, taken together, all these measures to control the costs of welfare will save the country £11 billion by 2014-15.

Governments in the past have said they were going to get to grips with welfare and reward work.
We are delivering.
My Right Honourable Friend the Secretary of State for Work and Pensions will bring forward proposals to further reform the benefits system as a tool to support work and encourage aspiration in time for the autumn spending review.

But as I said right at the start of this speech, this Budget is not just about paying for the bills of the past.

It is also about planning for the future.

It is my deeply held belief that a genuine and long-lasting economic recovery must have its foundations in the private sector.

That is where the jobs will come from – and we will do absolutely everything to support their creation.
We argued that imposing a jobs tax was the last thing Britain needed in a recovery, and the businesses of the country agreed with us.

So we will adopt a different approach.

We will make it cheaper for companies to employ people.

From April 2011 the threshold at which employers start to pay National Insurance will rise by £21 per week above indexation.

The cost of hiring people on incomes lower than £20,000 will be less than it is today.
And in one move we will have lifted 650,000 employees out of this tax altogether.
But if we are to have a sustained, job-creating recovery, we need more than this.

We need to see growth not just in one corner of our country, nor in just one sector.
For we live in a world where the competition for business is growing ever more intense.
I want a sign to go up, over the British economy, that says “Open for Business”.
And this is how I propose to do it.

Corporation tax rates are compared around the world, and low rates act as adverts for the countries that introduce them.

Our current rate of 28 pence is looking less and less competitive.

So we will do something about it.

Next year we will cut corporation tax by one per cent to 27 pence in the pound.

The year after we will cut it again by one per cent.

And again the year after, and again the year after that.

Four annual reductions in the rate of corporation tax that will take it down to just 24 per cent.
It will give us the lowest rate of any major Western economy, one of the lowest rates in the G20, and the lowest rate this country has ever know.

At the same time we will agree with business a long term approach to the taxation of foreign profits, the treatment of intellectual property and the proposals from James Dyson on research and development.

We will also reduce the small companies tax rate.

The previous Government was planning to increase this tax rate next year to 22 per cent, at the very time we should be encouraging small businesses to grow.
We instead will cut it to 20 per cent.

This will benefit some 850,000 companies.

And because small business are struggling to obtain credit at the moment, I will extend the Enterprise Finance Guarantee Scheme, which supports SME access to lending.
These changes will benefit at least 2,000 small businesses.

My Right Honourable Friend the Business Secretary will be coming forward in the summer with further proposals to expand the availability of credit, to make sure the economic recovery is properly financed.

There are many small businesses in the tourism industry today.

To help them, I am reinstating the favourable tax rules for furnished holiday lettings, which our predecessors had planned to repeal.

And I can also announce that there will be measures to cancel certain backdated business rates bills, including for many businesses in ports.

In the current climate, with the deficit the size it is, all these reductions in tax must be more than paid for by other changes to business taxation.
So, Mr Deputy Speaker, we will not go ahead with the poorly-targeted tax relief for the video games industry.

There will be a small reduction in the rates for capital allowances, which will remain broadly in line with economic depreciation.

For the majority of plant and machinery assets, the rate of allowance will fall from 20 to 18 per cent, while the allowance for longer-lived assets will fall from 10 to 8 per cent.

In other words businesses will still receive full tax relief on their qualifying expenditure, but over a longer timeframe.

I have also decided to reduce the Annual Investment Allowance to £25,000 a year, to ensure support is focused on investment by smaller firms.

Over 95 per cent of businesses will continue to have all of their qualifying plant and machinery expenditure fully covered by this relief.

Manufacturing as a whole will pay less tax.

And I have listened to the argument that changing these crucial allowances during the early stages of the economic recovery could be disruptive.

So I will delay the reductions in capital and investment allowances to April 2012.
This will give businesses the extra early advantage of the tax cuts, which start to come in from next year.

Mr Deputy Speaker, our reforms today will also mean a greater contribution from the banking sector, one that far outweighs any benefit they receive from the lower tax rates I have just announced.

In putting in order the nation’s finances, we must remember that this was a crisis that started in the banking sector.

The failures of the banks imposed a huge cost on the rest of society.

So I believe it is fair and it is right that in future banks should make a more appropriate contribution, which reflects the many risks they generate.

Such an approach has already been recommended by the International Monetary Fund.
We are exploring the costs and benefits of a Financial Activities Tax, on profits and remuneration, and we will work with international partners to secure agreement.
But today the British Government takes the initiative in this global debate about the appropriate risks and rewards in international banking.

From January 2011, we will introduce a bank levy.

It will apply to the balance sheets of UK banks and building societies, and to the UK operations of banks from abroad.

There will be deductions for Tier one capital and insured retail deposits, and a lower rate for longer maturity funding.

Smaller banks with liabilities below a certain level will not be liable for the levy.
Once fully in place, we expect the levy to generate over £2 billion of annual revenues.
There are those who have argued that we should wait until every country in the G20 introduces a bank levy.

I believe that is not reasonable or fair.

Indeed I can tell the House that the French and Germans have joined the UK today in committing to introduce a bank balance sheet levy.

In a joint statement, our three governments have pledged to ensure our banks make a fair contribution to reflect the risks they pose.

Mr Deputy Speaker, the message I hear from the business community is unequivocal.
They want certainty and stability from Government so that they start the long process of rebuilding their businesses.

Today I am offering them just that.

A five-year plan to reform the corporation tax system, with lower rates, simpler rules and greater certainty.

The most fundamental and far-reaching reform of our corporate tax regime in generations.
It offers a stable and consistent platform for a private sector recovery.

It is a balanced package which will send a clear signal that Britain is open for business.
It will help companies invest, attract foreign investment, and boost growth.

Above all, it will help create jobs.

And by increasing the amount of business investment by an additional £13 billion between now and 2016, these reforms will help rebalance the economy away from household debt and government consumption.

Mr Deputy Speaker, we will also take forward our plans to create a Green Investment Bank, bringing forward private investment in clean energy and green technologies.
And we also need investment in our digital infrastructure.

But the previous Government’s landline duty is an archaic way of achieving this, hitting 30 million households who happen to have a fixed telephone line.
I am happy to be able to abolish this new duty before it is even introduced.

Instead, we will support private broadband investment, including to rural areas, in part with funding from the Digital Switchover under-spend within the TV Licence Fee.
Mr Deputy Speaker, over the past decade the British economy has become deeply unbalanced.
Nowhere are these disparities as marked as between the different regions of Britain.
Between 1998 and 2008, for every private sector job generated in the North and the Midlands, 10 were created in London and the South.

We need a new approach.
One that empowers local leadership, generates local economic growth, and promotes job creation in all parts of the country including Wales and Scotland.

We will publish a white paper on how we intend to deal with these issues later in the summer, followed by a consultation paper on rebalancing the economy of Northern Ireland.
And as a step towards rebalancing our economy, we are today announcing support for those regions more dependent on the public sector.

First, even when money is so short, we will commit to these important regional transport projects:
The upgrade of the Tyne & Wear Metro;

The extension of the Manchester Metrolink;

The redevelopment of Birmingham New Street station;

And improvements to the rail lines to Sheffield and between Liverpool and Leeds.
Second, we will create a large Regional Growth Fund to provide finance for regional capital projects over the next two years.

We will announce the details shortly but priority will be given to projects that have the greatest impact on innovation and jobs.

Third, we will shortly announce a new tax scheme to help create new businesses in those regions where the private sector is not nearly strong enough.

For the next three years anyone who sets up a new business outside London, the South East and the Eastern region will be exempt from up to £5,000 of employer national insurance payments, for each of their first 10 employees hired.
We aim to have the scheme up and running by September, but any qualifying new business set up from today will also receive help.

And the Treasury estimate that some 400,000 businesses will benefit – ensuring all parts of our country contribute to a more balanced and sustainable economic future.
Mr Deputy Speaker, let me turn now to some further decisions we have made on taxation.
I am someone who believes in the virtues of lower taxation; but the only sustainable route to lower taxes is by first achieving sound public finances.
The sovereign debt crisis means we need to the reduce the deficit even more quickly in order to protect our economy.

And the Office for Budget Responsibility has revealed the size of the structural deficit to be even larger than we feared, £12 billion larger next year.

As a result, this Budget announces a further fiscal tightening of £40 billion a year by the end of this Parliament, including welfare and spending measures, over and above the previous Government’s plans.

To achieve that additional tightening while maintaining the right “four-to-one” balance between spending and taxation means that I have to announce further tax rises today.

On 4th January next year, the main rate of VAT will rise from 17.5 to 20 per cent.
The years of debt and spending make this unavoidable.

This single tax measure will by the end of this Parliament generate over £13 billion a year of extra revenues.

That is £13 billion we don’t have to find from extra spending cuts or income tax rises.
I can also give this House a commitment that we will keep everyday essentials such as food and children’s clothing, as well as other zero-rated items like newspapers and printed books, exempt from VAT over the course of this Parliament.
And, Mr Deputy Speaker, in line with the increase in the main rate of VAT, the higher rate of insurance premium will also rise from 17.5 to 20 per cent, while the standard rate will increase from 5 to 6 per cent.

Let me turn to my decisions on duties.

The March Budget included substantial increases in these.

I can tell the House that my Budget today includes no new increases in duties on alcohol, tobacco or fuel.

We will report back in the autumn on the scope for targeting alcohol duty at the products most associated with binge drinking and underage consumption.
We will explore changes to the aviation tax system, including switching from a per-passenger to a per-plane duty, and consult on major changes.

That will help reduce our carbon emissions.

We are examining the impact of sharp fluctuations in the price of oil on the public finances, to see if pump prices can be stabilised.

We will also look at whether a rebate for remote rural areas could work.

I have one final announcement on duties.

We have decided to reverse the previous Government’s plan to increase the duty on cider by 10 per cent above inflation and the reduction will come into effect at the end of this month – just in time to celebrate England’s progress to the quarter finals, or else to drown our sorrows.
Mr Deputy Speaker, that brings me to Council Tax.

At times like this, when money is short, we think all parts of Government should work hard to keep costs down.

And we want to give councils every incentive to do just that.

So we will offer a deal to local authorities in England.

If you can keep your cost increases low, then we will help you to freeze council tax for one year from next April.

That will mean that the average family will be some £35 better off next year and every year thereafter.
It will be one less rising bill for families to worry about – and it will drive value for money throughout all levels of Government.

Mr Deputy Speaker, one of the most chaotic areas of tax that the new Government inherited from its predecessor is the capital gains tax regime.

Some of the richest people in this country have been able to pay less tax than the people who clean for them.

That is not fair – and it stems from the avoidance activity that has exploited the wider gap between the rate of capital gains tax and the top rates of income tax.
These practices are costing other taxpayers over £1 billion every year.

It is therefore right, as set out in the coalition agreement, that capital gains tax should increase in order to help create a fairer tax system.

I have listened carefully to everyone’s views and considered all the options.

My concern has been to balance the competing demands of fairness, simplicity and competitiveness – and I believe my decision gets that balance right.
Low and middle income savers who pay income tax at the basic rate make up over half of all capital gains taxpayers.

They will continue to pay tax on their capital gains at 18 per cent.

From midnight, taxpayers on higher rates will pay 28 per cent on their capital gains.
I have also decided that the Annual Exempt Amount for capital gains tax will remain at £10,100 this year and will continue to rise with inflation in future years.
I am acutely aware of how important it is to protect the incentives to succeed in business and to innovate.
So to promote enterprise, the 10 per cent capital gains tax rate for entrepreneurs, which currently applies to the first £2m of qualifying gains made over a lifetime, will be extended to the first £5m of lifetime gains.
I asked the Treasury to examine what would happen if we had increased the rate much further beyond 28 per cent, and their dynamic analysis showed that this would have resulted in smaller total revenues.

I also considered in great detail the options presented to me for introducing tapers or indexation allowances, and concluded that the complexity and administration involved would have been self-defeating.

The changes I have made mean that:

- the capital gains of the majority of taxpayers are protected;

- we have a top rate that is in line with our international competitors;

- we keep the system simple and easy for any taxpayer to understand;

- and we reduce the incentive to convert income to capital gains.

It is revealing that the great majority of the almost £1 billion of extra receipts we expect to see as a result of this change will come from additional income tax payments.
I believe this is the right way to reform the taxation of capital gains.

Let me say something here about the previous Government’s policy to reduce pension tax relief for people on high incomes, due to come in next year.

Many businesses are alarmed at the complexity this will introduce.

I have listened to those concerns.
However, I must also protect the £3.5 billion of revenues this policy was set to raise from high income people.

I will therefore work with industry on alternatives ways of raising the same revenue, potentially by reducing the Annual Allowance.

Let me turn now to income tax.
Mr Deputy Speaker, a responsible society is one that rewards the efforts of those who choose to work.
The income tax system, and in particular the abolition of the 10 per cent rate of income tax, has meant that many people on lower incomes face higher average tax rates.
I believe it is important to lift people out of the income tax system and allow them to keep more of their hard-earned money.

It is especially important to make progress in this Budget where we are asking so much of so many.
And it demonstrates that this coalition Government puts fairness first.

In the current system, everyone under the age of 65 is eligible to a tax-free personal allowance of £6,475.

This means there are many thousands of people who have their income taken away from them in tax, only to have to apply to get it back in benefits.

This does not reward work.
So today I can announce that we will increase this personal allowance by £1,000 in April.
People will be able to earn £7,475 before they have to start paying income tax.
23 million people who are basic rate taxpayers will each gain by up to £170 a year.
880,000 of the lowest income taxpayers will be taken out of tax altogether.

Higher rate taxpayers will not benefit from this change, and the higher rate income tax threshold will have to remain frozen to 2013-14.

Our long-term objective remains to increase the personal allowance to £10,000, as set out in the coalition agreement, and we will make real steps towards achieving that objective through the rest of this Parliament.

Mr Deputy Speaker, I do not disguise from this House that the combined impact of the tax and benefit changes we make today are tough for people.

That is unavoidable given the scale of the debts our country faces, and the catastrophe that would ensue if we failed to deal with them.

My priority in putting together this Budget has been to make sure that the measures are fair.
That all sections of society contribute, but that the richest pay more than the poorest.
Not just in terms of cash, but as a proportion of income as well.

That is far from straightforward when the deficit is this high and when the burden of reduction must rightly fall on government spending.

Too often when countries undertake major consolidations of this kind, it is the poorest – those who had least to do with the cause of the economic misfortunes – who are hit hardest.

Perhaps that has been a mistake that our country has made in the past.

This Coalition Government will be different.

We are a progressive alliance governing in the national interest.

And that requires us to make two final decisions.

First, we will provide lasting help for pensioners.

This earnings link was broken by the last Conservative Government and never restored through 13 years of the Labour Government.

It meant that each year more and more pensioners were drawn into the means test, punishing those who had done the right thing and saved for their retirement.
I can today announce that from April next year we will re-link the basic state pension to earnings.
Now pensioners can save with confidence.

They will also be protected by our new triple lock which will guarantee each and every year a rise in the basic state pension in line with earnings, prices or a 2.5 per cent increase – whichever is the greater.

There will be no more 75p increases in the basic state pension.

With this coalition Government pensioners will have the income to live with dignity in retirement.
Second, we will provide additional support to families in poverty.

These are among the most vulnerable people in our society and they need our help.

I have decided to increase the child element of the child tax credit by £150 above indexation next year.

This is a £2 billion a year commitment to low income families.

And we make it even now, in these difficult times.

I can tell the House that the policies in this Budget, taken together, will not increase measured child poverty over the next two years.

Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top.

It is a progressive Budget.
Mr Deputy Speaker.
Today we take decisive action to deal with the debts we inherited and confront the greatest economic risk facing our country.

We’ve been tough but we’ve also been fair.

We have set the course for a balanced budget and falling national debt by the end of this Parliament.
We have insisted that four pounds of every five needed to reduce our deficit will be found from government spending.

We have protected capital investment from additional cuts and got to grips with the soaring costs of welfare.
We have provided the foundations for economic recovery in all parts of our nation and given our country some of the most competitive business taxes in the world.
We have taken almost a million people out of income tax.

Half a million people out of national insurance.

And we have done all this without increasing child poverty.

Sadly, with this unavoidable budget we’ve had to increase taxes.

We’ve had to pay the bills of past irresponsibility.

We’ve had to relearn the virtue of financial prudence.

But in doing so we have ensured that the burden is fairly shared.

Today we have paid the debts of a failed past.

And laid the foundations for a more prosperous future.

The richest paying the most and the vulnerable protected. That is our approach.
Prosperity for all. That is our goal.

And I commend this Budget to the House.

Here’s the full text of George Osborne’s Budget speech.

Mr Deputy Speaker, this emergency Budget deals decisively with our country’s record debts. It pays for the past.
And it plans for the future. It supports a strong enterprise-led recovery.

It rewards work. And it protects the most vulnerable in our society.

Yes it is tough; but it is also fair.

This is an emergency Budget, so let me speak plainly about the emergency that we face.

The coalition Government has inherited from its predecessor the largest budget deficit of any economy in Europe with the single exception of Ireland.

One pound in every four we spend is being borrowed.

What we have not inherited from our predecessor is a credible plan to reduce their record deficit.

This at the very moment when fear about the sustainability of sovereign debt is the greatest risks to the recovery of European economies.

Questions that were asked about the liquidity and solvency of banking systems are now being asked of the liquidity and solvency of some of the governments that stand behind those banks.

I do not want those questions ever to be asked of this country.

That is why we have set a brisk pace since taking office.

In the last seven weeks:

  • We have announced, conducted and completed a review of this current year’s spending and identified six billion pounds of savings.
  • We have announced, established and received the report of the independent Office for Budget Responsibility. The power the Chancellor has enjoyed for centuries to determine the growth and fiscal forecasts now resides with an independent body immune to the temptations of the political cycle.
  • And we have examined, decided on and in some cases halted the mass of unfunded commitments, IOUs and overcommitted reserves that greeted us on entering office.

This early, determined action has earned us credibility in international markets.

It has meant that our promise to deal decisively with the deficit has been listened to. Market interest rates for Britain have fallen over the last seven weeks, while those of many of our European neighbours have risen.

Those lower market interest rates are already supporting our recovery.

But unless we now deliver on that promise of action with concrete measures, that credibility – so hard won in recent weeks – will be lost.

The consequence for Britain would be severe.

Higher interest rates, more business failures, sharper rises in unemployment, and potentially even a catastrophic loss of confidence and the end of the recovery.

We cannot let that happen.

This Budget is needed to deal with our country’s debts.

This Budget is needed to give confidence to our economy.

This is the unavoidable Budget.

I am not going to hide hard choices from the British people or bury them in the small print of the Budget documents.

You’re going to hear them straight from me, here in this speech.

Our policy is to raise from the ruins of an economy built on debt a new, balanced economy where we save, invest and export.

An economy where the state does not take almost half of all our national income, crowding out private endeavour.

An economy not overly reliant on the success of one industry, financial services – important as they are – but where all industries grow.

An economy where prosperity is shared among all sections of society and all parts of the country.

In this Budget everyone will be asked to contribute.

But in return we make this commitment.

Everyone will share in the rewards when we succeed.

When we say that we are all in this together, we mean it.

Mr Deputy Speaker, the first challenge for this Budget is to set the fiscal mandate – or in other words, our overall objective for the public finances.

The previous Government had two fiscal rules, one for debt and one for the current budget.

They were supposed to force Chancellors to set aside money in the good years so they could borrow sustainably when the economy turned down.

They completely failed in that task.

And as this is the last budget in which this golden rule will appear, I would like to be the last Chancellor to report on it.

We are set to miss the golden rule in this cycle by 485 billion pounds.

We now know the intrinsic weakness in backward-looking fiscal rules.

Past prudence was an excuse for future irresponsibility.

And the judge of the rules was the very same Chancellor they were supposed to be restraining. We propose a more credible approach.

Our fiscal mandate will be forward-looking, and the judge of whether we are on course to meet it will be not the Chancellor but the independent Office for Budget Responsibility.

On behalf of the House, I want to thank Sir Alan Budd and his fellow Committee members, Geoffrey Dicks and Graham Parker, for their highly professional effort.

In the space of just seven weeks I believe we have established the Office for Budget Responsibility as a permanent improvement to economic policy making and the transparency of government.

The legislation to put the Office on a statutory footing will now be drawn up and I hope it will command all party support.

I now turn to what that fiscal mandate will be.

The view of the international community was clearly expressed at the latest G20 meeting, and we will be taking the same message to the G20 summit in Toronto this weekend.

Surplus countries should do more to support global demand.

So we welcome China’s announcement to come off the dollar peg.

At the same time the international community believes countries with high fiscal deficits need to accelerate the pace of fiscal consolidation.

That is precisely what we now propose to do.

The formal mandate we set is that the structural current deficit should be in balance in the final year of the five-year forecast period, which is 2015-16 in this Budget.

This mandate is:

  • Structural – to give us flexibility to respond to external shocks;
  • Current – to protect the most productive public investment;
  • And credible – because the Office for Budget Responsibility, not the Chancellor, will decide on the output gap.

In order to place our fiscal credibility beyond doubt, this mandate will be supplemented by a fixed target for debt, which in this Parliament is to ensure that debt is falling as a share of GDP by 2015-16.

I can confirm that, on the basis of the measures to be announced in this Budget, the judgement of the Office for Budget Responsibility published today, is that we are on track to meet these goals.

Indeed, I can tell the House that because we have taken a cautious approach, we are set to meet them one year earlier – in 2014-15.

Or to put it another way, we are on track to have debt falling and a balanced structural current budget by the end of this Parliament.

Mr Deputy Speaker, at this point in the Budget speech, the Chancellor would normally read out their own set of economic and fiscal forecasts.

They normally tell you more about the political cycle than the economic one.

Those days have gone for good. Instead I will give the House the latest forecasts from the independent Office for Budget Responsibility, taking into account the measures in the Budget.

Growth in the UK economy for the coming five years is estimated to be:

1.2 per cent this year and 2.3 per cent next year;

Then 2.8 per cent in 2012 followed by 2.9 per cent in 2013;

Then 2.7 per cent in both 2014 and in 2015.

Consumer price inflation is expected to reach 2.7 per cent by the end of the year before returning to target in the medium term.

And let me take this opportunity to confirm that the inflation target remains at 2 per cent as measured by the Consumer Prices Index.

The unemployment rate is forecast by the Office for Budget Responsibility to peak this year at 8.1 per cent and then fall for each of the next four years, to reach 6.1 per cent in 2015.

Some have suggested that there is a choice between dealing with our debts and going for growth.

That is a false choice.

The crisis in the Eurozone shows that unless we deal with our debts there will be no growth. And these forecasts demonstrate that a credible plan to cut our budget deficit goes hand in hand with a steady and sustained economic recovery, with low inflation and falling unemployment.

What is more the forecast shows a gradual rebalancing of the economy, with business investment and exports playing a greater role and government spending and debt-fuelled consumption a smaller role.

A sustainable private sector recovery built on a new model of economic growth, instead of pumping the debt bubble back up.

Part of the reason, as we have always argued, is that tighter fiscal policy can enable interest rates to stay lower for longer.

And as the Governor of the Bank of England confirmed this last week at the Mansion House, “if prospects for growth were to weaken, the outlook for inflation would probably be lower and monetary policy could then respond.”
The subject of interest rates brings me to say this about attempts to directly compare last week’s forecasts with this one.

As the Office for Budget Responsibility notes in today’s Budget document, any such comparison would be “misleading”, because last week’s forecast included the lower interest rates that expectations of this week’s Budget have already brought about.

So as Sir Alan Budd and his colleagues have written, to actually follow the fiscal path set out by the previous Government “would lead to higher interest rates and so lower economic activity” than his forecast showed.

Mr Deputy Speaker, let me now turn to the measures in the Budget designed to deliver this accelerated reduction in the structural deficit.

The coalition Government believes that the bulk of the reduction must come from lower spending rather than higher taxes.

The country has overspent; it has not been under-taxed.

Our approach is supported by the international evidence, compiled by the Organisation for Economic Cooperation and Development, the International Monetary Fund and others, which found that consolidations delivered through lower spending are more effective at correcting deficits and boosting growth than consolidations delivered through tax increases.

This is the origin of our 80:20 rule of thumb – roughly 80 per cent through lower spending and 20 per cent through higher taxes.

This evidence has been available in the Treasury for some time, but was only published in a redacted form by the previous Government.

We intend to follow international best practice and the Treasury’s own analysis.

My measures today mean that 77 per cent of the total consolidation will be achieved through spending reductions and 23 per cent through tax increases.

I believe this gets the balance right.

Mr Deputy Speaker, I now turn to the Office for Budget Responsibility’s fiscal forecasts.

As a result of the measures I will announce today, public sector net borrowing will be:
- £149 billion this year,

- falling to £116 billion next year,

- then £89 billion in 2012-13,

- and then £60 billion in 2013-14.

By 2014-15 borrowing reaches £37 billion, exactly half the amount forecast in the March Budget.

In 2015-16, borrowing falls further to £20 billion.

As a share of the economy, borrowing will fall from 10.1 per cent of GDP this year to just 1.1 per cent in 2015-16.

We now know, thanks to last week’s Office for Budget Responsibility forecast, that the structural current deficit is significantly larger than we were told – 0.8 per cent of GDP or £12 billion next year.

Thanks to my action today, the structural current balance will be minus 4.8 per cent of GDP this year.

That deficit will then be eliminated to plus 0.3 per cent in 2014-15 and plus 0.8 per cent in 2015-16. In other words, it will be in surplus.

Public sector net debt as a share of GDP will be 62 per cent this year, before peaking at 70 per cent in 2013-14.

Because of our action today, it then begins to fall, to 69 per cent in 2014-15 and then 67 per cent in 2015-16.

While under the plans we inherited, debt would have increased every full year of this Parliament. And the House will want to know that as a result of our measures debt interest payments will be £3 billion a year lower by the end of this Parliament.

Mr Deputy Speaker, I have one further announcement to make regarding macroeconomic policy.

I can confirm that, as set out in the coalition agreement, this Government will not be joining the euro in this Parliament.

Therefore, Mr Deputy Speaker, I have abolished the Treasury’s Euro Preparations Unit.
Let me now turn to my other decisions on public spending.

Mr Deputy Speaker, the state today accounts for almost half of all national income.
That is completely unsustainable.

All parties in this House now accept that spending needs to be cut.

And we have made a start.
But we need to go much further if we are to meet our fiscal mandate and see debt falling by the end of this Parliament.

Today we are setting out the overall path of public spending that will achieve that.
Let me begin with current spending.

Current expenditure will rise from £637 billion in 2010-11 to £711 billion in 2015-16.

Although this is an increase, the House should remember that we inherit a rapidly rising bill for debt interest – a bill that won’t start falling until the debt itself starts to fall.

Debt interest payments alone will cost the taxpayer a quarter of a trillion pounds over this period.
One of my predecessors used to call this spending the costs of social failure – I say it is the price of economic failure.

Compared to the plans set out by the previous Government, I am announcing today additional current expenditure reductions of £30 billion a year by 2014-15.
The plans for public investment we inherit from our predecessors envisage a steep drop from £69 billion last year to £46 billion in 2014-15.

After the initial in-year reductions, the question we have faced is how much further to go.
Well-judged capital spending by government can help provide the new infrastructure our economy needs to compete in the modern world.

It supports the transport links we need to trade our goods, the equipment we need to defend our country, and the facilities we need to provide quality public services.
I think an error was made in the early 1990s when the then Government cut capital spending too much – perhaps because it is easier to stop new things being built than to cut the budgets of existing programmes.

We have faced many tough choices about the areas in which we should make additional savings, but I have decided that capital spending should not be one of them.
There will be no further reductions in capital spending totals in this Budget.

But we will still make careful choices about how that capital is spent.

The absolute priority will be projects with a significant economic return to the country.
Assessing what those projects are will be an important part of the autumn spending review.
Mr Deputy Speaker, the Government can also dispose of assets which should rightly be in private ownership.
Yesterday we launched the sale of High Speed 1.

We will look at how to dispose of our shareholding of NATS, the air traffic control services.
We will aim to sell the student loan book, and look at options around early repayment for individuals.
And we will resolve the future of the Tote – at last.

My Right Honourable Friend the Business Secretary will also facilitate a private capital injection into the Royal Mail Group, something that has been long overdue.
Before I turn now to discuss departmental budgets, I need to say something first about another area of spending – the Civil List.

The Civil List is the Government’s support for Her Majesty the Queen in Her duties as Head of State.
I am sure everyone in this House will want to join me in recognising The Queen’s loyal service and immense contribution to public life.

The amount provided by the Civil List has remained unchanged over the last twenty years at £7.9 million.

This has required careful management.
Because of inflation, the annual payment is today worth only a quarter of what it was twenty years ago.
I can announce that, with the full agreement of The Queen, the Civil List will remain frozen at £7.9 million for the coming year.

I will propose a new means of consolidated support for Her Majesty for the future, at a later date.
In addition, the Royal Household have agreed that in future Civil List expenditure will be subject to the same audit scrutiny as other government expenditure, through the National Audit Office and the Public Accounts Committee.
I believe this will mean clear accountability in this House and it will strengthen public confidence.
Let me turn now to my decisions on departmental expenditure limits.

In recent years, Chancellors have been reluctant to explain what their total spending projections will mean for Whitehall departments.

This is entirely self-defeating.
It normally takes the Institute for Fiscal Studies less than 24 hours to work it out for themselves and let the public know the truth.

I will save them the effort.
We have inherited from the previous Government spending plans to cut departmental budgets by £44 billion a year by 2014-15.

This implies an average real reduction for unprotected departments of 20 per cent.
Not that this was ever said. Nor was a single pound of cuts to programmes even identified.
Because the structural deficit is worse than we were told, my Budget today implies further reductions in departmental spending of £17 billion by 2014-15.
We have committed to providing the National Health Service with real increases throughout the Parliament and we will honour our international aid obligations to the poorest in the world.

Once these are taken into account, the Budget figures imply that other departments will face an average real cut of around 25 per cent over four years.

Clearly, if we can find any additional savings to social security and welfare beyond those which I will shortly outline, then that will greatly relieve the pressure on these departments and that 25 per cent figure.
Of course, not all departments will receive the same settlement.

I recognise, for example, the particular pressures on our education system and on defence.
Final departmental settlements, and the final split between departmental expenditure and annually managed expenditure on welfare, will be set in the spending review.
Rather than follow the usual practice of keeping the date of that review a secret until a few weeks before it happens, let me tell the House that it will be presented on Wednesday 20th October.

A further way we can ease the pressure on public services is to agree that we need to restrain public sector pay in these difficult times.

And we need to do something about the spiralling costs of public sector pensions.
Many millions of people in the private sector have in the last couple of years seen their pay frozen, their hours reduced, and their pension benefits restricted.
They have accepted this because they knew that the alternative in many cases was further job losses.
The public sector was insulated from these pressures but now faces a similar trade off.
I know there are many dedicated public sector workers who work very hard and did not cause this recession – but they must share the burden as we pay to clean it up.
The truth is that the country was living beyond its means when the recession came. And if we don’t tackle pay and pensions, more jobs will be lost.

That is why the Government is asking the public sector to accept a two-year pay freeze.
But we will protect the lowest paid.

In the past I have said that we would be able to exclude the one million public sector workers earning less than £18,000 from a one year pay freeze.

Today, because we have had to ask for a two year freeze, I extend the protection to cover the 1.7 million public servants who earn less than £21,000.
Together they make up 28 per cent of the public sector workforce.

They will each receive a flat pay rise worth £250 in both these years, so that those on the very lowest salaries will get a proportionately larger rise.
In recognition of our armed services who are risking their lives for us all in Afghanistan, we have also doubled the operational allowance to £4,800.
And we have asked Will Hutton to draw up plans for fairer pay across the public sector, without increasing the overall pay bill, so that those at the top of organisations are paid no more than 20 times the salaries of those at the bottom.
The culture of excessive pay at the very top of the public sector simply has to end.
Mr Deputy Speaker, we also need to deal with the cost of public service pensions.
This is one of the greatest long term pressures facing our nation’s finances.
The Office for Budget Responsibility today publishes figures showing that by 2015-16 we will be spending over £10 billion a year simply to meet the gap between pension contributions and payments to the unfunded pensions they support.
That is why I have asked John Hutton to carry out an investigation.

As the Work and Pensions Secretary in the previous Government, he brings experience and an unbiased approach.
He will provide an interim report in September this year to help inform any decisions required for the spending review, and a full report in time for next year’s Budget.
The Government will also accelerate the increase in the State Pension Age to 66. A call for evidence will be launched later this week.

And we will consult on whether to phase out the Default Retirement Age.

Mr Deputy Speaker, let me now address the largest bill in government – the welfare bill.
It is simply not possible to deal with a budget deficit of this size without undertaking lasting reform of welfare.

It has been a key component of most successful fiscal consolidations elsewhere in the world.
And around Europe, countries are now tackling their benefits bill.

Germany has already announced 30 billion euros worth of cuts to welfare spending.
And others are taking similar steps.

Here in Britain, the explosion in welfare costs contributed to the growing structural budget deficit in the middle part of this decade.

Total welfare spending has increased from £132 billion ten years ago to £192 billion today.
That represents a real terms increase of a staggering 45 per cent.

It’s one reason why there is no money left.

It has also left an increasing number of our fellow citizens trapped on out-of-work benefits for the whole of their lives.

A greater proportion of our children grow up in workless households than any other country in Europe.
We are wasting the talent of millions, and spending billions on it in the process.
So we will increase the incentives to work, and reduce the incentives to stay out of work.
We will focus our benefits more towards those in need.

And we will end some one-off payments that the country cannot afford anymore.

First, we need to put the whole welfare system on a more sustainable and affordable footing.
So from next year, with the exception of the state pension and pension credit, we will switch to a system where we up-rate benefits, tax credits and public service pensions in line with consumer prices rather than retail prices.
The consumer price index not only reflects everyday prices better, it is of course now the inflation measure targeted by the Bank of England.

This will save over £6 billion a year by the end of the Parliament.

I believe this is a fairer approach than a benefits freeze.

In time for the next Budget we will also publish proposals to move the indexation in the tax system from RPI to CPI in a way that protects revenues.

Tackling spiralling welfare costs means also addressing the bill for tax credits.
Spending on tax credits has increased from £18 billion in 2003 to £30 billion this year.
This is unsustainable.
There are over 150,000 families with incomes over £50,000 receiving tax credits.
Taking into account the various disregards means that families earning up to £83,000 are eligible for this means tested benefit.

The country can simply not afford this.

We need to target tax credits on those who need the help most.

So we will:
- Reduce payments to families earning over £40,000 next year and then align the thresholds for the child and family element;

- Increase the taper rate at which awards are reduced;

- Remove the baby element for new children from April 2011;

- Remove the one-off payment to new workers over 50 from April 2012;

- Reduce the income disregard from £25,000 to £10,000, and then £5,000;

- Introduce an income disregard for income falls;

- Reduce back-dating from three months to one month;

- And we will not introduce the pre-election promise of a new tax credit element for infants.
Sadly, there are further benefits which the country can no longer afford.

So we will abolish the poorly-targeted Health in Pregnancy Grant from April 2011.

At the same time we will restrict the sure start maternity grant to the first child only.
And we will expect lone parents to look for work when their youngest child goes to school.
We have decided that we simply cannot afford to extend the Saving Gateway and we have also had to take a difficult decision about child benefit.

I have received many proposals about this.

Some have suggested we means test it; others that we tax it.

All these proposals involve issues of fairness. This benefit is usually claimed by the mother.
To tax it would mean the working mothers received less than the non-working partner of a millionaire.
Means test it and we would have to create a massively complex new system to assess household incomes.
I do not propose to do these things. I know many working people feel that their child benefit is the one thing they get without asking from the state.
So instead, to control costs, we have decided to freeze child benefit for the next three years.
This is a tough decision, but I believe it strikes the right balance between keeping intact this popular universal benefit while ensuring that everyone, across the income scale, makes a contribution to helping our country reduce its debts.
That brings me to another universal benefit, Disability Living Allowance.

Mr Deputy Speaker, it is right that people who are disabled are helped to lead a life of dignity.
We will continue to support them, and we will not reduce the rate at which this benefit is paid.
But three times as many people claim it today than when it was introduced eighteen years ago.
And the costs have quadrupled in real terms to over £11 billion, making it one of the largest items of government spending.

We will introduce a medical assessment for Disability Living Allowance from 2013, which will be applied to new and existing claimants.

This will be a simpler process than the complex forms they have to fill out at present.
That way we can continue to afford paying this important benefit to those with the greatest needs, while significantly improving incentives to work for others.
Mr Deputy Speaker, spending on housing benefit has risen from £14 billion ten years ago to £21 billion today.

That is close to a 50 per cent increase over and above inflation.

Costs are completely out of control.

We now spend more on housing benefit than we do on the police and on universities combined.
And among these enormous numbers for total spending there are some equally enormous individual awards.
Today there are some families receiving £104,000 a year in housing benefit.

The cost of that single award is equivalent to the total income tax and national insurance paid by 16 working people on median incomes.

It is clear that the system of housing benefit is in dire need for reform.

We will do that by:
- Re-setting and restricting Local Housing Allowances;

- Up-rating deductions;

- Reducing certain awards;

- Re-adjusting Support for Mortgage Interest payments;

- Limiting social tenants’ entitlement to appropriately sized homes;

- And, lastly, we will for the first time introduce maximum limits on housing benefit – from £280 a week for a one-bedroom property to £400 a week for a four-bedroom or larger.

Our package today reduces the costs of Housing Benefit by £1.8 billion a year by the end of the Parliament, or 7 per cent of the total budget.

It will also improve incentives to work.

But at the same time we will target more resources to those who need it most, by increasing the budget for Discretionary Housing Payments, to deal with hardship cases, by £40m.

And from now we will cover the cost of an additional room for those claimants with a disability who need a carer.

Mr Deputy Speaker, taken together, all these measures to control the costs of welfare will save the country £11 billion by 2014-15.

Governments in the past have said they were going to get to grips with welfare and reward work.
We are delivering.
My Right Honourable Friend the Secretary of State for Work and Pensions will bring forward proposals to further reform the benefits system as a tool to support work and encourage aspiration in time for the autumn spending review.

But as I said right at the start of this speech, this Budget is not just about paying for the bills of the past.

It is also about planning for the future.

It is my deeply held belief that a genuine and long-lasting economic recovery must have its foundations in the private sector.

That is where the jobs will come from – and we will do absolutely everything to support their creation.
We argued that imposing a jobs tax was the last thing Britain needed in a recovery, and the businesses of the country agreed with us.

So we will adopt a different approach.

We will make it cheaper for companies to employ people.

From April 2011 the threshold at which employers start to pay National Insurance will rise by £21 per week above indexation.

The cost of hiring people on incomes lower than £20,000 will be less than it is today.
And in one move we will have lifted 650,000 employees out of this tax altogether.
But if we are to have a sustained, job-creating recovery, we need more than this.

We need to see growth not just in one corner of our country, nor in just one sector.
For we live in a world where the competition for business is growing ever more intense.
I want a sign to go up, over the British economy, that says “Open for Business”.
And this is how I propose to do it.

Corporation tax rates are compared around the world, and low rates act as adverts for the countries that introduce them.

Our current rate of 28 pence is looking less and less competitive.

So we will do something about it.

Next year we will cut corporation tax by one per cent to 27 pence in the pound.

The year after we will cut it again by one per cent.

And again the year after, and again the year after that.

Four annual reductions in the rate of corporation tax that will take it down to just 24 per cent.
It will give us the lowest rate of any major Western economy, one of the lowest rates in the G20, and the lowest rate this country has ever know.

At the same time we will agree with business a long term approach to the taxation of foreign profits, the treatment of intellectual property and the proposals from James Dyson on research and development.

We will also reduce the small companies tax rate.

The previous Government was planning to increase this tax rate next year to 22 per cent, at the very time we should be encouraging small businesses to grow.
We instead will cut it to 20 per cent.

This will benefit some 850,000 companies.

And because small business are struggling to obtain credit at the moment, I will extend the Enterprise Finance Guarantee Scheme, which supports SME access to lending.
These changes will benefit at least 2,000 small businesses.

My Right Honourable Friend the Business Secretary will be coming forward in the summer with further proposals to expand the availability of credit, to make sure the economic recovery is properly financed.

There are many small businesses in the tourism industry today.

To help them, I am reinstating the favourable tax rules for furnished holiday lettings, which our predecessors had planned to repeal.

And I can also announce that there will be measures to cancel certain backdated business rates bills, including for many businesses in ports.

In the current climate, with the deficit the size it is, all these reductions in tax must be more than paid for by other changes to business taxation.
So, Mr Deputy Speaker, we will not go ahead with the poorly-targeted tax relief for the video games industry.

There will be a small reduction in the rates for capital allowances, which will remain broadly in line with economic depreciation.

For the majority of plant and machinery assets, the rate of allowance will fall from 20 to 18 per cent, while the allowance for longer-lived assets will fall from 10 to 8 per cent.

In other words businesses will still receive full tax relief on their qualifying expenditure, but over a longer timeframe.

I have also decided to reduce the Annual Investment Allowance to £25,000 a year, to ensure support is focused on investment by smaller firms.

Over 95 per cent of businesses will continue to have all of their qualifying plant and machinery expenditure fully covered by this relief.

Manufacturing as a whole will pay less tax.

And I have listened to the argument that changing these crucial allowances during the early stages of the economic recovery could be disruptive.

So I will delay the reductions in capital and investment allowances to April 2012.
This will give businesses the extra early advantage of the tax cuts, which start to come in from next year.

Mr Deputy Speaker, our reforms today will also mean a greater contribution from the banking sector, one that far outweighs any benefit they receive from the lower tax rates I have just announced.

In putting in order the nation’s finances, we must remember that this was a crisis that started in the banking sector.

The failures of the banks imposed a huge cost on the rest of society.

So I believe it is fair and it is right that in future banks should make a more appropriate contribution, which reflects the many risks they generate.

Such an approach has already been recommended by the International Monetary Fund.
We are exploring the costs and benefits of a Financial Activities Tax, on profits and remuneration, and we will work with international partners to secure agreement.
But today the British Government takes the initiative in this global debate about the appropriate risks and rewards in international banking.

From January 2011, we will introduce a bank levy.

It will apply to the balance sheets of UK banks and building societies, and to the UK operations of banks from abroad.

There will be deductions for Tier one capital and insured retail deposits, and a lower rate for longer maturity funding.

Smaller banks with liabilities below a certain level will not be liable for the levy.
Once fully in place, we expect the levy to generate over £2 billion of annual revenues.
There are those who have argued that we should wait until every country in the G20 introduces a bank levy.

I believe that is not reasonable or fair.

Indeed I can tell the House that the French and Germans have joined the UK today in committing to introduce a bank balance sheet levy.

In a joint statement, our three governments have pledged to ensure our banks make a fair contribution to reflect the risks they pose.

Mr Deputy Speaker, the message I hear from the business community is unequivocal.
They want certainty and stability from Government so that they start the long process of rebuilding their businesses.

Today I am offering them just that.

A five-year plan to reform the corporation tax system, with lower rates, simpler rules and greater certainty.

The most fundamental and far-reaching reform of our corporate tax regime in generations.
It offers a stable and consistent platform for a private sector recovery.

It is a balanced package which will send a clear signal that Britain is open for business.
It will help companies invest, attract foreign investment, and boost growth.

Above all, it will help create jobs.

And by increasing the amount of business investment by an additional £13 billion between now and 2016, these reforms will help rebalance the economy away from household debt and government consumption.

Mr Deputy Speaker, we will also take forward our plans to create a Green Investment Bank, bringing forward private investment in clean energy and green technologies.
And we also need investment in our digital infrastructure.

But the previous Government’s landline duty is an archaic way of achieving this, hitting 30 million households who happen to have a fixed telephone line.
I am happy to be able to abolish this new duty before it is even introduced.

Instead, we will support private broadband investment, including to rural areas, in part with funding from the Digital Switchover under-spend within the TV Licence Fee.
Mr Deputy Speaker, over the past decade the British economy has become deeply unbalanced.
Nowhere are these disparities as marked as between the different regions of Britain.
Between 1998 and 2008, for every private sector job generated in the North and the Midlands, 10 were created in London and the South.

We need a new approach.
One that empowers local leadership, generates local economic growth, and promotes job creation in all parts of the country including Wales and Scotland.

We will publish a white paper on how we intend to deal with these issues later in the summer, followed by a consultation paper on rebalancing the economy of Northern Ireland.
And as a step towards rebalancing our economy, we are today announcing support for those regions more dependent on the public sector.

First, even when money is so short, we will commit to these important regional transport projects:
The upgrade of the Tyne & Wear Metro;

The extension of the Manchester Metrolink;

The redevelopment of Birmingham New Street station;

And improvements to the rail lines to Sheffield and between Liverpool and Leeds.
Second, we will create a large Regional Growth Fund to provide finance for regional capital projects over the next two years.

We will announce the details shortly but priority will be given to projects that have the greatest impact on innovation and jobs.

Third, we will shortly announce a new tax scheme to help create new businesses in those regions where the private sector is not nearly strong enough.

For the next three years anyone who sets up a new business outside London, the South East and the Eastern region will be exempt from up to £5,000 of employer national insurance payments, for each of their first 10 employees hired.
We aim to have the scheme up and running by September, but any qualifying new business set up from today will also receive help.

And the Treasury estimate that some 400,000 businesses will benefit – ensuring all parts of our country contribute to a more balanced and sustainable economic future.
Mr Deputy Speaker, let me turn now to some further decisions we have made on taxation.
I am someone who believes in the virtues of lower taxation; but the only sustainable route to lower taxes is by first achieving sound public finances.
The sovereign debt crisis means we need to the reduce the deficit even more quickly in order to protect our economy.

And the Office for Budget Responsibility has revealed the size of the structural deficit to be even larger than we feared, £12 billion larger next year.

As a result, this Budget announces a further fiscal tightening of £40 billion a year by the end of this Parliament, including welfare and spending measures, over and above the previous Government’s plans.

To achieve that additional tightening while maintaining the right “four-to-one” balance between spending and taxation means that I have to announce further tax rises today.

On 4th January next year, the main rate of VAT will rise from 17.5 to 20 per cent.
The years of debt and spending make this unavoidable.

This single tax measure will by the end of this Parliament generate over £13 billion a year of extra revenues.

That is £13 billion we don’t have to find from extra spending cuts or income tax rises.
I can also give this House a commitment that we will keep everyday essentials such as food and children’s clothing, as well as other zero-rated items like newspapers and printed books, exempt from VAT over the course of this Parliament.
And, Mr Deputy Speaker, in line with the increase in the main rate of VAT, the higher rate of insurance premium will also rise from 17.5 to 20 per cent, while the standard rate will increase from 5 to 6 per cent.

Let me turn to my decisions on duties.

The March Budget included substantial increases in these.

I can tell the House that my Budget today includes no new increases in duties on alcohol, tobacco or fuel.

We will report back in the autumn on the scope for targeting alcohol duty at the products most associated with binge drinking and underage consumption.
We will explore changes to the aviation tax system, including switching from a per-passenger to a per-plane duty, and consult on major changes.

That will help reduce our carbon emissions.

We are examining the impact of sharp fluctuations in the price of oil on the public finances, to see if pump prices can be stabilised.

We will also look at whether a rebate for remote rural areas could work.

I have one final announcement on duties.

We have decided to reverse the previous Government’s plan to increase the duty on cider by 10 per cent above inflation and the reduction will come into effect at the end of this month – just in time to celebrate England’s progress to the quarter finals, or else to drown our sorrows.
Mr Deputy Speaker, that brings me to Council Tax.

At times like this, when money is short, we think all parts of Government should work hard to keep costs down.

And we want to give councils every incentive to do just that.

So we will offer a deal to local authorities in England.

If you can keep your cost increases low, then we will help you to freeze council tax for one year from next April.

That will mean that the average family will be some £35 better off next year and every year thereafter.
It will be one less rising bill for families to worry about – and it will drive value for money throughout all levels of Government.

Mr Deputy Speaker, one of the most chaotic areas of tax that the new Government inherited from its predecessor is the capital gains tax regime.

Some of the richest people in this country have been able to pay less tax than the people who clean for them.

That is not fair – and it stems from the avoidance activity that has exploited the wider gap between the rate of capital gains tax and the top rates of income tax.
These practices are costing other taxpayers over £1 billion every year.

It is therefore right, as set out in the coalition agreement, that capital gains tax should increase in order to help create a fairer tax system.

I have listened carefully to everyone’s views and considered all the options.

My concern has been to balance the competing demands of fairness, simplicity and competitiveness – and I believe my decision gets that balance right.
Low and middle income savers who pay income tax at the basic rate make up over half of all capital gains taxpayers.

They will continue to pay tax on their capital gains at 18 per cent.

From midnight, taxpayers on higher rates will pay 28 per cent on their capital gains.
I have also decided that the Annual Exempt Amount for capital gains tax will remain at £10,100 this year and will continue to rise with inflation in future years.
I am acutely aware of how important it is to protect the incentives to succeed in business and to innovate.
So to promote enterprise, the 10 per cent capital gains tax rate for entrepreneurs, which currently applies to the first £2m of qualifying gains made over a lifetime, will be extended to the first £5m of lifetime gains.
I asked the Treasury to examine what would happen if we had increased the rate much further beyond 28 per cent, and their dynamic analysis showed that this would have resulted in smaller total revenues.

I also considered in great detail the options presented to me for introducing tapers or indexation allowances, and concluded that the complexity and administration involved would have been self-defeating.

The changes I have made mean that:

- the capital gains of the majority of taxpayers are protected;

- we have a top rate that is in line with our international competitors;

- we keep the system simple and easy for any taxpayer to understand;

- and we reduce the incentive to convert income to capital gains.

It is revealing that the great majority of the almost £1 billion of extra receipts we expect to see as a result of this change will come from additional income tax payments.
I believe this is the right way to reform the taxation of capital gains.

Let me say something here about the previous Government’s policy to reduce pension tax relief for people on high incomes, due to come in next year.

Many businesses are alarmed at the complexity this will introduce.

I have listened to those concerns.
However, I must also protect the £3.5 billion of revenues this policy was set to raise from high income people.

I will therefore work with industry on alternatives ways of raising the same revenue, potentially by reducing the Annual Allowance.

Let me turn now to income tax.
Mr Deputy Speaker, a responsible society is one that rewards the efforts of those who choose to work.
The income tax system, and in particular the abolition of the 10 per cent rate of income tax, has meant that many people on lower incomes face higher average tax rates.
I believe it is important to lift people out of the income tax system and allow them to keep more of their hard-earned money.

It is especially important to make progress in this Budget where we are asking so much of so many.
And it demonstrates that this coalition Government puts fairness first.

In the current system, everyone under the age of 65 is eligible to a tax-free personal allowance of £6,475.

This means there are many thousands of people who have their income taken away from them in tax, only to have to apply to get it back in benefits.

This does not reward work.
So today I can announce that we will increase this personal allowance by £1,000 in April.
People will be able to earn £7,475 before they have to start paying income tax.
23 million people who are basic rate taxpayers will each gain by up to £170 a year.
880,000 of the lowest income taxpayers will be taken out of tax altogether.

Higher rate taxpayers will not benefit from this change, and the higher rate income tax threshold will have to remain frozen to 2013-14.

Our long-term objective remains to increase the personal allowance to £10,000, as set out in the coalition agreement, and we will make real steps towards achieving that objective through the rest of this Parliament.

Mr Deputy Speaker, I do not disguise from this House that the combined impact of the tax and benefit changes we make today are tough for people.

That is unavoidable given the scale of the debts our country faces, and the catastrophe that would ensue if we failed to deal with them.

My priority in putting together this Budget has been to make sure that the measures are fair.
That all sections of society contribute, but that the richest pay more than the poorest.
Not just in terms of cash, but as a proportion of income as well.

That is far from straightforward when the deficit is this high and when the burden of reduction must rightly fall on government spending.

Too often when countries undertake major consolidations of this kind, it is the poorest – those who had least to do with the cause of the economic misfortunes – who are hit hardest.

Perhaps that has been a mistake that our country has made in the past.

This Coalition Government will be different.

We are a progressive alliance governing in the national interest.

And that requires us to make two final decisions.

First, we will provide lasting help for pensioners.

This earnings link was broken by the last Conservative Government and never restored through 13 years of the Labour Government.

It meant that each year more and more pensioners were drawn into the means test, punishing those who had done the right thing and saved for their retirement.
I can today announce that from April next year we will re-link the basic state pension to earnings.
Now pensioners can save with confidence.

They will also be protected by our new triple lock which will guarantee each and every year a rise in the basic state pension in line with earnings, prices or a 2.5 per cent increase – whichever is the greater.

There will be no more 75p increases in the basic state pension.

With this coalition Government pensioners will have the income to live with dignity in retirement.
Second, we will provide additional support to families in poverty.

These are among the most vulnerable people in our society and they need our help.

I have decided to increase the child element of the child tax credit by £150 above indexation next year.

This is a £2 billion a year commitment to low income families.

And we make it even now, in these difficult times.

I can tell the House that the policies in this Budget, taken together, will not increase measured child poverty over the next two years.

Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top.

It is a progressive Budget.
Mr Deputy Speaker.
Today we take decisive action to deal with the debts we inherited and confront the greatest economic risk facing our country.

We’ve been tough but we’ve also been fair.

We have set the course for a balanced budget and falling national debt by the end of this Parliament.
We have insisted that four pounds of every five needed to reduce our deficit will be found from government spending.

We have protected capital investment from additional cuts and got to grips with the soaring costs of welfare.
We have provided the foundations for economic recovery in all parts of our nation and given our country some of the most competitive business taxes in the world.
We have taken almost a million people out of income tax.

Half a million people out of national insurance.

And we have done all this without increasing child poverty.

Sadly, with this unavoidable budget we’ve had to increase taxes.

We’ve had to pay the bills of past irresponsibility.

We’ve had to relearn the virtue of financial prudence.

But in doing so we have ensured that the burden is fairly shared.

Today we have paid the debts of a failed past.

And laid the foundations for a more prosperous future.

The richest paying the most and the vulnerable protected. That is our approach.
Prosperity for all. That is our goal.

And I commend this Budget to the House.