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Ways and Means — Financial Statement

Oral Answers to Questions — Prime Minister – in the House of Commons at 11:30 am on 24th March 2010.

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Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means 11:30 am, 24th March 2010

Before I call the Chancellor of the Exchequer, it may be for the convenience of Members if I remind them that at the end of the Chancellor's speech, copies of the Budget resolutions will be available to them in the Vote Office.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer 12:32 pm, 24th March 2010

This Budget takes place as the UK is emerging from the deepest global recession for over 60 years. It has been a testing time, which has required Governments across the world to make difficult decisions and difficult choices, and to take unprecedented actions. We had to decide whether to intervene to rescue the financial system or to stand on the sidelines, and whether we should support the economy, business and families, or let the recession take its course. The record shows that the right calls were made.

Global recession has not turned into depression. Unemployment here in the UK has not risen as much as was feared. Borrowing, as I will explain later, is lower than forecast last year. But the recovery is still in its infancy, and there are equally tough choices ahead: choices that will shape our economy and society for decades to come. The task now is to bring down borrowing in a way that does not damage the recovery, or front-line services on which people depend. The challenge now is how we invest as a country to support the industries of the future and allow the talent of the British people to flourish.

At the heart of our decisions is a belief that Government should not stand aside, but should help people and business to achieve their ambitions. My Budget today builds on that belief, and on our confidence in this country. This will be a Budget to secure the recovery, to tackle borrowing, and to invest in our industrial future. It will continue targeted support for businesses and families where and when it is needed. It will set out how we will stick to our plan to halve the deficit within four years.

Our economy is at a crossroads. Having come through this global recession, this Budget will set out a route for the country to long-term prosperity. At its heart is a £2.5 billion one-off growth package to help small businesses, promote innovation, and invest in national infrastructure and key skills. This package will be paid for by switching spending from within existing allocations and the extra proceeds from the tax on bank bonuses, in line with a Budget that is balanced over the period.

The world is still recovering from the severest economic shock of our lifetime. Despite what some try to suggest, the recession has not been restricted to the UK, nor did it begin here. A storm which began in America spread rapidly around the world. It was the biggest test that countries had faced in modern times. When I presented my Budget a year ago, world leaders had just met in London to agree unprecedented action to rescue the global economy. Governments of all political colours acted to stabilise their banking systems and to use fiscal and monetary policy to boost demand and protect jobs.

Not everyone here supported the action taken, but with hindsight it is even clearer that the right calls were made: economic disaster was averted; growth has begun to return across the major world economies; and the prospects for the global economy are much more positive than they were a year ago. But there is nothing preordained about continued recovery. There are still uncertainties. Financial markets are febrile, oil prices have increased by over 50 per cent., bank credit, while improved, remains weak in many parts of the world, and confidence has not fully returned to either businesses or consumers.

That is particularly the case in Europe, which is the market for 60 per cent. of our exports. Germany saw no growth in the last quarter. Ireland, another key trading partner, has contracted by over 10 per cent. Spain is still in recession. Italy has slid back into negative growth. Unemployment at 10 per cent. across the euro area is adding to uncertainty. All these factors are having an impact, particularly on an open trading economy like the UK. So it is imperative that EU countries act with renewed energy and vigour to get the European economy moving forward again. We need to support trade, discourage protectionism and take forward structural reforms. Such continued international action is crucial not only to global prospects but to each and every country's future. Over the last two years we have been reminded of the force for good that Governments can be in protecting people. The role of government is now equally critical in regulating the global financial system and putting in the right foundations for future growth, jobs and prosperity.

The crisis in the world economy started in the banking sector, so improved global financial regulation must be the key priority. Our first test here in the UK came with the problems of Northern Rock. The Government intervened to protect savers and underpin the financial system. The unprecedented decision to nationalise a high-street bank was controversial, as was our action later that year to recapitalise the banking system. Other Governments right across the globe also acted to stabilise the financial system, and I believe this judgment has been proved correct. In the UK, the latest figures from Northern Rock show it is returning steadily to normality. RBS is now being restructured and is rebuilding. Last week Lloyds predicted a return to profitability this year. We will sell our shares in RBS and Lloyds, as well as Northern Rock, in a way that maximises value for the taxpayer and recoups the money we have invested.

We intend to get all taxpayers' money back. In the meantime, I can tell the House that the Treasury has already received over £8 billion in fees and charges from the banks, in return for our support. At the time of the pre-Budget report I put in place a one-off 50 per cent. tax on the excessive bonuses of bankers. I made it clear that banks had a choice of whether to pay bonuses or not-but that if they did, given the amount of taxpayer support that had been provided, I believed it was right that the country as a whole should benefit. I can tell the House that that tax has raised £2 billion-more than twice as much as was forecast. That is money paid by the banks, and those receiving bonuses will, of course, also have to pay income tax at the highest rate.

As well as supporting the banking system during the crisis, we need long-term reform to prevent excessive risk-taking. Under our presidency of the G20 last year, we put in place a plan to reform the international regulatory system, but we still need to do more to strengthen global banking. The G20 countries must put in place new rules on capital and liquidity by the end of the year. We also need to reform remuneration practices, improve cross-border resolution for when banks fail, and ensure that international standards are implemented. We cannot continue with a situation where the banks are rewarded for creating excessive risk, but the taxpayer foots the bill when things go badly.

More countries now agree on the need for an international systemic tax on banks, which must be brought forward quickly, as I will urge international Finance Ministers in Washington when they meet next month. I agree with all those who think that such a tax should be internationally co-ordinated. Going it alone, as some have suggested, would costs thousands of jobs, not just in London but across the whole country. Global efforts must be complemented in each country with a drive to implement existing banking reforms, as we are doing in the UK.

As part of the reform of banking, I want to make it easier for everyone to access banking services. Since 2003, the number of people without a bank account has been halved. I can today announce that we will do more to combat financial exclusion, through a guarantee that everyone can have a basic bank account. That will mean that over the next five years up to 1 million more people will have access to bank accounts-something essential in the modern world.

We must be careful that, as banks begin to return to profit, the sense of urgency around reform is not diminished. There can be no return to business as usual for the banks, but we also must remember that their success is vital not just for the global economy but for Britain's future. London is the world's leading financial centre. Across the country, the sector supports over 1 million jobs, including in Edinburgh, Leeds, Manchester, Cardiff and other cities. A healthy, strong financial services industry is essential for our long-term prosperity.

The crisis might have started in the financial sector, but it spread rapidly to the entire global economy, underlining why intervention was essential. The impact has meant that the UK economy has contracted by around 6 per cent. over the course of the recession. That compares with 8 per cent. in Japan, 7 per cent. in Germany and 4 per cent. in the United States. Businesses in the UK have taken painful decisions. Many families have seen their incomes squeezed. Given the intensity of the global storm, no Government could prevent all jobs from being lost, or all businesses from closing.

However, I believe that Governments have the ability to act and the responsibility to reduce the length and severity of the recession, which is why we took decisive action to stimulate the economy, cutting taxes for families and business, as well as bringing forward capital spending. We also introduced initiatives such as the car scrappage scheme to protect jobs and skills. I can tell the House that this helped to drive an increase in sales of nearly 30 per cent. in the past year, and this in the middle of a recession.

Of course those decisions have a cost, but the cost would have been far greater, for families and the economy, if we had failed to act. We could have followed previous Governments and watched from the sidelines; we could have listened to those who opposed all those measures last year. But if we had, I believe that we would still be in recession. I am also certain that the pain caused would have been worse and more widely felt.

Indeed, in the recession of the 1990s the rate of home repossessions was twice as high as now. That would have been the cost of abandoning families to their fate. Double the rate of business failures: that would have been the cost of failing to support business through this recession. And because of the policy decisions that we made, the Bank of England has been able to take decisive monetary policy action during the downturn. Interest rates have been held at record lows-below 1 per cent.-although they were at double figures for almost three years in the early 1990s. But more than anywhere else, we can see the impact of our choices in the state of the jobs market here. Unemployment has been rising in this country, as it has been around the world. Last week's figures, however, showed that UK unemployment had fallen, and is lower than unemployment in the euro area and unemployment in the United States. Even after the severity of this recession, the claimant count stands today at 1.6 million people. This compares with 3 million people in the recessions of the early 1980s and 1990s. Nor, because of a decade of welfare reform, has there been the massive increase in the numbers on inactivity benefits that we saw in the 1980s and 1990s.

I can tell the House that the claimant count today is still lower than the number we inherited in 1997. That has not happened by chance; it has happened because of the choices that we made. It is because of the tremendous efforts by business and work forces to keep people in jobs. It is also because, as the global storm hit our country, we responded with an additional £5 billion to help people find new work more quickly. We expanded the Jobcentre Plus network and offered support through the rapid response service at firms hit by redundancies.

It is clear that our approach is making a difference. Nearly 4 million people have been helped off the claimant count in the last year alone. With personalised support, around three quarters of those losing a job are leaving the claimant count within six months. Indeed, if this recession had followed the course of the last one, four times as many jobs would have disappeared.

The flexibility of the tax credits system has also provided automatic support, compensating families for loss of income due to shorter working hours and part-time working. I can tell the House that this year 440,000 families have benefited from this extra help-on average by £38 more per week-when they need it most. Despite all this support, there are groups that are likely to need more help, even as the economy recovers. For older workers, I want to extend the support provided by tax credits. To make it easier for those over 60 to receive working tax credit, we will reduce the minimum number of hours they need to work to be eligible. To enable people who want to work longer to do so, we are now consulting on reform of employers' right to make people retire at 65. We are looking at options that include scrapping the default retirement age, raising it or giving employees stronger rights.

For younger workers, I have introduced a guarantee of a job or training for every 18 to 24-year-old after six months out of work, which is already proving a success. This was to run until March next year, but with recovery still in its infancy, we should not withdraw this support too soon. Because unemployment has been lower than forecast, the cost has been lower than expected. I have therefore decided to use the money saved to extend the guaranteed offer to young people until March 2012. So for the next two years I can guarantee that no one under 24 will need to be unemployed for longer than six months before being offered work or training: help with jobs now and, as I will outline later, help with jobs for the future.

Low mortgage rates have reduced costs for home owners, but many families still face fears over repossession. The support for mortgage interest scheme, which I enhanced during the recession, is already helping 220,000 homeowners who lost their jobs. To maintain this help during the recovery, I will continue to pay this support at the higher rate for another six months.

I am also determined to do more to help families take that first crucial step on the housing ladder. We have introduced new help through shared equity schemes, and in 2008 we also brought in a stamp duty holiday on all transactions under £175,000, which ended in December. By helping 260,000 home buyers, it supported the entire housing market when it needed it most. The housing market is now stabilised and has begun a slow recovery, but many first-time buyers, particularly those without large deposits, still find it hard to get a mortgage. I want to help them, but to do so in a way that is properly funded.

I can announce that I will double the stamp duty limit for first-time buyers from midnight tonight from £125,000 to £250,000 for this year and next. This means that nine in 10 first-time buyers will pay no stamp duty at all. But to ensure this measure does not become a burden on public finances, this relief will be funded through an increase in the stamp duty to 5 per cent. for residential property over £1 million from April next year.

Tax-free individual savings accounts have been an extraordinarily popular way to save, including for those saving for a deposit on their first home. Since their introduction in 1999, 19 million people have taken them out, saving over £270 billion. From next month, the annual ISA limit will rise from £7,200 to £10,200, of which half can be saved in cash. To help encourage saving further, I have decided that ISA limits will increase annually in line with inflation. These changes come at a time when the savings ratio has already risen strongly over the past year, to the highest it has been since 1998.

The last year has been tough for many people, but the evidence shows it would have been harder still without the choices we made and the action we took to support the economy. We need the same good judgement and decisive action to secure and strengthen the recovery, and to provide the right basis for the country to seize the opportunities ahead.

I want now to return to my forecasts. As I have said on many occasions, the world economy is still in a period of great uncertainty. In the absence of Government action to support the economy, the weakness in some of our overseas markets, particularly Europe, could result in a substantial downward revision of our growth prospects, but because of the action we have taken through the recession, and the measures that I am announcing today, I believe that only a small reduction is needed.

This year, as I said in last year's Budget speech and last year's pre-Budget report, I expect the economy to grow by between 1 and 1.5 per cent. I have decided to revise slightly downwards my forecast for 2011 to bring it into line with those of the Bank of England, to growth of between 3 and 3.5 per cent. Projections for the public finances are based, as is normal, on the lower end of these forecast ranges. As the economy continues to rebalance following the recession, my forecast for the following years is unchanged.

We have already seen inflation rise above 3 per cent. in the first month of this year, increasing the cost of living. The inflation figures released yesterday show a rise of 3 per cent. Although high compared to recent years, this is a far lower sum than the peaks in inflation of over 10 per cent. in the 1990s and 20 per cent. in the 1980s, and as the Governor of the Bank of England has said, the present increase in inflation should be temporary, and results from the ending of the VAT cut and other one-off factors.

I want, however, to help families and business through this period, so I have decided to stage next month's increase in fuel duties. Instead of the planned increase, fuel duty will rise by a penny in April, which is less than inflation, and it will be followed by a further one penny rise in October, and the remainder in January. The staging will ease the pressure on businesses and family incomes at a time when other prices are increasing. By the time the full rise comes in at the beginning of next year, I am forecasting that inflation will be back at 2 per cent. I am today writing to the Governor of the Bank of England in the usual way to confirm that the inflation target remains unchanged at 2 per cent. With interest rates also expected to remain low and stable, this is essential for future growth.

The cost of stabilising the financial system and stimulating economies has meant an inevitable increase in Government borrowing here and around the world. This has been exacerbated by the sharp fall in tax revenues during the recession. The importance of our financial industry, which provided £1 in every £4 of corporation tax, has meant that we have been particularly badly hit. In the pre-Budget report I forecast that public sector net borrowing would reach £178 billion this year.

We now have hard data rather than forecasts on tax revenues for 11 months of this financial year, and as a direct result of the action we took in supporting the economy at a difficult time, tax receipts in December, January and February have been better than expected. More resilient consumers and retailers have meant that VAT receipts are now £3 billion higher, better company profits have led to higher corporation tax receipts, and with more people having stayed in work, income tax revenues are stronger.

These are the results of the deliberate choices we made over the last two years. At the same time, spending-including spending on benefits and tax credits-has been broadly in line with my forecast. As a result, I can tell the House that borrowing this year should now be £11 billion lower, at £167 billion. In 2010-11, in part because of one-off factors boosting receipts-such as this year's tax on bank bonuses-borrowing will be £163 billion.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In last year's pre-Budget Report, I set up Infrastructure UK, to advise on how our country can achieve those vital goals. Today, it published a new strategy setting out a route map and the investment that will be needed. To deliver this ambition, which is vital for future jobs and the health of our planet, I am setting up an investment bank. It will control £2 billion-worth of equity, half of which will come from assets, including the channel tunnel rail link, and the rest will be matched by private investment.

That equity will unlock billions more of finance from the private sector. The fund will focus first on investing in green transport and sustainable energy, in particular offshore wind power, where Britain is already the world leader. To strengthen the position further, we are offering £60 million to develop ports to host manufacturers of offshore wind turbines. That will help the UK to secure new inward investment deals and support thousands of extra jobs in these sectors.

The UK has the potential to be the world leader in the digital economy. Realising this ambition would create thousands of new businesses and hundreds of thousands of new jobs. It would also open the way for public services to be delivered more effectively and at lower cost. Access to high-speed broadband is essential to deliver these goals. We have taken the decision to ensure that the benefits are spread to rural as well as urban areas and are not limited to the better-off. The 50p monthly landline duty will unlock private investment and enable 90 per cent. of the country to access the next generation of fast broadband by 2017.

I now turn to how we will give targeted help to British industry to realise its global potential. The role of modern government is to work with key sectors to help them compete and prosper. We will not go back to the interventionism of the past, but nor can we return to the hands-off approach of the free-marketeers.

It is also through partnership, not indifference, that Britain can and will succeed. It is a source of pride that 50 per cent. of all Ford diesel engines in the world are now produced in Britain's cutting-edge engineering plants. That is testament to the commitment of their staff and the high quality of their research and development, but the Government have also played a part, with financial support, in this success story.

The Government, again, cannot develop and manufacture electric cars, but we can provide the support to help these projects to take place in Britain. The announcement by Nissan last week that it is to produce in Sunderland its first mass-produced electric car was a vote of confidence in British engineering and its work force, but this ground-breaking venture would not have happened without our support to unlock this private investment. It is precisely that co-operative approach that will ensure our country competes successfully on a global scale.

The same partnership is being built in the life sciences sector, which already employs over 120,000 people. Our approach can be seen in the patent box, for example, which offers tax breaks on income from patents held in the UK. That will lead to more products being manufactured here in this country.

Our creative industries are also a huge source of jobs, wealth and pride. I will offer help to the computer games sector, similar to the steps that are helping to restore the fortunes of the British film industry. It is a highly successful and growing industry, with half its sales coming from exports, and we need to keep British talent in this country.

From advanced manufacturing to pharmaceuticals, and from digital communications to creative arts, it is the ideas that are driving their success. Building on the Hauser review, we will ensure that the UK's technology and innovation centres achieve their potential to commercialise new British discoveries. We have also strengthened the links between universities and business to ensure that ideas are harnessed for commercial success, but we need to do more, so we will set up a £35 million university enterprise capital fund to provide direct support for university innovation and spin-out companies.

Along with the impact of new ideas, it will be the ambition of young people that will carry this country to success. We need to invest in skills, education and our centres of learning. Over the past 13 years, we have increased the number of places and funding for universities by 25 per cent. Almost 400,000 more of our talented young people now go on to university than in 1997. Given this unprecedented rise in investment and the need to tighten public spending overall, universities must make efficiency savings while focusing their funds rigorously on quality teaching and research. We are determined to achieve that without damaging key skills and our economic strengths. To help them to do this, we are going to provide extra one-off funding of £270 million in 2010-11 through a modernisation fund that will help universities to create 20,000 more university places, largely in key subjects such as science, technology, engineering and maths, starting in September this year.

The extra places allow us to strengthen our offer to our young people and ease parents' concern that their child's first taste of life after school or college will be a prolonged spell on the dole queue. We have seen in past recessions what a waste of potential that was and the long-term damage that it caused. Because of the choices that we have made, every school and college leaver, as well as every recent graduate, under the age of 24 will receive personal help and new opportunities. That will be delivered by a guaranteed place in education or training for all 16 and 17-year-olds, a guaranteed job, work experience or training for every 18 to 24-year-old, supporting a higher number of apprenticeships, and more university places for those who want them.

The cost of this £2.5 billion one-off growth package to invest in Britain's future will be met partly by switching resources from existing budgets and, as I said, by the higher revenues from the tax on bankers' bonuses. I expect that cost to be repaid many times over in the coming years in new jobs, new opportunities and greater prosperity.

This recession has had an impact on people across the world. It is often the most vulnerable who are affected most-those in insecure jobs or on modest incomes. While people are suffering hardship, it is all the more unfair that some are escaping their tax obligations. I am determined to continue our successful drive to prevent avoidance and evasion.

Measures in this Budget will bring in additional tax worth £500 million each year, while protecting £4 billion-worth of revenues by 2012-13. These steps include tax agreements such as that already signed with Liechtenstein, which is expected to bring in around £1 billion of extra revenue. I can also now tell the House that we are ready to sign tax information exchange agreements with three additional countries: Dominica, Grenada and Belize. I have a further announcement to make: we expect these deals to be signed within a few days, which is rather quicker than the 10 years it has taken Opposition Front Benchers to exchange information with the deputy chairman of their party.

We are proud of our achievements in helping families and tackling child poverty. For the new born, there is an additional element of the child tax credit, as well as the child trust fund-something which, I know, will now be even better news for certain Members of the House. Pre-school children are benefiting from a massive expansion in free child care places, and I want to do more to help the parents of one and two-year-olds by increasing by £4 a week the money paid through child tax credit from 2012. That extra money will be paid for all children who need it, whether their parents are married, living together, or living apart.

We have also tackled pensioner poverty. In 1997, hundreds of thousands of pensioners lived on a basic state pension worth about £62 a week. From next month, because of above-inflation increases in the basic state pension and the introduction of the pension credit, every pensioner will be entitled to a weekly income of £132.60. We have announced increased personal allowances for older pensioners, which will mean that, from April next year, no one over 75 will pay any tax on the first £10,000 of their income.

The cold weather conditions of the past few months have underlined the importance of the winter fuel payment for many pensioners. Over the past two years, those payments were temporarily increased to £250, and £400 for the over-80s. Without action today, the winter fuel payment would have decreased in value this coming winter, but I have decided that that would be unfair, so I will guarantee this higher winter fuel payment for another year. That means that 9 million pensioner households will receive at least £250 this winter to help with their fuel bills. In line with our values and fairness, help for pensioners, families and homeowners over the coming year is paid for by closing down tax loopholes, as I have already announced.

I believe that the Government have made the right choices to rebuild our public services. When faced with the upheaval of the global recession, we made the right choices to support the economy, businesses and families. Because of the steps we took, opposed by the Conservatives, the recovery has begun, unemployment is falling and borrowing is better than expected. The choice before the country now is whether to support those whose policies would suffocate our recovery and put our future at risk, or to support a Government who have been right about the recession, right about the recovery, and right about supporting people and businesses in this country to build a prosperous future. I commend the Budget to the House.

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