Autumn Statement 2012: Chancellor’s statement
Mr Speaker, it’s taking time, but the British economy is healing.
After the biggest financial crash of our lifetimes, people know that we face deep seated problems at home and abroad.
At home, we live with the legacy of a decade of debt and the failure to equip Britain to compete in the modern world.
And we face a multitude of problems from abroad.
The US fiscal cliff, the slowing growth in China.
Above all the eurozone, now in recession.
People know there are no quick fixes to these problems.
But they also want to know that we are making progress.
And the message from today’s Autumn Statement is that we are making progress.
It’s a hard road, but we’re getting there.
Britain is on the right track – and turning back now would be a disaster.
We have much more to do.
The deficit has fallen by a quarter in just two years.
And today’s figures show it is forecast to continue to fall.
Exports of goods to the major emerging economies, which were pitifully low, have doubled since 2009.
And since this Coalition Government came to office, 1.2 million new jobs have been created in the private sector.
In a world economy where bond investors are fleeing countries they regard as risky, investment is flowing into UK gilts instead of flying from them.
We have to keep it that way.
Two years ago, Britain was in the danger zone.
Now we are seen as one of the safe havens – able to borrow money at lower interest rates than at any time in our history.
Today’s forecast shows a £33 billion saving on the debt interest payments it was predicted we would have to pay two years ago.
That is as much as the entire defence budget.
Which is why in this Autumn Statement, we show that this Coalition Government is confronting the country’s problems, instead of ducking them.
- we reaffirm our commitment to reducing the deficit, setting out the details of our spending plans for 2015-16 and rolling forward an outline framework into 2017-18
- we show our determination to do this fairly, with further savings from bureaucracy, from benefit bills and the better off
- we go on equipping Britain to succeed in the global race by switching from current spending to capital investment in science, roads and education
- we offer new support for business and enterprise, so they can create the jobs we need
- and in everything we do, we will show today we are on the side of those who want to work hard and get on
Mr Speaker, the Office for Budget Responsibility has today produced its latest economic forecast – and it is a measure of the constitutional achievement that it is taken for granted that our country’s forecast is now produced independently of the Treasury..
I want to thank Robert Chote, his fellow Members of the Budget Responsibility Committee Steve Nickell and Graham Parker, and all their staff at the OBR for their rigorous approach.
One of the advantages of the creation of the OBR is that not only do we get independent forecasts, we also get an independent explanation of why the forecasts are as they are.
If, for instance, lower growth was the result of the Government’s fiscal policy, they would say so.
But they do not.
They say the economy has “performed less strongly” than they had expected.
They forecast growth this year of -0.1%, but in their view “the weaker than expected growth can be more than accounted for by over-optimism regarding net trade”.
The OBR had previously assumed that the eurozone would begin to recover in the second half of this year; instead, of course, it has continued to contract and that has hit our exports to these markets and the net trade numbers.
The eurozone crisis has also, they say, spilled over into “tighter credit conditions” and “elevated UK bank funding costs”.
In the OBR’s words, these problems will “constrain growth for several years to come”.
There are domestic problems too.
In the Report today the contraction in 2008-2009 is assessed to be deeper than previously thought, with GDP shrinking by a staggering 6.3% - the largest shock to our economy since World War II.
In the OBR’s view, the aftermath of this shock continues to weigh on the productivity of the UK economy, with credit rationing and impaired financial markets potentially impeding the expansion of successful firms.
They say that “GDP growth is now expected to be lower in every year of the forecast period, as credit conditions take longer to normalise and global growth remains weaker than previously expected”.
As a result the OBR forecast the economy will grow by:
1.2% next year.
Then 2.0% in 2014.
2.3% in 2015.
2.7% in 2016 and 2.8% in 2017.
So the economy is recovering.
It’s recovering more quickly than many of our neighbours.
The IMF estimates that the UK next year will grow more strongly than either France or Germany.
Our credible fiscal policy allows for supportive monetary policy, and with the Bank of England, we are directly addressing the problems of tight credit through the £70bn Funding for Lending Scheme.
In the OBR’s view today this has reduced UK bank funding costs, lowered interest rates in the real economy and will add to the level of real GDP.
One area where the British economy has done much better than forecast is in creating jobs.
Since early 2010, the private sector has created 1.2 million new jobs - 600,000 more than was predicted and youth unemployment has been falling.
Instead of peaking at 8.7%, the OBR now expect unemployment to peak at 8.3%.
This at a time when the unemployment rate in Spain is 26%.
In France it is almost 11%.
And across the whole eurozone it is almost 12%.
Employment, already at a record high, is set to go on rising each year of the forecast.
For every one job less in the public sector, two new jobs are expected to be created in the private sector.
And Britain now has a greater proportion of its people in work than either the eurozone or the United States.
Mr Speaker, more jobs means that the impact of the weaker than forecast GDP on the public finances has been less than some might have expected.
There have been three developments that have each had a significant, one-off impact on the public finances, and in the Report we publish today we clearly and transparently show the impact of all three.
First, the transfer of the Royal Mail pension fund to the public sector as part of its privatisation.
This produces a one off reduction in the deficit of £28 billion this year, but adds to it in the years after.
Second, the previous Government had classified Bradford & Bingley and Northern Rock Asset Management as off balance sheet.
Today, it is brought on balance sheet, in line with the judgement of the Office for National Statistics.
This adds around £70 billion to our national debt and reminds us of the price the country is still paying for the failures of the past.
Third, the Government has decided with the agreement of the Bank of England to transfer excess cash held in the Asset Purchase Facility to the Exchequer.
This is sensible cash management, and is in line with the approach of the Bank of Japan and US Federal Reserve.
I welcome the OBR’s verdict that this is “more transparent” than the previous approach.
I want to make sure its impact on the figures is also completely transparent.
So we have today published the forecasts for the public finances with and without the impact of the APF decision.
Mr Speaker, when we came to office, the deficit stood at 11.2% - the highest in our peacetime history.
It was forecast to be the largest of any major economy in the world.
In the last two years, the deficit has fallen by a quarter.
Today’s figures show that, with or without the APF coupons , the deficit is forecast to fall this year.
And borrowing is forecast to fall in cash terms.
Last year the deficit was 7.9%.
This year, it is forecast to be 6.9%, excluding the impact of the Royal Mail pension assets.
It is falling and it will continue to fall each and every year.
To 6.1% next year,
5.2% the year after.
4.2% in 2015-16.
Then 2.6%, before reaching 1.6% in 2017-18.
In 2009-10, the country was borrowing £159 billion.
This year, we are borrowing £108 billion.
That is forecast to fall to £99 billion next year, £88 billion the year after, then £73 billion in 2015-16 and £49 billion and £31 billion in the two years after that.
These are the central forecasts published by the OBR, with the Asset Purchase Facility cash transfer included.
When the transfer is excluded, as we show in the document, the deficit also falls from 7.9% last year to 7.7% this year, then 6.9% next year and falls in every single year after.
And cash borrowing falls in every year as well.
There are those who have been saying that the deficit was going up this year.
But any way you present them, that is not what the OBR forecasts show today.
They say that the deficit is coming down.
Coming down this year – and every year of this Parliament.
Yes, the deficit is still far too high for comfort.
We cannot relax our efforts to make our economy safe.
But Britain is heading in the right direction.
The road is hard but we’re making progress.
Mr Speaker,– the regime we have set up means that the Chancellor is no longer judge and jury of their own fiscal rules.
And today the OBR have assessed us against those rules.
First, the fiscal mandate.
This is the commitment that we will balance the cyclically-adjusted current budget over the coming five years.
I can tell the House that the OBR have assessed that we are, in their words, “on course” to meet our fiscal mandate.
In other words, we have a better than 50% chance of eliminating the structural current deficit in five years time – that part of our borrowing that doesn’t recover automatically as the economy grows.
This is true, again, with or without the transfer of the coupons.
So we will meet our fiscal mandate.
But the OBR assess in their central forecast that we do not meet the supplementary objective that aims to have debt falling by 2015-16.
The point at which debt starts to fall has been delayed by one year, to 2016-17.
The OBR’s central forecast is that net debt will be 74.7% this year, then 76.8% next year. 79.0% in 2014-15.
79.9% in 2015-16.
Before falling to 79.2% in 2016-17 and 77.3% in 2017-18.
In short, the tougher economic conditions mean that while our deficit is forecast to go on falling, instead of taking three years to get our debt falling, it’s going to take four.
Confronted with this news, some say we should abandon our deficit plan, and try to borrow more.
They think by borrowing more, they can borrow less.
That would risk higher interest rates, more debt interest payments and a complete loss of Britain’s fiscal credibility.
We are not taking that road to ruin.
Then there are those who say that despite all that has happened in the world this year, we should cut even more now to hit the debt target.
That would require £17 billion of extra cuts a year.
Let me explain why I have decided not to take this course.
We’ve always argued we should let the automatic stabilisers work.
We have not argued we should chase down a cyclical or temporary deterioration in the economy, particularly one which our own independent body says is largely driven by problems abroad.
That is also the judgement of the IMF, the OECD and the Governor of the Bank of England.
Our aim is to reduce the structural deficit – the permanent hole in our public finances that won’t be repaired as the economy recovers.
And we are – we’ve cut the structural deficit by 3 percentage points in the last two years, more than any other G7 country, and it is set to go on being cut at a similar rate in the years ahead.
This lower deficit is delivered by our public spending plans and we are going to stick with those plans.
Overall, we are not going faster or slower with those plans; the measures I will announce in this Autumn Statement are fiscally neutral across this Parliament.
And there is no net rise in taxes today – any taxes increased are offset by taxes cut.
Mr Speaker, in last year’s Autumn Statement, we committed the Government to maintain the same pace of consolidation for two further years beyond the end of the current spending review – into 2015-16 and 2016-17.
In this year’s Autumn Statement, we extend the consolidation for one further year, into 2017-18.
The OBR projects that, as a result, the share of national income spent by the state will fall from almost 48% of GDP in 2009-10 to 39.5% by 2017-18.
The document shows total managed expenditure will continue to fall, and will now be £4.6 billion lower in 2017-18 than if it had been held flat in real terms.
No decision to cut spending is ever easy.
But those who object must explain whether instead they would have higher taxes, or higher borrowing or both.
I also provide further detail of the consolidation plans for 2015-16, the last year of this Parliament.
I said two years ago that the correct balance for our fiscal consolidation between spending and tax should be 80:20.
I can confirm that by the end of 2015-16, the decisions we announce today mean we will almost exactly deliver on that 80:20 mix.
Total spending will fall in that final year of this Parliament at the same rate as through the current spending review.
I can confirm today that the overall envelope for Total Managed Expenditure will be set at £745 billion.
We start with the working assumption that departmental resource totals will continue on the same trajectory as over the current spending review.
The detail of departmental spending plans for 2015-16 will be set at a spending review, which will be announced during the first half of next year.
What we do today is to take steps now to help deliver these spending plans, and to go on reducing the deficit in a way that is fair.
This Government has shown that it is possible to restore sanity to the public finances while improving the quality of our public services.
Crime has fallen.
Hospital waiting lists are down.
School standards are up.
This with a civil service that is today smaller than at any time since the Second World War.
We are today publishing the reports we commissioned from the pay review bodies on market-facing pay.
We commit to implement these reports.
This means continuing with national pay arrangements in the NHS and Prison Service, and we will not make changes to the civil service arrangements either.
But the School Teachers’ Review Body does recommend much greater freedom to individual schools to set pay in line with performance.
And my RHF the Education Secretary will set out how this will be implemented.
Through the efforts of individual Government departments and the support of the Chief Secretary and my RHF the Minister for the Cabinet Office, we have already generated £12bn of efficiency savings in Whitehall.
But we believe there is room to do even more.
If all departments reduced their spending on administration in line with the best performing departments like Education and Communities and Local Government, then another £1 billion could be saved.
If all departments made greater provision of digital services, rationalised their property estates as some have done, then a further £1 billion could be saved.
So today, we are reducing departmental resource budgets by 1% next year and 2% in the year after.
We will continue to seek efficiency savings in the NHS and in our schools, but that money will be recycled to protect spending in these priority areas.
Local government budgets are already being held down next year to deliver the freeze in council tax, so we will not seek the additional 1% savings next year – but we will look for the 2% saving the year after.
And while the Ministry of Defence is included in these measures, they will be given flexibility on their multi-year budget to ensure that this will not lead to reductions in military manpower or the core defence equipment programme over the Parliament.
A mark of our values as a society is our commitment to the world’s poorest.
We made a promise as a country that we would spend 0.7% of our gross national income on international development – and I am proud to be part of the first British Government in history which will honour that commitment, and honour it as promised next year.
We will not, however, spend more than 0.7% - so as we did last year, we will adjust the DfiD budget to reflect the latest economic forecasts.
In the medium term these savings across Whitehall will help departments maintain the right trajectory for the years that follow the spending review – and help us to pay off the deficit in future.
In the short term, I’m switching these current savings into capital – all the money saved in the first two years will be re-invested as part of a £5 billion capital investment in the infrastructure of our country.
It is exactly what a government equipping Britain to compete in the modern global economy should be doing.
We’re committing an extra billion pounds to roads, including four major new schemes to:
- upgrade key sections of the A1, bringing the route from London to Newcastle up to motorway standard
- link the A5 with the M1
- dual the A30 in Cornwall
- and upgrade the M25, which will support the biggest port developments in Europe, and I pay tribute to my HF for Thurrock for campaigning to achieve this
We’ve already set out plans this autumn for a huge investment in rail, and my RHF the Transport Secretary will set out in the new year plans to take High Speed 2 to the North West and West Yorkshire.
I today confirm a billion pound loan and a guarantee to extend the Northern Line to BatterseaPower Station and support a new development on a similar scale to the Olympic Park.
We’re confirming funding and reforms to assist construction of up to one hundred and twenty thousand new homes and delivering on flood defence schemes in more cities.
On top of broadband expansion for our countryside and our larger cities, we’re funding ultrafast broadband in twelve smaller cities – [Brighton and Hove, Cambridge, Coventry, Derby, Oxford, Portsmouth, Salford, York, Newport, Aberdeen, Perth and Derry-Londonderry].
In addition to the third of a billion pounds announced this autumn for British science, we are today announcing £600 million more for the UK’s scientific research infrastructure.
And since improving our education system is the best investment in a competitive economy, I am today committing £270 million to fund improvements in further education colleges and one billion pounds to expand good schools and build 100 new free schools and academies.
Scotland, Wales and Northern Ireland will get their Barnett share of additional capital spending put at the disposal of their devolved administrations.
On top of this £5 billion of new capital spending in infrastructure and support for business, we are ready to provide guarantees for up to £40 billion more – today I can announce that projects worth £10 billion have already prequalified.
We’re offering £10 billion worth of guarantees for housing too.
Our country’s pension funds will launch their new independent infrastructure investment platform next year as well.
And we have today published full details of the replacement for the discredited PFI.
Since we can all see now that the public sector was sharing the risk, we will now ensure we also share in the reward.
And I commend my HF for Hereford for his work in this area.
Taken together this is a revolution in the sources of finance for upgrading Britain’s infrastructure and equipping Britain to win in the global race.
Annual average infrastructure investment is now £33 billion.
Savings from Whitehall are not enough by themselves to tackle our debts.
We need to find other savings – and we need to do it in a way that is fair.
Those with the most should contribute the most, and they will.
But fairness is also about being fair to the person who leaves home every morning to go out to work and sees their neighbour still asleep, living a life on benefits.
As well as a tax system where the richest pay their fair share, we have to have a welfare system that is fair to the working people who pay for it.
Let me start with tax.
The vast majority of people, rich or otherwise, pay their taxes and make their contribution.
But there are still too many who illegally evade their taxes, or use aggressive tax avoidance in order not to pay their fair share.
This Government has taken more action against these people than any before it.
Prosecutions for tax evasion are up 80%.
We are increasing by around 2500 the number of tax inspectors going after evaders and avoiders.
Next year, we will introduce the first ever General Anti-Abuse Rule.
And next year, for the first time in our history, money will be flowing from bank accounts in Switzerland to Britain instead of the other way round.
Because of the Treaty we’ve signed, we expect to receive £5 billion over the next 6 years from the undisclosed Swiss bank accounts of UK residents.
It is the largest tax evasion settlement in British history.
We are taking further steps today.
Hundreds of millions of pounds of tax loopholes are being closed with immediate effect, and we are investigating abusive use of partnerships.
HMRC will not have its budget cut over the next two years, unlike other departments.
Instead we will spend £77 million more on fighting tax avoidance – and not just for wealthy individuals.
We want the most competitive corporate tax system of any major economy in the world, but we expect those corporate taxes to be paid.
So today we are confirming that we will put more resources into ensuring multinational companies pay their proper share of taxes.
And we are leading the international effort to prevent artificial transfers of profits to tax havens.
With Germany and now France we have asked the OECD to take this work forward and we will make it an important priority of our G8 Presidency next year.
In total, we expect the action we announce today will increase the amount of money collected from tax evasion and avoidance by a further £2 billion a year.
Fair and necessary as this is, it is not enough by itself to close the deficit.
We need to ask more from the better off.
Punitive tax rates do nothing to raise money, and simply discourage enterprise and investment into Britain.
Other countries on our doorstep are trying that approach and are paying the price.
We’re not making that mistake.
HMRC data reveals that in the first year of the 50% tax rate, tax revenues from the rich fell by £7 billion and the number of people declaring incomes over one million pounds fell by a half.
A tax raid on the rich that raises almost no money is a con.
We’re going to have a top rate of tax that supports enterprise and we’re going to raise more money from the rich.
But to make sure the deficit reduction remains fair, we need to raise more.
We’ve already raised stamp duty on multi-million pound homes and next week publish the legislation to stop the richest avoiding stamp duty.
But we won’t introduce a new tax on property.
This would require a revaluation of hundreds of thousands of homes.
In my view it would be intrusive, expensive to levy, raise little and the temptation for future Chancellors to bring ever more homes into its net would be irresistible.
So we’re not having a new homes tax.
We have in this Parliament already reduced the amount of tax relief we give to the very largest pension pots.
From 2014-15, I will further reduce the lifetime allowance from £1.5 million to £1.25 million and reduce the annual allowance from £50,000 to £40,000.
This will reduce the cost of tax relief to the public purse by an extra £1 billion a year by 2016-17.
98% of people currently approaching retirement have a pension pot worth less than £1.25 million.
Indeed, the median pot for such people is just £55,000.
99% of pension savers make annual contributions to their pensions of less than £40,000.
The average contribution to a pension is just £6,000 a year.
I know these tax measures will not be welcomed by all; ways to reduce the deficit never are.
But we must show we’re all in this together.
When you’re looking for savings, I think it’s fair to look at the tax relief we give to the top 2%.
I want to help the great majority of savers.
That’s why we’re introducing a generous new single tier pension, so that people know it always pays to save.
That’s why I will uprate next April the overall ISA limit to £11,520.
And we will consult on allowing investment in SME equity markets like AIM to be held directly in stocks and shares ISAs, to encourage investment in growing businesses.
I have also listened to concerns from pensioners about draw down limits.
I am today announcing that the Government will raise the capped drawdown limit from 100% to 120%, giving pensioners with these arrangements the option of increasing their incomes.
Mr Speaker, it’s also fair to look at the way we uprate benefits and some tax thresholds.
The basic state pension has this year gone up by the largest cash amount in its history.
Next year, thanks to our triple lock, I confirm it will rise by 2.5%, higher than either earnings or inflation.
That takes the level of the full Basic State Pension to £110.15 a week.
When it comes to working age welfare, we’ve already made substantial reforms.
£18 billion a year has been cut from the welfare bill.
Benefits are being capped for the first time – so families out of work will not get more than the average family gets for being in work.
We’ve increased efforts to fight welfare fraud.
Today we announce further measures and checks to save over £1 billion in the next four years by reducing fraud, error and debt in the tax credit system.
Next year my RHF the Work and Pensions Secretary will introduce the new Universal Credit so that it always pays to work.
Today we set the key parameters, such as the levels of earning disregards.
But we have to acknowledge that over the last five years those on out of work benefits have seen their incomes rise twice as fast as those in work.
With pay restraint in businesses and government, average earnings have risen by around 10% since 2007.
Out of work benefits have gone up by around 20%.
That’s not fair to working people who pay the taxes that fund them.
Those working in the public services, who have seen their basic pay frozen, will now see it rise by an average of 1%.
A similar approach of a 1% rise should apply to those in receipt of benefits.
That’s fair and it will ensure that we have a welfare system that Britain can afford.
We will support the vulnerable.
So carer benefits and disability benefits, including disability elements of tax credits, will be increased in line with inflation and we’re extending support for Mortgage Interest for 2 more years.
But most working age benefits including Job Seekers Allowance, Employment and Support Allowance and Income Support – will be uprated by 1% for the next three years.
We will also uprate elements of the Child Tax Credit and the Working Tax Credits by 1% for the next three years – although previously planned freezes will go ahead.
Local Housing Allowance rates, that are a central component of Housing Benefit, will be uprated in line with the existing policy next April and then we will cap increases at 1% in the two years after that.
For this measure, 30% of the savings will be used to exempt from the new cap those areas with the highest rent increases.
The earning disregards for Universal Credit will also be uprated by 1% for two years from April 2014.
Child benefit is currently frozen.
It too will now rise by 1% for two years from April 2014.
Let me be clear.
Uprating benefits at 1%, means people get more cash, but less than the rate of inflation.
And taken together we will save £3.7 billion in 2015-16 and deliver permanent savings each and every year from our country’s welfare bill.
To bring all these decisions for many benefits over many years together, we will introduce into Parliament primary legislation – the Welfare Uprating Bill.
I hope it commands support from both sides of the House of Commons.
We will apply a similar approach to the uprating of some of our tax thresholds as we have to welfare.
The higher rate threshold will be increased by 1% in the tax years 2014-15 and 2015-16.
So the income at which people start paying the 40% rate will go up from £41,450 to £41,865 and then to £42,285.
I want to be completely clear with people.
This is an increase; in fact, it is the first cash increase in the higher rate threshold in this Parliament.
But it is not an increase in line with inflation, and so it raises one billion pounds of revenue by 2015-16.
Again, there are no easy ways to reduce the deficit – but from year to year, no one will pay a penny more in income tax.
In the same way, the capital gains tax annual exempt amount will be increased by 1% over the same period, reaching £11,100.
And inheritance tax nil-band rate, which has been frozen since 2009 at £325,000 will be increased by 1% in 2015-16 to £329,000.
Taken with the welfare uprating decisions, this is a fair approach to paying off Britain’s debts.
But dealing with those debts is only one part of making Britain fit to compete in the global race.
Countries like ours risk being out-smarted, out-worked and out-competed by the new emerging economies.
We asked Michael Heseltine to report on how to make the Government work better for business and enterprise.
I think it’s fair to say that his answer has captured the imagination of all political parties.
We will respond formally in the Spring.
But here’s what we will do now.
First, government spending should be aligned with the priorities of the local business community.
We will provide new money to support the Local Enterprise Partnerships – and from April 2015 the Government will place more of the funding that currently goes to local transport, housing, skills and getting people back to work into a single pot that LEPs can bid for.
Details will be set out in the Spending Review.
Before then we are putting more money into the Regional Growth Fund, which is helping businesses create half a million new jobs.
Second, as Lord Heseltine also recommends, we are going to support industries and technologies where Britain has a clear advantage.
With my RHF the Business Secretary’s support, we will extend our global lead in aerospace and support the supply chains of advance manufacturing.
We are also taking big steps today to support British companies who export to new emerging markets in Asia, Africa and the Americas.
I am increasing the funding for UK Trade and Investment by over 25% a year, so it can help more firms, build the capacity of British chambers overseas, and maintain our country’s position as the number one destination in Europe for foreign investment and we are launching a new £1.5 billion export finance facility to support the purchase of British exports.
Third, we are addressing the credit problems for companies.
We’re creating a new Business Bank and providing it with £1 billion of extra capital which will lever in private lending to help small and medium sized firms and bring together existing schemes.
And fourth we are going to cut business taxes still further.
Let me tell you how.
The temporary doubling of the Small Business Rate relief scheme helps over half a million small firms, with 350,000 paying no rates at all.
We’ve already extended it to next April.
Today I extend it by a further year, to April 2014.
We also confirm the tax relief for our employee shareholder scheme.
The Energy Bill provides certainty and support for billions of pounds of investment in renewable energy.
Today we publish our Gas Strategy to ensure we make the best use of lower cost gas power, including new sources of gas under the land.
We are consulting on new tax incentives for shale gas and announcing the creation of a single Office for Unconventional Gas so that regulation is safe but simple.
We don’t want British families and businesses to be left behind as gas prices tumble on the other side of the Atlantic.
We’re going to help our construction industry too.
The proposal from my colleagues that we create a long grace period before newly completed buildings have to pay empty property rates is a sensible one and we will introduce it next October.
We have cutthe small companies tax rate to 20%.
But I’d like to help small and medium sized firms more – and I want to thank my HFs for Burnley and Pendle for their thoughts in this area.
Starting on 1st January and for the next two years, I am therefore going to increase by tenfold the Annual Investment Allowance in plant and machinery.
Instead of £25,000 worth of investment being eligible for 100% relief, £250,000 worth of investment will now qualify.
This capital allowance will cover the total annual investment undertaken by 99% of all the business in Britain.
It is a huge boost to all those who run a business, who aspire to grow and expand and create jobs.
I want Britain to have the most competitive business tax regime of any major economy in the world.
I have already cut the main rate of corporation tax from 28% to 24%, and it is set to fall further to 22%.
This has helped British companies and frankly left other countries scrambling to keep up.
They will have to try harder.
For I am today cutting the main corporation tax rate again by a further 1%.
In America, the rate is 40%; in France it is 33%; in Germany it is 29%.
From April 2014, the corporation tax rate in Britain will stand at 21%.
This is the lowest rate of any major western economy.
It is an advert for our country that says: come here; invest here; create jobs here; Britain is open for business.
We will not pass the benefit of this reduced rate onto banks, and to ensure that we meet our revenue commitments, the Bank Levy rate will be increased to 0.130% next year.
Making banks contribute more is part of our major reforms to the banking system.
We also have to be on the side of those who want to work hard and get on.
I know how difficult many families have found the cost of living.
In dealing with the deficit, we’ve had to save money.
But whenever I’ve been able to help, I have.
We have helped councils freeze council tax for two years running – and we’re helping them freeze it again next year.
We’ve put a cap on rail fare rises for the next two years, so commuters are not punished for travelling to work.
We’re forcing energy companies to move families onto the lowest tariffs for their gas and electricity bills.
And we’ve helped motorists with the cost of petrol.
We’ve cancelled the last Government’s escalator – and I’m moving inflation-only rises to September.
There is a 3 pence per litre rise planned for this January.
Some have suggested we delay it until April.
I suggest we cancel it altogether.
There will be no 3 pence fuel tax rise this January.
That is real help with the cost of living for families as they fill up their cars across the country.
And it will help businesses too.
It means that under this Government we’ll have had no increase in petrol taxes for nearly two and a half years.
In fact they have been cut.
Mr Speaker, we’ve also helped working people by increasing the amount they can earn before paying any income tax.
When this Coalition Government came to office, the personal tax allowance stood at just £6,475; next April it is set to rise to £9,205.
24 million taxpayers have seen their income tax cut.
2 million of the lowest paid have been taken out of tax altogether.
Because of the difficult decisions we’ve taken today, we can go even further.
From next April, the personal allowance will rise by a further £235 – that means a total increase next year of £1335 - the highest cash increase ever.
People will be able to earn £9,440 before paying any income tax at all.
This is a direct boost to the incomes of people working hard to provide for their families.
That’s £47 extra in cash next year.
In total, that’s a £267 cash increase next year.
People working full time on the minimum wage, will have seen their income tax bill cut in half.
And we are within touching distance of the £10,000 personal allowance.
And this time I propose to extend the benefits of this further increase to higher rate taxpayers.
That decision will stand alongside the decision I’ve had to take on uprating, meaning that in real terms, a typical higher rate taxpayer will be better off next year and no worse off in total by the year after.
Mr Speaker, today we’ve helped working people.
But I do not want that to distract from the tough economic situation we face in the world.
The public know that there are no miracle cures.
Just the hard work of dealing with our deficit and ensuring that Britain wins the global race.
That work is underway.
The deficit is down.
Borrowing is down.
Jobs are being created.
It is a hard road.
But we are making progress.
And in everything we do, we’re helping those who want to work hard and get on.