Below is the text of the 1996 Budget, held on 26th November 1996 and presented in the House of Commons by the Chancellor of the Exchequer, Kenneth Clarke.
Mr. Deputy Speaker (Mr. Michael Morris): Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that, at the end of the Chancellor's speech, copies of the Budget resolution will be available to hon. Members in the Vote Office.
The Chancellor of the Exchequer (Mr. Kenneth Clarke): Contrary to popular belief, I always look at the mirror in the morning. I am reasonably well prepared for this occasion and I am about to deliver the real Budget statement. I think this is positively my last appearance in the House in a speaking capacity this week, or so at the moment I expect it to be.
The British economy is today prosperous and successful. This Budget is going to make it even more prosperous and an even bigger success over the coming years.
When I presented my first Budget in 1993, it was against a very different economic background from today. Although the recovery had begun then, consumer confidence had not yet returned. Growth was not yet firmly established. Further firm action was needed on the public finances, and our critics, in 1993, were peddling doom and gloom about the British economy. The recovery is now in its fifth year. Consumer confidence has returned and we are achieving something unprecedented for a generation in this country -
In my first two Budgets I curbed the growth of public spending and took firm decisions on tax, which have brought borrowing down by almost a half since 1993. Last year, in my third Budget, I was able to return to cutting tax while spending more on the public services which the people I know care about most -
This year, I am presenting a Budget which builds on the last three. This Budget reduces public spending plans further, while providing more money for priority services. It makes responsible progress on our tax-
I have one overriding aim, which is the lasting health of the British economy. [Hon. Members: "And winning the election."] The lasting health of the British economy might win elections, that is true, but my first aim is the lasting health of the British economy. We are securing that by creating the best conditions for British businesses and British men and women to earn a living. All my Budgets and all my policies have been designed to set this country on course to be the strongest industrial economy in western Europe in years to come.
The British economy is in its fifth successive year of steady, healthy economic growth, with falling unemployment and low inflation. These are the best circumstances we have faced for a generation and that is the only sensible background to debate in this House. It is a Rolls-
The International Monetary Fund and the Organisation for Economic Co-
This time -
The OECD has praised us for having one of the least regulated labour markets in the industrialised world. High social overheads, minimum wages and unnecessary legislation do not protect workers -
In the bad old days, recoveries were derailed by balance of payments crises. In this recovery, the current account has actually improved, despite the slowdown in our main European markets. In fact we now have a current account broadly in balance, which is our best overall trading performance for nearly 10 years.
Mr. Deputy Speaker, I want to ask the British people this question: in the years ahead do we seriously want to be prosperous in this country? I think that we do. That is why I am setting out an economic policy aimed at the next five years, not just the next five months. I am setting out an economic policy that will go on delivering our enviable combination of rising prosperity, low inflation and more jobs. That is my purpose in this Budget. This Budget secures a prosperous future for all sections of our people and their families.
The last thing that the British economy needs now is a change of direction. We need at least another five years of this Government's continuous vigilance on inflation. We need more of this Government's determination to get government borrowing down. We need another five years of this Government's commitment to raise the wealth-
Let me begin by turning to my forecast for growth. I expect the British economy to grow by 2.5 per cent. this year and 3.5 per cent. next year -
By keeping a close eye on the prospects for inflation up to two years out, and by taking sensible early action if and when necessary, I intend to ensure that healthy growth continues without inflationary pressures emerging. That is what I have always promised-
I expect consumers' expenditure to continue to be the main engine of growth next year. The real value of take-
The housing market recovery is now firmly established. I hope that negative equity can soon be consigned to the economic history books.
People are feeling the improvement in their family finances. Consumer confidence is at its highest levels for more than eight years.
I expect consumer spending to grow by 3 per cent. in 1996 as a whole. But it has been strengthening through the year. So I expect stronger growth to continue, with consumers' expenditure rising by more than 4 per cent. next year.
But this recovery is not just about a more confident consumer. Businesses are optimistic too. The climate for business is excellent. Strong demand at home and a recovery in our key export markets present British industry and commerce with tremendous opportunities.
Interest rates and tax rates remain low, and profitability is high. The result has been business investment growth of 6 per cent. so far this year. I expect business investment to continue to grow strongly -
These excellent conditions for business are not lost on overseas companies looking to invest for the future inside the European market. Let us never forget the most valuable practical endorsement that we get for our sound economic policies.
The United Kingdom remains the No. 1 destination for inward investment into the European Union. Keeping our enterprise economy on course at the heart of Europe will keep us in pole position.
Exports have grown by almost 20 per cent. over the past two years -
The current account has been close to balance during the last two and a half years, thanks to strong growth in exports and income from our investments overseas. I expect the current account to remain broadly in balance this year and next.
As I said earlier, I am glad to say that our thriving economy is creating jobs. Employment in the United Kingdom has risen by more than 0.75 million real jobs since the recovery began. Unemployment has fallen by almost a million from its peak. It will soon drop through the 2 million mark. But that is still too high. I want it to go on falling and I expect it to go on falling.
I hope that during the debate the shadow Chancellor will say that he forecasts that unemployment will now rise, month after month. That seemed to help our performance in the labour market the last time he said it.
We are on course to get underlying inflation down to our target of 2.5 per cent. or less, and to keep it there. In October underlying inflation rose to just over 3 per cent. This should not have surprised anybody who looked at last year's statistics. It is a temporary and inevitable reflection of the exceptional falls in the price level 12 months before.
Let me give the House my concrete reasons for being so confident about low inflation. Apart from oil prices, which have risen sharply, commodity prices are steady and are not putting upward pressure on inflation. Earnings growth remains sensible and modest. Producer price inflation -
Any risk to this recovery from inflationary pressures re-
I expect underlying inflation to meet our target of 2½ per cent. or less. I will ensure that we go on meeting that target for the foreseeable future.
We have made good progress in reducing public sector borrowing, but it has not been as fast as I expected. The Budget therefore targets public sector borrowing again. The general public may ask why I concentrate on public sector borrowing in the way that I do. [Interruption.] It is suggested that I do so because I am a Tory. That is a good reason for concentrating on public sector borrowing as I do.
One reason why I continue to concentrate so heavily on public borrowing in setting policy is that money spent paying the interest on our debt is, in my opinion, money that I would prefer to spend on public services and the reduction of taxation.
We are making good progress on bringing down borrowing, but lower than expected tax revenues mean that it has not fallen as fast as I expected in the last Budget. This is not bad news for everyone. People are no doubt quite glad not to be paying as much tax as I expected. But as I am the Chancellor, I strongly prefer to keep any tax cuts under my own control.
The causes of these shortfalls in our forecasts of tax revenue -
In this Budget I will propose a number of measures to stem tax leakage, to protect the ordinary tax payer and to make sure we get the right tax from the right people. When I reduce tax, I want to do so in a way that is fair for all businesses and fair for all hard-
Government borrowing has been steadily coming down for three years. This Budget will ensure that Government borrowing keeps coming down. I expect the public sector borrowing requirement to be £26.5 billion this year. That will mean it has halved as a share of GDP over the past three years. I expect it to come down to £19 billion next year and to be broadly in balance by 1999-
That pattern of declining borrowing is very much better than the one I had to put in my summer economic forecast last July. Since I produced the summer forecast, which was debated in the House last summer, I have reduced my expectations for next year by £4 billion.
A large part of that improvement is the result of the measures that I am taking in this Budget. This Budget tightens fiscal policy. The reason why I am tightening fiscal policy now is to reduce the risk of having to tighten monetary policy excessively as I set policy to hit my inflation target.
My decisions are always taken solely in British interests to benefit the British economy. But my decisions in this Budget also mean that, by happy coincidence, we will meet the Maastricht debt and deficit criteria in 1997, and we will do even better than that in the medium term. [Interruption.] I do not need any assistance from nationalists. It is a happy coincidence for everyone because those criteria make sound economic sense, as we all agree, with or without a single currency.
Our option whether to join or stay out of a single currency, based on British national interest, remains a genuine choice. We will qualify, but we will choose in the next Parliament when the time comes.
This Government is the champion of sound public finances, of limited government and of low taxation. Our combination of low taxation, low public spending and low debt is the best in Europe. We intend to stay in that enviable position. We can do that only if we continue to bear down on public spending.
In the 1980s, across the rest of Europe, the modern state remorselessly took an ever greater share of almost every nation's wealth. We in Britain held the line. The proportion of GDP going into Government spending in the United Kingdom is now 8 per cent. lower than the average in the rest of the European Union. If our spending had risen to continental levels we would now have to raise nearly £2,300 a year more in tax from every British household.
I have set a target of 40 per cent. or below for the share of national income that goes on public spending. Making progress towards that desirable target means tough decisions on public spending every year, but this year we have had to cope with the costs of BSE, and with larger than expected increases in the costs of social security, as more and more elderly and disabled people receive benefits to which they are entitled.
Against that background, we had to keep the rest of public spending within the tightest possible limits, in order for us to spend more on the public services that people really care about: education, combating crime and our national health service. This country has been well served by my right hon. Friend the Chief Secretary who has successfully tackled that problem. Despite all the difficulties, we have been able to reduce public spending plans over the next three years by a further £7 billion in this Budget. Public spending next year will be more than £24 billion lower than was projected when I became Chancellor -
We have been able to reduce spending plans because we have lower inflation, falling unemployment, a continuing campaign for efficiency in the public sector, sensible policy priorities and a Government capable of taking decisions about those priorities. On top of that, the Government's relentless drive against fraud and the abuse of tax and benefits will be stepped up another gear.
Next year, we will meet our target of 40 per cent. for the share of national income that goes on public spending. In last year's Budget I said that I would make 40 per cent. in 1997-
Education is the key to the future of any prosperous and civilised society. It helps to determine how well the economy performs in the long run. It also helps to determine the sort of citizens that we have and the sort of society that we have. The Government are committed to raising standards in education.
As a result of last year's Budget, £878 million extra was provided for schools this year. We are giving schools priority again in this Budget. Planned expenditure on schools will rise by another £830 million next year. A large proportion of that money -
Judging by last year's experience, some local authorities are reluctant to pass on the increases in their standard spending assessment to their schools, preferring to spend the money on other areas. It is no good local authorities campaigning for more spending on education in the autumn and then spending their money on other things in the spring. Parents will want to make sure that their local authorities spend money on the things that they want for their children: good teachers and better equipped schools. I hope that the hon. Member for Brightside makes the same efforts to ensure that Sheffield passes the money on, if it did not last year.
A good school has a value far beyond its buildings; but the quality of school buildings in which our children are taught is still very important. We have a long way to go in the post-
By setting high standards for schools and increasing choice for parents, this Government are delivering better trained and better qualified young people. Almost one in three young people now goes on to university, compared with one in eight in 1979. And our universities and colleges maintain some of the highest standards in the world despite the pressure on their unit costs that this unprecedented explosion of opportunity for young people has produced.
But I recognise this pressure -
My Budget therefore includes £280 million to boost further and higher education over the next two years. This includes an extra £20 million next year for science equipment. We want to ensure that the British science research base remains the best in the world, which it certainly is at the moment.
As my right hon. Friend the Secretary of State for Education and Employment announced in September, the Government are planning a substantial sale of student loans debt. It makes no sense for the Government to keep a huge portfolio of loans on their books when the private sector could manage it more effectively and is better placed to cope with the risk. I emphasise that the sale will have no effect on the terms on which students can get loans.
The substantial reduction in the figures for education that Members will find published in the new spending plans is more than accounted for by the sale of this debt. As I have just described, we will actually spend more on the things that really matter -
This Government believe that effective law and order are an essential part of making Britain a nation at ease with itself. A good quality police service and an effective system of criminal justice are very high on the list of this Government's priorities.
When it comes to spending on law and order this Government have a record as long as your arm. [Interruption.] Spending more money on a much better police service and a much better criminal justice system -
Provision for combating crime -
Our British national health service, with treatment free at the point of delivery, is the envy of the world. It is the best system of health care that I have ever encountered. In every modern civilised society the demand for better health care, for new techniques to save lives and improve our quality of life grows constantly and remorselessly. This Government completely understand that. That is why we have increased spending by some 75 per cent. in real terms since 1979.
That is why the Prime Minister has pledged on our behalf more resources for the national health service in real terms every year, throughout the next Parliament -
We are also spending that money better. We have reformed the NHS so it is much better managed and much more efficient. It is no good opposing these improvements, because when waste is reduced, more can be directed to higher quality patient care. This means that patients get more treatment and care out of every extra pound that we spend.
For next year, we will increase current spending on patient services in the NHS by £1.6 billion, or 2.9 per cent. in real terms. The real increase in current spending for hospitals next year over and above inflation will be 3 per cent.
On top of this, private finance initiative investment will play an increasingly important role in providing new health care facilities. The PFI contract for the Norfolk and Norwich hospital scheme, worth close to £200 million, was signed yesterday, and others will follow. [Hon. Members: "Oh."] I am grateful to my right hon. Friend the Secretary of State for Health for not signing it tomorrow, but I do not think that he had the Budget in mind. There are many in the pipeline-
The NHS will continue to grow and continue to improve. We are totally committed to the national health service as a public service providing high quality up-
By our decisions on public spending, we prove that the NHS remains at the top of the Government's priorities. The NHS has been safe in our hands, it is safe in our hands and it will always be safe in our hands.
This year's spending round was as tight as any that I can remember -
Falling unemployment and lower inflation has helped to reduce the social security and employment programmes. We are also continuing to transfer activities to the private sector where this is more efficient as it is for student loans. We have refocused the housing programme to encourage the use of private finance and the transfer of the local authority housing stock to the private sector. We are stepping up our programmes against fraud. We are continuing our remorseless squeeze on the costs of bureaucracy itself. And we have looked in every department for ways of achieving our objectives more economically. With efficiency savings, most departments will be able to deliver their programmes next year, but with less public money in real terms.
Private Finance Initiative
People pay their taxes in order to get good quality public services, not to accumulate state-
The PFI helps to square the circle of sound public finances and growing demand for better and more modern public services by tapping the expertise and the resources of the private sector.
A year ago we had agreed £1.5 billion worth of deals -
London is currently experiencing a transport investment boom under the PFI: the channel tunnel rail link, Thameslink 2000, the Docklands light railway extension, and the A40 and A13 improvements. This is in addition to conventional public and private capital spending on the Jubilee line extension, the Heathrow express and the new A12-
Adding traditional capital spending to PFI investment, publicly sponsored capital spending in the United Kingdom in the next three years will be substantially higher in real terms than it was in the 1980s.
One third of all public spending goes on social security. Our social security system is there to provide an income when people cannot earn because of sickness, disability, unemployment, caring for relatives or old age. People on the left and the right of politics continue to search for a radically different and better way of meeting those needs in our wealthy nation. I have studied many of their proposals closely and so far, I am afraid, nobody has yet come up with anything remotely sensible or practicable.
Until people come up with a radical alternative, if they ever do, our welfare safety net must remain affordable. We must not allow the welfare state to damage the incentives of individuals or businesses in the private sector, because it is the wealth-
In the post-
Year after year, this Government have also vigorously attacked fraud and reformed benefits to target them on those in genuine need. The measures that I now propose in this Budget intensify those efforts yet again.
We plan a further move to align the benefits paid to lone parents and couples with children, because both care for children. From April 1998, new awards of family premium and child benefit will be the same in value for lone parents as for couples. We are introducing a number of measures on housing benefit and council tax benefit to ensure that those on benefits do not have a more comfortable life style than some of those who are supporting themselves on modest incomes. The contrary would be unfair and unwise. Full details will be made available later today by my right hon. Friend the Secretary of State for Social Security who, with your permission, Mr. Deputy Speaker, will speak later in the Budget debate.
In my Budget two years ago, I announced a whole package of measures to help the unemployed get back to work -
In this Budget I am providing another £100 million worth of new money for new measures mainly targeted on people who have been unemployed for two years or more. First, they will be required to attend a compulsory programme of interviews with the Employment Service to give them a helping hand to compete in our ever improving market for jobs.
We are expanding Project Work pilots to a further 28 areas. That will create up to 100,000 new opportunities, on a programme with a good track record for getting long-
I can also announce pilots for a new scheme called Contract for Work. Private contractors will help people to find work. Those firms will be paid by results. As with Project Work, if the scheme works better than the existing approach, we will expand it. We have drawn on some American experience. We will adapt it to Britain and, if it works, we will widen its application. We must tackle the problem.
Dependency on welfare impoverishes us all. The welfare system should provide a safety net. It must provide the support that a caring society wants to give to our less fortunate fellow citizens. But the welfare system must never be allowed to become a way of life. We do not want our social security system to be undermined by resentment.
We have to take these careful measures. We must move people from dependency to responsibility for themselves and their families, because we are serious about protecting those in genuine need and we want to go on delivering that protection for the future.
Spend to Save
We want to combine a strong, affordable welfare system with a successful low-
As part of our continuing fight against tax and benefit fraud and tax loopholes, I am introducing a package of measures called "spend to save". That involves the planned spending of money, carefully targeted to save much more money for the general public, and to raise revenue. There will be more money next year to clamp down on benefit fraud. There will be more visits and checks on benefit claimants in high-
Inland Revenue tax experts will be redeployed to investigate even more rigorously how some big, sophisticated companies seem to pay so little tax. They will make sure that companies are paying what they owe, and what we intended they should owe. In short, we intend to do more about companies being "economical with their tax".
There will be more resources in the Revenue and Customs to stem the growth of the shadow economy. Tax cheats put law-
The "spend to save" package will cost £800 million over the next three years to secure, in a well-
"Spend to save" protects the ordinary taxpayer and the people in genuine need of benefits. It is certainly not about more bureaucracy or more red tape.
We remain a Government committed to deregulation, and we are committed to a more efficient civil service. We have cut overall central Government Departments' running costs by 8 per cent. in real terms since the start of this Parliament and we are going to reduce them by a further 7 per cent. by the end of the decade. Civil service numbers are already below half a million, and we expect this fall to continue.
The first duty of Government is to make sure that people can live their lives as they want and that businesses can flourish. People must have the opportunity of a good quality job to go to, a good standard of living, good schools and hospitals, and safe streets to live in. It is only when those essentials are secure and only when the Government have made sure that they are not borrowing more than they should, that a responsible Government can start to think about tax cuts.
Last year I cut taxes paid by the ordinary family and this year I am able to cut a little more. I think that the message I have repeated over recent months has now been understood. If there are to be tax cuts, in my opinion they must be for keeps. That means that they must be backed not only by sound spending decisions but by a sound fiscal judgment.
Consumer spending is strong and inflation remains in check. But a fiscal stimulus to the economy at this stage could be just as damaging as letting go of monetary policy. So, in setting my Budget, I have struck a careful balance.
I want to cut taxes, but first I have to continue my drive to secure the tax yield. I want to make sure that the tax due is turned into tax paid. The balance of the tax burden must be distributed sensibly and fairly and it must not distort decisions or competition.
I am introducing a number of measures which will help us to achieve this. I am plugging some loopholes to raise revenue, I am ending some tax reliefs that have done their job to raise revenue and I am adjusting some indirect tax rates.
Securing the Tax Base
Even though VAT revenues have revived in recent months, they are still coming in significantly below what was expected last year. This Budget includes a crackdown on some of the rather ingenious wheezes that have sprung up to get around paying VAT. The measures I am announcing will raise £0.75 billion in revenue next year, but they also protect a further £1.5 billion a year of existing revenue from further attack from ingenious accountants, acting lawfully and acting to take our revenue.
Customs will restrict access to special VAT schemes for retailers. We will also tighten up the rules of VAT relief schemes for bad debts and the option to tax commercial property to prevent widespread abuse of these reliefs. I also propose to take steps against retailers who reduce their VAT bills when selling insurance with their products.
We have already announced a three-
But one feature that attracted particular criticism from not only accountants and their clients but others was that Customs and Excise retains the right to claim underpaid tax going back six years. That argument was rather disingenuous, because Customs and Excise does not claim underpaid tax on unexpected changes to the interpretation of the law when they go against taxpayers. However, Government must not only be fair -
I will be releasing today details of a package of measures to stamp out tax abuse in a number of areas, including leasing transactions, the abuse of foreign tax credit rules and paying employees in their own company's shares. I am sure that they will be accepted by the House and others as necessary and sensible measures to stem the growing loss of tax revenues, and thereby to protect the ordinary tax payer. I will not tolerate tax abuse. A number of those measures are being introduced -
Special tax reliefs can be a powerful tool. They can play an important pump-
The tax relief that the Government introduced in 1987 to promote profit-
I have always believed, and have argued publicly for many years, that in a modern enterprise economy people's pay should be closely linked to the performance of the business for which they work. The best way for businesses to motivate their staff is to let them share in the rewards of success. I am delighted that tax reliefs have helped to get that idea accepted so widely.
Tax relief on profit-
"There is considerable inertia to overcome, so it might make sense to offer some temporary measure of tax relief."
I can no longer justify the ever increasing cost of the tax relief to the 22 million taxpayers who are not in profit-
Good managers in today's enterprise economy no longer need a tax relief to know that pay should be linked to their firm's performance. Pay linked to profits produces it own rewards on the bottom line in a thriving economy.
I shall describe to the House how the Government will start to withdraw this special tax relief. I intend to do that gradually, so I must ensure that businesses which need to adjust their pay packages and their sharing of the rewards of success have ample time to make those adjustments.
The upper limit of pay attracting the relief will remain unchanged at its present £4,000 until 1998, which means that no one will be affected before then. [Hon. Members: "In time for a general election."] But during the lifetime of a Conservative Government. It will then be progressively reduced until the year 2000, when the relief will be withdrawn altogether.
Capital Allowances for Long Life Assets
Investment is vital to our recovery, and business investment is now growing strongly. The tax system recognises investment through capital allowances. These allow the cost of investment to be written off against tax bills, frequently faster than it is written off in commercial accounts. But within that system, for plant and machinery with a long lifespan, the rate at which costs can be written off for tax is far more generous than for other types of investment, and bears no relation to the useful economic life of the asset. This is an unjustifiable distortion in the tax system in favour of particular types of business and investment.
I propose changing the capital allowance for plant and machinery with a life of more than 25 years to 6 per cent. on a reducing balance basis. That will spread the tax relief more evenly over the average life of these assets. Groups spending less than £100,000 a year on such assets will be exempt. This will mean that the vast majority of small companies will not be affected. Ships and railways will also be exempt.
I also propose to withdraw the 100 per cent. corporation tax deduction for the intangible costs of drilling most production oil wells.
OTHER TAX CHANGES
The Government recognise that low marginal tax rates on income are a spur to hard work and enterprise. Taxes on spending do less damage to effort and enterprise than taxes on income, but the balance of the taxes that we do impose on spending must be right, and I am making some changes to taxes which help to move towards a better balance for the tax system as a whole.
Insurance Premium Tax
I propose to increase insurance premium tax, which applies to most general insurance, to 4 per cent. Three quarters of all insurance -
The introduction of the tax -
Air Passenger Duty
Air travel has also been undertaxed, because it has proved difficult -
Business travel is soaring, and the holiday business is booming at the moment in prosperous Britain. This modest change will not stop it booming in future prosperous years. About 40 per cent. of the revenue raised by passenger tax is borne by overseas visitors.
Vehicle Excise Duties
I am making the same changes to the main vehicle excise duties this year as I did last year. The cost of a car tax disc will go up by £5, around the rate of inflation. The cost of a lorry tax disc will be frozen for the seventh year in succession.
Road fuel duties
I firmly believe that motorists should bear the full costs of driving -
I intend to stick to my 1993 Budget commitment to raise road fuel duties by an average of at least 5 per cent. each year in real terms. In line with this, I am raising the tax on all petrol and diesel by 3p per litre from 6 o'clock tonight. Those tax rises will encourage fuel efficiency and help to control harmful pollution.
Air quality package
I am glad to say that pollution from vehicles is already coming down, helped by tax measures in previous Budgets. The tax measures that we took to encourage unleaded petrol were a huge success. It now accounts for two thirds of the petrol market. I want to go further in this Budget for green purposes or, to put it more sensibly, to attack pollution in cities and to improve air quality by effective steps to reduce particulate emissions -
In recent years, new evidence has come to light strengthening the health arguments for reducing particulates. This pollution is being reduced, but we all want to see it being reduced further and faster.
I also want to encourage high-
I also intend to reduce vehicle excise duty by up to £500 for lorries meeting very stringent emissions standards from early 1998. That will give an incentive for lorry owners to fit particulate traps or to convert to gas power. We will be consulting on the practical details of those changes.
I believe that this air quality package will significantly speed up the reduction of urban emissions of particulates, helping us to meet our air quality targets for 2005 and beyond. We intend to ensure that the economic growth that we are achieving faster than others in this country is consistent with a healthy environment and with sustainable development as we become one of the most successful economies in the western world.
In my 1993 Budget, I gave a commitment to raise duty on tobacco by more than inflation each year. I believe and accept that that is a fair and effective way to hammer home the message that smoking can seriously damage one's health. So far as I am concerned, this announcement is necessary masochism in the wider public interest.
From 6 o'clock this evening, the tax on a packet of 20 cigarettes will increase by about 15p, on a packet of small cigars by about 7p and on a packet of pipe tobacco by about 8p, but I am limiting the increase in the duty on hand-
Mr. Terry Lewis (Worsley): What time do the shops close?
Mr. Clarke: Not yet.
I am aware of the serious problem that cross-
Last year, I was able to freeze the duty rate on beer and wine. This year, it will remain frozen. The proportion of tax on the price of a pint in the pub is now at its lowest level for 30 years. For some of us, that helps to keep our small cigars affordable -
Last year's cut in the duty on spirits was the first cut that any Chancellor had made for 100 years, and I was tempted to maintain a striking rate of once every 100 years. But I am sure that the industry will be glad to know that it will not have to wait so long this time. From 6pm tonight, the tax on whisky, gin and other spirits will fall by another 4 per cent., which is worth 26p. The reduction in the rate on spirits boosts an important industry in the United Kingdom, and it will also reinforce last year's signal to overseas authorities not to discriminate against our products. Only smugglers will regret that we are slowly moving our duty on spirits nearer to the continental level.
From 1 January, the tax on alcoholic soft drinks will be increased by over 40 per cent., which will put up the price by between 7p and 8p a bottle-
Nothing matters more for business than a stable economic environment -
As I promised in my last Budget, there will be, from April 1997, a cut in the main rate of employers' national insurance contributions, to 10 per cent. The cut will be paid for by the proceeds that we are receiving from the landfill tax. A tax on waste is cutting a tax on jobs, and it will benefit employers in Britain and make it even cheaper to create new jobs in our growing economy. Our overheads on jobs are already less than half those in Germany, France or Italy. I am determined that we must keep that advantage over our competitors on the continent, where the creation of new jobs, in the rest of the European Union, is over-
In this Budget, I propose to keep the three intermediate thresholds for employers' national insurance contributions where they are now. I propose to increase -
In this Budget, I also want to deal with a particular concern of our small businesses, upon which so much of our future economic prosperity depends. I think that small businesses are most concerned about the burden of non-
The uniform business rate is a fixed cost which can rise each year beyond the control of the manager of any business, and it hits the small business hard. Since the last revaluation of business rates, I have repeatedly slowed down the increase of rates for those businesses whose rates have had to go up. No business property has seen its rates go up by more than 7.5 per cent. above inflation in any one year. But I want to do more than that; it is not good enough. I have decided to freeze next year's rates bill for all small businesses whose rates would have gone up. Small properties whose rates are falling will have those reductions accelerated, which will benefit over 1 million small business properties, by up to £130 a year.
I want to go further. A freeze is a significant step that I can make right away, this year. We have already reduced business rates for rural village shops. But I realise that the current system of business rates bears particularly hard on smaller businesses, for which it represents a much bigger proportion of total costs compared with their large competitors. We must therefore move on as soon as possible to make more changes in the system to recognise this and to redistribute the burden more sensibly between smaller and larger businesses. My Budget next year will be a convenient opportunity to proceed with that.
The Government are committed to reducing and then abolishing capital gains tax and inheritance tax. I repeat those commitments. But we have always said that we will cut these taxes only when we can afford to do so. This is a responsible Budget which is protecting future growth and prosperity by putting the public finances into a healthier state. We will not be able to make progress on both these taxes this year.
Mr. John Prescott (Kingston upon Hull, East): Next year.
Mr. Clarke: The right hon. Gentleman can come back next year and discover from the same seat that he is now occupying.
I am pleased to announce that we can take a further significant step towards abolishing inheritance tax. Inheritance tax is nowadays a penalty on thrift, independence and enterprise. It is a growing anachronism.
Lloyd George's maxim that the "the most convenient time to tax the rich is when they are dead" no longer holds. Inheritance tax today is largely paid by people of modest means who either cannot or simply do not make careful plans to avoid it. [Hon. Members: "Modest!"] Modest means in the opinion of all those outside the hard core of the labour movement, that is.
Last year I made significant progress towards our commitment. In this Budget I will build on that by raising the value of the inheritance tax threshold to £215,000.
Mr. Dennis Skinner (Bolsover): I read that this morning.
Mr. Clarke: The hon. Gentleman appears to know that from this morning. Is he also aware that the Government have raised that threshold by 40 per cent. in only two years?
In last year's Budget I announced a project to rewrite Inland Revenue tax legislation in plain English. That is a tall order. The project is as ambitious as translating the whole of "War and Peace" into lucid Swahili. In fact, it is more ambitious. I am told that "War and Peace" is only 1,500 pages long. Inland Revenue tax law is 6,000 pages long and was not written by a Tolstoy. We have consulted extensively on how the project should be carried out, and I am glad to say that there is wide consensus. The Inland Revenue will publish the plans and arrangements shortly after the Budget.
The aim is to prepare a series of rewrite Bills, the first of them to be ready for enactment in the 1997-
The project will bring the benefits of clarity and certainty to businesses and ordinary taxpayers. It has been widely welcomed and deserves the continuing support that it has enjoyed in all parts of the House.
The Government have led Britain towards our clear goal of a low-
Low direct taxes are the most effective way to encourage enterprise and hard work -
This year, people have taken more heed of my speeches on the overriding priority of securing future prosperity and jobs and financing key public services. Sensible people already expected my cuts in direct taxation to be modest before they read the one leak and many guesses this morning. They know that their well-
I announced my income tax cuts last year as a return to our tax cutting agenda and, for the second year in succession, as a result of all the steps that I have announced, I can afford to deliver an instalment of that agenda. The choice is how best to do so. It is the old dilemma between thresholds and rates. Today it is between The Guardian, the Daily Mirror, The Independent or The Sun.
I want to ensure that tax does not start to be paid at too low a level of income and I want to improve work incentives. Therefore, I propose to raise the threshold below which no income tax is paid at all.
In this Budget, I am making an increase in the basic personal allowance of £280. That is 3.5 times more than necessary to cover the rate of inflation. It will also ensure that each and every person who pays any income tax at all will get a direct benefit out of the Budget.
I am also increasing the married couple's and related allowances by £40, maintaining the extra tax allowance to all married couples. It will now be worth nearly £275 each year for married couples. The tax system does recognise marriage, contrary to popular belief.
We also give a special tax allowance to blind people. This year, I am increasing that by the rate of inflation. I am also moving to put indexation of that allowance on to the same statutory basis as for the other income tax allowances. I also propose to raise the threshold above which people start to pay the 40p higher rate tax by £600.
One of the Government's most important pledges is that we will move to a basic rate of income tax of 20p as soon as we can. We are proving that we can move towards the delivery of that promise and still maintain healthy public finances. Every step that we take makes that more credible and makes it more affordable to reach the ultimate goal to which we are getting tantalisingly near and which a Conservative Government will achieve. As a further step towards that, I propose to widen the lower rate band of 20p tax by £200 -
That will mean that the slice of income on which a 20p tax rate is paid will have more than doubled during the lifetime of this Parliament. More than one in four of all taxpayers will now pay a marginal rate of tax at 20p in the pound.
They are wide thresholds, so were the newspapers wrong? Am I indeed going to cut a penny off the basic rate of income tax? What the newspapers did know was that my control of public spending and borrowing and the responsibility of my Budget means that I can raise thresholds, widen the 20p band and also responsibly afford to reduce income tax as well. If I had put it all on tax rates, I could have taken 2p off the basic rate of income tax, but I preferred instead to raise personal allowances and widen the 20p band for those at the bottom end of the scale. In addition, I am able to reduce the basic rate of income tax by one penny to 23p in the pound.
The small companies rate of corporation tax will be reduced to 23p in line with that, helping 400,000 companies. The main rate of corporation tax of 33p is already lower than in any other major industrialised country. I look forward to hearing what the Labour party says about the basic rate of income tax.
Seventeen years of steady progress -
Another penny off the basic rate is a significant further step towards this Government's target of a 20p basic rate of tax. For more than 7 million people, our promise of a 20p basic rate is already a reality. I am bringing other income taxpayers ever closer to that reality. A basic rate of 20p is a realistic and attainable goal for the next Parliament. We shall not be content until we have completed the task of getting it down to 20p and every Budget that I have presented has shown step by step how we shall get there.
With increases in real earnings and all the tax changes in the Budget, a family on average earnings will be another £370 better off next year over and above inflation. We said it last time and it happened. The same family will have more than £1,100 more to spend each year after tax and inflation than they did before they voted Conservative at the last general election. In 1992, the background was one of a worldwide slowdown, but now we are enjoying strong growth and rising living standards, and we shall enjoy more of the same.
In November 1993, I promised that I would put Britain firmly on course for a sustained period of rising prosperity and falling unemployment, based on low inflation and healthy public finances. I have done what I clearly said I would have to do and I have delivered on those promises.
The Budget cuts public spending next year by £2 billion, and it generates an extra £0.5 billion in revenue through "spend to save". It contains a balanced tax package -
I am a man of the world: I realise that virtue does not always brings its own rewards. I am probably not a particularly virtuous Chancellor, but this virtuous Budget will bring rich rewards the rewards of economic success to the hard-
This is not a Budget just for the next few months; it is a Budget for many prosperous years to come. It is a Budget that the Government will build on again in 12 months' time and I commend it to the House.