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BUDGET: CHANCELLOR' S STATEMENT

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Mr Deputy Speaker, it is half a century since a Budget has been ...
Mr Deputy Speaker, it is half a century since a Budget has been

presented with Britain engaged in military conflict.

On April 10th 1951 the then Chancellor told the House of Commons

that, heavy as the burdens may seem at times, they were small set

against the cause which is great and the courage of our armed forces

which is even greater.

And even as we look forward to the end of conflict in Iraq, my first

Budget decision is to ensure proper provision for our military, for

our domestic security and for international development and

reconstruction.

I can confirm that I have set aside £3 billion, in a special reserve

available to the Ministry of Defence, so that our troops continue to

be properly equipped and given the resources that they deserve and

have a right to expect.

I believe the whole House will wish to join me in expressing our

gratitude and support to our armed forces for the zeal, bravery and

resilience with which they carry out their duties - and for their

outstanding achievements.

And I believe we owe a debt of gratitude to the strong leadership in

a difficult time of our Prime Minister.

At home our responsibility is to safeguard our communities from

terrorist threats and our resolve is absolute. It is therefore right

also to set aside an extra £330 million for additional domestic

counter-terrorism measures. The Home Secretary will take forward

measures to improve detection work at our ports and enhance our

response to a range of terrorist threats.

This House of Commons will be united in taking every step to preserve

and protect the security of the people of this United Kingdom.

Looking forward, there are three long-term challenges to which the

international community must rise and which will also require

additional financial support - reconstruction in Iraq; a lasting

Middle East peace settlement; and a new and urgent effort, going

beyond debt relief, to c ombat the injustice and instability caused by

world poverty.

To contribute to the United Nations appeal and to carry out

humanitarian work in Iraq - for which we owe special thanks to the

Red Cross and international aid organisations - the Government will

contribute £240 million , including for the United Nations $100

million.

And to back up the UN, and the work of reconstruction and

development, I will today set aside an additional $100 million.

And just as it is right for Britain and America to lead action in

Iraq, it is now right for Britain and America to lead action against

the hopelessness and poverty of the poorest countries.

This Saturday in Washington at the G7 and then IMF and World Bank

meetings, Britain will - with all party support for which I am

grateful - table our plan for a $50 billion a year International

Finance Facility to fund primary education for the 115 million

children without it, and to fund health care and life saving drugs to

tackle AIDS, malaria and TB at prices poor countries can afford.

I believe that the whole House will also support our proposal to

overhaul the EU aid budget and redirect EU aid so that instead of 60

per cent bypassing the poorest countries, more European aid will be

targeted at reducing world poverty by half by 2015.

It is now time for the world's richest countries in word and in deed

to fulfil their obligations to the world's poorest.

And I will report today that Britain - even in difficult world

conditions - is able to meet our military and security costs abroad

and at home and the costs of building peace, while maintaining in

full our record investment in schools, hospitals, transport and

policing and while providing new help in this Budget today for

British business, industry and commerce.

And Mr Deputy Speaker, as the major economies look forward to the

opportunity, if the right decisions are taken, of a global upturn,

Britain s tarts from the foundation of low inflation: the lowest

inflation for thirty years; the lowest interest rates for forty

years; the highest levels of employment in our history.

And I can report today that Britain has now experienced the longest

period of sustained economic growth and the longest period of growth

in living standards for half a century.

I can tell the House that - unlike America, Germany, and Japan - the

British economy has grown uninterrupted, free of recession, in every

single quarter over the past six years.

And Mr Deputy Speaker, having reformed the economy since 1997, this

Budget marks the next stage - to achieve, in our time, a more

flexible, more enterprising, full employment Britain: a Britain of

economic strength and social justice.

Because our economy will have to be better equipped for the global

upturn, this Budget's detailed economic reforms seek, for each region

and nation - greater flexibility in capital markets, in product

markets and thus prices for goods and services, in housing and

planning, in mortgages and in labour markets.

Britain is closer than we have been for three decades to full

employment and with, today, social security, housing benefit and

employment reforms to encourage greater flexibility and fairness,

this Budget will advance our goal of full employment in every region

and every nation of the United Kingdom.

Because it is a Britain of economic strength and social justice we

seek, we plan - paid for by the national insurance rise - by 2008,

80,000 more nurses than 1997 and 25,000 more doctors and this Budget

will further reform and secure public services and the NHS we believe

in: free at the point of need.

And as the first government for three decades with clear goals to

reduce poverty among children and the elderly, we - in this Budget -

will introduce a new guarantee with immediate effect for every new

born child in Britain and a new guarantee wi th immediate effect for

every pensioner in Britain.

Let me give the detail of the economic outlook.

I can report that inflation has averaged 2.3 per cent in the last

year, is expected to be at two and three quarters per cent in the

fourth quarter of this year and will be two and a half per cent next

year, for every one of the following years.

Mr Deputy Speaker, before Bank of England independence the pre-1997

inflation target was two and a half per cent or less but market

expectations of UK inflation five, ten and twenty years ahead were

around four and a half per cent, almost double the target.

Today in 2003 because of the success of the new monetary regime we

introduced in 1997 - and I pay tribute to the retiring Governor of

the Bank of England, Sir Edward George, and the UK Monetary Policy

Committee - we have a symmetric target of two and a half per cent and

on a five, ten and twenty year perspective the markets expect

inflation to be exactly that, two and a half per cent.

And it is because since 1997 our monetary policy and the Bank of

England have established credibility that, in a particularly

uncertain period for the global economy, monetary policy has been

able, supported by fiscal policy, to steer a stable course between

deflation and inflation:

cautious about domestic risks, including affordable pay settlements

and the housing market; and

vigilant to global risks in equities, trade and investment.

And it is for these reasons that while under the old regime, thirty

year British interest rates were higher than those of Germany and

America - in 1997, 7.7 per cent compared with 7 per cent in the USA

and six and a half per cent in Germany - our hard won stability now

means that these long term British interest rates - at just 4.7 per

cent -- are today below those of Germany, below those of the euro

area and below those of America.

So British monetary and fiscal policy has been a ble to respond to the

world downturn and keep the British economy stable and growing. And

that same steady economic leadership, vigilant to risk, resolute in

our commitment to stability, is essential for a post-conflict world

economy that while still fragile also has the potential for renewed

growth.

I am required to set the inflation target in each Budget.

In 1997 I spoke of the case over time for moving to a new measure of

domestic inflation.

The advantages of the current indicator of inflation - RPIX - is that

it is known; well understood; and has served us well.

The advantages, however, of the internationally recognised index of

consumer prices, HICP, is that it is in line with best international

practice and is used by every other G7 nation but Japan, and by our

neighbours in Europe.

So there is a case in principle for adopting for Britain this index

of consumer prices and the Treasury will continue to examine the

detailed implications of such a change.

Today, I am reaffirming our symmetrical inflation target based on the

current RPIX measure. Our target for this financial year will be two

and a half per cent.

I can now report that since the last Budget there are 253,000 more

jobs in the UK.

In the last quarter of 2002 alone 150,000 new jobs were created.

And there are now one and a half million more people in work than in

1997.

Unemployment in Germany, France and Italy is around 9 per cent, in

the euro area as a whole it is 9 per cent, but in Britain it is 5 per

cent.

British unemployment today is lower than in the euro area, Japan and

America together for the first time for nearly fifty years.

Over the same two years that a total of 3 million jobs were lost in

America, employment has risen in Britain by half a million, and the

number of unemployed claiming benefit has fallen below 1 million for

the first time since 1974.

So Mr Deputy Speaker, of all th e major global economies Britain is

now alone in combining low inflation with the lowest unemployment in

a generation.

In recent months the oil price has fluctuated between $23 and $33 per

barrel.

Among the continuing risks is the volatility of global equity markets

which have come down, though there have been sharp movements in

recent days.

Even in the world downturn of the early 1990s world trade continued

to grow at almost 5 per cent a year.

But world trade grew by just 0.1 per cent in 2001, and while it

recovered to 4 per cent growth in the first half of 2002 it slowed

again to just 1.7 per cent in the second half of the year

And so I understand the difficulties and concerns of manufacturers

and exporters - and all those trading across the world.

That is why - in the interests of Britain, Europe and the poorest

countries - the world trade talks now stalled on agriculture,

pharmaceuticals and services should be moved forward with urgency.

We now know that in 2001 and 2002 economic growth in Germany has

averaged just 0.4 per cent:

Japan has also averaged 0.4 per cent

The euro area 1.1 per cent

America just 1.4 per cent.

And here in Britain with growth in 2001 of 2.1 per cent and then in

2002 1.8, we have averaged 2 per cent.

Higher therefore than America, and much higher than Japan and the

euro area.

Looking forward, the largest repercussions for the British economy

arise from the further fall in growth prospects for the euro area to

around 1 per cent in 2003.

And German growth expected at the time of the Pre-Budget Report to be

1.3 per cent in 2003 is now expected to be around 0.5 per cent.

Here in Britain, I now expect growth this year will be two to two and

a half per cent - double the euro area and Japan, and about the same

level as in America.

So, just as the record shows that in 2001 and 2002 Britain with North

America outperformed the rest of the G7 industrialised economies and

were the fastest growing, so again, with all the risks, we are

expected to be the fastest growing G7 economies in 2003.

In the previous two world downturns, in both the early 1980s and in the early 1990s:

the British economy was in recession, output contracting for 5 whole

quarters in a row - but this time it has grown in every single

quarter;

employment which fell by 1.3 million in the early 80s downturn and

1.6 million in the early 90s downturn this time has notfallen but

risen by half a million;

inflation which rose to 20 per cent in the 80s downturn, and to

almost 10 per cent in the early 90s, has this time averaged 2.3 per

cent;

interest rates which peaked at 16 per cent in the 80s downturn and at

15 per cent in the 90s downturn are today 3.75 per cent; and

mortgage rates which rose to 15 per cent in both the early 1980s and

early 90s are under 5 per cent today.

So unlike the early 1980s and early 1990s - when others were in

charge and when Britain was first into the downturn and suffered most

and longest - I can report to the House that this time, on growth,

employment, inflation, interest rates - and also for debt and

deficits where I remind the House in 1993 borrowing peaked at 8 per

cent.in today's money at £83 billion of borrowing in just one year -

this time Britain, even amidst global uncertainty, is not only doing

better than in the past but also doing better when we make the

comparison with other countries.

Fixed investment which has fallen, just as business investment has

fallen, round the world - and is in the euro area still falling - is

expected to grow in Britain by four and a quarter to four and three

quarters per cent this year - with business investment moving up from

the second half - and four and three quarters to five and a quarter

per cent next year

Manufacturing output which has fallen in every major industrialised

country in the last year, with difficulties for the whole sector, is

expected to grow in Britain by a quarter of a per cent to three

quarters of a per cent this year and then two and a quarter to two

and three quarters per cent next year

With the housing market and consumer spending now moderating, we

expect domestic demand to grow by three to three and a half per cent

this year and in 2004.

Risks remain and are real but with inflation and interest rates low,

with fiscal policy supporting monetary policy, and with the world -

particularly America - poised to make what we believe will be a

steady recovery over the course of this year and next, we expect

British growth overall to rise in both 2004 and 2005 by three to

three and a half per cent as the economy returns to trend.

Private consumption as a whole is expected to grow by two and a three

quarters to three per cent this year and by two and a half to two and

three quarters per cent next year; building on six years from 1997 in

which the typical British household has each year seen an average 3.5

per cent real terms rise in their income.

Mr Deputy Speaker, throughout the post-War period, Britain has faced

a productivity gap with our competitors and in particular now a

substantial gap with the USA.

The latest productivity figures from the independent Office for

National Statistics, and now updated from the Census of 2001, are

published in full in today's Budget Report.

The most recent data shows that the productivity gap per head with

Germany has narrowed to just 4 per cent; with France that gap is 16

per cent but has fallen significantly; and the productivity gap with

Japan has been eliminated - with Britain now around 7 per cent

higher.

But despite the progress made, Britain and the rest of Europe still

have a productivity gap - between 20 and 30 per cent - with the US

and so, with rates of corporation tax, small business tax and capital

gains tax already amongst the lowest of the major economies, our

Budget reforms will learn from American innovation, competition and

enterprise and we will introduce new flexibilities in our economy,

reforms that will be important for our future prospects in Europe.

Two thirds of the productivity gap with America is due to the poorer

quantity and quality of innovation. So it is a priority to raise R

and D from today's 1.9 of GDP towards America's 2.8 per cent

And having launched the successful R and D tax credits last year, we

are - following representations from the CBI and others - announcing

improvements in the credits' scope and value and that we will consult

with business to improve the definition of qualifying research to

ensure that it keeps pace with technological developments. Because

two thirds of the R and D credit is paid to manufacturing, this is of

special help to manufacturers in our regions.

To back up our extra £1.25 billion investment in science itself - not

least the £40 million over 2 years we are investing as a world leader

in stem cell research - I have asked the Inland Revenue to report on

further help for already tax exempt research and technology

organisations so that Britain can lead the world in new discoveries,

and then new industries and jobs.

One third of overall productivity gains come from new entrants to

markets: start-up and then growing businesses whose dynamism

transforms commerce, challenges existing businesses to do better, and

when we have flexibility increases our competitiveness.

For small firms looking for capital of between £250,000 and £1

million, there is evidence of an equity gap that prevents them from

realising their full growth potential.

Small business investment companies backed by Government incentives

now make almost 60 per cent of all venture capital investments in

American small business - and helped finance the early growth of now

large companies such as Intel, Apple and Fed- Ex.

To match this success I am publishing proposals for the creation of

British Small Business Investment Companies - private sector vehicles

to inject new capital into small and medium sized firms.

Because of the importance I attach to creating the best environment

for investment, even when under pressure to meet the costs of war and

reconstruction, I will today back up the cut to 19 pence in small

business tax by funding three tax reliefs and incentives that will

help companies in industrial and rural areas make the most of the

opportunities of the upturn.

By raising the qualifying threshold for small and medium sized

businesses to the maximum possible under EU law, currently £20

million, a total of 3.7 million businesses will become eligible for

40 per cent investment allowances.

A total of more than 3 million businesses will now also qualify for

100 per cent allowances for investment in I.T. which I am today

extending for one further year to April 2004.

And sectors that include 400,000 firms will now be eligible to borrow

from the reformed Small Firms Loan Guarantee scheme including

catering, retail and vehicle repairs.

Each of our constituencies has thousands of small businesses

self-employed and sole traders - an average of 5000 per constituency.

>From tomorrow, firms with turnovers of £56,000 or less will not have

to register for or pay VAT - the most generous VAT threshold in

Europe. From tomorrow we will also abolish automatic fines for late

payment of VAT for 200,000 more small businesses. In 2000, we

released 150,000 companies with turnovers under £1 million from

burdensome audit requirements. Subject to a consultative review this

summer, we propose to release thousands more.

Ten years ago it took 28 regulations and certificates to form a

business in Britain. Even today in mainland Europe it takes around 4

weeks and an average £600 in costs. Today in a Britain more flexible

than mainland Europe, just 1 week and only £20. And to cut costs

further and enhance our flexibility, from tomorrow, 650,000 firms

will no longer have to account for every VAT transaction and can opt

for automatic flat rate VAT payments cutting out unnecessary

paperwork.

Next month the Home Secretary will designate, for reform or

abolition, 40 additional regulations and procedures, making a total

of over 500 regulations and procedures - 500 introduced by previous

governments - now identified for removal or reform.

Where we find local enforcement uneven and unpredictable we will

consider using our reserve power to introduce statutory codes of

enforcement practice and we have invited the CBI, Institute of

Directors and others to second their experts to join us to remove

unnecessary regulations starting with construction, transport and

environmental services.

To meet concerns raised by business, I can announce that the

Information Commissioner will produce revised and simplified guidance

on the Data Protection Act; the National Statistician will review

exempting more firms from statistical requirements; and new

procedures will make it simpler and easier for small firms to compete

for Government contracts.

Because flexibility at a UK level should be matched by flexibility in

Europe, we are proposing that Europe's competition authorities

pro-actively investigate barriers to competition, starting with

financial services; and we have now agreed to submit to the new EU

Jobs Review an employment strategy to help Europe's 15 million

unemployed. Britain now leads Europe in job creation, in tax credits

that make work pay, and this week - learning from Europe - we have

introduced new maternity rights and the first ever paternity pay -

andin striking the balance between dynamism and social standards,

our position is that no changes to European regu lations like the

Working Time Directive should risk British job creation.

To break down the trade barriers between Europe and the USA, and

build a strong transatlantic economic partnership, we will propose to

the Commission and the US liberalisation in services and the faster

removal of tariffs.

I have examined rates of Corporation Tax, Small Business Corporation

Tax and Capital Gains Tax. I propose to freeze them.

On Air Passenger Duty, I propose to freeze rates.

On Insurance Premium Tax, I propose to freeze rates.

On the Climate Change Levy I propose to freeze rates.

I propose, from Monday, the annual inflation rise of 1 pence on a

pint of beer, 4 pence on a bottle of wine. I will freeze duties on

cider and sparkling wine.

Because past governments set higher taxes on the alcohol content of

spirits than on beer and wine, I will for the sixth Budget in a row,

freeze all spirits duties, the longest freeze for 50 years,

benefiting whisky producers in all parts of the United Kingdom.

I turn now to bingo. I will abolish the Bingo Tax on 4th August just

as I have abolished direct taxes on the pools and on betting on horse

racing.

The tax on bingo players stakes and the tax on bingo prizes will be

replaced in the same way as tax on betting and the pools. So I can

tell the House it will be a gross tax on company profits for bingo at

15 per cent.

I have also to make a decision on fuel duties.

Owing to the recent high and volatile level of oil prices as a result

of military conflict in Iraq, I have decided to defer the 1.28 pence

a litre annual revalorisation of fuel duties until six months from

now - 1st October - and will legislate to this effect. And if the

current international uncertainties and volatility remain I will not

proceed with the change at all.

I will also freeze vehicle excise duty rates for lorries and for

motor cycles and raise excise duty rates from May 1st o n cars and

vans only by the normal inflation rise of £5.

To encourage the development of the least polluting cars I will offer

a new rate, £110 lower than the standard rate for a licence.

Bio-ethanol fuel reduces air pollution and greenhouse gas emissions

substantially. To encourage its development I can announce that on

1st January 2005 we will reduce bio-ethanol duty by twenty pence per

litre.

Enhanced capital allowances designed to encourage energy saving and

water efficient technologies are set out in detail by the Inland

Revenue.

In January this year we abolished Royalty Payments from the North

Sea. I can now announce that from 1st January next year and for all

contracts completed from today we will abolish Petroleum Revenue Tax

on new tariffing business in the North Sea.

My decision on cigarettes is, for public health reasons, to go ahead

with a rise but only the annual inflation rise of 8 pence per packet

of 20.

Last year I raised the exemption forInheritance Tax to £250,000. I

propose now to raise the exemption to £255,000. 95 per cent of

estates will pay no tax.

All Income Tax rates and tax allowances will remain as set out in

last year's Budget and the Pre-Budget Report.

The Inland Revenue's discussion document on residence and domicile is

published today

I turn to the housing market. I can now report that since 1997 an

additional 1.1 million British families have become homeowners for

the first time - home ownership benefiting from the lowest mortgage

rates for forty years and rising in all parts of the UK and to 70 per

cent of all households, the highest level in our history, higher than

in America and Europe.

But while most mortgages elsewhere are fixed rate, most UK mortgages

- 64 per cent of new mortgages - are at short term variable rates

with most of the rest fixed for just one to five years.

And with housing demand at historically h igh levels, housing supply

has remained low.

And this has contributed not just to, over thirty years, a rate of

growth in house prices three times that of Germany and France, but to

the volatility and inflexibility of the housing market as a whole -

an issue on which we will publish a background study as part of the

Treasury's five tests assessment on the euro.

Indeed, most stop-go problems that Britain has suffered in the last

fifty years have been led or influenced by the more highly cyclical

and often more volatile nature of our housing market.

Housing finance needs to become more certain and planning more

flexible. So I have asked David Miles - Professor of Finance at

Imperial College - to examine the case for, and how, Britain can

develop a market for long-term fixed rate mortgages - something that

is important to the UK in or out of the euro, and more important in a

single currency area.

The Deputy Prime Minister and I are asking Kate Barker, formerly of

the CBI, to examine and report on how we can reduce barriers to

increased housing supply. Backing up his decision to double public

investment in new homes and the renovation of housing estates, and to

speed up planning decisions, the Deputy Prime Minister is announcing

that he will intervene where planning authorities fail to prepare

proper plans or deliver an adequate supply of new housing; if

necessary call in proposed major housing developments; and consider

the case for binding local plans to increase certainty and ensure the

stability of the housing market.

Mr Deputy Speaker, I will freeze Stamp Duty on homes and business

property purchases.

As a result of tax avoidance only half of all large commercial

property transactions - worth £10 billion a year - are paying the

Stamp Duty owed.

As I announced last Budget, the Finance Bill will introduce new anti

avoidance powers to close these loopholes.

And because tax avoidanc e and distortions could take the form of

leasing, the Finance Bill will make provision to restructure the

Stamp Duty currently paid on the rental value of all new leases, at a

proposed rate of 1 per cent - four times lower than the usual stamp

duty rate on which we consulted.

To provide time for further consultation with business and commerce

on how to promote a more level playing field between leases and

transfers, I propose to trigger this reform only on 1st December. I

will only do so if, after consultation with the industry, there is no

effective alternative for tackling avoidance. If I have to trigger

the change, I will increase the exemption from stamp duty for

commercial property from £60,000 to £150,000, and exempt leases up to

£150,000. So in any event there will be no duty on 60 per cent of

commercial rental contracts.

We are also reforming the tax treatment of home purchases funded by

alternative mortgage products - including Islamic mortgages where in

the past home buyers have been charged stamp duty twice.

Anti-avoidance measures on VAT fraud, share-based remuneration and

loan relationships and derivative contracts are set out in detail by

the Inland Revenue today.

I turn now to policies that will benefit our regions.

Past Civil Service relocation reviews have included the Fleming

Review - and, more recently, the Hardman Review which led to over

10,000 civil service jobs transferred out of London. The Deputy Prime

Minister and I now propose that we examine not only the civil service

but non-departmental bodies and other public services with the aim of

achieving best value for money.

Successful relocation out of London by private companies suggests

public sector jobs transferred to regions and nations could exceed

20,000 - to the benefit of the whole country.

So today we are asking departments to submit updated workforce

development plans and asking Sir Michael Lyons - Director of the

Institute of Local Government Studies at Birmingham University - to

advise with a view to decisions on relocation by the next Spending

Review.

The more each of the UK's regions and Scotland, Wales and Northern

Ireland enter into global competition, the more we must encourage and

help them harness their distinctive strengths, overcome their

weaknesses and, with a modern, locally led regional policy, rise to

the challenge of making their skills, innovation and enterprise world

class.

To meet the needs of manufacturers investing in our regions, who now

receive two thirds of both the R and D tax credit and permanent

capital allowances, Regional Venture Capital Funds are now investing

£270 million in high growth businesses.

But while business R and D in the South East is £450 per head it is

just £50 per head in the North East and small business creation rates

in the poorest areas are unacceptably low at one sixth of the most

prosperous.

The Secretary for Industry is asking Sir Tom McKillop of Astra Zeneca

to advise on the extension of regional science and industry councils;

we are devolving more responsibility for small business services and

training to the regions;

In partnership with the banks we are offering a new online service to

give small business advice on training;

And today we are adding to the incentives for small business creation

in the 2000 places in the UK with the most deprivation that we have

designated Enterprise Areas:

- to speed up development, fast track planning approval;

- to cut the cost of property purchases, Stamp Duty abolished;

- to cut the cost of initial investment, access to the Phoenix Fund

with the prospect of enhanced capital allowances;

- to cut the cost of risk capital, the Community Investment Tax

Relief;

- and to encourage entrepreneurship, enterprise advisors in local

schools.

In the past the more new business local authorities have encouraged,

the more rateable income has flowed to the Treasury with no benefit

to them. So I can announce that we will legislate so that from April

2005 local authorities and central government share the receipts that

result from new business creation to the benefit of local citizens.

The modern route - indeed the only route - to full employment for all

regions and nations is to combine flexibility with fairness.

Six years of reform have moved Britain to a new system where instead

of just signing on for benefit at a social security office, the first

requirement is signing up at a Jobcentre for active job search and

help with training. And 2 million have benefited from the New Deal.

Some parts of our country still have twice the unemployment of others

and too often national rules in employment policy do not encourage

local initiative and innovation. So it is time to give local

Jobcentres discretionary and local powers so that - in ways that are

targeted, distinctive and flexible - they can fill local vacancies,

help the long term unemployed respond to local employment and skill

needs, in industries from tourism and the rural economy to IT and

manufacturing, and develop their local plan for full employment in

their area:

- in place of Whitehall controlled ring fencing, the Secretary for

Work is announcing local discretion to award grants for training,

travel to interviews, and direct cash support to bridge the

transition to work;

- there will be new powers to provide intensive job preparation

courses and early entry into the New Deal;

- and drawing on a new ethnic minorities fund, jobcentre staff will

be able to tackle the particular barriers facing those who too

often miss out on jobs.

In return for local discretion, a new performance regime will accord

higher rewards to top managers with provision to change the

management of the worst performing.

Too o ften unemployed men and women say that when they lose housing

benefit it is not worthwhile working. So the Secretary for Work is

announcing today that, from next April, men and women taking up jobs

will no longer be required to submit a new claim for housing benefit

but simply inform local housing benefit offices, and until benefits

are recalculated they will continue to be paid the out-of-work rate.

And in addition to requiring the long term unemployed in 40 areas of

the UK to take jobs on offer

- for those unemployed for thirteen weeks we now propose widening the

area of job search to work within one and a half hours of home and

a new six week period of weekly rather than fortnightly signing on;

- for all unemployed, an increase in the minimum number of job

applications and other requirements in return for benefit;

- and for the partners of benefit claimants, work focused interviews

and help to support the search for a job.

Some of the hardest to help into work are young offenders - 70 per

cent of whom re-offend.

So the Home Secretary and the Minister for Work are now seeing how we

can apply nationwide - under the leadership of Sir John Parker of

Transco - the successful Reading training for work programme -

offering young offenders training and work while in prison with, on

good behaviour, a job when they are released: a programme with a 78

per cent success rate so far. As the Prime Minister has always said

tough on the causes of crime - and tough on crime.

One million disabled men and women desperately want jobs. And as a

first step for men and women on incapacity benefit who wish to work,

there will be an extra £19 a week as we raise the guaranteed minimum

income for 35 hours work to £194.

But welfare to work is only the first stage. Just as in past years we

have helped people move from unemployment to employment, the next

challenge, the new agenda, is to help people move from low s killed

work to higher skilled work.

Because nobody wishes Britain to compete on the basis of low pay but

on high skills, the right to education to 16 must be complemented by

the right to lifelong learning: a classic case of social justice

building economic strength.

While it is in the national interest that every adult has the basic

NVQ 2 qualifications, 8 million adults do not have them.

The radical way forward we propose is that, in return for employers

giving staff time off for basic training, Government contributes

towards wage and training costs and employees themselves can then

move up the skills ladder.

So the Education Secretary is doubling the already successful

Employer Training Pilots and naming a further six areas of Britain -

at a total overall cost of £170 million.

We will also review, for 16 to 19 year olds, training, pay and

employment needs, including the case for 16 and 17 year olds having a

minimum wage, and today the Modern Apprenticeship Task Force meets

for the first time as apprenticeships, once withering away, rise by

2006 to 320,000.

Moving beyond the old voluntarism of the past in this national effort

for skills, everyone - government, employers, employees, trades

unions - has a responsibility and a part to play. So we propose to

extend the Trades Union Learning Fund by nearly 30 per cent, £3

million extra in 2005.

Expanding the skills we need requires not only new investment in

training but a modern approach to the economic and social benefits of

legal immigration, so important to the past success of the US economy

and now ours.

UK work permits have risen from 47,000 in 1997 to 140,000 now and so

the Home Secretary will now:

- expand the Highly Skilled Migrant Programme and introduce measures

for younger applicants and partners;

- he will encourage foreign nationals graduating in maths, science

and engineering in the UK to seek a career in t he UK; and

- he will expand the work permit scheme for industries like

construction which face skills shortages.

Next month the Home Secretary will designate, for reform or

abolition, 40 additional regulations and procedures, making a total

of over 500 regulations and procedures - 500 introduced by previous

governments - now identified for removal or reform.

Where we find local enforcement uneven and unpredictable we will

consider using our reserve power to introduce statutory codes of

enforcement practice and we have invited the CBI, Institute of

Directors and others to second their experts to join us to remove

unnecessary regulations starting with construction, transport and

environmental services.

To meet concerns raised by business, I can announce that the

Information Commissioner will produce revised and simplified guidance

on the Data Protection Act; the National Statistician will review

exempting more firms from statistical requirements; and new

procedures will make it simpler and easier for small firms to compete

for Government contracts.

Because flexibility at a UK level should be matched by flexibility in

Europe, we are proposing that Europe's competition authorities

pro-actively investigate barriers to competition, starting with

financial services; and we have now agreed to submit to the new EU

Jobs Review an employment strategy to help Europe's 15 million

unemployed. Britain now leads Europe in job creation, in tax credits

that make work pay, and this week - learning from Europe - we have

introduced new maternity rights and the first ever paternity pay -

and in striking the balance between dynamism and social standards,

our position is that no changes to European regulations like the

Working Time Directive should risk British job creation.

To break down the trade barriers between Europe and the USA, and

build a strong transatlantic economic partnership, we will propose to

the Commissio n and the US liberalisation in services and the faster

removal of tariffs.

I have examined rates of Corporation Tax, Small Business Corporation

Tax and Capital Gains Tax. I propose to freeze them.

On Air Passenger Duty, I propose to freeze rates.

On Insurance Premium Tax, I propose to freeze rates.

On the Climate Change Levy I propose to freeze rates.

I propose, from Monday, the annual inflation rise of 1 pence on a

pint of beer, 4 pence on a bottle of wine. I will freeze duties on

cider and sparkling wine.

Because past governments set higher taxes on the alcohol content of

spirits than on beer and wine, I will for the sixth Budget in a row,

freeze all spirits duties, the longest freeze for 50 years,

benefiting whisky producers in all parts of the United Kingdom.

I turn now to bingo. I will abolish the Bingo Tax on 4th August just

as I have abolished direct taxes on the pools and on betting on horse

racing.

The tax on bingo players stakes and the tax on bingo prizes will be

replaced in the same way as tax on betting and the pools. So I can

tell the House it will be a gross tax on company profits for bingo at

15 per cent.

I have also to make a decision on fuel duties.

Owing to the recent high and volatile level of oil prices as a result

of military conflict in Iraq, I have decided to defer the 1.28 pence

a litre annual revalorisation of fuel duties until six months from

now - 1st October - and will legislate to this effect. And if the

current international uncertainties and volatility remain I will not

proceed with the change at all.

I will also freeze vehicle excise duty rates for lorries and for

motor cycles and raise excise duty rates from May 1st on cars and

vans only by the normal inflation rise of £5.

To encourage the development of the least polluting cars I will offer

a new rate, £110 lower than the standard rate for a licence.

Bio-ethanol fuel red uces air pollution and greenhouse gas emissions

substantially. To encourage its development I can announce that on

1st January 2005 we will reduce bio-ethanol duty by twenty pence per

litre.

Enhanced capital allowances designed to encourage energy saving and

water efficient technologies are set out in detail by the Inland

Revenue.

In January this year we abolished Royalty Payments from the North

Sea. I can now announce that from 1st January next year and for all

contracts completed from today we will abolish Petroleum Revenue Tax

on new tariffing business in the North Sea.

My decision on cigarettes is, for public health reasons, to go ahead

with a rise but only the annual inflation rise of 8 pence per packet

of 20.

Last year I raised the exemption for Inheritance Tax to £250,000. I

propose now to raise the exemption to £255,000. 95 per cent of

estates will pay no tax.

All Income Tax rates and tax allowances will remain as set out in

last year's Budget and the Pre-Budget Report.

The Inland Revenue's discussion document on residence and domicile is

published today

I turn to the housing market. I can now report that since 1997 an

additional 1.1 million British families have become homeowners for

the first time - home ownership benefiting from the lowest mortgage

rates for forty years and rising in all parts of the UK and to 70 per

cent of all households, the highest level in our history, higher than

in America and Europe.

But while most mortgages elsewhere are fixed rate, most UK mortgages

- 64 per cent of new mortgages - are at short term variable rates

with most of the rest fixed for just one to five years.

And with housing demand at historically high levels, housing supply

has remained low.

And this has contributed not just to, over thirty years, a rate of

growth in house prices three times that of Germany and France, but to

the volatility and inflexibility of the housing market as a whole -

an issue on which we will publish a background study as part of the

Treasury's five tests assessment on the euro.

Indeed, most stop-go problems that Britain has suffered in the last

fifty years have been led or influenced by the more highly cyclical

and often more volatile nature of our housing market.

Housing finance needs to become more certain and planning more

flexible. So I have asked David Miles - Professor of Finance at

Imperial College - to examine the case for, and how, Britain can

develop a market for long-term fixed rate mortgages - something that

is important to the UK in or out of the euro, and more important in a

single currency area.

The Deputy Prime Minister and I are asking Kate Barker, formerly of

the CBI, to examine and report on how we can reduce barriers to

increased housing supply. Backing up his decision to double public

investment in new homes and the renovation of housing estates, and to

speed up planning decisions, the Deputy Prime Minister is announcing

that he will intervene where planning authorities fail to prepare

proper plans or deliver an adequate supply of new housing; if

necessary call in proposed major housing developments; and consider

the case for binding local plans to increase certainty and ensure the

stability of the housing market.

Mr Deputy Speaker, I will freeze Stamp Duty on homes and business

property purchases.

As a result of tax avoidance only half of all large commercial

property transactions - worth £10 billion a year - are paying the

Stamp Duty owed.

As I announced last Budget, the Finance Bill will introduce new anti

avoidance powers to close these loopholes.

And because tax avoidance and distortions could take the form of

leasing, the Finance Bill will make provision to restructure the

Stamp Duty currently paid on the rental value of all new leases, at a

proposed rate of 1 per cent - four times lower than the usual stamp

duty rate on which we consulted.

To provide time for further consultation with business and commerce

on how to promote a more level playing field between leases and

transfers, I propose to trigger this reform only on 1st December. I

will only do so if, after consultation with the industry, there is no

effective alternative for tackling avoidance. If I have to trigger

the change, I will increase the exemption from stamp duty for

commercial property from £60,000 to £150,000, and exempt leases up to

£150,000. So in any event there will be no duty on 60 per cent of

commercial rental contracts.

We are also reforming the tax treatment of home purchases funded by

alternative mortgage products - including Islamic mortgages where in

the past home buyers have been charged stamp duty twice.

Anti-avoidance measures on VAT fraud, share-based remuneration and

loan relationships and derivative contracts are set out in detail by

the Inland Revenue today.

I turn now to policies that will benefit our regions.

Past Civil Service relocation reviews have included the Fleming

Review - and, more recently, the Hardman Review which led to over

10,000 civil service jobs transferred out of London. The Deputy Prime

Minister and I now propose that we examine not only the civil service

but non-departmental bodies and other public services with the aim of

achieving best value for money.

Successful relocation out of London by private companies suggests

public sector jobs transferred to regions and nations could exceed

20,000 - to the benefit of the whole country.

So today we are asking departments to submit updated workforce

development plans and asking Sir Michael Lyons - Director of the

Institute of Local Government Studies at Birmingham University - to

advise with a view to decisions on relocation by the next Spending

Review.

The more each of the UK's regions and Scotland, Wales and No rthern

Ireland enter into global competition, the more we must encourage and

help them harness their distinctive strengths, overcome their

weaknesses and, with a modern, locally led regional policy, rise to

the challenge of making their skills, innovation and enterprise world

class.

To meet the needs of manufacturers investing in our regions, who now

receive two thirds of both the R and D tax credit and permanent

capital allowances, Regional Venture Capital Funds are now investing

£270 million in high growth businesses.

But while business R and D in the South East is £450 per head it is

just £50 per head in the North East and small business creation rates

in the poorest areas are unacceptably low at one sixth of the most

prosperous.

The Secretary for Industry is asking Sir Tom McKillop of Astra Zeneca

to advise on the extension of regional science and industry councils;

we are devolving more responsibility for small business services and

training to the regions;

In partnership with the banks we are offering a new online service to

give small business advice on training;

And today we are adding to the incentives for small business creation

in the 2000 places in the UK with the most deprivation that we have

designated Enterprise Areas:

- to speed up development, fast track planning approval;

- to cut the cost of property purchases, Stamp Duty abolished;

- to cut the cost of initial investment, access to the Phoenix Fund

with the prospect of enhanced capital allowances;

- to cut the cost of risk capital, the Community Investment Tax

Relief;

- and to encourage entrepreneurship, enterprise advisors in local

schools.

In the past the more new business local authorities have encouraged,

the more rateable income has flowed to the Treasury with no benefit

to them. So I can announce that we will legislate so that from April

2005 local authorities and central government share the receipts that

result from new business creation to the benefit of local citizens.

The modern route - indeed the only route - to full employment for all

regions and nations is to combine flexibility with fairness.

Six years of reform have moved Britain to a new system where instead

of just signing on for benefit at a social security office, the first

requirement is signing up at a Jobcentre for active job search and

help with training. And 2 million have benefited from the New Deal.

Some parts of our country still have twice the unemployment of others

and too often national rules in employment policy do not encourage

local initiative and innovation. So it is time to give local

Jobcentres discretionary and local powers so that - in ways that are

targeted, distinctive and flexible - they can fill local vacancies,

help the long term unemployed respond to local employment and skill

needs, in industries from tourism and the rural economy to IT and

manufacturing, and develop their local plan for full employment in

their area:

- in place of Whitehall controlled ring fencing, the Secretary for

Work is announcing local discretion to award grants for training,

travel to interviews, and direct cash support to bridge the

transition to work;

- there will be new powers to provide intensive job preparation

courses and early entry into the New Deal;

- and drawing on a new ethnic minorities fund, jobcentre staff will

be able to tackle the particular barriers facing those who too

often miss out on jobs.

In return for local discretion, a new performance regime will accord

higher rewards to top managers with provision to change the

management of the worst performing.

Too often unemployed men and women say that when they lose housing

benefit it is not worthwhile working. So the Secretary for Work is

announcing today that, from next April, men and women taking up jobs

will no longer be required to submit a new claim for housing benefit

but simply inform local housing benefit offices, and until benefits

are recalculated they will continue to be paid the out-of-work rate.

And in addition to requiring the long term unemployed in 40 areas of

the UK to take jobs on offer

- for those unemployed for thirteen weeks we now propose widening the

area of job search to work within one and a half hours of home and

a new six week period of weekly rather than fortnightly signing on;

- for all unemployed, an increase in the minimum number of job

applications and other requirements in return for benefit;

- and for the partners of benefit claimants, work focused interviews

and help to support the search for a job.

Some of the hardest to help into work are young offenders - 70 per

cent of whom re-offend.

So the Home Secretary and the Minister for Work are now seeing how we

can apply nationwide - under the leadership of Sir John Parker of

Transco - the successful Reading training for work programme -

offering young offenders training and work while in prison with, on

good behaviour, a job when they are released: a programme with a 78

per cent success rate so far. As the Prime Minister has always said

tough on the causes of crime - and tough on crime.

One million disabled men and women desperately want jobs. And as a

first step for men and women on incapacity benefit who wish to work,

there will be an extra £19 a week as we raise the guaranteed minimum

income for 35 hours work to £194.

But welfare to work is only the first stage. Just as in past years we

have helped people move from unemployment to employment, the next

challenge, the new agenda, is to help people move from low skilled

work to higher skilled work.

Because nobody wishes Britain to compete on the basis of low pay but

on high skills, the right to education to 16 must be complemented by

the right to lifelong learning: a classic case of social justice

building economic strength.

While it is in the national interest that every adult has the basic

NVQ 2 qualifications, 8 million adults do not have them.

The radical way forward we propose is that, in return for employers

giving staff time off for basic training, Government contributes

towards wage and training costs and employees themselves can then

move up the skills ladder.

So the Education Secretary is doubling the already successful

Employer Training Pilots and naming a further six areas of Britain -

at a total overall cost of £170 million.

We will also review, for 16 to 19 year olds, training, pay and

employment needs, including the case for 16 and 17 year olds having a

minimum wage, and today the Modern Apprenticeship Task Force meets

for the first time as apprenticeships, once withering away, rise by

2006 to 320,000.

Moving beyond the old voluntarism of the past in this national effort

for skills, everyone - government, employers, employees, trades

unions - has a responsibility and a part to play. So we propose to

extend the Trades Union Learning Fund by nearly 30 per cent, £3

million extra in 2005.

Expanding the skills we need requires not only new investment in

training but a modern approach to the economic and social benefits of

legal immigration, so important to the past success of the US economy

and now ours.

UK work permits have risen from 47,000 in 1997 to 140,000 now and so

the Home Secretary will now:

- expand the Highly Skilled Migrant Programme and introduce measures

for younger applicants and partners;

- he will encourage foreign nationals graduating in maths, science

and engineering in the UK to seek a career in the UK; and

- he will expand the work permit scheme for industries like

construction which face skills shortages.

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