I am proud of our record of wider share ownership which has seen the number of shareholders in this country treble. There are now 10 million shareholders in Britain. Thanks to our policies, shareholding is no longer a minority interest.
All of the old-fashioned distinctions between employee and employer, between capital and labour, are being broken down in our modern enterprise economy. Most employees understand that their rewards depend on the success of the businesses for which they work.
Most businesses believes that the best way to motivate staff is to let them share in the rewards of success. The public's willingness to embrace and understand these principles has been a major culture change over the past 16 years.
We have two tax-privileged schemes to encourage share ownership for all employees. Saye-As-You-Earn schemes which encourage share ownership through share options linked to savings plans and profit sharing schemes which allow employees to receive free shares. There are around one million people in each scheme. I want to build on these successes by improving both schemes.
The minimum period for saving under a SAYE scheme will be reduced from five years to three and the minimum contribution will be halved to £5 a month. The holding period under profit sharing schemes will also be reduced from five to three years.
These changes will increase significantly the attractiveness of these schemes. But I am going to do more. 140. In July I withdrew the tax privileges attaching to some so-called 'executive' share options. The overwhelming majority of companies used these options for their more senior employees.
I approved of such options so long as they were linked to genuine performance but I did not see any justification for maintaining their tax privileges.
The resulting debate brought out that there was a demand for a third type of wider share ownership scheme to provide a more flexible basis of granting options to lower paid employees. I am, therefore, introducing a new tax relief which will enable companies to grant options, under a scheme approved by the Inland Revenue, up to a limit of £20,000.
The conditions for the new relief will be similar to the conditions which applied for the old one. The relief will also be available to schemes in existence at 17 July 1995 which qualified under the old rules subject to the £20,000 limit.
These changes go further than ever before in creating a climate in which employee share ownership can become the norm. I hope that companies will offer all their employees, not just their executives, the chance to enjoy the economic benefits and the sense of ownership that shareholding can bring.
I have said several times in this speech that the government's aim is to turn Britain into the enterprise centre of Europe.
We are encouraging more innovation, investment and growth. That means allowing people to keep more of the income that they earn, and I shall have more to say about that in a moment. It means encouraging people to save more, to invest more and to build up more personal wealth. It also means helping small businesses. The backbone of our modern, dynamic successful economy is an active small businesses sector. Small businesses are the seed corn of our future prosperity.
I have some important measures this year to help businesses, and in particular, small businesses.
First, help with business rates.
Many businesses faced lower rates bills following the five-yearly revaluation of rateable values. But others faced higher bills. To help this group I announced in last year's Budget that real terms increases in rates bills would be capped to a maximum of 10 per cent a year. I have looked at this cap again and no longer consider it to be low enough. For 1996-97 the maximum real terms increase in rates bills for all businesses will be reduced from 10 per cent to 7 1/2 per cent.
Small businesses will get extra help. The maximum increase for small properties will be 5 per cent instead of 7 1/2 per cent. 1.2 million business properties will benefit from these changes, including 870,000 small properties.
Capital gains tax
Investment is important for prosperity. Investment depends on capital. We want to reduce taxes on capital to encourage and reward the investment that the millions of people who work for private businesses depend on. We remain committed to abolishing capital gains tax when resources allow.
The starting point must be help for those who have built up their own businesses and want to be sure they can sell up and enjoy the rewards of their own hard work
Tax relief for the owners of businesses selling up on retirement was substantially increased in 1991 and 1993 so that capital gains of up to £1 million now benefit from this relief. This year I am going to extend further the relief for owners who have worked hard and created their own businesses by reducing the qualifying age from 55 to 50.
This will reward the success of more of those people who own and manage their own business. It will increase incentives for those who are going to work in their own business in the future. It is the mark of a government that backs enterprise.
It is not just businesses that create wealth. Thanks to this government's policies ordinary hard working people have a bigger personal stake in the wealth of this country than ever before. In our property-owning democracy more and more people have the opportunity to own their own homes, have occupational or personal pensions, invest in TESSAs & PEPs, build up other savings and own shares.
These benefits are now being enjoyed by the many and not the few.
Many people, who do not consider themselves rich, work hard and save for their families throughout their whole lives. They pay their taxes when they work. They want to pass on their family capital without having it taxed again when they die. Many people want to pass on an inheritance to their children and their grandchildren to give them a better start in life than they had. That is a natural instinct in families. Inheritance is now an issue for middle Britain. It is to help middle Britain that we aim to abolish inheritance tax as soon as we can afford to do so.
It is a myth that inheritance tax is paid only by the very rich. In fact, the very rich are well placed to dispose of their wealth in their own lifetime. Most people hit by inheritance tax are those who would not consider themselves rich at all. These are people who will bequeath not much more than the present tax free allowance of £154,000.
They may be people who own their home and a few modest investments. There are many more people like them who fear their assets will be hit by inheritance tax. I therefore propose to increase the tax free allowance substantially to £200,000. The number paying inheritance tax will be reduced by one third and only 1 in 45 estates will now pay this tax.
Inheritance tax can also have a direct effect on enterprise. A family company may have to be broken up when the owner dies. We already recognise this problem through the existence of business property relief for qualifying unquoted companies. I now propose to remove the problem altogether by extending 100 per cent relief to unquoted shareholdings whatever their size.
Finally, I turn to my proposals for income tax payers. 158. In the post-War era, when Britain went into comparative economic decline, Britain had high rates of taxation on income. That damaged the economy and stifled prosperity. It was a tax policy based on envy.
When this government came to power the basic rate was 33 per cent. The top rate on earnings was 83 per cent. Rates on so-called unearned income were as high as 98 per cent. There was nothing fair about taxation before we started to make it fairer.
During the past 16 years we have cut the basic rate by around one quarter to 25 per cent and abolished all rates of income tax above 40 per cent.
But the income tax burden is about more than just tax rates.
Tax allowances matter as well.
I propose to increase allowances for married couples and people receiving related allowances by £70, in line with indexation. It is a myth that the tax system penalises marriage and that single people are better off than married couples. Any young couple contemplating living together and starting a family will pay less tax by getting married.
As the economy continues to grow and create jobs, more people - as they return to work - will find themselves earning more than the tax threshold.
I believe we should relieve as many of the lower paid as possible from the burden of income tax. I therefore propose to increase the basic personal allowance by £240, that is £100 more than indexation. This will provide an incentive to work to those at the bottom of the income scale. More than 200,000 people will be kept out of tax compared with indexation of allowances.
People who do not consider themselves rich now find that their incomes may bring them into the top rate of tax. That has a lot to do with the growth of the economy over sixteen years and the growth in personal incomes. I do not want more people to be taken into the 40 per cent band this year. I therefore propose to raise the higher rate threshold by £1200, £200 more than indexation.
But, in the longer term, of course, we have a clear and achievable goal for income tax - moving to a basic rate of 20 per cent as soon as we can.
This year I can move much faster towards that goal. I propose to increase the 20 per cent band by a further £700, that is £500 more than indexation, bringing an extra one million people into that band.
Around a quarter of all taxpayers - that is over 6 million people - will pay tax on their income at just 20 per cent. There were many who doubted the credibility of our goal of a 20p basic rate when it was first set out in 1992. We are now making big strides towards achieving it. Some people are even having to resort to trying to outbid us.
But widening the lower rate band is not the only route to 20p. I want to make progress on another front. I therefore also propose to reduce the rate of tax on all savings income for basic rate taxpayers to just 20 per cent. This will apply to the tax deducted from interest on bank and building society accounts, and is equivalent to an increase in interest rates for savings' income.
Around 14 million savers will gain from this change and see the income from their savings increase. As a result of this measure, people will gain an extra £5 from every £100 they receive in interest. Many of those who benefit will be pensioners, who will gain £75 a year on average. Some could stand to gain £500 a year more. Those who have earned and saved will be able to keep more of their own money. And this measure is another important and decisive step to a 20 per cent basic rate for all income.
I propose to reduce the small companies rate of corporation tax to 24 per cent. The reason I am able to do this is that the small companies rate has for many years been pegged to the basic rate of income tax. My final proposal in this Budget is therefore to reduce the basic rate of income tax by one penny to 24 pence in the pound.
These three steps - widening the 20p band, a 20p tax rate for savings' income and 1p off the basic rate - move us much closer to a 20 per cent basic rate of tax for all income. We have a clear commitment to the 20p basic rate, we believe in it and we can achieve it.
As a result of the measures in this Budget, a married couple with only one earner on average earnings with two children will pay £190 less tax. Overall, their real take-home pay after tax will rise by around £450 next year.
They will be £700 a year better off than they were at the time of the last Election. That is extra money for families to spend as they wish. My Budgets of the last two years have kept us on the course we said we would follow. We have cut taxes, we are cutting taxes and, when we can afford it and when it is in the interests of the economy, we will cut taxes again. Good economics is good politics.
This Budget puts Britain on course to be the enterprise centre of Europe.
A Britain that creates more jobs and more wealth in which all can share, because business can flourish here in a secure climate of low borrowing, low taxation, deregulation and free trade.
That is why this Budget controls overall public spending while shifting more money towards schools, hospitals and the police.
That is why this Budget keeps government borrowing on a downward path.
That is why this Budget cuts taxes.
I have only achieved this hat-trick because the Government has followed a consistent economic policy.
Only we have clear objectives and only we know how to achieve them.
Borrowing falling to zero.
Public spending below 40 per cent of national income.
Inflation below 2 1/2 per cent.
A 20 per cent basic rate of income tax.
This Budget puts us on a path to meet all these goals.
I commend it to the House.