The Speech: What the Chancellor said – and what he meant

Mr Deputy Speaker, this Budget takes place as the UK economy is emerging from the deepest global recession for over 60 years. (1. When I predicted it could be the worst for 60 years – and Gordon unleashed the "forces of hell" on me – I turned out to be right. So yah-boo sucks to the bloke sitting behind me.) It has been a testing time which has required Governments across the world to make difficult choices and take unprecedented actions.

We had to decide whether to intervene to rescue the financial system or stand on the sidelines.

Whether we should support the economy, business and families or let the recession take its course. The record shows the right calls were made. (2. An American expression, which is fitting because the "calls" made by Barack Obama were the ones that really mattered to the global economy and therefore to Britain.) Global recession has not turned into depression. Unemployment here in the UK has not risen as much as was feared. Borrowing, as I will explain later, is lower than forecast last year.

But the recovery is still in its infancy. There are equally tough choices ahead. Choices that will shape our economy and society for decades to come.

The task now is to bring down borrowing in a way which does not damage the recovery or the front-line services on which people depend. (3. Spending services away from the front line, presumably any public employee working in an office, apart from the Chancellor himself, will, however, be slashed. As will front-line services on which people do not depend. In other words, meaningless guff.)

Our economy is at a crossroads. Having come through this global recession, this Budget will set out a route for the country to long-term prosperity. At its heart is a £2.5bn one-off growth package – to help small business, promote innovation, invest in national infrastructure and key skills.

This package will be paid for by switching spending from within existing allocations and the extra proceeds from the tax on bank bonuses – in line with a Budget that is balanced over the period.

And at the Pre-Budget Report I put in place a one-off 50 per cent tax on the excessive bonuses of bankers. I can tell the House that this tax has raised £2bn, more than twice as much as was forecast.

We cannot continue with a situation where the banks are rewarded for creating excessive risk, but the taxpayer foots the bill when things go badly. More countries now agree on the need for an international systemic tax on banks. I agree with all those who think that such a tax should be internationally co-ordinated. Going it alone would costs thousands of jobs, not just in London, but across the country. (4. A clever way of turning round the Conservative plans to bash the bankers regardless of what other countries do: "going it alone" makes Britain sound isolated, and costing thousands of jobs sounds bad. In any case, who will really believe that the Bullingdon Boys are the scourge of their friends in the City?)

I want to make it easier for everyone to access banking services. Since 2003, the number of people without a bank account has been halved. I can announce today that everyone can have a basic bank account. This will mean, over the next five years, up to a million more people will have access to bank accounts.

I am also determined to do more to help families take that crucial first step on the housing ladder. In 2008, we also brought in a stamp duty holiday on all transactions under £175,0000, which ended in December. I can announce I will double the stamp duty limit for first-time buyers from midnight tonight – from £125,000 to £250,000, for this year and next. This means nine in 10 first-time buyers will pay no stamp duty at all.

To ensure this measure does not burden the public finances, this relief will be funded through an increase in the stamp duty to 5 per cent for residential property over £1m from April next year.

Tax-free ISAs have been an extraordinary popular way to save. From next month, the annual ISA limit will rise from £7,200 to £10,200, of which half can be saved in cash.

To help encourage saving further, I have decided that ISA limits will increase annually in line with inflation. These changes come at a time when the saving ratio has already risen strongly over the past year, to the highest since 1998. (5. This was a transparent attempt to pretend that private-sector prudence is the result of Government policy: but the savings ratio has risen because people are fearful of the future, not because of anything Darling has done; and 1998 was at the start of this Labour government. "Level of savings nearly back to where it was when we took over," does not sound quite so impressive.)

As I have said on many occasions, the world economy is still in a period of great uncertainty. In the absence of government action to support the economy, the weakness in some of our overseas markets, particularly Europe, could result in a substantial downward revision of our growth prospects.

Because of the action we have taken through the recession, and the measures I am announcing today, I believe only a small reduction is needed. (6. An elaborate balancing act required here to cover the retreat from a 3.5 per cent forecast for next year to a range of 3 to 3.5 per cent, a change he manages to present as smaller than it might have been and therefore, by expectations management, a triumph for "the action we have taken".)

This year I expect the economy to grow by between 1 and 1 per cent. I will bring my forecast for 2011 in line with that of the Bank of England, to growth of between 3 and 3 per cent.

I have decided to stage next month's increase in fuel duties. Fuel duty will rise by a penny in April, less than inflation. This will be followed by a further one penny rise in October and the remainder in January.

At the Pre-Budget Report, I forecast that public sector net borrowing would reach £178bn this year. I can now tell the House that borrowing this year should now be £11bn lower than forecast, at £167bn. This will mean debt is £100bn lower, by 2013-14, than was expected at last year's Budget. As a share of the economy, borrowing is forecast at 11.8 per cent of GDP this year.

It will then fall to 11.1 per cent next year; then 8.5 per cent; in 2012-13 it will be 6.8 per cent; then 5.2 per cent; and fall to 4 per cent in 2014-15.

Mr Deputy Speaker, this means a reduction in the deficit from 11.8 per cent of GDP to 5.2 per cent – more than halved over a four-year period. The structural deficit, which takes into account the economic cycle, is estimated to be 8.4 per cent of GDP this year and fall to 2.5 per cent by the end of the period.

That is a reduction of over two-thirds, removing the bulk of the structural deficit by the end of the next parliament. (7. Teasing reference to the words of Kenneth Clarke, who spoke loosely of getting rid of the structural deficit altogether and then, when Labour seized on the £30bn a year spending cuts that this implied, said he meant getting rid of the "bulk" of it.)

I know there are some demanding immediate cuts to public spending. I believe such a policy would be both wrong and dangerous. To start cutting now risks derailing the recovery – which is already bringing down borrowing more rapidly than expected. To go faster, in the face of uncertainty, would mean taking a huge risk with people's jobs, incomes and our future.

I am not prepared to take that risk. We have worked too hard as a country to come through this recession to throw it away now. (8. There are only two election slogans: "Time for change" and "Don't take a risk". The strange thing is that most people who are still have a job have had little direct experience of the recession, so the "we have worked too hard" bit makes no sense. But people are anxious about the future, so the "don't throw it away" line is surprisingly effective.)

First, on taxes. The one penny increase in the main rate of National Insurance Contributions will not affect anyone earning under £20,000 a year. Nor will it come into effect until April next year, by which time I believe the recovery will be stronger and more secure.

The 50 per cent rate of income tax will come in next month, but only affects those with earnings over £150,000 a year, the top 1 per cent of earners. For people with incomes over £100,000 a year, the top 2 per cent, we will gradually remove the value of their personal allowances. Tax relief on pensions will be restricted from next year, but again only for those with incomes above £130,000 a year. Looking across all the tax rises since the beginning of this global crisis, 60 per cent of them will be paid for by the top 5 per cent of earners. We have not raised these taxes out of dogma or ideology. (9. Hoots of derision from the Conservative benches at this, not least because the belief that the higher-paid should bear a greater tax burden is obviously ideological, even if the Tories agree with it. Interesting that Darling, by going on to say that the better-off should "now" pay their fair share, implies that they failed to do so under, well, Tony Blair, for example.)

We are determined to ensure our overall tax regime remains competitive. But I believe those who have benefited the most from the strong growth in incomes in past years should now pay their fair share of tax. I have no further announcements on VAT, on income tax, or National Insurance rates.

I can confirm that duty on beer, wine and spirits will increase as planned from midnight on Sunday. Alcohol duties will also increase by 2 per cent above inflation for two further years from 2013. And the planned increase in fuel duty and landfill tax will continue for one year from 2014. There is a long-standing anomaly which has meant cider has been under-taxed in comparison to other alcoholic drinks. I intend to correct this. So duty on cider will increase by 10 per cent above inflation from midnight on Sunday.

Tobacco duty will increase from today by 1 per cent above inflation and then increase by 2 per cent in real terms each year until 2014. I have also decided to freeze the inheritance tax threshold for a further four years, and this will help pay for the cost of care for older people. Altogether, our tax plans will raise £19bn towards reducing borrowing.

The next element of our fiscal plan is to control public spending. But to cut spending now, before the recovery is self-sustaining, would be short-sighted and counter-productive. So we will stick to our spending plans for next year, which will see a 2.2 per cent real-terms increase. I can also confirm that we will allocate over £4bn from next year's reserve to fund operations in Afghanistan.

It is clear that the next spending settlement from 2011 onwards will be very tough – the toughest for decades.

Departments will today publish details of how they will make these savings. We will also find savings by relocating civil servants from expensive London offices to elsewhere in the country. In the long-term, I am announcing that the number of civil servants in London will be reduced by a third. As a first step, 15,000 posts will be relocated within the next five years.

I announced at last year's Budget a programme to secure £16bn through asset sales, and we are making considerable progress.

On the Student Loan Book, we are looking to appoint advisors in the next couple of months to develop a sales proposal. On the Tote we are on track to launch a sale process this summer. (10. As it has been in every Budget since William Gladstone's fourth. This was a tired and unconvincing list of family brass to be flogged off, which introduced a vast verbal desert landscape that the Chancellor traversed for the next 15 minutes without variation of tone or any sign of intelligent life on either side of the House of Commons.)

We are also finalising options on the sale of the Dartford Crossing. The proceeds from these sales will make a significant contribution to reducing debt.

I now turn to how we will give targeted help to British industry to realise its global potential.

The role of modern government is to work with the key sectors to help them compete and prosper.

We will not go back to the interventionism of the past. But nor can we return to the hands-off approach of the free-marketeers. It is through partnership, not indifference, that Britain can and will succeed. (11. The kind of sound bite notable only for its extreme banality, which briefly distracted listeners from the sight of a two-page note of congratulations being passed to Ian Paisley, who had just made his last contribution to proceedings at Prime Minister's Questions before the Budget speech.)

We are going to provide extra one-off funding of £270m in 2010-11, through a university modernisation fund. This will enable them to create 20,000 more university places, largely in key subjects like science, technology, engineering and maths, starting in September this year.

This recession has had an impact on people across the world.

It is often the most vulnerable who are affected most, those in insecure jobs or on modest incomes.

While people are suffering hardship, it is all the more unfair that some are escaping their tax obligations. (12. A sentence designed to wake the Labour benches from the catatonic state of mental blankness induced by endless packages, schemes, funds, route maps, SMEs and a new credit adjudication service with the legal power to enforce its judgments. "Ashcroft," a female MP squealed in delight. Other MPs guessed the punchline long before Darling got to it and were shouting out the answer like a class of overeager pupils. "Belize!" Which only made the roar when the Chancellor got to it the louder.) I am determined to continue our successful drive to prevent avoidance and evasion.

Measures in this Budget will bring in additional tax worth half a billion pounds each year, while protecting £4bn worth of revenues by 2012-13.

These steps include tax agreements like that already signed with Liechtenstein, which is expected to bring in around £1bn of extra revenue.

I can also now tell the House that we are ready to sign tax information exchange agreements with three additional countries – Dominica, Grenada and Belize.

I have a further announcement to make: we expect these deals to be signed within a few days, which is rather quicker than the 10 years it has taken opposition front benchers to exchange information with the deputy chairman of their party.

We are proud of our achievements in helping families and tackling child poverty. For the new born, there is an additional element of the child tax credit, as well as the child trust fund. Pre-school children are benefiting from a massive expansion in free childcare places.

I now want to do more to help the parents of one- and two year-olds, by increasing by £4 a week the money paid through child tax credit from 2012. (13. A trivial increase that Darling put in the Budget – or at least, mentioned in the Budget speech – only so that he could deliver the next line for party political purposes: an attack on David Cameron's plan to "recognise marriage in the tax system" that was the more effective because of the soporific delivery and unrhetorical content of Darling's speech.) Extra money which will be paid for all children who need it, whether their parents are married, living together, or living apart.

We have also tackled pensioner poverty. In 1997, hundreds of thousands of pensioners lived on a basic state pension worth just £62 a week. From next month, because of above-inflation increases in the basic state pension, and the introduction of the pension credit, every pensioner will be entitled to a weekly income of £132.60.

I believe the Government made the right choices to rebuild our public services. When faced with the upheaval of the global recession, we made the right choices to support the economy, business and families.

Because the steps we took, opposed by the party opposite, the recovery has begun, unemployment is falling and borrowing is better than expected. The choice before the country now is whether to support those whose policies will suffocate our recovery and put our future at risk.

Or support a Government which has been right about the recession, right about the recovery, and is right about supporting the people and business of this country to build a prosperous future.

And I commend this Budget to the House.

This is an edited extract the Chancellor's Budget speech yesterday