Chancellor's Speech: 'Fairness and opportunity, founded on a stable economy'

Mr Deputy Speaker, the core purpose of this Budget is stability – now and in the future. And its core values are fairness and opportunity, founded on stability and strength. In every country in 2008, every government has one aim – to maintain stability through the world economic slowdown. Britain with its central role in the world's financial system is no exception.

Despite the slowdown in the world economy, in 2007 the British economy grew by 3 per cent – the fastest growth of any major economy. This year my forecast is that – as growth in the world economy slows further – growth in the British economy will be between 1.75 and 2.25 per cent in 2008 – but faster than Japan, the US and the euro area.

I expect growth to shift towards companies and exports with growth rising 2.25 to 2.75 in 2009 and 2.5 to 3 per cent by 2010. So my forecast shows the UK economy will continue to grow throughout this period of global uncertainty – a view supported by the Bank of England, the International Monetary Fund and the Organisation for Economic Co-operation and Development. In the past, inflation has overshadowed many Budgets. The reforms we have made since 1997 mean we can be confident about the inflation outlook. There will be no return to the inflation rates of the early 1990s. As is happening in many countries because of commodity prices, inflation in the UK will rise in the short term as higher oil and food prices feed through into domestic inflation. But inflation is forecast to return to target in 2009 and remain on target thereafter.

For environmental reasons we will increase fuel duty by 0.5 pence per litre in real terms from 2010. Fuel duty is due to rise again in April but because I want to support the economy and help business and families I will postpone that increase until October.

In the early 1990s as much as three quarters of all new public spending went on debt and social security costs. The figure is now just a third of that – allowing us to target spending where it is needed. We have turned welfare into work and borrowing into wealth creation. And it is essential that we continue to help everyone who can work to do so. So we will bring forward further proposals to reform housing benefit to ensure that work pays. From April 2010 all long-term recipients of incapacity benefit will attend work capability assessments.

Mr Deputy Speaker the Prime Minister has made clear, spending must be matched by reform. If the focus of the past decade was on repairing the old; the focus of the next will be on developing genuinely world-class services. This Budget therefore confirms the spending plans set out in last year's Comprehensive Spending Review, and makes an assumption for continuing real growth in public spending after 2011 at a rate of 1.9 per cent a year. That will allow departmental resources to continue to grow at broadly the same rate as in the next three years.

Now, I want to turn to the steps that we need to equip Britain for the future. There is no greater moral imperative than to make sure that every child has the highest aspiration and ambition. And the best possible opportunity to go as far as they have to the talent to go. Not some children, but every child. If we are to build a fairer future for our children then we must eradicate child poverty in Britain. Between 1979 and 1997 the number of children living in poverty has doubled. Since then I can report that there are 600,000 fewer children in relative poverty, and we have halved the number of children in absolute poverty. We have set ourselves an ambitious target to eradicate child poverty by 2020 and to halve it by 2010.

Central to this is helping more parents into work. We want to demonstrate our commitment to supporting parents, through a contract in which Government undertakes to provide the support that families need to move into work and the other side of this contract we look to families to make a commitment to improve their situations where they can. From October 2009, we will change the rules for Housing and Council tax benefit so that parents are better off in work than on benefits. As a result, a working family with one child on the lowest income will gain up to £17 a week. This measure will lift 150,000 more children out of poverty. And I can do more to help all children and hard working families. In 1997 Child Benefit for the first child was £11 a week. I can tell the House that from April 2009, I will increase Child benefit for the first child to £20 a week – a year earlier than planned. I will increase by £50 a year above inflation the child element of the Child Tax Credit for families on low and middle income from April next year. This means that a family with two children, earning up to £28,000 a year, will be over £130 a year better off. To make further progress we will spend a further £125m over the next three years targeting help to those who need it most and where the challenges are the hardest, developing new approaches that help families for the long term. Taken together these measures mean that, even at a time when we need to take difficult decisions, are investing a further £765m next year and then a further £950m the following year to take 250,000 more children out of poverty. Today I am publishing analysis on what further steps we intend to take to eradicate child poverty.

And I believe further action is now needed to help vulnerable groups deal with rising energy prices. We want to see the 5 million customers on prepayment meters given a fairer deal and energy companies to increase their support to vulnerable customers. We will work with the companies to take further action on a voluntary and statutory basis – to underpin this as necessary we will legislate. Energy companies currently spend around £50m a year on social tariffs. I want to see this rising to at least £150m a year.

The Government is committed to encouraging more people to save. There are now over 17 million people with individual savings accounts and, from this April, we are increasing the annual Individual Savings Accounts investment limit to £7,200 with the amount that can be held in cash rising to £3,600. And parents have now opened over 2.4 million Child Trust Fund accounts. We must go further. So I can also announce that the Government will launch the Saving Gateway nationally with the first accounts available to savers from 2010. By contributing to these accounts we will offer incentives to save to up to 8 million people on lower incomes.

We have the lowest corporation tax rate in the G7. A competitive and simplified tax regime is essential. That is why we cut the main rate of corporation tax in 1997 and again in 1999. And from next month the main corporation tax rate falls again from 30 per cent to 28 per cent.

I also want to do more to support Small and Medium Enterprises now and in the longer term. The new Capital Gains Tax rate will come in next month including the entrepreneurs' relief I announced in January. And that will benefit over 80,000 businesses and investors in the next year alone – 90 per cent will continue to pay Capital Gains Tax at 10 per cent – one of the lowest rates in the world. This Budget continues a programme of tax simplification. I am today announcing further steps to help small companies simplify their tax calculations. I can therefore announce that funds available through the Small Firms Loan Guarantee scheme will be increased by £60m for the coming year. And I am from next month extending the scheme to small and medium firms.

For those non–domiciled individuals or families who have chosen to make Britain their home, I believe that it is right and fair that they should, after seven years, pay a reasonable charge to maintain the right to be taxed differently from other UK residents. Beyond that, as I have said before, we will not seek to charge UK tax on offshore income or capital gains that is not brought into the UK. This new charge will be implemented from April. There will be no further changes to this regime for the rest of this Parliament or the next.

We will raise standards in schools even further. And so the Secretary of State for Children, Schools and Families will be investing £200m to bring forward by a year to 2011 the Government's aim for no schools to have fewer than 30 per cent of its pupils achieving 5 A*–C GCSEs, including English and maths. We will extend the successful London Challenge model, enable the best head teachers to turn round low performing schools, create new trusts and federations around successful schools, and in areas of greatest need drive forward a faster expansion of our Academies programme. And as a result, by 2011, we will ensure that every school is an improving school meeting the standards we have set. And I can announce today that we will commit £10m over the next five years – which alongside contributions from the Wellcome Trust and private sector will create a £30m Enthuse Science fund. This will give every science teacher in secondary and further education access to high quality professional development helping improve the science offer to today's children.

And today I can announce an extra £60m over the next three years to provide new opportunities for people to gain the skills needed to enter the labour market, to remain in work, and progress in work. This includes additional apprenticeships with leading employers to help tackle skills gaps and shortages. By 2010 we will be spending over £6bn a year supporting British science and innovation.

Today I can announce new measures at Heathrow and other airports to ensure that a greater use of biometric technology speeds up the time it takes passengers to get through immigration control. I am setting aside new funding to develop the technology that could underpin national road pricing, inviting tenders to test this with the results expected next year.

Just as we need good transport links, we also need to make sure that we have more housing to meet the rising demand for new homes as well as to support our growing economy. From this April, key workers – such as teachers and nurses – and first-time buyers will be able to borrow money from new-shared equity schemes. Until now these were only available to those who could afford three quarters of the price of their new home. I am now extending the scheme to help those able to afford half of the price of their new home. And I can also announce that from today, stamp duty on shared ownership homes will not be required until buyers own 80 per cent of the equity in their home.

I want to see more flexible and affordable long–term fixed rate mortgages for 10, 20 or even 25 years. And I am today publishing the findings of the review of housing finance in the UK. I will seek views on how we can deliver – drawing on international experience – the right framework for the UK to achieve affordable, long-term fixed-rate mortgages. I will report back at the pre-Budget report. The best way to improve long term affordability and stability is to build more homes. That is why we are committed to 3 million more homes by 2020. So I can announce that in addition to the 40,000 already under construction, we have through the review of public sector land identified sites for 70,000 more.

Our greatest obligation to future generations must be to tackle climate change. We have an established target to reduce carbon emissions by at least 60 per cent by 2050. I believe that we should go further. That is why we have asked the Climate Change Committee to advise us – whether as part of an international agreement – we should raise our target to 80 per cent. And to ensure carbon reduction is a central part of our economic objectives, I can tell the House that the first carbon budgets to 2022 will be announced alongside the Budget next year.

Last year's Energy White paper committed us to increasing the supply of renewable energy and the Energy Bill will allow the tripling of renewable electricity by 2015. Secondly, we need to do more to reduce the amount of carbon generated at home and at work. Given the damage that single-use carrier bags inflict on the environment, we want to be able to take action. We will introduce legislation to impose a charge on them if we have not seen sufficient progress on a voluntary basis. And next month we will launch the most ambitious household emissions reduction programme. Energy companies are obliged through the Carbon Emissions Reduction Target to give their customers better deals for energy efficiency and therefore cut bills. Cavity wall insulation for nearly three million homes. Loft insulation, more energy efficient appliances and light bulbs. I can announce £26m funding next year for a Green Homes Service to help people cut their carbon emissions and their fuel bills. We will roll out smart meters to medium and large companies over the next five years, providing greater incentives to reduce the amount of energy they consume. We already have a target to make new homes zero carbon from 2016. I believe that we can go further. And I can announce today that new non-domestic buildings will become zero-carbon from 2019. We will consult on achieving that targets with the potential to save 75 million tonnes of carbon dioxide over the next thirty years.

The Climate Change levy, which is the main reason why we have met our Kyoto targets and which is still opposed by some, will increase in line with inflation from April.

The third key area we need to take action now is in relation to transport. Because emissions from aircraft are forecast to continue to grow, I am also announcing that revenue from plane duty will be increased by 10 per cent in the second year of operation. But Britain's 30 million cars, vans and lorries together account for 22 per cent of total carbon emissions. Today, I am publishing Professor Julia King's review of low carbon cars in which she examined new technologies which could help cut carbon emission. And I am asking the European Commission today to set a tighter target which reduces the cap on emissions from cars from 130 grams per kilometre of carbon dioxide to 100 grams per kilometre of carbon dioxide by 2020.

The road tax system should do more to support the use of more carbon-efficient, and therefore less costly cars. Firstly, from April 2009, I am proposing a major reform to Vehicle Excise Duty to encourage manufacturers to produce cleaner cars and by introducing new bands, there will be an incentive to encourage drivers to choose the least polluting car. And as a second stage for new cars, from April 2010 there will be a new first-year rate based on carbon dioxide emissions of the car. Cars that emit less than the proposed 130 grams per kilometre European standard of carbon dioxide emissions will pay no car tax at all in the first year. But a higher first year rate will be introduced on the most polluting cars.

The biofuel duty differential will be replaced by the Renewable Transport Fuel Obligation. I am also reforming capital allowances for business cars to increase the incentive to move to lower emitting cars.

From 6pm today the duty on tobacco will rise, adding 11 pence to the price of a packet of 20 cigarettes and 4 pence to the price of five cigars. And to help people to stop smoking, we are continuing the 5 per cent reduced rate of Value Added Tax on smoking cessation products beyond 30 June this year.

From midnight on Sunday, alcohol duty rates will increase by 6 per cent above inflation. Beer will rise by 4p a pint, cider by 3p a litre, wine by 14p a bottle and spirits by 55p a bottle. Alcohol duties will increase by 2 per cent above the rate of inflation in each of the next four years.

It is only because I have taken these decisions on alcohol and on closing tax loopholes that I am able to provide additional support for families and lift more children out of poverty. And it also why I am now able to make two further announcements whilst still meeting our fiscal rules. As the House will know, the basic rate of income tax will fall by 2 pence in April. Charities play a vital role. We will therefore implement a transitional rate of 22 per cent, to allow them to continue to claim gift aid at the current rate, delivering £300m worth of relief and will give charities the certainty they need for the next years.

I also want to do more to help older people especially this year. From this April, as a result of changes made last year, a further 600,000 pensioners will be taken out of paying income tax. The pension Credit now guarantees a minimum income of £124 per week from April. Before 1997 there was no Winter Fuel Allowance. For this year I have decided to help pensioners who are facing pressures such as higher energy bills. I will raise the winter fuel payment for over 60s from £200 to £250 and for the over 80s from £300 to £400. 9m pensioner households will be better off.

This is a responsible Budget to secure Britain's stability in the face of global uncertainty. Responsible decisions not irresponsible, unfunded promises. Fairness and opportunity for everyone in Britain. To secure a strong, sustainable future. And I commend it to the House.

Budget buzzwords

Stability: 23 times (three uses in first three sentences)

Emissions: 15 times

Environment/Environmental: 10 times

Stable: Seven times

Climate change: Five times

Uncertainty: Five times

Fairness: Four times

Responsible: Four times

Golden rule: Three times

Green: One time

Uncertain: One time