"IN THIS year's pre-Budget report we seek to steer a course of stability amid a world economic downturn. We set in place measures to increase productivity and provide support for enterprise. We introduce new measures to make work pay for all our people and we show how we will invest in health, education and our infrastructure, to provide the modern services on which people rely, in each case long-term decisions that will equip our country for the future."
The Chancellor said the background was the "global downturn" that had started in Asia and reverberated across every country, shifting the "balance of risks" from fears about inflation to fears about growth.
World trade growth forecasts had fallen by two-thirds and one-quarter of the world was in recession. "And my objective, the objective for Britain, is that in this uncertain world, Britain not only steers a stable course but that, by building up our long-term strength, is more than equal to any and every challenge the global economy presents.
"Because in the last 18 months British inflation has been brought down to its target of 2.5 per cent, and because Britain has set in place a new long-term monetary framework, with the independence of the Bank of England, Britain is better placed than in the past to face these global difficulties. And because too, Britain has tackled its structural deficit in the public finances we are more able to steer that stable course ...
"We are conscious of the balance of risks - the risk on the one hand of a sharper slowdown in the world economy as a result of instability and its effect on confidence, the risk on the other that inflationary pressures might persist.
"The pre-Budget report is set with this firmly in mind, no denial of short-term difficulties, no diversion from policies for long-term strength. And our challenge in the year ahead is to strengthen the three essential foundations for that long-term strength and success.
"First, Britain now has, for the first time, a consistent long term framework for both monetary and fiscal policy - one that has an inbuilt capacity to respond credibly to short-term pressures and one from which we will not be deflected.
"Second, with business, we are putting in place a strategy to tackle a fundamental long-term economic weakness, the 40 per cent productivity gap with our most successful competitors - and these measures include investment in education and innovation, and new encouragement for enterprise and competition. And third, with our welfare to work programme and by ensuring that work pays, we are extending opportunity to all, creating a Britain where no one is excluded, and everyone has a contribution to make, a Britain that is both enterprising and fair."
Action already taken had enabled the 2.5 per cent inflation target to be met, and the Chancellor added: "I can announce that for future years our forecast is that inflation will stay on target."
Official figures confirmed that in the Government's first year, the budget deficit had been cut from the pounds 28bn "inherited" from the Tories to pounds 8bn. "This tightening has continued throughout our second year - a total fiscal tightening in two years of 3.75 per cent of national income."
Spending this year would be pounds 2bn below the ceilings inherited from the Tories, Mr Brown said. "As a result, our current budget this year is expected to be pounds 5.5bn in surplus. And what, in the Budget, was prudently projected to be net borrowing of pounds 1bn this year is now expected to be a debt repayment of pounds 1.5bn."
Mr Brown said that despite adopting a "more prudent approach" to forecasting income tax and corporation tax, the Government would still meet its golden rule of balancing the budget over the economic cycle. "We expect the current surplus to be pounds 1bn next year, pounds 3bn in 2000-2001, pounds 8bn the year after that, pounds 10bn and pounds 11bn in the two years to follow. For the same years, net borrowing is expected to be pounds 4bn and successively pounds 5bn, pounds 2bn, pounds 2bn and pounds 1bn." This would lead to a budget surplus over the coming five years of pounds 33bn - "a margin that shows we are equipped to cope with further uncertainties."
Public investment would double over the next three years "to meet the needs of a modern infrastructure". And he continued: "As a result of our prudence, debt as a proportion of GDP is set to fall below 40 per cent to 39 per cent next year, to 38 per cent and then to 36.5 per cent. Members who take a special interest in the Maastricht criteria will want to know that in each year of the next five years Britain is comfortably within the Maastricht guidelines."
On productivity, Mr Brown said the Government would achieve its goals for growth and employment through "an even more radical modernisation" of economic policy in favour of opportunity, enterprise and work.
"We need to press ahead with modernisation in every area - improving productivity, expanding opportunity and investing in our future. What makes for a good economy also makes for a good society - one that is fair and cohesive.
"We plan to enlist business leaders to take the world of work and business into our classrooms. And to encourage businesses to offer expertise and management to help in our schools and colleges, I can announce that the Budget will allow businesses to claim tax relief when they second staff to schools and colleges."
Employee commitment was vital to the success of firms, the Chancellor said. "So, in the Budget we will make it easier for all employees - and not just a few - to become stakeholders in their company. I want to double the number of firms in which all employees have the opportunity to own shares...
"In future, more of our wealth and jobs will come from small and growing businesses ..." Mr Brown said. "So from now on every department of government will have an obligation to encourage enterprise and entrepreneurs."
The banks had been asked to see what steps could be taken to "more effectively serve" the needs of business. And the Office of Fair Trading would be given a 20 per cent funding boost to "break down the barriers which prevent new firms entering markets and keep prices high for consumers".
The Chancellor declared: "Our policy is pro-small business, pro-share ownership, pro-tax simplification and pro-competition."
He also pledged more help to encourage inventors and the successful marketing of their products. "So I am announcing today that to develop business expertise in science and to transfer technology from the science lab to the market place, we will endow up to eight new Institutes of Enterprise in British universities."
Because Britain had only 6 per cent of the "early stage high-tech venture capital" of the US, Mr Brown said the Government would try to find new sources of venture capital for start-ups.
On welfare to work, he said: "Side by side with the 'New Deal' there will be guarantees that work will pay more than benefits. From April, as a result of abolishing the entry fee to national insurance, all employees will receive a tax cut of pounds 66 a year. And business will be pleased that I can announce that from April, employers will not pay national insurance on earnings below pounds 83 a week, the 1999 level for the personal tax allowance...
"When it is economically right to do so - and so that work pays more - we will introduce the 10p starting rate of income tax."
He confirmed that the minimum income guarantee would rise from pounds 180 to pounds 190 from October next year as a result of the minimum wage and tax and benefit changes. "This will guarantee a minimum income for a lone parent with one child of at least pounds 5.50 an hour and for an adult with two children pounds 6.37 an hour."
To help parents and carers balance work and family, the Government would extend its new childcare tax credit to all children up to the age of 14, and for disabled children, up to the age of 16.
"We will also match the working families tax credit with a new disabled person's tax credit that will ensure that work pays for the disabled man or woman who takes a job."
A disabled person, with one child, moving from benefit to full-time employment would be guaranteed an income of pounds 220 a week, with no income tax payable on income below pounds 274 a week. "Disabled men and women taking up work will be as much as pounds 78 a week better off."
Matching the minimum income guarantee for disabled people in work, there would be a new disability income guarantee of pounds 128 a week for the severely disabled out of work.
Pensioner couples would be guaranteed a minimum income of pounds 177 a week, Mr Brown said.
He pledged that the Government would still provide the extra pounds 40bn for schools and hospitals announced in the comprehensive spending review .
To ensure the health care that people needed this winter, the Government would also put an extra pounds 250m into the NHS.
"This Government believes in the best health and the best education... Public services are safe in this Government's hands. A government that is steering a stable course, prudently investing in our future, proudly building strong public services and consistently keeping its promises to the British people. I commend this statement to the House."Reuse content