'No one country can insulate itself from a slowdown'

Edited extracts of Gordon Brown's statement to the Commons:
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The task of this pre-Budget report is to rise to the global economic challenge facing our country and to set out how we can and will build a stronger, fairer Britain even in an uncertain world.

The task of this pre-Budget report is to rise to the global economic challenge facing our country and to set out how we can and will build a stronger, fairer Britain even in an uncertain world.

I start with the state of the world economy. America is in recession. Japan is in recession as are other Asian economies like Singapore, Taiwan and Hong Kong. The euro area is slowing rapidly. And world trade growth has slowed dramatically from its 12 per cent growth last year to only 1 per cent this year.

No one country can insulate its economy from such a synchronised slowdown. So in Britain, interest rates have been cut seven times in 9 months. And with public spending and public investment rising this year, our fiscal policy is complementing and reinforcing monetary policy and thus stability and growth.

Throughout 2001 Britain has continued to grow. And monetary policy has played its full part. The Bank of England has been able to take pre-emptive action because British inflation has been at or near our target of 2.5 per cent for four years, in contrast to inflation rising to 10 per cent when the world economy slowed in 1990.

At the time of last year's pre-Budget report, independent forecasters said US growth in 2001 would be 3.4 per cent – they now expect it to be just 1 per cent.

Last year we forecast British growth in 2001 would come in at a range from 2.25 to 2.75 per cent. And we based our public finance projections on 2.25 per cent. I can tell the House that our expected growth figure is exactly that, 2.25 per cent.

So while some pre-Budget representations claimed Britain was worst-placed of any to withstand the global slowdown, we are forecast to have the highest growth of any of the G7 countries.

Enterprise

We will proceed with four tax cuts for enterprise and the abolition of one further tax in its entirety.

To help British business and particularly manufacturers to invest in the technologies of the future, we will in next year's Finance Bill legislate for a new research and development tax credit for large companies.

To reward entrepreneurship we will, from next April, cut capital gains tax to 20 per cent for business assets held for more than one year and 10 per cent for business assets held for two.

To reward managers taking risks in new business ventures, I propose to double the reach of our share option scheme to all businesses with assets of up to £30m.

Because, for small businesses, I want to cut tax bills and red tape, I can confirm that the Budget will extend the 10p corporation tax band, cutting taxes for small companies.

For 54 years since the 1947 Budget, tax has been levied on the football pools. I have agreed that the tax on pool companies will be 15 per cent on their gross profits. I am abolishing football pools tax altogether from 1 April.

Employment

I turn to jobs. Today, the Secretary of State for Trade and Industry and I are publishing our joint report on regional economic policy and the work of Regional Development Agencies in tackling regional inequalities and achieving balanced economic growth.

To complement the locally based venture capital funds, we are today publishing our prospectus for a new £50m fund to help small firms in every region.

A new community investment tax credit will match every £100m of private investment with £25m of additional public investment.

And as a special measure to help the slowest growing areas of Britain we will, in 2,000 wards in constituencies throughout the country and for all property transactions for homes and business properties worth up to £150,000, abolish stamp duty from Friday.

I can report that Britain's unemployment this year is the lowest since the 1970s. Because we will not retreat from our commitment to full employment, the Secretary of State for Work and Pensions will tomorrow [Wednesday] announce new measures to help the newly redundant and expand the New Deal to help the long-term unemployed.

Public finances

This is also a testing time for our fiscal regime and I now turn to the public finances.

We have been able to reduce net debt below 40 per cent, not just in one year but across the economic cycle. In total, since we came to power we have now repaid £51bn of the national debt.

We had a choice last year: to use the mobile phone proceeds for current spending. In fact, by using the £22bn for reducing our debt burden we achieve a permanent saving of £1bn a year in debt interest payments.

With debt and debt interest payments down, it has been possible, even as corporate and other revenues have declined, to maintain our three-year spending plans for hospitals, schools and public services.

I can report that, even while we project significantly lower tax revenues this year and next, we are still well within our first rule this year and every year – the golden rule that we balance the current budget over the cycle.

The current budget is projected this year to be in surplus by £10bn and in future years £3bn, £4bn, £7bn and £8bn.

Taken together, the monetary and fiscal figures I am publishing today show we are also well within the Maastricht criteria.

Terrorism

Let me turn now to decisions on spending that have resulted from the terrible events of 11 September. I can report that for new equipment and immediate operational requirements, an additional £100m has been made available to the Ministry of Defence.

To cut off the supply of finance to terrorists and to fund other anti-terrorism measures, we have set aside extra resources of £20m.

To fund the need for additional policing since 11 September, a further £30m has been made available to police forces. To fund humanitarian assistance to Afghanistan and elsewhere, Britain is contributing an extra £100m.

I can confirm that in the next spending round we will not only raise significantly the amounts of our own overseas development aid but also raise its share in national income.

 

Environment

The cause of the environment also reminds us how closely our lives are bound up by what happens elsewhere in the world. And because these issues are central to our Budget and spending review, we are consulting from today on a total of 10 environmental measures.

We are investing £180bn over 10 years in transport. And so that foreign lorries pay some of the environmental and other costs of using British roads, we are also publishing our consultation document on introducing a charging system under which non-British companies and lorries pay their fair share.

Welfare

The old welfare state we inherited paid out benefits, too often without regard to individual circumstances or personal responsibility.

Today, the working families tax credit is making work pay for nearly 1.3 million families. Building on this we will later this week introduce legislation for the next step: extending the principle of the working families tax credit to make work pay for those without children as well.

And today the Secretary of State for Pensions and I are announcing new measures to help every pensioner in Britain, with most to those who need it most. So these are our guarantees:

* for every pensioner an increase of at least £100 a year every year in the basic state pension;

* and for 5.4 million starting on the pension credit in 2003 up to an additional £1,000 per household;

* free TV licences for all pensioners over 75;

* for the poorest pensioners a minimum income guarantee of £100 a week;

* and for every pensioner household a £200 winter fuel allowance each and every year of this Parliament.

Health

Renewing the health service for the 21st century is among the great challenges for our generation. I am able to announce that even in these testing times, while meeting all our fiscal rules, even on cautious assumptions, we are releasing for next year an extra £1bn for the NHS. UK health spending in the coming year will now rise by £6bn, 9.6 per cent in cash terms, 7 per cent in real terms.

In the Budget in March 2000, 18 months ago, I said that to prepare for the next spending round an independent review should examine long term NHS funding needs, over the next 20 years. The review is being conducted by Mr Derek Wanless, formerly of NatWest. Today he is publishing his interim report, a 220-page detailed examination on future trends in health care and future funding issues on which he will consult widely.

His view is that the principle of an NHS publicly-funded through taxation, available on the basis of clinical need and not ability to pay, remains both the fairest and most efficient system. He will publish his final conclusions next year in time for the 2002 spending review.

With economic stability the foundation, with a steady and prudent approach to the public finances, I believe we will have the strength to take the right decisions and to build a stronger, fairer Britain.

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