The Chancellor's speech: 'Too little, too late: we will not repeat those mistakes again'

Today's Budget will continue to help people through this global recession, and prepare Britain for the opportunities of the future. In all of these decisions, we have been guided by our core values of fairness and opportunity – and our determination to invest and grow our way out of recession.

Today's Budget will take Britain through the most serious global economic turmoil for over 60 years. The impact is being felt in every continent, country and community.

When the world economy was plunged into deep crisis in the 1930s, the response, both nationally and internationally, was too little and too late. This failure to act turned a serious downturn into a prolonged depression. We will not repeat those mistakes again.

The UK economy contracted by 1.6 per cent in the last quarter of 2008. For the first quarter of this year, I expect the economy will again contract by a similar amount. My forecast for GDP growth for the year as a whole will be 3.5 per cent – in line with other independent forecasts. But because of our underlying strength – the measures we are taking, domestically and internationally – I expect to see growth resume towards the end of the year.

Next year, because of the pick up in world demand, the continuing benefit of lower prices, and the substantial recovery measures put in place, I am forecasting growth of 1.25 per cent in 2010.

From 2011, I am forecasting that the economy will continue to recover, with growth of 3.5 per cent from then on. In future years, the economy will recover towards a trend rate of growth of around 2.75 per cent.

Inflation is expected to continue coming down sharply, reaching 1 per cent by the end of this year.

The deepening global recession has had an impact on the public finances, here and in every country across the world.

All the evidence shows that the longer people are out of work, the more difficult it becomes for them to re-enter the labour market. So today I will announce steps to ensure short-term job loss does not turn into a lifetime on benefits.

The core of the Government's approach is the Job Centre Plus network. Even in the tough economic conditions since November, it has helped over a million people move into new employment. I can announce today an additional £1.7bn of funding so that everyone can receive high-quality support.

From January, everyone under the age of 25, who has been out of work for 12 months, will be offered a job or a place in training. Those in work will receive a wage. Those in training will receive additional money on top of their benefits.

To provide these extra opportunities, we are working with employers to create or support as many as 250,000 jobs.

As part of my guarantee to young people, I will spend over £260m of new money for training and subsidies to help them get the skills or experience needed in sectors with strong future demand.

We will also be providing extra investment, to ensure we deliver on our guarantee that every 16 and 17 year old who wants to stay in education or training can do so. To deliver this for the next two years, I am providing a further £250m this year and £400m in 2010-11.

I want to do more to reduce the number of repossessions. Today I can announce that I will maintain the higher level of support for a further six months, to help homeowners as they look for a new job.

The housing market is also being held back by a lack of mortgage credit. The Government has taken action to encourage an increase in mortgage lending, and this year the major UK banks will increase the availability of mortgages by around £20bn. To build on this, today I can announce the introduction – following state aid approval – of the scheme to guarantee securities backed by mortgages – which will help to ease the flow of mortgage finance.

I have decided to extend the Stamp Duty holiday on properties sold for less than £175,000 until the end of the year. I can also announce an £80m extension to HomeBuy Direct – the Government shared equity mortgage scheme, which has already received interest from over 32,000 people since September.

I want to do more to help firms with cash flow problems.

So today I am extending the help which allows loss-making companies to reclaim taxes on profits made in the last three years.

This help, which will lead on average to repayments worth £4,000 each year, will now be available for two years until November 2010.

I also want to help the UK's automotive industry, which has been one of the British success stories of the last decade. In order to help the car industry and retail trade, I can announce that a scrappage scheme will be implemented next month.

It will provide motorists with a £2,000 discount on new vehicles bought when they trade in cars over ten years old.

Around the world, fiscal deficits and government debt have been rising sharply to levels not seen since the Second World War. Allowing borrowing to rise – protecting services, helping people and businesses – is the right to do. The alternative – to take money out of the economy now, as some have suggested – would damage key public services, create more unemployment, lengthen the downturn and lead, in the end, to higher, not lower debt.

My Budget measures today represent a fiscal easing of about 0.5 per cent of GDP this year, followed by a tightening of 0.8 per cent of GDP per year until 2013-14.

I believe this is a sensible pathway to sustainable public finances. Our own figures for public sector net borrowing will be £175bn this year, or some 12.4 per cent of GDP.

From 2010, as the economy starts to recover, and the measures announced in November and today take effect, borrowing will fall to £173bn, then £140bn, £118bn and £97bn. UK net debt, which includes the cost of stabilising the banking system, will, as a share of GDP, increase from 59 per cent this year, to 68 per cent next year, 74 per cent in 2011-12, then 78 per cent, and 79 per cent in 2013-14. It will stabilise and then begin to fall in 2015-16.

It cannot be fair that those who should pay tax, are allowed to avoid it. We have identified loopholes and schemes, which, when closed, will result in £1bn of extra revenue over the next three years.

It is difficult to justify how a quarter of all the money the country spends on pensions tax relief goes, as now, to the top 1.5 per cent of pension savers. So from April 2011, I will restrict pension tax relief for those with incomes over £150,000, so it is gradually tapered to the same 20 per cent rate the majority of people receive.

I am not proposing to increase taxes on income for this year. However, I believe that it is fair that those who have gained the most should contribute more.

Only those with incomes over £100,000 a year – or 2 per cent of the population – will be affected.

In November, I announced a new rate of income tax of 45 per cent on incomes above £150,000 – the top one per cent of taxpayers.

I have decided that the new rate will be 50 per cent, and will come in from next April – a year earlier. In November, I also announced that I was reducing personal allowances for the very highest earners, with incomes over £100,000. I have now decided to fully withdraw the benefit of that allowance for those with incomes over £100,000 from next April.

I expect that fuel duty will increase by 2 pence per litre in September, and then by 1 penny a litre above indexation each April for the next four years. Alcohol duties will go up by 2 per cent from midnight tonight. There will be an increase in tobacco duty of 2 per cent from 6pm tonight. Taken together, these measures will raise over £6bn by 2012.

Mr Deputy Speaker, the importance of our public services, on which we all depend, becomes even clearer during difficult times. Yesterday, we published the reports of the five independent reviews I set up last year.

They have identified extra efficiencies from 2011, which rise to a further £9bn of additional savings a year by 2013-14. This will allow us to protect front line public services, while keeping current spending growth, in real terms, at an average of 0.7 per cent a year from 2011-12 onwards.

The strength of our economy, and health of our society, also depends on meeting long-term demand for housing. I have two measures to help achieve this.

First, we want to work with the industry to tackle the restraints which, house-builders have told me, could prevent them from acting now to increase housing supply.

Second, lack of finance now is affecting house builders and preventing the long-term investment that we need. So today I can announce £500m of extra financial support.

In preparing for the future, Britain's economic recovery must be sustainable and protect the environment. Today, I am presenting the world's first ever Carbon Budget, which commit Britain to cut carbon emission by 34 per cent by 2020.

I can announce £435m of extra support to deliver energy efficiency measures – for homes, businesses and public buildings.

We must build on Britain's status as the world leader in offshore wind power generation. The credit squeeze is holding back major offshore wind projects. I want to lift the barriers – through £525m of new financial support over the next two years for offshore wind, funded through the renewables obligation.

I can also announce that renewable and other energy projects in the UK stand to benefit from up to £4bn of new capital from the European Investment Bank.

Clean technologies, such as carbon capture and storage, are vital to ensure we can produce power from these sources without damaging the environment. So I can announce that a new funding mechanism will be used to finance at least two, and up to four, demonstration projects.

To encourage the use of combined heat and power technology, I will exempt these projects from the Climate Change Levy from 2013 – bringing forward over £2.5bn in investment. I can also announce that, through £405m of new funding, we will also encourage low carbon energy and advanced green manufacturing in Britain.

In November I provided help for families and pensioners. Today I want to do more. There is help for millions of families too – with child tax credit up by £75 from this month – and the increase in child benefit paid early.

Today I can announce additional targeted measures. The Government is determined to eradicate child poverty. So, first, I can announce that, from April next year, the child element of the Child Tax Credit will increase by £20.

Second, children with disabilities need extra help to make the most of their potential. So we will add an extra £100 a year to their Child Trust Fund. For those with severe disabilities, it will be an extra £200 each year.

Third, I can announce an increase in statutory redundancy pay from £350 to £380 a week.

For over a decade, the capital disregard on Pension Credit has been at £6,000 or below. I believe it is now time to increase these limits, which will help compensate modest-income pensioners, with limited savings.

So from November 2009, the limit will be raised to £10,000.

Tax-free ISAs have been a great success. To help savers on the tenth anniversary of ISAs, I intend to increase the total annual limits to £10,200, of which £5,100 can be saved in cash.

Every country has been hit by this global recession. But we have confidence in Britain's future and in our country's strength.

You can grow your way out of recession. You cannot cut your way out. We have made our choice. To help people now. To build Britain's future.