These are extraordinary, challenging times for the global economy. My aim is to put in place the measures necessary to ensure sound public finances in the medium term so that as a country we live within our means.
Not one single initiative but a comprehensive plan to support families, business and the economy. And because of the wide-ranging measures I am announcing today, I am confident that the slowdown will be shallower and shorter than would have been the case.
A crisis which began, as America itself has said, in the US housing market has seen these benign conditions undermined. The result has been a sharp reduction in growth across the world. GDP growth for 2009 is forecast to be between –0.75 per cent and –1.25 per cent.
As the world economy recovers from the credit crunch, the UK will begin to grow again. So I am forecasting growth of between 1.5 and 2 per cent in 2010.
There is a growing international consensus, although unfortunately not in this House, that we must act now to protect people and to help pull our economies out of recession.
For there is a choice.
You can choose to walk away, let the recession take its course, adopting a sink-or-swim attitude, letting families go to wall. This is the no action plan.
Or you could, as I have decided, as have governments of every shade around the world, to support businesses and families, by increasing borrowing, which will also reduce the impact and length of the recession.
That's why my pre-Budget report today represents a substantial fiscal loosening – to help the economy now – with a £20bn fiscal stimulus between now and April 2010.
Borrowing will rise to £78bn this year and £118bn next, or 8.0 per cent of GDP. I can announce today that £3bn of capital spending will be brought forward from 2010-11 to this year and next. The money will be used to increase capacity in the motorway network, improve and build new social housing, renew primary and secondary schools, and invest in energy-efficiency measures.
I have decided that the best and fairest approach is a measure which will help everyone. I therefore propose to cut VAT from 17.5 to 15 per cent until the end of next year.
It will continue for 13 months before returning to the present level of 17.5 per cent at the beginning of 2010 by which time we expect the recovery to be under way.
This temporary reduction is the equivalent of the Government giving back some £12bn to consumers to boost the economy.
But along with these immediate steps to help businesses and families now, I am also announcing measures to ensure sustainable public finances in the medium term.
I propose, therefore, from April 2011 to increase by half a per cent all rates of National Insurance contributions, for both employees and employers.
No one under £20,000 will pay any more National Insurance contributions as a result.
From April 2011, I intend, only on income over £150,000, to introduce a new rate of income tax of 45 per cent.
Those with incomes between £100,000 and £140,000 will see the value of their personal allowance reduced – so they get the same benefit as a basic rate taxpayer.
My objectives today for business are threefold.
First, to help small firms meet their running costs, I can announce a temporary increase in the threshold for empty property relief.
Second, at this time of real difficulty for many small businesses, they need "time to pay" when meeting their tax bills.
I will also allow several hundred businesses in ports to spread out their payment of backdated business rate bills.
We are also acting directly to improve access to finance.
First, we have agreed a £4bn deal with the European Investment Bank to provide money to the banks to pass onto SMEs. I can report today that seven UK banks have already asked the EIB for this money – £1bn will be available to their customers by the end of the year.
Next, I can announce the Government is also to offer credit through a temporary Small Business Finance Scheme. This is worth another £1bn to small businesses.
Improving insulation and energy efficiency will also help us reduce emissions as well as cutting energy bills for families.
Today I can announce that I am providing an additional £100m in new money, and bringing forward another £50m, to help up to 60,000 more households insulate their homes.
As part of the commitment to bring capital spending forward, the Government will invest £535m more quickly on energy efficiency, rail transport, and environmental protection. This will mean more homes benefiting from better heating and insulation, better flood defences and 200 new trains.
I want to take steps to improve the supply of mortgages, avoid repossessions, and to increase the number of new homes. I am setting up a new body – the Lending Panel – which will monitor lending to both business and households.
It is also important that families worried about their finances and mortgages can get expert and impartial advice.
So I am announcing today £15m of new funding for free debt advice, available to everyone, regardless of circumstances, available across the country.
I am extending the Mortgage Rescue Scheme scheme, so it will also cover those at greater risk as a result of taking out second mortgages.
As part of the acceleration of capital spending, we will bring forward an additional £775m this year and next to invest in thousands of new and modernised social homes as well as regeneration projects. Overall, this is a package of support for housing worth a total of £1.8bn.
Those facing redundancy need greater support.
As the success of the Rapid Response Service has demonstrated, support in the workplace in the form of advice on job-search, careers, and accessing existing vacancies can make a huge difference to employment prospects. We will now further expand the service so that its work includes all redundancies, not just those at the largest workplaces.
I am setting aside additional funding to ensure Jobcentre Plus and the New Deal have sufficient capacity.
I can also announce additional help for people of all ages.
Turning first to motorists, we rightly have a system of car taxation which takes into account the environmental impact from different types of car. In the last Budget, I announced I was going to take this further by increasing the number of bands for vehicle excise duty.
I intend to go ahead with the introduction of new bands, reflecting fuel efficiency.
But it would be wrong to do this in a way that places undue burdens on motorists at this time. I now propose that the more polluting cars will see duty increased, but up to maximum of £30.
Mr Speaker, I also intend to step up help for families with children.
We have already announced that the child element of the child tax credit will increase by £50 above indexation next April.
We have also announced a further increase in that credit of £25 above indexation in 2010.
I now intend to pay both these increases together in April, making it worth in total £2,235 for modest income families.
I also want to do more for pensioners. I can announce today an increase in pension credit in April.
I will increase it from £124 to £130 a week for individual pensioners and from £189 to £198 for pensioner couples.
I will ensure that every pensioner will get a one-off payment of £60, on top of the £10 Christmas bonus, from January. And for couples, £120, also from January.
And this £70 payment will also go to children with disabilities.
Mr Speaker, these are exceptional times and require exceptional measures. It requires action now to help people – and action now to build a stable economy.
We have made our choice.
This is an edited extract of Alistair Darling's speech to the CommonsReuse content