The Rt. Hon. Sir John Major KG CH

Tag: Ken Clarke

  • Mr Major’s Joint Press Conference with Kenneth Clarke – 13 December 1996

    Below is the text of Mr Major’s joint press conference with the Chancellor of the Exchequer, Kenneth Clarke, held in Dublin on Friday 13th December 1996.

    PRIME MINISTER:

    Let me just set out one or two observations of what we have been doing today and what now lies ahead in the early months of next year.

    I have now attended around about 15 or 16 of these summits and almost invariably on these occasions the United Kingdom is portrayed as if it was a minority of one or a very small minority. It almost seems to have been the script since the dawn of time. Nonetheless, it may surprise many people the large number of occasions that we seem to get our own way. The United Kingdom perhaps sometimes is the grit in the European oyster, it may not look pretty from the outside but I can tell you it is very effective from the inside, and I think that is going to remain so in the months up to Amsterdam.

    Let me say a few words firstly about the discussion we had on employment this morning. There is an employment text provided by the Presidency. It embraces many of the British ideas, though not every aspect of it is a British idea. But subject to the fact that it is clear that it doesn’t prejudice the text that will be agreed at Amsterdam, subject to the fact that it makes clear that we are going to proceed down the Essen Formula, and subject to the fact that it makes clear that employment matters are for the nation states predominantly and not for Europe, it is probably a text – whilst we don’t agree with every dot and comma of it – that we can live with and that was the substance of what I said this morning.

    This afternoon we have had I think the most substantial discussion that I have yet heard on the substance of the Intergovernmental Conference. For the first time I think a number of the contributions actually got beyond stating rather general positions and looking at some of the specifics of what will need to be decided on the back of the Irish draft treaty text. The draft text, as you know, sets out accurately and very well, the Irish have done a very good job, all the positions taken by member states, both majority positions and minority positions, as the basis of the negotiations still to come. During the discussions, President Chirac suggested that we should throw away pre-prepared briefs and say precisely what we thought about some matters, and I rather agreed with him about that, so I did precisely that, and set out some of the concerns that we have.

    We British are often perceived as having many disputes with our European partners. That isn’t in fact true. We have one substantial dispute with our European partners that spreads into very many areas and keeps reappearing, and that is the fact that there is more than one vision of Europe. At stake in the Intergovernmental Conference is the future direction of policy. Jacques Santer said some time ago the moment of truth is coming, and in terms of the direction of European policy, I agree with him about that. The agreements that will be reached between now and Amsterdam, and probably reached at Amsterdam, will certainly determine the future direction of policy. And I set out to my European colleagues the fact that there is more than one vision of the way the European Union can develop.

    A number of our European colleagues advocate a much more centralist, much more integrationist European Union. Well I understand that view, I respect that view, but I don’t share that view and I made that point clear this afternoon. I would view an integrationist, centralist European Union with some dismay. I don’t think it would be in Britain’s interest and I have repeatedly made that clear. I believe it should be a partnership of nation states with Community competence where it is needed, and in some areas Community competence is needed, but where it is not needed the Community should not reach out take and take competence away from the nation states.

    I dealt also with another argument that frequently appears in European debate, and that is the view that there are only two sorts of the European Union: the one that is inevitability leading to greater political union as well as economic union; and the second view that Europe is only seen as a free trade area. Well that is not Britain’s view. Britain does not see the European Union as simply a free trade area. There are many areas where Britain’s role goes well beyond free trade – the development by consensus of a common foreign and security policy; closer intergovernmental cooperation on crime and drugs and terrorism; a common external trade policy; we need European institutions, the European Court of Justice isn’t always to our taste but it is necessary to ensure common rule is applied right the way across Europe. And I set out these as illustration of the way that Britain actually sees a European Union developing, a European Union that is not integrationist but is neither simply a free trade area.

    The key point in the discussions that lie ahead is one upon which different people have expressed views but nobody has clarified their view very clearly, and that is the question of flexibility. I touched first on this question of flexibility in the Leiden lecture some two years or so ago, and since then as a debate within Europe it has gathered pace. But of course when different Europeans speak of flexibility they often mean quite different things, one from another. Some of the ideas on the table about flexibility could create a core Europe, an inner core Europe that moves ahead on its own. Other proposals would allow action to be taken in the name of the Union with those outside the care having no say in those particular decisions. And I raised those questions and asked whether that was the sort of Europe we really wanted.

    The right sort of flexibility will ensure that those who wish to integrate are not unreasonably frustrated. But it also means that others who do not wish to integrate are not forced into unwished for obligations which are unattractive to their electorates, unappealing to them as governments and which build up resentment across Europe. The wrong sort of flexibility, as I indicated this afternoon, would blow the European Union wide apart, and so that is an area where we need to reflect very carefully. We are still doing so, we have not yet reached final conclusions as to whether the sort of flexibility we advocated is best put in the treaty or dealt with on a case by case basis, this is a very fine judgement and I hope we can reach conclusions on that fairly soon.

    There are aspects in the Presidency document where good progress has been made and where we support very strongly the progress made – on subsidiarity, on a greater role for national parliaments, on improvements to common foreign and security policy to make it more effective, on improving the quality of legislation, on introducing greater openness into the European Union, and some other areas.

    Other areas are less attractive for us. I see no point in writing an employment chapter into the treaty. Declarations of that sort will not create a single job. I see no point in that, though other partners are attracted to it. Neither do I accept the argument that an enlarged European Union would grind to a halt unless it had an extension of majority voting. I do not accept that and I think that is clear to my partners. In the external field a common foreign policy is thoroughly desirable. A majority foreign policy, determined by qualified majority against the wishes of a minority, would not carry weight internationally and frankly is not a sensible way for us to try and conduct our foreign policy. On defence, let us by all means have more cooperation, but we cannot have the Western European Union subordinated to the European Union itself. And on justice and home affairs, Communitisation of justice and home affairs, bringing it under the central pillar, I think would be very damaging indeed and is not something that we could remotely contemplate. Apart from the fact that we think it is wrong, I very much doubt whether any British parliament would ratify a treaty that transferred competence in those sensitive areas to the Community.

    In a few moments we will set out in there a number of areas where there can be more cooperation on justice and home affairs, but I think it has to be cooperation, not a Communitised policy. I re-emphasised our familiar positions on the European Court of Justice, on the Working Time Directive and on the Common Fisheries Policy and I know most people here will be familiar with those and I won’t reiterate them.

    We have not had, though I think many people present perhaps expected it, we have not had a general discussion on Economic and Monetary Union today, but let me say just a word about it in any event. The launching of Stage 3 of Economic and Monetary Union will be the most far-reaching decision that the European Union has ever taken. It will dwarf the earlier decisions that have been reached. The United Kingdom expect that we will meet the Maastricht criteria, that the Protocol that I negotiated at Maastricht gives us the right to decide whether or not we will participate at a time of our choosing. We have not made that decision yet, and nor will we, until we are clear about all the unnecessary issues, because too much of what we need to know is frankly still a mystery, including crucially our assessment of the prospects for real and sustained economic convergence in Europe. There is no point in having the right economic conditions on one particular day unless that is going to be sustained for the future.

    I have made clear before, and I have not changed my mind, of my doubts that enough European Union countries are economically ready to allow a single currency to safely go ahead. A number of European countries have made Herculean efforts to get to those criteria, perhaps they will do so, time will tell, but I myself still have doubts about it. But insisting on a particular timetable for political reasons is not sensible and can end in disaster. The really important matter is that the economic criteria are right. And whether or not particular countries meet particular targets on a particular day, and clearly those figures mustn’t be fudged, that is much less important than the degree of genuine economic readiness for such a far reaching step as Economic and Monetary Union. Because once a country is in, the only safety valve for poor economic performance would be higher unemployment and the risks are obvious. Unemployment is already too high across the Community – 1 in 10 adults, 1 in 5 of young people without work – and I don’t think anybody would sensibly wish to gain a political triumph by meeting a particular date for Economic and Monetary Union if it was followed by an economic disaster thereafter because the convergence conditions weren’t correct.

    So we haven’t had the debate on Economic and Monetary Union but my earlier remarks paraphrase what I have had to say in the discussions today and I think they have been very constructive and worthwhile discussions.

    I am afraid that is a rather lengthier statement than I normally make on these occasions, and I see Michael is anticipating I have finished – he is right, I have – but I think it was probably worthwhile to set that out and Ken and I will take any questions you may have.

     

    QUESTIONS AND ANSWERS

    QUESTION (Phil Murphy, Press Association):

    Could I ask the Prime Minister and the Chancellor, do you not feel in a way that you might be contributing to a weaker currency by backing the French and persuading the Germans to compromise in setting up the single currency?

    Secondly, Prime Minister, in the light of yesterday’s comments will you be buying the Spice Girls’ Christmas single this year?

    CHANCELLOR OF THE EXCHEQUER:

    What we have done here is the finance ministers completed through last night the details of the progress so far on stage 3 and there is a report that is going to be attached to the Conclusions showing where we have got to and a small group of us broke away this morning to complete that report and settle the final details and it addressed what you have said.

    Two things are absolutely necessary in our opinion if you are going to go ahead with stage 3 as planned. The first is that it should be run on the basis of proper financial discipline, the convergence criteria must be met. The key thing is the countries must remain convergent because they are dependent upon each other and fiscal weakness by any one country will drive up interest rates and threaten the stability of all of them. For the reason, the report sets out the very strict basis upon which it will be run and on that we were on the German side if you wish to take this rather simplified account of a discussion between fifteen member states.

    The report makes it clear that each member state that goes into economic and monetary union will commit itself to a balanced budget or a surplus budget at various stages in the cycle and the 3 per cent is meant to be a maximum and I personally am very keen on financial discipline amongst any countries that go into a monetary union and you have to have a system to sustain that.

    The second point where we were closer to the French was the system must not be some rigid application of automatic rules; it must be a political system remaining within the control of the finances ministers of those countries who are members so that they will eventually decide whether a country is taking adequate steps to get back towards the convergence that is required in economic and monetary union and will impose penalties as ministers on a country which fails to take effective action to comply with that and if you look at the whole report, that balance has been successfully struck. Indeed, I think we took a very balanced position throughout the entire discussions. We are keen that nothing should be fudged, keen that any countries in economic and monetary union remain convergent and competitive with each other but also keen that we don’t have some incredible inflexible system dependent solely on rules that do not allow the ministers to keep proper control upon it, and that was the key issue that took longest. When you look at the report you will see a lot of other issues have been tackled by the finance ministers in order to keep this process rolling forward.

    I share the Prime Minister’s view that this is all very important, it is going forward. The more we go on, the scale of the task remains very great and I too, as I was saying only a few days ago, am not at all sure that they will make the 1 January 1999 and I continue to believe that getting all these details right matters far more than trying to strike some artificial timetable, but we are there, as we are in this entire Council, contributing very heavily. If you sit alongside the Prime Minister at a council of this type you are sitting alongside one of the three most powerful statesmen in western Europe and we are part of a team that makes a very heavyweight contribution to how these things are taken forward and that is what we have been doing.

    PRIME MINISTER:

    I am not sure whether that leads me directly on to the Spice Girls but I think I had better answer your question about them and I am sure their support will ginger us up. As to whether I will be buying the single, I have a shrewd suspicion it might be brought for me now!

    QUESTION:

    Prime Minister, do you accept that it is a bit of a benchmark today for Europe given that the policing of the single currency seems now to be accepted, the structure, and of course the notes have been unveiled. What do you think of the notes and do you not think, given the momentum that now seems to be in play, that despite what the Chancellor says there will be a group of countries signing up on 1 January 1999?

    PRIME MINISTER:

    On the last point, I am very dubious about that. One of the things we did today was formally agree that the previous target of 1 January 1997 was not going to be met. We had formally to confirm that that wasn’t the case and we did that today.

    I am by no means certain that they will meet the 1 January 1999. There will be a huge effort to try – I agree with that – but the difficulties that there were in agreeing the elements of the stability pact that took a lot of discussion last night and today is but the first of a whole series of detailed decisions that will have to be taken that will be difficult and there is no doubt that unless the economics are right people are going to shy away from the 1 January 1999 so it comes down to a judgement of whether it can safely be done at that date. I am very doubtful whether it can. I can’t be certain, no-one can. I am very doubtful whether it can. I can’t be certain, no-one can. I acknowledge that they will try and meet that date, I am not at all certain that they will be able to meet that date.

    You say “a benchmark day”. Well, an awful lot of decisions still remain to be taken and they are pretty crucial decisions and most crucial in due course will be the assessment not just of whether the criteria are artificially set on a particular day but the assessment as to whether those criteria are substantial over the long term and if there is to be a benchmark day it will be that day when it becomes clear whether the assessment is likely to show that countries could sustain it.

    As far as the notes are concerned, I have had very little time to look at the notes yet. I had sufficient time to notice that they had left Cyprus off the map, Turkey off the map, the Balearic Islands of the map, and to learn that therefore it was only a draft map subject to some revision.

    As far as the national symbol is concerned, I hope that they will decide in due course there is going to be a national symbol – there seems some lack of clarity about that at the moment – and I will look at the notes and study them more carefully. I am not immediately any more enthusiastic about the notes than I was about the name but the important issue is the economics, not the notes.

    QUESTION (Michael Brunson, ITN):

    Prime Minister, the fact that they did agree the notes today, that they reinforced the date, that they have set the rules, did you have a sense that they are, for good or ill, all going off now in one direction and we are rather firmly set in another direction?

    Secondly, given Barnsley, given that they know the political situation in Britain, did you feel any sense – they obviously would not say it because they wouldn’t be so rude – but did you have a feeling that they were regarding you as any kind of a lame duck?

    PRIME MINISTER:

    None whatsoever and that wasn’t remotely the feeling of the meeting and it isn’t the way that these European negotiations are undertaken.

    We have a significant contribution to make to these negotiations. There is no doubt that our European partners are keen to have Britain’s cooperation and participation wherever possible. Where it is appropriate, we are keen to cooperate and participate but it has to be where it is appropriate. There are some areas where we just take a quite different view as to the sort of European Union we need and as I indicated a few moments ago, many of the differences that there seem to be between us and our European partners spring essentially from that fundamental fact that we have a different perception of how the European Union should develop than many of our European partners and I think they understand that and there was no doubt about the seriousness with which they took that in the discussions today.

    QUESTION (Adam Boulton, Sky TV):

    Prime Minister, could I press you a bit more about the politics of all this because you see, it has been reported on the wires that one of the ministers who listened to you this morning on employment came out and said it was a monologue, not a dialogue, and there are a lot of people saying when they are briefing privately that they regard the British team as a bit of an irrelevance.

    Can I just go on from that and ask you whether what we actually heard at the opening here was another wobble on Europe when we hear the Chancellor talking about “I am not sure whether they will make it before 1999!” and we hear about you talking about the possibility of blowing the Union right apart. It seems as if you are going back in the Teresa Gorman direction a bit.

    PRIME MINISTER:

    I think you are talking nonsense, with great respect, Adam. I set out the whole series of areas where we cooperated as well so let us not manufacture an artificial story today, please. Let us stick to the realities!

    As far as the employment debate was concerned this morning, I set out the position that we agreed at Essen. I don’t know which Socialist ministers you were talking to but presumably that Socialist minister agreed at Essen with the supply-side reforms and the supply-side approach to unemployment that I set out again this morning and I wonder what the unemployment level is in that particular minister’s country and whether it is going up or going down – ours is going down because we have followed the formula that was set out in Essen and clearly he didn’t stay for the whole of the debate because he would have heard the support for what I had to say from a number of other people who were actually there.

    As far as your remarks about policy are concerned, I set out very clearly this afternoon what we have said in the past about the British position, what the Chancellor said in the past. We both made the same points about the importance of the economic criteria. I have made the point on more than one occasion in the past that if we get this wrong it will make a material difference. I spoke some days ago about the moment of truth and set out the points I made again this afternoon so there is no change in the position that we have set out in the past. I have re-emphasised it so that it is not mistaken or misreported by anyone anywhere.

    CHANCELLOR OF THE EXCHEQUER:

    I didn’t take part in this afternoon’s discussions, I sat through the discussions on the intergovernmental conference and I heard the debate and could I say I think the Prime Minister firstly made by far the best speech this afternoon and the one that was listened to with more attention than that of any of other minister because of the point of views he was putting and what he was saying about flexibility and about where we are going and the big historic issues that ought to be addressed in this IGC. With great respect, one or two of the others were going into minutiae rather than facing the big issue.

    So far as our role here is concerned, I know it is very dull sitting around at the edge of these councils and you will find stray people from other delegations to gossip to, I find that is one of the problems when I go to council meetings. We are here as one of the big global economies. There are four countries here from the G7 and we are actually here representing one of the four big global-sized economies, we are the strongest performing economic nation here. We have growth, we have falling unemployment, we are competitive with them, we are attracting all the inward investment so when we speak we do actually speak with some clout and the result is therefore we take a very large part in discussions on employment. We are certainly better at creating jobs and certainly better at reducing unemployment than they are and they know that. We take a full part in economic and monetary union because this is our single market, we are drawing investment to participate in it and we have the right to choose whether we are in or out and whether we are in or out we want a Euro-zone that does not disturb our present conditions and creates more stability and more prospects for us so we take a big part in the discussions; you will find that until three in the morning I was taking a very large part in the discussions and I was in the small group that thrashed it all out this morning and what we have put together is wholly consistent with our economic policy – balanced budgets, moving towards surplus in good times, sticking to what are described here at “convergence criteria”, what we call “healthy public finances”, making sure the ministers of finance in charge of all that and keeping it on course keep some control in their hands so that we can discipline each other and make sure that all benefit if they are inside the single currency.

    I know the British press come here playing sort of soft echoes of the kind of debate we have about Europe back home but when you are really looking at a Council like this at a very key moment in the European Union, when there is a lot on the agenda, actually the team that John brings here is one that contributes powerfully and in a heavyweight way and if sometimes this upsets one or two of the ministers from some of the smaller nations it is because they know that they do have to take notice of our influence and they know perfectly well that we are showing them how to do it in quite a lot of these key areas.

    PRIME MINISTER:

    If I could add just one other point, the prospect of Ken taking a small part in any discussion is against nature!

    CHANCELLOR OF THE EXCHEQUER:

    That was one of my shorter contributions.

    QUESTION:

    The Chancellor rather famously made an assessment previously about the likelihood of EMU starting on the target date of 1st January 1999. I wonder if you would give us what your current assessment of the likelihood of that start date?

    CHANCELLOR OF THE EXCHEQUER:

    My assessment is that I said 60/40 will go ahead at all around the turn of the century.

    SAME QUESTIONER:

    What are your current views on that?

    CHANCELLOR OF THE EXCHEQUER:

    I haven’t revised and updated mine.

    PRIME MINISTER:

    I expressed mine a few days ago that I still have doubts about 1999 and we will have to wait and see and the Chancellor has doubts about not only 1999 but 2000 as well it would seem.

    SAME QUESTIONER:

    Let me be clear about this! You say you have doubts so on balance you think it is unlikely that it will start on 1st January 1999?

    CHANCELLOR OF THE EXCHEQUER:

    You are asking us to forecast the course of the economy in France, the Federal Republic of Germany, the Netherlands and quite a lot of other key countries. They are all working on the basis that a large number of them are going to be truly convergent on the figures for 1997. I hope we achieve that degree of success across western Europe because the more successful the economies of the European Union are, the more we, the British, do well, because we are probably becoming the most competitive of those economies but I have enough trouble with economic forecasting and if you look across the rest of western Europe I think it is far too soon to tell. That is one of the very very big questions still to be resolved before we get there.

  • Text of the 1996 Budget – 26 November 1996

    Below is the text of the 1996 Budget, held on 26th November 1996 and presented in the House of Commons by the Chancellor of the Exchequer, Kenneth Clarke.

    Budget Statement

    Mr. Deputy Speaker (Mr. Michael Morris): Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that, at the end of the Chancellor’s speech, copies of the Budget resolution will be available to hon. Members in the Vote Office.

    The Chancellor of the Exchequer (Mr. Kenneth Clarke): Contrary to popular belief, I always look at the mirror in the morning. I am reasonably well prepared for this occasion and I am about to deliver the real Budget statement. I think this is positively my last appearance in the House in a speaking capacity this week, or so at the moment I expect it to be.

    The British economy is today prosperous and successful. This Budget is going to make it even more prosperous and an even bigger success over the coming years.

    When I presented my first Budget in 1993, it was against a very different economic background from today. Although the recovery had begun then, consumer confidence had not yet returned. Growth was not yet firmly established. Further firm action was needed on the public finances, and our critics, in 1993, were peddling doom and gloom about the British economy. The recovery is now in its fifth year. Consumer confidence has returned and we are achieving something unprecedented for a generation in this country – growth with low inflation and without a widening trade gap. But one thing has not changed in 1996 – our critics are still peddling doom and gloom. With all their predictions of impending disaster, it is obvious that there is probably more than one Cassandra lurking in the Labour party.

    In my first two Budgets I curbed the growth of public spending and took firm decisions on tax, which have brought borrowing down by almost a half since 1993. Last year, in my third Budget, I was able to return to cutting tax while spending more on the public services which the people I know care about most – health, schools and the police – and keeping borrowing on a firm downward path.

    This year, I am presenting a Budget which builds on the last three. This Budget reduces public spending plans further, while providing more money for priority services. It makes responsible progress on our tax-cutting agenda, while getting borrowing down faster. This is not a reckless Budget on either tax or spending. In the run-up to Christmas I am not going to play Santa Claus, but this year I do not have to play Scrooge either.

    I have one overriding aim, which is the lasting health of the British economy. [Hon. Members: “And winning the election.”] The lasting health of the British economy might win elections, that is true, but my first aim is the lasting health of the British economy. We are securing that by creating the best conditions for British businesses and British men and women to earn a living. All my Budgets and all my policies have been designed to set this country on course to be the strongest industrial economy in western Europe in years to come.

    ECONOMY

    The British economy is in its fifth successive year of steady, healthy economic growth, with falling unemployment and low inflation. These are the best circumstances we have faced for a generation and that is the only sensible background to debate in this House. It is a Rolls-Royce recovery and it is built to last.

    The International Monetary Fund and the Organisation for Economic Co-operation and Development confidently expect the United Kingdom to be the fastest growing major European economy again next year. By next year we will have grown faster than either France or Germany for five years in succession for the first time in half a century.

    This time – unlike so many previous recoveries that many of us remember – healthy growth has been accompanied by the best inflation performance for nearly 50 years and restrained growth of earnings has been good news for jobs. The British labour market has become our flexible friend. Employment began to rise sooner and unemployment began to fall sooner than in the previous recovery. Growth creates jobs quicker, as long as we retain a flexible labour market.

    The OECD has praised us for having one of the least regulated labour markets in the industrialised world. High social overheads, minimum wages and unnecessary legislation do not protect workers – they cost jobs. Unemployment is still rising in France and unemployment is still rising in Germany. It has fallen sharply here, to its lowest level for over five and a half years.

    In the bad old days, recoveries were derailed by balance of payments crises. In this recovery, the current account has actually improved, despite the slowdown in our main European markets. In fact we now have a current account broadly in balance, which is our best overall trading performance for nearly 10 years.

    Economic policy

    Mr. Deputy Speaker, I want to ask the British people this question: in the years ahead do we seriously want to be prosperous in this country? I think that we do. That is why I am setting out an economic policy aimed at the next five years, not just the next five months. I am setting out an economic policy that will go on delivering our enviable combination of rising prosperity, low inflation and more jobs. That is my purpose in this Budget. This Budget secures a prosperous future for all sections of our people and their families.

    The last thing that the British economy needs now is a change of direction. We need at least another five years of this Government’s continuous vigilance on inflation. We need more of this Government’s determination to get government borrowing down. We need another five years of this Government’s commitment to raise the wealth-creating potential of the British economy, by improving incentives, reducing the role of the state and creating a climate for enterprise.

    Growth

    Let me begin by turning to my forecast for growth. I expect the British economy to grow by 2.5 per cent. this year and 3.5 per cent. next year – and there are few serious commentators who would disagree with me. I hear mutterings from the shadow Chancellor; there are few serious commentators who would disagree with me.

    By keeping a close eye on the prospects for inflation up to two years out, and by taking sensible early action if and when necessary, I intend to ensure that healthy growth continues without inflationary pressures emerging. That is what I have always promised–no return to boom and bust.

    Consumer spending

    I expect consumers’ expenditure to continue to be the main engine of growth next year. The real value of take-home pay is growing strongly.

    The housing market recovery is now firmly established. I hope that negative equity can soon be consigned to the economic history books.

    People are feeling the improvement in their family finances. Consumer confidence is at its highest levels for more than eight years.

    I expect consumer spending to grow by 3 per cent. in 1996 as a whole. But it has been strengthening through the year. So I expect stronger growth to continue, with consumers’ expenditure rising by more than 4 per cent. next year.

    Investment

    But this recovery is not just about a more confident consumer. Businesses are optimistic too. The climate for business is excellent. Strong demand at home and a recovery in our key export markets present British industry and commerce with tremendous opportunities.

    Interest rates and tax rates remain low, and profitability is high. The result has been business investment growth of 6 per cent. so far this year. I expect business investment to continue to grow strongly – by almost 10 per cent. next year.

    These excellent conditions for business are not lost on overseas companies looking to invest for the future inside the European market. Let us never forget the most valuable practical endorsement that we get for our sound economic policies.

    The United Kingdom remains the No. 1 destination for inward investment into the European Union. Keeping our enterprise economy on course at the heart of Europe will keep us in pole position.

    Exports

    Exports have grown by almost 20 per cent. over the past two years – an impressive performance in the face of weak demand in our key European markets. The achievement is down to our strong cost-conscious British exporters. They will benefit further next year as the tentative recovery on the continent becomes more established. I expect export volumes to rise by more than 7 per cent. this year and by 6 per cent. next year.

    The current account has been close to balance during the last two and a half years, thanks to strong growth in exports and income from our investments overseas. I expect the current account to remain broadly in balance this year and next.

    Jobs

    As I said earlier, I am glad to say that our thriving economy is creating jobs. Employment in the United Kingdom has risen by more than 0.75 million real jobs since the recovery began. Unemployment has fallen by almost a million from its peak. It will soon drop through the 2 million mark. But that is still too high. I want it to go on falling and I expect it to go on falling.

    I hope that during the debate the shadow Chancellor will say that he forecasts that unemployment will now rise, month after month. That seemed to help our performance in the labour market the last time he said it.

    Inflation

    We are on course to get underlying inflation down to our target of 2.5 per cent. or less, and to keep it there. In October underlying inflation rose to just over 3 per cent. This should not have surprised anybody who looked at last year’s statistics. It is a temporary and inevitable reflection of the exceptional falls in the price level 12 months before.

    Let me give the House my concrete reasons for being so confident about low inflation. Apart from oil prices, which have risen sharply, commodity prices are steady and are not putting upward pressure on inflation. Earnings growth remains sensible and modest. Producer price inflation – a good indicator of what is in the pipeline for retail price inflation – is at it lowest levels in this country since the 1960s. Producer input prices are actually lower than they were a year ago.

    Any risk to this recovery from inflationary pressures re-emerging remains a good way off. But as I have demonstrated again and again, when I see any risks, I will act. I will continue to stay ahead of the game on monetary policy. Eddie will keep me steady and I intend to continue to be canny.

    I expect underlying inflation to meet our target of 2½ per cent. or less. I will ensure that we go on meeting that target for the foreseeable future.

    PSBR

    We have made good progress in reducing public sector borrowing, but it has not been as fast as I expected. The Budget therefore targets public sector borrowing again. The general public may ask why I concentrate on public sector borrowing in the way that I do. [Interruption.] It is suggested that I do so because I am a Tory. That is a good reason for concentrating on public sector borrowing as I do.

    One reason why I continue to concentrate so heavily on public borrowing in setting policy is that money spent paying the interest on our debt is, in my opinion, money that I would prefer to spend on public services and the reduction of taxation.

    We are making good progress on bringing down borrowing, but lower than expected tax revenues mean that it has not fallen as fast as I expected in the last Budget. This is not bad news for everyone. People are no doubt quite glad not to be paying as much tax as I expected. But as I am the Chancellor, I strongly prefer to keep any tax cuts under my own control.

    The causes of these shortfalls in our forecasts of tax revenue – primarily on VAT, but also on direct taxes – cannot wholly be explained by any experts inside or outside the Revenue Departments. But there does seem to be an increasing tendency to exploit loopholes and use special reliefs in an artificial way to reduce tax bills. Those sort of tax cuts are unacceptable. On that, I seem to have agreement. If they are not tackled every year in the Budget, they mean that a few people pay less tax, but the rest must pay more.

    In this Budget I will propose a number of measures to stem tax leakage, to protect the ordinary tax payer and to make sure we get the right tax from the right people. When I reduce tax, I want to do so in a way that is fair for all businesses and fair for all hard-working British men and women.

    Government borrowing has been steadily coming down for three years. This Budget will ensure that Government borrowing keeps coming down. I expect the public sector borrowing requirement to be £26.5 billion this year. That will mean it has halved as a share of GDP over the past three years. I expect it to come down to £19 billion next year and to be broadly in balance by 1999-2000.

    That pattern of declining borrowing is very much better than the one I had to put in my summer economic forecast last July. Since I produced the summer forecast, which was debated in the House last summer, I have reduced my expectations for next year by £4 billion.

    A large part of that improvement is the result of the measures that I am taking in this Budget. This Budget tightens fiscal policy. The reason why I am tightening fiscal policy now is to reduce the risk of having to tighten monetary policy excessively as I set policy to hit my inflation target.

    My decisions are always taken solely in British interests to benefit the British economy. But my decisions in this Budget also mean that, by happy coincidence, we will meet the Maastricht debt and deficit criteria in 1997, and we will do even better than that in the medium term. [Interruption.] I do not need any assistance from nationalists. It is a happy coincidence for everyone because those criteria make sound economic sense, as we all agree, with or without a single currency.

    Our option whether to join or stay out of a single currency, based on British national interest, remains a genuine choice. We will qualify, but we will choose in the next Parliament when the time comes.

    This Government is the champion of sound public finances, of limited government and of low taxation. Our combination of low taxation, low public spending and low debt is the best in Europe. We intend to stay in that enviable position. We can do that only if we continue to bear down on public spending.

    Public Spending

    In the 1980s, across the rest of Europe, the modern state remorselessly took an ever greater share of almost every nation’s wealth. We in Britain held the line. The proportion of GDP going into Government spending in the United Kingdom is now 8 per cent. lower than the average in the rest of the European Union. If our spending had risen to continental levels we would now have to raise nearly £2,300 a year more in tax from every British household.

    I have set a target of 40 per cent. or below for the share of national income that goes on public spending. Making progress towards that desirable target means tough decisions on public spending every year, but this year we have had to cope with the costs of BSE, and with larger than expected increases in the costs of social security, as more and more elderly and disabled people receive benefits to which they are entitled.

    Against that background, we had to keep the rest of public spending within the tightest possible limits, in order for us to spend more on the public services that people really care about: education, combating crime and our national health service. This country has been well served by my right hon. Friend the Chief Secretary who has successfully tackled that problem. Despite all the difficulties, we have been able to reduce public spending plans over the next three years by a further £7 billion in this Budget. Public spending next year will be more than £24 billion lower than was projected when I became Chancellor – a reduction of 7 per cent.

    We have been able to reduce spending plans because we have lower inflation, falling unemployment, a continuing campaign for efficiency in the public sector, sensible policy priorities and a Government capable of taking decisions about those priorities. On top of that, the Government’s relentless drive against fraud and the abuse of tax and benefits will be stepped up another gear.

    Next year, we will meet our target of 40 per cent. for the share of national income that goes on public spending. In last year’s Budget I said that I would make 40 per cent. in 1997-98. This year’s Budget secures that important goal. So long as we keep – as the next Conservative Government will keep – the growth in public spending down below the growth in the economy, we will go below that.

    Education

    Education is the key to the future of any prosperous and civilised society. It helps to determine how well the economy performs in the long run. It also helps to determine the sort of citizens that we have and the sort of society that we have. The Government are committed to raising standards in education.

    As a result of last year’s Budget, £878 million extra was provided for schools this year. We are giving schools priority again in this Budget. Planned expenditure on schools will rise by another £830 million next year. A large proportion of that money – £633 million, an increase of 3.6 per cent. – will be channelled through the local authorities. I see the hon. Member for Sheffield, Brightside (Mr. Blunkett) shaking his head. Perhaps the money did not reach his schools; I am not as familiar with Sheffield as he is.

    Judging by last year’s experience, some local authorities are reluctant to pass on the increases in their standard spending assessment to their schools, preferring to spend the money on other areas. It is no good local authorities campaigning for more spending on education in the autumn and then spending their money on other things in the spring. Parents will want to make sure that their local authorities spend money on the things that they want for their children: good teachers and better equipped schools. I hope that the hon. Member for Brightside makes the same efforts to ensure that Sheffield passes the money on, if it did not last year.

    A good school has a value far beyond its buildings; but the quality of school buildings in which our children are taught is still very important. We have a long way to go in the post-war era to get up to the standards that we require. We will be providing an extra £50 million on top of the previously planned provision for more capital investment to improve the fabric of our schools.

    By setting high standards for schools and increasing choice for parents, this Government are delivering better trained and better qualified young people. Almost one in three young people now goes on to university, compared with one in eight in 1979. And our universities and colleges maintain some of the highest standards in the world despite the pressure on their unit costs that this unprecedented explosion of opportunity for young people has produced.

    But I recognise this pressure – I have heard about these pressures – and I also realise that our universities and colleges make an important contribution to the economy.

    My Budget therefore includes £280 million to boost further and higher education over the next two years. This includes an extra £20 million next year for science equipment. We want to ensure that the British science research base remains the best in the world, which it certainly is at the moment.

    As my right hon. Friend the Secretary of State for Education and Employment announced in September, the Government are planning a substantial sale of student loans debt. It makes no sense for the Government to keep a huge portfolio of loans on their books when the private sector could manage it more effectively and is better placed to cope with the risk. I emphasise that the sale will have no effect on the terms on which students can get loans.

    The substantial reduction in the figures for education that Members will find published in the new spending plans is more than accounted for by the sale of this debt. As I have just described, we will actually spend more on the things that really matter – educating our children and young people.

    Combating Crime

    This Government believe that effective law and order are an essential part of making Britain a nation at ease with itself. A good quality police service and an effective system of criminal justice are very high on the list of this Government’s priorities.

    When it comes to spending on law and order this Government have a record as long as your arm. [Interruption.] Spending more money on a much better police service and a much better criminal justice system – I plead guilty as charged, if that is indeed the charge against the Government. Spending on law and order has already doubled in real terms since 1979.

    Provision for combating crime – police and prisons – will now rise by another £450 million next year. Our plans provide for 2,000 more police constables by the end of next year. We are well on course to meet the Prime Minister’s pledge for 5,000 more constables.

    Health

    Our British national health service, with treatment free at the point of delivery, is the envy of the world. It is the best system of health care that I have ever encountered. In every modern civilised society the demand for better health care, for new techniques to save lives and improve our quality of life grows constantly and remorselessly. This Government completely understand that. That is why we have increased spending by some 75 per cent. in real terms since 1979.

    That is why the Prime Minister has pledged on our behalf more resources for the national health service in real terms every year, throughout the next Parliament – a pledge which, to my continual mystification, the right hon. Member for Sedgefield (Mr. Blair) has not yet brought himself to match.

    We are also spending that money better. We have reformed the NHS so it is much better managed and much more efficient. It is no good opposing these improvements, because when waste is reduced, more can be directed to higher quality patient care. This means that patients get more treatment and care out of every extra pound that we spend.

    For next year, we will increase current spending on patient services in the NHS by £1.6 billion, or 2.9 per cent. in real terms. The real increase in current spending for hospitals next year over and above inflation will be 3 per cent.

    On top of this, private finance initiative investment will play an increasingly important role in providing new health care facilities. The PFI contract for the Norfolk and Norwich hospital scheme, worth close to £200 million, was signed yesterday, and others will follow. [Hon. Members: “Oh.”] I am grateful to my right hon. Friend the Secretary of State for Health for not signing it tomorrow, but I do not think that he had the Budget in mind. There are many in the pipeline–[Hon. Members: “Oh.”] He had the people of Norfolk and Norwich in mind and the efficacy and investment in our national health service. PFI investment in the NHS will reach some £900 million over the next three years on top of the increased public spending I am announcing. I think that the Labour party has at last belatedly become converted to that source of investment in our great national health service.

    The NHS will continue to grow and continue to improve. We are totally committed to the national health service as a public service providing high quality up-to-date treatment, free at the point of delivery.

    By our decisions on public spending, we prove that the NHS remains at the top of the Government’s priorities. The NHS has been safe in our hands, it is safe in our hands and it will always be safe in our hands.

    OTHER PROGRAMMES

    This year’s spending round was as tight as any that I can remember – I keep describing it as eye-wateringly tight – but we never lost sight of our objective, which is to sustain and improve the key public services that the British public care about: education, combating crime and our national health service. In part we have achieved that by increasing efficiency within the priority services, but inevitably we have also had to find savings in other programmes. [Hon. Members: “Whisky.”] You will find out in a minute.

    Falling unemployment and lower inflation has helped to reduce the social security and employment programmes. We are also continuing to transfer activities to the private sector where this is more efficient as it is for student loans. We have refocused the housing programme to encourage the use of private finance and the transfer of the local authority housing stock to the private sector. We are stepping up our programmes against fraud. We are continuing our remorseless squeeze on the costs of bureaucracy itself. And we have looked in every department for ways of achieving our objectives more economically. With efficiency savings, most departments will be able to deliver their programmes next year, but with less public money in real terms.

    Private Finance Initiative

    People pay their taxes in order to get good quality public services, not to accumulate state-owned buildings. This simple truth has led to the development of the private finance initiative.

    The PFI helps to square the circle of sound public finances and growing demand for better and more modern public services by tapping the expertise and the resources of the private sector.

    A year ago we had agreed £1.5 billion worth of deals – now we have agreed £7 billion, and we are on course to double that by March 1999. Time and again the taxpayer is getting better value for money, through new road schemes, new prison services, and information technology projects. And reforms to local government rules are bringing the PFI into new areas, notably schools.

    London is currently experiencing a transport investment boom under the PFI: the channel tunnel rail link, Thameslink 2000, the Docklands light railway extension, and the A40 and A13 improvements. This is in addition to conventional public and private capital spending on the Jubilee line extension, the Heathrow express and the new A12-M11 Hackney link. Investment in London Transport is now running at 50 per cent. in real terms above the average for the 1980s. London will soon become one of the biggest construction sites in the country. As a defiantly provincial Nottingham man, I can only say that I hope that London will be even nicer when it is finished.

    Adding traditional capital spending to PFI investment, publicly sponsored capital spending in the United Kingdom in the next three years will be substantially higher in real terms than it was in the 1980s.

    Social Security

    One third of all public spending goes on social security. Our social security system is there to provide an income when people cannot earn because of sickness, disability, unemployment, caring for relatives or old age. People on the left and the right of politics continue to search for a radically different and better way of meeting those needs in our wealthy nation. I have studied many of their proposals closely and so far, I am afraid, nobody has yet come up with anything remotely sensible or practicable.

    Until people come up with a radical alternative, if they ever do, our welfare safety net must remain affordable. We must not allow the welfare state to damage the incentives of individuals or businesses in the private sector, because it is the wealth-creating enterprise economy that sustains our entire social security system.

    In the post-war period social security has grown in real terms by around 5 per cent. each year. In recent Budgets we have taken action to bring that growth under control. We now expect future growth of 1.5 per cent. a year – well below the growth of the economy.

    Year after year, this Government have also vigorously attacked fraud and reformed benefits to target them on those in genuine need. The measures that I now propose in this Budget intensify those efforts yet again.

    We plan a further move to align the benefits paid to lone parents and couples with children, because both care for children. From April 1998, new awards of family premium and child benefit will be the same in value for lone parents as for couples. We are introducing a number of measures on housing benefit and council tax benefit to ensure that those on benefits do not have a more comfortable life style than some of those who are supporting themselves on modest incomes. The contrary would be unfair and unwise. Full details will be made available later today by my right hon. Friend the Secretary of State for Social Security who, with your permission, Mr. Deputy Speaker, will speak later in the Budget debate.

    In my Budget two years ago, I announced a whole package of measures to help the unemployed get back to work – from improvements to the family credit system to national insurance holidays for employers taking on long-term unemployed people. Those are contributing to the steadily improving jobs position.

    In this Budget I am providing another £100 million worth of new money for new measures mainly targeted on people who have been unemployed for two years or more. First, they will be required to attend a compulsory programme of interviews with the Employment Service to give them a helping hand to compete in our ever improving market for jobs.

    We are expanding Project Work pilots to a further 28 areas. That will create up to 100,000 new opportunities, on a programme with a good track record for getting long-term unemployed people back to work. The pilots have been successful.

    I can also announce pilots for a new scheme called Contract for Work. Private contractors will help people to find work. Those firms will be paid by results. As with Project Work, if the scheme works better than the existing approach, we will expand it. We have drawn on some American experience. We will adapt it to Britain and, if it works, we will widen its application. We must tackle the problem.

    Dependency on welfare impoverishes us all. The welfare system should provide a safety net. It must provide the support that a caring society wants to give to our less fortunate fellow citizens. But the welfare system must never be allowed to become a way of life. We do not want our social security system to be undermined by resentment.

    We have to take these careful measures. We must move people from dependency to responsibility for themselves and their families, because we are serious about protecting those in genuine need and we want to go on delivering that protection for the future.

    Spend to Save

    We want to combine a strong, affordable welfare system with a successful low-tax economy. That means that when we spend money on social security, it must go only to those who need it. It also means that when we levy taxes, we must make sure that they are paid and not evaded by those who ought to pay them.

    As part of our continuing fight against tax and benefit fraud and tax loopholes, I am introducing a package of measures called “spend to save”. That involves the planned spending of money, carefully targeted to save much more money for the general public, and to raise revenue. There will be more money next year to clamp down on benefit fraud. There will be more visits and checks on benefit claimants in high-risk groups, and the information that we already have on benefit claimants will be used more effectively to catch cheats.

    Inland Revenue tax experts will be redeployed to investigate even more rigorously how some big, sophisticated companies seem to pay so little tax. They will make sure that companies are paying what they owe, and what we intended they should owe. In short, we intend to do more about companies being “economical with their tax”.

    There will be more resources in the Revenue and Customs to stem the growth of the shadow economy. Tax cheats put law-abiding small entrepreneurs out of business, and we all lose from that. There will be more Customs and Excise officers to tackle value added tax and other tax abuse, including yet more to target the smuggling of alcohol and tobacco.

    The “spend to save” package will cost £800 million over the next three years to secure, in a well-planned and measured way, revenue and expenditure savings of well over eight times that amount – £6.7 billion. These measures are additional to the effective steps that we have taken previously.

    Running Costs

    “Spend to save” protects the ordinary taxpayer and the people in genuine need of benefits. It is certainly not about more bureaucracy or more red tape.

    We remain a Government committed to deregulation, and we are committed to a more efficient civil service. We have cut overall central Government Departments’ running costs by 8 per cent. in real terms since the start of this Parliament and we are going to reduce them by a further 7 per cent. by the end of the decade. Civil service numbers are already below half a million, and we expect this fall to continue.

    TAXATION

    The first duty of Government is to make sure that people can live their lives as they want and that businesses can flourish. People must have the opportunity of a good quality job to go to, a good standard of living, good schools and hospitals, and safe streets to live in. It is only when those essentials are secure and only when the Government have made sure that they are not borrowing more than they should, that a responsible Government can start to think about tax cuts.

    Last year I cut taxes paid by the ordinary family and this year I am able to cut a little more. I think that the message I have repeated over recent months has now been understood. If there are to be tax cuts, in my opinion they must be for keeps. That means that they must be backed not only by sound spending decisions but by a sound fiscal judgment.

    Consumer spending is strong and inflation remains in check. But a fiscal stimulus to the economy at this stage could be just as damaging as letting go of monetary policy. So, in setting my Budget, I have struck a careful balance.

    I want to cut taxes, but first I have to continue my drive to secure the tax yield. I want to make sure that the tax due is turned into tax paid. The balance of the tax burden must be distributed sensibly and fairly and it must not distort decisions or competition.

    I am introducing a number of measures which will help us to achieve this. I am plugging some loopholes to raise revenue, I am ending some tax reliefs that have done their job to raise revenue and I am adjusting some indirect tax rates.

    Securing the Tax Base

    Even though VAT revenues have revived in recent months, they are still coming in significantly below what was expected last year. This Budget includes a crackdown on some of the rather ingenious wheezes that have sprung up to get around paying VAT. The measures I am announcing will raise £0.75 billion in revenue next year, but they also protect a further £1.5 billion a year of existing revenue from further attack from ingenious accountants, acting lawfully and acting to take our revenue.

    Customs will restrict access to special VAT schemes for retailers. We will also tighten up the rules of VAT relief schemes for bad debts and the option to tax commercial property to prevent widespread abuse of these reliefs. I also propose to take steps against retailers who reduce their VAT bills when selling insurance with their products.

    We have already announced a three-year limit on repayments of VAT claims. This was a sensible precautionary measure in the national interest – not just that of the Exchequer. Recent high-profile court cases have revealed the potential exposure of the Exchequer to enormous claims for tax going back to when VAT was first introduced. No responsible Government could leave the Exchequer and, ultimately, all taxpayers exposed in that way. Government needs to strike a balance between what is fair to the individual taxpayer, and what is fair to the whole body of other taxpayers. The three-year cap that I have announced strikes that balance.

    But one feature that attracted particular criticism from not only accountants and their clients but others was that Customs and Excise retains the right to claim underpaid tax going back six years. That argument was rather disingenuous, because Customs and Excise does not claim underpaid tax on unexpected changes to the interpretation of the law when they go against taxpayers. However, Government must not only be fair – it must be seen to be fair. I have, therefore, decided that Customs’ right to claim underpaid tax, in cases where no fraud or malpractice is involved, should be restricted to three years as well.

    I will be releasing today details of a package of measures to stamp out tax abuse in a number of areas, including leasing transactions, the abuse of foreign tax credit rules and paying employees in their own company’s shares. I am sure that they will be accepted by the House and others as necessary and sensible measures to stem the growing loss of tax revenues, and thereby to protect the ordinary tax payer. I will not tolerate tax abuse. A number of those measures are being introduced – subject to the Finance Bill becoming law – with effect from today.

    Special tax reliefs can be a powerful tool. They can play an important pump-priming role, and encourage companies and individuals to change their behaviour in a way that benefits the wider economy. But by their very nature, they need to be used very selectively. We owe it to the ordinary taxpayer to keep each and every special tax relief under constant review to determine whether it is still justified, or whether it has now served its useful purpose.

    Profit-related Pay

    The tax relief that the Government introduced in 1987 to promote profit-related pay schemes has been a success. It has played a key role in reinforcing the Government’s strong beliefs that employees’ rewards should depend on the success of the business for which they work.

    I have always believed, and have argued publicly for many years, that in a modern enterprise economy people’s pay should be closely linked to the performance of the business for which they work. The best way for businesses to motivate their staff is to let them share in the rewards of success. I am delighted that tax reliefs have helped to get that idea accepted so widely.

    Tax relief on profit-related pay was always intended to be a pump-priming measure, and it was introduced in very different circumstances. In the 1986 Green Paper, Nigel Lawson said:

    “There is considerable inertia to overcome, so it might make sense to offer some temporary measure of tax relief.”

    Profit-related pay is now firmly established as part of British businesses’ pay policy. It is one of the reasons for our success. More than 3.7 million people are in schemes. Ten years on, the temporary tax incentive has successfully served its pump-priming purpose.

    I can no longer justify the ever increasing cost of the tax relief to the 22 million taxpayers who are not in profit-related pay schemes. We cannot permanently divide the work force into groups of people who pay different levels of tax on the same earnings depending on whether the firm that they work for is in a scheme or not. The aim of the relief – a widespread use of PRP – has been achieved, and I would rather make faster progress on lower taxes for everybody. We have changed the culture.

    Good managers in today’s enterprise economy no longer need a tax relief to know that pay should be linked to their firm’s performance. Pay linked to profits produces it own rewards on the bottom line in a thriving economy.

    I shall describe to the House how the Government will start to withdraw this special tax relief. I intend to do that gradually, so I must ensure that businesses which need to adjust their pay packages and their sharing of the rewards of success have ample time to make those adjustments.

    The upper limit of pay attracting the relief will remain unchanged at its present £4,000 until 1998, which means that no one will be affected before then. [Hon. Members: “In time for a general election.”] But during the lifetime of a Conservative Government. It will then be progressively reduced until the year 2000, when the relief will be withdrawn altogether.

    Capital Allowances for Long Life Assets

    Investment is vital to our recovery, and business investment is now growing strongly. The tax system recognises investment through capital allowances. These allow the cost of investment to be written off against tax bills, frequently faster than it is written off in commercial accounts. But within that system, for plant and machinery with a long lifespan, the rate at which costs can be written off for tax is far more generous than for other types of investment, and bears no relation to the useful economic life of the asset. This is an unjustifiable distortion in the tax system in favour of particular types of business and investment.

    I propose changing the capital allowance for plant and machinery with a life of more than 25 years to 6 per cent. on a reducing balance basis. That will spread the tax relief more evenly over the average life of these assets. Groups spending less than £100,000 a year on such assets will be exempt. This will mean that the vast majority of small companies will not be affected. Ships and railways will also be exempt.

    Oil Production

    I also propose to withdraw the 100 per cent. corporation tax deduction for the intangible costs of drilling most production oil wells.

    OTHER TAX CHANGES

    The Government recognise that low marginal tax rates on income are a spur to hard work and enterprise. Taxes on spending do less damage to effort and enterprise than taxes on income, but the balance of the taxes that we do impose on spending must be right, and I am making some changes to taxes which help to move towards a better balance for the tax system as a whole.

    Insurance Premium Tax

    I propose to increase insurance premium tax, which applies to most general insurance, to 4 per cent. Three quarters of all insurance – including life insurance, and other long-term insurance – will remain exempt. Insurance remains undertaxed for consumers compared with other services in this country.

    The introduction of the tax – I made it a very low rate – did not harm the healthy insurance industry that we have. Most companies absorbed the tax, and some premiums actually fell for a time. Even after this further modest change – which I think is lower than many people expected – the overall rate of insurance premium tax in the UK remains very low, lower than in almost any other European Union country.

    Air Passenger Duty

    Air travel has also been undertaxed, because it has proved difficult – still proves difficult – to get international agreement to tax its fuel. The rates of air passenger duty are to be increased. The £5 rate on flights to most European countries will be increased to £10, and the £10 rate on flights to the rest of the world will be increased to £20. Those increases will not come into effect until 1 November 1997. [Laughter.] I realise that we are all thinking of a forthcoming election, but the reason why the Opposition cannot produce a responsible economic policy is plainly that they are obsessive about it. The very good reason for delaying until November 1997 is to give tour operators who have already sold their packages time to reflect the new rates in the prices that they publish in their holiday brochures. I announce necessary things before an election. That is responsibility; that is what is totally lacking among Opposition Members, who seem to propose to announce nothing whatever of any substance, apart from a windfall tax, this side of the election.

    Business travel is soaring, and the holiday business is booming at the moment in prosperous Britain. This modest change will not stop it booming in future prosperous years. About 40 per cent. of the revenue raised by passenger tax is borne by overseas visitors.

    Vehicle Excise Duties

    I am making the same changes to the main vehicle excise duties this year as I did last year. The cost of a car tax disc will go up by £5, around the rate of inflation. The cost of a lorry tax disc will be frozen for the seventh year in succession.

    Road fuel duties

    I firmly believe that motorists should bear the full costs of driving – not only wear and tear and congestion on the roads, but the wider environmental costs. Even those of us who frequently have to drive – and, contrary to rumours that Ministers always travel in limousines, that includes most hon. Members – can take steps to cut fuel consumption and we all ought to consider carefully the use of our car.

    I intend to stick to my 1993 Budget commitment to raise road fuel duties by an average of at least 5 per cent. each year in real terms. In line with this, I am raising the tax on all petrol and diesel by 3p per litre from 6 o’clock tonight. Those tax rises will encourage fuel efficiency and help to control harmful pollution.

    Air quality package

    I am glad to say that pollution from vehicles is already coming down, helped by tax measures in previous Budgets. The tax measures that we took to encourage unleaded petrol were a huge success. It now accounts for two thirds of the petrol market. I want to go further in this Budget for green purposes or, to put it more sensibly, to attack pollution in cities and to improve air quality by effective steps to reduce particulate emissions – the smoke produced by diesel engines.

    In recent years, new evidence has come to light strengthening the health arguments for reducing particulates. This pollution is being reduced, but we all want to see it being reduced further and faster.

    Ultra-low sulphur diesel is cleaner than ordinary diesel and it is slightly more expensive to produce, so I want to create the conditions where ultra-low sulphur diesel can cost the same at the pump as ordinary diesel. I have just said that I am increasing the tax on diesel by the same amount as petrol. I plan to reduce the duty on ultra-low sulphur diesel by 1p per litre relative to ordinary diesel, when I get the necessary international agreement.

    I also want to encourage high-mileage vehicles in our towns and cities to switch to cleaner gas power. Last year’s Budget changes broadly equalised the pump prices of liquid gas and petrol. From 6 o’clock tonight, I am reducing the duty on road fuel gases by a further 25 per cent.

    I also intend to reduce vehicle excise duty by up to £500 for lorries meeting very stringent emissions standards from early 1998. That will give an incentive for lorry owners to fit particulate traps or to convert to gas power. We will be consulting on the practical details of those changes.

    I believe that this air quality package will significantly speed up the reduction of urban emissions of particulates, helping us to meet our air quality targets for 2005 and beyond. We intend to ensure that the economic growth that we are achieving faster than others in this country is consistent with a healthy environment and with sustainable development as we become one of the most successful economies in the western world.

    In my 1993 Budget, I gave a commitment to raise duty on tobacco by more than inflation each year. I believe and accept that that is a fair and effective way to hammer home the message that smoking can seriously damage one’s health. So far as I am concerned, this announcement is necessary masochism in the wider public interest.

    From 6 o’clock this evening, the tax on a packet of 20 cigarettes will increase by about 15p, on a packet of small cigars by about 7p and on a packet of pipe tobacco by about 8p, but I am limiting the increase in the duty on hand-rolling tobacco to the rate of inflation. Hand-rolling tobacco is proving to be by far the easiest tobacco product to smuggle, although it represents a very small part of the tobacco market.

    Mr. Terry Lewis (Worsley): What time do the shops close?

    Mr. Clarke: Not yet.

    Alcohol

    I am aware of the serious problem that cross-border shopping and smuggling of alcohol causes our drinks industry in Britain. I have already announced that customs is further stepping up its efforts to catch smugglers.

    Last year, I was able to freeze the duty rate on beer and wine. This year, it will remain frozen. The proportion of tax on the price of a pint in the pub is now at its lowest level for 30 years. For some of us, that helps to keep our small cigars affordable – [Laughter.]

    Last year’s cut in the duty on spirits was the first cut that any Chancellor had made for 100 years, and I was tempted to maintain a striking rate of once every 100 years. But I am sure that the industry will be glad to know that it will not have to wait so long this time. From 6pm tonight, the tax on whisky, gin and other spirits will fall by another 4 per cent., which is worth 26p. The reduction in the rate on spirits boosts an important industry in the United Kingdom, and it will also reinforce last year’s signal to overseas authorities not to discriminate against our products. Only smugglers will regret that we are slowly moving our duty on spirits nearer to the continental level.

    From 1 January, the tax on alcoholic soft drinks will be increased by over 40 per cent., which will put up the price by between 7p and 8p a bottle–for those who have not yet tried them. That increase will meet public concern about the attraction of the “alcopops” for under-age drinkers, but it will also attack a distortion of competition by bringing the tax broadly into line with that on beer. The House will notice that I have considered carefully the balance of my overall package on this matter, and I have not yet been converted to a bubble-gum flavoured “alcopop”–[Laughter.]

    Business

    Nothing matters more for business than a stable economic environment – low interest rates and low inflation – and businesses throughout Britain are benefiting from the healthy sustainable growth in the economy that I have described today.

    As I promised in my last Budget, there will be, from April 1997, a cut in the main rate of employers’ national insurance contributions, to 10 per cent. The cut will be paid for by the proceeds that we are receiving from the landfill tax. A tax on waste is cutting a tax on jobs, and it will benefit employers in Britain and make it even cheaper to create new jobs in our growing economy. Our overheads on jobs are already less than half those in Germany, France or Italy. I am determined that we must keep that advantage over our competitors on the continent, where the creation of new jobs, in the rest of the European Union, is over-regulated and over-priced. That fact is another practical reason for being confident that our unemployment will keep falling.

    In this Budget, I propose to keep the three intermediate thresholds for employers’ national insurance contributions where they are now. I propose to increase – by £10 and £1, respectively – the upper and lower earnings thresholds for employers’ and employees’ national insurance contributions.

    In this Budget, I also want to deal with a particular concern of our small businesses, upon which so much of our future economic prosperity depends. I think that small businesses are most concerned about the burden of non-domestic rates.

    The uniform business rate is a fixed cost which can rise each year beyond the control of the manager of any business, and it hits the small business hard. Since the last revaluation of business rates, I have repeatedly slowed down the increase of rates for those businesses whose rates have had to go up. No business property has seen its rates go up by more than 7.5 per cent. above inflation in any one year. But I want to do more than that; it is not good enough. I have decided to freeze next year’s rates bill for all small businesses whose rates would have gone up. Small properties whose rates are falling will have those reductions accelerated, which will benefit over 1 million small business properties, by up to £130 a year.

    I want to go further. A freeze is a significant step that I can make right away, this year. We have already reduced business rates for rural village shops. But I realise that the current system of business rates bears particularly hard on smaller businesses, for which it represents a much bigger proportion of total costs compared with their large competitors. We must therefore move on as soon as possible to make more changes in the system to recognise this and to redistribute the burden more sensibly between smaller and larger businesses. My Budget next year will be a convenient opportunity to proceed with that.

    Inheritance tax

    The Government are committed to reducing and then abolishing capital gains tax and inheritance tax. I repeat those commitments. But we have always said that we will cut these taxes only when we can afford to do so. This is a responsible Budget which is protecting future growth and prosperity by putting the public finances into a healthier state. We will not be able to make progress on both these taxes this year.

    Mr. John Prescott (Kingston upon Hull, East): Next year.

    Mr. Clarke: The right hon. Gentleman can come back next year and discover from the same seat that he is now occupying.

    I am pleased to announce that we can take a further significant step towards abolishing inheritance tax. Inheritance tax is nowadays a penalty on thrift, independence and enterprise. It is a growing anachronism.

    Lloyd George’s maxim that the “the most convenient time to tax the rich is when they are dead” no longer holds. Inheritance tax today is largely paid by people of modest means who either cannot or simply do not make careful plans to avoid it. [Hon. Members: “Modest!”] Modest means in the opinion of all those outside the hard core of the labour movement, that is.

    Last year I made significant progress towards our commitment. In this Budget I will build on that by raising the value of the inheritance tax threshold to £215,000.

    Mr. Dennis Skinner (Bolsover): I read that this morning.

    Mr. Clarke: The hon. Gentleman appears to know that from this morning. Is he also aware that the Government have raised that threshold by 40 per cent. in only two years?

    Tax rewrite

    In last year’s Budget I announced a project to rewrite Inland Revenue tax legislation in plain English. That is a tall order. The project is as ambitious as translating the whole of “War and Peace” into lucid Swahili. In fact, it is more ambitious. I am told that “War and Peace” is only 1,500 pages long. Inland Revenue tax law is 6,000 pages long and was not written by a Tolstoy. We have consulted extensively on how the project should be carried out, and I am glad to say that there is wide consensus. The Inland Revenue will publish the plans and arrangements shortly after the Budget.

    The aim is to prepare a series of rewrite Bills, the first of them to be ready for enactment in the 1997-98 Session. My noble and learned Friend Lord Howe has produced a thorough and helpful report on how Parliament might handle those Bills. We endorse his broad proposals, and invite the Procedure Committee to consider how the House is going to handle the Bills in a sensible fashion. I can announce that my noble and learned Friend Lord Howe has agreed to chair the steering committee that will oversee the rewrite project.

    The project will bring the benefits of clarity and certainty to businesses and ordinary taxpayers. It has been widely welcomed and deserves the continuing support that it has enjoyed in all parts of the House.

    Income Tax

    The Government have led Britain towards our clear goal of a low-tax economy in which private enterprise has the incentive to generate jobs, investment and wealth to make people and their families more prosperous. We are moving towards a low-tax economy in which individual living standards continue to rise and the Government can afford the excellent public services that people want.

    Low direct taxes are the most effective way to encourage enterprise and hard work – a message to which we have not converted Labour Members, but one that they no longer dare to deny. Under this Government, those who do an honest day’s work and those who take entrepreneurial risk will keep more of what they earn and save by their own efforts.

    This year, people have taken more heed of my speeches on the overriding priority of securing future prosperity and jobs and financing key public services. Sensible people already expected my cuts in direct taxation to be modest before they read the one leak and many guesses this morning. They know that their well-being depends on lasting growth and more jobs and that living standards rise from a combination of steadily rising incomes in a successful economy and steadily lowering taxes. Tax cuts matter a lot to low-paid people and to men and women in ordinary jobs.

    I announced my income tax cuts last year as a return to our tax cutting agenda and, for the second year in succession, as a result of all the steps that I have announced, I can afford to deliver an instalment of that agenda. The choice is how best to do so. It is the old dilemma between thresholds and rates. Today it is between The Guardian, the Daily Mirror, The Independent or The Sun.

    I want to ensure that tax does not start to be paid at too low a level of income and I want to improve work incentives. Therefore, I propose to raise the threshold below which no income tax is paid at all.

    In this Budget, I am making an increase in the basic personal allowance of £280. That is 3.5 times more than necessary to cover the rate of inflation. It will also ensure that each and every person who pays any income tax at all will get a direct benefit out of the Budget.

    I am also increasing the married couple’s and related allowances by £40, maintaining the extra tax allowance to all married couples. It will now be worth nearly £275 each year for married couples. The tax system does recognise marriage, contrary to popular belief.

    We also give a special tax allowance to blind people. This year, I am increasing that by the rate of inflation. I am also moving to put indexation of that allowance on to the same statutory basis as for the other income tax allowances. I also propose to raise the threshold above which people start to pay the 40p higher rate tax by £600.

    One of the Government’s most important pledges is that we will move to a basic rate of income tax of 20p as soon as we can. We are proving that we can move towards the delivery of that promise and still maintain healthy public finances. Every step that we take makes that more credible and makes it more affordable to reach the ultimate goal to which we are getting tantalisingly near and which a Conservative Government will achieve. As a further step towards that, I propose to widen the lower rate band of 20p tax by £200 – twice as much as is required to meet indexation.

    That will mean that the slice of income on which a 20p tax rate is paid will have more than doubled during the lifetime of this Parliament. More than one in four of all taxpayers will now pay a marginal rate of tax at 20p in the pound.

    They are wide thresholds, so were the newspapers wrong? Am I indeed going to cut a penny off the basic rate of income tax? What the newspapers did know was that my control of public spending and borrowing and the responsibility of my Budget means that I can raise thresholds, widen the 20p band and also responsibly afford to reduce income tax as well. If I had put it all on tax rates, I could have taken 2p off the basic rate of income tax, but I preferred instead to raise personal allowances and widen the 20p band for those at the bottom end of the scale. In addition, I am able to reduce the basic rate of income tax by one penny to 23p in the pound.

    The small companies rate of corporation tax will be reduced to 23p in line with that, helping 400,000 companies. The main rate of corporation tax of 33p is already lower than in any other major industrialised country. I look forward to hearing what the Labour party says about the basic rate of income tax.

    Seventeen years of steady progress – so far – means that the basic rate of income tax is now a full 10p lower than the rate that we inherited in 1979. The standard rate is now the lowest for nearly 60 years – since Stanley Baldwin was Prime Minister and Wally Hammond scored a double century at the Oval.

    Another penny off the basic rate is a significant further step towards this Government’s target of a 20p basic rate of tax. For more than 7 million people, our promise of a 20p basic rate is already a reality. I am bringing other income taxpayers ever closer to that reality. A basic rate of 20p is a realistic and attainable goal for the next Parliament. We shall not be content until we have completed the task of getting it down to 20p and every Budget that I have presented has shown step by step how we shall get there.

    With increases in real earnings and all the tax changes in the Budget, a family on average earnings will be another £370 better off next year over and above inflation. We said it last time and it happened. The same family will have more than £1,100 more to spend each year after tax and inflation than they did before they voted Conservative at the last general election. In 1992, the background was one of a worldwide slowdown, but now we are enjoying strong growth and rising living standards, and we shall enjoy more of the same.

    In November 1993, I promised that I would put Britain firmly on course for a sustained period of rising prosperity and falling unemployment, based on low inflation and healthy public finances. I have done what I clearly said I would have to do and I have delivered on those promises.

    The Budget cuts public spending next year by £2 billion, and it generates an extra £0.5 billion in revenue through “spend to save”. It contains a balanced tax package – it includes tax cuts of £2 billion while it secures the tax base by £1 billion. Taken together, the effect of the Budget is to tighten fiscal policy and so protect healthy lasting recovery – and still achieve our target of cutting the basic rate towards our 20p goal.

    I am a man of the world: I realise that virtue does not always brings its own rewards. I am probably not a particularly virtuous Chancellor, but this virtuous Budget will bring rich rewards the rewards of economic success to the hard-working men and women who are now in the best economic circumstances for years. It will also bring rewards to the Government. We should never forget that good economics is good politics.

  • Mr Major’s Joint Press Conference with Ken Clarke – 29 June 1996

    Below is the text of Mr Major’s joint press conference with the Chancellor of the Exchequer, Ken Clarke, held in Lyon on Saturday 29th June 1996.

    PRIME MINISTER:

    Let me just try and summarise some of the things that have happened over the last couple of days at this summit. The Chancellor set out a number of issues yesterday, and I won’t repeat those, though of course we will be happy to answer questions on them.

    At the outset, one of the things we most wished to discuss was the question of terrorism. That thought was enhanced by what had happened in Dhahran, and was certainly carried forward by what happened in Osnabruck last night. The declaration that we have issued against terrorism is really the continuation of action we have taken in the past, and a forerunner of action that we anticipate to take in the future. There is a strong declaration that we have issued, with a significant plan dealing with crime, not just terrorism but crime in the generality. And the essential purpose of that is to bridge different judicial systems and try to help the law enforcement agencies in different countries in practical ways.

    We want to make sure, as far as we can, that there is no opportunity either for international criminals or terrorists to move from country to country and find a particularly easy climate in which to live.

    We agreed also, on the back of our discussions, that senior Ministers would meet in July, probably at Foreign Secretary/Home Secretary level as far as the United Kingdom is concerned, to examine carefully what of a practical nature can be done to coordinate the activities against terrorism. The purpose of this is absolutely straightforward. We just want to make life intolerable for terrorists in every conceivable way that we can so there is no hiding place for them. A lot of preparation is going on and I hope that meeting in Paris in July will bring forward some more practical proposals.

    The Chancellor set out yesterday the substance of the economic communique which represents a great deal of British thinking over recent years. I think the area that I am most pleased about is the extent to which it supports the UK agenda on jobs and job creation, and the vitally important fact that we need to continually liberalise labour markets if we are to try and get an increasing proportion of our people back in work. There are something like 18 million adults who are at present unemployed in the European Union alone, and clearly that is far more than is comfortable and we need to take whatever supply side measures are necessary to try and ease more of them back into productive employment.

    There was also a consensus on the approach that we have adopted in the United Kingdom to monetary stability through domestic policies, rather than the old concept of seeking to control interest rates. And that again is a change of thinking we have seen over recent years for one that we very much welcome in the United Kingdom.

    One area that is now going to give rise to a good deal of extra work, was the agreement on the need to clarify the role and improve the coordination between regulators and the financial markets. We have had a number of instances – Barings and of course on a different sort of the scale the problems in Mexico – where the degree of regulation internationally perhaps hasn’t been as good as it might have been. The United Kingdom have been looking at ideas on the prospect of having Lead Regulators who would have a coordinating role through a group’s activities, albeit in different countries. That met with a good deal of support amongst our colleagues here and it has been agreed that that will be followed up speedily after this summit at official level, and I hope we can get again some practical proposals.

    We had some discussions this morning on various ways of assisting poorer countries. A large number of propositions were put forward. I think some points were universally agreed – the necessity of continuing to discourage unproductive, generally military expenditure in developing countries; an endorsement of the Chancellor of the Exchequer’s multilateral initiative on debt, the latest of a series of initiatives, the Toronto terms some years ago, Trinidad terms and very substantial write-offs of debt [indistinct], we would personally be perfectly prepared to go further than the Naples agreement, writing off 67% of the debt for the poorest countries, and I hope at some stage we will be able to make further progress. There was also agreement to urge the Paris Club creditor countries to go beyond Naples and I illustrated my support for that and I hope that will be forthcoming.

    We had a further discussion on United Nations reform, which was one of the great themes of the Halifax summit last year, and I think will probably be a theme of the summit next year in the United States. A good deal of progress has been made but there is self-evidently a great deal still to be done. And everyone placed a very strong emphasis on continuing the drive for reform and greater efficiency.

    Both the Foreign Ministers and the Heads of Government separately spent a considerable amount of time on the present circumstances and the prospects in Bosnia, with a special interest in the Dayton process. Very strong support for the Dayton process to work, and a complete unanimity of view that the pressure needs to be kept up to remove Mr Karadzic from politics in the Republic of Srpska. By remove him, I emphatically do not just mean remove his name but leave his influence, we are concerned with removing his name and his influence, because without that successful removal, our judgement is there is much less chance of elections taking place satisfactorily and the Dayton agreement being satisfactorily applied.

    I think there is little doubt now that in the event that Mr Karadzic does not withdraw completely and satisfactorily, that there will be a very swift coming together on the need to re-impose sanctions to ensure that he does go. That I think is a universal view.

    We spent some time also on the Middle East process. I am not sure that there is a great deal fresh to report except the universal feeling that whatever support needs to be given, both to the Israelis and for the Palestinians and others, to ensure that that process keeps on track is a desirable effort. Particular concern was expressed by a number of people about the conditions in Gaza and the particular problems faced by the Palestinian authority. We very much hope that further progress can be made.

    The Prime Minister of Russia, Mr Chernomyrdin, joined us last evening, reported on the present state of play in the Russian elections whilst they wait for the second round to take place very shortly, and on the prospects for Russia thereafterwards. I don’t think there is a great deal I particularly wish to say about that.

    I will invite the Chancellor to say a word about gold sales and a little more about financial regulation, and then we will endeavour to field any questions you may have.

    CHANCELLOR OF THE EXCHEQUER:

    Just on the two specific things within our economic and employment agenda that we took forward on this occasion, firstly gold sales is all part of this dealing with the need to lift the burden of debt from the very poorest countries which are now performing well, but can only make their economies go ahead if they can get rid of a burden of past debt which they are never actually going to be able to discharge.

    The Prime Minister and myself have been running a kind of relay race on this really, because when he was Chancellor of the Exchequer the Toronto Terms and other things he touched upon, added detail as he went through, all went back to his time as Chancellor, and what is going on at the Paris Club now, building on the Naples Terms, goes back to that – 67 percent relief on debts being given to some of the countries we have in mind, the British would go to 80 percent if we wished – but all that is the fruition of British initiatives of some years ago. We are now dealing with multilateral debt and I explained at a press conference yesterday that we had made further progress, because we have already committed ourselves to concluding this in the autumn at the annual meeting of the IMF and the World Bank.

    I discussed yesterday the terms of the communique, which the press I think have already sussed out the nuances of. I discussed it with Michael Camdessus and with Jim Wolfensen who were interested in how this had come to fruition, together with other Finance Ministers who were here.

    It only has one meaning, that we are going to go now for more concessional terms, for the ESAF, that we are going to finance primarily out of the IMF. If necessary they will manage their reserves and I think Michael Camdessus agreed with myself and my colleagues from the other countries who have been on board, that that means they are going to sell gold unless those who disagree can come up with something better, and no-one can think that there is anything better actually available. So that is where we were I think, getting near to fruition on our efforts on multilateral debt.

    The financial regulation is important. Again, it is important to see these meetings as flowing one to another, because we already have the G10 banks and the financial regulators around the world improving their collaboration. That collaboration has got to get better in the modern world as you have so many multinational institutions operating in marks throughout the world. Somebody has to be in charge somewhere of getting all the regulators together to take the necessary action, particularly in a crisis where you move quickly. So the British idea of a Lead Regulator has supporters, it is coming along and it will emerge at another of these meetings in due course.

    The employment and economic agenda is very much in line with British thinking. We have published a policy on monetary stability which supports the approach we take to those things and doesn’t take us back to the grand management of exchange rates. Our approach to employment policy, that in the modern world you need a flexible labour market, is accepted by Finances Ministers, as well as their Heads of Government and Foreign Secretaries at a gathering of the big seven countries of this kind.

    I am sure you all agree that this G7 Summit shows that the British are serious players in these gatherings of the big 7 countries of the world. We have a clear view of our role in the world, we have worldwide responsibilities. We also have the economic clout because we are one of the better performing G7 countries to be able to make a real contribution.

    And so I think this was a success in Lyon, but there was a big British hand in the discussions in each of the three fora where things took place.

    QUESTIONS AND ANSWERS

    QUESTION (David Buchan, Financial Times):

    Prime Minister, on Bosnia and Mr Karadzic, is there any kind of deadline given for him to get out of Bosnian/Serb politics? There is some talk that he has been given the deadline of Monday to resign from his newly elected post? Chancellor, is the idea of a Lead Regulator someone would could be appointed to take charge in a certain area of financial markets, or is it simply that there would be an agreement when a crisis came up that someone would be sort of pre-designated to take charge?

    PRIME MINISTER:

    On the Karadzic point, there is no formal deadline set out in the communique. Our expectation is that we will hear something Mr Karadzic literally within days, by Monday or so, and if we do not then I would expect we would take action very speedily thereafter.

    CHANCELLOR OF THE EXCHEQUER:

    And the Lead Regulator, the idea is that you have a Lead Regulator for a particular big multinational institution, not a section of the market, but that in the regulation that has to take place of some large organisation that worldwide participates in the banking system or the financial markets of many countries, whilst all countries will of course regulate the activities of that multinational organisation within their jurisdiction, they will work together closely, they will exchange information and one Lead Regulator in one country will be responsible for pulling together the activity of them all, so all the time, not just when there is a crisis, all the time when regulating. Of course if you ever had a crisis that affected one of the world’s big players, then the lead regulator would be responsible for calling the meetings and coordinating the global response. We now have, I won’t name any company or bank, but we have based in several countries huge organisations, perfectly respectable organisations, playing a very big role in the world’s financial markets. And it is conceivable that a crisis in one of those could have a systemic effect if the global regulators weren’t up to the mark in handling all the time the regulation of their affairs and reacting in a crisis.

    QUESTION (Barry Wood, VOA):

    When you say there is unanimity on sanctions on Bosnia, could you indicate what those sanctions would be and who they would be imposed against? Just the Republic of Srpska or against Belgrade? And is there consensus within the G7 that Yugoslavia should be kept out of the IMF until Karadzic is out of power?

    PRIME MINISTER:

    On the first point, the question of sanctions, that would be the subject of further discussion if and when Mr Karadzic doesn’t go very speedily. But I can certainly set out for you the British proposal. The British proposal would be that sanctions in the first place would be imposed upon Republika Srpska, and if that was not rapidly followed by action, we would certainly be prepared to extent those to the FRY. But that is a matter for determination, it is not yet determined finally amongst colleagues and there are different alternatives that are still floating around, but I think they would be speedily resolved as necessary.

    On the second point, I think that is the general position, we would need some further progress before we would be happy with an entry into the IMF.

    QUESTION (Ian Black, Guardian):

    Have you any further thoughts on the question of the Secretary Generalship of the UN following the American announcement that they would veto a second term by Mr Boutros Ghali?

    PRIME MINISTER:

    No, it hasn’t been discussed over the weekend and I certainly haven’t given it any further discussion myself. There is some way to go before we need to make decisions upon that. And traditionally, not just in this case, we have not indicated what our view is.

    QUESTION (David Smith, Sunday Times):

    On terrorism, you said earlier today that you had never ruled out the reintroduction of internment against the IRA. Can you envisage any circumstances in which you would rule it back in? And has the subject of BSE come up during your visit here, perhaps even in your meetings with the celebrated chefs?

    PRIME MINISTER:

    No, I am delighted to tell you it didn’t come up in any of our meetings! It wasn’t mentioned, we have even got beyond the stage of jokes about beef, whomsoever’s beef it may be. So there was no mention whatsoever of BSE.

    I don’t want to elaborate on internment and I am sure you will understand that. We have always taken the position that that is there, we have never ruled it out as an option, but I certainly would be most unwise to contemplate in public any circumstances that might encourage us to rule it back in. And if you will forgive me, I won’t do so.

    QUESTION (Robin Oakley, BBC):

    You are throwing things forward in terms of terrorism to the Paris meeting of Security Ministers and Foreign Ministers, what specifics would you like to see come out of that Paris meeting? And when you talk about there being no hiding place for terrorists, do you find any problem with the easing of border controls in the European Union in this respect?

    PRIME MINISTER:

    There are a whole series of things where we have been urging action for some time, for example, on the question of extradition. Extradition is not remotely as effective as it ought to be. We also need to consider, as we have managed to get into the communique, the possibility of extradition without a treaty. These are matters that need to be examined and we need to reach a final conclusion. There is also the question, a slightly different but related question, of some of the protections that are available under some UN conventions, there are certain conventions under the Refugee Convention. We strongly support the 1951 Refugee Convention, but there are some people who are using the activities of the 1951 Refugee Convention in order not to engage in terrorism but certainly to encourage it. And I think we want to discuss with our partners what they feel about areas like that. So that is but two illustrations. I could probably give you a great deal more, but those are the sort of practical issues that we hope are going to be discussed.

    We really want a much better coordination. We don’t want terrorists shifting from one capital to another because it is more convenient for them to stay there, and we don’t want them using a particular capital in order to launch an encouragement for terrorism in a quite different area. It is a problem we all face. We have seen terrorist activities in recent years in Japan, in the United Kingdom, in Northern Ireland, in the United States, in the Middle East and many other places. And I have never known in the seven or eight years in total that I have been coming to summits on one capacity or another, I have never known such a unanimity of view amongst Heads of Government about the need for taking some collective action to deal with this problem. There is a much greater recognition of it and a much greater recognition of the need for collective action than I can ever recall at any stage in the past.

    QUESTION:

    On the European Union front, does this mean you would set your face still more firmly against any further erosion of border controls?

    PRIME MINISTER:

    We are very concerned about border controls. We certainly want to make sure that the external border is strong. There is a good deal of seepage on the external border and there has been a good deal of seepage on the external border for a long time. And of course there is also the question of UK border controls, about which we feel very strongly.

    QUESTION (Adam Boulton, Sky News):

    This is one summit when we have been unable to describe the British government team as beleaguered. Can I ask whether you think your political luck has turned, and also when you will be reshuffling your government?

    PRIME MINISTER:

    You can certainly ask. I am sorry if we disappointed you by finding ourselves in agreement with colleagues, and finding colleagues in agreement with our initiatives. For some of them, the initiatives the Chancellor has been referring to, were very much British initiatives. So it was a very productive summit in every way. As far as change in the government is concerned, I think the first person to learn about whether or when there will be any of those will be the people concerned.

  • Mr Major’s Joint Press Conference with the Chancellor and Foreign Secretary – 10 December 1994

    Below is the text of Mr Major’s joint press conference with the Chancellor of the Exchequer, Kenneth Clarke, and the Foreign Secretary, Douglas Hurd, held in Essen on Saturday 10th December 1994.

    PRIME MINISTER:

    I do not think there is very much doubt that this has been an especially productive and rather good humoured Council, it has addressed a number of substantive issues that are of real concern to people right the way across the European Union. I daresay one or two souls might be a little disappointed that we were not able to provide a row on this occasion of any sort, but it has been extremely good humoured and I think we have made a lot of progress on a number of issues. I hope the lack of a row is not too great a disappointment for anyone.

    We have just come from a working lunch with the six leaders of the Central and East European countries. We started getting to grips at Essen over this weekend with some of the practicalities of the next enlargement, we have agreed effectively on a route map towards full accession for the East Europeans. From now on the European Council will meet the Eastern associates once a year and so will ten of the other Councils dealing with a whole range of issues, some of those will meet more than once a year, most probably twice.

    The enlargement process, a process that we have argued for in the United Kingdom for a very long time has now started, and I think that is very good news, not just for the countries that will be joining the European Union but for people right across Europe. The benefits of extension – peace, stability and prosperity – the benefits of spreading those right across the continent, is a prize very well worth having.

    We spent a while discussing Bosnia and so did the Foreign Ministers, and we agreed that our current efforts to secure a negotiated settlement need to be reinforced. We proposed, and our partners agreed with us, that we should beef up the teams monitoring the border between Serbia and Bosnia, we would like to have 200 monitors there and we are now up to round about three-quarters of that total. What we have to be sure of is that the sanctions are biting hard on the Bosnian Serbs.

    Secondly on Bosnia, let me say a word about the humanitarian and peace-keeping effort. Ground troops from a number of countries, including many European countries, not just those in the Contact Group, are continuing to risk their lives in Bosnia in order to save the lives of the people who live in Bosnia. That effort should continue for as long as possible, for as long as practical, for as long as they can actually safely undertake the job for which they were sent. And in return we expect the aid convoys to be readily let through to the people who are in need of medicines and food and whatever else may be on those convoys.

    Thirdly, we discussed the negotiating process itself. The United Nations is working, has been working for a long time, to try and secure a durable ceasefire and the Contact Group is striving to bring about a political settlement. None of us was under any illusion whatsoever about the difficulties that still lie ahead, but it would not be right to give up hope while there is a credible hope of success. If, of course, the parties make it impossible for the protection forces to do their job, or if the risks to the protection forces become intolerable, then a different circumstance would arise and we must plan together against that possibility whilst hoping it will not occur.

    We agreed on full consultation between all the countries contributing ground troops and we agreed that none of those countries would withdraw unilaterally from former Yugoslavia. If withdrawal at some stage should prove unavoidable, and of course it could, we hope not, but it could, the promise from President Clinton of United States troops to cover that withdrawal is very welcome indeed. But I should emphasise again that our view is that UNPROFOR should continue its humanitarian role for as long as it seems safe and secure for it to do so.

    Let me say a word about Northern Ireland and the events relating to it that we discussed here at this summit. We are just emerging in Northern Ireland from 25 years of terrorism, we are now entering a crucial period in the peace process, we are seeking to turn an encouraging ceasefire into a lasting peace. One of the things that can help us succeed is the support that we have had from our colleagues in the European Union. The active support has been tangible and I would like particularly to thank the President of the Commission for his personal commitment to the peace process.

    From the start, Jacques Delors recognised the significance of the Downing Street Declaration and all that has subsequently flowed from it. I believe that peace will bring a far better life to all the people in Northern Ireland, so I particularly welcome the very substantial programme agreed by our partners to provide a boost to improving living standards in Northern Ireland, 300 million Ecu, 250 million sterling over a three year period, part of it in the south but over 80 percent of it in the North of Ireland is an excellently timed signal ahead of the investment conference that we will hold in Belfast next week.

    We devoted quite a lot of time yesterday to Europe’s economy and to a particular aspect of that, and that is job creation. The Council endorsed the plan drawn up by the ECOFIN Ministers for member states. I supported the suggestion for an advisory body in European competitiveness and suggested that for it to be most effective it should include major Europe businessmen with practical experience in running multinational companies across Europe.

    What is most striking, was very striking indeed, in the discussion we had yesterday about the economic discussion, is that virtually all of the themes that we discussed, which only three or four years ago were regarded as eccentric British preoccupations – liberalisation, freeing up markets, reforming welfare systems, reducing the cost of jobs – all of those are now in the mainstream of European thinking and were central to the debate that we had. The Community now agrees, I think without any contradiction, that the problem of unemployment is not best tackled simply by protecting those at work, the aim must be to help those out of work by creating new growth and new jobs. We agreed a programme for trans-European networks and a list of projects. These big, frankly rather imaginative, infrastructure projects are natural territory for private sector initiatives and I am very pleased that out of the top 14 priority projects four of them will be in the United Kingdom, including the Channel Tunnel rail link and the West Coast mainline,

    I made clear that there were two things, above all, which I believed, which Britain believed, had undermined public support for the European Community over recent years and obscured much of the good work that it has done. Firstly, with those areas where the European Community has unnecessarily intruded into the daily lives of its citizens, that causes frustration not just in the United Kingdom, you can trace that frustration right across Europe if you go and see for yourself what is happening there and speak to the politicians and other people there. We are seeking to deal with that through subsidiarity, it was something much mocked when we first introduced the concept, it is now widely accepted and it has been given another substantive push by the German Presidency.

    The new provisions we secured in the Maastricht Treaty and the new rules we got agreed at the Edinburgh European Council, are now being put to good effect. We are at last beginning to see even more tangible results from that, that is certainly evident as far as legislation is concerned. In 1990 the Community passed 185 new laws, there were 75 last year, it is down to only 39 so far this year. Next year the European Council will review the existing Community statute book as well.

    And secondly, I raised the question of fraud across the European Union. People, in my view quite rightly, get extremely angry when they see their money, their taxes, being mis-managed, being wasted, or perhaps worst of all, being drained away in criminal fraud. Again, the Maastricht Treaty contains, and again at our insistence, new provisions empowering the Commission, the Council and the auditors to tackle this more vigorously, and also requiring member states to do so. I proposed a series of specific actions at this European Council, got support for them from colleagues, and you will see them reflected in the conclusions that no doubt you all have in front of you.

    Let me finally say a word about the atmosphere here at Essen. It was, as one would have expected, a well prepared, well run Council and our informal sessions have been perhaps among the most thoughtful and forward-looking that I could remember in the four years or so that I have been attending them. We were looking ahead last evening to the possible union of 15 years, 20 years from now, when we might have perhaps as many as 27 members of the European Union. We began to consider, not reaching conclusions, but consider in a brainstorming session what our goals for the Union might be over the next 40 years, not the inward looking centralising approach of yore, but an open, peaceful, prosperous, united Europe of nation states. It was a very productive discussion indeed. I believe that is the direction that most people in Europe would wish to go and I think it is the direction in which we are most likely to go. So I found that a very rewarding session last evening and there was a general wish that we should return to that conversation again in the future, and I very much look forward to that.

     

    QUESTIONS AND ANSWERS

    QUESTION (John Palmer, The Guardian):

    Prime Minister, you have referred in the Bosnian conclusions to the urgent reinforcement of the ICFY mission, I asked this question of Kinkel earlier on and I am still not clear from what he said or what you have said, what has made the reinforcement so urgent, is President Milosevic not to your satisfaction, yet sealing this frontier, I don’t know whether you or the Foreign Secretary can throw light on the use of this word urgent.

    PRIME MINISTER:

    The Foreign Secretary spent some time discussing it, so I will ask him to say a word in a moment. What we are anxious to do is to avoid any leakage at all. I do not think it is a question of President Milosevic’s good intentions being in question, but we do wish to ensure that there is no leakage across the border and for that reason we would rather like to see more monitors there. But the Foreign Secretary discussed this at length, not just with Klaus Kinkel but with his other colleagues, so he might wish to add something to that.

    FOREIGN SECRETARY:

    President Milosevic told us on Sunday that the border was in effect closed. There are some people, particularly in the United States, who question that, so there is a matter of fact which has to be established, it is very important to establish it because the present relief of sanctions for President Milosevic, the opening of the airport and the allowing of certain events, is for 100 days and its renewal depends on everybody being satisfied that he is doing his best. So it is a matter of fact which needs to be established. It is best established by having an adequate number of qualified people on the ground. We have got people, we, the Americans, the Nordics, are doing our bit there, there are other countries who have not contributed or only contributed one or two.

    What I was pressing, and what is now in the conclusions, is let us get on with this, let us establish as a matter of fact whether or not the border between Serbia and the Bosnian Serbs is adequately controlled and the movement of [indistinct] goods properly enforced.

    QUESTION (Peter McMahon, Sunday Mirror):

    Chancellor, when you were asked about Europe less than two weeks ago you dismissed talk of a referendum as not an issue. Today in his interview the Prime Minister says he is not ruling one out, so clearly it is an issue, why is there such a difference between the two of you?

    CHANCELLOR OF THE EXCHEQUER:

    I think the Prime Minister has made our position perfectly clear, I do not think there is a difference between the two of us. These are important issues and no doubt the question will keep coming up from time to time. But the main thing is to prepare a clear position for the inter-governmental conference in 1996, although we do not yet know whether we will have a serious agenda and to have a serious debate about the merits and demerits of economic and monetary union if that should ever come about, and I think that is where we are and that is what we keep saying.

    QUESTION (Robin Oakley, BBC TV):

    Could I ask the Prime Minister and perhaps the Foreign Secretary to take just a moment out from questions on the summit to comment on the death of Sir Keith Joseph?

    PRIME MINISTER:

    Let me perhaps comment first. I was extremely sad to hear the news about Keith Joseph. I think he was probably one of the foremost Conservative thinkers since the Second World War and his contribution to Conservative thought and Conservative philosophy is perhaps unequalled in that period. He was also from my knowledge of him, though I confess I didn’t know him as well as I would have wished to have done, an extremely nice man, a very gentle man in every sense of the word. He was a very senior figure in the party when I first went into the House of Commons and I can only say that on every occasion I spoke to him as a wholly new, untried, unknown Member of Parliament I received nothing from him but courtesy and help and I found that was the way he treated everyone whomsoever they might have been. He is a very great loss.

    FOREIGN SECRETARY:

    I would add a word to that. He was, as the Prime Minister said, a very kind man and he was totally without self-importance. He didn’t mind at all what kind of headlines he got. He was passionately anxious to worry away at a subject until he got to the truth of it. He was very interested in first principles, very interested in the thinking behind a decision and you need people like that in politics and he will be badly missed.

    PRIME MINISTER:

    Can I just say Robin, the Chancellor probably knew Keith better either than Douglas or I so he may wish to comment.

    CHANCELLOR OF THE EXCHEQUER:

    I did, Prime Minister, work with him from time to time over the years and got to know him quite well. All I would add to you very justified tributes is firstly that Keith was, as you know, really concerned about political issues. He thought about them a lot, he worried about them in fact, he was anxious to get things right and the driving motive behind his approach to politics was his concern to actually address social issues as well as economic issues which he thought were being neglected, but he personally was quite consumed in politics because of his concern for its effects to a degree unusual even in any dedicated politician.

    Secondly, I confirm entirely what the Prime Minister said about his personal behaviour outside politics. Because he was on the right, there was a slight tendency to think he might be something of a hard man; he could not have been further removed from that; he was one of the nicest men in politics of any political complexion that we had.

    I can remember many examples where he actually went out of his way to help colleagues who had fallen out of favour in one way or another; I remember one time in particular many years ago when there was a Conservative Member of Parliament who actually got sent to prison and that really put him out of baulk altogether, and the only man who approached that former Member of Parliament to make sure that something was being done for him when he was eventually released was Sir Keith Joseph who hadn’t known him very well, and he was the only Member of the House of Commons who took any interest in that man’s fate and his family. There were many other instances of that kind of personal action that he took so I regarded him as a very intelligent man, a very concerned man and personally a very nice man indeed.

    QUESTION (German Handelsblatt Newspaper):

    As far as Europol is concerned, the conclusions are setting a new deadline for ratifying the Convention until the next summit in Cannes. Are you willing to raise the latest objections and are you willing to include the combating of terrorism in the agenda of Europol?

    PRIME MINISTER:

    The principal difficulty in reaching an agreement on Europol hasn’t lain with the United Kingdom of course; there has been a very substantial difference of opinion in what in the jargon has become known as the “architecture” between France and Germany; that was the principal impediment at the recent Home Affairs meetings and indeed at this summit and there was agreement that we would try and reach a conclusion upon that by the time of the Cannes summit.

    There are a number of areas below that where we still have some concerns but I have no doubt that we will be able to resolve those over the period of the next few months and it was for that reason that I fully supported the fact that we would agree now that we would reach a conclusion by the Cannes summit and I am sure we will be able to do that. I am sure we will be able to get our way through that.

    QUESTION (Christopher Lockwood):

    We have heard calls for a serious debate on the substantive issues behind economic and monetary union and I wonder whether we might have a little of that now. Prime Minister, in a situation where the convergence criteria are met and where the pound in particular meets them not according to the Commission’s own forecast and the Treasury’s – that is not something that is completely out of the question by 1997, certainly not by 1999 – do you think that in that situation it would be of benefit for sterling to be part of the EMU?

    PRIME MINISTER:

    I think you have to look at what the position is going to be right the way across the European Union and I have no intention of making that judgement at this stage now. I can certainly agree with you that in terms of the Maastricht criteria it is possible, perhaps probable, that the United Kingdom will be one of the first countries actually to put themselves in an economic position where if they wish they would be economically able to move to a single currency. I think that is becoming increasingly apparent and the Chancellor may wish to add to that but how widespread that would be across the European Union I think is a matter for conjecture at this stage. We can only see, I think, three nations at the moment who look remotely likely to achieve that. Some of the strongest advocates of a single currency don’t look remotely as though they are going to be in a position economically to enter into one for a very long period indeed, but I don’t wish to judge what the debate will be at a late stage.

    I think it is right for us to examine what the implications would be, it would be folly not to be prepared for that. I don’t know at some stage in the future whether a number of nations will decide to go ahead with a single currency. There are those who say rule it out definitely for all time now. I understand their philosophical opposition but nobody at this moment can be certain what the position will be if a number of states decide to go ahead at some stage in the future and what its economic impact might be on the United Kingdom if they did. We have to consider that and study that and that is what we will need to do.

    QUESTION (Christopher Lockwood):

    [Inaudible].

    PRIME MINISTER:

    It isn’t remotely likely to be half in 1997, Christopher, there are not likely to be any in 1997. There might conceivably be a few countries ready to go in 1999, it is a moot question whether there will be enough, but certainly I know of no single judge who believes there is remotely likely to be any form of economic and monetary union in 1997 and if there is anyone who thinks that, I promise you I don’t agree with them.

    CHANCELLOR OF THE EXCHEQUER:

    Jacques Delors produced for us in our discussions a table showing the likely progress of members towards the Maastricht convergence criteria in 1996. At the moment, Luxembourg is the only one that complies. The only two that the Commission forecast to be within the criteria by 1996 are Germany and the United Kingdom, in fact the United Kingdom rather more so than Germany and that is because we are the two strongest recovering economies in Europe, in fact we are recovering at the moment rather better than the Germans and we are therefore returning to a healthier position very quickly and we are performing in accordance with those convergence criteria because the criteria in themselves, which the Prime Minister of course helped negotiate at Maastricht, comply perfectly with sound Conservative Party economics and they are based on the general direction in which our economic policy is already going in the United Kingdom.

    I agree with the Prime Minister; whatever the Maastricht time-table may say, I don’t believe a majority of the member states is likely to be able to get that time-table in the way they have set that. What we have negotiated is a position whereby whenever the others might contemplate, any number of them, economic and monetary union, we the British have a choice, our own choice, a choice for our own Parliament. We will decide yes or no according to our judgement of whether it is in the British interest to be involved in any development of economic and monetary union or not.

    The things you have to ask if and when that ever arises are is the way it is being planned and worked out likely to be good enough? Is it going to work? We have the experience of the snake, we have the experience of the ERM. I wouldn’t want us to go into any form of economic and monetary union that was not going to work and was going to come to an unfortunate end again. Then you have to ask would it or would it not improve the operating of the market and the trade between those countries that went into economic and monetary union by removing barriers and obstacles to trade between them? Would it or would it not reduce the risks of competitive devaluation ever breaking out amongst the countries involved? But I don’t think the whole thing is feasible until we have got convergence on the grounds outlined in the Maastricht Treaty and I think it would be folly for any members of the European Union to go in for economic and monetary union until they have converged on low inflation, low public deficits, low debt-to-GDP ratios and a good competitive situation in their industrial markets. As it happens Britain is the one that is best advanced towards getting back to that position and Britain is the one that has most completely reserved its own position to say yes or no to economic and monetary union if anybody raises it.

    PRIME MINISTER:

    We have 15 members of the European Union now, we are likely to have 20 or so some time after the turn of the century in the early years of the next century. Another decade after that we may have 27 members of the European Union. Plainly it is a fatuous proposition to assume that in any time-scale like that you are going to have a single currency across 27. I think it is improbable to the point of being dismissed that you could have a European Union across 15. The serious point at issue I believe it whether a smaller number of nations would be prepared to move forward and then they would have to consider – if they found they were economically able to do meeting the criteria the Chancellor set out – what the impact on the rest of the European Union would be if they did so and what is apparent is that although there has been a lot of consideration and a lot of discussion about the politics of that over the past five or six years, there hasn’t been in my view remotely enough consideration of the economics of that and that is the first primary issue that needs to be considered.

  • Text of the 1994 Budget – 29 November 1994

    Below is the text of the 1994 Budget, held on 29th November 1994 and presented in the House of Commons by the Chancellor of the Exchequer, Kenneth Clarke.

    Budget Statement

    Mr. Deputy Speaker (Mr. Michael Morris): Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that at the end of the Chancellor’s speech copies of the Budget resolutions will be available to hon. Members in the Vote Office.

    The Chancellor of the Exchequer (Mr. Kenneth Clarke): The “Financial Statement and Budget Report”, with a number of press releases filling out the details of my proposals, will be available from the Vote Office as soon as I have sat down.

    Mr. Dennis Canavan (Falkirk, West): The Chair has already said that.

    Mr. Clarke: I was making sure that I had the hon. Gentleman’s attention. I congratulate him on his alertness.

    INTRODUCTION

    I have three priorities in my Budget this year. The first priority is to keep the economy on track to achieve the great prize of sustainable growth. This recovery offers the best prospect that the British people have faced for many years to enjoy the benefits of growth that does not pass through illusory boom to painful bust. My second priority has been to use this recovery wisely to encourage the creation of more jobs, particularly for people who have been out of work for some time. We must combine greater prosperity for the majority of our people with measures to prevent the emergence of a deprived underclass, excluded from the opportunity to work and dependent on welfare.

    The third priority is to strengthen the economy in the longer term. We must aim for a modern economy in which the growth of enterprising companies will give people a greater sense of confidence in the flow of new jobs that will always be required to replace the old jobs eroded by technology and competition.

    UK Economy

    The background to this year’s Budget is the healthy growth in output that we are seeing in Britain and overseas. The recovery has been under way at a modest pace for over two and a half years. It is now stronger and output has grown by over 4 per cent. over the past year. That is easily the fastest rate of growth of any of the major European economies. The forecasts I am publishing with this Budget show the economy expected to grow by 3 per cent. next year. As the recovery has got stronger, growth has come increasingly from exports. Over the last year, British exports have grown by over 8 per cent. Investment in plant and machinery has grown by over 5 per cent. Consumer demand has increased by a more modest 2 to 3 per cent. That is a very healthy shape for this stage of the recovery and bodes well for our long-term future as a competitive industrial economy.

    Our exporters have been able to take advantage of the pick-up in growth overseas, by keeping their costs down and raising their productivity. Our producers have succeeded in improving their performance in domestic markets, so that while exports continue to rise, imports are little changed. Overall, I expect our balance of payments on current account to improve by over £6 billion this year. An improving balance of payments is remarkable for this country at a time when the economy is growing stronger. More encouragingly still, inflation has remained low.

    Underlying inflation has fallen to levels that we have not seen for a generation. Indeed, only about one third of the adult population of this country have ever experienced such low inflation during their adult life. The other two thirds are still finding it difficult to adjust to the change to a low-inflation economy. [Interruption.] They are not going to adjust back under the Labour party, either. Unemployment is on a clear downward trend, having fallen by over 450,000 since December 1992. The United Kingdom, as I have already said, is the only major economy in Europe where unemployment has fallen over the past year.

    The unemployment rate in this country is lower than the average for the European Union. And the number of people in work is rising. The “Labour Force Survey” shows an increase of 226,000 in the number of people in work in the last 12 months. That means real new jobs for people up and down the country.

    We are seeing strong output growth, strong export growth, falling unemployment, an improving balance of payments and low inflation. That combination is almost unique in this country since the war. But let us be under no illusions. Those promising conditions have to be sustained if they are to deliver higher living standards and secure jobs for men and women. And these promising conditions have arisen at all only because of the difficult decisions that the Government have been prepared to take in recent years.

    We must not now throw away the gains that have been made by turning to some short-term dash for yet faster growth. Growth will be sustained only if we keep the lid on inflation, get public borrowing down further, and push ahead with measures which strengthen the industrial economy. That is the way to convert growth into prosperity and jobs.

    That way lies the virtuous circle of improved competitiveness, rising productivity, economic growth, low inflation, and more jobs. We must not change our minds now for the sake of short-term popularity. [Interruption.] Those who bask in their short-term popularity and neglect the need for sound economic measures will live to rue the day hereafter. Only by keeping our nerve and sticking to the determined policies that we have put in place over the past couple of years will we be able to enjoy the full fruits of improved economic performance in rising prosperity and lower unemployment.

    Inflation

    Let me deal first with inflation. Low inflation creates a climate of stability which encourages savings and investment in the future of this country. Nothing would be more damaging than if we let inflation off the leash again only to have to take another dose of bitter anti-inflationary medicine. The British experience is that high inflation has brought economic recovery to a halt three times over the past 20 years. That is three times too often for my liking. And while we have succeeded in bringing inflation down to levels that were last seen when England won the World Cup, we must never take that for granted. Before that game I had lived in a low-inflation economy. After that game came Harold Wilson, in political terms.

    I live in a low-inflation economy again now and am glad to say that our inflation rate is now well below the European average. We need to keep up that performance if we are to be a competitive manufacturing nation enjoying the living standards of the best in future. I will therefore continue to set interest rates to meet our objective of keeping underlying inflation in a range of 1 to 4 per cent., and in the lower half of that range by the end of the present Parliament. That is a tough target by Britain’s recent standards, but not by those of some of our best competitors.

    To make sure that we achieve that target, I have backed good intentions and resolve with a number of important decisions over the past year that have strengthened the framework of policy. The Bank of England’s quarterly inflation report is now fully independent of the Treasury. The Governor decides the precise timing of interest rate changes. And, most importantly, I decided in the spring to publish the minutes of my meetings with the Governor. As a result, we in Britain now have one of the most open frameworks for monetary policy-making in the world. This will stand us in good stead in keeping inflation permanently low; but it will most certainly not avoid the need to take tough decisions at times.

    In September the Governor and I agreed that, with the recovery strengthening at home and prices rising abroad, there was a sufficient risk of inflation picking up here to justify raising interest rates by half a per cent. By acting before retail price inflation itself picks up, we will aim to nip inflation in the bud. I expect inflation to rise slightly over the next year, reaching a temporary plateau of around 2 per cent., as a result of higher commodity prices and stronger profit margins in our very buoyant manufacturing industries. But continuing competitive pressures will ensure that producers and retailers keep costs under control and pass on the benefit to consumers. I expect that underlying inflation should then resume its downward trend.

    Gilt Market Repos

    Before I turn to the public finances, I can announce an important further development of the gilts market. The Bank of England is publishing today a consultative document on the establishment of an open sale and repurchase – a so-called repo – market. This should improve both liquidity and efficiency, reducing yields and hence reducing the Government’s debt interest costs. Each reduction in yields of just one basis point – one hundredth of 1 per cent. – will eventually save more than £25 million a year of public expenditure.

    Public finances

    I turn now to the public finances.

    Last year, I continued the process started by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont). I announced measures which cut the public sector borrowing requirement by 1 per cent. of GDP by the end of this Parliament. Combined with the healthy growth in the economy that we are now enjoying, those measures have helped to bring the public sector borrowing requirement from £45 billion in 1993-94 to an expected £34 billion this year. My objective remains the same: to balance the Budget over the medium term. We remain on course to eliminate Government borrowing entirely by the end of the decade. By 1996-97 borrowing will be approximately equal to the Government’s net capital expenditure.

    About half my own cuts in public borrowing last year were achieved through cutting public spending plans. But, because of the length of the recession, my right hon. Friend and I also had to raise taxes to meet the objective of healthy public finances. Delay and failure to act would have caused, since then, intolerable additional pressures to raise interest rates faster and to raise taxation still further. We would not have had strong and sustainable recovery now if we had failed to cut spending and raise taxes last year.

    For that reason, the public spending cuts and the tax increases that I announced last year remain, of course, quite essential to the strategy of achieving economic recovery. We have restored confidence in our ability to achieve sustained recovery by the process of taking firm measures. We would damage that confidence again if we now seemed to falter, or even to go back on any of the measures that we have already put in hand.

    VAT on Fuel Compensation Package

    I am able to improve the package of help that I announced last year to cushion the effects of VAT on fuel on all pensioners and on vulnerable groups – enormous though that package was when I announced it last year. Last year I doubled public spending on the very effective home energy efficiency scheme so that, for the first time, everyone over the age of 60 became eligible for a grant. This has been a huge success. Soon over a million people will have received grants to improve the insulation of their homes, reducing their excessive heating bills and improving their comfort. That is still not enough. Therefore, on top of last year’s doubling, which will of course be carried forward each year, I am now adding another £10 million a year to the resources to fund grants. Soon British homes will at last be a match for the British weather in every part of the United Kingdom, especially for the elderly.

    Cold weather payments were set at £6 each week only two years ago. I now intend to increase them to £8.50 each week in order to reassure people that they will get help with their bills when spells of freezing weather occur.

    Furthermore, next year, 1995-96, there will be an additional £52 for single pensioners and £73 for couples built into all retirement pensions as compensation for VAT on fuel.

    From April 1996 there will be £68 extra on the single pensioner rate and £96 extra for pensioner couples. That is more than the whole of the VAT on fuel bills for a significant number of them. In addition, electricity prices have been falling for many people. Gas prices are to be raised for the first time since 1991, but this will be coupled with discounts for prompt payment which will reduce many peoples’ bills.

    The House should appreciate that, so far, including the first stage of VAT – the 8 per cent. already in payment – both gas and electricity bills have fallen by 1 per cent. in real terms over the last two years. That real-terms fall is for everybody, before taking into account the package of help for pensioners so far in payment. The full burden of the tax is, of course, only borne by people of working age who are not receiving means-tested benefits. I have made it quite clear that people of working age cannot expect tax cuts or a reverse of previously announced tax increases this year.

    PUBLIC SPENDING

    I would like to turn now to the Government’s new plans for public spending.

    Last year’s Budget set a new milestone in the control of public spending. We managed to reduce the control totals that had been set in the previous spending round, by £8 billion over three years, and we reduced general Government expenditure by £15 billion over the same period.

    That was a measure of the success of the new system of public expenditure control that we first introduced in 1992. Last year saw the first fruits of the programme of fundamental reviews of all Departments.

    The reaction to that new approach was predictable. A welcome from the Government side of the House, criticism and alarmist nonsense from the Labour party and scepticism from the so-called experts who doubted whether those plans could be delivered in practice. In fact, for the current year, 1994-95, the first year after last year’s announcement, we expect to do better than the plans that were set and we expect to underspend by more than £1 billion.

    At the start of this year’s survey, the Cabinet decided that we should also keep within last year’s planned totals for 1995-96 and 1996-97 and allow no more than 1 per cent. real growth for 1997-98. The plans I am about to announce deliver that remit. But it has not been easy. Last year’s settlement was extremely tight. I am grateful to my right hon. Friend the Chief Secretary for his skilful handling of what has been a difficult spending round.

    We have been guided by four basic principles this year. First, we have taken advantage of the welcome fall in inflation since the last Budget. Thanks to lower inflation, the price levels that we will be facing in 1995-96 will be 2 per cent. lower than we expected when we decided on spending plans last year.

    We have not let that feed through into a higher level of real resources for Government Departments. We have reduced our cash plans for almost all programmes. Lower inflation needs to be matched in the public sector by lower cash spending.

    The second principle is that we have built on the increasingly important role played by private finance. All Government Departments are now looking actively at private finance options for their capital expenditure.

    Thirdly, we have focused our search for savings on administrative and running costs, cutting the back office and protecting the front-line delivery of our key public services. Our aim has been to provide a better output of public services, for fewer inputs. Fourthly, we have taken a close look at the Government’s own spending priorities. We have looked for savings on some programmes so that resources can be channelled into the services and policies to which the Government attach most importance.

    Private Finance

    The right hon. Member for Kingston upon Hull, East (Mr. Prescott) reacted to my mention of private finance. Privatisation and private finance for capital investment are rapidly becoming the chosen method for raising the quality of public services in the majority of countries in every continent in the world. They started in this country. Although the political debate here has been transformed since I first became a Minister, an irritating amount of post-socialist resistance still persists. The right hon. Member for Kingston upon Hull, East will welcome the news that, fortunately, the Government’s private finance initiative remains alive and well and is growing rapidly.

    Last year, I announced that a number of transport schemes would go ahead under the private finance initiative. Significant progress has been made – £370 million of private capital has been invested in transport projects in the past two years, with a further £760 million already committed. In addition, £3.5 billion of projects are currently out to competition and the value of contracts placed will steadily build up from a stream to a significant flow. The right hon. Gentleman does not look so cheerful.

    The private finance initiative, however, runs wider than transport. There are now more than 50 health projects either approved or completed, bringing more than £100 million of new capital into the national health service. Bids have been received for the first two privately financed prisons and more than £1 billion of information technology projects are now following or considering the private finance route.

    In higher education, universities now receive approaching a third of their revenue from the private sector and my right hon. Friend the Secretary of State for the Environment announced on 31 October new proposals to make it easier for local authorities to form joint ventures with the private sector.

    New projects are constantly emerging as the initiative breaks new ground. Today, I can announce that we are on course to let contracts in 1995 under the private finance initiative, leading to around £5 billion of capital investment. We said that we could do it, we introduced it and we are doing it.

    Transport

    The growing importance of private finance has helped us to find significant savings for the taxpayer in the transport programme. In recent years, there has been a huge increase in public expenditure on the trunk roads and motorway programme which has risen by one half in real terms in the past 10 years. That was essential to tackle traffic bottlenecks and to reduce costs on British industry seeking to get goods to markets at home and abroad.

    Now that the main need of the economy is control of public spending and borrowing, we cannot carry on pumping in the same amount of taxpayers’ money. We have, therefore, significantly reduced planned public spending on trunk roads and motorways. Even so, public spending on such roads – without taking account of the expected contribution from the private finance initiative – will be considerably higher in real terms than the average level of provision in the 1980s. Rapid progress with private finance of design, build, finance and operate roads will take provision still higher and the first four DBFO schemes will shortly go out to tender.

    Private finance will also now play an increasingly major role in London Underground investment. In particular, I am pleased to report that the private finance competition for the provision of a new Northern line train service has proceeded rapidly. My right honourable Friend the Secretary of State for Transport will be able to announce a decision very soon.

    That, together with future deals, should improve the quality of London Underground investment as well as its quantity. In addition to the contribution from private finance, the plans in the Budget imply total investment in the underground network next financial year of around £1 billion. The Budget also takes account of the key effects expected to arise from rail privatisation, not least the privatisation of Railtrack within the lifetime of this Parliament, as announced by my right hon Friend the Secretary of State for Transport last week.

    As has been the case with other privatisations, rail privatisation will bring benefits to passengers from more efficient management bearing down on costs and being more responsive to passenger needs.

    Running Costs

    Private finance will play an increasingly important role in financing better infrastructure for public services in coming years. I now turn to the need for firm control of the Government’s current, as opposed to their capital, spending.

    One of our key objectives this year has been to intensify the search for savings on administrative and running costs. My right hon Friend the Chief Secretary joined the Treasury team from the Ministry of Defence, where he played last year a lead role in preparing the defence costs study. That experience served him well.

    The success of the defence costs study is just one example – a very successful one – of how key programme objectives can be protected by bearing down on the administrative costs of delivering them. The outcome has been a substantial benefit for the taxpayer and for the front line.

    The defence plans in the Budget fully cover the costs of the important equipment orders that the Secretary of State for Defence announced in his statement to the House in July. Indeed, taking account of the changes in inflation since last year, these plans actually allow a slightly higher real terms level of spending than implied by the plans last Budget, accommodating the costs of military redundancies associated with the defence costs study.

    Improvements in the efficiency of delivering services is a policy that must apply throughout the public sector. The plans in this Budget reflect the results of a rigorous scrutiny of the Government’s own administrative costs. It must be right for modern government to modernise their own management structures and to get their own overhead costs down.

    As last year, we have maintained the policy that the pressure from pay and price increases should be met by greater efficiency or other economies. This has already allowed public services to achieve very reasonable pay settlements that reflect low levels of inflation and allow modest increases in real earnings. It is ridiculous to describe this long overdue and sensible practice as a pay freeze.

    But, in total, the plans in this Budget are for central Government running costs not to rise in cash terms over the four-year period from 1993-94 to 1997-98 taken as a whole. That represents a real-terms reduction in those running costs of more than 10 per cent. in the cost of government. It is consistent with the civil service White Paper expectation that total civil service staff numbers will fall significantly below 500,000 over the next four years to their lowest levels since the war.

    Local Authorities

    It is only right that local government should follow central Government and take a similarly tough approach to containing its costs. The Government’s proposals for local authorities have been set on that basis. The 1995-96 total standard spending in England will be 2.2 per cent. higher than this year, including provision for community care. That is perfectly reasonable after a year in which provision was far better than local authorities had expected or planned for because of the Government’s success in reducing inflation.

    As in central Government, local authorities will need to pursue opportunities for savings rigorously. Local authorities have substantial scope for improvements in efficiency, and for other economies. By that means, and by concentrating on their priority areas, they will be able to protect key services. The Government will use their powers to cap excessive local authority budgets should that prove necessary.

    My right hon Friend the Secretary of State for the Environment will announce the details of the local authority government settlement on Thursday.

    Housing

    We have managed to find savings in housing capital expenditure, in particular that of the Housing Corporation. The Government will comfortably exceed their election manifesto commitment on the provision of new social housing up to 1994-95. The new plans will still allow a substantial social housing programme to continue, assisted by the corporation’s success in levering in private finance.

    Employment

    Against the background of steadily falling unemployment, it has also been possible to make economies in the employment programme while still improving the quality of the programmes that are provided. A major reform of training for unemployed adults, based on payment by results, will seek to ensure that more trainees get jobs when they finish their courses.

    Social Security

    As a result of the announcements in last year’s Budget, we are already down the track of a thoroughgoing reform of the social security benefits system. We intend to ensure that it is better targeted on today’s real needs and we intend to make it simpler and less susceptible to abuse.

    Legislation to reform statutory sick pay and to introduce a new incapacity benefit was enacted in the previous Session. This Session will see the passage of the Jobseeker’s Allowance Bill and a major Pensions Bill to modernise the framework for both state and occupational provision.

    Tomorrow, my right hon. Friend the Secretary of State for Social Security will announce the details of the next phase of this programme of reform. I wish to mention now three of the initiatives that he will announce, from which I expect substantial public spending savings to flow.

    First, there is housing benefit. My right hon. Friend will announce tomorrow a reform of the arrangements through which the general taxpayer subsidises local authorities’ payment of housing benefit to the tenants of private landlords. The effect of this will be that authorities will not be fully reimbursed if they pay housing benefit on rents that are significantly above the average for the area and the type of property. Local authorities will, therefore, scale back the benefit they actually pay in line with the new restriction on central Government subsidy. They will, however, retain discretion and have some funding to pay the full rent in individual circumstances which they consider justify it.

    The previous arrangements meant that neither the landlord nor the tenant usually had any incentive to negotiate a lower rent because housing benefit would usually pay the rent in full – [Interruption.] This has had the inevitable effect, as seems to be acknowledged, of driving up rents and public expenditure – [Interruption.] I see that that is a welcome reform. At the moment, the social security budget sometimes pays the rent in full in cases where the rent is far above the average rent for property of that type in the neighbourhood. In future, people on housing benefit will have an incentive to make the same judgments about what they can afford as people who have to pay all their own rent. The system will no longer be a prey to the unscrupulous landlord. The reform will take effect from October 1995. Existing claimants remaining in the same property where they live now will not be affected.

    My right hon. Friend the Secretary of State for Social Security will be glad to hear the encouraging response from Opposition Members – [Interruption.]

    Let me see how far I can take the Labour party down the process of social security reform. Secondly, my right hon. Friend the Secretary of State for Social Security will announce tomorrow further measures to limit support for mortgage interest through the income support system to constrain the cost to the taxpayer and to minimise the distortion to work incentives.

    Most people are readily able to insure their mortgage interest payments, if they wish, against periods of sickness or unemployment and many people already do so. For new mortgages taken out by people of working age after October 1995, support will not normally be available for the first nine months, although my right hon. Friend will consult on the precise arrangements, including different treatment for circumstances in which insurance might not be available. There will also be some scaling back of support for existing borrowers.

    One reason why insurance has not become more widespread is that the taxpayer has picked up the interest bill too readily in too many cases. This change will give more borrowers an incentive to ensure that the mortgage costs of people who are temporarily unable to keep up with their payments will be met by the borrowers themselves and by lenders, rather than by the taxpayer.

    Thirdly, my right hon. Friend the Secretary of State for Social Security will also announce a major intensification of the war against fraud in the social security system. We are already saving £700 million a year from existing efforts. The further measures on fraud, which include a major project to pay benefits in post offices by electronic means rather than by paper transactions, will, at a cost of £300 million, save another £2 billion over the next three years.

    The Government know that firm control of public spending and reduced public borrowing are essential to sustained recovery, prosperity and jobs. We will also show that strong control of public spending overall can be combined with improvements in key public services selected as Government priorities.

    Education

    The Department for Education provision will increase in real terms by almost 1 per cent. next year. The Government are intent on extending their significant achievements in education, and we have also managed to find savings in parts of the education programme. Almost one in three young people is going to university, compared with one in eight in 1979. That is a remarkable achievement. A period of consolidation to secure quality and standards is now required after a period of very rapid expansion. However, the overall package of student grants and loans will once again increase in line with inflation. There will be continued growth in student numbers in further education, again to record levels. The new plans also allow for further growth in the number of grant-maintained schools and for additional capital spending in our schools.

    Home Office

    The Government continue to attach high priority to spending on law and order. The new plans for the Home Office increase provision for the police by 3 per cent. in 1995-96. Major efficiency improvements from the Sheehy proposals will enable more police officers to be released for front-line duties. The reforms to be implemented next year will give chief constables much greater freedom to manage their own increased resources and to respond more effectively to the public’s priorities.

    Single Regeneration Budget

    As a former Minister with responsibilities for the inner cities, I am pleased to say that within the single regeneration budget we have found extra resources to support new projects in our rundown urban areas and elsewhere. My right hon. Friend the Secretary of State for the Environment will be providing for more projects under the current bidding round and he will be able to conduct a second round of bidding with funds starting in 1996-97. In all, there will be more than £800 million for new regeneration projects over the next three years.

    Health

    That brings me – finally, on public spending – to the Government’s plans for the health service. With inflation so much lower than expected this year than last, it would have been perfectly possible for us to reduce our previous plans for health and still to meet our manifesto commitment to real growth in resources for the national health service each year. Due to the high priority that we give to the national health service, we have decided not to claw back the unexpected provision in this way. Instead, the health service will keep the unplanned bonus that it has had this year from lower inflation. I shall spell out what that means. Next year, spending on the national health service will grow by £1.3 billion. That is 1 per cent. growth in real terms against the per cent. increase that we originally allowed for in last year’s Budget. It will come on top of a real increase of 3 per cent. this year because of the drop of inflation.

    So, in addition to the extra money from the taxpayer, the health service continues to benefit from the improvements in performance flowing from the Government’s reforms. Further improvements in efficiency are expected to release at least £600 million extra for patient care next year. All those savings, including gains from rationalising management and administration costs throughout the Department and throughout the national health service, are ploughed back into patient care. Those extra funds, on top of the extra provision that I have announced, which are achieved from savings coming from a variety of measures, have only one thing in common. All those savings – therefore all the extra funds – have so far been opposed by the Labour party.

    All this – the extra provision and the savings – means that next year we shall all benefit from an even better financed health service, which has seen real increases in spending on it by the taxpayers in every year since the Government took power. It will be delivering even better standards of patient care, with further improvements in patients charter standards, and more progress in reducing waiting times.

    HELPING PEOPLE BACK TO WORK

    At the beginning of this speech I said that the combination of healthy growth and low inflation we are now seeing is virtually unprecedented in Britain’s recent past. Few doubt the strength of the recovery. But everyone in touch with the real world knows that the benefits of recovery have yet to feed through to many people in this country. Unemployment remains far too high.

    Thanks to the labour market and trade union reforms of the 1980s, unemployment did start falling at a much earlier stage of this recovery than it had in recent previous recoveries and, unlike other European countries, we have resisted pressures to add social costs on top of wage costs for our employers.

    Unemployment will, of course, fall further as the economy recovers. But I have long believed, as my panel of independent forecasters points out and as is now widely recognised, that demand expansion on its own is not enough to produce a sufficient fall in unemployment. We have to do more to reduce unemployment in ways which are consistent with sustained growth and low inflation.

    I have been making speeches on this and giving lectures ever since I became Chancellor on the need to ensure that we do not have recovery without jobs. As well as giving speeches, I have already done something about it. In my last Budget, I did three things. I announced measures to make it harder for people who are quite capable of working to stay on benefit without looking for a job. That is at the heart of the job seeker’s allowance. I made it easier for people with children to take jobs, by introducing a child care allowance into family credit. I made it cheaper for employers to give people work, by cutting the lower rates of employers’ national insurance contributions by a full percentage point.

    In this Budget I want to do more on all three fronts. We must get people back into work and out of dependency on benefit. We must reduce – not increase – the cost to employers of employing people who have been out of work. I aim to ensure that we do not have a class of people in this country who are excluded from economic activity.

    Incentives for employers

    The first step is to encourage employers to look more favourably on people who have been out of work for some time. I can announce, therefore, a wholly new incentive to encourage employers to take on more people who have been unemployed for two years or more. In future, employers will get a full national insurance rebate for up to a year after taking on such a person. That will provide employers with an important new reason to give a second chance to someone who has been unemployed for some length of time – [Interruption.] Yes, but the Opposition were very late on the scene on which we have been working for a long time and they have got most of it wrong. I am going to announce a package which will show the Opposition how to do it. This first whole-year national insurance contribution holiday will run from April 1996. More immediately, my right hon. Friend the Secretary of State for Employment intends to develop new pilots under the Workstart scheme. This offers employers a grant to recruit people who have been unemployed for over two years. There will be around 5,000 new job opportunities. Experience with existing pilots that we have been running suggests that the scheme helps to break down the prejudice which can blight the long-term unemployed.

    I know that some employers will still worry that people who have been unemployed for a long time may have lost the habit of working. We introduced the work trials scheme to counter that. It allows unemployed people to try out a new job for three weeks, without losing their benefit. They will keep their benefit entitlement. It costs employers nothing for those three weeks and it lets employers see for themselves whether the people they take on can be relied on to hold down a steady job. The record so far is impressive. A large number of people are kept on at the end of the trial period. So I propose to expand the scheme to provide 150,000 job opportunities over the next three years.

    In addition, I propose a further cut in the lower rates of employers’ national insurance contributions for every employee. From next April, they will come down by another 0.6 per cent. This will reduce the cost to employers of providing lower-paid jobs by another £230 million in 1995-96, on top of the reduction of £940 million carried through from 1994-95. It must make sense to keep on cutting the burden on employers who create jobs and in particular on those employers who provide jobs for less skilled people. The Labour party keeps wanting to go in the opposite direction by increasing the costs on employers with a minimum wage and a social chapter.

    Incentives to look for work

    I need to match these incentives to employers with measures to ensure that people get the rewards to which they are entitled when they move from unemployment into work.

    First, we need to ensure that people are kept in touch with the labour market and do not stay on benefit unnecessarily. The job seeker’s allowance will reinforce the link between claiming benefit and looking for work. It will be supported by an unprecedented range of measures to help the unemployed.

    One of our existing measures, Community Action, was due to finish next year. My right honourable Friend the Secretary of State for Employment has decided to extend the scheme in revised form. It will provide work experience and a route back to jobs for around 40,000 long-term unemployed people each year.

    We introduced Restart when I was Minister of Employment in 1986. That required people who had been on benefit for a long time to come in for an interview and advice to help to get back into work. It gave positive help to many people and got many back into work. It also revealed that some could not be bothered to come for the interview. They lost benefit.

    For young unemployed people, we have been experimenting with similar schemes called Workwise and 1-2-1. We propose to extend them nationwide.

    Helping employees with the transition to work

    But it has to be worth people’s while to take jobs. I also intend to introduce new measures to ensure that people are not deterred by genuine, short- term financial problems when they try to move from unemployment into work.

    Anyone moving from benefit into a low-paid job is likely to be better off, but it may not seem like it to the man or woman concerned. The first thing that happens when a person takes a new job is that income support disappears, and with it all help with the cost of housing and their council tax. In due course, the person in the new job may be entitled to family credit and housing benefit. But at the moment it can be hard to find out how much that will be, or when it will come.

    In the meantime, the person concerned has all the expenses of getting to work – buying clothes or tools, travelling to work, and so on. Time and time again, I have had people tell me that this is a major deterrent to taking a job and that they really cannot afford to take a job because of these gaps in the system. I have a number of measures to help.

    I propose to speed up the payment of family credit, so that anyone who takes a job can be sure of getting the benefit to which they are entitled, and getting it quickly.

    I propose to enable people who take a job to go on getting the same help with their rent and council tax as they had on income support, for their first four weeks in the new job. I propose to speed up the payment thereafter of housing benefit, so they can be quite sure where they stand at the end of the four weeks.

    I propose to exempt from tax the back-to-work bonus which my right honourable Friend the Secretary of State for Social Security announced in October. That will give people who have been unemployed, but have managed to do a bit of part-time work while receiving their benefit, a lump sum when they leave benefit and take a job. I also propose to expand the number of grants available to people who take jobs, to cover their start-up costs. These are known as jobfinder’s grants. I propose to make available around 25,000 grants of an average of £200 for those who have been unemployed for more than two years.

    Family Credit

    Family credit has been an important and effective way of encouraging lone parents and couples with children to take employment. By providing top-up benefit for those in work it makes it worth while to give up unemployment and benefit dependency. At the moment it helps half a million people. Last year, I improved family credit by announcing the new child care allowance which was introduced in October.

    I now intend to give low-paid and unemployed people with families an incentive to take full-time work. The existing structure of family credit strongly favours part-time rather than full-time working. But the majority of the people who have been unemployed long term are people who need to find full-time work.

    I therefore intend to introduce a £10 a week premium for full-time workers on family credit to give a new incentive to take full-time work rather than stay on benefit. This will also give a substantial boost to the incomes of 345,000 low-paid families with children.

    But childless couples and single people account for two thirds of the long-term unemployed. These people, of course, cannot, at present, claim family credit. I would like to examine whether introducing a new in-work benefit for childless people would be effective. This is obviously a very big step and I have agreed with my right honourable Friend the Secretary of State for Social Security that we should try it out on an experimental basis. We intend to test run a new benefit through a pilot scheme covering 20,000 people. If the pilot shows that the benefit helps to get childless couples and single people back into work we will then consider introducing a national scheme.

    I have also been impressed by an imaginative scheme pioneered by the training and enterprise council in Lincolnshire. This helps people build up full-time work by parcelling together a number of part-time jobs. The scheme is known in Lincolnshire as Jobmatch. I propose to extend it to help up to 3,000 people a year.

    Overall, these measures constitute an extremely important and carefully thought-out package of support for unemployed people. It is no longer credible for some people to campaign for reductions in long-term unemployment and to reduce benefit dependency without having effective policies to deal with it. [Hon. Members:– “When?] It comes into effect steadily from this Budget. The details will be announced by my right hon. Friends the Secretaries of State for Employment and for Social Security. There will be a social security statement, in the usual way.

    The days of priming the pump to cut unemployment are long since past. The Government are building reforms on reforms to remove at last the distortions and anomalies from the benefit system which discourage so many unemployed people from taking jobs.

    This package aims to lift people from dependency into work and to smooth the transition from out-of-work benefits to modest in-work benefits. The measures will work because they are carefully put together and they are affordable and because they are being introduced at a time of strong economic recovery based on our sound economic policies so that more jobs are becoming available. They are a set of effective policies to tackle the big problem of structural unemployment which faces the whole western world, and I believe that we are ahead of other countries in tackling it. I am sure that they will eventually gain widespread support – even from those who have no practicable ideas of their own. [Interruption.] Opposition Members – I hear from their interruptions – still do not understand. If we look to the minimum wage, if we look to the social chapter, if we load costs on those employers who might otherwise create low-paid jobs, we will make matters worse. We are giving incentives to create jobs and making the transition from unemployment to work easier. We started work before the Borrie commission. We have come up with better recommendations and the Borrie commission and the Labour party have a long way to go before they even understand how the system works.

    TAX

    Let me turn now to my proposals for taxation. Happily, in this year’s Budget, I have no need to raise revenue overall in order to secure the public finances. The action in last year’s Budget, combined with a firm approach to public spending, will see to that. Nor – as I have already made clear publicly – are significant tax cuts justified this year. But I do have a number of proposals to ensure that we raise the necessary revenue in ways which do least damage to the economy while helping vulnerable groups.

    Anti-avoidance

    I am delighted that there now appears to be a wide political consensus in the House on the need to close loopholes and to prevent the artificial avoidance of taxation. There is, I have to say, in some quarters a tendency to exaggerate the extent of tax avoidance by including proposals, as the hon. Member for Dunfermline, East (Mr. Brown) always does, that would actually impose extra taxes on legitimate business under the guise of a crackdown on so-called loopholes.

    I have said before and demonstrated before that we are no friends to the tax avoidance industry. Last year, I announced a number of measures to close genuine loopholes, raising £2 billion over three years.

    This year, I intend to go further by tackling the artificial avoidance of VAT on property transactions and share issues, by stopping the purchase of companies simply to make use of their surplus management expenses and by preventing tax avoidance through operations with discounted securities.

    In total, the anti-avoidance measures in this Budget will yield an additional £1.5 billion in the next three years. We will continue to close down genuine loopholes wherever we may find them.

    Vehicle Excise Duties and VAT on cars

    I have some major proposals on vehicle excise duty this year. Few things annoy honest motorists more than knowing that many people still drive without a tax disc and waste the time of police and the authorities in trying to track them down.

    Earlier this year my right hon. Friend the former Secretary of State for Transport announced that the Government intended to move to continuous licensing. That means licensing on possession rather than use of a vehicle. We will be issuing a consultation paper setting out how we intend to do this. The move is designed to combat evasion and help fight crime by enabling the police accurately to check the ownership of vehicles.

    I can, however, reassure the House that we will not seek to disadvantage those motorists, including classic car owners, who do not pay vehicle excise duty now because their cars are genuinely off the road.

    I also intend to bring up to date the system of concessions and exemptions from vehicle excise duty. The existing highly complex arrangements go back, in some cases, to before the second world war and have little relevance to the modern world.

    The number of different concessionary classes will be reduced from 132 to nine, a simplified and sensible handful. This will come into effect from 1 July 1995 and will yield about £30 million a year.

    But the House will be pleased to hear that special treatment will still apply to cars for disabled drivers and emergency vehicles. Moreover, I have also decided that accessories for the disabled fitted in company cars will no longer be taxed as a benefit-in-kind from next April.

    I propose to increase the rate of vehicle excise duty for cars – the tax disc – by £5, to £135. But to avoid adding to industry’s costs, lorry duty rates will again remain unchanged.

    I propose to introduce a significant change to one part of VAT relating to cars. Since 1992 taxi and car hire firms, unlike most businesses, have been able to recover the VAT on their cars. In response to industry’s concerns about market distortion, I propose to extend this to cars bought by any business wholly for business use. This will mainly affect leased cars, with consequential changes to their VAT treatment when sold or leased on. The change should be revenue neutral in the long run, but will cost £140 million in the first year.

    Fuel Duties

    In my last Budget, I announced that road fuel duties would increase on average by at least 5 per cent. in real terms in future Budgets. This year, I intend to stick to that commitment. It is an essential part of the plans that I set out last year to deliver healthy public finances as quickly as possible and it forms an important part of the Government’s strategy to return carbon dioxide emissions to their 1990 level in the year 2000. From 6pm tonight petrol taxes will therefore go up by 2p a litre for both leaded and unleaded petrol, taking into account the effect of VAT.

    In recent years there has been a small differential between the duty on diesel and the duty on unleaded petrol. The differential is becoming difficult to justify in economic, health or environmental terms. I therefore propose to tax diesel at the same rate as unleaded petrol. This means an increase of about 3p a litre on diesel. I also propose to increase the duty on gas oil and fuel oil by p a litre, which will raise £70 million a year. I propose, however, to freeze the duty on road fuel gases.

    Tobacco

    I turn next to duties on tobacco. The Government are committed to reducing smoking. I continue to believe that higher tax is the most effective and fair means of doing so.

    Last year I said that I intended to increase tobacco duties by at least 3 per cent. in real terms on average a year. I intend to stick to that commitment today.

    Tax on cigarettes will therefore increase by 10p on a packet of 20 from 6 o’clock tonight. Duty on other tobacco products will go up by a similar proportion.

    Alcohol

    The single European market has brought real benefits to British industry, through an expanded market for business, increased competition, reduced bureaucracy at frontiers and cheaper transport costs. These have all greatly benefited our consumers. But one of the most widely publicised other effects of the single market has been the increase in legitimate cross-border shopping in alcohol and tobacco, and in smuggling.

    Both of these have inevitably meant some loss of duty to the Exchequer, pressures on the British drinks industry and some damage to British business. No Chancellor can remain unmoved in the face of this, but nor can any Chancellor simply adopt popular measures to cut taxes on alcohol which would threaten the Revenue and require taxes on other goods to be raised.

    In the longer term, the solution is for the Government to work with our European partners to bring duties more in line. The forthcoming review of Europe-wide minimum excise duties gives us the opportunity to make a start on that. This year, pending that, I have once again listened to the concerns of the industries. I propose no increase in the duties on beer, table wine and spirits. This will mean that the proportion of the cost of an alcoholic drink represented by tax in this country will continue to fall. Ten years ago 37 per cent. of the price of a pint of beer was tax. Today it is only 30 per cent.

    Betting and gaming duties

    The Government also intend to modernise and deregulate betting and gaming. This process is, in my opinion, welcome and much overdue. The coverage of taxation must also keep up to date with the modern world. I therefore propose to widen the coverage of gaming machine licence duty to cover amusement machines such as arcade video games. It is anomalous that we should tax amusement machines with prizes, but not those without. I am sure that this measure will be welcomed by many parents, although perhaps not by all children.

    Gaming machine licence duty has been increased only once since 1987. I propose to restore its real value to the 1987 level, but at the same time to allow payment by instalments. Those measures will raise about £60 million in a full year.

    In 1991, my right hon. Friend the Member for Kingston upon Thames announced a reduction in pools betting duty of 2 per cent. Since then, this has helped to fund the Foundation for Sport and the Arts. My right hon. Friend the Secretary of State for National Heritage and I have now reviewed the reduction. We have agreed that it should continue for a further five years, provided that the pools companies also continue to fund sport and the arts at their present level. [Hon. Members:– “Hear, hear.”] Many of my hon. Friends appreciate, as I do, that the foundation continues to support a number of worthwhile projects to encourage participation in sport and the arts. I am delighted that the pools companies have generously reaffirmed their commitment.

    Business taxes

    A strong and thriving business community is the only way to ensure a strong and thriving economy. The Government have a record of achievement in developing the tax system in ways which improve competitiveness, sharpen incentives, simplify administration and encourage the small and medium-sized businesses which are so important to the future development of the economy.

    I should like to announce a package of measures today which will add further to the strength of British industry. Decisions on many of the measures that I shall be announcing today have been informed by the industrial finance initiative undertaken last year by my hon. Friend the Minister of State, Treasury and my right hon. Friend the Financial Secretary and his predecessor.

    Corporation tax and capital allowances

    First, I should like to say a few words about corporation tax and capital allowances. We have one of the lowest corporation tax rates in the industrialised world. Low tax rates are good for incentives. They mean that businesses can keep more of their profits to use as they, the businesses, want. Since 1984 we have cut the main corporation tax rate from 52 per cent. to 33 per cent., while scaling back capital allowances to a level broadly matching commercial depreciation.

    I have considered again all the calls for increased allowances to encourage investment. They have a simplistic appeal. But I remain firmly of the opinion that increasing capital allowances would distort investment decisions and would not encourage the high-quality investment needed to improve economic performance. A narrower tax base would jeopardise our ability to maintain the low tax rates which have helped to transform British industry over the last decade. The change from high capital allowances to low rates of corporation tax has been very successful. I propose to maintain that emphasis on low rates for the successful rather than high allowances for all in our system of business taxes. I also have no changes to announce on the rate of advance corporation tax or the value of the tax credit on dividends.

    Business rates

    I would now like to deal with business rates. We are about to implement the first five-yearly review of valuations of properties for rating purposes. Without those five-yearly reviews the rate base would become hopelessly out of date. The property market has changed a lot over the past five years with wide regional variations. [Hon. Members:– “It has gone down.”]

    As a result of the review, many properties in the south of England will begin to see reductions in their rates bills. Some businesses in the midlands, the north, Scotland and Wales will benefit as well, but others will discover that up-to-date valuations will raise their liability.

    I am glad to say that I will be able to continue to find resources to help businesses through this new transition period in the same way as we have been helping business through the transition from the last revaluation. My right hon. Friend the Secretary of State for the Environment and my right hon. Friends the Secretaries of State for Scotland and for Wales will announce details of the scheme later today.

    But I can tell the House now that increases in bills will be limited to 10 per cent. in any one year for large properties, once adjusted for inflation. Small business properties account for three quarters of those receiving protection.

    We have decided to limit real increases for such properties to 7 per cent. This protection will in part be financed by limiting real reductions in rates bills for large properties to 5 per cent. and for small properties to 10 per cent.

    But the revenue from limiting gains is not enough to help those businesses which find themselves worse off as a result of more up-to-date valuations. I have therefore decided to provide assistance of £605 million next year to finance the transitional relief. That is similar to the amount that we are spending on the former transitional relief scheme this year.

    ECGD

    I laid stress at the beginning of my speech on our improved export performance. We need to build on this and not become complacent. Strong export growth will be essential if healthy recovery is to be sustained.

    My right hon. Friend the President of the Board of Trade and I have taken a closer look at the services provided by the Export Credits Guarantee Department. We have agreed that a reduction in premiums of around 10 per cent. on average is possible while still protecting taxpayers’ interests. This will improve our competitiveness, building on the premium reductions in the past two years.

    Furthermore, we have agreed to increase the amount of ECGD cover available to many important developing markets by £300 million for 1997-98. Those measures will provide an added incentive for British exporters to play an even greater role in the most successful and rapidly growing economies in the world.

    Landfill tax

    As I said earlier, one of my main objectives for the tax system is that it should raise revenue in ways which do the least possible damage to the economy. In some cases, taxes do some good, by helping markets work better and by discouraging harmful or wasteful activities.

    Taxes can play an important role in protecting the environment. One major problem is the disposal of waste. I would like to make an announcement today to help tackle the problem.

    My right hon. Friend the Secretary of State for the Environment and I will issue shortly a consultation paper setting out details of a new tax to be collected by Customs and Excise on waste disposed in landfill. We propose that a new landfill tax should come into effect in 1996. It should raise several hundred million pounds a year. But I am determined not to impose additional costs on business overall. I shall therefore be looking at ways to offset the impact of the new tax by making further compensatory reductions in the level of employer national insurance contributions when the new tax is introduced. In brief, I want to raise tax on polluters to make further cuts in the tax on jobs.

    Small Businesses

    I have more measures to help small businesses in particular. The need to focus on smaller firms with growth potential has been an extremely important theme of the industrial finance initiative. It is absolutely essential that we have a healthy and vigorous small firms sector for the future economic well-being of the country and to achieve higher levels of employment.

    One important way in which we can help small businesses is by encouraging the venture capital industry. A flourishing venture capital industry plays a key role in promoting job creation, innovation and growth. The British venture capital industry has been growing in recent years and I am determined that that growth should continue. In my Budget last year, I announced the introduction of the enterprise investment scheme and I announced consultation on a possible new venture capital trust scheme and an extension of capital gains tax reinvestment relief. All three measures were aimed at encouraging equity investment in small companies. I want to build on them today.

    Enterprise Investment Scheme

    The new enterprise investment scheme is now in place, offering tax relief for investment in unquoted trading companies. Over 40 per cent. of the schemes set up so far involve so-called business angels, who want to invest their expertise, as well as their money, in a small, growing business.

    That is a good start, but the scheme has some complex rules and I have decided to simplify them. I am also extending capital gains tax reinvestment relief to the enterprise investment scheme, which should increase greatly its attractiveness.

    Venture Capital Trusts

    I have consulted widely on venture capital trusts and the response has been very positive. I have accepted suggestions for change on some details and I propose to implement the scheme in full. I want to go further by making investment in risk capital even more attractive than I originally contemplated when I announced the consultation period. Investment up to £100,000 a year in new shares in a venture capital trust will offer 20 per cent. up-front income tax relief and capital gains tax reinvestment relief, in addition to tax-free dividends and capital gains. I believe that venture capital trusts will make a successful contribution to filling a gap in our enterprise economy by encouraging more people to become venture capitalists.

    The cost of the new scheme is expected to be £150 million next year, rising to £290 million in 1996-97. Of course, those costs have to be based on an estimate of the take-up, but we expect considerable take-up. It could mean that funds of £2 billion might be raised over the next three years, providing much more investment where it is most needed in our small, growing, technologically advanced and innovative companies.

    My proposals go significantly beyond what I first set out 12 months ago. They now put in place an effective and imaginative set of measures aimed at generating equity investment in dynamic, innovative growing businesses. They should be widely welcomed by everyone who understands how a modern free market economy works and how new jobs are created in the modern world. Unlike some hon Members, I do not describe tax reliefs of this kind to stimulate investment in business and enterprise as tax loopholes, which they are usually identified as by the Opposition.

    Insolvency reform

    During the recent recession businesses, particularly small businesses, were too often being closed down by their creditors and jobs lost before rescue options had been properly explored. Following consultation, my right hon. Friend the President of the Board of Trade will shortly issue a paper setting out the Government’s main conclusions on company rescue procedures in future.

    To give management more time to reorder their affairs, we will introduce a 28-day moratorium binding upon all parties. This will give companies a breathing space to assess rescue prospects and come to an arrangement with creditors. We are also consulting further on a mechanism to help substitute equity for debt of firms in administration or receivership. I hope that those measures will contribute further to the creation of a rescue culture, discouraging the needless and wasteful liquidation of businesses that could become sound.

    Loan guarantee scheme

    The impact of the 1993 changes to the loan guarantee scheme has been encouraging, but its rules are still quite rightly being criticised as too complex. Together with my right hon. Friend the President of the Board of Trade, I intend to review those rules with a view to making the scheme simpler and more attractive.

    Lifting burdens on business

    The tax system not only imposes a financial burden on business that pay tax, but a regulatory burden and an overhead cost as well. I want to reduce those burdens on businesses. Simply running PAYE and national insurance contributions is difficult for many small businesses. From next April, I propose to increase by more than 30 per cent. the threshold for businesses to make quarterly rather than monthly payments to the Inland Revenue.

    That will benefit around 100,000 employers at a one-off one-year cost of £75 million. That means that nearly two thirds of all employers in the country will now be able to make quarterly payments on their PAYE. I also propose to consult on a move towards annual VAT payments for small traders and to further simplification of VAT accounting.

    Furthermore, I intend to improve the administration of the tax system by encouraging closer working between the two revenue departments, the Inland Revenue and Customs and Excise, as well as closer co-operation between the Inland Revenue and the Contributions Agency. This will all be directed at improving the service offered to businesses seeking to comply with their tax obligations.

    I would also like to make some progress towards closer alignment of tax and national insurance. From next April, clearances given by the Inland Revenue concerning non-taxable expenses will also count for national insurance purposes. My right hon. Friend the Secretary of State for Social Security will give details of this and other measures in his statement tomorrow.

    I also intend to raise the registration threshold for VAT to £46,000 tomorrow in line with inflation. This will help a number of the smallest businesses.

    Finally, I turn to self-assessment. I am publishing today for consultation some details of the remaining legislation for self-assessment. The Inland Revenue has been consulting widely on the changes. The response has been positive and it is a worthwhile reform for which to aim. My right hon. Friend the Financial Secretary and I intend to go ahead with our proposals and aim to keep any burden placed on employers as low as possible.

    Taken together, this latest extensive package of tax reliefs and deregulatory measures provide a substantial package of support for the business community. They aim to strengthen British businesses not by intervention, but by easing cashflow problems, cutting back red tape and providing targeted help for small businesses. That is how we maintain our improved business performance, help to sustain the recovery and help to create more jobs.

    SAVINGS

    Higher savings also have an important role to play in helping sustain growth, by providing additional resources for investment.- [Interruption.] I must tell the hon. Member for Bolsover (Mr. Skinner) that the Budget contains extremely serious proposals to help small businesses, to cut unemployment and to produce all the real improvements in the economy that the people of this country want. I have already announced measures to encourage savings into unquoted companies. There are two further measures I would like to announce today.

    PEPS and corporate bonds

    Personal equity plans have been very successful since their introduction in 1986. Over £15 billion has been invested in over 4 million plans to date. They have widened share ownership and played an important role in providing finance to industry. I want to take that success further and in particular to widen the type of finance available to industry through PEPs.

    I propose that, from next year, people will be able to invest through PEPs in a range of corporate bonds, convertibles and preference shares, and not simply equities. This change is expected to cost £10 million in 1995-96 rising to £40 million in 1997-98.

    TESSAs

    When my right hon. Friend the Prime Minister introduced tax exempt special savings accounts – or TESSAs, as they came to be called – it was understood that tax-free interest would be allowed to build up over a five-year period. For some of those accounts, the five-year period will soon be coming to an end.

    I have had to consider whether this tax exemption for savings should be extended. TESSAs have been very popular, allowing many people to catch the savings habit and build a nest egg for their future. Over 4 million people have invested over £20 billion since they were first introduced.

    Given their success and popularity, I have decided that all or part of the capital accumulated in a TESSA at maturity can be reinvested straight away in a new TESSA. Anyone who wants to continue to save tax-free will therefore be able to do so up to an overall limit of £9,000. This measure will cost £150 million in 1996-97.

    Income tax

    Finally, I turn from taxation to income tax.

    The lower, basic and higher rates of income tax will remain unchanged in 1995-96. However, we can at last begin to benefit from our steady return to healthy public finances. This means that I can fully index the personal allowance, the threshold for higher rate tax, and the income limit for the age-related allowance.

    I have been able to provide some additional help in two important areas. First, I want to do a little bit more for pensioners. I propose to increase the age-related personal allowance by more than indexation. The allowances for everyone aged 65 and over will be increased by £430. Nearly 3 million pensioners will gain from this, at a cost of £200 million in a full year.

    Secondly, I also propose to widen the 20p lower band to £3,200. That increase is twice the amount necessary for indexation for inflation. One in five of all taxpayers will now only pay tax at the lowest rate of 20p.

    The tax measures that I am announcing in this Budget – all the tax measures that I have described – reduce revenue by £1 billion in 1995-96, but that is because I have had to provide £605 million, as I have said, for the transitional relief for business rate payers. I have said many times that I would like to go further and that I will in due course go further. Conservative Members are tax cutters by instinct. But I have also made it clear over and over again that tax cuts can come only when we can afford them and when it is in the interests of our industrial economy that we should make them. That means two things. We have to continue to improve further our long-term economic performance. That is why in my Budget today I have introduced numerous measures – boring the hon. Member for Bolsover – to strengthen the economy and make sure that recovery is sustained and that we become a powerful manufacturing and industrial economy. The second requirement is firm control of public spending.

    PUBLIC SPENDING AGGREGATES

    All my efforts to help businesses and help the unemployed will be to no avail if I did not keep a firm grip on public spending. I have already dealt with spending by each Department. But I have not yet described what will happen to public spending overall as a result of our decisions. Last year’s spending round delivered substantial cuts in overall public spending. This year’s has not been easy because of that.

    Public spending control is not only about controlling costs. It is about choice of priorities. That is the language of politics. Within this year’s settlement, my right hon. Friend the Chief Secretary and I have succeeded in producing real increases in resources for priority programmes such as the national health service and the police service. We have also managed to protect the delivery of public services generally by focusing our search for savings on administrative costs.

    We have avoided our tight settlement last year being turned into a wasteful one by ensuring that success in lowering inflation does not simply increase the volume of spending on programmes.

    I am glad to tell the House that that approach has allowed us to make overall savings which are even greater than those achieved last year.

    Last year, we managed to reduce the control total by £8 billion over the three years. This year we have done a bit better – not 10, not 15, not 20, but another £24 billion off the control total over the next three years on top of last year’s reductions.

    Last year we reduced public spending plans so as to reduce general Government expenditure by £15 billion over a three-year period. This year, on top of last year’s reductions, we will reduce general Government expenditure by £28 billion. That is a total reduction in Government expenditure over the four years covered by my two Budgets of £43 billion.

    Those savings have allowed me to reduce my projection for the public sector borrowing requirement. Taking into account the tax and public spending measures, I now expect to be able to reduce borrowing from £30 billion to £21 billion in 1995-96, from the previously forecast £21 billion to £13 billion in 1996-97, and from £12 billion to £5 billion the year after that. This reduced borrowing should provide an added stimulus to business confidence, strengthen the recovery further and give us the healthy public finances that we need to put our economy and our economic policy on course.

    CONCLUSION

    This Budget keeps Britain firmly on track for real economic growth that can last. This Budget concentrates on strengthening British businesses. This Budget will help to create more jobs. And it will lay the foundations for sustained rises in prosperity. I commend it to the House.

  • Mr Major’s Press Conference on the Competitiveness White Paper – 24 May 1994

    Below is the text of Mr Major’s press conference on the competitiveness White Paper, held in London on Tuesday 24th May 1994.

    PRIME MINISTER:

    Perhaps I can just make a few brief opening remarks. You have all no doubt heard the statements by Michael [Heseltine] and David [Hunt] already this afternoon and I hope all of you have a copy of the press pack and the White Paper.

    Let me just make three overriding points right at the outset. All of us would like to see higher living standards and better public services, but if we are going to achieve that, over time, there are really only two ways to improve and sustain the level of quality of public services that we want, the first of those is business success yielding higher taxes, and the second of those would be higher tax rates. There is no doubt which is preferable. Secondly, there is no doubt that long term business success needs long term policies in order to obtain it, the long term policies we need are those we have in place and those we have set out in the White Paper today, we have brought them together in this way I believe for the first time. And thirdly, let me just make a point about the world in which our businesses have to compete, both large businesses and small.

    It is becoming a truism to say that the world is more competitive than ever before and it is becoming more so day after day. Technology and free trade have created a global environment, there is a global market place, there are new opportunities but we are only going to take those opportunities if we can keep up and beat the best of the competition. And many countries around the world who used to be fairly easy markets for us many years ago are now very firm competitors for us, there is no sentiment in the market place, we have to be better or our companies simply will not win in the sort of world market that exists at present.

    The White Paper shows what we can do to help our businesses to win and demonstrates our commitment to industry, manufacturing industry and services. As I think a number of you present will know, not least because you will have been with us on the trips, a number of my colleagues and I travel frequently batting for Britain with delegations of British exporters. Many of those visits have led to very substantial orders for the United Kingdom, bringing jobs and better living standards here. Those visits have brought home to me two lessons – the first is the accelerating pace of change and the quality of competition which businesses face; and the second is the need for active partnership between government and industry if we are to maximise the possibilities for businesses and companies in this country.

    It is of course the private sector companies, employees abroad, decision-makers often here at home, those who work on product development and marketing, who actually win the orders for us, it is on them that our living standards and our future depends. It was against that sort of background that I asked Michael Heseltine some months ago with colleagues right the way across government to have a look at the way in which the government could maximise its part in order to help our businesses win in that very competitive world market.

    A great deal inevitably must rest on work that has been done throughout the past 15 years and we are building on that with low inflation, deregulated, flexible and an open economy. But in addition to that the White Paper looks at a wide range of specific key areas and especially of course education and training. We have to give our youngsters the best start at school, that of course is the reason for our education reforms and it is the reason we are now introducing more vocational options for our 14 – 16 year olds.

    But of course a great many of those people, upon whom our future success depends, do not necessarily go on to college, so we also have to help them manage the transition from school to the early years of work and that is precisely what our apprenticeship programmes are about. Our intention is really very straightforward and very simple, whether children follow the academic path, the vocational path, or a mix of both, they will be given the opportunity to acquire the qualifications and the skills that they will need to get on in life and that we as a country need to assist our businesses in the competitive world in which they must compete. But we owe that I think both to our businesses and to those children and we owe it to our country to provide the best foundation for a competitive Britain in the next century.

    This is a long term look, there are no short term fixes in this White Paper, this is a comprehensive look at things that need to be done, some in the short term, some in the long term, in order to give us the best opportunity in the world’s business environment.

    I would just now like to ask Michael to say a word or two, and then David, and then we will take your questions. Can I say a word about questions? I have with me the Secretaries of State, all of whom in separate ways have been involved in the production of this White Paper, so I hope we will have questions of detail, we have the people here who will be only too happy to respond to those questions.

    MICHAEL HESELTINE:

    Prime Minister, when you entrusted some of us with the preparation for your consideration of this White Paper, you gave us some very clear steers. The first was to be absolutely certain that nothing was to be proposed that would upset the main macro-economic priorities of the government which we believe to be at the essence of remaining a competitive economy. The second was that if within the dialogue and within the public expenditure constraints we could find re-apportionment or realignment of priorities, then it was your particular concern that they should be directed towards improving the educational and training opportunities of our people. The next guideline that you gave us was that you wanted us to analyse Britain’s position in the long term context, as you said, to do so in a non-partisan way, to seek to unite the nation behind a whole range of initiatives in which every company and everybody would identify a purpose for them.

    We have done our best to fulfil that remit, it has required a superhuman endeavour by civil servants working right across government, it has involved the widest possible consultation outside government with organisations that have a role to play, and it is a particular indication of the significance that we give to the exercise that not only have we done that in the first place but that the committee that you entrusted with the initial task is to remain in existence and will as appropriate at given times update the work if the government believes that that will help. We are very pleased to have played a role in this.

    DAVID HUNT:

    Prime Minister, in setting the framework for a stronger partnership between government and industry, the role that John and I in particular have played is to put people right at the heart of the drive to ensure that the UK wins through in the 21st century, and programmes have got to be tailored to the needs of individuals, they must offer opportunities to individuals and they must ensure that individuals are motivated to take advantage of them. So our ambition is for our people to succeed. So we have a range of ambitious measures aimed at bringing out the best of the talent and skills of our people, you have heard the figures, you have heard the programmes.

    Right at the heart of the strategy, Prime Minister, something that I know you personally have always been strongly committed to, which is the new modern apprenticeship scheme offering real opportunities to youngsters to play a key role in adding to Britain’s brain power. And these new fast track apprenticeships are something that many organisations, many individuals, have been pressing for, we are now extending the opportunities beyond the 16 and 17 year olds to those aged 18 and 19, and key is a revolution in careers guidance now involving independent advice, probably to about 1.5 million one-to-one interviews and giving school children the opportunity to get the best possible advice at 13, at 15 and at 17, and also that small firms skill sharing scheme, a whole range of schemes. But, Prime Minister, the key to all is investing in people, that is a programme that we strongly support, that came from the CBI, we are carrying it through into every aspect of education and training.

    QUESTION:

    Why was it felt unnecessary to accept the main recommendations of the all party Trade and Industry Select Committee, such as a training levy on employers and a programme to combat short-termism in the City?

    MICHAEL HESELTINE:

    I think there were about 4 or 5 areas which we were not able to accept in the Select Committee report, by and large we accepted and agreed with the analysis and the proposals. But actually the Select Committee did not propose a training levy, if you look at the Select Committee report they admire the direction in which we are going and what they say is that we should come back to and consider a training levy if no better results are forthcoming in other ways, so they did not make that recommendation and it was a mistake for people to suggest in the House that they did. There were a number of other things that we were not able to agree, we were not able to agree with the suggestion that targets should be set right through every sector of the economy, I think that frankly is not realistic and I know of no government that has ever tried that ever succeeded, there are some who have tried but they have never succeeded.

    QUESTION:

    Prime Minister, why do you look so grim?

    PRIME MINISTER:

    I am glad you are so concerned about that, I am trying to peer through those television lights, if you really wish to know the truth, if anyone whom I have known for years stands up and I do not recognise them, the answer is that beyond those lights all you can see are black spots, so I am not grim, just peering to see who is there.

    QUESTION:

    [Indistinct] 4.55 in the paper on accelerated modern apprenticeships, you say if industry plays its part government will provide funding of 107 million pounds over three years, what precise part do you want industry to play for these modern apprenticeships for 19 and 18 year olds, and is this 107 million pounds over three years additional to any previous funding?

    DAVID HUNT:

    This is an additional commitment of 107 million pounds over 3 years and what this will do is to produce a fast track for those who have stayed at school, done A levels, GNVQs, etc, to move into work-based training. We calculate it will take them around about 18 months on average to get up to that key point of NVQ level 3, and what we are doing by introducing this fast track approach is giving many more people an opportunity, and we calculate that this will increase the numbers of those achieving NVQ level 3 from around about just over 10,000 at the moment to over 70,000 NVQ level 3s achieved every year, and the way we will do it is by working closely, as we are at the moment, through the industry training organisations, the training and enterprise councils, all the other key partners and bodies, working up models which then to form the basis of the new scheme.

    QUESTION:

    What precisely does industry have to do to get the government to provide the funding?

    DAVID HUNT:

    We have got 14, now just gone up to 17, pilot areas which we are starting this autumn. Each apprenticeship will have a different cost, apprenticeships in some of the more specialised engineering sectors will differ in cost from those in other areas and I am now awaiting reports coming from the working parties working up these pilots which will start later this year with a view then to introducing the full scheme in 1995, and we will be looking for a partnership whereby taxpayers’ money will be put alongside the private sector to secure through that training credit the opportunity for that youngster at 16 or 17 to have a 3 – 4 year apprenticeship and for the 18 and 19 year olds that 18 month fast track apprenticeship.

    QUESTION:

    There is a section in the document which allows pupils to spend what are presumed to be a voucher on a place at the school, college or training institution of their choice. The reforms were originally parent-power driven, this seems to be pupil-power driven, how far will it descend down through the school year, what age are we talking about and will it lead to an all in voucher system.

    PRIME MINISTER:

    It is at very early stages here, let me ask David to say something, John might wish to as well.

    DAVID HUNT:

    What we have said in paragraph 4.56 is that we see attractions in providing all 16, 17, 18, 19 year olds with learning credits with a real cash value, and that would give power to young people to buy their own education and training from schools, colleges, employers and other recognised providers. But we recognise that that would be a far reaching change in funding which is why John and I have said that we need careful preparation and we are going to consult further on the practical implications of learning credits and to discuss the issues widely and openly and also to introduce some pilot schemes on the basis of local partnerships.

    JOHN PATTEN:

    I would only add one thing to what David has said, and that is that yes we are totally devoted to parent power and parent choice for the parents of children of 5 – 16, but those of 16 plus are young adults, they are out and about in the world, they should be making their own choices. What we want to see is for those between 16 and 19 a good range of choices, whether it is city technology colleges, technology colleges, grant maintained schools, further education colleges, and we want them to have a wide range of examination qualifications, not forcing them into a rigid straitjacket, that is why we have got our gold standard, the A level, that is why David Hunt and myself have been developing the GNVQ, that is why we are very happy for the international baccalaureate to be taken, we have got to treat 16 and 17 year olds as young adults.

    QUESTION:

    The Prime Minister admitted that this White Paper brought together for the first time a range of initiatives, and right at the back of the document, on page 159, we discover that all it does is report on matters already announced and in progress, it is in effect a snapshot of the work in hand across government, basically the previous 158 pages are covering up for the fact that there is nothing new at all in this.

    PRIME MINISTER:

    That is, with great respect, rubbish. But let me ask the coordinator to spell out some of the details of why it is rubbish.

    MICHAEL HESELTINE:

    There are 60, I think, new proposals, 59, 60, 61 depends on the precise classification and I could mention a whole range of the ones that are announced here, the whole of the education and apprenticeship announcement that has been made are new, new money; the fact that we are spending 150 – 200 million pounds on a regional challenge is a new fact; the fact that we are producing a civil service White Paper is a new fact; you can go on. Quite frankly, the suggestion that you put that there is nothing new in it can only be charitably understood on the basis that you have not yet had time to read it.

    QUESTION:

    In the section on public purchasing you mention that you want a constructive partnership rather than an adversarial relationship in the government’s construction programme, could you outline how that will work?

    MICHAEL HESELTINE:

    On public purchasing, we believe that there is an opportunity to get a greater degree of professionalism into the purchasing machinery of government and a significant part of the initiative here is to improve training. But there is then another aspect to that and that is to set up a machinery across the country in order to make it easier for small companies to get access to large contracts and to so organise those contracts that they are more capable of being competed for by small companies. We are also going to work with the supply chain in order to encourage companies that are buying without thought to local sourcing the opportunities that they could create for British companies if they were to do so, there are a whole range of partnership arrangements that can be developed within such a framework and it is to bring professional management and an opportunity for particularly small and medium size companies in this huge public procurement process that is under way.

    PANEL SPEAKER:

    Also, we constituted our sponsorship side for the construction industry which fits in with this and of course throughout government we will be ensuring that the purchasing arrangements will be on the basis in which we also introduce the environmentally friendly kinds of concepts which enable our industries to be able to compete throughout the world. One of the things about competition is that you have to have the highest standards in this country in order to win markets elsewhere and that is very much driven by the standards which government demands as well, so this is inter-related with the kinds of contracts which we are now winning in places as far apart as the United States and Australia for the sort of environmentally friendly programmes which the water companies are now able to do because of competition, because of privatisation and because of the kind of government programme of purchasing which we are now demanding.

    QUESTION:

    You say that the basic thrust of this is to produce a more long-term vision so are there any measures in here to stop this haemorrhage of funds out of companies as dividend payments which obviously prevents companies from reinvesting in the very long-term things that you want such as R&D and education and training?

    PRIME MINISTER:

    Let William firstly just say something about R&D because I think often there are many comments made about the levels of research and development expenditure and investment which frankly are not right.

    WILLIAM WALDEGRAVE:

    The Government contribution on R&D is in the middle of the pack for the G7 and we remain one of the big five or six science countries of the world. Indeed, in terms of one of the indices, the citation index, we are probably the second biggest producer of innovative science ideas after the United States of America.

    The importance of getting longer-term decision-taking into companies is emphasised in the Paper but of course the fundamental thing that brings down time horizons is inflation and the establishment of real stability in the economy is already leading in this last period of the recession that is now over to a greater degree of protection for companies’ R&D budgets. That is a very hopeful sign for the future but the Paper makes absolutely no doubt about the fact that we want the best, that we want the average and the below-average to be brought up to the standard of the best investing companies in this country. Michael Heseltine talked earlier about for example the pharmaceutical industry. If we could have all our companies taking the same view about R&D in the long-term as the pharmaceutical industry does we would do very well.

    KENNETH CLARKE:

    We are having what we call a “Finance for Industry Study” in the Treasury and we are having a look at the views of companies themselves, the banks and other people about the flow of finance into industry in this country. Certainly, one of the things we will have a look at is the fact that, as you say, compared with some continental European countries certainly a greater proportion of profits are distributed in dividends here than are retained and we will look at that and decide the extent to which that gets the right balance between having properly functioning capital markets and on the other hand making sure that you can use some retained profits to build up your financial base. All these matters we will be considering in the run-up to the next budget.

    We have already shown that we are prepared to take measures in the budget to stimulate the kind of investment we require, particularly longer-term risk investment in small and medium-sized businesses but we are widening the scope of the studies that Stephen Dorrell and Tony Nelson have been carrying out. All of us in the Treasury are now settling down to this and I see the work we are doing looking at the flow of finance to industrial investment in this country all sitting alongside what is being done to help business improve its supply-side performance as well. We are very actively looking at that and the Government certainly is going to form a view on what we can do to improve the working of our capital markets in this country.

    PRIME MINISTER:

    The intention is of course that these various examinations should interlock. As Ken has just illustrated, there are in effect four areas that the Treasury are looking at at the moment: savings, the working of capital markets, the flow of funds to business and as a result of that, the implications for taxation and I think it is very desirable that that work should be done. It is but part of the whole patchwork but I think an important part.

    QUESTION:

    Prime Minister, you have said today’s initiative is probably unprecedented. Why has it taken almost fifteen years of Conservative Government before it could happen? Isn’t today’s White Paper somehow an implicit recognition that so far the Government was not helping British businesses enough?

    PRIME MINISTER:

    No, I don’t think so. A great deal has been done in the 1980s. Government is usually about the language of priorities and throughout the 1980s the first priorities were to deal with many of the macro-elements of the economy, not just the incipient inflation difficulty we had in this country but a range of other things as well, a range of supply-side measures and most obviously but not exclusively the reform of our then trade union laws.

    Those matters have been done. We are operating against a quite different background of better macro-structure, a better supply-side performance. What we now need to do is to move on to the things that still remain to be done and that is of course what has led to this particular White Paper. It comes on the back of the best inflation performance, the lowest interest rates that we have seen for a very long time. A number of people in this room were probably still in their nappies the last time we had interest rates at the present level and inflation at the present level.

    So we operate against that background and against that background there is every opportunity of maximising the competitive position that we have. It was an opportunity to be taken and that was the genesis of the White Paper.

    QUESTION:

    There are many small businesses who have wanted to expand up to now and recently. They say they can’t expand because they can’t find skilled workers and they can’t afford to pay apprentices. How, tomorrow, will they be able to say: “Ah! What you have announced today helps me, I can go ahead and expand now!”?

    PRIME MINISTER:

    I will get David to elaborate upon the apprenticeship point but can I just say something about small businesses before I ask him to do that. It is a quite staggering statistic that about 97% of the people employed in this country are employed by companies who have a very small number of employees, under 25 employees, that sort of size, so the implications for employment apart from anything else of the success of the small business sector are self-evident. What we believe is happening at the moment as the economy recovers is that many of those small companies are beginning to re-employ again. I think there is unmistakable evidence that that is the case. We hope our measures will give a kick-start to that.

    DAVID HUNT:

    Prime Minister, I have already spoken in the few moments I have had since leaving the House of Commons to several people who represent the small business sector who enthusiastically welcomed this White Paper. There are a whole set of provisions specifically for small firms. I will just mention one which is its identification with the assistance of small firms of up to 24,000 key workers who have got skills who just need that extra training to be able to pass on those skills to the next generation. That, allied with the new apprenticeship scheme, is directly targeted at small firms worth £63 million over three years.

    As Michael announced, we also of course have the innovation credits. That is another example. They are worth up to £1,000 a company for the innovation counsellors to enable the companies to pay for the best possible information or advice about innovation.

    Those are just two examples of a whole list of packages of opportunities for small firms because we recognise that much of the job-generation, the new jobs that are coming in the economy, about 25 million now, have come from small and medium-sized enterprises.

    QUESTION:

    Prime Minister, in considering the problems of making Britain more competitive, did you find yourself casting envious glances at Germany where short-termism is not a problem because financial institutions are more closely locked into the companies in whom they invest, where managers and workers get along perhaps more constructively because they sit on management and supervisory boards and where there is the so-called “Mittelstand” – the medium-sized businesses – which provide a solid core for industry beneath the big boys on the one hand and the smaller corner-shop industries on the other?

    PRIME MINISTER:

    I certainly didn’t cast envious glances at Germany. I think over the years there have been things we have been able to learn from Germany. There are things I very much admire about the way they conduct their affairs. I am not sure that their interlocking shareholdings are one of the things that I would necessarily wish to replicate here, I think they were a product of particular circumstances in Germany.

    In terms of some of their industrial training, the particular emphasis in factories that you will see given to the foremen for example, I think there are areas there where there is something for British industry to learn but generally, no, I am not envious. If you look at the German economy at the moment, you will see that it is facing some difficulties. There has been massive job-shedding, there are over 4 million unemployed at the moment. Like every other nation, they are emerging from extremely difficult economic circumstances.

    I will ask the Chancellor to add to this because I think I heard a Chancellorial grunt on my left which suggests he wants to say something!

    KENNETH CLARKE:

    I happen to have had the chance to meet quite a lot of German ministers, bankers and businessmen recently and I don’t think they will actually share your view. Obviously, currently as we know, their unemployment is higher than ours, theirs is not yet coming down, their rate of growth is slower than ours and quite importantly, they have actually lost their competitive edge vis-a-vis British businesses in quite a lot of fields. I meet British businessmen now exporting components in the automobile industry into Germany because this is a better manufacturing base currently than Germany.

    Like the Prime Minister, I admire a lot of things German. Theirs is a very powerful economy where they are putting right the things they know they have to put right to improve their competitiveness but at the moment we have the edge over them and we have got to address the things we are addressing to make sure we do our best to take advantage of the position we now have where at last we are able to compete with the Germans on level terms.

    The reason I grunted, smiled or whatever I did, was that recently I met a whole lot of people from a German private bank and one of the German bankers amused me by saying: “What we need here in Germany is a bit more of your British short-termism!”. Because half their banks are nationalised – they are about to privatise more of them – they have this system of interlocking shareholding and they do actually feel they lack some of the advantages we have of more fluid capital markets.

    That doesn’t go back on my previous answer. We know here that we do lack sufficient long-term capital for small businesses in particular. I agree with you that we don’t have that middle range of companies that the Germans are much stronger in. We have always thought the Germans had a lead over us in technical training and somebody a moment ago suggested we had been inactive. What David Hunt and John Patten are announcing builds on a process now of seven or eight years that started with a situation when we had absolutely no structure of technical qualifications in this country, we had no commitment to vocational training and to move into the areas they are now moving into, apprenticeships for 18-year-olds and so on, is catching up the Germans very rapidly and it is with the aim of seeking to overtake them in that great strength of theirs as well.

    We have got to compete with the Germans and there are a lot of good things in Germany but the idea that we sit here envious of the German situation is not true. For the first time in my lifetime we have the prospect of being a more competitive economy than Germany and we have got to take advantage of that finally and not least by aligning with German ministers who want to get deregulation going in Europe and in Germany of the kind that we have already got going in the DTI in the United Kingdom and which we are going to get going in Europe with German assistance.

    PRIME MINISTER:

    You raised one other point about the middle range of companies and I am going to ask Michael to say something about that but if I can just add one point to what Ken said a second or so ago, we have a very close alliance indeed with Germany in terms of seeking deregulation in the European Community. I will be very surprised indeed if deregulation across the Community isn’t one of the principal aims of the German Presidency of the Community in the second half of this year and the Germans and the British work in very close alliance on this and have done for some time I think to the benefit of both our countries and to the benefit of the rest of the European Union.

    MICHAEL HESELTINE:

    A very important question and nothing so reveals the long-term nature of changing relativities in the strength of the economy than this question of why we have fewer medium-sized companies than Germany.

    The reason basically for it is that for much of the post-War period, particularly under Labour governments, income tax was at 98p in the pound which meant that nobody earning money was capable of retaining any money with which to start a small business. You cannot start a medium-sized business, you start with small businesses, so there was a choke around the creative process of the capital system as far as individuals were concerned.

    We then had the existing businesses that had already started and many of them were medium-sized. What then happened is that we created a tax regime in which there was massive preferential treatment for the publicly-quoted company to take over the businesses that were middle-sized which were forced onto the market-place by death duties and capital transfer or wealth taxes of one sort and another and when the family businesses came to look at the consequence of the business on death or transfer, they discovered that if they sold their business for cash, which is all a small or medium-sized business could offer, then they would be taxed into oblivion and so they looked at the publicly-quoted companies, the giants who could give them shares, and there was no tax paid at that time and so not only did we put a choke on creation, we put a block on the transfer of inheritance and the sustenance therefore of the sector and that explains why under Socialist taxation policies we wiped out a whole raft of medium-sized companies.

    The exciting long-term thing of the 1990s is that there are today 600,000 more small businesses than there were in 1979. The latest published figures by Barclays Bank indicate there is now a net capital asset creation of small businesses after the recession and so what we have to do is keep that macro-economic climate developing in the very benign tax climate we have now got so that the small businesses created in the ’80s become the medium-sized businesses of the ’90s.

    JOHN PATTEN:

    On this issue of training and education in Germany often held up, rightly, to us over decades as a model, I think actually the Germans are beginning to look to us and the sort of innovative work being done by David Hunt and by people in the Department for Education to produce new higher-level vocational qualifications in a way which will leap over some of those that the Germans have.

    Just two other things: we do need, all of us in industry and in education and in the world of the employer, to link up in a national crusade to hit the national education training targets that we have set ourselves by 1997 otherwise we are not going to be as competitive as we wish by the end of this century. An awful lot has been achieved over the last fifteen years, standards are going up, standards are improving and best of all from the employers’ point of view, more young people than ever before are staying on at school post-16; back in 1979 it was about 40%, now it is round about 75% and I think it is our ambition as a government to see the 16-year-old school-leaver as rare as the dodo by the year 2000.

    QUESTION:

    Prime Minister, if this report is as successful as you say it will be, how many jobs do you think it will create long-term?

    PRIME MINISTER:

    I don’t think you can produce an estimate of that. We can see at the moment that the rate of unemployment is falling rather larger than we had imagined just a few months ago. I very much hope that will continue and it looks at the moment as though it is certainly going to continue for some time but I think it is very unwise to forecast the levels of unemployment and of employment. No previous Government has done it and I think it would be very unwise of us to try. What one can certainly say is that if the economy becomes more successful, it generates more growth, it generates the growth of small businesses, then it is going to create more employment but quantifying that I think would be an impossible task.

    QUESTION:

    The modern apprenticeship system as presently proposed is going to cost £1.25 billion over the next three years. Now you are proposing £107 million extra to almost double apprentice numbers. I accept the point that the apprenticeship will be shorter but when you talk to people from Techs and ITOs they say that the modern apprenticeship scheme will last two years, maybe two-and-a-half years and now you are talking about eighteen months. How do you expect £107 million to virtually double apprentice numbers and is this where you expect a greater contribution from industry?

    DAVID HUNT:

    May I just explain the background to the figures. What we are talking about now is a total budget over the next three years which is up to £2.5 billion – £2,500 million – which the Department of Employment is going to invest over a three-year period to help our young people get modern training leading to high-quality qualifications.

    The £107 million investment over three years is what my officials tell me after consultation is necessary to introduce a short fast-track apprenticeship for round about at any one point in time 57,000 individuals participating in the new modern apprenticeship.

    The actual quantification of the cost of each sector will follow the detailed negotiations that are now taking place but all of this is against that background of £2.5 billion.

    Finally, Prime Minister, can I say about employment something just revealed in the House of Commons which I don’t think many people are aware of and that is when you look at the percentage of our working population now in work, we are just about the highest with one other country in the Europe in the league table in Europe. We have 70% of the male and female population aged 15-64 in work and that compares to Germany 65%, France 60%, Italy 56%, Ireland 52%, Spain 49%.

    QUESTION:

    Regarding the sections in the White Paper both on transport and London, Could you tell us what is happening to the “Crossrail” project and whether it will be built?

    JOHN MACGREGOR:

    We remain firmly committed to the “Crossrail” project. The promoters are currently looking to see whether they can revive the Bill.

    JOHN GUMMER:

    It is very important for London and we are determined to ensure that this range of new opportunities are made available. The fact of the matter is that even though we are spending an enormous amount of money, much more than was ever spent when there was a GLC, it is still true that the standards which we are trying to produce and the opportunities go on increasing and that is why this is another step on a course which we started a long time ago.

    It is incremental but it will be all the more exciting if we can get “Crossrail” as well.