Iron Chancellor sets his course for stability of the economy, investment, education, tax credits and work Brown's welfare prescription

duced what he clearly felt was a people's Budget as he unveiled the first package of financial measures taken by a Labour Government for 18 years.

He was on his feet for almost exactly an hour as he addressed a range of issues, including the windfall tax, the stability of the economy, investment, tax credits, education, and welfare and work.

Mr Brown told a packed Commons: ''The Budget I lay before the House today represents more than an allocation of resources and an accounting of revenues. Behind the numbers and statistics, the central purpose of this Budget is to ensure that Britain is equipped to rise to the challenge of the new and fast changing global economy. Not just a few of us, but everyone.''

The Chancellor, who placed heavy emphasis on the importance of education, told the House: ''The measures I have announced today for stability, investment, employment and opportunity for all will make Britain better equipped and more ready to face the future with confidence. ''Previous Budgets pursued the short term intrests of the few - this Budget advances the long-term interests of the many. A Budget equipping Britain for the future - meeting the people's priorities. A people's Budget for Britain's future.''

On stability: he said that in May the Government established ''a wholly new framework for monetary stability; open and accountable, based on clearly established rules and discipline. The Government sets the inflation target, and the Bank of England sets interest rates to meet that target.

''This reform signified our determination to break from the short-termism of the past and establish long-term confidence.''

But during the 1990s the national debt has doubled.

His first rule - the golden rule - ''ensures that over the economic cycle the Government will borrow only to invest and that current spending will be met from taxation.

''My second rule is that, as a proportion of national income, public debt will be held at a prudent and stable level over the economic cycle.

''And to implement these rules, I am announcing today a five-year deficit reduction plan.''

''Immediately upon coming to office the Government invited an independent scrutiny by the National Audit Office of key assumptions in the public finance forecasts.

''This independent scrutiny will continue into future Budgets with further work by the National Audit Office and, with publication, some months in advance of every Budget, of an assessment for open debate of what is happening to the economy and to the people's money.''

He had therefore decided to tighten fiscal policy, as a result of Budget measures including the windfall tax, by #5500m this year and #4750m next year.

On investment: ''I want the United Kingdom to be the obvious first choice for new investment.

''So I have decided to cut the main rate of corporation tax by 2% from 33% to 31%, the lowest ever rate in the UK. This means that we will have the lowest corporation tax rate of any of our major competitors - Germany, France, America or Japan - and we will have it under this Government.''

On pension funds: ''Many pension funds are in substantial surplus and at present many companies are enjoying pension holidays, so this is the right time to undertake a long-needed reform. So, with immediate effect, I propose to abolish tax credits paid to pension funds and companies.

''For PEP holders, for individuals who do not pay tax and for charities, tax credits will continue to be paid until April 1999. By this time the introduction of individual savings accounts will ensure that individuals have the opportunity to continue to be able to save with tax advantages. So they will continue to have favourable tax incentives to invest in equities. Basic and lower rate taxpayers do not pay any extra tax on dividends they receive: that will remain the position. And we will ensure that higher rate taxpayers will pay no more than they do now.'' On investment: ''I have decided to do more to assist investment in small businesses. I have therefore decided to cut the small companies tax rate by 2% from 23% to 21%, and to do so from April 1997.''

On films: ''After today, production and acquisition costs on British films with budgets of #15m or less will qualify for 100% write-off for tax purposes when the film is completed: a three-year measure at a cost of #30m, that will not only boost the number of British films but the British economy by boosting our exports.''

On welfare to work: ''We will create a new ladder of opportunity that will allow the many, by their own efforts, to benefit from opportunities once open only to a few.

''Starting from next year, every young person aged 18-25 who is unemployed for more than six months will be offered a first step on the employment ladder.

Tomorrow the Secretary for Education and Employment will detail the four options. All involve training leading to qualifications:

oA job with an employer;

oWork with a voluntary organisation;

oWork on the environmental task force;

oFor those without basic qualifications, full time education or training.

With these new opportunities for young people come new responsibilities. There will be no fifth option - to stay at home on full benefit. So when they sign on for benefit they will be signing up for work. Benefits will be cut if young people refuse to take up the opportunities.''

As part of the new deal for the under-25s, the Government would encourage voluntary organisations to take on and train young people and help them into careers as child care assistants.

''We believe that over a five-year period as many as 50,000 young people can be trained as childcare assistants.

''Second, we will make child care more affordable.

''From next summer every lone parent with more than one child who qualifies for family credit, housing benefit or council tax benefit will have the first #100 of weekly childcare costs disregarded in calculating their in-work benefits and from now on every lone parent with children of 12 years old or younger will be able to receive help.

''Lottery money will be made available for after school clubs.''

As a final element of the Welfare to Work strategy ''we will also bring forward proposals to help those who are disabled or on incapacity benefit who want training or work. To fund this programme and other measures I have set aside #200m from the windfall fund.''

On Tax: ''We will introduce a 10p rate of income tax as soon as it is prudent to do so.

''A 10p tax rate - combined with a cut in benefit tapers - will reduce in-work poverty. So too will the minimum wage which the Government will introduce after advice from the new Low Pay Commission.''

''Set at a sensible level, the minimum wage will not only establish a floor under wages but ensure in-work benefits act as a genuine top-up for low paid workers rather than a subsidy for low paying employers.

''So I have also asked Martin Taylor to consider at an early stage the advantages of introducing a new in-work tax credit for low paid workers. It would draw upon the successful experience of the American earned income tax credit, which helps reduce in work poverty and now helps 19 million lower paid workers.

''Conclusions that emerge from this tax benefit review will inform the judgments in my next Budget, which I have decided will be in spring 1998.''

On tax: Rises in vehicle excise duty, broadly in line with inflation, will take place from November 17.

And in line with the environmental objectives I have set down, road fuel duties will increase by an extra 1% every year over and above the annual 5% real rate of increase established by the previous government.

''Petrol will go up by the equivalent of 4p a litre from 6pm this evening.

''I have also decided to raise the annual rate of increase in tobacco duties. From December 1 this year these will be increased by an extra 2% a year - this year by another 5p - above the annual 3% real rate of increase established by the previous government.''

On domestic fuel: ''I would like to abolish VAT on fuel. But European rules prevent me from doing so. Therefore, VAT will be cut to the lowest level compatible with European law, that is 5% from September 1, well in advance of winter fuel bills.''

He added: ''To cut fuel bills, I intend to make a further tax cut. The gas levy - imposed by the last Government - has pushed prices for domestic consumers higher than they would otherwise be.

''So from next April year we are reducing the gas levy to zero. Eighteen and a half million domestic customers will benefit from this change. Their gas bills should fall by about 2%, on average.

''As a result of these two changes, and other price cuts already announced, I expect gas prices to fall in real terms by 5.5% this year and 11% next year, which will mean a fall of #90 in next year's fuel bills compared with last year's.''

ON houses: ''First I will raise stamp duty from 1% to 1.5% on property sales above 250,000 and to 2 per cent for property sales above #500,000. This will take immediate effect after the Budget resolution has been voted by the House. Second, continuing the reforms begun by the previous Government which removed mortgage tax relief at the higher rate of 40% in 1991, and cut it to 15 per cent by 1995, I propose to reduce mortgage tax relief by a further 5% from 15% to 10% from April 1998.''

ON the windfall tax: ''Our reform of the welfare state - and the programme to move the unemployed from welfare to work - is funded by a new and one off windfall tax on the excess profits of the privatised utilities.

''The tax will apply to companies privatised by flotation, and subject to economic regulation under specified acts of Parliament.

''In determining the details of the tax, I believe I have struck a fair balance between recognising the position of the utilities today and their under-valuation and under-regulation at the time of privatisation.

''The windfall tax will be related to the excessively high profits made under the initial regime. A company's tax bill will be based on the difference between the value that was placed on it at privatisation, and a more realistic market valuation based on its after-tax profits for up to the first four full accounting years following privatisation.''

In preparing the windfall tax we looked more broadly at the position of the affected companies. As a result of my earlier announcement - justified on its own merits - to reduce the gas levy to zero, I am satisfied that no company faces an unduly heavy tax burden.

The windfall tax will raise some #2.1 billion from the electricity sector, around #1.65 billion from the water sector, and some #1.45 billion from the remaining companies. After taking the reduction in the gas levy into account, which will cost the Government #400 million over the next three years, the net effect of the gas levy and the windfall tax together will raise #4.8 billion.

''After consulting the regulators, it is my judgment that the tax can be paid without any impact on prices, investment, or the quality of service to customers or, in my view, on employment.

''In recent weeks many companies have asked to pay the tax in instalments. I have now agreed that this shall be the case. It will be a one-off tax payable in two instalments. The first instalment will be paid on 1 December 1997, the second a year later.

''Full details of how the tax will apply - and the companies who will pay it - will be set out in an Inland Revenue press release available at the conclusion of this statement.

''Based on the fiscal tightening I have announced today, I can now give full details of our five-year deficit reduction plan.

''The deficit reduction plan is aimed at reducing the structural budget deficit. It is made possible by a long term commitment to financial discipline. It takes into account the uncertainties and risks involved in and forecasting the economic cycle. It is underpinned by a comprehensive review of the way Government spends its money and it matches rigour today with a long term commitment to prudent and sustainable public finances. In January this year I announced we would adhere for two years to the agreed control totals for public spending. That commitment is reaffirmed today and integral to the Budget statement.

''I announced there would be no spending round this year. Nor will there be.''

Departments were work

ing within already announced departmental spending totals to reorder spending from low priority to high priority areas. I am pleased to report that they are not only identifying waste and inefficiencies in existing spending but redistributing savings to the long term priorities of this Government, not the last.

''The figures I now give for my deficit reduction plan exclude windfall tax revenues.

''Borrowing was projected in the last Budget to be #19.25 billion this year but is now set to be #13.25 billion. And borrowing that was projected to be #12.25 billion next year is now set to be #5.5 billion.

''Beyond these years, I am publishing a range of projections based on different assumptions for spending. In every case we meet the golden rule, see debt falling as a proportion of GDP and, because of our discipline, we go below the borrowing projections of the previous Government.

''And for this year and for the foreseeable future we are comfortably within the Maastricht criteria for levels of both debt and borrowing.

''Tough and prudent management is our watchword in what will continue to be a thoroughly disciplined approach to public finances.

''The Comprehensive Spending Review will determine overall priorities for the early decades of the new century.

''In the case of the National Health Service, the first stage of our cuts in bureaucracy are being implemented this year.

''By next spring the first conclusions from the strategic review of London hospitals will be implemented; we will act to improve the organisation of services including, to merge NHS trusts.

''By dismantling the inefficient internal market we will no longer have to spend money promoting competition and servicing innumerable short term contracts and the administration that goes with them, at the expense of patient care.

''And because we have reinvigorated the Private Finance Initiative, we will shortly announce a new hospital building programme across the country.

''We will also act to recoup in full the cost of treating road traffic accidents from insurance companies. This . . . shows our determination to ensure NHS resources are focused on frontline care.''