Osborne: ‘a big budget for a country with big ambitions’

The Summer Budget speech in full …

Mr Deputy Speaker,

This is a Budget that puts security first.

It’s a Budget that recognises the hard work and sacrifice of the British people over the past 5 years and says: we will not put that at risk, we have a job to do and we’re here to get on with it.

This will be a Budget for working people.

A Budget that sets out a plan for Britain for the next 5 years to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country we intend to create.

This is the new settlement.

From a one nation government, this is a one nation Budget that takes the necessary steps and follows a sensible path for the benefit of the whole of the United Kingdom.

And this is a Budget that can only be delivered because the British people trusted us to finish the job.

Because they know that the only way to have a strong NHS, strong schools, and a strong defence is to build a strong economy – that’s how we were elected, and is exactly what we will do.

Mr Deputy Speaker,

The British economy I report on today is fundamentally stronger than it was five years ago.

We’re growing faster than any other major advanced economy.

Our businesses have created two million more jobs

Living standards are rising strongly.

Our long term economic plan is working.

But the greatest mistake this country could make would be to think all our problems are solved.

You only have to look at the crisis unfolding in Greece as I speak, to realise that if a country’s not in control of its borrowing, the borrowing takes control of the country.

Britain still spends too much, borrows too much, and our weak productivity shows we don’t train enough or build enough or invest enough.

This we are determined to change.

We will be bold in transforming education.

Bold in reforming welfare.

Bold in delivering infrastructure.

Bold in building the Northern Powerhouse.

We will be bold in backing the aspirations of working people.

This is a big Budget for a country with big ambitions.

It is a Budget that sets the way to secure Britain’s future.

Mr Deputy Speaker,

Let me turn to the latest forecasts from our independent Office for Budget Responsibility – and we thank Robert Chote and his colleagues for their hard work.

We now have Budgets that fit the economic forecasts, instead of economic forecasts that were fixed to fit the Budget.

At the March Budget it was thought that the British economy had grown by 2.6% last year. We now know it grew by 3%.

But the global economic risks are rising.

The US economy has slowed, so too has China.

And even before the Greek crisis intensified this week the forecasts for global growth had been revised down this year to 3.2%.

It is all the more reason to get our own house in order.

For 2015 the OBR forecast growth at 2.4%

That is faster than America, faster than Germany and twice as fast as France.

For the second year in a row, Britain is expected to have the strongest economic growth of any major advanced economy in the world.

In 2016 the OBR have growth unchanged at 2.3% – and it is then revised up to 2.4% in the following year; a level of strong, steady growth it predicts for the rest of the decade.

This growth is driven by stronger private consumption, and by stronger private investment too.

Indeed, business investment is now 31.9% higher than it was in 2010, and is revised up again this year.

Now we need to see investment at home matched by exports abroad.

Our decision to become a founder member of the new Asian Infrastructure Investment Bank is driven by our determination to connect Britain to the fastest growing parts of the world.

And our decision to seek reform to the EU is driven by our determination that this part of the world shall not price itself out of a prosperous future.

Mr Deputy Speaker,

Higher investment leads to more jobs, which brings me to the OBR forecasts for employment.

Over two million more people have the security of work as a result of this government’s long term economic plan.

The OBR forecast that under the current economic conditions, almost a million more jobs will be created over the next five years.

Our ambition is to go further, and create 2 million more jobs on the road to full employment. To help achieve that progressive goal, we set out today how we will make work pay.

Mr Deputy Speaker,

Jobs are not created by accident.

They are created when businesses have confidence – the confidence to invest, to grow and to hire.

Confidence that comes because Britain is getting its house in order.

So we seek to create a country that can truly pay its way.

The budget deficit is now less than half the 10% we inherited.

And economic security is returning

But all that progress is at risk if we do not finish the job

That means more than just eliminating the deficit, it means running a surplus to get our dangerously high levels of debt down.

That brings me to the first of the key judgements in this Budget: how fast do we cut the deficit?

And my answer is this: we should cut the deficit at the same pace as we did in the last parliament.

We shouldn’t go faster. We shouldn’t go slower.

At this pace the national debt is lower as a share of our national income in every future year than when I presented the Budget in March.

And it is achieved without a rollercoaster ride in public spending.

This is why:

First – our tax receipts are stronger than forecast, showing the recovery is firmly entrenched.

Second – as a strong majority government we’ve been able to get on with making extra savings in this financial year.

Third – we can make faster progress in returning our banks, including RBS, to where they belong – the private sector.

Indeed the sale of government assets this year will deliver the largest privatisation proceeds of all time, higher than the previous record in 1987.

Stronger tax receipts, more asset sales and a strong government that’s getting on with the job – we can achieve a smoother path to the same destination.

With a surplus a year later in 2019-20, but the national debt lower and that same surplus higher.

For this is a budget that puts economic security first.

Mr Deputy Speaker,

Many difficult but necessary decisions are required to save money and this will be done with moderation but determination.

This is a one nation Government that does the best thing for the economy and the right thing for the country.

This plan is reflected in the forecasts for debt and deficit produced today by the Office for Budget Responsibility.

The deficit was 10.2% of national income in 2010.

This year it is forecast to fall to 3.7% – one third of the deficit we inherited.

It then falls again to 2.2% in 2016-17, down to 1.2% in the year after that, and then to just 0.3% in 2018-19.

The following year, 2019-20 we move into a budget surplus at 0.4%, which is then maintained in the year after that at 0.5% of GDP.

In structural terms, the OBR judge that this will be the largest surplus in at least 40 years.

Britain back in the black, and in its strongest position for almost half a century.

This is, of course, all reflected in the amount of cash Britain has to borrow each year.

In 2010, Britain was borrowing a staggering and unsustainable £153.5 billion a year.

In March the OBR forecast we would borrow less than half that, or £75.3 billion, this year. In this Budget, they have revised borrowing down this year, to £69.5 billion.

Borrowing then falls to £43.1 billion next year, £24.3 billion in 2017/18 and down to just £6.4 billion the year after that.

In 2019-20 we move into a surplus higher than previously forecast of £10.0 billion which rises to £11.6 billion the year after that – Britain finally doing the responsible thing and raising more money than it spends.

Five years ago, we inherited a situation where our national debt as a share of our national income was soaring.

This year, that national debt share is falling.

Bringing to an end the longest continued rise in our national debt since the seventeenth century.

It’s falling now, and it continues to fall in every year of the forecast.

Down from 80.3% this year, to 79.1% next year, then down again to 77.2% in 2017-18, 74.7% the year after, and 71.5% the year after that – before falling again to 68.5% in 2020-21.

Britain has turned a corner.

Mr Deputy Speaker, having come this far, there can be no turning back.

We should aim for a new settlement across the political spectrum where it is accepted that:

without sound public finances there is no economic security for working people,
that those who suffer when governments run unsustainable deficits are not the richest but the poorest,
and therefore in normal economic times governments should run an overall budget surplus, so our country is better prepared for whatever storms lie ahead.
In short we should always fix the roof while the sun is shining.

Today I publish the new Fiscal Charter that commits our country to that path of budget responsibility.

While we move from deficit to surplus, this Charter commits us to keeping debt falling as a share of GDP each and every year– and to achieving that budget surplus by 2019-20.

Thereafter, governments will be required to maintain that surplus in normal times – in other words, when there isn’t a recession or a marked slowdown.

Only when the OBR judge that we have real GDP growth of less than 1% a year, as measured on a rolling four-quarter basis, will that surplus no longer be required.

The Chancellor of the day will have to set out their plan with clear targets to restore the nation’s finances to health – and this House of Commons will test the credibility of that plan and vote on those targets.

It is sensible, pragmatic and it keeps Britain secure.

We will put this new Fiscal Charter to a vote in this House this autumn.

Mr Deputy Speaker,

In order to meet this new Charter further difficult decisions need to be taken to live within our means.

We will take these decisions in a balanced and fair way.

I can confirm that the analysis produced today shows that the richest are paying a greater share of tax than they were at the start of the last parliament.

And more than that, we are continuing to devote a greater share of state support to the most vulnerable.

As I said they would – those with the broadest shoulders are bearing the greatest burden. For we are all in this together.

And, in the last fortnight we’ve seen independent statistics showing that since 2010, child poverty is down and so is inequality.

That comes on top of a record number of women in work, and the gender pay gap at an all-time low.

All good news which should be welcomed on all sides of the House.

Mr Deputy Speaker, the fiscal plan set out in this Budget requires around £37 billion of further consolidation over the Parliament.

Today I set out how we will find just under half of that – £17 billion.

We’ve found annual savings of £12 billion from welfare and £5 billion from tackling tax evasion, avoidance, planning and imbalances in the tax system.

The other half will largely come from government departments and will be set out at the Spending Review that the Chief Secretary and I will conduct this autumn.

However, no year will see cuts as deep as those required in 2011-12 and 2012-13.

Of course, I am conscious that a huge amount has already been done to increase efficiency across Whitehall – with administrative budgets down by over 40% in real terms.

But there’s still much more we can do.

There is also a simple trade-off between pay and jobs in many public services.

I know there has already been a period of restraint, but we said last autumn that we would need to find commensurate savings in this Parliament.

So to ensure we have public services we can afford, and protect more jobs, we will continue recent public sector pay awards with a rise of 1% per year for the next four years.

Mr Deputy Speaker,public spending should reflect public priorities – and we have to make choices.

Our priority is the National Health Service.

We will fund fully the plan the NHS has itself produced for its future – the Stevens Plan.

That plan requires very challenging efficiency savings across the health service – which must be found.

But it also requires additional government funding.

Our balanced approach means I can today confirm the NHS will receive – in addition to the £2 billion we’ve already provided this year – a further £8 billion.

That’s £10 billion more a year in real terms by 2020.

It’s proof that you can only have a strong 7-day NHS if you have a strong economy.

Mr Deputy Speaker, I’ve set out the difficult choices we’re going to face on government spending, and the priority we will accord to our national health service.

I turn now to combatting tax evasion, avoidance and aggressive tax planning.

In Budget after Budget, we have done more to combat this than any government before us.

We inherited a system where bankers boasted of paying lower tax rates than their cleaners, and some multinationals shifted all their profits offshore.

We’ve stopped these blatant abuses that were allowed to flourish, and many others.

But we promised the British people we would do more – and find a further £5 billion a year, and I can confirm we have done so.

We’re boosting HMRC’s capacity with three quarters of a billion pounds of investment to go after tax fraud, offshore trusts and the businesses of the hidden economy, tripling the number of wealthy evaders they pursue for prosecution – raising £7.2 billion in extra tax.

We’re going to change the law to stop the use of losses which abuse our controlled foreign companies regime, and make sure investment fund managers pay the full capital gains tax rate on their carried interest.

We’ll stop corporates artificially increasing the value of stock for tax purposes, and to focus the employment allowance on employment – we’re restricting it so that companies where the director is the sole employee will no longer be able to claim.

We’re consulting today on how to deal with the increasing abuse of the rules around disguised employment when working through a personal service company.

And we’re going to add tough new penalties to our General Anti-Abuse Rule, and name and shame serial users of failed tax avoidance schemes.

These people should have nowhere to hide.

Mr Deputy Speaker, the Non-Domicile tax status is a long standing feature of the UK tax system, in place since 1914, that plays an important role in allowing those from abroad to contribute to our economy, before returning to their permanent home – and many countries have some version of this tax status.

Simply abolishing it altogether, would, as Ed Balls correctly noted, probably cost the country money.

Many of these people make a considerable contribution to our public life and to tax revenues.

But there are some fundamental unfairnesses in the non-dom regime that I am putting a stop to today.

It is not fair that people who are born in the UK to parents who are domiciled here, can later in life claim to be non-doms and live here.

It is not fair that non-doms with residential property here in the UK can put it in an offshore company and avoid inheritance tax.

From now on they will pay the same tax as everyone else.

And most fundamentally, it is not fair that people live in this country for very long periods of their lives, benefit from our public services, and yet operate under different tax rules from everyone else.

Non-dom status was meant to be temporary, but it became permanent for some people. Not any longer.

I am today abolishing permanent non-dom tax status.

Anyone resident in the UK for more than 15 of the past 20 years will now pay full British taxes on all worldwide income and gains.

We will consult to get the detail right.

All these non-dom measures will come into effect in April 2017, and they will raise £1.5bn in extra tax for the Exchequer over this Parliament.

British people should pay British taxes in Britain – and now they will.

Mr Deputy Speaker, turning to corporate tax rules, we will also broaden the base for corporation tax by removing, for future transactions only, the annual deduction for acquired reputational value.

For big companies with profit over £20million a year, we will bring forward corporation tax payments dates – so tax is paid closer to the point at which profits are earned.

This is fair, it’s more in line with what we’re doing in personal tax and is what almost all other G7 nations do. Banks make a key contribution to our economy, but also need to make a fair contribution.

It’s important they help pay down the debts built up during the banking crisis, but equally important they go on creating jobs – not just in London, but Edinburgh, Leeds, Birmingham, Bournemouth and across the country.

The new remit I am issuing today for the Financial Policy Committee highlights the importance of productive investment, innovation and competition in finance.

Our bank levy was introduced to raise revenue and increase the stability of balance sheets, and it’s worked – but now it risks doing harm unless we change it.

So I will, over the next 6 years, gradually reduce the bank levy rate – and after that make sure it no longer applies to worldwide balance sheets.

But to maintain a fair contribution from the banks, I will introduce a new 8 percent surcharge on bank profits from the 1st January next year.

By getting this balance right, it means we’ll actually raise more from the banks this parliament, but at the same time make our country a more competitive place to do business.

We’ve taken action to make sure that consumers get a better deal from another important industry – insurance.

The cost of premiums are down for families.

And today we’re announcing a major review of the regulation of claims management companies and we’ll cap the charges they can apply to their customers.

Britain’s insurance premium tax is well below tax rates in many other countries.

I am therefore today raising insurance premium tax – which applies to only one fifth of all premiums – to 9.5%, effective from this November.

With these measures I am putting in place an approach for taxing banks and insurers over this Parliament which is sustainable, stable and fair.

Mr Deputy Speaker, in each year, we’ve been able to use money from the banking fines paid by those who represent the worst of British values to support those in uniform who demonstrate the best of British values.

Today we announce funding for the Defence Medical Welfare Service and the Royal Commonwealth Ex-Services League.

We’re supporting the incredibly courageous members of our Special Forces who are injured and, in the 75th Anniversary of the Victoria Cross and George Cross Association, quadrupling the annual annuity we pay to those who demonstrated the highest valour and who I had the honour of meeting yesterday.

In the week of the poignant anniversary of the 7/7 attacks, we should recognise too our victims of terrorism overseas have no permanent memorial.

We will now fund one, as well as a specific memorial to those murdered in Tunisia.

We’re committing £50 million to expand the number of cadet units in our state schools to 500, prioritising schools in less affluent areas.

And we’re going to support the Children’s Air Ambulance by funding an extra helicopter.

Mr Deputy Speaker, in every Budget I also find an opportunity to fund the commemoration of famous events from our history and the buildings that symbolise them.

This Budget is no exception.

The RAF’s Group Fighter Command Centre in West London was the place where the Battle of Britain was directed from – and it badly needs repair.

I want to thank the new Member, my Honourable Friend for Uxbridge, for bringing to my attention the dilapidated state of his campaign bunker.

Let its renovation stand as a monument to the heroes of the Battle of Britain and the days when aeroplanes flew freely over the skies of west London.

Mr Deputy Speaker, I turn now to the great economic challenge we face on productivity.

For this is the key to delivering the financial security families see when living standards rise.

And it will ensure Britain becomes what we want it to be – the most prosperous major economy in the world by the 2030s.

That is within the grasp of our generation, provided we take the big decisions.

On Friday we will set out our Plan for Productivity, to help realise this ambition.

And I want to thank my new Treasury colleague – Jim O’Neill – for his work as a world leading economist in putting it together.

Major British businesses led by Sir Charlie Mayfield, have told me they want to be part of the solution to this great challenge and we very much welcome that.

So let me today set out the key parts of that plan.

First, transport.

Four fifths of all journeys in this country are by road, yet we rank behind Puerto Rico and Namibia in the quality of our network.

In the last 25 years, France has built more than two and a half thousand miles of motorway – and we’ve built just 300.

In the last Parliament I increased road spending, even in difficult times, and set out a plan for £15bn of new roads for the rest of this decade.

But we need a long term solution if we’re going to fix Britain’s poor roads.

Vehicle Excise Duty was used to fund our roads, but not anymore.

And because so many new cars now fall into the low carbon emission bands, by 2017, over three quarters of new cars will pay no VED at all in the first year.

This isn’t sustainable and it isn’t fair.

If you can afford a brand new car, including some of the most expensive models available, you can pay no VED.

If you can only afford an older, second-hand car, you have to pay more tax.

So this is what we’ll do.

From 2017, for brand new cars only, we will introduce new VED bands.

The duty in the first year will be set according to emissions, like today, but updated for new technology.

Thereafter there will be three duty bands – zero emission, standard and premium.

For standard cars – that covers 95% of all cars sold in the UK – the charge will be £140 a year. That’s less than the average £166 that motorists pay today.

There will be no change to VED for existing cars – no one will pay more in tax than they do today for the car they already own.

In total we’ll only raise the same amount of revenue from VED in the future that we do today – but that revenue will be secure for the long term.

And I will return this tax to the use for which it was originally intended.

I am creating a new Roads Fund.

From the end of this decade, every single penny raised in Vehicle Excise Duty in England will go into that Fund to pay for the sustained investment our roads so badly need.

We’ll engage with the Devolved Administrations on how the money is allocated there.

Tax paid on people’s cars will be used to improve the roads they drive on.

It is a major reform to improve the infrastructure and productivity of our economy – and deliver a fairer tax system for the motorist.

We will consult on extending the deadline for new cars and motorbikes to have their first MOT test from 3 years to 4 years, which would save motorists over £100m a year.

I can also confirm that there will be no changes to the plans for fuel duty I set out in March – fuel duty will remain frozen this year.

Mr Deputy Speaker, productivity means building more roads, it also means giving people the skills they need to secure a better job.

It is to our national shame that we are almost the only advanced country in the world where the skills of our 16 – 24 year olds are no better than our 55-64 year olds.

The education reforms we started in the last parliament have begun to address this problem.

And we’re going further in this parliament by tackling the coasting schools that simply aren’t good enough.

We’ve already doubled the number of apprenticeships to 2 million – now we’re committed to 3 million more.

To fund those apprenticeships and make sure they’re of high quality, we have to confront this truth.

While many firms do a brilliant job training their workforces; there are too many large companies who leave the training to others and take a free ride on the system.

So we are going to take a radical, and frankly long overdue approach.

We are going to introduce an apprenticeship levy on all large firms,

Firms that offer apprenticeships can get more back than they put in.

Britain’s great businesses training up the next generation.

3 million more apprenticeships with the security that will bring.

The money will be directly controlled by employers and we’ll work with business on how to do this, it’s exactly the sort of bold step we need to take if Britain is going to raise its game.

Next we’ve got to secure the success of our university sector, which is one of the jewels in the crown of the British economy.

When we reformed student funding in the last Parliament we were told by those who so opportunistically opposed us that it would put people from low income backgrounds off from going to university.

Instead we now see a record number of these students applying and succeeding.

It is a triumph of progressive reform.

Now we are removing the artificial cap on student numbers so we don’t have to turn away people from our universities who want to go and have the right grades.

But we can’t afford to do this unless we tackle the cost of student maintenance grants – that is set to almost double to £3bn over this decade.

There’s also a basic unfairness of asking taxpayers to fund the grants of people who are likely to earn a lot more than them.

The government of 1997-2010 actually abolished these grants, before reintroducing them, and now they’ve become unaffordable.

If we don’t tackle this problem then our universities will become underfunded and our students won’t get places – and I’m not prepared to let that happen.

So, from the 2016-17 academic year we will replace maintenance grants with loans for new students – loans that only have to be paid back once they earn over £21,000 a year.

And to ensure university is affordable to all students from all backgrounds, we’ll increase the maintenance loan available to £8,200 – the highest amount of support ever provided.

To ensure our university system is sustainable, we’ll consult on freezing the loan repayment threshold for five years – and we’ll link the student fee cap to inflation for those institutions that can show they offer high-quality teaching.

And we’ll open the whole sector to new entrants who can deliver the highest standards.

It’s a major set of reforms to make sure Britain continues to have the best universities in the world. It is fair to students.

Fair to taxpayers.

And vital to secure our long term economic future

Mr Deputy Speaker, Britain’s weak productivity is also driven by the fact that too much of our economic strength is concentrated in this capital city.

This is unhealthy and unproductive, and we must achieve a better settlement for the future.

Not by pulling London down.

One of the first pieces of advice I received in the Treasury was to cancel the plan for the Crick Institute, Tate Modern extension and Crossrail – but I rejected that advice, because I’ve always believed it’s to our nation’s great advantage that we have one of the world’s great capitals.

Now we’re working with the Mayor on what this city will need in the future, with projects like Crossrail 2 and the exciting development of the Olympic village.

But what really drives this government, is building up other parts of our United Kingdom, as a balance to London’s strength.

For Scotland, we’re now delivering – as promised – major devolution of tax and welfare powers.

The Scottish Government will soon have to answer the question; “you’ve got the powers, when are you going to use them?”

In Wales, we are honouring our commitments to a funding floor and to more devolution there – and investing in important new infrastructure like the M4 and the Great Western Line.

And in Northern Ireland, we are working with all parties to deliver the ‘Stormont House Agreement’ and sustainable public finances there.

Devolution to the nations of the United Kingdom is well established.

In my view devolution within England has only just begun.

Today we go further in building the Northern Powerhouse.

I can today announce that I have reached agreement with the leaders of the 10 councils of Greater Manchester to devolve further powers to the city.

These include putting fire services under the control of the new Mayor, establishing a land commission in the city, and further collaboration on children’s services and employment programmes.

The historic devolution that we have agreed with Greater Manchester in return for a directly elected mayor is available to other cities who want to go down a similar path.

I can also tell the house we are working towards deals with the Sheffield and Liverpool City Regions and Leeds, West Yorkshire and partner authorities on far reaching devolution of power in return for the creation of directly elected mayors.

We’ve created Transport for the North – now I’m putting it on a statutory footing and I can announce £30 million of funding to this new body as it connects northern England together, with seamless oyster-style ticketing across the region.

Next, with my RHF the Business Secretary and MP for Bromsgrove – we’re pushing for more powers and responsibility to be devolved to the Midlands.

The massive £7.2 billion investment in transport in the South West is underway.

And in the first of our new county deals we’re making progress on a major plan to give Cornwall a greater say over local decisions.

We are, across England, launching a new round of Enterprise Zones for smaller towns, and to celebrate the Queen’s 90th birthday, a new set of prestigious Regius Professorships will be created in universities right across the country.

And to give more power to counties and to our new mayors, we are going to give them the power to set the Sunday trading hours in their areas.

Let’s invest across our country.

Let local people decide

Let’s put the power into the Northern Powerhouse.

Mr Deputy Speaker, another key to raising the productivity of our country is building more homes and creating a fairer property market.

This is a government that is unwavering in its support for home ownership.

That’s why we’re introducing the new Help to Buy ISA this autumn.

That’s why we’re giving housing association tenants the right to buy.

That’s why we will set out further planning reforms on Friday.

Today I set out three important changes that will address unfairness in our taxation of property, and put the security of home ownership first.

First, we will create a more level playing-field between those buying a home to let, and those who are buying a home to live in.

Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot.

And the better-off the landlord, the more tax relief they get.

For the wealthiest, every pound of mortgage interest costs they incur, they get 45p back from the taxpayer.

All this has contributed to the rapid growth in buy-to-let properties, which now account for over 15% of new mortgages, something the Bank of England warned us last week could pose a risk to our financial stability.

So we will act – but we will act in a proportionate and gradual way, because I know that many hardworking people who’ve saved and invested in property depend on the rental income they get.

So we will retain mortgage interest relief on residential property, but we will now restrict it to the basic rate of income tax.

And to help people adjust, we will phase in the withdrawal of the higher rate reliefs over a four year period, and only start withdrawal in April 2017.

Second, the rent-a-room relief is designed to help homeowners who rent out a room in their home. It’s a good scheme, particularly in a world where more and more people are renting out rooms online, but the relief has been frozen at £4,250 for 18 years.

Next year, we will raise it to £7,500.

The third change fulfils a long standing promise I made.

The wish to pass something on to your children is about the most basic, human and natural aspiration there is. Inheritance tax was designed to be paid by the very rich.

Yet today there are more families pulled into the inheritance tax net than ever before – and the number is set to double over the next five years.

It’s not fair and we will act.

From 2017, we will phase in a new £175,000 allowance for your home when you leave it to your children or grandchildren.

It sits on top of the existing £325,000 threshold which will be fixed until the end of 2020-21.

Both allowances can be transferred to your spouse or partner.

And from today we’ll make sure those who choose to downsize do not lose any of the allowance from the property they used to own.

But we will taper the relief away for estates worth more than £2 million.

The result for families is this.

You can pass up to £1 million on to your children free of inheritance tax.

No more inheritance tax on family homes.

Aspiration supported.

The tax paid only by the rich.

The security of home ownership restored.

Promise made – promise delivered.

This cut in inheritance tax will be more than paid for by changes we’ve set out to the pensions tax relief we give to the highest earners. From next year their Annual Allowance will be tapered away to a minimum of £10,000.

Mr Deputy Speaker, our pension reforms have given huge freedom to people who’ve worked hard and saved hard all their lives – and many thousands are, with the free guidance service we offer, making use of those freedoms to access their savings instead of buying annuities.

Now it’s time we looked at the other end of the age scale – at those starting to save for a pension.

For the truth is Britain isn’t saving enough and that’s something we need to fix in our economy too.

While we’ve taken important steps with our new single tier pension and generous new ISA, I am open to further radical change.

Pensions could be taxed like ISAs.

You pay in from taxed income – and its tax free when you take it out. And in-between it receives a top-up from the government.

This idea, and others like it, need careful and public consideration before we take any steps. So I am today publishing a Green Paper that asks questions, invites views, and takes care not to pre-judge the answer.

Our goal is clear: we want to move from an economy built on debt to an economy built on the more secure and productive foundations of saving and long term investment.

Mr Deputy Speaker, if Britain wants to produce more, it needs to invest more.

Many small and medium sized businesses have benefitted from our enhanced Annual Investment Allowance. This Allowance was set at £100,000 when we came to office – it is higher now, but without action it will fall to just £25,000 at the end of the year.

That would especially hit middle-sized companies in areas like manufacturing and agriculture that we want to do more to build up in Britain.

So I can confirm that the Annual Investment Allowance will not fall to £25,000 but be set at £200,000; this year and every year.

A major, permanent boost to the incentives for long-term investment by small and medium sized firms in Britain.

The large reductions in tax on North Sea oil and gas I announced in March are going ahead, and today we broaden the types of investment that qualify for allowances.

Now we have a long term framework for investment in renewable energy in place, we will remove the out-dated Climate Change Levy exemption for renewable electricity that has seen taxpayer money benefitting electricity generation abroad.

Mr Deputy Speaker, we’ve cut Corporation Tax from 28% to 20% over the last Parliament, one of the biggest boosts British business has ever seen.

We can’t take it lower than that while such strong incentives are created for people to self-incorporate and pay the lower rates of tax due on dividends.

The dividend tax system was designed partly to offset double taxation on profits.

But the system has not changed despite sharp reductions in corporation tax. Lower rates are creating rapidly growing opportunities for tax planning.

We have inherited a very complex and archaic system.

So I am today undertaking a major and long overdue reform to simplify the taxation of dividends.

The dividend tax credit will be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers.

The rates of dividend tax will be set at 7.5%, 32.5% and 38.1%. An increase of 7.5% where dividend income exceeds £5,000.

Dividends paid within pensions and ISAs will remain tax-free and unaffected by these changes.

Those who either pay themselves in dividends or have large shareholdings worth typically over £140,000 will pay more tax.

85% of those who receive dividends will see no change or be better off.

Over a million people will see their tax cut.

It’s an important reform.

It comes into operation next year, and with our Personal Allowance and our new Personal Savings Allowance it means that from April – on top of the New ISA – people will be able to receive up to £17,000 of income a year tax free.

The reforms I’ve announced to dividend taxation also allow us to do something more – and go further in creating a Britain that is one of the most competitive economies in the world.

Mr Deputy Speaker, there are those in this house who said we were wrong to cut corporation tax in the last parliament – but it created millions more jobs, brought businesses back to Britain and increased much needed investment – so I profoundly disagree.

Now at 20% for large and small businesses alike, we have the joint lowest rate of corporation tax in the G20.

And so there are those who say we do not need to do more. I profoundly disagree with them too.

This country cannot afford to stand still while others rush ahead. I am not prepared to see that happen. Today I announce that I am cutting it again.

Britain’s corporation tax rate will fall to 19% in 2017 and 18% by 2020.

We’re giving businesses the lower taxes they can count on, to grow with confidence, invest with confidence and create jobs with confidence

A new 18% rate of corporation tax – sending out loud and clear the message around the world: Britain is open for business.

Mr Deputy Speaker, if we are to build a more productive economy, and our country is to live within its means, then we have to make this fundamental change.

We have to move Britain from a low-wage, high-tax, high-welfare society to a higher-wage, lower-tax, lower-welfare economy.

For Britain is home to 1% of the world’s population; generates 4% of the world’s income; and yet pays out 7% of the world’s welfare spending.

It is not fair to the taxpayers paying for it.

It needs to change.

Welfare spending is not sustainable and it crowds out spending on things like education and infrastructure that are vital to securing the real welfare of the people.

We’ve already legislated for savings of over £21 billion in the last parliament; capped benefits for out of work families; and started to introduce Universal Credit.

Universal Credit will transform the lives of those trapped in welfare dependency and deliver real social justice – it’s the result of the herculean efforts of my RHF the Work and Pensions Secretary.

But to live within our means as a country and better protect spending on public services, we need to find at least a further £12 billion of welfare savings.

Let me set out the principles we follow – and how they will be applied.

First, the welfare system should always support the elderly, the vulnerable and disabled people.

We will honour the commitments we made to uprate the state pension by the triple lock and protect the other pensioner benefits.

The BBC has agreed to take on responsibility for funding free TV licences for the over 75s and in return we were able to give our valued public broadcaster a sustainable income for the long term.

In the last Parliament we increased payments to the most disabled people and we will not tax or means-test disability benefits.

We will increase funding for domestic abuse victims and women’s refuge centres.

And we are also going to use the remaining funds available in our Equitable Life Payment Scheme, as it closes, to double the support we give to those policy holders on Pension Credit who most need this extra help.

The second principle we will apply is this.

Those who can work will be expected to look for work and take it when it is offered.

The best route out of poverty is work.

Our economic plan has created a record number of jobs, and now a third of a million fewer children are being brought up in workless families.

It is not acceptable that in an economy moving towards full employment, some young people leave school and go straight on to a life on benefits.

So for those aged 18-21 we are introducing a new Youth Obligation that says they must either earn or learn. We are also abolishing the automatic entitlement to housing benefit for 18-21 year olds.

There will be exceptions made for vulnerable people and other hard cases, but young people in the benefit system should face the same choices as other young people who go out to work and cannot yet afford to leave home.

To make sure work pays for parents, I can confirm that, from September 2017 all working parents of 3 and 4 year olds will receive free childcare of up to 30 hours a week.

Once again, a promise made: a promise delivered.

As a result we now expect parents with a youngest child aged 3, including lone parents, to look for work if they want to claim Universal Credit.

All part of our progressive goal of securing full employment in Britain.

We also want to increase employment among those who have health challenges but are capable of taking steps back to work.

The Employment and Support Allowance was supposed supposed to end some of the perverse incentives in the old Incapacity Benefit. Instead it has introduced new ones.

One of these is that those who are placed in the work-related activity group receive more money a week than those on Job Seekers Allowance, but get nothing like the help to find suitable employment.

The number of JSA claimants has fallen by 700,000 since 2010, whilst the number of incapacity benefits claimants has fallen by just 90,000. This is despite 61% of claimants in the ESA WRAG benefit saying they want to work.

For future claimants only, we will align the ESA Work-Related Activity Group rate with the rate of Job Seekers Allowance.

No current claimants will be affected by this change and we will provide new funding for additional support to help claimants return to work.

The third principle that we apply to welfare is this: the whole working age benefit system has to be put on a more sustainable footing.

In 1980, working age welfare accounted for 8% of all public spending. Today it is 13%.

The original Tax Credit system cost £1.1 billion in its first year.

This year, that cost has reached £30 billion.

We spend more on family benefits in Britain than Germany, France or Sweden.

It is, in the words of the RHM for Birkenhead the new Chair of the Work and Pension Select Committee, simply “not sustainable”.

As Alistair Darling has said, the sheer scale of Tax Credits is “subsidising lower wages in a way that was never intended.”

So those who oppose any savings to Tax Credits will have to explain how on earth they propose to eliminate the deficit, let alone run a surplus and pay down debt.

We will take the following steps to put working age benefits on a more financially sustainable footing.

Since the crash, average earnings have risen by 11%, but most benefits have risen by 21%.

To correct that, we will legislate to freeze working age benefits for four years.

That will include Tax Credits and Local Housing Allowance. And it means earnings growth will catch up and overtake the growth in benefits.

Statutory payments like Maternity Pay and the disability benefits – PIP, DLA and ESA Support Group will be excluded from the freeze.

Mr Deputy Speaker, we are also going to end the ratchet of ever higher housing benefit chasing up ever higher rents in the social housing sector.

These rents have increased by a staggering 20% since 2010.

So rents paid in the social housing sector will not be frozen, but reduced by 1% a year for the next four years.

This will be a welcome cut in rent for those tenants who pay it and I’m confident that Housing Associations and other landlords in the social sector will be able to play their part and deliver the efficiency savings needed.

We also need to focus Tax Credits, and Universal Credit, on those on lower incomes, if we are going to keep the whole system affordable and able to support those most in need.

So from next year, we will reduce the level of earnings at which a household’s Tax Credits and Universal Credit start to be withdrawn.

The income threshold in tax credits will be reduced, from £6,420 to £3,850.

Universal Credit work allowances will be similarly reduced – and will no longer be awarded to non-disabled claimants without children.

The rate at which a household’s Tax Credit award is reduced as they earn more will be increased, by raising the taper rate to 48%.

The income rise disregard will be reduced from £5,000 to £2,500 – the same level at which it was originally set in 2003.

Taken all together, the freeze in working age benefits, the downrating of social rents, and the focus of tax credits and Universal Credit on the lowest income households will reduce the welfare bill by £9 billion a year by 2019-20.

The fourth principle we will apply to our welfare reform is this: the benefits system should not support lifestyles and rents that are not available to the taxpayers who pay for that system.

We have already introduced a cap on the total amount of benefits any out of work family can receive, at £26,000.

It encouraged tens of thousands into work.

We will now go further, and reduce the benefits cap from £26,000 to £23,000 in London, and £20,000 in the rest of the country.

We are also going to require those on higher incomes living in social housing to pay rents at the market rate.

It’s not fair that families earning over £40,000 in London, or £30,000 elsewhere, should have their rents subsidised by other working people.

And we’ll turn support for mortgage interest payments from a benefit to a loan.

Another decision that most families make is how many children they have, conscious that each extra child costs the family more.

In the current tax credit system, each extra child brings an additional payment of £2,780 a year.

It’s important to support families, but it’s also important to be fair to the many working families who don’t see their budgets rise by anything like that when they have more children

So this is the balance we will strike:

In future we will limit the support provided through tax credits and Universal Credit to two children.

Families who have a third or subsequent child after April 2017 will not receive additional Tax Credit or UC support for this child.

Support provided to families who make a new claim to Universal Credit after this date will also be limited to two children.

And we will make similar changes in Housing Benefit too.

There will be provisions for exceptional cases including multiple births.

In addition, those starting a family after April 2017 will no longer be eligible for the family element in Tax Credits.

Nor will new births and new claims be eligible for the first child premium in Universal Credit.

We will make similar changes in Housing Benefit, by removing the family premium for children born or claims made after April 2016.

This approach means no family sees a cash loss.

And as promised, child benefit will be maintained.

These changes to Tax Credits are not easy but they are fair, and they return tax credit spending to the level it was in 2007-08 in real terms.

When we came to office in 2010 this country had reached the point where a benefit that was intended to support lower income households, was instead available to 9 out of 10 families in this country.

Now, our properly focussed reformed Tax Credit system will provide support to 5 out of 10 families – a much more sustainable balance in our welfare system.

Taken together, all the welfare reforms I have announced will save £12bn by 2019-20 and will be legislated for in the year ahead, starting in the Welfare Reform and Work Bill that will be published tomorrow.

Mr Deputy Speaker, we are moving Britain from a high welfare, high tax economy, to a lower welfare, lower tax society.

The best way to support working people is to let them keep more of the money they earn.

We promised the British people at the election that we would introduce a tax lock to prohibit any increase in the main rates of income tax, national insurance and VAT for the next five years.

We will not only keep that promise, but legislate for it in the coming weeks.

Our priority is not to raise taxes on working people, it is to cut their taxes.

In the last Parliament, we raised the tax-free personal allowance from the £6,500 to £10,600, taking almost four million of the lowest paid out of tax altogether.

When we went to the British people this May, we said we would go much further.

Our two commitments were these:

That we would raise the tax free personal allowance to £12,500 – so no one working 30 hours a week on the national minimum wage pays tax.

And that we would raise the threshold at which people pay the higher 40p rate of tax to £50,000.

These were our priorities at the election – they are the priorities in this Budget.

For we on this side deliver what we promise. So the rates of income tax in this Budget remain unchanged – but the thresholds do not.

Today I am taking the first major step to delivering our promise.

I am raising the tax-free personal allowance to £11,000 next year.

That’s £11,000 you can earn before paying any income tax at all – boosting wages by over £900 in total – and a down payment on our goal of reaching £12,500.

We will now legislate so that after that the personal allowance always rises in line with the minimum wage, and we never ask the lowest paid in our society to pay income tax.

The higher rate threshold currently stands at £42,385.

I am today raising it to £43,000 from next year.

It marks a strong start to our commitment to raise the threshold to £50,000.

And it will lift 130,000 people out of the higher rate of income tax altogether.

A personal allowance of £11,000.

A higher rate threshold of £43,000.

29 million people paying less tax.

A downpayment for a country on the up.

Mr Deputy Speaker, I began this Budget statement saying that I put security first.

I have set out the steps we take to deliver economic security of a country that lives within its means and a welfare system we can afford.

But there is also the financial security of families and the national security of our country. I turn to that now.

The Prime Minister and I are not prepared to see the threats we face to both our country and our values go unchallenged.

Britain has always been resolute in defence of liberty and the promotion of stability around the world. And with this government it will always remain so.

So today I commit additional resources to the defence and security of the realm.

We recognise that in the modern world, the threats we face do not distinguish between different Whitehall budgets – and nor should we.

So I will guarantee a real increase in the defence budget every year, and on top of that, create a joint security fund of £1.5 billion a year by the end of the parliament.

The services will have to demonstrate they are delivering real efficiency and the Strategic Defence and Security Review will allocate the money in the most effective way.

I am also protecting our overall counter-terrorism effort.

And I reaffirm our international aid budget that saves lives and supports our values around the world. I said that this was a Budget that delivered security to the people of Britain.

And I said that we had to choose our priorities.

Well, today, this government makes this choice.

Committing to our armed forces who fight to keep us free.

Committing to the intelligence agencies who keep us safe.

Committing to the values we hold dear – and defend around the world.

And so committing today to meet the NATO pledge to spend 2% of our national income on defence. Not just this year, but every year of this decade.

We will ensure that this commitment is properly measured, because we know that while those commitments don’t come cheap, the alternatives are far more costly.

Mr Deputy Speaker, let me turn to the final measure of this Budget which speaks to the values of this Government.

We have been clear that we want Britain to move from a low wage, high tax, high welfare economy, to a higher wage, lower tax, lower welfare society.

I have set out my plans to move us to lower welfare and lower taxes.

That leaves us the challenge of higher wages.

It can’t be right that we go on asking taxpayers to subsidise, through the tax credit system, the businesses who pay the lowest wages

That subsidised low pay contributes to our productivity problem.

The government is against against unfair subsidies wherever we find them.

In the last five years we’ve taken the tough choices to drive down our borrowing, make our business taxes competitive and reform welfare.

It’s because we’ve taken these difficult decisions, and overcome the opposition to them, that Britain is able to afford a pay rise.

Because let me be clear: Britain deserves a pay rise and Britain is getting a pay rise.

I am today introducing a new National Living Wage.

We’ve set it to reach £9 an hour by 2020.

The new National Living Wage will be compulsory.

Working people aged 25 and over will receive it.

It will start next April, at the rate of £7.20

The Low Pay Commission will recommend future rises that achieve the Government’s objective of reaching 60% of median earnings by 2020.

That is the minimum level of pay recommended in the report to the Resolution Foundation by Sir George Bain – Chair of the Low Pay Commission Let me address the impact on business and employment.

The OBR today say that the new National Living Wage will have, in their words, only a “fractional” effect on jobs.

The OBR have assessed the economic conditions of the country, and all the policies in the Budget.

They say that by 2020 there will be 60,000 fewer jobs as a result of the National Living Wage but almost 1 million more in total.

They also estimate that the cost to business will amount to just 1% of corporate profits. To offset that I have cut corporation tax to 18%.

To help small firms I will go further now and cut their national insurance contributions.

From 2016 our new Employment Allowance, will now be increased by 50% to £3,000.

That means a firm will be able to employ 4 people full time on the new National Living Wage and pay no national insurance at all.

And let’s be clear what it means for the low paid in our country.

Two and a half million people will get a direct pay rise.

Those currently on the minimum wage will see their pay rise by over a third this Parliament, a cash increase for a full time worker of over £5,000.

In total it’s expected that 6 million people will see their pay increase as a consequence.

And taken together with all the welfare savings and the tax cuts in this Budget, it means that a typical family where someone is working full time on the minimum wage will be better off.

The Budget today puts security first.

The economic security of a country that lives within its means.

The financial security of lower taxes and a new National Living Wage

The national security of a Britain that defends itself and its values.

A plan for working people.

One purpose.

One policy.

One nation.

And I commend this Budget to the House.