Tag: 1999

The speech made by Gordon Brown, the then Chancellor of the Exchequer, in London on 15 June 2000.

My Lord Mayor, Mr Governor, my Lords, Aldermen, Mr Recorder, Sheriffs, ladies and gentlemen.

In thanking you for your invitation to speak at this evening’s Lord Mayor’s dinner to the bankers and merchants of the City of London, the first in a new century, let me at the outset pay tribute to the work the City of London does, the contribution you as representatives of the financial and business sector make to the British economy and the difference you make – a financial services sector that accounts for one pound in every 16 of our national income, employs over 1 million people, and is second to none in the world.

Just as the City of London achieved its pre-eminence over the centuries by meeting again and again the challenges posed by economic change at home and abroad, you can take pride in the fact that by putting to work enduring British qualities – our creativity, our enterprise, our belief in duty and fair play, and our openness to the world – we are a leader in Europe and the world:

the London Stock Exchange, the largest trading centre for foreign equities in the world;
the Foreign Exchange Market – with a daily turnover of over 600 billion dollars – the largest and most important in the world.
And amidst the new developments this year – the introduction of new technologies, the proposed merger between the London Stock Exchange and Deutsche Borse, the Royal Assent this week for the Financial Services and Markets Act and the new Authority under Howard Davies’ leadership – we see in practice the City’s continued ability to respond to and master change.

And this is my theme tonight: that having as a country found a new strength to take the tough decisions to create economic stability, we in Britain must find the same strength to make the reforms in our labour, capital and product markets that are essential to higher productivity and thus greater prosperity for our country.

Stability

When I first spoke to you three years ago in June 1997, I spoke of our resolution to achieve monetary and fiscal stability, as the only sound platform for prosperity.

In today’s global economy, no nation can secure the sustainable investment it needs unless its economy is built on the rock of stability.

In Britain I saw – as you saw – the past instability caused by inconsistent rules, ever changing targets, ad hoc haphazard and often over-politicised decision-making procedures and lack of transparency.

Our new economic approach sought to learn from past mistakes, is founded on stability, is designed to make sense of the new world of liberalised financial markets and, while often characterised as simply Bank of England independence, it is in fact built upon four propositions.

Because there is no long-term trade-off between inflation and unemployment, the first lesson we have learned is the management of demand alone will not deliver high and stable levels of employment.

In global capital markets there is little scope for the national fine-tuning of the past which tried to exploit that supposed long-term trade-off between inflation and unemployment. It leads us to reject short-termist dashes for growth.

But equally in today’s de-regulated, liberalised financial markets, national governments cannot deliver stability by using flawed intermediate policy rules relating money demand and inflation.

So the second lesson we have learned is that monetary rules that assume a fixed relationship between money and inflation do not produce reliable targets for policy and do not deliver the stability we seek.

But the alternative should not be a return to discretion without rules.

The answer is not ‘no rules’, but the right rules. So the third lesson to learn is that in an open economy, the discretion necessary for effective economic policy is possible only within a monetary and fiscal framework that commands market credibility and public trust.

The fourth lesson follows from this: that credibility depends upon clearly defined long-term policy objectives, clear and accountable divisions of responsibility, and maximum openness and transparency .

So in Britain we have set clear policy objectives:

in our case, price stability through a symmetrical inflation target and sustainable public finances through applying the golden rule that over the economic cycle revenues should cover consumption – in other words a balanced current budget – combined with a prudent approach to public debt.
Second, well-understood and consistent rules of procedure for monetary and fiscal policy-making:

in our case, a new system of monetary policy-making, at the heart of which is the independence of the Bank of England, and the open letter system between Governor and Chancellor. And an equivalent and equally important set of fiscal procedures legally enshrined in the Code for Fiscal Stability.

Third, openness, accountability and transparency to keep markets and the public properly informed and to ensure that objectives and institutions are not only credible but seen to be credible:

in our case, an open system of decision-making in monetary policy through the publication of minutes, a well understood system of voting and full reporting to parliament; and in fiscal policy an open and transparent system under which Government allows its actions to be subject to full scrutiny, and ensures that key fiscal assumptions are independently audited.
Similar lessons have been learned in Europe where a similar approach with the same objective, to achieve monetary and fiscal stability, is being pursued.

In the euro area, there is a similar recognition that the old fine-tuning cannot work, a similar understanding that in liberalised markets rigid monetary targets cannot, on their own, deliver stability, a similar insight that the discretion necessary for effective economic policy is possible only within a framework that commands market credibility and public trust; and growing agreement that credibility depends upon clearly defined long-term policy objectives.

Hence in the euro area the pre-commitment to low inflation and fiscal discipline where inflation has been effectively brought down in the 1990’s from 4.4 per cent to 1.3 per cent and borrowing successfully cut from 5.5 per cent of national income to 1.2 per cent.

Hence also central bank independence and the terms of the stability and growth pact; and hence too the growth of an open process of multilateral surveillance within Europe involving peer review.

As I said to the House of Lords Select Committee in January last year “the issues of transparency in decision making, which we dealt with in our reform of the Bank of England, and the symmetry of the inflation target, which have proved to be central to the success of the United Kingdom’s new monetary framework, will also be issues for future debate in Europe.”

Mr Mayor,

I said in October 1997 that in principle “the potential benefits of a successful single currency are obvious- in terms of trade, transparency of costs and currency stability” . As the Secretary for Trade has said, 50 per cent of trade is now with the euro area, and the UK and euro areas are each others largest trade and investment partners.

In 1997 I also said that the Government had resolved the question of principle. While we recognise the constitutional issue as a factor in the decision, we do not consider it a bar to entry if there is clear and unambiguous evidence of the economic benefits of joining, and if the people had the final say in a referendum.

The 1997 Statement also set five economic tests which are the necessary economic pre-requisites for membership of a successful currency union. The tests, for which this Government and this Treasury is the guardian, are real:

first, sustainable convergence between Britain and the economies of a single currency;
second, whether there is sufficient flexibility to cope with economic change;
third, the effect on investment;
fourth, the impact on our financial services industry; and
fifth, whether it is good for employment.
We are committed early in the next Parliament to making an economic assessment of the case for British membership, based on these tests.

In pursuit of this strategy , to prepare and then decide, we published earlier this year our second National Changeover Plan, having introduced new legislation to ensure departmental preparations. It is a measure of our commitment to an open process of preparations that we have a euro standing committee with business and the City and are in regular contact with business in every region, to discuss preparations and how these can be made in the most stable way. The policy of ‘prepare and decide’ will continue to be implemented in full consultation with business and the City.

There are those who would refuse to join the euro on principle. They would refuse to join even if the economic tests showed it to be in the national economic interest to do so. That is not our position. As the Government statement said in October 1997, a successful single currency “would help us create the conditions for higher and more productive investment in Britain and far greater trade and business in Europe”.

Some opponents allege that we intend to fudge the tests, that our intention is to join as quickly as we can get away with, irrespective of whether there is the sustainable convergence we need , and thus the tests are merely a political and tactical device to disguise what is a hidden agenda.

I reject this view. As the Prime Minister has said, the tests must be met. We cannot pre-judge the five economic tests. To do so before we have secured sustainable convergence would risk repeating past failures, mistaking exchange rate stability for stability across the economy and prejudicing our commitment to move Britain from the instabilities of a stop-go economy to greater long-term stability.

The Government will not agree to a short-termist approach that would put at risk economic stability or the discipline that has created sustained growth, rising investment and over 900,000 jobs since 1997.

So the policy that the five economic tests must be met, and that the people would have the final say, the policy set out in October 1997, repeated by the Prime Minister in February 1999, has not changed and will not change.

I understand the recent difficulties that the sterling-euro exchange rate has caused and I welcome the positive response of manufacturing which has increased productivity by 5 per cent over the past year.

But the policies which I am sometimes asked to follow to bring the exchange rate down or even to set an exchange rate target alongside the inflation rate target would today risk the very outcome all of you want to avoid – a return to stop-go.

We are determined to avoid repeating past economic instability caused by the succession of ever-changing targets – not just the money targets we saw in the early 1980’s but the dual exchange rate and inflation targets of the late 1980’s and early 1990’s. In these years, the then Government chose in succession £m3, m1, then m0 , then when these failed shadowing the Deutschmark, then the exchange rate mechanism, as the economy moved from one stop-go cycle to another.

Under the Bank of England legislation, I write a formal letter every year to the Governor to set a target for the Bank of England.

This I did last month. The objective of British monetary policy today is – and remains – clear and unambiguous – to meet a symmetric inflation target at 2.5 per cent with inflation outcomes below target viewed just as seriously as outcomes above target.

For an economy that has been laid low too often by violent stop-go cycles, that long-term stability must come first and must be entrenched across the whole economy.

Pre-emptive action by the Bank of England – under the wise leadership of Eddie George and I thank also the two retiring members William Buiter and Charles Goodhart for their work on the committee- has allowed us both to meet our inflation target and sustain growth. And because this is what I want us to continue to do, we will support our monetary authorities in the difficult decisions they have to take to ensure that we meet the inflation target and sustain high and stable levels of growth and employment.

And already we are seeing here in Britain the rewards of creating Bank of England independence and tough fiscal rules.

This week’s latest figures confirm this.

For the third year running inflation is this year in line with our target and is at historically low levels. We will continue to achieve low inflation. And our forecast is that the economy will grow steadily – by between 2.75 and 3.25 per cent this year, with growth forecast to be 2.25 – 2.75 per cent next year and the year after.

Long-term interest rates – once 2 per cent or more above Germany’s – are now at the level of Germany, showing that people have confidence in a low inflation future for Britain, enabling businesses to plan for the longer term with greater confidence.

And having imposed new fiscal disciplines, we have cut borrowing by over £40 billion in our first three years and we are on course to meet our two strict fiscal rules.

And it is because we sought to learn from the political mistakes of the last forty years that this Government will maintain its prudent and tough approach. The figures I announced in the Budget mean that we will meet our fiscal rules over the cycle. Indeed that we will meet our fiscal rules even in the most cautious case, on the most cautious assumptions, including the most cautious view of trend growth at 2.25 per cent.

And as I announced in the Budget, I have decided to lock in a greater fiscal tightening this year and next year than we promised in last year’s Budget and Pre-Budget report.

We are therefore able to repay debt – last year 18 billion pounds, this year 6 billion pounds, and next year 5 billion pounds.

And in deploying the proceeds of our auction of the spectrum which raised £22 billion we will – as I have announced this week – reduce debt and debt interest payments and in doing so proceed with proper prudence and utmost caution.

The same toughness and discipline we have shown in the last three years will continue in the coming years.

Indeed it is only by building from a platform of stability and meeting our tough fiscal rules, that we will be able to deliver both stable growth and investment in public services.

And it is from this platform of monetary and fiscal discipline that you have been able to create 100,000 more small businesses employing people, from 1.2 million to 1.3 million, with last year 7 billion pounds more in business investment and 12 billion pounds more inward investment into the United Kingdom.

And as a Government, we are determined to continue to back your efforts as businesses by maintaining our disciplined approach.

Productivity

Stability is of course even more important because Britain, like almost every major industrialised country, is in the midst of a period of restructuring of our economy.

We know that increasingly every product and almost every service will be exposed to global competition, and we know also that continuous and rapid innovation in our technologies will compel unprecedented flexibility and adaptability in skills and knowledge.

The innovation-rich economy will require an opportunity-rich society.

So this is not a time for complacency, not a time to pause, not a time to relax our efforts.

To those urging us to slow the pace of change, or simply stick to the old ways, whether it be old labour market policies, old attitudes to enterprise or old approaches to competition, I reply that if we slow the pace of change we will fall behind our competitors.

Britain cannot assume either that the new information technologies will automatically bring the higher productivity growth now seen in the United States.

To equip ourselves best to meet and master these challenges, we need as a country to raise our game.

We have some of the greatest companies, some world class sectors, some global champions, many represented here this evening, in whom we do and should take pride, and once again we have record levels of inward investment in our country.

But over the last 50 years, productivity growth in Britain has been just over two and a half per cent a year, compared to between three and a half per cent and four per cent among our main European competitors.

In recent times productivity has been increasing – especially in manufacturing, where we have seen a 5 per cent growth in the last year – but the increase is not fast enough.

Meeting the productivity challenge – closing the gap with our competitors – must be the priority over the next few years.

Only with rising productivity can we meet people’s long-term expectations for rising standards of living without causing inflation or unemployment.

It makes it all the more important that stage by stage, continuing with the Pre-Budget report and the next Budget, we remove the barriers to enterprise, investment and productivity growth.

Let me give one illustration for this more general point.

When we came into Government and cut the long-term rate of capital gains tax for business assets held for ten years or more, capital gains tax had been fixed at 40 per cent for almost ten years.

Amidst all the other priorities, we decided that long-term investment and enterprise would benefit from radical change, so this April we cut capital gains rates for business assets from 40 per cent to 20 per cent after three years; and to 10 per cent after four years.

Having made these decisions, I also looked at what I could do to recognize the importance of investors in small and medium sized companies, and business angels – and to the growing numbers of Britain’s unquoted companies. Now they will benefit for the first time from a cut from 40p to 10p after four years.

But just as we have reformed and cut capital gains tax we have reformed and cut the main rate of corporation tax from 33p to 30p, making ours the lowest rate in the history of UK corporation tax, the lowest of all major industrialised countries.

And we are determined to build on our lower corporate tax rates and the interest relief we give on investment overseas and make Britain an increasingly attractive environment for multinational companies.

Our new enterprise management incentive scheme is also designed for the future, for emerging hi-tech companies. To motivate, recruit and reward Britain’s real risk takers, growing hi-tech firms recruiting essential personnel are now able able to offer share option incentives of 100,000 pounds for up to 15 employees. And we have made a change in work permit rules to enable key information technology employees and businessmen and women to be attracted to Britain.

It is now well understood also that two thirds of growth is the result of innovation. Not only therefore does our new research and development tax credit support nearly a quarter of new investment in small and medium-sized business research and development, but with our 1.4 billion investment in science, our new University Challenge funds, and our eight Centres of Enterprise around the UK, we are honouring the spirit of British invention, and encouraging the commercialisation of invention.

And to make Britain the best environment for e-commerce and catch up with America as swiftly as possible, we are introducing 100 per cent allowances for the next three years for any small business buying computers, or investing in e-commerce and new information technology.

We know that the extent of competition at home is the key to competitiveness abroad. We know that open not closed economies are the driving force in productivity growth. And we know that it is the global reach of business, not protectionism, that is the key to dynamism and growth. So having made the competition authority independent and having accepted the main Cruickshank recommendations on small business banking, we will go further to encourage new entrants and to promote a more competitive environment in utilities, energy, e-commerce and telecoms and the professions.

And in the labour market, greater adaptability to change is needed if there is to be employment and economic opportunity for all. Because we recognise that people will have to change jobs more often, that skills are at a premium, that reform has been needed from the 1980’s onwards to create more flexibility and upgrade our skills, we will invest in education and equip not just the few but everyone to cope with and master change.

While we are rightly proud that our capital markets are world leaders, I want us to ensure that investors have every opportunity and encouragement to back dynamic small and growing companies. So we will want to do more, as the Myners Review intends, to encourage the venture capital industry for start-up and early stage ventures.

And I want Britain to play its part in leading the development of the pan European capital markets – pushing for rapid implementation of the capital markets action plan – so that Europe too can develop venture and risk capital markets that bring jobs and growth.

So I conclude my speech where I started.

We should see the billions of trade and the 3 million jobs that come from the European single market as only a beginning. Instead of seeing Britain posed against Europe, we should see Britain working constructively in Europe to complete the single market in energy, telecommunications, the utilities and financial services. In this lies more business and more jobs for Britain and Europe together. And we will continue to build support for further economic reform in Europe and demonstrate that, instead of Britain having to choose between Europe and America , the way ahead is closer cooperation between the continents of Europe and America in the interests of the greater prosperity of both.

And it is for the best economic reasons therefore that in Europe we will continue to support fair tax competition, and not tax harmonisation.

And we will continue to argue the case for exchange of information and continue to refuse to allow a withholding tax to be imposed on the City of London.

My vision is of a Britain which puts to good use enduring British values, our enterprise, our adaptability, our commitment to fair play and internationalism; a Britain where there is economic stability rather than the old stop-go ; a Britain which plays its full part in Europe and the world and is not detached or isolated from it; a Britain that is more business-friendly than ever and rewards the innovator and risk-taker; a Britain which encourages new companies to start, to invest, to grow, and to expand, and where the opportunities and benefits of enterprise, employment and prosperity are shared by all regions and open to all people.

Working together to achieve this offers the best future for our country.

The speech made by Gordon Brown, the then Chancellor of the Exchequer, to the Newspaper Conference on 22 July 1999.

Introduction

Every generation has to apply its values to new circumstances.

But our generation has more reasons to do this than most.

The last time economic and social changes of the magnitude we are now seeing took place was in the 19th century as we moved from an agrarian to an industrial age.

The changes we face in the 21st century economy involve permanent economic revolution: continuous and rapid innovation that compels unprecedented flexibility and adaptability in skills and knowledge.

Increasingly every good and every service will be exposed to relentless global competition.

And to equip ourselves best to meet and master these challenges, we need a pro-enterprise, pro-opportunity Britain.

Indeed the key insight of the 1990s is that the modernisation of the economy can be achieved only by spreading opportunity more widely in employment, education and the economy generally.

So as the century ends we are leaving behind in the old century the old British conflicts between a left that undervalued enterprise and a right that undervalued fairness.

And let me today set down the steps in economic and social policy we are taking to create this enterprising and fair Britain, the stages on our journey, the challenges we are meeting and still have to meet.

When we came into government, we set as our central economic objective, achieving in a new world. The 1944 aim of high and stable levels of growth and employment. And the first task for government was to deliver a platform of stability based on low inflation and sound public finances.

Economic stability

In 1997 we faced the prospect of another inflationary spiral, derailing the British economy – what would have been yet one more damaging episode in the repeated cycles of boom and bust that have marked British macroeconomic policy management in the last 30 years.

So to get inflation and the public finances under control, we broke decisively with the old short-termist, and unstable record of macroeconomic policy-making and put in place a new monetary and fiscal framework – not only making the Bank of England independent but defining new objectives and setting down clear rules and open procedures for making decisions – a new inflation target and new fiscal rules.

And as a result of the decisions we took, inflation has been brought down, and long-term interest rates and mortgage rates are now their lowest for over thirty years. By taking the same tough action to tackle the fiscal deficit which we inherited, we not only cut public borrowing in our first two years by 32 billion Pounds, but also put in place a long-term fiscal framework, underpinned by legislation, with clear rules that, over the cycle, there is a current budget balance and prudent levels of debt.

And this same commitment to stability and prosperity and to the national economic interest will guide us in our approach to European Monetary Union – with our determination to apply the five economic tests on jobs, investment, financial services, flexibility and convergence and our promise that in any decision the British people will have the final say.

But while stability is a necessary pre-condition to deliver our objectives for growth and employment, it is not sufficient. If we are to bridge the productivity gap with our competitors and raise the long term growth rate of the economy we must combine our strategy for stability with major structural reforms of our product, capital and labour markets to create a new British enterprise economy.

Raising the growth rate

While 30 years ago governments responded to the productivity challenge with top-down plans, and tax incentives and grants primarily for physical investment, today it is more complex – involving the modernisation of capital, labour and product markets, and creating an economy with an enterprise culture open to all.

I want Britain to be a world leader in enterprise – a Britain in which greater competition at home is recognised to be the key to greater competitiveness abroad.

First, because we believe investment in enterprise is the key to success in the new economy, our new British enterprise economy has seen the main rate of corporation tax cut from 33p to 30p, the lowest rate in the history of UK corporation tax, the lowest of all major industrialised countries, the small companies tax cut from 23p to 20p, with a new starting rate of 10p. And an assurance given to business for the remainder of this Parliament that instead of business tax rates we inherited of 33 and 23, our rates will be 30, 20 10p or lower – together with economic stability, the biggest boost to investment we can give.

We have reformed capital gains tax to reward committed long term investment, to nourish a new enterprise economy open to all the talents, creating, for the first time, a long term rate of only 10 per cent for business investment.

Second, because competition is the spur to efficiency and innovation, the new British enterprise economy will have the most open competition policy this country has ever seen.

Not only is competition the best guarantee of rewards for innovation and hard work but it offers the best prospect of a better deal for consumers and lower prices. It is wholly unacceptable to this government that some consumer goods can still cost twice as much in Britain as in America and we propose tough action.

In 1997 so that interest rate decisions would be set for the long term needs of the economy and the public, the government made the Bank of England, Britain’s monetary authority, independent of government.

Now, so that competition will be encouraged for the long term needs of the economy and the public, we are making our competition authority independent, free of political influence, opening up the utilities, consumer goods and financial services to even greater competition.

So just as the days of uneconomic state subsidies and picking winners are over, so too we will end the days of political decisions about mergers.

Where there are barriers to competition we will tackle them.

Third, the new British enterprise economy needs to create the new high tech companies of tomorrow.

So to motivate, recruit and reward Britain’s real risk takers, the innovators creating wealth and jobs in Britain today, we have created a targeted tax cut for those managers who are prepared to move from safe, secure jobs to risk their time, effort and savings to create wealth for our country. Next year we will introduce measures so that growing enterprises will be able to offer their key personnel tax-advantaged options over shares up to £100,000.

Fourth, innovation is the key to the success of the new British enterprise economy open to all the talents. So we will have a tax cut for innovation and R&D that will become one of the best incentives for innovation anywhere in the industrialised world.

Our new R and D tax credit gives even the newest and smallest business, even before they make their first profits, cash help to research and develop their innovations. At a cost of £150 million, this targeted tax cut ensures that almost one third of small business research and development costs will be underwritten by government.

But we need to do even more to turn scientific inventions in Britain into jobs for Britain by honouring the spirit of invention, facilitating the exploitation of invention and encouraging the commercialisation of invention. The seedbed is basic science so we are investing an extra 1.4 billion Pounds in basic scientific research.

Our University Challenge Fund is designed to provide seedcorn finance to commercialise inventions.

And to develop business expertise in science and to transfer technology from the science lab to the marketplace, the government is creating new Institutes of Enterprise.

Britain’s venture capital industry has been strong on management buyouts but weak on high tech, high risk ventures. So we are encouraging early stage, high technology companies, through a new venture capital challenge fund and we will be introducing incentives to promote corporate venturing.

Fifth, to give all who create wealth a greater stake in the wealth they create the new British enterprise economy will be genuinely open to all, with a new programme of shares for all, in which employees will be able, for the first time, to buy shares in their own companies from their pre-tax income. Every employer will be able to match, tax-free, what each employee buys. The only condition is that the scheme must be offered across the company’s entire workforce.

Finally, Britain’s new enterprise economy needs a national effort to meet our biggest economic challenge of all: that everyone can master the new information technologies maximising the potential of computers, the internet and electronic commerce.

Our 1.7 billion pound “computers for all” programme will enable small businesses, individuals, families, schools and libraries to use and learn more about computers, modems and related equipment – and will create a national network of 1,000 computer learning centres in these schools, colleges, libraries, internet cafes and on the high street.

All these measures with one purpose only, that the whole of Britain is equipped for the new information age.

Employment

Achieving an economy that is enterprising and fair demands a new employment policy that equips people to succeed.

When we came into office, four and a half million adults lived in households where nobody worked, double the level of 20 years ago.

Nearly one in five children were growing up in households where no-one is working, twice the rate of France and four times the rate of Germany.

And the reason that this issue of unemployment poses a massive challenge is that it is now the primary cause of poverty.

20 years ago, pensioners made up the largest section of those in poverty, today it is those living in workless, working age households.

Simply compensating people for their poverty through benefits is not enough, the task must be to deal with the causes of poverty. The best form of welfare is work.

Our strategy has been to tackle the barriers that people face to getting into work – the lack of employment, the unemployment and poverty traps, the absence of necessary skills, even the absence of child care.

Already over 280,000 young people have joined the New Deal and over 105,000 have found jobs – the vast majority sustained jobs. A further 71,000 are gaining valuable experience on New Deal options. And 51,000 employers have signed up to the New Deal. Since the election, long-term and youth unemployment has more than halved.

Now we have extended this approach to the long-term sick and disabled, partners of the unemployed, lone parents and, soon, to the over 50s.

When this government came to power, with no minimum wage in place and the tax and benefits system unreformed, many of those without work faced an unemployment trap, where work paid less than benefits, and the low-paid in work faced a poverty trap which meant that they faced marginal tax and benefit rates of 80, 90 or even over 100 per cent.

To make work pay we have introduced the national minimum wage and are now introducing the Working Families Tax Credit.

Under the old system the tax system set a personal allowance that failed to ensure that work paid, and also made thousands pay tax even as they claimed benefits.

In the new tax system working families will be guaranteed a minimum income, and by step-by-step integration of tax and in-work benefits, this minimum income will be paid through targeted tax cuts and tax credits. In future no-one in work should have to go to the benefits office to receive a living income.

From October of this year, the Working Families Tax Credit will mean that every working family with someone working full-time will be guaranteed a minimum income of 200 pounds a week, more than 10,000 pounds a year. No net income tax will be paid until earnings reach 235 pounds a week.

A family with two children earning 200 Pounds a week will receive an additional income of at least 60 Pounds a week.

With earnings of 250 Pounds a week, at least 42 Pounds a week more.

And with earnings of 300 Pounds a week, at least 23 Pounds a week more.

And let me say that, in September, we will be launching a major campaign, including local and national TV and press advertising to tell people about the Working Families Tax Credit and ensure they receive what they are entitled to.

Our measures so far lift one and a quarter million people out of poverty – 800,000 of them children.

Taking all our reforms together – working families tax credit, children’s tax credit, rises in child benefit and other tax changes – a family on 13,000 pounds a year will gain up to 50 pounds a week, 2,500 pounds a year.

The next step is to extend the principle of the WFTC.

And our long-term aim – which we began in the Budget with an employment credit for the over fifties returning to work – is an employment tax credit, paid through the wage packet, which would be available to households without children as well as households with children.

To make work pay we have introduced the minimum wage and a new system of in-work tax credits. To reward work and encourage job creation we have introduced the new 10p starting rate of tax, reform of employees’ national insurance to eliminate the perverse entry fee and align the starting point for national insurance with that of income tax and reforms to employers’ national insurance to help create entry-level jobs. And to ensure people have the skills for jobs, we are not only investing 19 billion pounds more in education but setting up Individual Learning Accounts and a University for Industry.

Breaking the cycle of poverty

We say – indeed we all agree – that every child should have the best possible start in life. And this government sees it as a national goal. This is why Tony Blair has said we will abolish child poverty over 20 years. The Working Families Tax Credit is important to this objective. So too is improving public services – health visitors, nurseries, playgroups, childcare, learning support – in the poorest communities with our Sure Start programme, and mobilising the forces of concern and compassion in each and every community of our country.

Child poverty is unacceptable and these measures show our determination that every child in our country is able to fulfil his or her potential.

Conclusion

And what unites everything we do as a government – delivering economic stability, nurturing economic dynamism, ensuring economic and employment opportunity for all, making work pay, improving public services and tackling child poverty – is that this is a government on the side of Britain’s working families. Creating stability in which families can flourish.

Delivering higher living standards with the lowest mortgage rates for 33 years.

Helping businesses to grow with a favourable tax regime.

Putting our young people back to work with the New Deal.

Making work pay more than benefits with the minimum wage and Working Families Tax Credit.

Tackling poverty and inequality at source with, by the end of the Parliament 6 billion in children and families.

And improving public services with investment- 40 billion Pounds for health and education – and reform.

So, my vision is of a Britain where there is economic stability for investment rather than economic or political instability; a Britain which is business-friendly, working with business rather than in isolation from it; a Britain which tackles our biggest problem welfare dependency and unemployment, the key to unlocking funds for the reform of our other public services; a Britain that makes the vision of our country as a world leader in education the centre point of both our economic and social ambitions for the long term.

A Britain where public and private sectors, instead of fighting each other, work constructively together with a new sense of national economic purpose, fostering enterprise and fairness, is shared right across the economy. The challenges are enormous and many, but if we work together the prize is a modern economy more fit for the challenges ahead, ready to ensure employment opportunity and greater prosperity for all our people in the years ahead.