Tag: 2013

Below is the text of the statement made by George Osborne, Chancellor of the Exchequer, on 5th December 2013.

Mr Speaker,

Britain’s economic plan is working.

But the job is not done.

We need to secure the economy for the long term.

And the biggest risk to that comes from those who would abandon the plan.

We seek a responsible recovery.

One where we don’t squander the gains we’ve made, but go on taking the difficult decisions.

One where we don’t repeat the mistakes of the past, but this time spot the debt bubbles before they threaten financial stability.

A responsible recovery, where we don’t pretend we can make this nation better off by writing cheques to ourselves, and instead make the hard choices.

We need a government that lives within its means, in a country that pays its way in the world.

Three and a half years ago, I set out our long term economic plan in the emergency Budget.

That plan restored stability in a fiscal crisis.

But it was also designed to address the deep-seated problems of unsustainable spending, uncompetitive taxes and unreformed public services for which there are no quick fixes.

Over the last three years we have stuck to our guns, worked through the plan.

We have done so in the face of a sovereign debt crisis abroad.

We have held our nerve while those – who predicted there would be no growth until we turned the spending taps back on – have been proved comprehensively wrong.

Thanks to the sacrifice and endeavour of the British people, I can today report the hard evidence that shows our economic plan is working.

But I also report the hard truth that the job is not yet done.

Yes, the deficit is down.

But it is still far too high and today we take more difficult decisions.

Yes, the forecasts show that growth is up.

But the same forecasts show growth in productivity is still too low and today we set out further economic reforms.

Yes, jobs are up and unemployment is down. But too many of our young people lack the skills to fill those jobs and the opportunities to acquire them – so now we take bold steps to remove that cap on aspiration.

Yes, businesses are expanding.

But business taxes are still too high and exports are too low and we must address that.

And yes, real household disposable income is rising.

But the effects of the financial crash on family budgets and the cost of living are still being felt.

So where we can afford to help hardworking families, we will continue to do so.

The hard work of the British people is paying off, and we will not squander their efforts

We will secure the economy for the long term – and this statement sets out how.

ECONOMIC FORECASTS

Mr Speaker, let me turn to the report from the Office for Budget Responsibility.

Again I thank Robert Chote and his team for their rigorous and independent work.

The OBR report notes that the Office for National Statistics has reassessed the depth of the great recession.

The fall in GDP from peak to trough between 2008 and 2009 was not 6.3 per cent, as previously thought – but instead was an even more staggering 7.2 per cent.

£112 billion wiped off our economy – around £3,000 for every household in this country, and one of the sharpest falls in the national income of any economy in the world.

It is a reminder of the economic calamity that befell Britain; the simple fact that our country remains poorer as a result of it; and that a lot of work still remains to put that right.

That is the past.

Let me turn to the future.

At the time of the Budget in March, the OBR forecast that growth this year would be 0.6 per cent.

Today, they more than double that forecast – and estimate growth will be 1.4 per cent.

Next year, instead of growth of 1.8 per cent, they are now forecasting 2.4 per cent.

With faster growth now, it means they’ve revised the following four years to 2.2 per cent, 2.6 per cent 2.7 per cent and 2.7 per cent.

So growth over the forecast period is significantly up.

It is still not as strong as we’d like it to be, but this is the largest improvement to current year economic forecasts at any Budget or Autumn Statement for fourteen years.

I can report that Britain is currently growing faster than any other major advanced economy.

Faster than France, which is contracting.

Faster than Germany, faster even than America.

That contrast itself points to the risks that remain for the UK from abroad, and the weakness of many of our main trading partners.

The first risk the OBR identify to our economic recovery is a recurrence of the damaging instability in the eurozone.

Even with the relative calm of recent months, the OBR still forecast that the euro area as a whole will shrink by 0.4 per cent this year.

Their growth forecasts for the US and emerging markets have also been revised down, and world trade has been weaker than they expected in March.

So while our exports are growing, they are not growing as fast as we would like.

That is because we are too dependent on markets in Europe and North America.

The Prime Minister’s visit to China this week is the latest step in this government’s determined plan to increase British exports to the faster growing emerging markets – something our country should have done many years ago.

Today I am doubling to £50 billion the export finance capacity available to support British businesses, expanding the help available to firms in these emerging markets and ensuring that our excellent new Trade Minister, Lord Livingston, will have all the firepower he needs.

EMPLOYMENT

Let me turn to the forecast for employment.

Today in Britain, employment is at an all time high.

And the OBR have revised their forecast for the future up.

They were expecting jobs to stay flat over the year.

But they now expect the total number of jobs to rise by 400,000 this year.

And this is being felt right across the country – since 2010 the number of jobs in Carlisle and on the Wirral, from Selby to South Tyneside – have all grown faster than in London.

Meanwhile, the number of people claiming unemployment benefit has fallen by over 200,000 in the last six months – the largest such fall for sixteen years.

Unemployment is also lower than in 2010, and is forecast to fall further from 7.6 per cent this year to 7 per cent in 2015, before falling even further to 5.6 per cent by 2018.

We have the lowest proportion of workless households for 17 years.

Mr Speaker, there were those who said it was a “fantasy” to believe that businesses could create jobs more quickly than the public sector would have to lose them.

What they should have said is that it would be fantastic if it happened.

So I’ve got good news for them.

Businesses have already created three jobs for every one lost in the public sector.

And the OBR report today forecasts this will continue: with 3.1 million more jobs being created by businesses by 2019 that, in their words, “more than offsets” the million or so reduction in the public sector head count.

So, Mr Speaker, far from the mass unemployment that was predicted, we have a record number of people in work; hundreds of thousands fewer on welfare; unemployment lower than when we came to office; and we will have 2 million more jobs than in 2010.

An economic plan that’s working.

And a government seeking a job rich recovery for all.

FISCAL FORECASTS

Let me turn now to the forecasts for government borrowing and debt. When this government came to office, the deficit was 11 per cent of GDP.

That was the highest level in our peacetime history.

One pound in every four was being borrowed.

And the former Chancellor and former Prime Minister have joined the consensus that spending was too high.

The borrowing posed a huge risk to the economic stability and credibility of the United Kingdom.

We have taken many difficult decisions to bring that deficit down.

Every one contested and opposed.

But I can report today, the effort is paying off.

The OBR use a measure of what they call “underlying public sector net borrowing” that excludes the impact of the Royal Mail pension scheme and Asset Purchase Facility transfers.

I can tell the House this underlying measure of the deficit has been revised down substantially since March.

From the 11 per cent back in 2010, the underlying deficit now falls to 6.8 per cent this year – instead of the 7.5 per cent they were forecasting back in March.

It then falls to 5.6 per cent next year, then 4.4 per cent, 2.7 per cent and in 2017-18, 1.2 per cent.

And by 2018-19 on this measure, the OBR do not expect a deficit at all.

Instead, they expect Britain to run a small surplus.

These numbers mean that the government will meet its fiscal mandate to bring the structural current budget into balance, and meet it one year early.

Let me turn to the forecasts for cash borrowing on this same underlying basis.

Mr Speaker, at this Autumn Statement last year there were repeated predictions that borrowing would go up. Instead, borrowing is down – and down significantly more than forecast.

This year we will borrow £111 billion – £9 billion less than was feared in March.

That falls next year to £96 billion, then down to £79 billion in 2015-16, £51 billion the year after, and £23 billion the year after that.

So we’re set to borrow £73 billion less over the period than was forecast in March.

And it means we are borrowing the equivalent of two and a half thousand pounds less for every household in this country.

In 2018-19, on this cash measure too, the OBR forecast that the government will not have to borrow anything at all.

Instead we will run a small cash surplus.

Of course, this will only happen if we go on working through our long term plan – delivering reductions in the deficit we plan this year, next year and the three years after.

If we give up on the plan now, we’d be saddled with a deficit that is still among the highest in Europe.

And this side of the House is not prepared to take that risk.

Of course Mr Speaker, while that deficit remains, it adds to our national debt every year.

The OBR today expect debt this year to come in at 75.5 per cent of GDP – £18 billion lower than forecast in March.

It then rises to 78.3 per cent next year, before peaking at 80.0 per cent the next year – 5 per cent lower than forecast at the Budget.

In 2016-17, it then falls, albeit slightly, to 79.9 per cent, then falls again to 78.4 per cent and then 75.9 per cent.

By 2017-18, debt is over £80 billion pounds lower than forecast in March.

The supplementary debt target is for debt to be falling in 2015-16.

At the Budget, the OBR forecast debt to be falling in 2017-18.

It is now forecast to fall in 2016-17 – that’s one year earlier.

But let me enter this note of caution.

The OBR is clear this is a cyclical improvement.

The forecast for the continuing fall in the structural deficit has not improved.

The structural deficit is the borrowing that stays behind even when the economy improves.

Thanks to our actions it has fallen from the 8.7 per cent we inherited to 4.4 per cent today – more than any other major advanced economy.

It goes on falling but no faster than we previously expected.

Because, as we have always argued, the central task of reforming government and controlling spending does not simply dissolve when growth returns.

It supports the case we have made all along that economic growth alone was never going to be enough to repair Britain’s broken public finances.

An improving economy does not let us off the hook for taking the difficult decisions to make sure government lives within its means.

FISCAL RULES/JUDGEMENT

And so the single most important economic judgement I make today is this:

We will not let up in dealing with our country’s debts.

We will not spend the money from lower borrowing.

We will not squander the hard-earned gains of the British people.

The stability and low mortgage rates, lower deficit and falling borrowing have been hard won by this country, but let us be clear: they could easily be lost.

That’s why we must work through our plan to secure the British economy for the long term.

So this Autumn Statement is fiscally neutral across the period.

Indeed, today I can announce that we will take three new steps to entrench Britain’s commitment to sound public finances.

First, we will bring forward next year an updated Charter for Budget Responsibility and ask Parliament to support it.

I can say today that government must ensure that debt continues to fall as a percentage of GDP, including using surpluses in good years for this purpose.

In other words this time we will fix the roof when the sun is shining.

We will look to see whether the five year time horizon of the fiscal mandate could be shorter and even more binding now that the public finances are closer to balance.

And we will see how fiscal credibility could be further enhanced by a stronger parliamentary commitment to the path of consolidation already agreed for 2016-17 and 2017-18.

The answers will be written into an updated Charter for Budget Responsibility which will be presented to Parliament a year from now and voted upon.

The second step we take today to entrench Britain’s commitment to sound public finances is this.

We will cap overall welfare spending.

Welfare budgets were completely out of control when we came to office and the number of households where no-one had ever worked nearly doubled. We have taken very difficult decisions to bring benefit bills down – and saved £19 billion a year for the taxpayer.

We need to maintain that discipline.

The percentage of spending in the UK subject to fixed spending controls is very low by international standards at just 50 per cent.

So from next year, we will introduce a new cap on total welfare spending.

I have had representations that the basic state pension should be included.

But that would mean cutting pensions for those who’ve worked hard all their lives because the costs on, say, housing benefit for young people had got out of control.

That’s not fair – so we won’t include the state pension, which is better controlled over a longer period.

We will also exclude from the cap the most cyclical of benefits for jobseekers.

All other benefits – from tax credits to income support to the vast majority of housing benefit will be included in the cap.

At the beginning of each Parliament, the Chancellor of the day will set the welfare cap for the coming years and ask the House of Commons for its support.

If the cap is breached, they will have to explain why and hold a vote in this House.

The principle is clear: The government has a responsibility to taxpayers to control their spending on welfare; and Parliament has a responsibility to the country to hold the government to account for it.

That brings me to our third step.

Ultimately, the test of fiscal credibility is whether you are prepared actually to take the difficult decisions to keep spending under control.

Tight discipline means that most departments are now living well within their set budgets.

This year they are expected to underspend by £7 billion, a testament to good financial management.

We can therefore be confident in reducing the contingency reserve by £1 billion this year and reducing departmental budgets by a similar amount in the next two years.

This will save a further £3 billion in total.

The protections for the NHS and schools will apply.

The security and intelligence agencies and HMRC will be exempt. The Barnett formula means that over the next two years, the budgets for Scotland, Northern Ireland and Wales will see a net increase.

We will not apply these additional savings to local government, because we expect them to freeze council tax next year.

This year, Britain becomes the first G8 country to meet our promise to the poorest in the world to spend 0.7 per cent of our national income on development.

But we don’t have to increase the DfID budget further to do that.

The effectiveness of the British government aid effort in the Philippines, matched by the generosity of the British public, is a reminder of what marks us out as a nation – and we in this country can be very proud of it.

I am also immeasurably proud of the work of Britain’s armed forces.

As they wind down their operations in Afghanistan, the budget we spend there is also falling fast.

So we can this year reduce the military special reserve by a further £900 million, while still funding all operational costs.

And to reflect our society’s debt of gratitude to our servicemen and women, and their families, I want to make a further £100 million of LIBOR fines available to our brilliant military charities and extend support to those who care for the work of our police, fire and ambulance services.

The terrible events in Glasgow this weekend and the work they’re doing right now to cope with the adverse weather remind us how much we owe them.

Mr Speaker, discipline with the public finances means more than just words.

It means taking difficult decisions and being prepared to stick to them.

So using surpluses in good years to keep debt falling.

So we fix the roof when the sun is shining.

It means capping welfare to keep it under control, and where we do want to spend more money, finding extra ways to pay for it.

One of the biggest single items of government spending is the basic state pension.

I’m proud to be in a government that has introduced a triple lock that ensures a fair and generous increase in the state pension every year to those who’ve worked hard all their lives.

I can confirm that next April the state pension will rise by a further £2.95 a week.

This increase, and the other increases under this Government, mean pensioners will be over £800 every year better off.

I can announce that we are also going to offer current pensioners an opportunity to make voluntary national insurance contributions to boost their income in retirement.

We will also extend this opportunity to those who reach pension age before the introduction of the single tier pension.

This will help those who haven’t built up much entitlement to the Additional State Pension, especially women and the self-employed.

But we also have to guarantee that the basic state pension is affordable in the future, even as people live longer and our society grows older.

The only way to do that is to ensure the pension age keeps track with life expectancy.

The Pensions Bill, currently going through Parliament, puts in place reviews of the pension age every five years.

Now we set the principle that will underpin those reviews.

We think a fair principle is that, as now, people should expect to spend up to a third of their adult life in retirement.

Based on latest life expectancy figures, applying that principle would mean an increase in the state pension age to 68 in the mid 2030s and to 69 in the late 2040s.

The exact dates will be set by the future statutory reviews and in line with the most up to date demographic data, of which the next update is published next week.

This is one of those difficult decisions governments have to take if they’re serious about controlling the public finances.

Future taxpayers will be saved around £500 billion pounds.

Young people will know our country can afford to give them a proper pension when they retire.

That’s this generation fulfilling its obligations for fiscal responsibility to the next generation – not saddling them with the debts and the decisions we weren’t prepared to deal with ourselves.

TAX AVOIDANCE

Mr Speaker, having sound public finances also means making sure that we collect the taxes that are due.

Most wealthy people pay their taxes and make a huge contribution to funding our public services.

The latest figures show that 30 per cent of all income tax is paid by just 1 per cent of taxpayers.

We’ve given incentives to enterprise, cut punitive tax rates.

But alongside those paying the most tax are those who try to avoid paying their fair share of tax.

So today we set out in detail the largest package of measures to tackle tax avoidance, tax evasion, fraud and error so far this Parliament.

Together it will raise over £9 billion over the next five years.

We’re going to tackle the growth of intermediaries disguising employment as false self employment, depriving workforces of basic employment rights like the minimum wage in a bid to avoid employer national insurance.

We’ll halve the final period exemption for capital gains tax private residence relief. We will end the abuse of dual contracts, offshore oil and gas contracting, derivatives linked to profits and share buy backs.

And we will ensure the tax advantages of partnerships aren’t abused either.

We are introducing a new, limited power that requires people to pay upfront their taxes where the scheme they used has already been struck down by the courts.

We are going to strengthen Whitehall’s capacity to prevent error and tackle fraud in the benefit and tax credit systems, and expand their efforts to recover money that is owed.

BANKS AND CAPITAL GAINS TAX

And there is one personal tax change we make today which is not about avoidance, but is about fairness.

Britain is an open country that welcomes investment from all over the world, including investment in our residential property.

But it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not.

That is unfair.

So from April 2015, we will introduce capital gains tax on future gains made by non residents who sell residential property here in the UK.

I can also announce, from January 1st next year, the rate of the bank levy will rise to 0.156 per cent and its base will be broadened in ways we have consulted on.

The levy will raise £2.7 billion in 2014-15 and £2.9 billion each year from 2015-16.

The country stood behind the banks in the crisis, and now it is right that they support the country in recovery.

INFRASTRUCTURE

Mr Speaker, a government that lives within its means is essential to secure the economy for the long term – but it is not sufficient.

Britain has to earn its way in the world.

Our infrastructure needs to be overhauled.

We have to help our businesses compete.

Above all, our young people need the skills to succeed in the modern world.

This Autumn Statement takes the next big steps in all these areas.

Let me start with infrastructure.

We’re going to be spending more on capital as a proportion of national income on average over this decade, than over the whole period of the last government.

That’s involved making tough choices about priorities in spending and sticking to them.

But that’s not the most difficult decision in this area.

We have to decide whether we are serious as a country about competing in the modern world and say to people: we need the new roads, and the new railways including the Northern Hub and High Speed 2.

We have to say: we are prepared to push the boundaries of scientific endeavour, including in controversial areas, because Britain has always been a pioneer.

The country that was the first to extract oil and gas from deep under the sea should not turn its back on new sources of energy like shale gas because it’s all too difficult.

And the country with the world’s first civil nuclear programme shouldn’t be a country that says we can do this no longer.

Yesterday, my Right Honourable Friend the Chief Secretary and Lord Deighton published the update to the National Infrastructure Plan.

That includes a cooperation agreement with Hitachi on the next nuclear power station in Anglesey.

It includes a deal with the insurance industry to invest at least £25 billion in UK infrastructure. And we published the strike prices that support long term investment in off shore wind, and prioritise it over onshore wind.

And today we go further.

A commitment to invest in quantum technology.

A new tax allowance to encourage investment in shale gas that halves tax rates on early profits.

And in the week in which Professor Peter Higgs travels to Stockholm to collect his Nobel Prize for Physics, we commit to build a new centre in his name at Edinburgh University.

Because science is a personal priority of mine.

Some of the most important infrastructure for British families is housing and we have to confront this simple truth: if we want more people to own a home, we have to build more homes.

And the OBR is absolutely right today to draw attention to the weakness of housing supply in this country.

The good news is the latest survey data showed residential construction growing at its fastest rate for a decade.

And our hard-won planning reforms are delivering a 35 per cent increase in approvals for new homes.

But we need to do more.

So this week we are announcing a billion pounds of loans to unblock large housing developments on sites in Manchester and Leeds and across the country.

And we are going to increase the Housing Revenue Account borrowing limit by £300 million.

Aspiration isn’t only for people who can afford their own home.

We want to regenerate some of our most run down urban housing estates.

Councils will sell off the most expensive social housing, so they can house many more families for the same money.

We are going to give working people in social housing a priority right to move if they need to for a job.

Right to Buy applications have doubled under this government and we’ll expand it more.

And the very same spirit of aspiration that underpins Right to Buy is what drives this government with Help to Buy.

It’s not enough to build more houses if families who can afford mortgages don’t have the large deposits that the banks have demanded.

Help to Buy is now helping thousands to own their own home.

I can announce today that Aldermore and Virgin, two challenger banks, expect to join the scheme this month. Help to aspiring families and building more homes – that’s what we stand for.

But we must also avoid the mistakes of the last decade.

We want a responsible recovery.

That is why I am the first Chancellor to give the Bank of England the responsibility and the power not only to monitor overall debt levels, but to take action to deal with asset bubbles if they threaten our stability.

We want a functioning, stable housing market.

The OBR’s latest house price forecast, while higher, still has real house prices 3.1 per cent lower in 2018 than at their peak in 2007.

Together with Governor Carney, I acted last week to focus the Funding for Lending scheme away from mortgages onto small business lending, where its support is still needed.

It’s precisely because the authorities can act in this targeted and pre-emptive way – and because our public finances are under control – that the Bank can keep overall interest rates lower for longer and support the rest of the economy.

EDUCATION

Investing in the physical infrastructure of our country is critical to our future.

But in this global economy, it is better education and skills that hold the key to long-term national success.

This week’s PISA scores show how much ground this country has to make up.

My Right Honourable Friend the Education Secretary is doing more to transform schools standards, and raise the aspirations of pupils from the poorest families than anyone who has done that job before him.

His expansion of free schools and academies has the full backing of this Chancellor.

We also know that children do better at school when they have a proper meal inside them.

This Autumn Statement has found the financial resources to fund the expansion of free school meals to all school children in reception, year 1 and year 2 announced by the Deputy Prime Minister and supported by me.

But today we also focus on what happens when our young people leave school – and we do more to help them.

First, we will not abandon those who leave school with few or no qualifications.

At present, Jobcentre Plus does almost nothing to help 16 and 17 year olds who aren’t in work or education.

We will change that and now fund the jobcentres to support these very young adults to find an apprenticeship or a traineeship.

Without basic maths or English, there is a limited chance any young person will be able to stay off welfare.

So we are taking a new approach.

Starting in some areas at first, anyone aged 18 to 21 signing on without these basic skills will be required to undertake training from day one or lose their benefits.

If they are still unemployed after six months, they will have to start a traineeship, take work experience or do a community work placement – and if they don’t turn up, they will lose their benefits.

A culture of worklessness becomes entrenched when young people can leave school and go straight onto the dole, with nothing expected in return.

That option is coming to an end in our welfare system.

The second reform is to apprenticeships.

We’ve doubled the number of apprenticeships.

And now we will transform the way they are provided by funding employers directly through HMRC.

I can tell the House there will now be an additional 20,000 higher apprenticeships over the next two years.

And I can also announce a big expansion of Start Up Loans, through which a new generation of entrepreneurs is being created.

50,000 more people will be helped to fulfil their aspiration to start their own business.

And we’re extending the New Enterprise Allowance too.

Mr Speaker, this year is also the fiftieth anniversary of the Robbins Report, which challenged the nonsense that university was only suitable for a small few.

In 1963, Robbins said that “courses of higher education should be available for all those who are qualified by ability and attainment to pursue them and who wish to do so”.

That was true then, I believe it should remain true today.

Our reforms to student loans, difficult as they were, have put our universities on a secure footing.

Some predicted that applications from students from poor backgrounds would fall.

Instead I can report that this year we have the highest proportion of young people from disadvantaged backgrounds applying to university ever.

But there is still a cap on aspiration.

Each year, around 60,000 young people who have worked hard at school, got the results, want to go on learning and want to take out a loan to pay for it, are prevented from doing so because of an arbitrary cap.

That makes no sense when we have a far lower proportion of people going to university than even the United States, let alone countries like South Korea.

Access to higher education is a basic tenet of economic success in the global race.

So today I can announce that next year we will provide 30,000 more student places – and the year after we will abolish the cap on student numbers altogether. Extra funding will be provided to science, technology, and engineering courses. The new loans will be financed by selling the old student loan book, allowing thousands more to achieve their potential.

BUSINESS TAX

Mr Speaker, education underpins opportunity.

It is businesses that provide those opportunities.

And the best way to help businesses is by lowering the burden of tax.

KPMG’s report last week confirmed for the second year running that Britain has the most competitive business tax system.

Some in this House suggest that our response to this good news should be to increase corporation tax from 20 per cent.

Today we publish the first of our studies into the dynamic effects of tax changes – that show our corporation tax cuts increase investment and raise productivity.

So much so that over half of the cost to the Treasury of the tax cut will be recovered because of higher growth.

So putting up corporation tax hits investment, cuts productivity and raises much less.

We thank the Honourable Members for their submission, but we think it would be economic madness to pursue it.

Quite the reverse.

Today, we take further steps to make our business taxes yet more competitive.

The Budget announcement that we would abolish stamp duty on AIM shares was applauded around the world.

Today, we also abolish stamp duty for shares purchased in exchange traded funds to encourage those funds to locate in the UK.

We’re making our successful film tax relief even more generous, and look to extend the principle, including to regional theatre.

We set out major reforms to encourage employee ownership of the kind that makes John Lewis such a success.

And from April, we will be one of the first countries in the world to introduce a new tax relief for investment in social enterprises and new social impact bonds.

I want to thank Sir Ronnie Cohen and my Honourable Friend the Charities Minister for all their help in putting this innovative scheme together.

Mr Speaker, business rates impose a heavy burden on businesses of all sizes.

Today, we will help ease that burden.

Here’s how.

If we’d followed that plan, small businesses would have faced a rate increase of up to £3,375 pounds.

We rejected that plan.

Instead, we have extended that rate relief scheme year after year.

It was due to expire next April.

We will now extend it for another whole year.

We’ve also listened to the small business groups and we’ll relax the rules that discourage these firms from expanding and opening extra premises.

But that doesn’t go far enough.

All businesses are expecting rates to rise by 3.2 per cent next year.

Instead, I will cap the inflation increase in business rates for all premises at 2 per cent from next April.

We will also allow businesses to pay their rates in 12 monthly instalments and clear almost all of the backlog of valuation appeals by July 2015, with reform of business rates on the agenda for the 2017 revaluation.

But Mr Speaker, there is one group of businesses that have found the recession especially hard – as it has coincided with a rising challenge from the internet that is only getting stronger.

These are our local retailers – the shops, the pubs and the cafes that make up our high streets across Britain.

With Small Business Saturday this weekend, I want the government to do all it can to help them.

We’re already changing the planning rules to help town centres compete.

To get the vacant shops that blight too many town centres to open again, I am introducing a new reoccupation relief that will halve the rates for new occupants.

But Mr Speaker, we can do more, and I want to thank my Honourable Friends for Wolverhampton South West, Nuneaton, Hastings and Rye and many others for their campaign.

Like them, I also want to help those who have struggled hard on our high streets – often working long hours for not enough in return.

So I can announce today that for the next two years every retail premise in England with a rateable value of up to £50,000 will get a discount on their business rates.

This discount will be worth £1,000 off their bills.

This is what we offer.

Business rates capped.

For the smallest firms, no rates at all.

And help for the high street.

A thousand pounds off for small shops, pubs, cafes and restaurants across our country.

The people in these businesses epitomise the hardworking values this government supports.

And we’re backing Britain’s businesses all the way.

FAMILIES

And we are backing Britain’s families.

Next April, the personal allowance will reach £10,000.

This government is delivering an income tax cut worth up to £700 a year to over 25 million hardworking people.

We’re now helping councils freeze it for the whole of this Parliament.

Tax free childcare is being introduced.

And free school meals are on their way.

But there is more we’re doing to help.

This Autumn Statement confirms that from April 2015 we will introduce a new transferable tax allowance for married couples.

Available to all basic rate taxpayers, it enables people to transfer £1,000 of their personal allowance to their wife, husband, or civil partner.

It is just a start.

And I confirm today that we will introduce a new uprating mechanism that ensures that the new married couples tax allowance is automatically increased in proportion to the personal allowance.

Four million families will benefit, many of them among the poorest working families in our country.

This measure, along with the others we take today, ensures that across this Parliament our policies are progressive – showing we’re all in this together, with the very rich paying the most.

ENERGY

We’re also helping families with their energy bills.

Not with a transparent con by pretending that we can control the world oil price.

But instead by focussing on the thing government can and should control: the levies and charges that previous Energy Secretaries piled on bills.

This week we deliver on the promise made by the Prime Minister to roll back those levies.

The result: an average of £50 off family bills.

We’re doing this in a way that supports the lowest income families.

Reduces carbon.

Supports investment in our energy infrastructure.

And as the document shows, does not add a penny to the tax bill families pay.

My political philosophy is clear: instead of penalising people with more taxes and more regulation, give them incentives by reducing their taxes and their bills.

As I’ve often said, going green doesn’t have to cost the earth.

FUEL

That brings me on to fuel duty.

Instead of those rises, we abolished the escalator, and we have cut and then frozen fuel duty.

I’ve had further representations from many Honourable Friends, from the Member for Blackpool North and Cleveleys, to the Member for Argyll and Bute, and of course, the Member for Harlow who is such a champion of the people he represents.

I said earlier this autumn that if we could find the money, I’d like to go on freezing duty.

Today I can report that because we have taken difficult decisions to control the public finances, I can deliver on that promise.

Next year’s fuel duty rise will be cancelled.

Instead of petrol taxes going up by 2 pence a litre, they will stay frozen.

That means compared to the previous government’s plans, petrol will be 20 pence a litre less.

That’s £11 less every time you fill up.

A saving for drivers over this Parliament of £680.

Double that for a small business with a van.

Cancelling fuel duty rises has been a major priority of the Government.

A £22 billion pound demonstration that we’re on the side of hardworking people in this country.

A married couples allowance.

£50 off energy bills.

We’re helping those who drive a car and we’re helping those who get the train too.

For fares next January were due to go up by 1 per cent above inflation.

We are going to keep average fares flat in real terms.

Mr Speaker, on this side of the House we know there’s one thing more than any other that has supported families through these difficult times.

And that is being in work.

At the heart of our economic plan is support for the creation of more jobs.

That’s also why in the last Budget, I introduced the Employment Allowance, that eliminates the jobs tax for almost half a million small businesses.

And that’s why we will go further still.

We are going to abolish the jobs tax on young people under the age of 21.

Employer national insurance contributions will be removed altogether on a million and a half jobs for young people.

We’re not going to leave young people behind as the economy grows.

We are going to have a responsible recovery for all.

The cost for a business of employing a young person on a salary of £12,000 will fall by over £500.

For someone on £16,000, that’s over £1,000 off.

I want to commend my Honourable Friends for Braintree and Carlisle and the Million Jobs campaign for highlighting this issue.

The change requires legislation.

It will come into force in April 2015, and it won’t apply beyond the upper earnings limit.

This country is working through its long term plan.

Bringing down the deficit and dealing with the debt.

Spending less on welfare and making the big decisions on infrastructure.

Living within our means and cutting tax on business.

Making work pay and letting people keep more of what they earn.

Confidence in the next generation, as they make their way in education and in the workplace.

This Statement shows the plan is working.

It’s a serious plan for a grown up country.

But the job is not done.

By doing the right thing, we’re heading in the right direction.

Britain’s moving again; let’s keep going.

Below is the text of the speech made relating to the 2013 Spending Review by the Chancellor of the Exchequer, George Osborne, in the House of Commons on 27th June 2013.

Mr Speaker, this Coalition came into office with a commitment to address – with firmness and resolve – one of the biggest economic crises of the post-war era. The action we have taken – together with the British people – has:

– Brought the deficit down by a third;

– Helped a record number of people into work; and

– Taken our economy back from the brink of bankruptcy.

And it allows us to say that, while recovery from such a deep recession can never be straightforward, Britain is moving out of intensive care – and from rescue to recovery.

Today, we announce the latest action to secure the recovery.

We act on behalf of every taxpayer and every future taxpayer who wants high quality public services at a price our country can afford.

We act on behalf of everyone who knows that Britain has got to live within its means.

We have applied three principles to the Spending Round I set out today.

Reform: to get more from every pound we spend.

Growth: to give Britain the education, enterprise and economic infrastructure it needs to win the global race.

And Fairness: making sure we are all in it together by ensuring those with the broadest shoulders bear the largest burden and making sure that the unfairness of the something for nothing culture in our welfare system is changed.

Mr Speaker, we have always understood that the greatest unfairness was loading debts onto our children that our generation didn’t have the courage to tackle ourselves.

We have always believed – against much opposition – that it is possible to get better public services at lower cost.

That you can cut bureaucracy.

And boost enterprise by taking burdens off the back of business.

In the face of all the evidence, the opposition to these ideas has collapsed into incoherence.

We’ve always believed that the deficit mattered; that we need to take tough decisions to deal with our debts – and the opposition to that has collapsed into incoherence too.

Today I announce the next stage of our economic plan – to turn Britain around.

Overall spending

Mr Speaker, let me start with the overall picture on spending.

Three years ago, we set out plans to make savings and reduce our borrowing.

Instead of the £157 billion the last government was borrowing, this year, we are set to borrow £108 billion pounds.

That’s £49 billion less in borrowing.

That’s virtually the entire education budget.

So we’ve made real progress, putting right what went so badly wrong.

But while we’ve been acting, the challenges from abroad have grown.

A eurozone in crisis.

Rising oil prices.

The damage from our banking crisis worse than anyone feared.

And the truth is Mr Speaker, we have to deal with the world as it is, not as we wish it to be.

So this country has to continue to make savings.

I can report that the biggest single saving we’ve made in government is the £6 billion pounds a year less we are paying to service our debts.

Bear that number in mind when you hear the opposition complaining about cuts.

Mr Speaker, the deficit has come down by a third.

Yet at over seven per cent, it remains far too high, so we must continue to take action.

Not just because it’s wrong to go on adding debts to our children’s shoulders.

But because we know from the global turbulence of the last few years that the economic risks are real.

That the recovery has to be sustained.

And if we abandon our deficit plan, Britain would be back in intensive care.

So the figures today show that until 2017-18, Total Managed Expenditure – in other words, the total amount of government spending – will continue to fall in real terms at the same average rate as it is falling today.

The task before us today is to spell out what that means for 2015-16.

Total Managed Expenditure will be £745 billion.

To put that huge sum into context, consider this: if government spending had been allowed to rise through this Parliament at the average rate of the last three decades, that total would have been £120 billion pounds higher.

This Government has taken unprecedented steps to achieve this expenditure control.

But now we need to find £11.5 billion of further savings.

And I want to pay a personal tribute to my Right Honourable Friend the Chief Secretary for the huge effort he has put into helping to deliver them.

Finding savings on this scale has not been easy.

These are difficult decisions that will affect people in our country.

But there never was an easy way to bring spending under control.

Reform

Mr Speaker, reform, growth and fairness are the principles.

Let me take each in turn – and start with reform, and the obligation we all have in this House to ensure that we get more for every pound we spend of taxpayers’ money.

With the help of my Right Honourable Friend the Minister for the Cabinet Office, we have been combing through Whitehall, driving out costs, renegotiating contracts and reducing the size of government.

Cutting money the previous government was spending on marketing and consultants, reforming government IT and negotiating harder on behalf of the taxpayer, has already saved almost £5 billion pounds.

In this Spending Round, we find a further £5 billion pounds of efficiency savings.

That’s nearly half of the total savings we need to achieve.

Pay

We’re reforming pay in the public sector.

We are holding down pay awards.

And public sector pay rises will be limited to an average of up to one per cent for 2015-16.

But the biggest reform we make on pay is to automatic progression pay.

This is the practice whereby many employees not only get a pay rise every year, but also automatically move up a pay grade every single year – regardless of performance.

Some public sector employees see annual pay rises of seven per cent.

Progression pay can at best be described as antiquated; at worst, it’s deeply unfair to other parts of the public sector who don’t get it and to the private sector who have to pay for it.

So we will end automatic progression pay in the Civil Service by 2015-16.

And we are working to remove automatic pay rises simply for time served in our schools, NHS, prisons and police.

The armed forces will be excluded from these reforms.

Keeping pay awards down and ending automatic progression pay means that, for every pound we have to save in central administration, we can better limit job losses.

I don’t want to disguise from the House that there will be further reductions in the number of people working in the public sector.

The OBR has forecast that the total number of people working for the Government will fall by a further 144,000 by 2015-16.

And I know that for those affected this is difficult.

That is the consequence of the country spending far beyond its means.

When I presented the Spending Round three years ago, I said then that around half a million posts in the public sector were forecast to have to go.

That is indeed what has happened – and we’re saving £2 billion pounds a year, with a civil service now smaller than at any time since the war.

But I also said three years ago that I was confident that job creation in the private sector would more than make up for the losses.

That prediction created more controversy than almost anything else at the time.

Instead, every job lost in the public sector has been offset by three new jobs in the private sector.

In the last year, five new jobs have been created for every job cut in the public sector.

A central argument of those who fought against our plan completely demolished by the ingenuity, enterprise and ambition of Britain’s businesses.

And I pay tribute to the hard-working people of this country who proved that pessimism wrong.

HM Treasury and Cabinet Office

Mr Speaker, in this Spending Round, the Treasury will, as you would expect, lead by example.

In 2015-16, our resource budget will be reduced by 10 per cent.

The Cabinet Office will also see its resource budget reduced by 10 per cent.

But within that we will continue to fund support for social action, including the National Citizen Service.

90,000 places will be available for young adults in the Citizen Service next year – rising to 150,000 by 2016.

It’s a fantastic programme that teaches young people about their responsibilities as well as their rights, and we are expanding it.

Local Government will have to make further savings too.

My Right Honourable Friend the Communities Secretary has set an example to all his colleagues in reducing the size of his department by 60 per cent and abolishing twelve Quangos.

He’s a model of lean government.

And he’s agreed to a further 10 per cent saving in his resource budget.

But we’re committing to over £3 billion capital investment in affordable housing and we will extend the Troubled Families Programme to reach 400,000 more vulnerable families who need extra support.

We are proving that you can save money and create more progressive government.

That is the right priority.

And here’s another of the Government’s priorities: helping families with the cost of living.

Because we know times are tough we have helped keep mortgage rates low, increased the personal allowance, cut fuel duty and frozen council tax.

That council tax freeze is due to come to an end next April.

I don’t want that to happen.

So I can tell you today, that because of the savings we’ve made, we can help families with their bills.

We will fund councils to freeze council tax for the next two years.

That’s nearly £100 pounds off the average council tax bill for families.

This bring savings for families to £600 pounds over this Parliament.

And it demonstrates our commitment to all those who want to work hard and get on.

And there’s one more thing that we can do to help with the cost of living in one part of the country.

For years, Members from the South West of England have fought on behalf of their constituents, who face exceptionally high water bills.

Nothing was done until we came to office.

Now we’ve cut those water bills by £50 a household every year until 2015.

My Honourable Friend the Member for Camborne and Redruth and others have campaigned to extend that rebate beyond 2015 – and I am happy to confirm today that we will.

Taking money out of the cost of government and putting it in the pockets of families – that’s what I mean by reform.

Local Government has already taken difficult decisions to reduce staff numbers, share services and make savings – and I want to pay tribute to Sir Merrick Cockell who has been instrumental in showing how they can do this.

We were told by the scaremongerers that savings in local government would decimate local services.

Instead, public satisfaction with local council services has gone up.

That’s because with our reforms, communities have more control over their own destiny.

That’s because we’ve devolved power and responsibility to manage budgets locally.

That’s because we’ve let councils benefit from the tax receipts that come when the local economy grows.

Today, we give more freedom – including greater flexibility over assets – and we will drive greater integration of local emergency services.

And I want to thank the Honourable Member for Bournemouth East for his fresh thinking in this area.

We’re also embarking on major reforms to the way we spend money locally through the creation of the Single Local Growth Fund that Lord Heseltine proposed.

This will be £2 billion pounds a year – that’s at least £10 billion over the next Parliament – that Local Enterprise Partnerships can bid for and the details will be set out tomorrow.

Our philosophy is simple: trust people to make their own decisions and they will usually make better ones.

But in return for these freedoms, we have to ask local government for the kind of sacrifices central government is making.

The local government resource budget will be reduced by 10 per cent in 2015-16, but when all the changes affecting local government I will set out are taken into account – including local income and other central government funding – local government spending reduces by around 2 per cent.

I set out today the block grants to the devolved administrations.

Because we have prioritised health and schools in England, this feeds through the Barnett formula to require resource savings of around just 2 per cent in Scotland, Wales and Northern Ireland.

The Scottish resource budget will be set at £25.7 billion.

And Scotland will benefit from new capital borrowing powers of almost £300 million pounds.

Being part of the UK means Scotland will see its capital spending power increase by almost 13 per cent in real terms in 2015-16.

And rightly it’s for the Scottish Parliament to decide how best to use it.

Devolution, within a United Kingdom, delivering for Scotland.

The Welsh resource budget will be £13.6 billion, and we will shortly publish our response to the Silk Commission on further devolution of taxation and borrowing.

When we do so, we will be able to say more about the impressive plans to improve the M4 in South Wales that my Honourable Friend for the Vale of Glamorgan and others have been campaigning for.

And the Northern Ireland resource budget will be £9.6 billion.

We have agreed to provide an additional £31 million in 2015-16 to help the Police Service of Northern Ireland tackle the threat posed by terrorism.

Those police officers do an incredibly brave job on our behalf.

Separately, we will make 10 per cent savings to the Scotland, Wales and Northern Ireland Offices.

Department for Culture Media and Sport

Mr Speaker, I believe the culture heritage of our nations are not just an economic asset, but have great intrinsic value.

When times are tough, they too must make a contribution to the savings this country requires.

The Department for Culture Media and Sport will make savings of 7 per cent in its resource budget, elite sports will be protected while the funding of community sports, arts and museums will be reduced by just five per cent.

But because we recognise the value of our greatest museums, galleries and English Heritage, we are giving them the much greater freedom from state control which they have long called for.

Applying our reforming principles across the Board: empowering those on the frontline who know best – what the Director of the British Museum called: “good news in a tough economic climate”.

And while we’re at it, we’ll make sure the site of the Battle of Waterloo is restored in time for the 200th anniversary, to commemorate those who died there and to celebrate a great victory of coalition forces over a discredited former regime that had impoverished millions.

Ministry of Defence

Mr Speaker, we still have the finest armed forces in the world – and we intend to keep it that way.

The first line of national defence is sound public finances and a balanced defence budget.

My Right Honourable Friend the Defence Secretary is helping to deliver both.

He and his predecessor my Right Honourable Friend for North Somerset have filled the £38 billion black hole they inherited in the finances of the Ministry of Defence.

Now we continue to ensure we get maximum value for money from what will remain, at over two per cent of our GDP, one of the largest defence budgets in the world.

The defence resource budget will be maintained in cash terms at £24 billion pounds.

The equipment budget will be £14 billion pounds and will grow by one per cent in real terms thereafter.

We will:

– further reduce the civilian workforce and their allowances;

– renegotiate more of the hopeless PFI contracts signed in the last decade; and

– overhaul the way we buy equipment.

But my Right Honourable Friend the Prime Minister has rightly been clear throughout that he is not prepared to see a reduction in Britain’s military capabilities.

This Spending Round not only protects those capabilities, but enhances them with the latest technologies.

We will not cut the number of soldiers, sailors or airmen.

We need them to defend our country.

We will give them the best kit to do that job: the new aircraft carriers, submarines, stealth fighters, destroyers and state-of-the art armoured vehicles.

And we make a major commitment to invest in cyber.

This is the new frontier of defence – and a priority for this government.

We will look after the families who have lost their loved ones, and those who have been injured protecting us, long after the wars they fought in are over.

We previously committed to fund the Military Covenant for five years.

Today, I will commit to fund the military covenant permanently.

And we will do this from the money we have collected from the Libor fines.

Those who represented the very worst values will support those who represent the very best of British values.

Our veterans will not be forgotten.

Intelligence services

The intelligence services are on the frontline too.

Silently, and often heroically, these fellow citizens protect us and our way of life.

And so we will protect them in return – with a 3.4 per cent increase in their combined resource budget.

The Foreign Office is the public face of our diplomacy.

My Right Honourable Friend the Member for Richmond is quite simply the best Foreign Secretary we’ve had in a generation.

He too has demonstrated how we can make our taxpayers’ pound go further.

While making savings in his budget, he has managed to expand our network of embassies in the emerging world, and focus his diplomats on British commercial interests.

There will be further savings in that budget of 8 per cent in 2015 but my Right Honourable Friend is still committing to strengthen our embassy network in high-growth markets, from Shanghai to Abuja.

The Foreign Office projects our values abroad.

The Home Office protects our values here in Britain.

Police and criminal justice

Police reform is a model of what we can achieve across government.

Police forces are more accountable to the public, with modern working practices, the latest equipment, and democratic oversight.

And all on a smaller budget.

What was the prediction from the opposition three years ago?

Crime would rise.

And what has happened instead?

Crime has fallen by more than10 per cent.

Thanks to the hard work of the police officers up and down this country, crime is at its lowest level for 30 years.

Net migration down by more than a third.

The Home Secretary is demonstrating that responsible budgets and reform can deliver better services for the public.

In 2015, she will work with a resource budget of £9.9 billion – a saving of 6 per cent.

The police budget will be cut by less than that.

There will be further savings in the central department.

Police forces will be encouraged to share services.

And some visa fees will go up.

But protecting Britain from the terrorist threat remains a top priority, so I can confirm that the police counter terrorism budget will not be cut at all.

For the police to do their job, they need a criminal justice system that works a lot better.

A case of common assault can take 240 days to pass through the courts, involves five separate sets of case papers, generated on three different computer systems.

In some prisons, the cost of keeping a prisoner is £40,000 pounds a year.

In others, it’s one third of that.

And the cost of legal aid per head is double the European average.

My Right Honourable Friend the Lord Chancellor is reforming all of these things.

And by doing that he’ll make savings of 10 per cent in his departmental budget.

And he’ll do this while offering, for the first time, probation services for those who have served short sentences, to help to end the revolving door of crime and reoffending.

Mr Speaker, it’s an example of the reform we’re bringing across Government.

And every step of the way, every penny saved, every programme reformed, every entitlement reduced, every difficult choice taken, has been opposed by vested interests and those who got Britain into this mess in the first place.

We will not let up.

I will not let that happen.

The reform will continue.

Growth

Mr Speaker, government spending does not alone create sustainable growth.

Enterprise does.

And the job of the state is to provide the schools, science, transport links and reliable energy that enable business to grow.

Britain was once the place where the future was invented.

From the railway to jet engine to the world wide web.

We can be that country again.

And today we set out how we get there.

And a huge amount of innovation and discovery still goes on.

But successive governments of all colours have put short term pressures over the long term needs and refused to commit to capital spending plans that match the horizons of a modern economy.

Today we change that.

We commit now to £50 billion pounds of capital investment in 2015.

From roads to railways, bridges to broadband, science to schools.

It will amount to over £300 billion of capital spending guaranteed to the end of this decade.

Today we raise our national game.

This will mean that Britain will spend on average more as a percentage of its national income on capital investment in this decade – despite the fact money is tight – than in the previous decade, when government spending was being wasted in industrial quantities.

My Right Honourable Friend the Chief Secretary will tomorrow set out the next stage of our economic infrastructure plan, with specific plans for more than £100 billion of infrastructure projects.

But this is what it means for departments.

The Department for Transport will make a 9 per cent saving in its day to day resource spending, bearing down on the running costs of Transport for London and rail administration;

But its capital budget will rise to £9.5 billion – the largest rise of any part of Government.

And we will repeat that commitment for every year to 2020.

We’re already massively expanding investment on major road schemes; but we will do more.

So we’re announcing the largest programme of investment in our roads for half a century.

We’ve already expanded our investment in the railways.

But we will do more.

So we’re committing to the largest investment in our railways since the Victorian age, and with the legislation before this House today, we should give the green light to HS2 – a huge boost to the north of England and a transformation of the economic geography of this country.

Here in London we’re digging Crossrail, the largest urban infrastructure project in Europe.

But we will do more – looking at the case for Crossrail 2 linking London from North to South.

And we’re going to give the Mayor almost £9 billion pounds of capital spending and additional financing power to the end of this decade.

Energy and the Department for Environment, Food and Rural Affairs (DEFRA)

Mr Speaker, investing in our economic infrastructure also means investing in energy.

So we’ll provide the certainty investors are crying out for in western countries.

This country is already spending more on renewables than ever before.

Now we’ll provide future strike prices for low carbon.

We’re restarting our civil nuclear programme when other countries are unable to continue theirs.

Now we provide guarantees for new nuclear.

Already our exploitation of gas in the North Sea is second to none.

Now we make the tax and planning changes which will put Britain at the forefront of exploiting shale gas.

We will provide our country with the energy of the future at a price we can afford.

And taken together this should support over £100 billion of private sector investment in our energy.

The Department for Energy and Climate Change will do this while reducing its resource budget by 8 per cent.

The Department for Environment and Rural Affairs will see a 10 per cent reduction but we will set out plans for a major commitment to new flood defences for the rest of this decade.

Again, prioritising long term capital through day-to-day cost savings – exactly the tough choice Britain should be making.

Department for Business, Innovation and Skills (BIS)

Mr Speaker, it’s not enough to have roads, power stations and flood defences.

These are just the physical infrastructure you need to compete in the 21st century.

We need the intellectual capital too.

This country needs to invent, pioneer and export around the world.

That means backing the Department for Business that helps us to do this.

And it means taking tough decisions about what we should support.

My Right Honourable Friend the Business Secretary has agreed a reduction of six per cent in the cost of the department.

That means we’re making savings to student maintenance, keeping grants, but not increasing them.

And the cost of the central department will also be cut further.

But this means that within this reduced budget we can put more money into apprenticeships, and continue with the dramatic increase in support we’ve provided to exporters through UKTI.

And we’re not going to shift medical training and research out of this department, because they’re working well where they are.

And in this department too, we can shift from day to day spending to a huge 9 per cent increase in capital investment.

This includes a huge investment in science.

Scientific discovery is first and foremost an expression of the relentless human search to know more about the world but it is also an enormous strength for a modern economy.

From synthetic biology to graphene – Britain is very good at it.

And we’re going to keep it that way.

I am committing to:

– maintain the resource budget for science at £4.6 billion;

– increase the capital budget for science in real terms to £1.1 billion; and

– maintain that real increase to the end of the decade.

Investment in science is an investment in our future.

So yes, from the next generation of jet engines, to cutting edge super computers, we say: keep inventing, keep delivering, this country will back you all the way.

But when you’ve got infrastructure and you’ve got science you still need the educated workforce to make it happen.

Because of our ongoing reforms to our universities, they are now better funded than before.

We remember the scaremongering about fees.

The claims that this would destroy social mobility, and put off students from poorer communities applying.

And what has happened since?

The highest proportion of students from the most deprived neighbourhoods applying to universities ever.

We should all welcome that.

Education

But Mr Speaker, there’s no greater long term investment a country can make than in the education and skills of its children.

Because of the tough decisions we have taken elsewhere we have been able to invest in education and accelerate school reform.

When we took office, our country’s education system was falling behind other parts of the world.

Now, thanks to the brilliant programme of reform by my Right Honourable Friend the Education Secretary and the Schools Minister, we are once again leading the way.

So we have applied our reform principles here too: freeing schools and teachers to concentrate on teaching and turning the majority of secondary schools into academies.

In this Spending Round this momentum of reform will grow.

So the Education Department’s overall budget will increase to £53 billion and schools spending will be protected in real terms – fulfilling the pledge we made at the beginning of this parliament, for all of this parliament.

And we will transfer power – and money – from town halls and central bureaucracy to schools – so that more of this money for education is spent on education.

So while grants to councils and spending on central agencies are reduced the cash going to schools will go up.

And I can announce today that schools spending will be allocated in a fairer way than ever before.

School funding across the country is not equally distributed, but distributed on a historical basis with no logical reason.

The result is that some schools get much more than others in the same circumstances.

It’s unfair and we’re going to put it right.

Many MPs from all sides have campaigned for it.

My Honourable Friend for Worcester has been a particular champion in this Parliament.

Now the lowest funded local authorities in this country will at last receive an increase in their per pupil funding as we introduce a national funding formula to ensure that no child in any part of our country is discriminated against.

And we will consult on all the details so that we get this historic reform right.

The pupil premium we’ve introduced also makes sure we are fair to children from low income backgrounds.

It will be protected in real terms – so every poor child will have more cash spent on their future than ever before.

The capital budget will be set at £4.6 billion in 2015-16 – with over £21 billion of investment over the next Parliament.

We’ll tackle the backlog of maintenance in existing schools and we will invest in new school places.

We’ll fund twenty new studio schools and twenty new University Technical Colleges – those outstanding new vocational institutions.

Free Schools are giving parents the opportunity to aspire to a better education for their children.

Instead we must accelerate the programme – and bring more hope to more children.

Which is why I can announce that we will fund an unprecedented increase in the number of Free Schools.

We will provide for 180 great new free schools in 2015-16.

The schools budget protected; fairer funding across the nation; the pupil premium extended to more students than ever before and a transformation in the free school programme.

We will not make our children pay for the mistakes of the past.

We will give them every chance for the future.

It is the single best investment we can make for Britain.

Fairness

Our education settlement is also consistent with the third and final principle of this Spending Round.

Fairness.

It is not possible to reduce a deficit of this size without asking all sections of the population to play their parts – but those with the broadest shoulders should bear the greatest burden.

And the Treasury distributional analysis shows that the top fifth of the population lose the most after this Spending Round.

And the independent Institute for Fiscal Studies are unequivocal that the richest ten per cent have paid the most.

HMRC

So when it comes to Her Majesty’s Revenue & Customs, despite the fact that this department will see a 5 per cent reduction in its resource budget, we are committed to extra resources to tackle tax evasion.

The result is that we expect to raise over £1 billion more in tax revenues from those who try and avoid paying their fair share.

Department for International Development (DfID)

Fairness also means refusing to balance the budget on the backs of the world’s poorest.

I know not everyone believes we should fulfil our commitment to spend 0.7 per cent of our national income on development.

But I do – and I’m proud to support a Government that is the first in our history to meet our pledge and meet it not only this year, but next year and the year after.

Of course, overseas development is about more than just the DFID budget, and we comply with internationally policed rules.

But the DFID budget is the lion’s share, and it will be set at £11.1 billion in 2015-16.

Even in tough times, the decisions we make mean we keep to our commitments.

NHS

And that includes our commitment to the National Health Service – an institution which is the very embodiment of fairness in our society.

The NHS is much more than the Government’s priority, it is the people’s priority.

When we came to office the health budget was £96 billion.

In 2015-16, it will be £110 billion.

And capital spending will rise to £4.7 billion.

New medical treatments and an ageing population means the demand for NHS services is rising.

So we have not spared in also demanding reform and value for money in this service.

This will not insulate the Health Service from tough choices.

There are already 7,000 fewer managers.

And the NHS will continue to make efficiency savings.

But these savings will enable new investment in mental health, and funding for new treatments for cancers like prostate and breast cancer.

And let me respond directly to the Breast Cancer Research campaign so many have taken part in.

We will continue to back the Charity Research Support fund and look into making it easier for these organisations to benefit from gift aid.

Mr Speaker, many older people do not just use the NHS, they also use the social care system.

If we are honest they often fall between the cracks of the two systems, being pushed from pillar to post and not getting the care they should.

None of us here would want that for our parents or grandparents, and in a compassionate society no one should endure it.

It’s a failure that costs billions.

Britain can do better.

In the 2010 Spending Review, we said that the NHS would make available around £1 billion a year to support the health needs of people in social care.

It worked, and saved hundreds of millions in the process.

Last year, these improvements meant almost 50,000 fewer bed days were lost to the NHS.

So today, I can announce that I will be bringing together a significant chunk of the health and social care budgets.

I want to make sure everyone gets a properly joined up service where they won’t have to worry if that service is coming from the NHS or the local council.

Let’s stop the tragedy of people being dropped in A&E on a Friday night to spend the weekend in hospital because we can’t look after them properly in social care.

By 2015-16, over £3 billion will be spent on services that are commissioned jointly and seamlessly by the local NHS and local councils working together.

It’s a huge and historic commitment of resources to social care, tied to real reform on the ground, to help end the scandal of older people trapped in hospitals because they cannot get a social care bed.

This will help relieve pressures on Accident & Emergency.

It will help local government deliver on its obligations.

And it will save the NHS at least a billion pounds.

Integrated health and social care: no longer a vague aspiration but concrete reality, transforming the way we look after people who need our care most.

Welfare

So Mr Speaker, these are the three principles that guide the Spending Round: reform; growth and fairness.

Nowhere could these principles be clearer than in our approach to welfare.

Two groups of people need to be satisfied with our welfare system.

Those who need it – who are old, who are vulnerable, who are disabled, or have lost their job and who we as a compassionate society want to support.

And there’s a second group.

The people who pay for this welfare system: who go out to work, who pay their taxes and expect it to be fair on them too.

So we’ve taken huge steps to reform welfare.

Changing working age benefits with Universal Credit, so work always pays;

Removing child benefit from the better off;

Capping benefits so no family out of work gets more than the average family gets in work.

And we’ve making sure benefit payments don’t rise faster than wages.

The steps we’ve taken will save £18 billion a year.

Now we propose to do three further welfare reforms.

First, as I said in the Budget, we are going to introduce a new Welfare Cap to control the overall costs of the benefits bill.

We’ve already capped the benefits of individuals – now we cap the system as a whole.

Under that system we inherited, welfare spending was put in a category called Annually Managed Expenditure.

But the problem was it wasn’t managed at all.

The cost of welfare went up by a staggering 50 per cent – even before the crash.

Our Welfare Cap will stop that happening again.

The Cap will be set each year at the Budget for four years.

It will apply from April 2015.

It will reflect forecast inflation, but it will be set in cash terms.

In future, when a government looks set to breach the Cap because it is failing to control welfare, the OBR will issue a public warning.

The government will then be forced to take action to cut welfare costs or publicly breach the Cap.

We’ll exclude a small number of the most cyclical benefits that directly rise and fall with the unemployment rate – to preserve the automatic stabilisers.

Housing benefit, tax credits, disability benefits, and pensioner benefits will all be included.

But the State Pension will not.

Mr Speaker, I have had representations that we should include the basic state pension in the Welfare Cap.

That would mean that a future government could offset a rise in working age benefits by cutting the pensions of older people.

That penalises those who’ve worked hard all their lives.

Cutting pensions to pay for working age benefits is a choice this government is certainly not prepared to make.

It is unfair.

We won’t do it.

And we reject those representations.

The new Welfare Cap is proof that Britain is serious about living within its means.

Controlling spending.

Protecting the taxpayer.

Fundamentally fair.

Today, we’re introducing a limit on the nation’s Credit Card.

The principles enshrined in the Cap apply to our second reform.

We will act to ensure that we will stop the cost of paying the Winter Fuel Payments made to those who live abroad rising in a way that no one ever intended.

EU law now says that people living in the European Economic Area can claim Winter Fuel Payments from us even if they didn’t get it before they left the UK.

Paying out even more money to people from all nationalities who may have worked in this country years ago but no longer live here is not a fair use of the nation’s cash.

So from the autumn of 2015, we will link the Winter Fuel Payment to a temperature test.

People in hot countries will no longer get it.

It is, after all, a payment for winter fuel.

The third welfare reform I announce today is about making sure we do everything to help people get into work.

My Right Honourable Friend the Work and Pensions Secretary changed the national debate about welfare and he has comprehensively won the argument.

He has committed to finding a further 9.5 per cent savings in his department’s running costs.

That will require a difficult drive for efficiency, and a hard-headed assessment of under-performing programmes.

But welfare reform is about much more than saving money – vital though that is.

It’s about reducing dependency and changing people’s lives for the better.

I am determined to go further to reduce worklessness with all its social consequences.

Where is the fairness in condemning people to a life on benefits because the system won’t help them get back into work?

Today we’re introducing Upfront Work Search.

We’re going to make sure people turn up with a CV, register for online job search, and start looking for work – and only then will they get their benefits.

Thanks to this government, lone parents out of work can now get free childcare for their three and four year olds.

So it is reasonable to ask that they start regularly attending jobcentres and preparing to return to work.

There are further changes we announce today.

Half of all jobseekers need more help looking for work, so we’ll require them to come to the jobcentre every week rather than once a fortnight.

We’re going to give people more time with jobcentre advisors and proper progress reviews every three months.

And we’re going to introduce a new seven day wait before people can claim benefits.

Those first few days should be spent looking for work, not looking to sign on.

We’re doing these things because we know they help people stay off benefits and help those on benefits get back into work faster.

And here’s a further change.

From now on, if claimants don’t speak English, they will have to attend language courses until they do.

This is a reasonable requirement in this country.

It will help people find work.

But if you’re not prepared to learn English, your benefits will be cut.

Taken together, this new contract with people on benefits will save over £350 million pounds a year, and all that money will enable us to afford extra support to help people get into work.

Help to work;

Incentives to work;

And an expectation that people should do everything they can to find work.

That’s fair for people out of work;

And fair for those in work who pay for them.

Together, these reforms bring the total additional welfare savings in 2015 up to £4 billion.

Mr Speaker, step by step, this reforming Government is making sure Britain lives within its means.

The decisions we take today are not easy – and these are difficult times.

But with this statement we make more progress towards:

– an economy that prospers,

– a state we can afford,

– a deficit coming down; and

– a Britain on the rise.

And I commend this economic plan to the House.

Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, on the 19th June 2013 at the Mansion House in London.

My Lord Mayor, Ladies and Gentlemen.

Tonight marks the end of an era.

Mervyn King is leaving the Bank of England in two weeks time.

He has attended 194 Monetary Policy Committee meetings;

He has appeared 102 times before Parliament;

He has attended 37 gatherings of the IMF;

And eaten his way through 15 of these annual dinners at the Mansion House,

And Lord Mayor, on behalf of your guests, I thank you and the City of London for your wonderful hospitality tonight.

Mervyn King was appointed during the premiership of the late Margaret Thatcher as one of the Bank’s directors in 1990.

And since then, first as Deputy Governor, and then Governor, Mervyn, you have helped to lead our country through an extraordinary period of its economic history.

More than that, you have been the original thinker who has taken Britain on the journey that began with inflation targeting, to monetary independence, and now to the far-reaching reforms to prudential regulation and financial oversight.

I can think of few people who have done more to shape our public discourse in the last thirty years.

And you have done so with integrity, intelligence and patriotism.

And also with a seemingly endless supply of sporting metaphors.

So here we go: you had to play on a sticky wicket, but you leave with our economy now emerging from the Ashes. When it comes to leaving presents, you’re a difficult man to get something for.

There’s not much point getting you the traditional gold watch when you already work on top of £200 billion worth of the stuff.

And as you already know, the Chief Secretary, or as you call him, the left arm opening bowler on the Governor’s Eleven, has already confirmed that the Government will support your charity Chance to Shine, matching the £25 million it has raised to help introduce our national game back into our schools.

And I’m delighted to be able to tell everyone here something you’ve known about for a few days.

It’s just been announced by Downing Street that the Prime Minister has recommended to Her Majesty the Queen that the Governor be raised to the peerage, and Her Majesty has been graciously pleased to approve that. Lord King, we here today salute this worthy honour and thank you for your life of service to your country.

And we thank Barbara, Lady King, for being such a support at your side.

Lord King is a hard act to follow.

But Mark Carney is a worthy successor.

Mark, if you’re watching this on TV, just so you know, this is how we British eat every night.

Mark has an outstanding record at the Bank of Canada, great economic expertise, he’s at the centre of global financial regulation and has firsthand experience of the private sector.

I believe he’s quite simply the best qualified person in the world for the difficult job that lies ahead.

And isn’t it a credit to our country that we accept without question that someone who is not British but who is the best in the world, can lead our central Bank? We all wish Mark Carney every success in his new role.

He arrives at an important moment for our economy.

The situation in the Eurozone remains fragile.

Some of the data from the emerging economies has underwhelmed.

And Britain remains encumbered by debts built up over many years.

Recent volatility in financial markets is a reminder that no recovery from such a deep and damaging global recession is going to be straight-forward.

But, equally, the economic news here in Britain has been better in recent months. The economy is growing.

Record numbers are in work.

Unemployment is falling.

And the surveys of confidence and future activity are stronger.

Let me say tonight: the British economy is healing.

We are moving from rescue to recovery.

But while Britain has left intensive care, we still need to secure the recovery – and make sure we continue to treat the ailments that brought us low in the first place.

Full recovery won’t be easy but I won’t let up in my determination to put right what went so badly wrong.

A public sector that was too big, paid for by a private sector that was too small.

An unbalanced economy that was too reliant on too few industries in too few parts of the country.

A business community that was not connected enough to new, fast growing parts of our globe and not helped by an uncompetitive tax system.

And a banking system that was badly regulated, ran risks it didn’t understand and had to be bailed out at huge cost by the taxpayer.

Addressing these more deep seated problems, as well as the short term challenges, must be central to our economic plan.

These are the elements of that economic plan.

First, active monetary policy to support demand and help keep lending rates low.

That is anchored by a tough, credible fiscal policy that bears down on our excessive deficit, the second element of our plan.

Finally, far-reaching structural reform to improve the supply potential of our economy – the only lasting way to raise our nation’s living standards and succeed in the global race.

And that must include structural reform to parts of our banking system.

We want our banks to support our national economy, not be supported by our national economy.

Tonight, I’d like to say a little about each component of the economic plan.

About how they will develop as we move from rescue to recovery.

Let’s start with active monetary policy.

The Bank of England has had the difficult task of balancing the risks from inflation with the need to support the economy.

I believe they have largely got that balance right.

Innovations in monetary policy have included the Funding for Lending scheme, which Mervyn and I both launched at this Mansion House dinner a year ago.

As a result, bank funding costs have fallen quite dramatically.

But Funding for Lending must still do more for small businesses, so we have extended the scheme and sharply increased the incentives for new lending to SMEs.

Monetary activism also means using the credibility of the Government’s balance sheet to fix other parts of the impaired financial system, like mortgage finance.

Mortgage rates have fallen, again thanks to Funding for Lending.

But the average deposit required for a first time buyer is a staggering four fifths of annual income.

I suspect almost everyone in this room owns their own home.

But I ask this: how many of you could have afforded the kind of deposit on your first house that many young families are expected to provide today?

Very few of you.

Let’s be clear: the market is not functioning normally.

And that’s why we’ve introduced Help to Buy.

I want to make sure an entire generation doesn’t miss out on the reasonable aspiration to buy a home. The equity loan component has been operating since April and in the words of the House Builders Federation, it is already “an unqualified success”.

The mortgage component will begin early next year.

And we have reformed our planning laws to allow for a sensible increase in home building.

To guarantee that Help to Buy is temporary, the Financial Policy Committee of the Bank of England will have to give its consent before it can be extended beyond its three year life.

And this brings me to the important question of how monetary policy should balance the ongoing need for stimulus with emerging signs of recovery.

Each step along the path must, without question, be for the judgment of independent central banks including our own. The sharp jumps in bond yields we’ve seen in too many countries in recent years have been a sign of confidence departing.

But if the recovery gathers strength then a steady rise in bond yields across the largest developed countries will be a sign of confidence returning.

The recent turbulence in financial markets has emphasised the vital importance of clear communication.

There is a risk that poor communication could lead to stimulus being inadvertently withdrawn too soon.

More clarity about the future path of interest rates could help keep financial markets more stable.

So this year I’ve given the Bank of England a new remit that takes into account innovations in monetary policy and asked the Monetary Policy Committee to report back in August on the use of forward guidance and intermediate thresholds.

I want to make sure the new Governor and his Committee have all the tools they need at their disposal to maintain price stability and secure the recovery.

Active monetary policy is a key part of our economic plan.

But it has to be anchored by credible fiscal policy.

That remains as important in the recovery as it was in the rescue.

Three years ago, at my first speech to this dinner, I said we would have to take difficult decisions over a number of years to reduce our country’s dangerously-high budget deficit. This was very controversial at the time.

Many opposed our plan to cut spending and increase revenue.

We were told that the private sector would never replace the public sector jobs lost.

Instead, private sector job creation has offset public sector losses more than three times over.

We were told crime would rise, education standards would fall and hospital waiting times would increase.

In all those cases the exact reverse has happened.

Every single step we have taken, the money saved, every programme cut, every welfare benefit reformed, has been fought against by a noisy combination of vested interests.

Those opponents are now losing the argument. But listen carefully and they still assert that if we borrow more we will borrow less.

The evidence doesn’t support it and the public doesn’t agree.

Look at the progress we have made.

The budget deficit is down by a third.

The structural deficit – the part that remains even when the economy fully recovers – has fallen by more here than in any other G7 country.

But at over 7 per cent, our deficit remains too high and endangers our recovery.

We can’t afford to let up – and you have my commitment – we won’t.

In a week’s time, I will set out the government’s spending plans for the year 2015-16.

With tough negotiating by the Chief Secretary, those plans are almost complete.

There are more difficult decisions.

There have to be when the country is living way beyond its means.

But we will not shy away from taking them.

And next week we are going to prioritise spending on the economic infrastructure of tomorrow – in the roads and railways, the schooling and the science that will help Britain compete and succeed.

These are part of our structural reforms – and the third component of our economic plan.

Thanks to long term policy decisions we’ve taken, Britain is now ranked in a recent global index as the number one place in the world to invest in infrastructure.

Our goods exports to India are up 60 per cent; to China they’ve nearly doubled.

When other countries are retreating from their civil nuclear programmes, we are restarting ours.

Our G8 Summit started with the launch of trade talks between the US and Europe that could lead to the largest bilateral trade deal in history.

And strong, profitable and safe financial services are an integral part of the reforms we’re bringing to Britain.

In the City of London, you provide Britain with a great global asset.

I couldn’t be clearer.

I want this City to grow as the pre-eminent centre of international finance.

So I’ve worked hard with the Chinese government to get the first renminbi bonds issued here.

With my Indian opposite number, we’ve just agreed to create new debt funds here for Indian infrastructure.

And when the World Islamic Economic Forum meets for the first time this year outside the Muslim world – they’re meeting here in this city.

We’ve launched a special drive to bring more insurance and reinsurance business here to Britain.

And I can tell you tonight that Santander has chosen London as the base of its worldwide investment management business.

The very landscape of our city, with the Gherkin, the Walkie Talkie and the Cheese Grater – like some giant’s kitchen table – is a visible sign of growth. While underground Crossrail continues to burrow through the City.

We’re fighting for better regulation from Europe.

Just this week we secured a big step forward by getting the derivative exchanges market opened up to competition.

But while some European countries talk of introducing damaging financial transaction taxes, here in Britain I’m abolishing a financial transaction tax – getting rid of stamp duty on AIM-listed shares.

And even though it’s been controversial, I reduced the top rate of income tax.

Why?

Because it was the worst of both worlds: a tax rate that discouraged enterprise but didn’t raise more money from the best off.

So whether its legal services, accountancy, insurance, hedge funds or shipping, we stand ready to promote our world beating financial services.

And those world-beating services include our global banks.

They need to be part of our successful future.

To do that, we must resolve what I described two years ago at this dinner as the ‘British Dilemma’.

How can we remain the international centre for banking, while protecting taxpayers from the catastrophic costs when banks fail?

The financial crisis has cost Britain billions in lost economic output.

People are entitled to feel angry – at the regulators and government that failed them; and at the financial institutions whose reckless behavior brought us to the brink of bankruptcy.

But anger can be a destructive, vindictive thing – it can cost this country jobs and prosperity.

We’re talking here about an industry that employs one million of our citizens.

So we need to channel legitimate anger into a positive force for change.

That is what this Government has sought to do over the last three years.

We’ve changed entirely the failed system of financial regulation, so that from this April we have the Bank of England exercising its judgements as the prudential regulator of our financial system and a monitor of its emerging risks – a role that should never have been taken away from it.

Paul Tucker has done an incredible job in overseeing these historic reforms.

He has announced he’s stepping down from the Bank.

Paul, we thank you for years of service, we wish you well with your next challenge and I’m sure we won’t be seeing the last of you in the public sphere.

It is not just the system of regulation that has changed fundamentally.

This year the Government is legislating in Parliament to ring-fence our retail banks from their investment banking arms. In future, if someone doing my job faces that dreadful weekend decision about using huge amounts of taxpayer’s money to bail out a bank, they will have real choices my predecessor was denied.

Now we need to make further changes. Today the Parliamentary Commission on Banking has reported.

I want to thank Andrew Tyrie – here tonight – and his distinguished colleagues, for an intensive and thorough piece of work.

I think the decision to go for a quick Parliamentary inquiry, rather than a lengthy public inquiry, has been vindicated.

The Commission have rightly not spared in their criticism where they feel some in the industry have done wrong.

But they’ve also come forward with practical solutions that enhance the personal responsibility for practitioners and the professional judgment of regulators.

It’s a very impressive Report.

The Commission’s central judgment is absolutely right.

As they put it: “High standards in banking should not be a substitute for global success. On the contrary, they can be a stimulus to it”.

There’s a lot of detail here – I will respond more fully next month.

We’ve already supported the recommendations on new criminal sanctions and cancelling bonuses where banks are bailed out.

And let me be clear: where legislation is needed, the Banking Bill currently before Parliament will be amended to ensure the recommendations can be quickly enacted. The Commission also supports the creation of new banks on our high street.

I strongly agree.

We’ve made it easier this year to start and grow new banks.

Britain’s banking scene is changing.

Northern Rock has been returned to the private sector.

Lloyds is launching TSB back to the high street this summer, and preparing to float this business as a true new “challenger” bank.

RBS will follow suit.

Today, the Office of Fair Trading has announced that it will bring forward its market review of small business banking – to make sure our small firms get a fair, competitive deal from the banks.

As part of this work, I have asked the OFT to review the impact that new challenger banks created by Lloyds and RBS will have on strengthening competition in small business banking, and to identify what more can be done.

That begs a question about the proverbial elephant in the room for Britain’s financial services – the future of the taxpayer’s stakes in two of our largest banks, RBS and Lloyds.

Our objectives for our shareholdings in Lloyds and RBS are exactly the same.

We want to maximize the ability of these important banks to support the British economy.

We want to get the best value for money for the taxpayer.

And we want to do what we can to return them to private ownership.

In achieving these three objectives, let’s be clear about where responsibility lies.

RBS and Lloyds are led by their managements and their Boards in the interests of all shareholders, including the taxpayer.

It would be wrong for politicians to get into the day-to-day business of determining who they should lend to, and the details of their strategy.

UK Financial Investments plays an important role in making sure the Government’s shareholdings are managed on an arms length, commercial basis.

So one area where I disagree with the Banking Commission is on their recommendation that UKFI be abolished.

But equally, as Chancellor, I have a responsibility to represent the interests of taxpayers.

The British public own 81 per cent of RBS and 39 per cent of Lloyds.

They were forced to give over £65 billion of the money they worked hard to earn to bail out these banks.

Of course the taxpayer is going to have a clear interest in the direction of each bank.

It would be a dereliction of my duty not to represent that interest.

In the case of RBS, the bank lends more to small and medium businesses in this country than anyone else.

There’s no doubt that the bank has come a long way since the perilous situation it faced in 2008.

Stephen Hester has done a very good rescue job in shrinking both the non-core assets and the investment banking operations.

He provided leadership in a time of crisis – and deserves our appreciation.

But while the bank is healing, let’s be frank: it has not healed as quickly as we all hoped.

It has not done as much to support the recovery as any of us would have liked.

And we as taxpayers are still a long way from getting our money back.

So the following needs to happen.

The plan set out, independently, by the board of the bank needs to be pursued aggressively. Under this, RBS will focus on its core UK business, serving its personal, SME and corporate customers.

It will not aspire to be a global full-service investment bank, and the ongoing reduction of its markets business will continue, as it needs to

And UKFI have made it clear that the Government has no strategic interest in RBS owning one of the largest regional banks in the US – and the method of exit from Citizens must achieve maximum value for all shareholders.

All this meets both the first objective of maximizing the ability of RBS to support the economy and our second objective to get the best value for money for the taxpayer.

What about the third?

The return to the private sector.

I don’t want a quick sale of our RBS shares. I want the right sale – the right sale for the British people.

I will only sell our stake in RBS when we feel the bank is fully able to support our economy and when we get good value for you, the taxpayer.

In our judgment, when it comes to RBS that moment is some way off.

So what more can we do to help RBS recover?

There’s no doubt that, despite all the progress of recent years, RBS remains weighed down by too many poor assets – loans issued in the boom that have gone bad and may take a long time to improve.

The question is – do we remove those poor assets from RBS, and set up what’s known as a Bad Bank.

This would then enable RBS to focus on the good parts of its business – supporting the British economy and maximising the benefits for the taxpayer.

With hindsight, I think splitting RBS into a Good Bank and a Bad Bank was probably what should have happened in 2008. That is with hindsight.

I wasn’t in office.

I didn’t suggest it in opposition.

And I’m not criticizing my predecessor who had to act quickly in a desperate situation.

The question before us now is not about what happened then, but what should happened now.

Is taking bad assets that are still weighing down RBS out of the bank altogether the right answer today?

Opinion is divided – some say the disruption isn’t worth it; others that it’s the only way we’ll really restore our banking system to health.

I’ve always believed the answer for Britain is to confront the difficult decisions, not wish them away.

So I can tell you today that we will urgently investigate the case for taking the bad assets – those mistakes of the past – out of RBS.

We will judge whether this will allow the Bank to focus on its future supporting the British economy.

We will see whether its right for Britain to, in effect, see RBS broken up.

The review will be swift.

It will be conducted by the Treasury with external professional support.

We’ll look at a broad range of RBS’s assets, but particularly assets in Ulster Bank and UK commercial real estate.

We’re not prepared to put more taxpayer capital into RBS as part of this process.

We will establish a Bad Bank if it meets our three objectives: if it supports the British economy; if it’s in the interests of taxpayers – and if it accelerates the return to private ownership.

But if the review reveals that it would not achieve these things, then we won’t do it.

We want to get on with this, so we’ll conclude the review and make a decision this autumn.

Once the decision is taken, and we’re confident that RBS is focused on being that UK corporate and retail bank it needs to be, then the Government is ready to discuss how, for a fair price, we get rid of the Dividend Access Share.

That would be a milestone on the road back to full private ownership for RBS, a destination we all want to reach.

For Lloyds, the three objectives of taxpayer value, maximising support for the economy and restoring private ownership are exactly the same – but we’re much closer to achieving those objectives.

To be fair, Lloyds was, all along, a much simpler bank.

Now its core retail and commercial business generate healthy returns, and there’s no trading arm. Thanks to Antonio Horta-Osorio and his team Lloyds has a clear strategy and is improving its capital position, as it was asked to do.

Lloyds is in a good position.

Investor interest is growing.

And shares are already trading at around the price where selling would reduce the national debt.

That’s something we all want to see.

I can announce that we are actively considering options for share sales in Lloyds.

Of course, we will only proceed if we get value for the taxpayer.

And we have no pre-fixed timescale or method of disposal.

For the first block of government shares, an institutional placement is likely to be the most effective way of managing risk and getting value.

So five years on from the financial crisis, we can now take the first steps to returning Lloyds to the private sector where it belongs.

And for later sales of shares, we will consider a retail offering to the general public.

My Lord Mayor, nothing better signals Britain’s move from rescue to recovery than the fact that we can start to plan for our exit from government share ownership of our biggest banks.

And nothing would do more to help us, as a country, draw a line under the mistakes of the past and look to a brighter future. We’ve come a long way these past few years. Reducing our deficit.

Building up the private sector.

Making our country more competitive.

Creating a banking system that supports the British economy rather than being supported by it.

Enhancing Britain’s global leadership in financial services.

This is our economic plan.

It is working.

The Government is determined in its task, and I thank you for helping us see it through.