Tag: George Osborne

Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, to the American Enterprise Institute in Washington on 11th April 2014.

Both the UK and US economies are recovering from the biggest financial crisis in living memory and the deep recession that followed it.

In the UK that recession was almost twice as deep as it was in the US – and was the deepest since the Second World War.

But our growth rate has been the fastest in the G7 over the last year and we have seen record rates of job creation.

Jobs are also being created in the US.

And pessimistic predictions that fiscal consolidation was incompatible with economic recovery have been proved comprehensively wrong by events.

Cutting deficits and controlling spending has not choked off recovery but has instead laid the foundations for sustainable growth.

Many risks remain, but all this should be cause for cautious optimism.

Nevertheless, many of those same pessimists have now found new grounds to be gloomy about our future.

Today I would like to consider two new pessimistic predictions that some now make about the prospects for our economies.

The first is that we face a prolonged period of weak growth, or “secular stagnation”, which can only be escaped through large and sustained fiscal stimulus.

The second is that the historic link between economic growth and general prosperity has been broken – that even if growth is sustained, the gains will not be shared by most of our citizens but instead concentrated amongst those at the top of the income distribution.

Today I want to explain why I believe both of these predictions will be proved wrong too.

Because at heart they both stem from the same mistaken diagnosis: that free markets are the problem and more government spending is the answer.

Indeed sometimes it seems as if the prescription from some quarters is always the same: spend more when times are good because we can afford it, spend more when times are bad because we need to.

I have a different prescription.

My message today at the IMF is this.

The pessimists said our plan would not deliver economic growth.

Now they say economic growth will not deliver higher living standards.

They were wrong about the past and they are now wrong about the future.

It’s only by continuing to work through our long term economic plan that we can deliver more economic security and a brighter future for all.

If we can control our public finances, strengthen our financial systems and set free the power of human enterprise and innovation then there is no reason why our best days should not be ahead, for all of us.

Let’s consider first the outlook for economic growth.

There is a long history of pessimism in economics, beginning with Thomas Malthus.

The most famous American pessimist of the twentieth century was Alvin Hansen, who argued in the 1930s that chronically low economic demand would doom the US economy to long term secular stagnation.

His prescription was large and sustained fiscal stimulus.

Of course, the US economy is now well over ten times larger than it was when he made his prediction.

But in the last year his argument has been resuscitated and applied to our current circumstances.

My friend and regular critic Larry Summers made this argument just this week in the Financial Times.

This theory links the excesses of the last decade to current weakness through the same hypothesis: a steady fall in the equilibrium real interest rate at which demand is sufficient to deliver full employment.

In other words, the interest rate required to stimulate enough businesses investment and household spending has fallen further and further through each economic cycle until it can fall no further – we have reached the end of growth they say.

In this situation, the argument goes, the only thing that can support demand in the economy and prevent a deflationary spiral is further fiscal stimulus in the form of more government spending.

But developments over the last year make this argument increasingly difficult to sustain.

To start with, the evidence increasingly shows that monetary policy, broadly defined and effectively deployed, can work.

As unemployment falls and growth picks up, both the Federal Reserve and the Bank of England are in the process of managing the pace and timing of exit from extraordinary monetary stimulus.

These are not the actions of central banks at full stretch, maxed out on all fronts and still unable to do enough to support demand.

Two important caveats apply here.

First, monetary policy can only be fully effective when banks are well capitalised and financial systems are properly functioning.

We in the UK learnt the importance of that caveat during the acute phase of the eurozone crisis from mid 2011 to mid 2012.

Indeed, independent analysis of forecast errors by the OECD suggests that the impact of the euro crisis on financial conditions was by far the most important explanation for slower than forecast economic growth.

In the UK we have worked hard to repair our banking system with credible stress tests and additional capital when needed.

But this caveat is still extremely relevant to many countries in the eurozone, where weak banks and fragmented financial systems still weigh too much on the pace of recovery.

And as they conduct a new round of bank stress tests, I know that Mario Draghi and the ECB are very focused on this issue.

The second caveat is that you need credible fiscal policy for monetary policy to be effective.

This is where most of the controversy arises.

For the main implication of the secular stagnation hypothesis is that large and sustained fiscal stimulus is the only route to sustainable growth.

But again recent experience has in fact shown the reverse: credible fiscal consolidation plans are not only a crucial foundation for effective monetary policy, they are a necessary precondition for sustainable economic recovery.

In the US the resolution of the immediate debate about fiscal policy has lifted a cloud of uncertainty for the US economy and the whole world.

And spending cuts have not choked off the US recovery in the way that some feared they might.

In the UK not only has our growth rate been the fastest in the G7 over the last year, but it is now forecast by the IMF to be so again in 2014 – all despite warnings from some that our determined pursuit of our economic plan made that impossible.

I know the path of fiscal policy in the UK has been the focus of some interest in the US debate, so let me briefly set out our approach and the thinking behind it.

Following our general election in May 2010 we were faced with a record 11% budget deficit, a hung parliament, a banking system five times as large as our GDP, and none of the advantages that the role of the dollar as the world’s reserve currency provides for the US.

What’s more, across the English Channel and the Irish Sea some of our nearest neighbours were teetering on the brink of a sovereign debt crisis.

In these circumstances fiscal credibility was vital for economic stability, let alone economic recovery. The alternative did not bear thinking about.

So we moved quickly to set out a multi-year deficit reduction plan and legislated for it.

The pace of our fiscal consolidation over the last four years has been steady, with an average annual reduction in the cyclically adjusted primary balance of around 1.6% of GDP according to the IMF – the largest and most sustained of any major advanced economy.

And the composition of the consolidation has been based on careful analysis of the economic evidence: 80% will be achieved through spending cuts and entitlement reform; tax rises have been mainly limited to indirect taxes; and we have protected the most economically valuable spending – on science and education.

In response to the acute crisis in the eurozone we made no net changes to tax policy or spending plans, so the underlying stance of fiscal policy remained unchanged.

But the fiscal credibility we had earned meant we could safely allow the so called automatic stabilisers to operate through lower than forecast tax receipts.

And growth has picked up strongly following the abatement of the euro crisis, the success of the Funding for Lending Scheme in reducing bank funding costs, and the subsequent improvement in UK financial conditions.

Our macroeconomic approach has been consistent – responsible fiscal policy, activist monetary policy – and the results for job creation over the last four years have been far better than anyone expected, to an extent not fully appreciated by many in the US.

Employment is now above its previous peak; jobs have been created three times faster than any previous UK recovery; and our employment rate has risen by almost two percentage points since the first quarter of 2010 – the second fastest rise in the G7.

As our recovery has strengthened in the last year, so the composition of that recovery has improved.

Investment spending has grown by 8.8% over the past year compared to 2.2% in the US.

That bodes well for UK productivity, though I am the first to say that we still invest too little and export too little.

And unlike in the past, growth has not been fuelled by credit: our household debt to income ratio continues to fall to 140%, down from a peak of around 170%.

Indeed the UK’s combined public and private debt ratio fell more in the last year than in any other year since data began in 1987.

Many risks remain for the UK economy, not least the slow growth of our biggest export market the Eurozone and the situation in Ukraine, and I remain resolutely focused on building a resilient economy that can withstand future shocks.

But all of this demonstrates that fiscal consolidation and economic recovery go together, and it undermines the pessimistic prognosis that only further fiscal stimulus can drive sustainable growth.

Indeed that is precisely the wrong prescription for our economies.

Before the crisis the UK and the US economies were built on a fundamentally flawed economic model: we ran up ever larger debts owed to China and the developing world to buy the things that they made for us.

2008 was a wake-up call for that whole approach.

Instead of more debt or more government spending we need to get our public finances in order, make structural reforms and compete in the world again.

In the UK that means continuing to work through our long term economic plan – a plan that is working.

As the deficit comes down we cannot afford to let up in our efforts to control spending.

We need to get debt falling because the evidence shows that high levels of debt leave a country more exposed to future shocks and crowd out more useful spending due to high debt interest payments.

And for the UK I’ve made clear that in order to reduce our debt levels in a reliable way we need to deliver an absolute budget surplus in normal times.

But that in itself is not sufficient. We need competitive tax rates and long term structural reforms to make our economies more productive.

That’s why, at the same time as cutting our budget deficit, we are cutting business taxes to the lowest rate in the G20 – last week the headline rate fell again to 21 per cent.

That’s why we are supporting large infrastructure investment in rail, roads and energy: the largest programme of rail investment since the days of Queen Victoria; the biggest investment in our road network for more than thirty years; and fundamental reform of our energy market to encourage large scale private investment.

We understand that there is a positive role for government in the economy.

It was a Republican president who built the interstate network here in the US, , and I am a strong supporter of a new North-South high speed rail line in the UK.

The challenge of competing in the world economy is why I am determined to bring the US shale revolution to the UK to support jobs and help bring down energy costs.

It’s why in my Budget last month I announced fundamental reform of the support we provide for British exporters.

And it’s why we have protected science spending even while other budgets have been cut.

Some, like Professor Robert Gordon of Northwestern University, argue that science and innovation may be running into diminishing returns.

Such predictions have always been proved wrong in the past and I believe they will be again.

The statement “everything that could have been invented has been invented” is often misattributed to the nineteenth century US patent commissioner Charles Holland Duell, but it was a view widely shared at the time.

In fact he believed that the discoveries of the time would appear insignificant compared with what was to come, and he was right.

Today the scientific breakthroughs of the past century have created an explosion of technological applications, which are in turn stimulating new advances in fundamental science.

Just as improvements in lens technology and better microscopes led to huge leaps in germ theory and medicine, today we cannot even imagine the advances in all areas of science – from genetics to materials – that high powered computing will make possible in the years ahead.

Now the challenge for this generation of politicians, business leaders and policymakers is to embrace innovation and make the case for the economic reforms that can harness its potential.

So we should encourage the potential of new genetic technologies not fear them; in Europe we must make the case for GM crops instead of giving in to hostility and protectionism; and all of us need to invest in the application of new discoveries such as graphene – discovered in the UK – instead of allowing our competitors to overtake us.

To believe in secular stagnation is to ignore all of this potential and, as a result, end up at the wrong prescription – more government spending.

Instead my outlook is fundamentally optimistic and I have set out a very different prescription: fiscal responsibility; effective monetary policy; far-reaching and ambitious supply side reforms.

In simple terms, I believe that if we reward hard work and support people’s aspirations to provide a better life for their family then there is no limit to what human enterprise can achieve.

I bring this same optimism to the second of today’s pessimistic predictions – that even if growth is sustained the benefits will accrue to the few not the many.

This prediction – that the link between living standards and economic growth has broken – also leads its proponents to the same prescription: more government spending on welfare and the costs of economic dependency.

But it too can be proved wrong if we follow a different approach.

To begin with it is not well supported by the facts.

As Greg Mankiw has pointed out for the US, on a superficial reading the data appears to show that real median incomes grew by only 3% over the entire period from 1979 to 2007. That sounds like there is a big problem.

But in fact once you take account of changes in household composition, lower taxes, healthcare benefits and other forms of remuneration then that number turns into a 37% real terms increase.

Of course that’s not to say that inequality doesn’t matter – it does.

The Great Recession made our countries poorer and times have been difficult for British and American families.

But in the UK the evidence shows that growth supports rising living standards.

Recent work by academics at the London School of Economics and our own analysis at the Treasury has found no evidence that employee compensation has become detached from GDP growth in recent decades.

Previous results that appear to show a break disappear once you take account of rising pension contributions and payroll taxes.

That is one reason why the labour share of national income in the UK has stayed constant over the last decade.

Nor does the evidence support the so-called “hollowing out” hypothesis in the UK – the idea that middle-skill and middle-income jobs are disappearing with most of the growth in employment either at the top or the bottom of the distribution.

While some traditional mid-level occupations have shrunk or moved down the income scale, new ones have been created to take their place.

So we have fewer middle-paid production line and secretarial jobs, but a lot more middle-paid jobs in IT and professional services.

Overall there has been little change in the proportion of people in middle-income jobs in recent years.

And after rising during the industrial restructuring of the 1980s, as it did in many countries, the level of inequality in the UK has been fairly constant for two decades, and according to the latest data is at its lowest level since 1986.

So the long term link between economic growth and living standards has not been broken.

When the economy shrinks people get poorer, and the only way to ensure people are better off is for the economy to grow.

But we nevertheless face a tremendous challenge.

The very legitimacy of our free market system depends on the promise that effort is rewarded and prosperity is shared.

In recent decades the premium earned by highly skilled, highly qualified people has increased, even as the number of highly skilled people has increased.

That tells us something important about the insatiable demand for higher skills in the modern global economy. The flip side of that is that the downside of having low skills has increased too.

Harvard economists Claudia Goldin and Larry Katz famously posited a “race between education and technology.”

More recently Erik Brynjolfsson and Andrew McAfee have been among those writing about the “race against the machine” – the risk that increasing deployment of artificial intelligence, driverless cars and other digital technologies will lead to unemployment.

Some say that if there are people lacking work, the government should create jobs itself through more spending.

If we want a more equal society, they say the answer is a bigger welfare budget.

But it is simply not sustainable to attempt to swim against the tide with ever more government spending.

We have seen how that approach sows the seeds of its own destruction – not only because the spending becomes unaffordable but also because it creates dependency and ends up harming the very people it is designed to help.

Instead we need to equip our citizens to succeed in the world as we find it; in economic terms we need to increase both their human capital and the returns on that capital.

We need to ensure that work always pays by cutting income taxes and reforming welfare.

We need to reduce the business taxes and regulatory barriers that hold back the creation of new good jobs.

And – most critically of all – we need to make sure we have the best schools and skills in the world.

In other words, we must build a ladder of opportunity for people to climb.

In the UK we are putting this approach into practice – trying to build that ladder.

We have radically cut the tax burden on the low paid; we have introduced new conditionality for those who claim benefits; and we are replacing our complex web of working age benefits with a single Universal Credit so that it always pays to work.

I also support a restoration of the real value of our minimum wage while cutting costs for businesses at the same time.

All of this is about creating enough good jobs.

That is why I have recently set the UK the ambition of “full employment” with the highest employment rate of any G7 economy.

At the same time as making work pay, we must ensure that those at the top of our society contribute their fair share, but the way to do that is not punitive and self-defeating taxation.

Uncompetitive tax rates are as counterproductive at the top end of the income scale as they are at the bottom end, so we have cut our top rate of tax while doing more than any previous British Government to close loopholes and ensure that everyone pays the tax that is due.

We have also introduced a permanent levy on bank liabilities in order to discourage excessive leverage and reflect the costs that the banking crisis imposed on our economy – and I note that recent tax reform proposals in the US have proposed something similar.

All these reforms – to the tax system, welfare, the minimum wage, employment support – have been delivered by this government – solutions to deep problems of social justice and social mobility.

But there is one area of reform that I believe is more important for our long term prosperity than all the rest – that can deliver growth rather than stagnation and simultaneously ensure that the gains from growth are shared.

And that is education.

The education policies we’ve been implementing, led by our Education Secretary Michael Gove, have been influenced by, and reflect, the work of education reformers in the US and elsewhere around the world.

The pioneering work of Mike Bloomberg and Joel Klein in New York, Bobby Jindal in Louisiana, Bill Haslam in Tennessee, Mitch Daniels in Indiana and Jeb Bush in Florida has inspired our approach.

You have – quite rightly – identified schools reform as the civil rights issue of our time.

The emphasis the AEI has placed on policies to advance greater social justice is nowhere clearer than in your work on education.

In both our countries poor children are disproportionately likely to go to poor schools.

In both our countries inequality is perpetuated by a lack of educational opportunity for disadvantaged children.

And in the United Kingdom we are creating the British equivalent of charters – academies and free schools – to provide disadvantaged children with greater opportunities than ever before.

A majority of our secondary schools – broadly equivalent to US high schools – are now academies.

And even though our nation is a sixth the size of the US, we have more students in total in academies and free schools in the UK than there are children in charters in the US.

This is a revolutionary breakthrough in extending school autonomy – and parental choice.

We are also following in the footsteps of the great work being done in the US – from Tennessee to D.C – to ensure that teachers are properly evaluated on the impact they make in the classroom and rewarded for good performance.

What unites all of these reforms is a belief that our nation will only make progress if we make use of every child’s talents and liberate every student’s potential.

In all these ways we can ensure that the link between growth and prosperity remains unbroken.

I have long argued that this truly progressive end can only sustainably be delivered through these means.

Today I have tried to set out a confident, optimistic agenda that can do just that.

Every generation needs to make the case for free markets, enterprise and opportunity afresh.

Every generation needs to overcome the forces of stagnation and choose growth instead.

Every generation needs to find a way to fulfil the promise of shared prosperity.

These are the challenges of our age and the answers to match them are within our reach.

The pessimists are on the march again with their predictions of stagnation and falling living standards.

We, the optimists, can prove them wrong again.

Our two nations’ best days lie ahead.

Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, at Tilbury on 31st March 2014.

Thank you for coming here to Tilbury Port, this morning.

We’re all here at the start of the most important week of changes to our tax system for a generation.

These are the biggest cuts to personal and business taxes for two decades, and we’re making our benefit system more affordable and fairer too.

Changes which will affect the lives of millions of people.

Whether you are working or looking for work; whether you’re starting your own business or hiring someone new – these changes will help.

They are part of our long term plan to build a more resilient economy and create jobs.

Jobs are at the heart of what I want to talk to you about today:

Helping businesses to create jobs; helping people to get jobs; supporting people with jobs.

And it’s jobs that bring you all together here today.

That’s because each and every one of you has found a new job or an apprenticeship in the past few years. Or you have given someone else a job – some of you taking on your first employee, some because your firm is growing, some because you have made that huge leap and started a business of your own.

You come from different firms and different types of work; different ages, different stages of your life.

You’ve come together today because each and every one of you knows what that new job means. The pay cheque at the end of the month and the security that comes with that. The ability to support your own family, to feel financially independent and to plan for the future.

This week’s tax and benefit changes directly affect you – and they directly help you.

This week you will keep more of the money you earn.

This week your business can keep more of the money it makes, so you can invest, expand and create new jobs.

This week we give more support to those looking for a job, but, from this week, we also ask more of those signing on to benefits – so they find work as quickly as possible.

It’s our approach to the economy: fix the fundamentals; back hardworking people; support business; and sort out welfare so it always pays to work.

This approach has already led to 1.3 million more jobs here in Britain.

Here at Tilbury Port, over 100 new jobs.

In Thurrock, in just the last year: 7,200 new jobs; unemployment down by 40%.

It’s an amazing, heartening story.

Britain is creating jobs faster than at any point in our recent history and faster than almost any other country in the world.

But it’s not enough. Too many people, especially young people, are still without a job. Many people want better careers.

And so our work is not done.

We need more jobs to be created in Britain. And we have an ambitious new goal. We want Britain to be the best place in the world for you to find a job.

The best place in the world to hold a job. Working to build an economy that supports full employment.

Four years ago, Britain couldn’t begin to imagine such a thing.

Our economy had collapsed. Our public finances were in a mess. Our country was on the brink.

We had to take difficult decisions, make unpopular choices to put things right.

But with your help and hard work, we’ve been turning things around.

The deficit is coming down, so the debt is under control.

Stability is returning; and with it, confidence.

Companies are moving here; investment is happening here.

Britain is starting to walk tall in the world again.

Even now there are those who want to give up, spend more, borrow more, attack business and put up taxes, and go back to square one.

Back to economic chaos. Back to no new jobs.

Back to a Britain that has weak government and no plan.

We reject that approach.

We say: let’s go on working through the plan that has got us this far.

This week we do that.

This week we turn those words into more action.

Here’s the diary for a week that will help put Britain to work.

On Tuesday, tomorrow – the rate of tax many businesses pay goes from 23% down to 21%.

And on Tuesday too the amount those businesses can invest with no upfront tax doubles to half a million pounds.

Some say: why help business?

We say: because without business there are no jobs.

21% corporation tax is one of the lowest rates in the world.

And that means companies coming here to Britain, work coming here to Britain; trade and investment coming here to Britain.

You can actually see that happening here at Tilbury Port with your own eyes.

Just look at the new Distribution Park that is being developed here – it’ll bring over a thousand new jobs in the next 3 years.

This port is a big business. But there are many smaller companies here today who are thriving as well.

Just look at HW Wilson, who took on 5 apprentices in the last few years – and have now decided to keep them all on in full employment.

Smaller firms like this are the lifeblood of our economy. And we support them.

Tomorrow’s increase to the annual investment allowance helps small business especially.

It helps businesses to expand and install new machines, buy more vans, build a new factory plant – and when that happens, they take on more staff.

There are people here in this audience who have done that – people who are growing their firm or starting out for themselves.

On Tuesday we’re getting behind you. Backing what you do.

And what about all those shops on our high streets, and the pubs and cafes too?

They’ve had a tough time in recent years because of the economy; and the growth of the internet has made it even more difficult for some.

But they are part of our community and they are an important source of jobs.

So tomorrow we’ve got another tax cut. A billion pound package to help ease the burden of the business rates.

We’re giving our small high street shops and cafes and pubs £1,000 off their rate bills.

Capping the rates of every business.

And taking a third of a million of the smallest firms out of rates altogether.

To those who ask why let me tell you: if our businesses can keep of the more money they’ve earned because the rates are lower and the taxes are lower, then they can hire more people and invest in the future.

It’s all about jobs.

Tuesday is also supposed to be the day when fuel duty goes up again.

It won’t – it’s frozen again.

In fact petrol will be 20p per litre less than it would have been because we’ve kept freezing it to help working people, to help families and to help businesses.

But in the diary of the week ahead, the biggest boost for jobs comes not on Tuesday but next Sunday.

Sunday is the day of the new Employment Allowance. The day every business gets a £2,000 cash-back on jobs.

A lot of people don’t realise this. But when a company employs someone, they don’t just have to pay their salary – they pay a tax to the government.

It’s called employer national insurance but it’s really a jobs tax – and it can discourage a company, especially a small one, from hiring someone.

With this new Employment Allowance there’s no jobs tax for many firms and so no obstacle to creating jobs.

This week we’re making sure our businesses keep more of what they earn so they invest and hire.

But we’re also going to make sure that people keep more of what they earn – so their work pays more.

That’s going to happen this Sunday.

From this Sunday people can keep the first £10,000 of what they earn before they pay any income tax.

It’s a big moment in the history of our country’s tax system.

Four years ago, it was just £6,500 tax free.

That’s a big difference and when you calculate what it means for your salary and pay packet – it means you’re keeping £700 more of what you earn.

And for one in ten, those earning the lowest wages, they’ll pay no tax at all.

No government has ever lifted so many people out of tax altogether.

– So £10,000 of income tax free.

– A new Employment Allowance for every business.

– Happening next Sunday.

– A big day for working Britain.

The culmination of this week that sees the biggest reduction of business and personal tax in two decades.

It’s only possible because your hard work is helping us fix the economy – and it is only part of our plan to create jobs.

For it’s no good creating jobs – if we’re also paying people to stay on welfare.

We inherited a welfare system that didn’t work

There was not enough help for those looking for a job – people were just parked on benefits.

Frankly, there was not enough pressure to get a job – some people could just sign on and get almost as much money staying at home as going out to work.

That’s not fair to them – because they get trapped in poverty and their aspirations are squashed.

It’s certainly not fair to taxpayers like you, who get up, go out to work, pay your taxes and pay for those benefits.

So if Tuesday is when we help businesses creating jobs; and Sunday is when we help hardworking people with jobs; next Monday is when we do more to encourage people without jobs to find them.

Benefits will only go up by 1% – so they don’t go up faster than most people’s pay rises, as used to be the case.

When I took this job, some people were getting huge payouts – receiving £50,000, £60,000 even up to £100,000 in benefits. More than most people could get by working.

That was outrageous.

So we’ve capped benefits, so that a family out of work can’t get more in benefits than the average working family.

We’re now capping the overall welfare bill, so we control that. That came into force last week.

And we are bringing in a new Universal Credit to make sure work always pays.

From this month we’re also making big changes to how people go about claiming benefits.

We all understand that some people need more help than others to find work.

So starting this month we’ll make half of all people on unemployment benefits sign on every week – and people who stay on benefits for a long time will have to go to the job centre every day so they can get constant help and encouragement.

To claim benefits people will also have to show they can speak English, or go on a course to learn how.

It is ridiculous that people who didn’t speak English, and weren’t trying to learn it, could sit on out of work benefits in this country.

If people can’t speak English it is hard to get a job. Starting this week it will be even harder to get benefits if they’re not even attempting to learn it.

We’re going to require people to look for work for a week first before they get their unemployment benefit.

When people turn up at the job centre they’ll be expected to have a CV ready and to have started looking on our new jobs website.

From now on the deal is this: look for work first; then claim the dole. Not the other way around.

We will ask many of the long term unemployed to do community work in return for their benefits -whether it is making meals for the elderly, clearing up litter, or working for a local charity.

They will be gaining useful work experience and there’s an important principle here: if you want something out, you’ve got to put something in.

All of this is bringing back the principles that our welfare state was originally based on – something for something, not something for nothing.

That’s fair to the people claiming benefits – and fair to taxpayers who are paying for them.

The old way has failed. More public spending leading to more welfare bills and more government jobs the country couldn’t afford.

Instead, this week, we follow the new way, our way: backing businesses by cutting their taxes so they can create jobs; cutting the tax on hard working people so their job pays; and holding back welfare rises and imposing more conditions on those claiming the dole, so that getting a job pays more.

The biggest business and personal tax cuts for a generation.

Welfare changes that get people back to work.

That’s our jobs plan and it’s the only plan in town.

And it’s working.

Record numbers in work.

Employment growing three times faster than any recovery on record.

For the first time in 35 years, a greater proportion of people in work than in the US.

But the problems we’re dealing with run deep. They cannot be solved overnight.

Under the last government there were places where the benefits culture had become deeply entrenched.

And while unemployment has come down, there are still over 2 million looking for a job

It will take time to fix that. But we will not rest while we still have so much wasted potential in some parts of our country.

That’s why today I’m making a new commitment.

A commitment to fight for Full Employment in Britain.

Making jobs a central goal of our economic plan.

70 years ago this year; during the second world war, when Winston Churchill was Prime Minister of a Coalition Government; they set the first commitment to full employment.

In those days they thought government could micro-manage the economy and guarantee a job for everyone.

But – as we learnt again recently – you can’t abolish boom and bust.

So attempts past and present by governments “guarantee” a job to every person are doomed to fail.

There are always going to be ups and downs to the economic cycle.

And spending billions of pounds creating jobs in the public sector doesn’t work either.

Government spending gets out of control; businesses fail as their taxes get too high, work pays less as personal taxes rise, and jobs in the private sector are lost.

You end up with more people unemployed instead of less.

Then the politicians who make these guarantees get into a panic.

So unemployed people are pushed onto sickness benefits to hide the real numbers.

That’s what happened before we came to office.

The politicians talked of guaranteeing full employment and ended up with a Great Recession and soaring unemployment.

We are taking a different approach.

And let me be clear.

There is no reason why Britain shouldn’t aim to have the highest employment rate of any of the world’s leading economies.

To have more people working than any of the other countries in the G7 group.

That’s my ambition.

The best place in the world to create a job; to get a job; to keep a job; to be helped to look for another job if you lose one.

A modern approach to full employment means backing business.

It means cutting the tax on jobs and reforming welfare.

It means improving our schools.

It means spending less on benefits, so we can invest more in creating new jobs: by having more apprenticeships, new roads and railways, and making Britain a world leader in science.

That is what I mean when I say that we are going for Full Employment.

These are things within the power of the government.

We’ve already done a lot, and made a lot of progress. But we will need to go further.

So in the next parliament we will need to keep going – keep reforming those benefits to help more people into work. So the system is fairer for people who are paying for it.

Keep reducing tax and costs on businesses – so they create jobs.

Keep rewarding and supporting hardworking people who have jobs.

That’s the approach that leads to the fullest employment.

Jobs matter – mass unemployment is never a price worth paying.

But artificial jobs paid for on borrowed money doesn’t work either.

We need our new approach.

At the heart it is a deal.

We’ll do everything we can to back business, help create jobs and make work pay.

But in return we say that those who can work must take the jobs that are available.

That’s the fair deal our society should always have stuck to.

That’s the fair deal that will underpin our commitment to full employment in the future.

Of course, there will always be people in between jobs; people unable to work.

And there are those with important caring responsibilities to their families and others not seeking work. They will never be included in a drive for full employment.

But we all know that there is nothing kind or fair about leaving people who could work out of work and living on the dole. With all the stress and the bad effects that has on relationships, on families, children – even whole communities in some places.

Everyone here knows what a difference a new job can make to people’s lives.

It’s not just the money. It’s the feeling of security, of making a contribution.

We’re making historic changes this week to cut tax and reform benefits; and we won’t stop until we make sure that everyone has the opportunity to enjoy the peace of mind that comes from having a job.

And everyone can have the opportunity to join this audience in the world of work.

Below is the text of the 2014 Budget speech made by George Osborne, the Chancellor of the Exchequer, in the House of Commons on 19th March 2014.

Mr Deputy Speaker,

I can report today that the economy is continuing to recover – and recovering faster than forecast.

We set out our plan.

And together with the British people, we held our nerve.

We’re putting Britain right.

But the job is far from done.

Our country still borrows too much.

We still don’t invest enough, export enough or save enough.

So today we do more to put that right.

This is a Budget for building a resilient economy.

If you’re a maker, a doer or a saver: this Budget is for you.

It is all part of a long term economic plan – a plan that is delivering security for the people of this country.

I have never shied away from telling the British people about the difficult decisions we face.

And just because things are getting better, I don’t intend to do so today.

Yes, the deficit is down by a third.

Now in the coming year it will be down by a half.

But it is still one of the highest in the world – so today we take further action to bring it down.

Yes, investment and exports are up.

But Britain’s got twenty years of catching up to do – so today we back businesses who invest and export.

Yes, manufacturing is growing again, and jobs are being created across the country.

So today we support manufacturers and back all regions of our country.

And while as a nation we’re getting on top of our debts, for many decades Britain has borrowed too much and saved too little.

So in this Budget we make sure hardworking people keep more of what they earn – and more of what they save.

Yesterday we set out our support for parents with tax free childcare.

Today support for savers is at the centre of this Budget, as we take another step towards our central mission: economic security for the people of Britain.

OBR and economic forecasts

Mr Deputy Speaker, let me turn to today’s forecasts from the Office for Budget Responsibility.

I am grateful to Robert Chote, Steve Nickell and their team – and thank Graham Parker for agreeing to serve with them for another term.

It is a credit to the OBR that we now take for granted that figures presented at this Despatch Box are not fiddled but fair and independent.

A year ago at the Budget the OBR forecast the economy to grow by just 0.6% in 2013.

They now confirm that it grew by three times as much.

At the Autumn Statement, they significantly revised up their expectations for future growth.

Today I can tell the House they are revising up their forecast again.

A year ago, they predicted growth in 2014 would be 1.8%. At the Autumn Statement, 2.4%. Today the OBR forecast growth in 2014 of 2.7%.

That’s the biggest upward revision to growth between Budgets for at least 30 years.

Growth next year is also revised up to 2.3%.

Then it’s 2.6% in 2016 and 2017.

And with the output gap closed around a year earlier than previously predicted, growth returns to around its long term trend, at 2.5% in 2018.

Taken together, these growth figures mean our economy will be £16 billion larger than was forecast just four months ago.

Mr Deputy Speaker, there is another prediction the OBR make today the House will want to know about.

Six years ago Britain suffered a Great Recession.

We had the biggest bank bail out in the world.

We had the biggest deficit since the war.

We suffered the deepest recession in modern times.

But later this year the OBR expects Britain to reach the point when our economy is finally larger than before it collapsed six years ago.

That’s because we’re now growing faster than Germany, faster than Japan, faster than the US – in fact there is no major advanced economy in the world growing faster than Britain today.

But we should be alert to the risks.

The euro area is slowly recovering but as the OBR caution “further damaging instability remains possible”.

There is volatility in emerging markets.

And while for now the OBR do not expect the situation in Ukraine to have a “large impact” on us, they warn that an escalation risks higher commodity prices, higher inflation and lower growth.

It’s a reminder of why we need to build our economy’s resilience.

Employment forecasts

At home the biggest risk is clear: abandoning the economic plan that is working.

And nowhere is the success of that plan more evident than in job creation.

Today again we are reminded that the most important consequence of our plan is more people in work – with each job meaning a family more secure.

The pace of net job creation under this government has been three times faster than in any other recovery on record.

1.3 million more people in work.

The latest figures today show a staggering 24% fall in the claimant count in just one year, and the fastest fall in the youth claimant count since 1997.

The OBR today forecast one and a half million more jobs over the next five years.

Unemployment down from the 8% we inherited to just over 5%.

And the OBR predict earnings to grow faster than inflation this year and in every year of the forecast. That’s why the country can afford a real terms increase in the National Minimum Wage.

Mr Deputy Speaker, this is a government whose plan is delivering jobs.

We now have:

– a record number in work

– a record number of women in work

– and for the first time in 35 years, a higher employment rate than the United States of America

That’s what we mean when we say we’re getting Britain working.

Fiscal

Mr Deputy Speaker, there can be no economic security if there is no control of the public finances.

Before I presented my first Budget to this House, the government was borrowing one pound in every four it spent – and we were faced with the threat of a sovereign debt crisis.

We have taken difficult decisions.

But thanks to those decisions, the IMF now say that we are achieving the largest reduction in both the headline and the structural deficits of any major advanced economy in the world.

There were those who said repeatedly that the deficit was going to go up.

Instead I can tell the House that the Office for Budget Responsibility have revised down the underlying deficit in every year of their forecast.

Before we came to office the deficit was 11%.

This year they say it will be 6.6% – lower than forecast and down a third.

Next year, 5.5% – down a half.

Then it will fall to 4.2%, 2.4% and reach 0.8% in 2017-18.

In 2018-19, they are forecasting no deficit at all – instead, at plus 0.2%, a small surplus.

But only if we work through the plan.

The government’s fiscal mandate is met – and continues to be met a year early.

And yet while the underlying structural deficit falls, it falls no faster than was previously forecast – despite higher growth.

This goes to the heart of the argument this government has made:

Faster growth alone will not balance the books.

Securing Britain’s economic future means there will have to be more hard decisions; more cuts.

The question for the British people is: who has the credibility to deliver them?

Let me turn to the underlying cash borrowing numbers.

Britain was borrowing £157 billion a year before we came to office.

This year we expect to borrow £108 billion.

That’s £12 billion less than forecast a year ago.

Indeed even since the Autumn Statement the OBR have revised down borrowing in every single year.

In 2014-15 they say it will fall to £95 billion.

Then it falls again to £75 billion in 2015-16, then £44 billion, then down to £17 billion.

In 2018-19 we won’t be borrowing at all. We will have a small surplus of almost £5 billion.

Taken together, these new figures mean Britain will be borrowing £24 billion less than was forecast. That’s more than we spend in an entire year on the Police and Criminal Justice system.

Lower borrowing and a smaller deficit mean less debt.

While we meet the debt target one year late as before, the OBR have revised down national debt in every single year of the forecast.

They expect it to be 74.5% of GDP this year; 77.3% next year; peaking at 78.7% in 2015-16 – lower than the 80% previously forecast – before falling to 78.3% in 2016-17, then falling to 76.5% and then 74.2% in 2018-19.

So Mr Deputy Speaker,

Growth up.

The deficit set to halve.

Debt is lower.

And the biggest single saving of all is a £42 billion reduction in the interest payments we will have to make on that debt.

Saving every family in the nation the equivalent of almost £2,000.

Money that was going to creditors around the world, now going to pay for the NHS and other public services.

Monetary policy

Mr Deputy Speaker it is because we have a credible fiscal plan that the Bank of England can provide the support needed to businesses and families.

Yesterday, I confirmed the appointments of Anthony Habgood to Chair the Court and Ben Broadbent and Minouche Shafik to be the new Deputy Governors for Monetary Policy and Markets and Banking respectively.

All three make a strong team at the Bank stronger still.

I today re-confirm my remit for the Monetary Policy Committee, including the target of 2 per cent CPI inflation – which the OBR expect will be met this year, next year and in the years ahead.

I also set out the remit for the Financial Policy Committee, the body created by us to avoid the mistakes of the past.

Although the OBR forecast that house prices will remain below their real terms peak until at least 2018, I have asked the Committee to be particularly vigilant against the emergence of potential risks in the housing market.

And to enhance our resilience, and protect us from economic shocks, we will also continue rebuilding our foreign exchange reserves.

Those reserves are now 50% higher than when we came to office.

£1 coin

Of course, the prerequisite of sound money is a sound currency.

And, Mr Deputy Speaker, the £1 coin has become increasingly vulnerable to forgery.

Now among the oldest of coins in circulation; one in thirty pound coins are counterfeit – and that costs businesses and the taxpayer millions each year.

So I can announce that we will move to a new, highly secure, £1 coin.

It will take three years. We will consult with industry.

Our new pound coin will blend the security features of the future with inspiration from our past.

In honour of our Queen, the coin will take the shape of one of the first coins she appeared on – the threepenny bit.

A more resilient pound for a more resilient economy.

Fiscal policy

Mr Deputy Speaker, sound money depends too on sound public finances.

We are entering a critical phase and we must learn from the past.

Every time a post-war government has embarked on public spending cuts, real spending has risen back to its previous heights within three years.

And sure enough there are those today who say: ease up, spend more, borrow more.

That would mean debt rising towards 100% GDP – undermining growth.

It would be a huge mistake and we are not going to let that happen.

Many Chancellors, faced with a recovering economy and improved borrowing forecasts before an election, would be tempted to squander the gains.

I will not do that today.

These gains were hard won by the British people – and we’re not going to jeopardise their economic security.

Britain is not going back to square one.

So in this Budget all decisions are paid for. Taxes are lower but so too is spending.

For we must bring our national debt substantially down.

Analysis published today shows just running a balanced current budget does not secure that.

Instead, Britain needs to run an absolute surplus in good years.

We will fix the roof when the sun is shining – to protect Britain from future storms.

So I can confirm that in addition to the cuts this year and next, there will be cuts in the next Parliament too.

To lock in our country’s commitment to this path of deficit reduction we will seek the support of Parliament in a vote.

And I will bring forward a new Charter for Budget Responsibility this autumn.

We are taking further difficult decisions now so we can reduce the deficit and protect our NHS and schools and meet our obligations to the world’s poorest by contributing 0.7% of our national income to help them.

On public service pensions, we implement the reforms proposed by John Hutton.

We will ensure schemes are properly valued, saving the taxpayer over £1 billion a year.

We are continuing with pay restraint in the public sector – an essential part of maintaining sound finances and economic stability.

We will also insist on the prudent management of departmental finances.

Thanks to the efforts of my colleagues in Cabinet, these now regularly come in under budget.

In order to lock-in these underspends, I said in December that we would reduce spending by £1 billion in 2015-16. Today, I am making that overall billion pound reduction permanent.

And I look forward to the work my excellent colleague the Chief Secretary is now doing, with the Cabinet Office, to find further efficiencies.

Difficult decisions on public service pay and pensions.

Further savings in departments.

A cap on welfare bills.

None of these decisions are easy, but they are the right thing to ensure Britain lives within her means.

Welfare

We set out today the details of that welfare cap – and we will seek the support of Parliament for it next week.

From housing benefit to tax credits, the full list of benefits included in the cap is published in the Budget document today.

Only the State Pension and the cyclical unemployment benefits are excluded.

I am setting it at £119 billion in 2015-16. It will rise, but only in line with forecast inflation, to £127 billion in 2018-19.

Britain should always be proud of having a welfare system that helps those most in need.

But never again should we allow its costs to spiral out of control and its incentives to become so distorted that it pays not to work.

In future, any government that wants to spend more on benefits will: have to be honest with the public about the costs, need the approval of Parliament, and will be held to account by this permanent cap on welfare.

Tax avoidance

Mr Deputy Speaker,

The distributional analysis published today shows that the Budget decisions, and the decisions across this parliament, mean the rich are making the biggest contribution to the reduction of the deficit – because we are all in this together.

The independent statistics show that under this government income inequality is at its lowest level for 28 years.

Thanks to my Right Honourable Friend the Prime Minister’s leadership we have driven the international efforts to develop tough, new global tax rules that stop rich individuals hiding their tax and companies shifting their profits offshore.

Here at home we’re collecting twice as much as before through compliance – collecting the taxes that are due.

And the number of registered tax avoidance schemes has fallen by half.

And while the vast majority of wealthy people pay their taxes, there is still a small minority who do not.

We will now require those who have signed up to disclosed tax avoidance schemes to pay their taxes, like everyone else, up front.

This will apply in future to schemes covered by our General Anti-Abuse Rule too.

If people feel they’ve been wronged, they can of course go to court. If they win, they get their money back with interest.

We have already consulted on this idea – now we will implement it. The OBR confirm that this will bring forward £4 billion of tax receipts. And it will fundamentally reduce the incentive to engage in tax avoidance in the future.

The public tolerance for those who do not pay their fair share evaporated long ago – but we’ve had to wait for this government before there was proper action.

So today we go further still:

I am increasing HMRC’s budget to tackle non-compliance.

We will block transfers of profits between companies within groups to avoid tax.

We will increase tax credit debt recovery rates for those with sufficient earnings.

We will give HMRC modern powers to collect debts from bank accounts of people who can afford to pay but have repeatedly refused to, like most other Western countries.

We will increase compliance checks to catch migrants who claim benefits they aren’t entitled to, saving the taxpayer almost £100 million.

We will take action to curb potential misuse of the EIS and VCT schemes.

And we are expanding the new tax we introduced to stop people avoiding stamp duty by owning homes through a company.

We will expand the tax on residential properties worth over £2 million to those worth more than £500,000.

And from midnight tonight anyone purchasing residential property worth over half a million pounds through a corporate envelope will be required to pay 15% stamp duty.

None of this applies to homes that are rented out.

Many of these are empty properties held in corporate envelopes to avoid stamp duty.

This abuse will end.

Mr Deputy Speaker,

Another abuse has been the manipulation of the LIBOR rate.

Our regulators are broadening their investigation to the foreign exchange markets – and I will keep the House informed.

Financial services are a hugely important industry to this country which I want to promote around the world.

But I also want the fines paid by those who have demonstrated the worst of values to support those who demonstrate the best of British values.

I’m talking about the men and women in our armed forces who risk their lives to keep us free.

So I will continue to direct the use of the LIBOR fines to our military charities and our emergency service charities too.

Because the sums continue to grow, I can today extend that support to our search and rescue and lifeboat services – and provide £10 million of support to our scouts, guides, cadets and St John’s Ambulance.

I am also today waiving inheritance tax for those in our emergency services who give their lives protecting us.

I will also relieve the VAT on fuel for our Air Ambulances and Inshore Rescue boat services across Britain, and provide a new air ambulance for London – all in response to huge and heartfelt public demand and the campaigning of my Hon. Friends for Hexham, Brentford & Isleworth, and Argyll & Bute.

Tomorrow is the 21st anniversary of the IRA bomb that killed young Tim Parry and Johnathan Ball.

Survivors for Peace was set up by Tim’s parents, Colin and Wendy, and it no longer receives lottery funding. My Honourable Friend for Warrington South and the RHM for Dulwich have both raised this issue, and I know myself what incredible work they do.

To honour the memory of all victims of terrorism we will provide the funding the programme needs.

Last month with my Right Honourable Friend for Dumfriesshire I visited Lockerbie to pay my respects on the twenty fifth anniversary of the tragedy. And we will support the scholarships created for local people there to study in the United States.

Further, this summer, many services of remembrance will be held in our cathedrals to mark the Great War, so we are providing £20 million to support the repairs needed to these historic buildings.

We will also support the celebration of the 800th anniversary of the signing of the Magna Carta next year.

King John’s humbling centuries ago seems unimaginably distant.

A weak leader, who had risen to the top – after betraying his brother, compelled by a gang of unruly barons to sign on the dotted line.

So I will provide a grant to the Magna Carta Trust to ensure that today’s generation learn the lessons of the past.

Exports

Mr Deputy Speaker,

We’re not going to have a secure economic future if Britain doesn’t earn its way in the world.

We need our businesses to export more, build more, invest more and manufacture more.

First, exports.

Our exports have grown each year and the OBR today forecast rising export growth in the future.

Our combined goods exports to Brazil, India and China have risen faster than those of our competitors.

But we’re starting from a low base and we’ve got many lost years to catch up.

Britain has to up its game – and today we do.

With Stephen Green, and now Ian Livingston, we’re expanding the reach and support UKTI offers British businesses.

But for many firms the truth is you can only win the contract if you are backed by competitive export finance.

For decades the British government has been the last port of call, when we should be backing British businesses wanting to sell abroad.

Today we fundamentally change that.

And we’re going to start with the finance we provide our exporters.

We will double the amount of lending available to £3 billion.

And I can announce that from today the interest rates we charge on that lending will be cut by a third.

Instead of having the least competitive export finance in Europe.

We will have the most competitive.

We will also reform Air Passenger Duty to end the crazy system where you pay less tax travelling to Hawaii than you do travelling to China or India.

It hits exports, puts off tourists and creates a great sense of injustice among our Caribbean and South Asian communities here in Britain.

From next year, all long haul flights will carry the same, lower, band B tax rate that you now pay to fly to the United States.

Private jets were not taxed at all under the previous government. Today they are, and I’m increasing the charge so they pay more.

And because we want all parts of our country to see better links with the markets of the future we’re going to provide start-up support for new routes from regional airports, like Liverpool, Leeds or indeed Inverness.

More support for businesses; competitive finance; cheaper global flights…

I want the message to go out that we are backing our exporters – so that wherever you are around the world you can’t fail to see: Made in Britain.

One key British export is the North Sea’s oil and gas.

We will take forward all recommendations of the Wood report. And we will review the whole tax regime to make sure it is fit for the purpose of extracting every drop of oil we can.

We will introduce now a new allowance for ultra high pressure, high temperature fields to support billions of pounds of investment, thousands of jobs and a significant proportion of our energy needs.

Even with these measures, the North Sea is a mature basin – and the OBR have today revised down the forecast tax receipts by a further £3 billion over the period.

The Scottish economy is doing well and jobs are being created.

But this is a reminder of how precarious the budget of an independent Scotland would be. These further downgrades in the tax receipts would leave independent Scots with a shortfall of £1,000 per person.

Britain is better together.

Housing

Mr Deputy Speaker, our country needs to export more – and it also needs to build more.

House building is up 23%. But that’s not enough.

That’s why we’re making further reforms to our planning system and offering half a billion pounds of finance to small house building firms.

It’s why we’re signing city deals across the country to get more built – with a new funding deal this week for Cambridge.

And it’s why we’re giving people a new Right to Build their own homes and providing £150 million of finance today to support that.

It’s why we’re funding regeneration of some of the urban housing estates that are in the worst condition, and we’re extending the current Support for Mortgage Interest Scheme to 2016.

And it’s why we’ve got Help to Buy.

We’re extending the Help to Buy equity loan scheme for the rest of the decade, so we get 120,000 new homes built.

In the South East where the pressure is greatest we’re going to build new homes in Barking Riverside, regenerate Brent Cross, and build the first new Garden City in almost a hundred years at Ebbsfleet.

We’re going to build 15,000 homes there, put in the infrastructure, set up the development corporation and make it happen.

I thank my Honourable Friends for Dartford and Gravesham for their tremendous support.

And we will be publishing a prospectus on the future of Garden Cities.

Taken all together, the housing policies I announce today will support over 200,000 new homes for families.

We’re getting Britain building.

Investment

Mr Deputy Speaker, we’re also going to get Britain investing.

Britain has under-invested for decades.

We’re the first government to have committed to long term and rising capital budgets – and this autumn I will set out the detailed plans for the projects that will be supported for the rest of the decade. We’ve been reminded again this week of the benefits high speed rail will bring to the north of our country and I’m determined it goes further north faster.

Today I have approved a £270 million guarantee for the Mersey Gateway Bridge thanks to the hard work of my Honourable Friend for Weaver Vale.

Tomorrow we introduce legislation to give new tax and borrowing powers to the Welsh Government to fund their infrastructure needs, and they can start now on work to improve the M4 in South Wales.

Because of the exceptionally poor weather this winter, I am making an additional £140 million available, on top of that already provided, for immediate repairs and maintenance to damaged flood defences across Britain.

Our roads too have taken a battering.

My Honourable Friend for Northampton North has been a persistent campaigner for resources to repair the pot-holes in his constituency and across the country.

His persistence has paid off and I’m making £200 million available which local authorities can bid for. I trust Northampton will be making an application.

Modern infrastructure is part of a successful economy.

So too is a modern industrial strategy.

If Britain isn’t leading the world in science and technology and engineering, then we are condemning our country to fall behind.

So we will establish new centres for doctoral training, for Cell Therapy and for Graphene – a great British discovery that we should break the habit of a lifetime with and commercially develop in Britain.

To make sure we give young people the skills they need to get good jobs in this modern world, we’ve doubled the number of apprenticeships and I will extend the grants for smaller businesses to support over 100,000 more.

And we’ll now develop new degree level apprenticeships too.

Mr Deputy Speaker, in my maiden speech here in this House I spoke of Alan Turing, the codebreaker who lived in my constituency, who did more than almost any other single person to win the war, and who was persecuted for his sexuality by the country he helped save.

I am delighted that he has finally received a posthumous Royal Pardon.

Now, in his honour, we will found the Alan Turing Institute to ensure Britain leads the way again in the use of big data and algorithm research.

I am determined that our country is going to out-compete, out-smart and out-do the rest of the world.

Business tax

Government investment is part of the story – but we need business investment too.

When we came to office, Britain had one of the least competitive business tax regimes in Europe.

Now we have the most competitive.

Thanks to the Office of Tax Simplification we have already cut burdens on administration – and I am grateful to Michael Jack, John Whiting and their team for their hard work.

Today we accept their recommendation to move the collection of Class 2 NICs into self-assessment, abolishing for 5 million people this wholly unnecessary bureaucracy.

And we’ve cut business tax rates.

Corporation tax was 28% when we came to office.

In just two weeks corporation tax will be down to 21%, high street stores will get £1,000 off their rates, and every business in the country will get the Employment Allowance – a £2,000 cash-back on jobs.

Next year, corporation tax will reach 20% and we take under 21s out of the jobs tax altogether.

Businesses keeping more of their money to create jobs and invest in the future.

Today I want to go further.

Many of the enterprise zones we created are now flourishing – so the business rates discounts and enhanced capital allowances will be extended for another three years.

And I can confirm that with the Northern Ireland Executive we’ll establish the first enterprise zone there near Coleraine.

I’m raising the rate of the R&D tax credit for loss-making small businesses from 11% to 14.5%.

Two years ago, I launched the Seed Enterprise Investment Scheme to help finance start-ups.

It’s been a great success and I’m making it permanent.

We’re backing investment into social enterprises with a Social Investment Tax Relief at a rate of 30%.

And we’re supporting our creative industries too. The European Commission has today approved the extension of our film tax credit – and I will apply the same successful approach to theatre, especially regional theatre.

From this September there will be a 20% tax relief for qualifying productions, and 25% for regional touring.

And we’re expanding by a third the size of the cultural gift scheme.

But I want to do something today that helps all businesses invest.

In 2012 I increased the Annual Investment Allowance ten-fold to £250,000.

This generous allowance was due to expire at the end of this year – and all the business groups have urged me to extend it.

So we will. But we’ll do more.

We’re going to double the Investment Allowance to £500,000, extend it to the end of 2015, and start it next month.

99.8% of businesses will get a 100% investment allowance.

Almost every business across Britain will pay no upfront tax when they invest in the future.

It costs £2 billion in the short term – so when we say: we’re going to get Britain investing; when we say we’re going to back growth around the country – we mean it.

Manufacturing

A resilient economy is a more balanced economy with more exports, more building, more investment – and more manufacturing too.

We’ve got to support our manufacturers if we want to see more growth in our regions.

To those who say manufacturing is finished in the West, I say: look at America, which will see up to five million new manufacturing jobs by the end of this decade.

I’ll tell you why.

US industrial energy prices are half those in Britain.

We need to cut our energy costs.

We’re going to do this by investing in new sources of energy: new nuclear power, renewables, and a shale gas revolution.

We’re going to do this by promoting energy efficiency.

Today, by tilting the playing field – extending the 2% increase in company car tax in 2017-18 and 2018-19 while increasing the discount for ultra low emission vehicles – and reducing the rate of fuel duty on methanol.

But above all we are going to have a £7 billion package to cut energy bills for British manufacturers – with benefits for families and other businesses too.

First, I am capping the Carbon Price Support rate at £18 per ton of CO2 from 2016-17 for the rest of the decade.

This will save a mid-sized manufacturer almost £50,000 on their annual energy bill.

And it will save families £15 a year on their bills too – over and above the £50 we’ve already taken off.

Second, I’m extending the existing compensation scheme for energy intensive industries for a further four years to 2019-20.

Our steel makers, chemical plants, paper mills and other heavy energy users make up 35% of our manufacturing exports and employ half a million people. This scheme helps the companies most at risk of leaving to remain in the UK.

Third, I’m introducing new compensation worth almost a billion pounds to protect these energy intensive manufacturers from the rising costs of the Renewable Obligation and the Feed-In Tariffs.

Otherwise green levies and taxes will make up over a third of their energy bills by the end of the decade.

Fourth, I am exempting from the carbon price floor the electricity from Combined Heat and Power plants which hundreds of manufacturers use.

And this entire package delivered without any reduction in the investment in renewable energy.

Today I have cut the cost of manufacturing in Britain.

Half of the firms that will benefit most are in the north of England. A third are in Scotland and Wales.

Thousands of good jobs protected.

A more resilient economy.

A government on the side of manufacturers.

A Britain that makes things again.

Duties

So we’re backing exports, backing manufacturing, backing a Britain that builds.

And Mr Deputy Speaker, we also want to help hardworking people keep more of what they earn and of what they save.

That’s what we’ve done by freezing council tax, freezing fuel duty and raising the personal allowance to £10,000.

And from next year tax free childcare – 20% off, for up to £10,000 of childcare costs for parents.

And an early years pupil premium to help the most disadvantaged.

Today we can do more to help.

Let me start with duties.

I can confirm that the fuel duty rise planned for September will not take place.

Petrol will be 20 pence lower per litre than it would have been.

Turning to gambling duties.

Fixed odds betting terminals have proliferated since gambling laws were liberalised almost a decade ago.

These machines are highly lucrative, and therefore it’s right we now raise the duty on them to 25%.

We will also extend the horserace betting levy to bookmakers who are based offshore.

And we’ll look at wider levy reform and at introducing a ‘racing right’ to support the sport.

While betting machines have grown, the number of bingo halls has plummetted by three quarters over the last thirty years.

Yet bingo duty has been set at the high rate of 20%.

Now fuel duty is frozen, my Honourable Friend for Harlow has turned his energy and talent into a vigorous campaign to cut bingo duty – ably assisted by my Honourable Friend for Waveney.

They want the rate cut to 15%.

I can go further.

Bingo duty will be halved to 10% to protect jobs and protect communities.

Let me turn now to tobacco and alcohol duties.

Tobacco duty has been rising by 2% above inflation and will do so again today.

This escalator was due to end next year – but there are no sound health reasons to end it, so it will be extended for the rest of the next Parliament.

We’ve introduced new laws to prevent alcohol being sold below minimum tax rates, and this helps prevent supermarkets undercutting pubs, and helps stop problem drinking.

It’s a far more targeted approach than the alcohol duty escalator hated by many responsible drinkers.

Today, I am scrapping that escalator for all alcohol duties.

They will rise with inflation, with these exceptions:

Scottish Whisky is a huge British success story.

To support that industry, instead of raising duties on whisky and other spirits, I am today going to freeze them.

And with some cider makers in the West Country hit hard by the recent weather, I am going to help them by freezing the duty on ordinary cider too.

And then there’s beer. I know the industry, led so ably by my Honourable Friend for Burton, have been campaigning for a freeze.

But beer duty next week will not be frozen.

It will be cut again by 1 pence.

Pubs saved. Jobs created. A penny off a pint for the second year running.

Personal allowance

Mr Deputy Speaker, it is a central part of our long term economic plan that people keep more of the money they have earned.

When we came to office, the personal tax allowance was just £6,500.

In less than three weeks time, it will reach £10,000.

That’s an income tax cut for 25 million people.

Today, because we are working through our plan, we can afford to go further.

Next year there will be no income tax at all on the first £10,500 of your salary.

Ten and a half thousand pounds tax free.

£800 less in tax every year for the typical taxpayer.

Our increases in the personal allowance will have lifted over 3 million of the lowest paid out of income tax altogether.

And I am incredibly proud we have achieved that.

I can also confirm today that the higher rate threshold will rise for the first time this Parliament, from £41,450 to £41,865 next month, and then by a further 1% to £42,285 next year.

And because I am also passing the full benefit of today’s personal allowance increase on to higher rate taxpayers – people earning 42,000, 43, 50, 60, all the way up to £100,000 will be paying less income tax because of this Budget.

Tax cuts for those on low incomes – and those on middle incomes too.

Help for hardworking people as part of a long term economic plan.

And I am linking the rate of the transferable tax allowance for married couples to the personal allowance, so it will also rise to £1,050.

Help for 4 million families that they would take away and we are proud to provide.

Savings

Our tax changes will help people who work. But there is a large group who have had a particularly hard time in recent years: and that is savers.

And this matters not just because these are people who have made sacrifices to provide for their own economic security in retirement.

It matters too because one of the biggest weaknesses of the British economy is that it borrows too much and saves too little.

This has been a problem for decades and we can’t fix it overnight.

It’s no surprise that the OBR forecast the saving ratio falling.

So today we put in place policies for savers that stand alongside deficit reduction as a centrepiece of our long term economic plan.

The reforms I am about to announce are only possible because, thanks to this government:

– we have a triple lock on the state pension

– more people are saving through auto enrolment

– and we’re introducing a single tier pension that will lift most people above the means test

That secure basic income for pensioners means we can make far reaching changes to the tax regime to reward those who save.

Here’s how.

First, I want to help savers by dramatically increasing the simplicity, flexibility and generosity of ISAs.

Twenty four million people in this country have an ISA.

And yet millions of them would like to save more than the annual limits of around five and a half thousand pounds on cash ISAs, and eleven and a half thousand pounds on stocks and shares ISAs. Three quarters of those who hit the cash ISA limit are basic rate taxpayers.

So we will make ISAs simpler by merging the cash and stocks ISAs to create a single New ISA.

We will make them more flexible by allowing savers to transfer all of the ISAs they already have from stocks and shares into cash, or the other way around.

And we are going to make the New ISA more generous by increasing the annual limit to £15,000.

£15,000 of savings a year tax free – available from the first of July.

And I’m raising the limits for Junior ISAs to £4,000 a year too.

But the £15,000 New ISA is just the first thing we are doing for savers.

Second, many pensioners have seen their incomes fall as a consequence of the low interest rates that Britain has deliberately pursued to support the economy.

It’s time Britain helped them out in return.

So we will launch the new Pensioner Bond paying market leading rates.

It will be issued by National Savings and Investments, open to everyone aged 65 or over, and available from January next year.

The exact rates will be set in the autumn, to ensure the best possible offer – but our assumption is 2.8% for a one year bond and 4% on a three year bond.

That’s much better than anything equivalent in the market today.

Up to £10 billion of these bonds will be issued. A maximum of £10,000 can be saved in each bond.

That’s at least a million pensioner bonds.

And because 21 million people also invest in Premium Bonds I am lifting the cap for the first time in a decade from £30,000 to £40,000 this June, and to £50,000 next year – and I will double the number of million pound winners.

But I still want to do more to support saving.

And so, third, we will completely change the tax treatment of defined contribution pensions to bring it into line with the modern world.

There will be consequential implications for defined benefit pensions upon which we will consult and proceed cautiously.

So the changes we announce will not today apply to them.

But 13 million people have defined contribution schemes, and the number continues to grow.

We’ve introduced flexibilities.

But most people still have little option but to take out an annuity, even though annuity rates have fallen by a half over the last 15 years.

The tax rules around these pensions are a manifestation of a patronising view that pensioners can’t be trusted with their own pension pots.

I reject that.

People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances.

And that’s precisely what we will now do. Trust the people.

Some changes will take effect from next week.

We will:

– cut the income requirement for flexible drawdown from £20,000 to £12,000

– raise the capped drawdown limit from 120% to 150%

– increase the size of the lump sum small pot five-fold to £10,000

– and almost double the total pension savings you can take as a lump sum to £30,000

All of these changes will come into effect on 27 March.

These measures alone would amount to a radical change.

But they are only a step in the fundamental reform of the taxation of defined contribution pensions I want to see.

I am announcing today that we will legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots.

Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want.

No caps. No drawdown limits.

Let me be clear. No one will have to buy an annuity.

And we’re going to introduce a new guarantee, enforced by law, that everyone who retires on these defined contribution pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have.

Those who still want the certainty of an annuity, as many will, will be able to shop around for the best deal.

I am providing £20 million over the next two years to work with consumer groups and industry to develop this new right to advice.

When it comes to tax charges, it will still be possible to take a quarter of your pension pot tax free on retirement, as today.

But instead of the punitive 55% tax that exists now if you try to take the rest, anything else you take out of your pension will simply be taxed at normal marginal tax rates – as with any other income. So not a 55% tax but a 20% tax for most pensioners.

The OBR confirm that in the next fifteen years, as some people use these new freedoms to draw down their pensions, this tax cut will lead to an increase in tax receipts.

These major changes to the tax regime require a separate Act of Parliament – and we will have them in place for April next year.

Mr Deputy Speaker, what I am proposing is the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921.

But there is one final reform to support savings I would like to make.

Mr Deputy Speaker,

There is a 10 pence starting rate for income from savings.

It is complex to levy and it penalises low income savers.

Today I am abolishing the 10 pence rate for savers altogether.

No tax on those savings whatsoever.

And we will almost double this zero-pence band to cover £5,000 of saving income.

One and a half million low income savers of all ages will benefit.

Two thirds of a million pensioners will be helped.

Mr Deputy Speaker,

The £15,000 New ISA.

The Pensioner Bond.

People given access to their own pension pots.

A right to impartial advice.

The 10p rate for savers abolished to zero.

The message from this Budget is:

– you have earned it;

– you have saved it;

– and this government is on your side.

Whether you’re on a low or middle income,

Whether you’re saving for your home, for your family or for your retirement.

We’re backing a Britain that saves.

Mr Deputy Speaker,

The central mission of this government is to deliver economic security.

We’re not promising quick fixes.

Instead we’re taking the next steps in our long term plan.

The forecasts I’ve presented show:

– growth up

– jobs up

– the deficit down

Now we are securing Britain’s economic future with:

– manufacturing promoted

– working rewarded

– saving supported

With the help of the British people we’re turning our country around.

We’re building a resilient economy.

This is a Budget for the makers, the doers, and the savers.

And I commend it to the House.

Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, to the British Chambers of Commerce in Hong Kong on 20th February 2014.

Ladies and gentlemen, thank you for coming – and thank you for asking me to speak again to the British Chambers of Commerce.

I spoke to this Chamber three years ago. I said then that relations between Britain and Hong Kong had always been deep and strong – but I said that the economic relationship could be even deeper and stronger.

That has proved to be the case. Thanks to the work of the British Chambers of Commerce and its members, Hong Kong and the UK are now doing more business together than ever before.

I want to talk to you today about the opportunities that this deeper integration brings for both our countries.

But as two of the most open, free-trading, financially connected places on earth, we also understand more than most that deeper global integration brings new risks as well.

And so I also want to talk about what we can to do tackle those global risks head-on, both internationally through organisations like the G20, and in countries like the UK.

Of course Hong Kong and Britain have always had a special bilateral relationship.

That’s about much more than our historic and legal ties.

It’s about our shared values.

It’s about the influence that your culture has had on British life – and that our culture has had here.

It’s based on the thousands of Hong Kongers who study and work in Britain and the quarter of a million British citizens who choose to work here in Hong Kong.

And of course it is also about our inextricably intertwined economies.

So whereas others could make the mistake of seeing Hong Kong as nothing more than a jumping point for trade with mainland China, we in Britain know just how important Hong Kong is as a destination its own right.

You are the UK’s second largest market for goods in the Asia-Pacific.

You are the source of just under 30% of the profits of two of the UK’s largest banks, HSBC and Standard Chartered

More investment comes to the UK from Hong Kong than from the USA, Canada and Singapore combined.

This relationship brings jobs and prosperity for both our economies.

Just look at companies like Hutchinson Whampoa, who I’m seeing after this. It is the single largest foreign investor in the UK. It is responsible for around 35,000 jobs in everything from ports to telecoms to the water supply.

Look at companies like MTR, who I am also visiting later today. They run two of the main commuter rail lines in London and the South East of the UK.

Over here in Hong Kong they are working with British firms like Kier and Laing O’Rourke to deliver new infrastructure projects including the extension of Admiralty Station and the new high speed rail link to the mainland, which I am looking forward to seeing later.

And it is not just about large global players.

This year, while the Shangri-La hotel opens in London’s biggest skyscraper, the Shard…

…On the other side of the river a small Hong Kong tech company called Advanced Merchant Payment will be opening in London’s Tech City.

They will be providing innovative financial services to SMEs and their banks.

And when they wanted to expand outside Asia, they choose to come to our country first – because we have the best environment for start-ups, a world class financial services industry, and one of the most open and competitive economies in the world.

It’s only been three months since I was last here. But even in those three months I detect growing optimism about the economy here – and across Asia.

And every time I come here I sense the energy and the ambition of a continent assuming its place at the heart of the global economy.

Of course Hong Kong is also hugely important to us as the prime gateway to and from one of the biggest parts of that global economy – mainland China.

Almost a tenth of all our exports into China flow via Hong Kong. That’s a huge proportion.

And almost two thirds of all Chinese outward investment comes through here in one form or another.

But Hong Kong has this special position because of its own inherent strengths.

Three hundred British firms base their regional headquarters here, not just because of Hong Kong’s prosperity.

But also because of Hong Kong’s stable government and strong legal system.

As my colleague, the Foreign Secretary, said this month: Hong Kong’s success is underpinned by its autonomy, rights and freedoms – guaranteed by the Joint Declaration- and the best way to preserve Hong Kong’s strengths is through a transition to universal suffrage which meets the aspirations of the people of Hong Kong.

How that is achieved is for the people of Hong Kong, and the governments of Hong Kong and China to decide.

What I want Britain to do is to build on this special relationship with Hong Kong, so that together we can be a bridge – and not a barrier – to trade between mainland China and the world.

For strengthening the relations between China and the UK has been a very important personal priority of mine as Chancellor of the Exchequer.

When I was last here in Hong Kong, before Christmas, I arrived off a ferry from Zhuhai, at the end of a long visit to China and after the conclusion of a very successful Economic and Financial Dialogue between our two nations in Beijing.

Those talks represented the next big step forward in the UK-China relationship.

For the first time ever, the door was opened to Chinese investment in civil nuclear power.

Millions of pounds of Chinese investment in other British infrastructure projects were secured.

And new opportunities for British exports to China – already up 80% in 3 years – were secured as well.

And when the Prime Minister led a trade mission to China last December, the delegation struck £5.6 billion pounds worth of business deals between our two countries.

For this is a two-way relationship of equals. Gone are the days when the British finance minister was only interested in securing greater market access to China.

That’s still important, but just as important now is Chinese investment and access to the UK.

Nowhere is that more apparent than in the development of the use of China’s currency, the Renminbi.

Hong Kong knows that well – you are the largest offshore centre for RMB in the world.

London’s position as the Western centre of RMB trading has been greatly strengthened as a result of this collaboration with Hong Kong.

Now almost two thirds of all RMB payments outside of China and Hong Kong take place in London.

Now London firms are able to invest directly in Chinese stocks and shares in RMB – something that’s just not currently possible anywhere else in the West – thanks to our agreement with the Chinese Government last year.

Now Chinese banks are going to be able to apply to set up wholesale branches in the UK, for the first time.

And we are now the first country in the G7 to agree an RMB swap line with the People’s Bank of China, giving London investors the confidence to expand their RMB activities.

Ultimately what we all want to see is RMB being used more and more as a currency of choice in the world.

And that’s why today I want to go further.

So I can tell you today that the UK and Chinese Governments are in active discussions about the appointment of a Renminbi clearing bank in London.

Recognising London’s role as the Western centre of offshore RMB trading, I am also announcing today that we will be hosting the first International RMB Conference in London this summer – and it will be sponsored by an array of British, Chinese and International Banks from HSBC to ICBC, from Standard Chartered, RBS and Barclays to Bank of China and the China Construction Bank, from Citi, JP Morgan and ANZ to the Agricultural Bank of China and the Bank of Communications and others.

In the Economic and Financial Dialogue last October we said we wanted to see greater collaboration between financial services firms in the UK and China.

Well, today I am very pleased to see exactly that, with the announcement that the Chinese firm, E Fund Management – who I believe are here with us today – will be partnering with a London firm, ETF Securities, to launch a new investment product on the London Stock Exchange. That product will allow people in the West to invest directly in Renminbi in Chinese companies. It’s just one example of the growing links between our financial sectors.

These steps will bring the UK and China closer together, and promote trade and commerce.

But I also want to promote the exchange of ideas and better understanding between both our countries.

That’s why I want to make the UK the prime destination for tourists from this part of the world. Almost three hundred thousand Chinese tourists come to the UK each year, and that number is growing by 40% a year.

I want to make it easier for tourists from the mainland to visit. So I am pleased to announce today that even more British retailers, such as John Lewis, are going to start accepting payments in Renminbi.

I also want to strengthen our relationship by encouraging more students from China and Hong Kong to come to our world-class universities. We already have over 100,000 Chinese students studying in the UK each year.

Today I can announce a new collaborative programme between leading universities in China and the Russell Group of UK universities on the key challenges we all face. We’re going to work together, with leading businesses to find answers to the problems of urban development, public health, energy and transport, the digital economy and financial reform.

And I want students in Britain to understand Asia better as well. Which is why today I am also announcing a new grant for Chinese language teacher training in 50 London schools. My ten year old daughter is already learning Mandarin – I want thousands more children in Britain to learn this language of the future world economy.

These are just a few small steps forward in a relationship between Britain, Hong Kong and China that gets deeper and richer every year.

For me the relationship is about more than economics and the bottom line. It’s about how we view our world and the extraordinary change it is going through.

For some see the rise of China, the success of Hong Kong, the growth of Asia as a threat to the West. They call it a ‘race to the bottom’ and they want Western countries like mine to pull up the drawbridge and close the shutters.

I think that would be a tragedy for us all – and leave us all impoverished.

This is not a race to the bottom.

We should not see growth in China and Hong Kong as a threat to us or something to be afraid of.

We should see it as a huge opportunity. Get it right and it means jobs and investment in London and the whole of Britain. Economic success in Asia can bring economic security at home. An opportunity for us as well as for you.

But only if we work through our long term economic plan.

Of course, as we’ve seen over these recent years, closer global integration also brings global risks. And if we get it wrong – if we don’t tackle those risks head on – then those risks will threaten our economic security.

Today I am on my way to the first G20 Finance Ministers and Central Bank Governors meeting of the year, in Sydney.

We might have hoped that this would be the first time in five years that the G20 has met outside of a global crisis.

The risk of a eurozone collapse has greatly receded, and the prospect of a destabilising standoff over the US fiscal position now looks much less likely.

But as well as reasons to be cheerful, there are also reasons to be careful.

Many economies in Europe remain very weak.

Problems in the Middle East abound.

And in recent months we have seen volatility in several emerging markets, with currencies weakening by up to 19%, bond yields spiking by up to 11%, and sudden falls in equities markets across Latin America and Asia.

Most emerging markets are more robust than they were in the late 1990s, and in many cases flexible exchange rates are functioning correctly as shock absorbers.

But if we have learnt anything from the recent Great Recession, it is that in this interconnected global economy one country’s problem can very quickly become everyone else’s problem.

And acting early when risks emerge can head off much greater damage later on.

My message here in Hong Kong is this:

The risks to economic recovery have not gone away.

Together we need to act now to ensure that emerging market problems don’t contribute to a new crisis.

How do we do that?

By each one of us putting our own houses in order.

And by using the G20 to make sure we all confront our problems instead of running away from them.

As we meet in Australia, the G20 is more than capable of doing that; provided we focus on the important issues.

But there is a danger that in Sydney and other such meetings we find ourselves distracted by a pointless debate about US and UK monetary policy…

…that the G20 descends into a blame-game…

…and we miss the opportunity to drive through, together, the reforms that are necessary to safe-guard the global recovery.

To avoid that happening we need to understand better what the last six years have taught us about how global coordination works.

In particular we need to understand that international coordination can work and has worked when it holds governments to account for domestic reforms, but not when it tries to impose global macroeconomic policies that are against countries’ own self interests.

Fostering domestic resilience from the bottom up is the best way to build global resilience at the top.

For example, many people have identified global macroeconomic imbalances between surplus and deficit countries as a major contributing factor to the Great Recession a few years ago.

With some exceptions, those macro imbalances have now dramatically reduced – China’s current surplus came down from over 10% in 2007 to 2.3% in 2012, and the US current account deficit fell from 4.7% in 2007 to 2.7% in 2013.

Has this therefore been a triumph of external pressure against US and Chinese self-interest?

That would obviously be a misunderstanding of the real forces at work.

China has not reduced its current account surplus because of external pressure by international bodies like the IMF or G20– they’ve done it because the Chinese understand it is in their self interest to move away from an investment and export led model of growth towards something more sustainable.

In fact it is hard to find examples in history of a surplus economy taking action to rebalance demand in response to external pressure.

Equally the US has not reduced its current account deficit because of international pressure – it has been a product in large part of the shale revolution and improved US competitiveness. Indeed we can go further – the initial macro imbalances were not in themselves the major cause of the crisis.

Capital flows from East to West and from surplus countries to deficit countries did indeed reduce global interest rates.

But those low interest rates did not induce financial crises in countries with robust domestic frameworks. Canada did not have a banking crisis or a fiscal crisis. Nor did Sweden. It was not the overall net flows from East to West that turned out to be the problem.

It was poor domestic regulation in the US and much of Europe of some specific capital flows – particularly into housing and commercial real estate assets – and poor domestic regulation of the banks who held many of those assets.

Equally it was poor economic and fiscal management in many of those same countries which left their economies so vulnerable to the ensuing banking crisis.

None more so than the UK. We went into the crisis with the biggest structural deficit in the G7 and with the most leveraged households and banks of any major economy and we paid a heavy price for that failure of policy.

And of course it was the underlying flaws in the institutions of European monetary union that made the impact so catastrophic and long lasting in the eurozone.

So in fact it was a lack of resilience at a national level in several important economies that created a lack of resilience at a global level.

Exactly the same is true now when we look at the risks in emerging markets.

I can see that it is tempting for some to blame Western monetary policy for economic problems in some emerging markets, but this is neither accurate nor useful.

Not accurate because, while tapering of US monetary policy in response to a strengthening domestic recovery may have been the trigger for instability it is not the real cause.

The underlying causes are domestic fragility in those countries, often built up over a long period of time – and that is why some emerging markets have been much more affected than others.

And blaming Western monetary policy is not useful because it doesn’t lead us to any sensible solutions.

The Fed does not and indeed should not set monetary policy to be appropriate for emerging markets – the Fed has a legal and democratic requirement to set monetary policy to be appropriate for the US economy.

The fact that it is currently tapering its programme of quantitative easing is a sign of success.

Equally I know that UK citizens would be rightly outraged if Mark Carney and the Bank of England set UK monetary policy decisions on the basis of what was best for other economies. So at this G20 we should avoid finger pointing and distractions.

There is an alternative.

The alternative is to focus on building domestic resilience – not just in emerging markets, but also in developed economies.

The alternative is to use the G20 to hold governments accountable for these domestic reforms, rather than allowing them to escape accountability by blaming their problems on others.

And that alternative is exactly the plan put forward by my colleague Finance Minister Joe Hockey and the Australian presidency.

Under that plan, the G20 members will sign up to comprehensive and ambitious national reform agendas – and then hold each other to account for delivering them.

That is exactly the right approach because it tackles the underlying problems head-on. I’m ready for the UK to play its part and I hope this approach is adopted by the G20 later this year. We all need to get our houses in order.

We all have to put in place the four fundamentals necessary for economic security: responsible fiscal policy; credible institutions; effective financial regulation; and crucially, the long term structural reforms that will deliver lasting prosperity.

It is a lack of these foundations that caused the financial crisis in developed economies, and the recent troubles in some emerging markets.

Just look at those developed economies who had these foundations for economic security in place, and how much better they performed in the financial crisis.

Look at Australia, where I’m heading tomorrow. Thanks to robust financial regulation and the reforms of the John Howard government many years ago they grew through the crisis when many others were shrinking.

Or look at Canada, who were also in control of the risks in their financial system. They bounced back from the 2009 crisis extremely quickly – by 2010 they were growing by 3.4%!

The same is true of Sweden, who grew by an astonishing 6.6% in 2010 and then 2.9% the year after that.

Unsurprisingly we see the same pattern with emerging markets now – those who had the fundamentals in place, who have taken the difficult decisions to reform, have avoided the worst of the volatility.

Compare the relative calm we’ve seen in countries like Mexico and Peru with the experience of some of their neighbours.

Look at Malaysia, now growing at 5.4%.

And we have also seen other economies taking up these reforms, to head off future threats.

Last October, for example, I was speaking to the Vice Premier of China, Ma Kai, about China’s comprehensive economic reform plan.

The plan that the Chinese leadership went on to set out at the Third Plenum tackles exactly the fundamentals I’ve talked about – by allowing markets to play a greater role; strengthening financial sector regulation, including around shadow banking; and establishing the next generation of free trade pilot zones to boost trade and investment.

And as a result, I am confident that when these reforms are implemented they will not just make China more resilient, but make the whole global economy more resilient.

This is where global coordination can be really effective.

We’ve already seen that the G20 works when it focuses on the painstaking process of coordinating reforms, and holding governments to account for delivering them.

The G20 has played a crucial role in reforming financial regulation – setting deadlines for agreement and tasking the Financial Stability Board and Basel committees to meet those deadlines.

Now Basel three is being implemented; so too, new global rules on derivatives; and as Mark Carney has said, this year we must secure an international solution to the too big to fail problem in banking. The G20 can resist moves to global protectionism – as it has done remarkably well in these recent years – and promote new trade agreements.

The G20 and the IMF have important roles in coordinating balanced and responsible fiscal consolidation plans, though there is still more to do.

And because the British Prime Minister, David Cameron, put international tax evasion and tax avoidance at the centre of our G8 Presidency, the Australian Presidency of the G20 has been able to pick up the baton and for the first time we have the real prospect of new, tough and fair global tax rules.

This kind of international cooperation works.

And so the Australians are completely right to take this to the next level, and ensure we have comprehensive plans to make our countries more resilient. Not just emerging markets, but countries like the UK as well.

And so I want to end by talking about what the UK has to do.

The UK went into the crisis with the largest structural deficit in the G7, the highest household debt and the most leveraged banks of any major economy.

By the time I came into Government, we had experienced one of the greatest falls in GDP of any major economy, and our deficit was forecast to be larger than any other in the G20.

So we set out in 2010 a long term economic plan to restore economic security and prosperity. And we have worked through that plan ever since.

Stuck to it when critics told us to abandon it and come forward with a Plan B – we held our nerve.

Now, four years on…

– We have brought the deficit down by a third, and set out credible fiscal plans that will eliminate the deficit within four years.

– We’ve overhauled our regulatory system, and we’ve given the Bank of England cutting-edge macroprudential powers.

– We’re ending too big to fail in our banking system – we’ve gone further and faster than anyone else, and the rest of the world is following our lead.

– And we have sought to make Britain aggressively competitive.

I have cut corporation tax again and again – from next year it will be the lowest in the G20 and one of the lowest in the world.

We’ve made the UK the location of choice for multinational company head quarters. The City of London has become stronger and bigger.

We have reformed university funding and spent on science, so that British universities can remain world-leading.

We’ve invested in infrastructure – the largest infrastructure project in Europe is being tunnelled under London as we speak.

Far from shying away from difficult issues like Nuclear energy and fracking – my government is leading the way in Europe.

And we are attracting more investment from China than any other European economy.

Indeed, more investment from the rest of the world than any other country in the European Union.

As a result of this long term economic plan, we are growing.

In fact, the UK is now growing faster than any other major European economy.

We’ve had the strongest growth in employment in our history.

Unemployment has come down sharply.

And it’s encouraging to see growth that’s not fuelled by debt, and not just concentrated in services but in manufacturing and construction too.

Some in Britain might be tempted to say: job done, let’s avoid more hard decisions.

That would be a huge mistake.

Abandon the plan and we abandon the progress we’ve made and go back to square one.

I have never been a Chancellor who has run away from confronting our problems.

I’ve never been afraid to level with people about the hard truths.

I said that we have to go on dealing with our debt and our deficit – and we have no choice but to do so.

I said recovery was not enough, we needed to avoid the mistakes of the past.

So I’m now the first to say that the recovery is not yet secure and our economy is still too unbalanced.

We cannot rely on consumers alone for our economic growth, as we did in previous decades.

And we cannot put all our chips on the success of the City of London, as my predecessors did.

Britain is not investing enough.

Britain is not exporting enough.

There are encouraging signs. Both business investment and exports are forecast to grow.

But we can’t be passive observers of the forecasts.

We need to roll up our sleeves, get to work and make it happen.

I am delivering my Budget in four weeks time.

This is not a budget where we can rest on our laurels and say “job done”.

It is a budget where we must confront our problems and deal with some hard truths.

A Budget that safeguards our recovery in the face of ever present global threats.

But more than that:

I want to deliver a Budget that supports a Britain that invests and that exports.

A Budget that lays the foundations for our long term economic security.

And a Budget which ensures that around the world, wherever you are, you can’t help but see “Made in Britain”. That’s the budget I’m going to deliver.

For ultimately what is the goal of all this?

Of global coordination, of domestic reforms, of sticking to our plans?

It is a future where the global economy is resilient in the face of economic storms.

It is a future of jobs, and prosperity, and peace of mind.

It is economic security, for all our citizens.

Here in Hong Kong, and in Britain and around the World.

Thank you.

Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, in Edinburgh on 13th February 2014.

In just over 7 months people in Scotland will decide whether or not to walk away from the United Kingdom.

The stakes couldn’t be higher or the choice clearer.

The certainty and security of being part of the UK or the uncertainty and risk of going it alone.

At the very heart of this choice is the pound in your pocket.

Why?

Because the currency we use is about so much more than notes and coins.

It’s about the value of our savings our power to purchase the everyday things we need and how we make the wheels of trade and commerce turn.

A stable currency is the bedrock of our economy

It underpins our jobs, our mortgages, our pensions our public services and our taxes,

And the opportunities for our children and our grandchildren

I don’t have a vote on 18th September.

But I know where I stand.

The pound is one of the oldest and most successful currencies in the world.

I want Scotland to keep the pound and the economic security that it brings.

And I hope passionately that the people of Scotland – who make such an important contribution to life on these islands – choose to stay within our family of nations here in the United Kingdom.

And why wouldn’t we keep the UK together?

The UK works. In good times, and also in bad.

Together we have faced the worst economic and financial crisis since the Great Depression.

Government debt sky-rocketed, hundreds of thousands of people lost their jobs, banks were bailed out, and as a nation we were made poorer.

But we avoided the economic collapse other nations around us in Europe faced. Because together, we had the strength to confront our problems and overcome them.

Reducing our deficit, cleaning up our financial system, and working through a long term economic plan for the country.

A long term plan that will allow people to feel secure again.

We’re seeing signs now that we have turned the corner.

The UK economy is growing faster than any other advanced economy in Europe.

And within the UK, Scotland is growing faster than the rest.

We’ve had 6 consecutive quarters of Scottish growth.

Growth not just in services but in manufacturing and construction too.

Over a hundred thousand new jobs have been created in Scotland in the last four years.

Sixty five thousand fewer people unemployed compared to 2010

But the job is not yet done.

These hard-fought gains could be easily lost.

And nothing could be more damaging to economic security here in Scotland than dividing our United Kingdom.

That’s not the outcome I want.

I ask you to look ahead to the longer-term challenges we face as a country competing for jobs and business in the global race…

– providing good careers for our children

– supporting an ageing population

– managing with lower North Sea oil revenues

And consider: to which of these great challenges is dividing up the United Kingdom the right solution?

Today Scotland is one of the most economically successful parts of the UK.

– with growth per head the same as the smaller independent European states the Scottish government would like Scotland to join…

– but with far more stability and less volatility than them, thanks to being part of the wider UK.

So for me the positive answer is to work as one and to tackle these challenges together.

Nowhere are the risks to Scotland’s economic security more apparent than in the debate about currency.

Last year the Chief Secretary and I came to Glasgow to share the rigorous and objective analysis the Treasury had done on the question of Scotland’s future currency.

I said it was unlikely that an independent Scotland would be able to share the pound and share the Bank of England.

Today I am here in Edinburgh to consider with you further rigorous and objective analysis by the Treasury which builds on that work – and draws on what we have learnt in the last year.

Alongside this analysis I am also taking the exceptional step of publishing the internal advice I have received from the Permanent Secretary to the Treasury, Sir Nicholas Macpherson.

Since I spoke last April, the Scottish government’s proposal for sharing the UK pound has been questioned by one independent economist after another

Including by DeAnne Julius, a distinguished former member of the Monetary Policy Committee, and John Kay, one of Alex Salmond’s former economic advisers

Many prominent supporters of the Yes campaign have raised doubts about the nationalist’s plan,

From Jim Sillars, the former deputy-leader of the Scottish National Party, to Dennis Canavan, chairman of Yes Scotland, and Patrick Harvie, the leader of the Scottish Green Party.

Businesses and the financial services sector have started to speak out.

Last week the President of the UK Chamber of Shipping and the Chief Executives of Scottish Financial Enterprise, of Simmons&Co, and of Sainsburys all expressed their concerns.

The American Chief Executive of one of the biggest investors in Scotland, BP, said that the huge unanswered questions over the currency and economic policies of an independent Scotland could put big investments in this country at risk.

And now my two predecessors as Chancellor, the current Chief Secretary, Shadow Chancellor, Scottish Secretary and First Minister of Wales – all from different political parties to me – have raised the same questions I raised almost a year ago.

But perhaps no contribution has been more decisive and unquestionably independent than that offered by the Governor of the Bank of England when he spoke about the currency union, here in this city, two weeks ago.

Dr Mark Carney is a Canadian citizen who speaks for no side in this debate, but instead offered the people of Scotland, and the people of the whole UK, his technical and independent advice.

Today I want to pick up where the Governor’s speech left off.

So it’s worth recalling exactly what he said.

He said that the existing UK has proved “durable and efficient”.

He said that we “would need to consider carefully what the economics of currency unions suggest are the necessary foundations for a durable union, particularly given the clear risks if these foundations are not in place.”

And he warned us of the risks that could arise if an independent Scotland tried to stay in a currency union with the UK, without both nations ceding significant sovereignty not only over banking but also over spending and tax decisions.

And in the face of these questions posed by the Bank Governor, what have the Scottish government said?

They have just simply asserted it’s a common sense proposition.

Wrong.

Common-sense is when you’ve got something that works really well already

– you don’t throw it away

– you don’t replace it with something that certainly won’t work as well

– and you certainly don’t embark on a high-risk experiment that may not work at all.

And have the Scottish government engaged in the technical arguments the Governor made? No.

Have they attempted to offer answers to the questions he posed? No.

We’ve had nothing more than confusion, wild assertion and empty threats.

Let me deal with this so-called response, before we go into the real economic issues.

First of all, the Scottish government say “it’s as much Scotland’s pound as the rest of the UK’s”.

They are like an angry party to a messy divorce.

But the pound isn’t an asset to be divided up between the two countries after break-up as if it were a CD collection.

The value of the pound doesn’t lie in the paper and ink that’s used to print it.

The value of the pound lies in the entire monetary system underpinning it.

A system that includes the Bank of England and the tens of millions of UK taxpayers who stand behind that financial system

It is a system that is supported by political union, banking union and automatic transfers of public spending across the United Kingdom.

A vote to leave the UK is also a vote to leave these unions and those transfers and those monetary arrangements.

That’s part of the choice that people in Scotland are being asked to make.

There’s no legal reason why the rest of the UK would need to share its currency with Scotland, as the Treasury’s publication today clearly shows.

So when the nationalists say “the pound is as much ours as the rest of the UKs” are they really saying that an independent Scotland could insist that taxpayers in a nation it has just voted to leave…

– had to continue to back the currency of this new foreign country

– had to consider the circumstances of this foreign country when setting their interest rates

– stand behind the banks of this foreign country as a lender of last resort

– or stand behind its foreign government when it needed public spending support.

That is patently absurd.

If Scotland walks away from the UK, it walks away from the UK pound.

The Scottish government also asserted after Dr Carney’s speech that sharing the pound would make sense to the rest of the UK because of the huge volume of trade the rest of the UK does with Scotland.

I’m the first to say that our deeply integrated businesses and their suppliers are compelling reasons for keeping the UK together.

70 per cent of Scottish trade is with the rest of the UK. That is a massive proportion.

And trade with Scotland is important to the rest of the UK – but at only 10 per cent of the total trade, it is a much smaller proportion.

These trade figures don’t make the unanswerable case for a shared currency that the Scottish government assume.

After all, 40 per cent of the UK’s exports go to the euro area, but we chose not to join the euro.

And almost 20 per cent of our exports go to the United States – are the Scottish government suggesting that we should adopt the dollar?

When his economic arguments fall apart, the First Minister resorts to reckless threats.

He says “an independent Scotland will refuse to accept its fair share of national debt if the UK refuses to share the pound”.

That’s like saying: because my neighbour won’t agree to my unreasonable demands, I’m going to burn my own house down in protest.

Currently Scotland benefits from the whole UK’s credibility in the gilt markets.

– credibility that is hard won by tough policy decisions and responsible actions – like our recent statement from the Treasury that we would honour all UK gilts in the event of independence.

The fact our commitment was immediately accepted by investors here and around the world was a sign of that credibility and strength.

And it’s that strength and credibility that delivers every day low mortgages for Scottish families and low rates for Scottish businesses borrowing to expand.

Independent experts already estimate that even a new Scottish state which had accepted its fair share of UK debt would have to pay an ‘independence premium’ to borrow from the markets.

The premium has been put at between 72 and 165 basis points above UK rates.

For the average mortgage-payer in Scotland, that could be an extra £1,700 a year in mortgage payments.

But the premium would be as nothing compared to the millstone the Scottish people would have to carry if an independent Scotland failed to honour its fair share of national debt.

In that scenario international lenders would look at Scotland and see a fledgling country whose only credit history was one gigantic default.

And they would demand a punitively high interest rate as a result.

That would be crippling for every Scottish household with a mortgage or personal loan, for every Scottish business with credit, for the public finances and therefore for public services and for taxpayers, and for the whole economy.

If an independent Scotland reneged on its debts it would become an outcast among the family of responsible economic nations.

So it is a reckless threat.

And Alex Salmond knows it.

And the fact that he issues this reckless threat shows how all his other arguments have been exposed by the serious analytical work of the Treasury, the wider economic community, and now the independent Governor of our central bank.

So let me return to the real economic issues that the Governor raised.

Mark Carney ended his speech last month by saying this.

He said “a durable, successful currency union requires some ceding of national sovereignty.”

He concluded that “Decisions that cede sovereignty and limit autonomy are rightly choices for elected governments and involve considerations beyond mere economics. For those considerations, others are better placed to comment.”

And that’s where I want to pick up today.

I want to give you my assessment of the merits of a currency union, as the elected politician currently responsible for the overall health and stewardship of the UK economy.

That assessment is based on the new Treasury analysis which I publish today. Prepared by civil servants, it sets out in detail the problems that we would face if we attempted to create a currency union between an independent Scotland and continuing UK.

The Treasury analysis highlights four major requirements for a currency union between an independent Scotland and the rest of the UK.

The first is the requirement for a banking union.

As the Governor said, without a banking union “the viability of the [currency] union itself [is] undermined.”

If we have learnt one thing from the euro crisis, it is that a currency union is unstable without a shared financial supervisor, common resolution mechanisms, a lender of last resort, and credible deposit guarantee schemes.

It would be important for Scotland, where financial sector assets are worth more than twelve times Scottish GDP, to be able to call on the deeper pockets of the neighbouring UK government in a crisis.

Otherwise it is extremely difficult to see how Scotland could remain a home to large financial institutions like RBS.

RBS would have undergone a disorderly collapse without the support of the whole UK in 2008 – and even for a country of our size, it was a huge endeavour.

An independent Scotland would have been unable to bail it out.

Without a shared banking union, the Scottish Government would also struggle to create a depositor guarantee scheme which was as credible as the one we have now in the UK.

That in turn would make an independent Scottish state a less attractive place to be based as a deposit taker like a bank.

The consequence would be a loss of business and a loss of jobs.

So a banking union is important for an independent Scotland. But it would also be an essential demand for the rest of the UK if we were to contemplate a currency union.

After all, the rest of the UK would be tying its currency to a country with a big financial sector, capable of inflicting huge damage on it – and it would demand supervisory control as a result.

Just as Germany has now done, through the ECB, in the aftermath of the Spanish and Irish banking problems.

But how could I propose such a banking union to the UK public after an independence vote?

We have fought hard to keep Britain out of a banking union in Europe – a union that includes Ireland, whose banking system is also integrated with ours.

So why would the rest of the UK now join a banking union with Scotland?

For at heart this banking union would involve putting UK taxpayers on the line for banks in a foreign country.

Asking them to underwrite a Scottish Government guarantee on deposits held in Scottish Banks.

Asking to put their money at risk whenever Scottish authorities extend emergency support to Scottish banks.

And with little prospect of any benefit flowing in the other direction – for Scotland could only make a limited contribution to supporting a big English bank.

It is very difficult to see how after a ‘Yes’ vote, any UK politician could propose such an asymmetrical arrangement.

What would be in it for the rest of the United Kingdom? Nothing but exposure, again, to the risk of a failing bank – this time not even in our own country, but in a foreign one.

The second requirement for a successful currency union is for much greater fiscal risk sharing.

As the Governor said, that fiscal risk sharing is needed not just to underpin a banking union – in other words, to pay out in the last resort when banks fail – but also to smooth over economic shocks.

In our case, the continuing UK would be almost ten times the size of the Scottish economy. So this would be a totally one-sided deal where UK taxpayers would have to transfer money to an independent Scotland in times of economic stress, with limited prospect of any transfers the other way.

We got Britain out of the eurozone bailouts. Now we’d be getting into an arrangement that was just the same.

The citizens of the rest of the UK could not sign up to such a deal. And frankly, even if we could, I do not think Scotland would want to either.

For the logic of a currency union would mean that Scotland would have to give up sovereignty over spending and tax decisions.

Look at the direction the euro is heading in – supervision and consent to member budgets, deficit controls, debt reduction rules.

In a crucial sense, Scotland would have less independence than it has now – because spending and tax decisions would still have to be agreed by the Parliament in Westminster, but now there would be no longer any Scottish MPs in that Parliament or Scottish members of the Cabinet.

And the citizens of the rest of the UK would have to concede at least some sovereignty and supervision of our own Budget to a foreign country – something we’ve fiercely resisted up to now and would in the future.

The Scottish government claims to accept this in principle.

They talk about being prepared to agree a fiscal pact.

But at the same time, Mr Salmond said to the Financial Times only a few days ago that the pact: “doesn’t need to cover rates of taxation, I don’t think there’s any need for that”.

And John Swinney has said that “A shared currency will mean an independent Scotland having control of tax policy, employment policy, social security policy, oil and gas revenues, immigration policy and a range of other levers to suit our own circumstances”

That is a million miles away from the fiscal risk-sharing the Governor has said is the foundation of an effective currency union and the Eurozone is working to.

It shows that a greater fiscal union is not acceptable to the Scottish government – and would not be acceptable to the rest of the UK.

The third requirement for a currency union is, of course, the same monetary and exchange rate policy.

Within a currency union, an independent Scotland would not have exchange rate flexibility or the ability to set interest rates specifically to suit conditions in Scotland.

Scotland’s economic conditions are taken into account today by the Monetary Policy Committee. On top of that we have full fiscal risk sharing across the UK.

Without that fiscal risk sharing, the full force of any adjustment to an economic shock would have to be borne in full by Scottish taxpayers.

Consider for example the impact of a substantial fall in the oil price – something we’ve seen several times over the last thirty years.

As part of the UK, Scotland is insulated from the impacts that this would have on tax revenues.

In the last Autumn Statement for example the Office for Budget Responsibility cut its forecast for North Sea revenues by almost £4bn over the next three years.

But instead of needing to cut spending, the Scottish Government saw its budget rise by more than £300m.

Under independence, if the Scottish Government did not have the flexibility to cut interest rates – and lacked the fiscal risk sharing it currently has – it would have to respond to a fall in oil revenues by cutting public spending dramatically or raising taxes hugely in response.

The Treasury analysis published today shows that for each 20 dollar fall in the oil price, an independent Scotland would lose 11,000 jobs, whereas if it remained part of the UK it wouldn’t lose any.

To put this in context, between 2008 and 2009 the global oil price fell by over 60 dollars.

So Scotland would be forced to take more drastic fiscal measures in times of crisis, and the pressure would quickly grow to leave the pound so that Scotland could regain control of its interest rates and its exchange rates.

And it would be in the UK’s interests to have separate interest rates as well.

Just consider a scenario where the value of oil increased.

The Scottish government have asserted that the rest of the UK would want to make a currency union work, because Scottish exports – especially oil – make a substantial contribution to the UK’s balance of payments.

As it happens independent experts think the effect would be broadly neutral, but let’s put that aside for now.

According to the Scottish government’s logic, if the value of oil exports went up, contributing more to the UK balance of payments, then we would have an even greater interest in making a currency union work.

But the opposite is the case.

Because if Scottish oil did make such a substantial contribution to the UK’s balance of payments, then it would be artificially increasing the value of the pound – and that would be to the detriment of exporters in other parts of the UK.

That’s exactly what many members of the euro have discovered over recent years.

That’s an argument against currency union, not for it.

This leads me to the fourth and final requirement, which is about the permanence of any currency union.

If currency unions are to succeed then the markets must believe they are built to last.

Look at the massive damage to confidence and stability in 2012 when there was doubt about whether Greece would remain in the euro – despite the protestations of everlasting currency union by all involved.

My commitment as UK Chancellor of the Exchequer – and the commitment of the UK government – to Scotland and to Scotland’s place within the UK is absolute.

In the event of independence the Scottish government’s commitment to the continuing UK would be the opposite of absolute.

As both its own Fiscal Commission and White Paper make plain, the Scottish government’s vision is of a currency union of convenience, not conviction.

Their White Paper said, “It would of course, be open to the people of Scotland to choose a different arrangement in the future.”

The Fiscal Commission said that the currency could evolve “should the people of Scotland wish for further reform or should economic conditions change.”

They go out of their way to tell us that a currency union would be a temporary arrangement that can be ditched as Scotland’s circumstances change.

This makes it unsustainable.

Imagine what would have happened to Greece two years ago if they had said they would consider going back to the Drachma.

It would have happened the next day.

The markets would try to break a Sterling currency union – knowing that, unlike with Greece, the Scottish Government were actively stressing how temporary the arrangements were.

Just look at what happened to the last two nations who tried to form a currency union following separation – Slovakia and the Czech Republic.

Their union fell apart after only thirty three days as capital flowed from one to the other in pursuit of the safe haven.

We would face the same risk if Scotland tried to keep the pound.

Signing-up for arrangements that are inherently unstable would risk over time breeding huge resentment on both sides of the border.

We want to bring people closer together, not drive them further apart.

So to what conclusion does this analysis of the requirements of a workable, successful currency union lead us?

We have seen how it would be impossible to construct an acceptable banking union, or fiscal union…

We have seen that we would be ill-served by the monetary policy arrangements, and that the permanence of the currency union would be in serious question from the outset.

On this basis, the official advice I have received from civil servants in the Treasury is that they would not recommend a currency union to the Government of the continuing UK.

Listening to that advice, looking at the analysis myself

It is clear to me:

I could not as Chancellor recommend that we could share the pound with an independent Scotland.

The evidence shows it wouldn’t work. It would cost jobs and cost money. It wouldn’t provide economic security for Scotland or for the rest of the UK.

I don’t think any other Chancellor of the Exchequer would come to a different view.

The Scottish government says that if Scotland becomes independent there will be a currency union and Scotland will share the pound.

People need to know – that is not going to happen.

Because sharing the pound is not in the interests of either the people of Scotland or the rest of the UK.

The people of the rest of the UK wouldn’t accept it and Parliament wouldn’t pass it.

This issue more than any other exposes the gaping chasm at the core of the plans to separate Scotland from the rest of the UK.

People in Scotland are being asked to accept two diametrically opposite things at the same time.

That with independence everything in Scotland will change and at the same time nothing will change.

It simply doesn’t add up for the Scottish government.

If Scotland walks away from the UK, it walks away from the Pound.

There is an alternative, confident, future for Scotland.

A future in which the nations of the UK work together to provide economic security for our citizens.

A future where strengthened devolved government empowers people from every corner of our land to play their part.

A future of jobs and prosperity and peace of mind.

It’s a strong Scotland within a United Kingdom.

That is a future worth fighting for.

Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, on 15th January 2014.

Thank you for inviting me here today and congratulations to the Fresh Start Group and Open Europe for pulling together this excellent conference of European reformers.

Andrea and the Fresh Start team are providing just the kind of practical and challenging thinking we need as we work towards a reformed Europe.

Likewise, Mats and the Open Europe team are influencing the debate not just in the UK but right across Europe.

I know that your new partner office in Berlin is already having an important impact on the debate there.

And I would like to particularly pay tribute today to Rodney Leach.

Rodney’s tireless campaigning helped keep Britain out of the euro.

I’m proud to have been on the board of that ‘no’ campaign.

It is hard to imagine now, but at the time joining the euro seemed a real possibility.  I shudder to think what would have happened during the last decade if we had joined the euro.

We’d have had an even more extreme boom-bust cycle and a downturn even deeper than the Great Recession we experienced under the last government.

And in the aftermath, as we tried to pick up the pieces, we would have been hobbled, without a floating exchange rate or an independent monetary policy.

That wouldn’t have been in the interests of this country – and I don’t think it would have been in the interests of the rest of Europe either.

The issues that were raised during the debate about joining the euro endure now: arguments about the necessity of economic reform, concern that currency union would lead to further fiscal union, and doubts about the yawning democratic deficit.

At the time William Hague, who I was working for, predicted the euro could become a “burning building with no exits”.

More than a decade later, these issues have not gone away. Far from it. They have been thrown into sharp focus by the economic crisis in Europe and in the eurozone.

That’s why a year ago the Prime Minister gave his landmark speech on the need for a reformed Europe, fit for the global race – and a reformed relationship between Britain and the European Union.

It’s why he committed our country to a referendum on that renegotiation.

In Britain it has always felt like there have been two debates about the EU.  One debate is about sovereignty, democracy and accountability.

A second debate has been about the economics.

But there aren’t two debates. This is one debate.

Getting the economics right is not sufficient to persuade people of the merits of the EU.  Other constitutional change is needed. But getting the economics right is absolutely necessary.

It was after all sold to our country as a European Economic Community.

Without economic success the EU will not be regarded as democratically legitimate.  You can see that in the way that support for the EU has fallen sharply right across the continent during the economic crisis.

So today I want to develop the conversation about some of the economic reforms that we want to secure as part of the forthcoming negotiations. We need two things.

First we need economic reform that enables the EU to create jobs and economic security, and compete in the global race – something it is not doing well at the moment.

And second as the Eurozone undertakes the integration required to make the euro work, we need constitutional reforms to make sure that those countries which are not in the euro can remain in the EU, confident that their interests and rights will be protected.

Let me begin with jobs and economic security.

We knew there was a competitiveness problem in Europe before the crisis. But the crisis has dramatically accelerated the shifts in the tectonic economic plates that see power moving eastwards and southwards on our planet.

Over the last six years, the European economy has stalled.

In the same period, the Indian economy has grown by more than a third.

The Chinese economy by nearly 70 per cent.

Over the next 15 years Europe’s share of global output is forecast to halve.

Make no mistake, our continent is falling behind.

Look at innovation, where Europe’s share of world patent applications nearly halved in the last decade.

Look at unemployment, where a quarter of young people looking for work can’t find it.

Look at welfare.

As Angela Merkel has pointed out, Europe accounts for just over 7 per cent of the world’s population, 25 per cent of its economy, and 50 per cent of global social welfare spending.

We can’t go on like this.

This is the continent that for centuries led the world in innovation and scientific discovery, enterprise and work ethic. Are we to say that the Europe that gave us Galileo, Darwin and Marie Curie, the industrial revolution, democracy and the free economy, has given up on the future because it is all too difficult?

As a father of two young children, I don’t want to turn to them as we see the latest Chinese scientific breakthrough or Indian innovation and say: “that used to be us. That used to be Europe.”

The hard truth is that if we want to maintain our way of life in Europe we’ve got to get more competitive. And that’s going to require some tough steps: living within our means, making our labour markets competitive, expanding free trade.

Most of the action needed will have to be taken at a domestic level.

I’m not here to lecture other member states about that.

Not least because the UK has had to take more action than most.

When I entered office three and a half years ago, we had just suffered one of the sharpest falls in national output, and faced the highest budget deficit of any major western economy – higher than Spain or Portugal, and much higher than Italy or France.

Indeed, our budget deficit has fallen a lot but is still one of the highest in Europe.

That’s why we’re working through a long term economic plan that makes the tough choices necessary for our long term prosperity.

Reducing borrowing.

Cutting taxes.

Creating jobs by supporting business and investing in infrastructure.

Capping welfare and controlling immigration.

Delivering better skills and schools.

And I know we’re not alone.

Many of our neighbours have also taken tough decisions in recent years. We in Britain should praise them for it, not dismiss them.

Germany led the way a decade ago with its employment and welfare reforms.

Unemployment has halved since, and remains half the European average.

Spain is undertaking radical labour market reforms that are now yielding real results.

Sweden has reformed its education and welfare systems.

It’s right that most of these reforms have to be taken at the national level.

We all have to put our own house in order. And there’s still a huge amount more we all have to do, including here in Britain.

But Europe’s competitiveness also requires action at the European level.

Now there are those who throw their hands up and say “we can’t reform Europe, it can’t be done, it’s all too hard”, I say “we’ve already proved you wrong”.

Take the EU Budget.

Last year, the Prime Minister negotiated the first ever real terms cut to the EU budget.

For the first time, EU spending is not going up but coming down.

And far from being a lone voice, we were working alongside like-minded countries including Germany, Sweden, the Netherlands and Denmark.

Take bureaucracy.

The UK, drawing on the findings of our business taskforce, has proposed a programme for cutting red tape in Europe that has secured the support of 13 other Member States and the European Parliament.

Take free trade.

Britain was one of the strongest promoters of the recent trade deals with Canada, Singapore and Korea. The Canada deal alone will be worth £1.3 billion pounds to Britain.

Reducing the budget, tackling red tape, some free trade agreements – this is a good beginning, but it’s not nearly enough.

We need to be much, much bolder.

We should set ourselves the urgent task of completing the transatlantic trade and investment partnership – the EU-US Free Trade agreement.

This would be the world’s biggest ever trade deal – together our economies would account for half of global output.

The Commission estimate it would boost the European economy by 120 billion euros a year – that’s over 500 euros for every family in the EU. It would bring £10 billion pounds a year to the UK alone.

Some in the European Parliament talk about stalling this Trans-Atlantic Partnership to pursue other agendas.

But when a quarter of young people looking for work in Europe are unemployed, this would be a complete betrayal.

We need to create jobs, increase trade, support business growth – we’ve got the European tools to help with the job, let’s get on and use them.

The same applies with the Single Market.

We need to stop talking about completing the Single Market in services, energy and digital, and get on with it.

I remember sitting around the ECOFIN table nearly four years ago and listening to Mario Monti present his “Report on the Future of the Single Market”

It offered a detailed plan for boosting the Single Market. On the services sector alone, it estimated we could boost GDP by up to 1½ per cent.

And it was agreed by the EU.

But four years on, what has come of it? Precious little.

We need to come up with innovative ideas to overcome the vested interests that are holding back progress in this area.

Personally I’m attracted to Open Europe’s thoughts on using enhanced cooperation to allow a smaller group of Member States to move forward toward trade liberalisation in areas like services among themselves if not all EU member states can agree.

If enhanced cooperation can be used by others to create expensive job destroying ideas like a Financial Transaction Tax, why don’t we think about using it for job creating measures that others oppose?

If we in the EU are going to solve our competitiveness problem we need to think big.

If we are going to create jobs and provide economic security, we need major reform

So the crisis has accelerated and sharpened the economic challenges that already faced the whole of Europe.

But the crisis has also brutally exposed the problems that were always apparent to many of us in this room in trying to run a currency union without a proper fiscal, financial and political union to back it up.

The European Council President, Herman Van Rompuy acknowledged this a few years ago. He said: “this tension has been there since the single currency was created.

However, the general public was not really made aware of it”.

Well, it wasn’t for lack of trying in those debates about the euro 15 years ago.

And everyone’s aware of the tension now.

Three years ago I predicted that that the economic crisis in the eurozone would force the “remorseless logic” of monetary union towards greater fiscal and economic integration, including a banking union.

Even as late as 2011 that was regarded as a controversial prediction.

I also said that this loss of national control, and the loss of economic flexibility, was precisely why I didn’t want to see the UK in the euro.

But since then the Eurozone has started to work through that remorseless logic. Creating the Banking Union, the European Stability Mechanism to bail out Eurozone countries and now the proposed Single Resolution Mechanism to bail out Eurozone banks.

And the UK has not blocked them.

We could have blocked crucial parts of the Banking Union, but we didn’t.

That’s because we want the euro to work. Work for those in Europe who use it, and work for us, because an unstable euro on our doorstep has already done great damage to jobs and growth in Britain.

But we have been clear from the outset that in return for this integration, non euro members like the UK would need safeguards to protect their rights and interests.

Some on the continent like to assume this is just the UK pursuing its own self-interest, at the expense of the collective good.

But it’s the opposite.

If we cannot protect the collective interests of non-eurozone member states then they will have to choose between joining the euro, which the UK will not do, or leaving the EU.

So we have fought to safeguard the rights of non-euro members. But it has not been easy.

Let me spell out just some of the issues I’ve seen first-hand sitting at the ECOFIN table in financial services, where it has been most difficult.

Deeper integration in the Eurozone has thrown up four sorts of challenges, and we have had to argue our case and work hard to build alliances to deal with all four of them.  But again, for those who say reform isn’t possible – we’ve been more successful in starting to deal with them than some people expected.

First there is a danger that the euro members could start to use their collective voting weight in the EU to effectively write the rules for the whole EU by Qualified Majority Vote.

Under the Lisbon Treaty, from 2016, the Eurogroup on its own will have sufficient votes to pass any financial services legislation for the whole of the EU.

That’s a problem because it could leave us in a position where euro members – including ones with little or no financial services industry – can caucus together to impose financial services legislation on the UK –the world’s leading financial centre.

And we’ve already started to see the Eurogroup discussing EU directives privately before involving other member states – like they did over the Bank Recovery and Resolution Directive last June.

It means there’s a very real risk that badly thought through legislation will be imposed on the UK.

And as the Chancellor of a country where financial services represent a tenth of the economy, and employ more than a million people, I could not let that happen.

Damaging Europe’s great global financial centre would also, incidentally, be very bad for the whole of Europe too.

The City of London is not, as some of our continental friends kid themselves, in competition with Paris and Frankfurt. It is in competition with places like Hong Kong, Singapore, and New York.

That’s why it was important that we secured some important institutional changes to protect the UK and ensure we have safe, competitive financial services.

It was a long hard fight, but we negotiated in the ECOFIN and European Council a whole new voting system – the so called “double majority” system – which will apply in the European Banking Authority.

Double majority voting means that legal proposals now require a majority of both eurozone and non-eurozone countries to pass.

People said we would not be able to secure a new voting system, that it was impossible.

But we did.

That leads me to the second challenge. We’ve had problems with discriminatory treatment of non-eurozone Member States.

A clear example is the European Central Bank’s policy of forcing clearing houses with large euro-based transactions to move to the eurozone.

How can we say there is an EU wide single market if we say that certain businesses can only locate in certain member states?

That’s why we’re taking the European Central Bank to the European Court of Justice.

And that’s why alongside double majority voting, we fought hard for and secured a new binding legal provision in the Single Supervision Mechanism regulations to prevent discrimination against financial services providers based on their location within the EU.

Third, we’ve had problems with accountability and transparency and basic policy discipline in some European institutions.

The Commission’s legislative proposal on the financial transaction tax, for example, was contradicted by its own original impact assessment which showed that the policy would reduce EU GDP.

And then there’s the European rules on bonuses, with their damaging consequences and perverse incentives for the big salary rises we’re starting to see.

To establish the right principles, we have been taking an increasing number of cases to the ECJ – which is not something that we do lightly.

We’re going to court over the financial transaction tax, the bonus cap and short selling as well as the action I mentioned against the ECB on clearing houses.

Far from being unthinkingly anti-European, we are using the European court to enforce European principles of non-discrimination and adherence to European law.

We have a good argument in all these cases. The ECJ’s advocate general, and the Council Legal Services have on separate occasions both agreed with key UK arguments. We await final judgement.

And lastly, on the whole issue of ‘ins’ versus ‘outs’, we inherited a situation where the previous government accepted that the UK and other non-euro Member States would be liable for contributing to the costs of Eurozone bailouts.

That was completely unacceptable.

So another principle this government has established, thanks to the very hard negotiating of the Prime Minister, is that the UK and other non-euro members will not pay for European bailouts alongside the new European Stability Mechanism.

We’ve also established that those member states outside the Banking Union will not pay for bailing out banks in that Banking Union – as part of the new Single Resolution Mechanism.

After all, one of the reasons we didn’t join the euro is because we didn’t want to take on this kind of fiscal responsibility for other member states.

I have been clear since the start of the process that Eurozone integration was necessary to make the euro work better, but that it would throw up these issues and that in return we would expect to see the rights of non-euro members protected.

That has been the consistent position the Prime Minister and I have maintained for three years now.

But it is not the case that the UK is always the member state arguing for less activity or blocking things.   We’ve led the way on financial services regulation and ringfencing our banks – and we have the most stringent capital and liquidity rules in Europe.

Nor are we “sitting on the sidelines.”

We have been active in fighting our corner, building alliances and winning arguments in Brussels.

For example we ensured that the so-called “Hedge Fund Directive” protected the single market with passporting rights for EU players that meet the rules.  This was against opposition from others to keep markets closed.

We’re now fighting for the opening up of the derivatives market, to bring competition and better value to European customers.

We have achieved a lot.

We are achieving more.

But this isn’t enough.

What is becoming clearer, as Eurozone integration increases, is that we are now at a point where we are stretching the EU institutional architecture to its limits. We risk going beyond what is legally possible or politically sustainable.

The European Treaties are not fit for purpose. They didn’t anticipate a European Union where some countries would pursue dramatically deeper integration than others.

Rather than face up to the truth, those in Brussels are being forced into legal gymnastics as they try to stretch the existing Treaties to fit a situation they were not designed for.

A classic example before us at the moment is the Banking Union Single Resolution Mechanism.

Because the rules weren’t designed to support a banking bailout fund for just some EU members, those Member States taking part have had to create a hastily put together intergovernmental treaty outside the EU.

We don’t want this to be a source of legal disputes later on.

The euro has to be put on firmer foundations, for the crisis in the Eurozone may have abated, but the contradictions it revealed are not yet resolved.  We should use this moment of relative tranquillity in markets to build those foundations for the future.

And that’s why the questions thrown up by Eurozone integration are inevitably linked to the wider reform negotiations that I touched on at the start.

Ultimately I don’t think we will be able to maintain this approach of patching things up as we go along with contorted legal innovations and short term fixes.

We are taking a great risk with the future economic security of Europe if we do so.

Instead of make-do-and-mend, we should make the Treaties fit for purpose.

We are not the first to recognise this. The new German coalition agreement states “we will adapt the Treaty bases of the Economic and Monetary Union”.  Enrico Letta has also talked about Treaty change.

There is potential common ground here.

Let me recap:

Europe urgently needs economic reform.

Eurozone integration is necessary if the euro is to survive

But proper legal protection for the rights of non-euro members is also absolutely necessary – to preserve the single market and make it possible for Britain to remain in the EU.

I believe it is in no-one’s interest for Britain to come to face a choice between joining the euro or leaving the EU.

We do not want to join the euro.  But also our withdrawal from a Europe we’d succeeded in reforming would be bad for Britain.

And a country of the size and global reach of the UK leaving would be very bad for the whole of the EU.

Let us not shy away from robust democratic argument on a subject that goes to the heart of our own national interest.

Feelings run high on both sides of the argument – that is understandable.

But strong feeling must never be allowed to cloud clear judgement about where this country’s real long term economic interests lie.

It is clear what the British people want.

They refuse to accept that we just have to take the EU as it is – that one size must fit all, that change is impossible, that reform is doomed.

Nor do they accept that the only course open to us is to pack up and leave, to abandon the single market and the common rules from which we benefit, and to walk away.

They are rightly suspicious that the one thing that unites those who urge Britain to join the Euro and those who advocate leaving is their shared conviction that any change is impossible, and that there is no other way.

There is another way.

It is to change the EU and to change Britain’s relationship with it, and then to place the decision in the hands of the British people: do you want to stay in a reformed Europe, or would you prefer to leave?

That is our policy, and that is our commitment to the British people.

Thirteen years ago, William Hague warned of the dangers of the Euro – for Europe and for Britain.

He was right.

And I believe he was right too when he said that our country wanted to be in Europe but not run by Europe.

In Europe but not run by Europe. That phrase sums it all up for me.

Now we have the chance to give the British people a real choice.

The biggest economic risk facing Europe doesn’t come from those who want reform and renegotiation – it comes from a failure to reform and renegotiate.

It is the status quo which condemns the people of Europe to an ongoing economic crisis and continuing decline.

And so there is a simple choice for Europe: reform or decline.

Our determination is clear: to deliver the reform, and then to let the people decide.

And that’s exactly what we will do.

Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, on 6th January 2014 in Coleshill.

Thank you for inviting me to speak to you today here at Sertec.

I’m here because you’re a great manufacturing company, of the kind we need to see many more of in this country.

You make parts for British cars that are exported all around the world.

When we hear on the news that our economy is recovering, people wonder what it means for them.

For some it feels abstract, remote.

But here there’s nothing abstract about the 200 new employees this company has created in the last year.

Or the 400 additional people that Sertec has announced today it will be taking on in the next four years.

That’s a vote of confidence in the workforce here.

It’s a vote of confidence in the Midlands.

It’s also a vote of confidence in the economic plan that is working for Britain.

This factory is a good place to talk about that plan.

For you know more than most that the world does not owe Britain a living.

Car manufacturing is fiercely competitive.

Components can be sourced from around the world.

You know that there are hundreds of companies in dozens of countries that would like to be manufacturing the products you make here.

And it’s only because of your skill and your professional approach that the work comes here – here to this company.

If the quality slipped, or the costs went up or the company was badly run – then the jobs would go elsewhere.

What is true of this company is true of our country.

It’s because the rest of the world sees that Britain is a country where we’re now back in control of our destiny, a country where we’re supporting business, that jobs – like the ones here today – are being created across our country.

Over one million new jobs.

But if our country is badly run, if the finances are in a mess, and costs go up, and businesses don’t feel welcome, then jobs would quickly disappear from Britain again.

Our country was in a real mess a few years ago – more so than almost any other major country in the world.

Hundreds of thousands of people lost their jobs.

Millions of families like yours have seen their incomes squeezed.

Britain was made a lot poorer.

That’s the terrible price people totally unconnected with politics and politicians pay when you get the wrong economic policy.

It’s why getting the right plan – and holding to it – is so important.

We’ve got the right plan now.

It’s a long term plan for turning our country around.

I’ve never promised it was going to be easy.

I went out of my way to say the opposite – and be open with you about the difficult sacrifices we had to make.

And like the success of this company, it’s been a team effort – with a lot of hard work.

Now that team effort is paying off.

The plan is working.

For the first time in a long time, there’s a real sense that Britain is on the rise.

Jobs are being created.

The deficit is coming down.

That brings its own risks.

As we start the New Year, I want to warn you about a dangerous new complacency around at the moment.

You hear some talking as if the hard part of the job is done – and we can go back to the bad old habits.

But beware those who come along this year and promise you easy answers, no more sacrifices, just more spending on this and more spending on that, all paid for by more borrowing.

For the truth is there are still plenty of risks out there.

Our biggest trading partner, the Eurozone, is still weak.

And there are fears about slowing growth in the emerging economies further afield.

Here at home, the banking system is still not working as we need it to, so we’re still fixing it.

We have to do even more to encourage the exports and investment and saving our economy needs for a responsible recovery.

Above all, we’ve still got a huge amount to do to reduce the deficit and get our debts falling.

And it’s worth remembering, as the festive season comes to an end, that our own independent Office for Budget Responsibility, is predicting a slowing of quarterly GDP growth this year.

So it’s far too soon to say: job done.

It’s not even half done.

That’s why 2014 is the year of hard truths.

The year when Britain faces a choice.

Do we say: the worst is over; back we go to our bad habits of borrowing and spending and living beyond our means – and let the next generation pay the bill?

Or do we say to ourselves: yes, because of our plan, things are getting better.

But there is still a long way to go – and there are big, underlying problems we have to fix in our economy.

More repairs.

More cuts.

More difficult decisions.

That’s the choice in 2014: to go on working through a plan that is delivering for Britain, putting us back in control of our destiny with the security and peace of mind that brings; or squander what we’ve achieved and go back to economic ruin.

Ultimately it’s your choice – a choice for the British people.

Our long term economic plan has five key parts to it.

The first is to go on reducing the deficit so we deal with our debts – because that’s the way to safeguard our economy for the long term and keep mortgage rates low.

If 2014 is a year of hard truths for our country, then it starts with this one: Britain should never return to the levels of spending of the last government.

We’d either have to return borrowing to the dangerous levels that threatened our stability, or we’d have to raise taxes so much we’d put our country out of business.

Government is going to have to be permanently smaller – and so too is the welfare system.

When I took this job, Britain was borrowing more than £400 million every single day to pay for government spending.

But as a result of the painful cuts we’ve made, the deficit is down by a third and we’re borrowing nearly £3000 less for every one of you and for every family in the country.

That’s the good news.

The bad news is: there’s still a long way to go.

We’re borrowing around £100 billion a year – and paying half that money a year in interest just to service our debts.

We’ve got to make more cuts.

£17 billion this coming year.

£20 billion next year.

And over £25 billion further across the two years after.

That’s more than £60 billion in total.

Some say they’d deal with the deficit, but they shy away from committing to numbers. So this year, we’re going to ask Parliament to vote on these plans.

I want our country’s commitment to economic stability entrenched.

Even after we’ve reduced the amount we borrow each year, that still leaves us with a high debt from all the past borrowing.

That debt leaves Britain vulnerable – and I want to make us safe.

So I’m going to ask Parliament to vote too this year on a new charter for budget responsibility that will commit us to reducing those debts.

It means not spending again when borrowing falls, including using surpluses in good years to reduce debt – so in future, we fix the roof when the sun is shining.

These votes will force Parliament to make a choice and confront the truth.

We also need to confront truths about the cost of living.

I know it has been hard for families since the crash.

It is not a case of not understanding these difficulties.

It’s a case of being honest about why things are difficult and what we can actually do to make things better.

The truth is that Britain is poorer because of the great recession that happened, and families feel that.

As the economy recovers, so too will family finances.

People’s earnings are expected to go up.

Inflation has fallen, and that helps.

So too does the government’s action to cut the costs we impose on your family gas and electricity bills.

But there’s no point pretending that there’s some magic wand a Chancellor can wave to make the whole country feel richer than it actually is – or that I can control the global oil price from an office in Whitehall.

It’s simply not being straight with people.

The only way to improve people’s living standards for the long term is for Britain to earn its way in the world and create more, better jobs – just as this company is doing every day.

And if government wants to find a direct way to put money into people’s pockets, you do that by permanently cutting people’s taxes by permanently cutting the spending those taxes pay for.

That’s what the second part of our long term plan is about: cutting income taxes and freezing fuel duty to help hardworking people be more financially secure.

This April, you’ll see what that means in your wage packet.

That’s when we increase the tax-free allowance to £10,000 – and it means in total an extra £60 or so a month for the typical worker.

I’m also freezing fuel duty again this year, so your car will cost £11 less to fill up than it would have done.

And from next year, there will be tax free childcare – to help working families.

Making tax promises like these is meaningless unless you’re prepared to say how you’d pay for them.

We’ve paid for every single pound’s worth of these tax cuts – all £50 billion in total – without a single penny of extra borrowing because we’ve made the savings needed in the cost of government.

It’s all about fairness and whose side you’re on.

And while no sensible Chancellor ever rules out tax changes, our whole economic plan can be delivered by reducing spending further not by increasing taxes.

That’s how you create a country where people who work hard and want to get on are supported.

You all know that there is no better financial security than having a job – and so that’s the third part of our plan: creating more jobs by backing small business and enterprise with better infrastructure and lower jobs taxes.

Thanks to this plan, there are now a record number of people in work in our country.

But as you know here at Sertec, the competition is fierce and the work can go anywhere in the world.

If we are going to go on being a country where companies grow, invest and want to take on new people, then we’ve got to make ourselves the best place in the world to do business.

That’s why I’m cutting business taxes, introducing an employment allowance that will benefit small firms most.

It’s why I’m helping with high street business rates and now I’m abolishing jobs tax altogether for those aged under 21.

These are all steps we’re taking as part of our plan to create more jobs in Britain.

Others say they’d do the opposite.

They say businesses should pay more with a higher corporate tax rate.

I think that would send a disastrous signal to the rest of the world about the direction Britain was heading in.

It would cost jobs and investment.

It would be a massive own-goal for Britain.

It would also be a mistake if we didn’t invest in future infrastructure that our country needs to be prosperous.

Like the new power plants that keep factories like this going, and the roads and railways and broadband that carry our goods and services.

That’s why we’ve made spending on these things the priority when money is tight.

It’s why I say we need more homes, and to support families who dream of owning a home with our Help to Buy.

And it’s why we’re prepared to take controversial decisions on long term things like high speed rail, and the search for cheaper gas in shale.

Because I don’t want to condemn our country to ageing infrastructure and expensive energy when so many others in the world are heading in the direction of the future.

A strong economy and a fair economy go hand in hand.

We have to make sure the recovery supports those who work hard and play by the rules.

That’s why the fourth part of our economic plan is about reducing immigration and capping welfare.

Migration, when it’s controlled, is an important part of a successful economy.

But uncontrolled immigration, of the kind we saw over the last decade, brings pressures on public services and leads to abuse of our welfare system.

That’s why we’ve tightened the rules so people can’t just come to this country to claim benefits – and it’s why for the first time we’ve introduced an immigration cap.

That new fairness applies across our welfare system too.

Britain is a proud country that does, and in my view always should, protect the most vulnerable through our welfare system.

But it should not be a welfare system that offers up benefits as a lifestyle choice.

We need to be fair to those who need our welfare system – and fair to those like you who pay their taxes for that system.

Benefits are now capped, so no family gets more for being out of work than the average family gets from being in work.

And with our new Universal Credit, we’re going to make sure it always pays to work.

In 2014, we’re bringing in more changes.

The long term unemployed are no longer going to get something for nothing.

They’ll have to put back into their community, including compulsory work, with our Help to Work.

And this year, we will for the first time set a cap on the overall welfare budget so it can be properly controlled.

State pensions won’t be included in that cap.

As the Prime Minister said this weekend, we are committed to giving everyone who’s worked hard and saved though their lives the generous state pension they deserve.

And the country can only afford to do so because of the difficult decision we’ve taken on increasing the pension age as the population lives longer.

That saves many billions of pounds for taxpayers; and we need to save billions more from the rest of the welfare budget.

When you think about the competition this factory faces from around the globe, and the kind of world your children are going to grow up in, wouldn’t it make more sense that your government was spending your money on things like schools and science and a better NHS than more welfare?

So here’s another hard truth: welfare cannot be protected from further substantial cuts.

I can tell you today that on the Treasury’s current forecasts, £12 billion of further welfare cuts are needed in the first two years of next Parliament.

That’s how to reduce the deficit without even faster cuts to government departments, or big tax rises on people.

So when you see people on the telly who say that welfare can’t be cut anymore – or, even worse, promising they will reverse the changes we’ve already made and increase housing benefit – ask yourself this:

– what public services would they would cut instead?

– what taxes they would put up in their place?

– or would they borrow and spend more, and risk our country’s economic stability again?

This is what I mean when I say Britain has a choice.

The truth is there are no easy options here, and if we are to fix our country’s problems, and not leave our debts to our children to pay off, then cutting the welfare bill further is the kind of decision we need to make.

The final part of our economic plan is all about delivering the best schools and skills for young people so the next generation can succeed in the global race.

I want the new jobs being advertised right here at this company to go to local kids coming out of the schools and colleges here.

But that’s only going to happen if standards are high enough.

One of the most depressing discoveries of 2013 was that over the last decade Britain’s education fell even further behind other countries in the world.

Reversing that is essential.

That’s why were turning more and more schools into academies, and creating new free schools.

It’s why we insist on exam standards that are more rigorous.

We’re also creating many more apprenticeships, so more young adults get a chance to earn and learn in companies like this.

And this autumn we’ll start lifting the cap we impose on the number of university students.

If Britain is going to compete in the global race to the top, there should be no limits on aspirations – we need all our young people to develop their talents to the maximum.

So that’s our long term economic plan – with 5 key points.

Cutting the deficit.

Reducing taxes for hardworking people.

Creating more jobs by backing business.

Capping immigration and welfare.

Delivering the best schools and skills.

It is a plan that is working.

But growing the economy, helping businesses succeed, reducing the deficit: these are not an end in themselves – they are a means to an end.

So let me set out clearly what that end is, what our long term economic plan is really for – what the motivation behind it is.

Our plan is about more than rescuing our economy from the brink of collapse.

It’s about instilling a new belief in Britain.

So we can all live in a country that is in control of its own destiny in this world.

A country where we can have the peace of mind that comes with knowing you can provide for your family.

A country that offers security and a better life for the next generation.

Peace of mind.

Security.

A better life for our children.

Controlling our own destiny.

Our economic plan is for the long term.

And just as there are no short-cuts to the work you do here, there’s no short-cut to that economic security for Britain.

Thanks to the hard work of the British people, our economy is on the mend – and our country is doing better.

But what was hard won, can be easily lost.

So we have a choice in 2014.

We can give up, go back to square one, risk everything.

Or we can confront the hard truth that more difficult decisions are needed – and work through the plan that is turning Britain around.

I say: let’s finish the job.

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.