23 March 2011
2011 Budget statement by the Chancellor of the Exchequer, the Rt Hon George Osborne MP
Check against delivery
"Mr Deputy Speaker,
Last year’s emergency Budget was about rescuing the nation’s finances, and paying for the mistakes of the past.
Today’s Budget is about reforming the nation’s economy, so that we have enduring growth and jobs in the future.
And it’s about doing what we can to help families with the cost of living and the high oil price.
We understand how difficult it is for so many people across our country right now.
That we are able now to set off on the route from rescue to reform, and reform to recovery, is because of difficult decisions we’ve already taken.
Those decisions have brought economic stability.
And without stability there can be no sustainable growth or jobs.
Without stability governments have to keep coming back to their citizens for more – more taxes and more spending cuts.
In Britain, we do not have to do that today.
We inherited a record budget deficit.
But we have set out a credible, comprehensive plan to deal with it.
We have had to undertake difficult measures.
But we have already asked the British people for what is needed, and today we do not need to ask for more.
So this is not a tax-raising Budget.
But nor can we afford a giveaway.
Taken together the measures I will announce today are fiscally neutral across the period.
This is a Budget built on sound money.
A Budget that encourages enterprise.
That supports exports, manufacturing and investment.
That is based on robust independent figures.
A Budget for making things not for making things up.
Britain has a plan.
And we’re sticking to it.
In recent months, many other countries have seen their ratings downgraded and their borrowing costs soar.
Our country’s fiscal plans have been strongly endorsed by the IMF, by the European Commission, by the OECD, and by every reputable business body in Britain.
And for anyone who questions whether this matters in the real world, to real businesses and families, consider this.
Market interest rates in Greece are 12.5%, in Ireland they are close to 10%, in Portugal and Spain they are 7% and 5%.
Today our country’s market interest rates have fallen to 3.6%.
We have a higher deficit than Portugal, Greece and Spain, but we have virtually the same interest rates as Germany.
This is our powerful monetary stimulus to our recovering economy.
Stability. Credibility. Lower interest rates.
This is what we’ve achieved.
But stability is not enough.
So today, in addition to the Red Book, we are publishing the Plan for Growth.
For this Budget confronts the hard truth that has been ignored for too long.
Britain has lost ground in the world’s economy and needs to catch up.
In the last decade, other nations have reduced their business tax rates, removed barriers to enterprise, improved education systems, reformed welfare and increased exports.
Sadly the reverse has happened in Britain.
We gambled on a debt-fuelled model of growth that failed.
With the state now accounting for almost half of all income, we simply cannot to go on like this.
Britain has to earn its way in the modern world.
Mr Deputy Speaker, I turn now to the forecasts.
Last November I told the House that the recovery was going to be more challenging than recoveries from recessions in recent decades.
That is inevitable when we’ve had the sharpest fall in output since the 1930s, the highest budget deficit in peacetime, and the largest banking crisis in our entire history.
But I said that thanks to the course we have set, the independent forecast was for our economy to grow in each of the next five years, for unemployment to peak this year and then fall and for employment to rise through this Parliament.
That remains the case in the independent forecast published today.
Those forecasts have been drawn up by the Office for Budget Responsibility.
This important change has transformed the way Budgets are put together.
So instead of Chancellors fixing the figures to fit the Budget, they now have to fix the Budget to fit the figures.
Yesterday, the legislation to put the Office for Budget Responsibility on a permanent, statutory and independent footing received Royal Assent.
I am sure that the whole House will want to thank Robert Chote, Steve Nickell, Graham Parker, and their whole staff for the very professional job they are doing.
Let me start with their growth forecasts.
It has been known for Chancellors in recent years to rattle these off at great speed in the hope that no one will keep up.
I will not do that.
Although average quarterly growth this year is set to be higher than was previously forecast, the annual forecast for 2011 has been revised to 1.7%.
This the OBR attributes specifically to the weaker than expected final quarter of last year, the rise in world commodity prices and the higher-than-expected inflation in the UK.
However, the OBR point out that the effect, in their words, “creates scope for slightly stronger growth in later years” than previously forecast.
So while they expect real GDP growth of 2.5% next year, they forecast it will then rise:
To 2.9% in 2013;
To 2.9% in 2014;
Followed by 2.8% in 2015.
The European Commission has also this month published its growth forecasts.
These show that the UK is forecast to grow more strongly in the coming year than Spain, Italy, France, the average for the Eurozone and the average for the EU.
All countries have to steer a course between two central risks.
The risk of a European sovereign debt crisis on the one hand and on the other the risk that comes from rising global commodity prices.
Food prices around the world have increased by nearly 50% since the beginning of last year.
Oil has risen 35% rise in just 5 months.
That is why the OBR expect inflation to remain between 4 and 5% for most of this year, before dropping to 2.5% next year and then to 2% in two years time.
I have today written to the Governor of the Bank of England to confirm that the inflation target for the Monetary Policy Committee will remain at 2%, as measured by the Consumer Prices Index.
I can also confirm that the Asset Purchase Facility set up by my predecessor will remain in place.
One cause of current instability is the conflict inside Libya.
The whole House will praise the courage and professionalism of our armed forces, who are trying to bring that conflict to an end and save lives.
And I can confirm that the additional cost of military operations will be met entirely from the Treasury reserve.
The House will also know that last week I authorised for the UK to take part in a co-ordinated G7 currency intervention in support of the Japanese Yen.
Our hearts go out to the Japanese people – and this is one way we can help.
It is still too early to say what lasting impacts the earthquake and tsunami will have on the world economy.
But this is an opportunity for me to report that we had already decided to rebuild the UK’s foreign currency reserves, which are at a historically low level.
We will purchase a range of high-quality assets – though unfortunately, with the price of gold now at record highs, we will not be able to replenish the gold reserves sold at record lows.
I turn now to the fiscal forecasts for our debt and deficit.
Borrowing to fund the deficit this year is now set to come in at £146 billion, below target.
Then fall to £122 billion next year.
Then £101 billion the year after.
Then £70 billion in 2013-14.
Then £46 billion.
And £29 billion by 2015-16.
Inflation has had its impact but crucially the OBR assess that next year’s structural deficit remains the same as forecast last November.
In other words, the size of the task of repairing Britain’s finances is unchanged.
Our national debt, as a share of our national income, is forecast to be 60% this year, before peaking at 71%, and then starting to fall – reaching 69% by the end of the period..."
Source: Download a .mp3 recording of the Chancellor's Budget statement (51MB)