Chancellor's statement in full

The long term funding we announce today for Britain's public services is possible because the bills of economic failure in unemployment and debt have been radically reduced; the state of our public finances is strong; and, despite uncertainties in the global economy, inflation is under control, interest rates have been low and stable, and employment and growth continue to rise.

The long term funding we announce today for Britain's public services is possible because the bills of economic failure in unemployment and debt have been radically reduced; the state of our public finances is strong; and, despite uncertainties in the global economy, inflation is under control, interest rates have been low and stable, and employment and growth continue to rise.

In this period in global financial markets of greater instability, our task and our determination – as always – is to remain vigilant, committed to sustaining monetary and fiscal stability, with the strength to take the right long term decisions.

And I can tell the House that over the economic cycle we will not only meet all our fiscal disciplines and rules but we are on track to meet our fiscal disciplines and rules with a margin for prudence even on the most cautious case, even on the most cautious assumptions.

Indeed, it is so that we can continue to steer a course of stability across the economic cycle that we have reduced net debt from 44 per cent of British national income in 1997 to 30.4 per cent last year – in contrast to 41 per cent in the US, 53 per cent in the euro area as a whole and 59 per cent in Japan.

So, as we set out in the Budget, Britain's debt has been reduced to the lowest level of national income in the G7 and the lowest of all our major European competitors.

And having last year paid off more debt in one year than all previous governments in the last fifty years, I can report that this year debt interest payments will be lower as a share of national income than they have been at any time in nearly a century.

Twenty years ago, debt interest payments consumed 4 per cent of national income. Debt interest is now half that, just 2 per cent – a saving worth 20 billion a year – extra resources which have made it possible to recruit more nurses, more doctors, more teachers and more police than at any time in the last two decades.

Twenty years ago, indeed ten years ago also, 1.6 per cent of national income was spent on the costs of unemployment. I can report today that this year we will spend just 0.4 per cent – savings worth a further 10 billion a year.

And it is through maintaining a steady hand on the public finances at all times that we are able to both meet our fiscal rules and match our reforms with new resources so that efficient, strong public services play their part in delivering a modern Britain of greater opportunity and security not just for some but for all.

I can report to the House that, holding strictly to the total spending envelope I set out in the Budget, we are raising departmental spending from 240 billion this year to 263 billion next year, to 280 billion in 2004–05, and 301 billion in 2005–06 – in total, by 2006, 61 billion a year more for improved public services.

And while ten years ago only 50p of every pound of additional expenditures went to the public services, the rest having to be spent on debt and social security, in this Review almost 80p in every additional pound is going direct to improving public services – and of the remaining 20p most is being spent not on debt interest or unemployment but on improved pensioner and children's benefits.

And in each area of service delivery from housing to education, from policing to defence, we are tying new resources to new reform and results, developing a modern way for running efficient public services:

– Setting demanding national targets;

– Performance monitored by independent and open audit and inspection;

– Front line staff given the power and flexibility to deliver;

– Extending choice; and

– Rewarding success and turning round failing services.

And I can also tell the House that, as we reverse the backlog in investment, over the next three years, our projections, other than the commitments to health paid for by National Insurance, from 2006 are based on real terms increases in spending on public services at 2.5 per cent a year.

Mr Speaker, with this Review's decisions we not only will continue to address past decades of chronic under–investment in education, health, transport and housing but we will rise to new challenges in a changed global environment – challenges internationally including the essential duty of fighting terrorism, and challenges here at home as global economic competition brings vastly increased opportunities but also increased insecurities: the role for government – by expanding educational, employment and economic opportunity and by encouraging stronger communities – to enable and empower people to make globalisation work for their families and their future.

First, to respond to global insecurities and the new fight against terrorism, the Secretary of State for Defence is announcing that the Budget for our armed forces who have served our country overseas with courage and distinction not only in Afghanistan but recently in Kosovo, Macedonia and Sierra Leone will rise from 29.3 billion this year to 32.8 billion by 2005–06 – 3.5 billion a year higher – the largest sustained real terms increase in defence spending in twenty years.

Since the tragic events of September 11th, international co–operation – and, led by the Prime Minister, Britain's international engagement – has assumed a new importance. So the Foreign Secretary's budget will rise from 1.3 billion this year to 1.5 billion by 2005–06. Within this we will strengthen the work of the British Council whose budget will rise from 157 million a year to 185 million – and for the budget for the BBC World Service, whose 160 million a week audience is now its largest ever, will be 38 million a year higher by 2005–06.

In meeting the urgent moral challenge of combating international poverty, the question is how a strengthened commitment by our country can inspire a step change in aid from all the richest countries in order to fulfil the Millennium Development Goals – to halve poverty, cut child mortality by two thirds and to deliver primary education for all.

So the Secretary of State for International Development is announcing a rise in UK aid from the 2 billion it was in 1997, and the 3.3 billion last year, to 4.9 billion by 2006 – the biggest ever rise. A 35 per cent real terms increase since 2001, a 93 per cent real terms increase since 1997. From the 0.26 per cent of national income we inherited and 0.32 today to 0.4 per cent by 2006 – and by untying aid and targeting aid on the poorest countries, ensuring more money goes to tackle poverty than at any time in the history of British aid.

And starting with our dialogue with churches and non–governmental organisations next week, onwards to September's Johannesburg summit and IMF and World Bank meetings, we want this new finance from our country to be an encouragement and a signal for a new 50 billion international financing facility involving all rich countries: a new alliance against poverty which recognises that, by meeting our moral obligations to the poorest of the world, we advance opportunity and security for all of the world.

Mr Speaker, at the heart of our spending decisions this year is a set of major economic reforms to expand our national wealth so that Britain can be more productive and prosperous and make the most of new opportunities in the global economy.

Invention and innovation are the key to long term national competitiveness, so in partnership with the Wellcome Trust we will create and fund a new National Centre for Excellence in Science Teaching and, after rigorous selection of priorities within the industry budget away from the old loss–making subsidies of the past, I can announce a 10 per cent real terms annual rise in the science budget, and, by 2005–06, 1.25 billion extra a year for science.

Britain must not make the mistakes in science education in the next generation that we made in the last and so, to fund a new generation of young British scientists, we will implement the Roberts Report – on average a 4,000 rise in science post–doctoral research council pay, with the average stipend for research council PhD students rising to over 13,000 by 2005–06 – even after inflation, twice what it was in 1997.

And we will encourage a third role for universities beyond teaching and research – the commercialisation of new discoveries – with the Higher Education Innovation Fund rising to 90 million a year by 2005–06 to ensure that more British inventions become British manufactured products creating British jobs.

To remove barriers to productivity growth in the north and in the south of our country, the Deputy Prime Minister will this week announce reforms to our planning system, including Business Planning Zones to speed up development and create jobs in high unemployment areas. And he will also announce new funds and plans for meeting housing needs south and north – throughout the country – ensuring we make good use of the space in our existing towns and cities, while protecting valuable countryside around them.

Because a successful rural economy is vital to both rural areas and our entire economy, the Secretary of State for Environment, Food and Rural Affairs is announcing today she will implement the core recommendations of the Curry Report to promote sustainable farming. And to make this possible, and to improve Britain's flood defences, her budget will rise from 2.5 billion this year to 2.9 billion in 2005–06 – an annual average rise of 2.7 per cent a year after inflation.

To secure balanced economic development in every region – tackling regional weaknesses, building on regional manufacturing and industrial strengths – we must decentralise decision–making out of Whitehall and I can announce that our nine Regional Development Agencies will now have a strengthened local role in transport, tourism and housing. And to pilot further devolution from Whitehall for services to small businesses and adult skills, and to reverse decades of indifference and neglect of our regions, budgets for RDAs will rise from 1.6 billion this year to – by 2005–06 – 2 billion a year, as local people make more of the decisions about meeting local needs.

Addressing the long–term under–investment and neglect of transport is vital to both economic prosperity and our quality of life.

And to deliver the Ten Year Plan, the transport budget will rise from 7.7 billion this year to 11.6 billion in 2005–06 – in total, over the next three years, a 12 per cent a year real terms increase. The Secretary of State for Transport will also consult on the long–term need to increase airport capacity.

To secure a more competitive environment and to root out anti– competitive practises the budget of the Office of Fair Trading will increase from 34 million this year to 55 million by 2005–06. We are determined that everything is done to ensure the highest corporate standards and next week in the light of Enron the Secretary of State for Trade and Industry will put before the House the interim report on accounting and audit reform.

There are now 1.5 million more men and women in work than five years ago and unemployment in Britain is now lower than in Japan, lower than in America, lower than every other major European country. For the first time for fifty years Britain has the lowest unemployment of any major industrialised nation.

But because we will never be complacent as long as people who can work are out of work, we need further reforms matching rights and responsibilities to help people acquire more flexible skills and new jobs so they can succeed in the changed global economy.

Having in the last five years ensured that 1,750,000 men and women have benefited from the New Deal, the Secretary of State for Work and Pensions will roll out nationwide by 2006 the successful ``Jobcentre Plus'' one–stop service helping young and adult unemployed, lone parents and the disabled seeking work.

Having already raised further education student numbers to four million and raised Modern Apprenticeships from 75,000 in 1997 to 220,000 today, the Secretary of State for Education and Skills will announce new money and tough targets to reform Further Education, improve workplace skills and expand Modern Apprenticeships to over 300,000 in 2004.

And to ensure British business has the skills it urgently needs today the Home Secretary will expand the work permit system for key workers from 50,000 in 1997 to an expected 175,000 next year.

While, overall, there are 60,000 more small businesses than there were in 1997, even more British people should have the opportunity to become self–employed or start their own firm. So the Corporate Tax cuts in the Budget and the Stamp Duty exemptions for high unemployment areas are matched in this Review with new help for start ups by raising the Small Business Service budget and by extending and increasing the Phoenix Fund from 100 million to 150 million.

To meet our long term aim that in every area of the country every pupil is introduced not just to the world of work but to the world of business, we will fund an expansion of enterprise education from less than 1,000 schools today to all our 3,500 secondary schools.

One of the greatest challenges to our future is to protect and safeguard our environment through sustainable development and to advance towards our 2010 targets – 20 per cent less carbon dioxide emissions, 10 per cent of electricity from renewable sources – the Spending Review will, in addition to financing the 100 million fund for the development of renewable technologies, provide in 2005–06 an additional 38 million for sustainable energy initiatives.

Mr Speaker, let me now turn to the public service investments this Spending Review makes to help those who contribute through public service to build stronger, more secure communities.

We know that an enterprising economy with opportunity for all requires a fair society where there is security for all.

But we also know, those of us who believe in the importance of public services, that we have a special duty to make sure public money is spent efficiently and we are as determined to secure value for money as we are to secure money for services.

So first, the Government is today publishing new Public Service Agreements setting out agreed outcome targets and reforms for each department.

Second, with independent audit and statutory inspection, departments and agencies will be fully accountable for performance against targets: so in addition to the new Police Standards Unit, we are creating the new Health and Social Care Inspectorates and a reformed Criminal Justice System inspection regime and a single housing inspectorate.

Third, in each service area the Review's decisions promote choice and devolve responsibility, authority and flexibility from the centre out to local and regional decision–making – to Primary Care Trusts, headteachers and governors in schools, police commanders, and local service providers.

One essential feature of this year's spending decisions is that voluntary, charitable and community organisations will also receive significantly increased funding to support their chosen role in delivering local services.

Just as sustained economic growth demands responsibility in setting private sector pay so too a sustained commitment to better public services demands responsibility in setting public sector pay.

Mr Speaker, when a service is under–funded, or when it is under– performing, people are let down. So while public service providers who perform well will be given more resources and more authority to innovate, in this Review departments have set as a condition for more resources that failing institutions will be dealt with early and decisively:

– Poor performing schools subject to take over by new leadership or by a neighbouring school, or closed and reopened as a new school.

– Failing local education authorities subject to take over by high performing authorities.

– Poorly performing colleges subject to loss of funding from Learning and Skills Councils with provisions for necessary college mergers.

– Poor performing social services and housing departments to have new directors and senior managers.

– Poor performing local authorities will first be subject to a recovery plan to tackle bad performance and, if this is insufficient, subject to new managers or takeover of functions.

– And just as the Home Secretary is taking power for police reform, prisons that under–perform will need to improve or face new management drafted in.

But in every case at the same time we will also incentivise and reward success with high performing institutions receiving new resources and greater autonomy – new freedoms and more flexibility.

So just as in the Budget resources for health were matched by reforms in health, so too behind each decision we are making today – from housing to crime, from urban renewal to education – the Government's standard is clear: for more given in resources more is required in results. This is our modern vision for public services, and I can now announce new investments that will improve our services and strengthen our communities.

Mr Speaker, after long decades of persistent neglect that left Britain's housing stock inadequate and substandard, since 1997 we have increased our investment in housing from 2.3 billion to 4.8 billion this year. And now as the demand for new and better housing grows in a growing economy, it is time for a further step change with the most sustained rise in housing investment for 25 years.

On Thursday the Deputy Prime Minister will make a statement to the House on his reforms: new homes for social tenants and key workers – including low cost home ownership in London and the south east – and plans to tackle homelessness and upgrade old properties in all regions where housing need exists. And to pay for this we will, by 2005–06, invest 5.9 billion a year – since 1997, a 105 per cent real terms rise in housing budgets.

Neighbourhood Renewal is not just about bricks and mortar. It is about renewing community life. And this depends upon more economic activity, more businesses and more jobs, and having raised investment in social and economic regeneration in 88 hard pressed neighbourhoods to 300 million this year we will increase the Neighbourhood Renewal Fund again to 525 million a year by 2005–06.

As we sign Public Service Agreements with our local authorities to match resources to reform, the Deputy Prime Minister will set out details on Thursday of an annual real terms rise for local government of 4.2 per cent a year over and above inflation – well above the average settlements until 1997.

The mark of a decent society is the dignity it accords to its elderly, so the Secretary of State for Work and Pensions is announcing the extra resources necessary to deliver, from October next year, the Pension Credit to nearly half all pensioner households – worth up to 14 extra per week for single pensioners – a measure for which I hope there will soon be all party support. Following the Pickering and Sandler Reports, a consultative Green Paper will be published in the autumn, while the Secretary of State for Health will announce how the extra annual average 6 per cent real terms growth in social services budgets will improve community care for the elderly.

Britain's disabled need and deserve a better deal so I can also announce that, having created the Disability Rights Commission to oversee and enforce the rights of disabled people, we will raise its budget to 2006 by 14 per cent in real terms.

Mr Speaker, I have said to this House that our children are 20 per cent of our population but 100 per cent of our future.

So, to realise our goals of nursery education, better child care and a sure start for the very young, I am announcing – after a major interdepartmental review – details of a new integrated budget for children, for child care and early years learning – worth, by 2005–06, a total of 1.5 billion a year. And, following the review, there will be new ministerial arrangements for childcare policy.

By October 2004 every three and four year old who needs it will have a nursery school place. We are also expanding Sure Start to meet the needs of up to 400,000 children. And we will now increase investment in child care with funding for an additional 250,000 childcare places.

Parents have said to us that communities are far stronger and children far more secure where there is a focal point for a wide range of children's services, so I can announce we will fund the creation of Children's Centres across the country – providing services for an additional 300,000 children by 2005–06.

And at the heart of the next stage of children's services are voluntary and community partnerships that are increasingly a vital link between the needs children have and the help they receive.

Mr Speaker, in each of our constituencies there are hundreds of voluntary and community organisations, throughout the country hundreds of thousands of volunteers helping millions of people – giving everyone in Britain, at different times in our lives, the chance to serve, to get the balance right between what we do for our country and what our country does for us.

So that the vitality and independence of the charity, community and voluntary sector can grow and flourish the Chief Secretary to the Treasury is today announcing details of a new three year fund of 125 million that voluntary organisations can draw upon for their public service work.

And I can also confirm that the budget for the Children's Fund – helping volunteers and charities assist vulnerable children – will be 200 million a year to 2006. There will be an additional 25 million over three years to support the growth of local parental support and we are also extending the 20 million support to community amateur sports clubs not just for one year but for each year to 2006.

Mr Speaker, since museums were opened free to the public, there has been a 75 per cent rise in attendances. The Secretary of State is announcing a budget increase for culture, media and sport – including additional funds for tourism – from 1.3 billion this year to 1.6 billion by 2005–06.

With this increase Britain will maintain free access to national museums, invest in regional museums, expand local Creative Arts Partnerships and, to open up sport to all, there will not only be additional support for sports clubs but new finance for extra sports coaches and funds for much needed investment in school sports facilities.

Mr Speaker, stronger communities must be safer communities where rights are matched by responsibilities. So we are committed to getting more police out onto the streets and to making crime fighting more effective.

With his new reforms in place, the Home Secretary will announce the details of the rise in the Home Office budget from 10.7 billion this year to 13.5 billion by 2005–06 – an increase of nearly 2.9 billion a year by 2005–06 to ensure that, in addition to police numbers rising next year to 130,000, reforms to speed up the asylum system can be made, internal security will be strengthened, and the Criminal Justice System can tackle both crime and the causes of crime.

Details of the police and prison budgets – and how we match policies for opportunity for all with policies for security for all – will be provided by the Home Secretary when he publishes the Criminal Justice White Paper.

Ministers in the devolved administrations will make separate announcements outlining their plans to allocate the additional 4.1 billion a year set aside by 2005–06 for all devolved functions in Scotland, 2.3 billion a year more by 2005–06 for Wales including continued funding of Objective One to 2006, and 1.2 billion a year more by 2005– 06 for Northern Ireland including funding of the European Peace Initiative.

Mr Speaker, I turn to education.

What happens in our schools in this decade will shape our society and our economy for much of this century.

And we cannot equip children for the twenty first century in classrooms built in the nineteenth.

So capital investment to modernise our schools which was raised from 680 million in 1997 to 2.25 billion last year will be raised again – to 4.5 billion a year by 2005–06 – a more than 400 per cent real terms increase since 1997 in capital investment, backing up 20,000 additional teachers.

The increased funds for investment, improved access and excellence in further and higher education – including our universities, building on the 100,000 additional students since 1997 – and the reforms essential to meet our targets will be announced by the Secretary of State for Education and Skills

But we will only achieve our goals for further and higher education if we persuade more young people to stay on at school.

Thirty years ago the school leaving age was raised to 16. But Britain cannot reach its full potential as long as nearly a quarter of 16 to 18 year olds are not in education or training and Britain for decades has suffered the worst drop out rate from school of any industrialised country.

The Secretary of State for Education and Skills has set out reforms to the curriculum for 14 to 19 year olds. We must now ensure no–one is prevented from staying on for the qualifications they need through lack of income.

Already in one third of England income–related Education Maintenance Allowances have substantially raised staying on rates. So I can announce today that, from September 2004, we will extend this successful experiment to all of the country with, for those who stay on and study, Education Maintenance Allowances worth up to 1,500 a year. And we will fund this major advance in educational opportunity from savings we have made from our success in reducing unemployment and debt.

Mr Speaker, demanding the highest standards for all is the modern route to realising opportunity for all.

And those of us seeking improvements in education are determined that the numbers in the education budget be matched by reform to secure better results for pupils in schools all across the country. As we said in detail in our 1997 manifesto, resources and reform are equally important – one cannot be achieved without the other.

Having helped teachers and children achieve a step change in standards in primary schools – today we have 75 per cent achieving the expected literacy standards at the age of 11 compared with just 57 per cent five years before – the Secretary of State for Education and Skills will tomorrow announce her reforms to raise standards, enhance choice and diversity, and tackle poor pupil behaviour in our secondary schools so that schools can develop the talents of all. And we will back these reforms with resources.

In the 2000 Budget the Government introduced a single payment direct to schools starting at 15,000 for primary schools.

I can announce that to help deliver schools reforms – the details of which will be set out by the Secretary of State for Education and Skills – the typical primary school will receive 50,000 next April – 10,000 higher than this year – and will receive 50,000 each April for each of the next two years to 2005–06.

And headteachers of the typical secondary school who this April received a payment of 115,000 will receive next April a payment of 165,000 – 50,000 more – rising to 180,000 each April for each of the following two years.

Over three years, for the typical secondary school a total of half a million pounds in direct payments paid to every headteacher, to be used for each school's priorities.

Mr Speaker, we must also back good leadership that is raising achievement levels in the most challenging areas and help schools that are behind to catch up, as we set minimum targets for improved standards at 14 and 16.

So, for 1,400 secondary schools we will match demanding new performance targets with an extra annual payment of an additional 125,000 direct to each school, direct to each headteacher.

For these 1,400 schools, combining this Leadership Incentive Grant and the direct payments I have already announced, the budget for headteachers will rise to 300,000 a year: over three years almost 1 million to allow our schools to replace weak leadership, to attract the best teachers, to improve their facilities.

For this Government, reform and resources go together.

So I can now announce the total new resources for education.

Compared to growth of lower than 2 per cent a year in the 18 years to 1997, there will be a real terms rise for education in England, even after inflation, of 6 per cent a year for each of the next three years – the biggest sustained rise in a generation.

The education budget for England which was 29 billion in 1997 and 45 billion this year will rise year on year over the next three years to 49 billion, 53 billion and then 58 billion.

This is what we mean by education, education, education.

By 2005–06, 15 billion more a year for UK education.

13 billion more in England. And spending per pupil which was just 2,700 a year in 1997 and last year was 3,500 will rise to 4,900 per pupil by 2005–06: after inflation, 50 per cent more per pupil than in 1997.

A Budget for the health service. A Spending Review for education. As we promised, schools and hospitals first.

And I commend this statement to the House.