UK Spending Review: Rebuilding a responsible and healthy economy

By George Osborne, Chancellor of the Exchequer, and William Hague, Foreign Secretary

On Wednesday, 20 October, 2010, Britain’s coalition Government announced its spending plans for the next four years. We are taking urgent steps to reduce the national debt and deal with the fiscal legacy we inherited.

We have shown that we have the resolve and determination to live within our means. And we have set out to reinvigorate Britain’s diplomatic engagement with the world, elevating our links with the fastest growing economies and championing Britain as a home for business and investment. We understand that economic recovery starts at home, but that we have to look beyond our shores for new opportunities and new partners.

The scale of the economic challenge is formidable. We inherited one of the largest Budget deficits in Europe and the G20. But we have a clear vision for the future of our country. We have chosen to spend on the country’s most important priorities – the health care of our people, the education of our young, our nation’s security and the infrastructure that supports our economic growth.

We are building a fairer and more responsible society, with more opportunity for people to lift themselves out of poverty, and with State support focused on those who need it most. We are reforming public services – improving transparency and accountability, giving more power and responsibility to citizens and enabling sustainable long term improvements in services.

The Government by itself cannot create private sector growth, but it can create the conditions that enable UK businesses to be successful – to invest and create jobs and prosperity for the whole country. We have protected as far as possible those areas of public spending which matter for economic growth and pursued reforms to make these more cost-effective.

We know that we cannot have sustainable growth in the economy without healthy public finances. We have created a new independent Office for Budgetary Responsibility, so that the power to determine the growth and fiscal forecasts now resides with an independent body immune to the temptations of the political cycle.

And we have pledged to eliminate the UK’s structural deficit by the end of this Parliament, which has been welcomed by the International Monetary Fund as a necessary path to ensuring fiscal sustainability and a balanced recovery.

Our Spending Review is part of an ambitious plan to create a business environment that is one of the most competitive anywhere in the world. We understand that the British economy of the future must be one that is built on investment, saving and exports, and are determined to use our tough plans for fiscal consolidation as a springboard for growth and recovery through the private sector. From 2011 we will gradually reduce corporation tax to 24 per cent, giving Britain the lowest in the G7 and one of the lowest in the G20. We will reduce the small profits rate of corporation tax to 20 per cent. We will lower capital gains tax for entrepreneurs. And we will cut National Insurance contributions for employers, extend help to small businesses needing to access credit, and make Britain the easiest place in the world to start a business.

But let us not forget that throughout the recession the UK has remained the sixth largest economy in the world. We have one of the most flexible labour markets in Europe and, according to the Organisation for Economic Co-operation and Development, the least number of barriers to entrepreneurship in the world. Our unrivalled financial services industry, our strong skills base, our global outlook and orientation, our creative talents, our world class universities and our central position between Asian and American time zones all demonstrate that we have an open economy and we are open for business.

So we have a strong base on which to build. With that in mind, we want to inject a new commercial focus into our relationship here in Sri Lanka. We are aware our two countries already enjoy a strong history of successful bilateral trade. We want to continue working with you to open up pathways into new markets and unlock barriers to investment. So we are confident that we are taking the right steps at home and abroad to help economic recovery in our own countries, and to contribute to a stable and prosperous global economy.