on an economy that the International Monetary Fund predicts will be the fastest-growing

major advanced economy in the world this year. It is an economy with employment at a record

high and unemployment at an 11-year low; and an economy that, through the hard work of

the British people, has bounced back from the depths of Labour’s recession. It is

an economy that has confounded commentators at home and abroad with its strength and resilience

since the British people decided, exactly five months ago today, to leave the European

Union and chart a new future for our country.

That decision will change the course of Britain’s history. It has thrown into sharp relief the

fundamental strengths of the British economy that will ensure our future success: the global

reach of our services industries; the strength of our science and high-tech manufacturing

base; and the cutting-edge British businesses that are leading the world in disruptive technologies.

But it is a decision that also makes more urgent than ever the need to tackle our economy’s

long-term weaknesses such as the productivity gap, the housing challenge, and the damaging

imbalance in economic growth and prosperity across our country. We resolve today to confront

those challenges head on, to prepare our country to seize the opportunities ahead, and, in

doing so, to build an economy that works for everyone—an economy where every corner of

this United Kingdom is part of our national success.

I want to pay tribute to my predecessor, my right hon. Friend the Member for Tatton (Mr

Osborne). My style will, of course, be different from his. I suspect that I will prove no more

adept at pulling rabbits from hats than my successor as Foreign Secretary has been at

retrieving balls from the back of scrums, but my focus on building Britain’s long-term

future will be the same. My right hon. Friend the Member for Tatton took over an economy

on the brink of collapse, with the highest budget deficit in our post-war history, and

brought that down by two thirds. That is a record of which he can be proud.

But times have moved on, and our task now is to prepare our economy to be resilient

as we exit the EU and to be match-fit for the transition that will follow. So we will

maintain our commitment to fiscal discipline while recognising the need for investment

to drive productivity, and for fiscal headroom to support the economy through the transition.

Let me turn now to the forecasts. Since 2010, the Office for Budget Responsibility has provided

an independent economic and fiscal forecast to which the Government must respond—gone

are the days when the Chancellor could mark his own homework—and I thank Robert Chote

and his team for their hard work. Today’s OBR forecast is for growth to be 2.1% in 2016—higher

than forecast in March. In 2017, the OBR forecasts growth to slow to 1.4%, which it attributes

to lower investment and weaker consumer demand driven, respectively, by greater uncertainty

and by higher inflation resulting from sterling depreciation. That is slower, of course, than

we would wish, but still equivalent to the IMF’s forecast for Germany, and higher than

the forecast for growth in many of our European neighbours, including France and Italy. That

fact will, no doubt, be a source of very considerable irritation to some.

As the effects of uncertainty diminish, the OBR forecasts growth recovering to 1.7% in

2018, 2.1% in 2019 and 2020, and 2% in 2021. While the OBR is clear that it cannot predict

the deal the UK will strike with the EU, its current view is that the referendum decision

means that potential growth over the forecast period is likely to be 2.4 percentage points

lower than would otherwise have been the case. The OBR acknowledges that there is a higher

degree of uncertainty around these figures than usual.

Despite slower growth, the UK labour market is forecast to remain robust. We have delivered

over 2.7 million new jobs since 2010, and this forecast shows that number growing in

every year—another 500,000 jobs created over the OBR forecast, providing security

for working people across the length and breadth of Britain.

For those who claim that the recovery is just a south-east phenomenon, I have some news:

over the past year employment grew fastest in the north-east, the claimant count fell

fastest in Northern Ireland, pay grew most strongly in the west midlands, and every UK

nation and region saw a record number of people in work. That is a labour market recovery

that is working for everyone.

Monetary policy has played an important role in supporting growth since the referendum

decision, but a credible fiscal policy remains essential for maintaining market confidence

and restoring the economy to long-term health. In view of the uncertainty facing the economy,

and in the face of slower growth forecasts, we no longer seek to deliver a surplus in

2019-20, but the Prime Minister and I remain firmly committed to seeing the public finances

return to balance as soon as practicable, while leaving

enough flexibility to support the economy in the near term.

Today I am publishing a new draft charter for budget responsibility with three fiscal

rules: first, that the public finances should be returned to balance as early as possible

in the next Parliament and, in the interim, cyclically adjusted borrowing should be below

2% by the end of this Parliament; secondly, that public sector net debt as a share of

GDP must be falling by the end of this Parliament; and, thirdly, that welfare spending must be

within a cap set by the Government and monitored by the OBR. In the absence of an effective

framework, the welfare bill in our country spiralled out of control, with spending on

working-age benefits trebling in real terms between 1980 and 2010. As a result of the

action that we have taken since 2010, that spending has now stabilised. The cap I am

announcing today takes into account the policy changes made since the last Budget, setting

a realistic baseline reflecting all announced welfare policies. I confirm again today that

the Government have no plans to introduce further welfare savings measures in this Parliament

beyond those already announced.

I now turn to the OBR’s fiscal forecasts, but first I will set out the key drivers of

changes since the Budget: the post-Budget changes that were made to welfare and housing

policies cost the Exchequer £8.6 billion over the forecast period; expected Office

for National Statistics classification changes have added £12 billion since the Budget;

and tax receipts have been lower than expected this year, causing the OBR to revise down

projected revenues in the future. Added to this is a structural effect of rapidly rising

incorporation and self-employment, which further erodes revenues.

Combining those pressures with the impact of forecast weaker growth, and taking account

of the measures I shall announce today, the OBR now forecasts that, in cash terms, borrowing

is set to be £68.2 billion this year, falling to £59 billion next year and £46.5 billion

in 2018-19, and then £21.9 billion, £20.7 billion, and finally £17.2 billion in 2021-22.

Overall, public sector net borrowing as a percentage of GDP will fall from 4% last year

to 3.5% this year, and it will continue to fall over the Parliament, reaching 0.7% in

2021-22. This will be the lowest deficit as a share of GDP in two decades. The OBR expects

cyclically adjusted public sector net borrowing to be 0.8% of GDP in 2020-21, comfortably

meeting our target to reduce it to less than 2% and, importantly, leaving significant flexibility

to respond to any headwinds that the economy may encounter.

The OBR’s forecast of higher borrowing and slower asset sales, together with the temporary

effect of the Bank of England’s action to stimulate growth, translates into an increased

forecast for debt in the near term. The OBR forecasts that debt will rise from 84.2% of

GDP last year to 87.3% this year, peaking at 90.2% in 2017-18 as the Bank of England’s

monetary policy interventions approach their full effect. In 2018-19, debt is projected

to fall to 89.7% of national income—the first fall in the national debt as a share

of GDP since 2001-02—and it is forecast to continue falling thereafter. Members might

be interested to know that after stripping out the effects of the Bank of England interventions,

underlying debt peaks this year at 82.4% of GDP and falls thereafter to 77.7% by 2021-22.

It is customary in the run-up to the autumn statement to hear representations from the

shadow Chancellor of the day, usually for untenable levels of spending and borrowing.

Conservative Members used to think that Ed Balls’ demands were an extreme example,

but I have to say that the current shadow Chancellor has outperformed him in the fiscal

incontinence sweepstake. What we do not know, of course, is whether the shadow Chancellor

can also dance—[Interruption.] He can. Good; a second career awaits him.

I have received some more measured representations from a range of external bodies. Some have

called for fiscal expansion, while others have suggested that there is no need at all

to respond to a changed economic outlook. That reflects, to be fair, the challenge that

we face of resolving how best to protect the recovery and build on the economy’s manifest

strengths, yet at the same time respond appropriately to the warnings of a more difficult period

ahead.

But with our debt forecast to peak at over 90% next year, and a deficit this year of

3.5%, I have reached my own judgment. It is a judgment based on a sober analysis of our

fiscal position, and also on a realistic appraisal of the weakness of UK productivity and the

urgent need to address our fiscal challenge from both ends—continuing to control public

expenditure, but also growing the potential of the economy and protecting the tax base.

So we choose in this autumn statement to prioritise additional high-value investment, specifically

in infrastructure and innovation, that will directly contribute to raising Britain’s

productivity. The key judgment we make today is that our hard-won credibility on public

spending means that we can fund this commitment in the short term from additional borrowing,

while funding all other new policies announced in this autumn statement through additional

tax and spending measures. That is the responsible way to secure our economy for the long term.

The productivity gap is well known to hon. and right hon. Members, but shocking none

the less—it bears repeating. We lag the US and Germany by some 30 percentage points

in productivity, but we also lag France by over 20 points and Italy by 8 points, which

means, in the real world, that it takes a German worker four days to produce what we

make in five. That means, in turn, that too many British workers work longer hours for

lower pay than their counterparts, and that has to change if we are to build an economy

that works for everyone. Raising productivity is essential for the high-wage, high-skill

economy that will deliver higher living standards for working people across this country.

As a result of decisions taken by my predecessor, public investment is higher over this decade

than it was over the whole of the period of the last Labour Government, but today I can

go further. I can announce that we are forming a new national productivity investment fund

of £23 billion to be spent on innovation and infrastructure over the next five years—investing

today for the economy of the future.

Let me set out for the House how this money will be used. We do not invest enough in research,

development and innovation. As the pace of technology advances and competition from the

rest of the world increases, we must build on our strengths in science and tech innovation

to ensure that the next generation of discoveries is not only made here, but developed and produced

in Britain. So today I can confirm the additional investment in R and D, rising to an extra

£2 billion per year by 2020-21, that was announced by my right hon. Friend the Prime

Minister on Monday.

Economically productive infrastructure directly benefits businesses, but families, too, rely

on roads, rail, telecoms and, especially, housing. We have made good progress, with

the number of new homes being built last year hitting an eight-year high, but for too many,

the goal of home ownership remains out of reach. In October, my right hon. Friend the

Communities and Local Government Secretary launched the £3 billion home building fund

to unlock over 200,000 homes and up to £2 billion to accelerate construction on public

sector land, but we must go further still. The challenge of delivering the housing we

so desperately need in the places where it is currently least affordable is not, of course,

a new one, but the effect of unaffordable housing on our nation’s productivity makes

it an urgent one. My right hon. Friend will bring forward a housing White Paper in due

course to address these long-term challenges but, in the meantime, we can take further