I now turn to the forecast for the public finances.

Mr Speaker, because of the economic situation, tax revenues are falling across the world.

As company profits fall, so do the proceeds from corporation tax. Receipts from the financial sector alone are expected to reduce by 35 per cent this year.

Slower growth in wages means less income tax.

Fewer people buying houses and falling prices mean less money from stamp duty, where tax take is down 40 per cent.

Because of the scale of these global problems, it is inevitable that tax revenues will take some years to come back up.

This all means that borrowing will be significantly higher than forecast.

As a result of the combined effect of lower revenues, our commitment to maintain spending and extra support to the economy, borrowing will rise to £78bn this year and £118bn next, or 8.0 per cent of GDP.

But then, from 2010, as I take action to reduce borrowing when the economy begins to recover, borrowing will fall to £105bn, £87bn, £70bn and £54bn.

And by 2015/16, we will again be borrowing only to invest.

This means the projection for the underlying budget deficit, excluding investment, will be 2.8 per cent of GDP this year and 4.4 per cent next year.

But consistent with my commitment to sustainability, as a result of my announcements today, the underlying budget deficit, excluding investment, then improves, as a share of GDP, to 3.4 per cent , 2.3 per cent, 1.6 per cent, 1 per cent and projected to reach balance by 2015/16.

Mr Speaker, the economic crisis and the action by governments across the world, will inevitably mean sharp increases in national debt relative to GDP.

Again the UK will be no exception.

But because we started from a stronger position, our debt will remain below that of most other major countries.

UK net debt, as a share of GDP, will increase from 41 per cent this year, to 48 per cent in 2009/10, 53 per cent in 2010/11, before peaking at 57 per cent in 2013/14.

If we did nothing Mr Speaker, we would have had a deeper and longer recession, which would cost the country more in the long-term.

In these exceptional circumstances, allowing borrowing to rise, is the right choice for the country, as the CBI, the Institute of Directors, Institute for Fiscal Studies, the IMF, and many others, have all said in recent weeks.

Mr Speaker, we will continue to invest in public services – just as we have done over the last ten years.

Investing in school or hospitals, and modernising infrastructure and transport links, is not just an effective way of stimulating the economy, safeguarding jobs and protecting incomes.

It is also vital for the future strength and health of our country.

We have seen in the past the long-term damage that cutting public investment has on the essential fabric of the country and the support people need.

Since 1997, we have doubled the NHS budget, cutting hospital waiting lists.

Spending on education is 60 per cent higher, improving schools and exam results.

Transport spending is up by 70 per cent, with over 130 major road schemes and record numbers travelling by rail.

Total government spending, on much-needed investment and public services, has increased from £322 billion in 1997 to £584 billion last year.

Mr Speaker, through the current spending review, we will continue to support and improve key public services, to meet the ambition of the people of this country.

The challenge is to continue to deliver these improved services while ensuring we continue to get value for money.

Today I can tell the House that, since 2004, the Government has delivered £26.5bn of efficiency savings – exceeding the target set by Sir Peter Gershon by £5bn.

Building on this, at last year’s Comprehensive Spending Review, we committed to improve value for money, targeting a total of £30bn by 2010/11, without putting public services at risk.

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But, as the original Gershon report said, there is a point at which front line public services would be affected – and we will not pass that point.

And having carefully considered the extent and the limits of efficiency savings, today I can announce the Government will now find an additional £5bn of efficiencies in 2010/11 for a total saving of £35bn over three years.

We know extra savings are achievable because independent reviewers have identified new efficiencies across public sector operations.

The efficiencies will come through lowering the cost of back office operations, better procurement, examining property holdings and asset sales.

By continuing to make efficiency savings, we can help fund the action needed to help families and businesses.

But we will also ensure spending continues to rise from £584bn last year to £682bn in 2010/11.

And in the next spending review we will continue to put money into public services and investment, to maintain the gains of the last decade, by increasing current spending by an average 1.2 per cent a year in real terms.

As businesses and families across the country carefully watch what they spend, it is only right that the Government works even harder to make savings.