Company taxation
In 1997 I cut corporation tax - from 33p to 31p and then 30p. I propose changes that reflect the increasing importance of R&D, skills, intellectual property and environmental innovations.

I propose to modernise the system of capital allowances by simplifying them to just two categories based on how long an asset will actually last.

I will provide more generous annual relief for long-life assets, raising the relief from 6% to 10%, at a cost to the Treasury of £380m in 2009-10; while phasing out the relief worth £230m originally for industrial buildings but now poorly targeted; and I will align allowances for plant and machinery with the economic rate of depreciation at 20%.

I will increase the value of the main R&D credit by an extra £100m; and expand the scope of environmental capital allowances by an extra £40m; while leaving the overall tax rate for North Sea companies unchanged. From April 2008 for all businesses I will put in place a new annual 100% investment allowance of £50,000.

I have decided to cut corporation tax from April 2008 from 30p to 28p - lower than all our major competitors.

To deal with individuals artificially incorporating as small companies to avoid paying tax, I will take action in a way that will not raise the tax burden on the self-employed and small businesses overall.

To reduce the tax difference between self-employment and small company incorporation, I will raise the small companies' rate in three stages from 20p this year to 22p in 2009.

Small firms will be able to claim the new 100% relief for new capital investment up to £50,000, claim a 175% tax credit for R&D, and claim the new tax credit for environmental investment. A small company with profits of £150,000 and investing £50,000 of this will effectively pay tax of just 15%, and a firm investing the same from profits of £100,000, tax of 11% - lower than today.

When the Northern Ireland Secretary and I meet all the Northern Ireland parties tomorrow, we will announce new Northern Ireland innovation fund for industry and jobs for a restored executive.

Environment
Six months ago when we published the Stern report on climate change, we set a framework for environmental action combining a call to personal and social responsibility, with European and international co-operation.

Homes account for one quarter of carbon emissions. I have been consulting with the major banks and building societies and encouraging them to create - mortgages for immediate capital investment in energy efficiency that cuts consumption and cuts bills.

I am offering grants up to £4,000 for pensioners installing insulation and central heating in their homes; I will have, from next month increased by 50% to £18m microgeneration grants for homes; and until 2012 all new zero carbon homes up to £500,000 will be exempt from stamp duty.

Business accounts for 40% of emissions. To complement our new environmental tax credit worth £40m a year to business, the advice support and incentives available to small businesses for environmental improvement, innovation and energy audits will rise from this year's £140m to, in the coming year, £240m.

The landfill tax will, from April next year to 2011; rise by £8 each year, and to reduce the environmental impact of quarrying, the aggregates levy will rise in April 2008 from £1.60 to £1.95 per tonne.

I will restrict the relief available for empty industrial properties to six months, and for empty offices and retail to three months. There will be exemptions for charities.

Transport accounts for a quarter of emissions. The transport secretary and I have invited Sir Nicholas Stern and the vice-chancellor of Aston University, Professor Julia King, to report to us on the energy saving potential of innovation in this area.

Biofuels will, by 2010, account for 5% of fuel in road vehicles and by 2020 potentially 10%. I am extending to 2010 the biofuels duty differential worth 20p per litre, a fuel duty discount of 40%; and I am also extending to 2012 the biogas incentive worth 40p per litre, a discount on fuel duty of over 80%.

Transport
Britain has environmentally graduated bands for vehicle excise duty. There are potential gains from enhancing this incentive. In addition to maintaining a zero rate for the lowest band, and raising the rates by £5 each year for the next three years, and for band F by £10 this year, I propose an immediate 30% cut in band B from a top rate of £50 down to £35, to be matched by moving the top band 30% higher to £300 and then again to £400 next year - measures that will cut vehicle emissions since 1997 by 2m tonnes.

For the coming year I will set fuel duty rises at 2p a litre, for 2008 at 2p, and for 2009 1.8p. But I will defer this year's increase to October.

I have had representations to put VAT on airline tickets. This has not been properly thought through. It would apply only to domestic flights, business would be able to claim back VAT, and even by 2020 it would save less in one year than achieved by the climate change levy in one week. I have rejected this proposal.

Drink, tobacco, gaming
I propose only the normal indexation of alcohol duties. From midnight on Sunday, beer will rise by 1p a pint, cider by 1p a litre, wine by 5p a bottle and sparkling wine by 7p. For the tenth Budget in a row I will freeze duty on spirits.

I will go ahead from 6pm tonight with the annual inflation rise on a packet of 20 cigarettes, of 11p. For one year from 1 July for nicotine replacement and other products that help smokers to quit, I am cutting VAT from 17.5% to 5%.

I propose to align the bottom two rates of gaming duty at 15%, and for the largest casinos set a 50% rate.

Charities, heritage
Hundreds of millions of giving eligible for tax relief through gift aid is not claimed. The Chancellor of the Duchy of Lancaster and I will consult on measures we will fund to increase take up.

And in the run-up to the spending review, the Culture Secretary and I will examine the help we can give churches and heritage buildings.

Employment incentives
I turn now to tax incentives to help more people into jobs and to make work pay.

Over one and a half million low-income workers receive the working tax credit, worth on average £48 a week.

If I invested £1bn in helping low income workers by raising personal allowances, they would be 68p a week better off. If I used the same money to lower the 10p rate, they would be just 67p a week better off. But by using the same money to extend the working tax credit they are £7.10 a week - £370 a year - better off.

Building on the minimum wage of £5.52 from October, for the parent in full-time work with one child it will rise to £7.70 - because of the working tax credit, £290 for a 35-hour week.

I will extend the £40-a-week in-work bonus to lone parents for their first twelve months in work. In London this will be £60 a week. And for up to 50,000 workless parents undertaking training, I can announce access to extended and free child care.

I am able to announce a partnership for jobs with Tesco, Sainsbury's, Asda, B&Q, Marks & Spencer, and the British Retail Consortium. Unemployed men and women who pass work trials or induction courses will be considered for jobs by these leading firms, a partnership that will 100,000 men and women find employment.

Since 1997, the numbers of 16-24-year-olds in full time education, employment or training has increased from 5.2m to 5.8m. But for those who have fallen through the net, I am setting aside new funds so that 50,000 16-to-17-year-olds who sign activity and learning agreements will receive a training wage in return for gaining skills.

For small companies who take on an employee needing the most basic skills, we will, from now to 2011, offer £2,000 training help per employee and in some cases £3,000.