George Osborne vows first UK budget surplus in more than a decade

The Chancellor said the “rainy day” measure, requiring Britain to generate more in revenues and tax yields than it spends, would act as “insurance against difficult times ahead”.

“Provided the recovery is sustained, our goal is to achieve that surplus in the next Parliament,” he added.

In effect it commits the Conservatives to two extra years of austerity, beyond the current plans that run until 2017-18. But Mr Osborne also strengthened the Tories’ commitment to infrastructure spending by promising to ensure capital spending rises at least in line with national income. He also promised to freeze fuel duty for the rest of the Parliament in a £750m surprise giveaway.

Mr Osborne told the Conservative Party conference in Manchester that the economy was recovering and that after years of recession and low growth, the “sun had started to rise above the hill”. However, he warned that “discipline and spending control” was still required. “There is no feeling at the conference of a task completed or a victory won,” he said. “The battle for turning Britain round is not even close to being over.”

The last time Britain ran a budget surplus was in 2001. Germany is the only G8 country to have a surplus at the moment. “It should be obvious to anyone that in the years running up to the crash this country should have been running a budget surplus,” Mr Osborne said. “This crisis took us to the brink … If we don’t reduce our debts, the next could push us over.”

The Institute of Directors welcomed the move, saying that “breaking government addiction to debt and achieving a surplus in public finances is the most important ambition any administration can have”.

However, the Institute of Economic Affairs said Mr Osborne was “still failing to tackle government spending sufficiently” and was in danger of missing his own targets.

John Longworth, director general of the British Chambers of Commerce, said the Chancellor’s pledge to keep capital spending in line with growth was “extremely important”. He said: “Britain faces a tremendous infrastructure gap – from roads and railways to broadband – and this is an important signal that will help to underpin much-needed investment in future. The Chancellor’s commitments to HS2, energy security and investment in R&D now will be welcomed by business after weeks of political uncertainty.”

Alexander Jackman, from the Forum of Private Business, praised Mr Osborne’s “ambition and optimism” and “credible economic plan”. But he warned that the speech “lacked a slew of new policies for small businesses”.

John Allan, national chairman of the Federation of Small Businesses, said he was “delighted” with the planned freeze on fuel duty; while Terry Scuoler, chief executive of the EEF manufacturers’ organisation, said business would support Mr Osborne’s “commitment to competitive business taxes and stability in the Government’s deficit reduction programme”.