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Budget
The Government is committed to fairness in tax and spending. This chapter sets out how the Budget helps further the ambitions of the many, not just the few, helping those in need, encouraging work and saving, promoting a better environment and helping ensure that everyone pays a fair share of the tax burden.
This chapter outlines the measures which help create a fairer society:
Annex C sets out all the Budget measures described in Chapters 3, 4, 5 and some other measures, and includes TableC1, which gives the cost or yield of all Budget measures.
5.01 The Government is determined to create a fairer, more equal society, building on last July's Budget with a range of measures to promote fairness in this Budget, the Comprehensive Spending Review which will be completed in the Summer, and future Budgets.
5.02 Growing inequality not only has serious short-term social consequences, but it weakens the long-term potential of the economy. This Budget will help improve all our children's life chances, by helping today's families achieve their ambitions to provide a secure future for themselves and their children.
5.03 This Budget will help make the United Kingdom a fairer country.
5.04 The Government is committed to supporting all families with children, in and out of work, and recognises the importance of Child Benefit in supporting children through its payment direct to mothers. From April 1999, every family with children will gain £2.50 in increased Child Benefit for the eldest child, over and above statutory indexation. To ensure this increase also goes to out-of-work families with children, the family premium in Income Support and related benefits will also be increased by £2.50 a week, in line with Child Benefit.
5.05 The Government will be examining the tax-exempt status of Child Benefit paid to higher-rate taxpaying families to help ensure a fairer distribution of resources.
5.06 Poverty in childhood often leads to poverty in later life. The measures announced in this Budget start to address this, helping to improve people's chances to move out of poverty, giving everyone an equal chance. This Budget will help families on low incomes by:
5.07 In July the Government will also be launching a further package of spending measures as part of the Comprehensive Spending Review, to help children get off to a sure start in life.
5.08 These measures to increase support for children will be partly funded by reducing the rate of relief on the Married Couple's Allowance, and the allowances linked to it, to 10 per cent from April 1999, rebalancing reliefs to those families with children.
5.09 Chart 5.1 shows the effect of Budget measures over the next two years on the disposable income of different families. On average, households will see a real increase in their disposable income of £100 a year from these changes. Poorer households will gain more on average. The poorest 20 per cent of households will gain an average of £200 a year.
5.10 The Budget helps families with children in particular. The five and a half million households with children in the UK will all see increases in their disposable income, gaining an average of £250 a year. Families on low incomes gain the most on average. The 20 per cent of poorest households with children, who between them include 3.8 million children, will gain an average of £500 a year.
5.11 The following examples illustrate the increase in disposable income different families will gain from the changes made in the Budget:
5.12 From April 1999, the Married Couple's Allowance for those aged 65 and over will be increased by £1,660 and for those 75 and over by £1,680. This will provide full compensation for the restriction of tax relief for the Married Couple's Allowance.
5.13 In the Pre-Budget Report in November, the Chancellor announced an additional payment for last year and again for this year of £20 to all pensioners and £50 to pensioners on income support at a cost of £190 million in both years.
5.14 Women make up two-thirds of adults in households gaining more than £5 a week from measures in this Budget. In the past, the needs of certain groups within society, including people in workless households, low earners, part-timers, and people with caring responsibilities, have often been overlooked. These are all groups in which women form the majority. This Budget helps to redress the balance for women by increasing support for these groups.
5.15 There are 1 million more women than men in the poorest 20 per cent of households. Budget measures, especially the WFTC and NICs changes (see Chapter 3) will help people in these households by boosting the incomes of the poorest working families and encouraging work. A new £60 million investment will give partners of the unemployed who are themselves out of work (95 per cent of them women) the option of access to employment programmes. Childless partners aged under 25 will be included in the New Deal for young people. The generous childcare tax credit within WFTC will help people with caring responsibilities to move into paid work. The Budget also targets increased support towards people caring for children (see 5.06).
5.16 In addition to the measures in this Budget, women will benefit from the New Deal for Lone Parents, the National Childcare Strategy, the extension of the additional personal allowance for people with disabled spouses to women, and the introduction of the part-time workers' directive. The national minimum wage will also be of particular benefit to women: of the lowest 10 per cent of earners in the UK, nearly two-thirds are women. The national minimum wage will help to remove the worst cases of discrimination, as well as to promote work incentives.
5.17 To encourage work and reward effort, the basic and top rates of income tax will remain unchanged.
5.18 The Government remains committed to introducing a new 10pence rate of income tax to improve work incentives and take home pay still further, but only when it is economically right to do so. It also wants to ensure that the lowest paid in work gain from the 10pence rate, so any tax change will be accompanied by action on benefits rules.
5.19 For this Budget, the priority has been to help families with children first. There will be no changes to income tax rates. The main income tax personal allowances, the lower rate band, basic rate limit, and the income limit for age related allowances and the Married Couple's Allowance will all be uprated by 3.6 per cent, in line with inflation. All taxpayers will gain in cash terms from this uprating. The new allowances and bands are shown in Table 5.1.
| (£ a year) | |||
| 1997-98 | 1998-99 | Increase | |
| Income tax allowances | |||
| Personal allowance | 4 045 | 4 195 | 150 |
|
Married couple's allowance(1), additional personal allowance(1) and widows bereavement allowance(1) |
1 830 | 1 900 | 70 |
| For people aged 65-74: | |||
| personal allowance(1) | 5 220 | 5 410 | 190 |
| married couple's allowance(1) | 3 185 | 3 305 | 120 |
| For people aged 75 and over: | |||
| personal allowance(1) | 5 400 | 5 600 | 200 |
| married couple's allowance(1) | 3 225 | 3 345 | 120 |
| Income limit for age related allowances | 15 600 | 16 200 | 600 |
| Blind person's allowance | 1 280 | 1 330 | 50 |
1 Tax relief for these allowances is restricted to 15 per cent for 1997-98 and 1998-99 and 10 per cent from April 1999.
| (£ a year) | |||
| 1997-98 | 1998-99 | Increase | |
| Band of taxable income | |||
| Lower rate 20 per cent | 0- 4 100 | 0- 4 300 | 200 |
| Basic rate 23 per cent | 4 101-26 100 | 4 301-27 100 | |
| Higher rate 40 per cent | over 26 100 | over 27 100 |
1 000 |
5.20 Under the "Millenium Gift Aid" scheme, the minimum donation to charity under the gift aid relief is reduced to £100 for gifts made to benefit anti-poverty and education projects in the world's poorest countries. This special reduction will be available for gifts made on and before 31 December 2000.
5.21 An extra £500 million has been allocated to the NHS as part of a package of measures to reduce waiting lists and times. Measures to reduce NHS waiting lists and times have been under discussion in the Comprehensive Spending Review. But NHS patients are rightly concerned that they should not have to wait longer than necessary for treatment. The Government has therefore decided to implement the conclusions emerging from this part of the review immediately.
5.22 This brings the total amount of extra money allocated to health in 1997-98 to £2 billion.
5.23 The modernisation of schools is a key part of the Government's emphasis on improving skills and enhancing employability. Investment that raises standards for all children will lay the foundations for sustainable economic growth and prosperity in the future.
5.24 Of the additional £210million available for education to DfEE, £100million will be spent on schools. The extra resources for schools add to the additional £1 billion of recurrent provision for 1998-99 announced in the July Budget and the new spending of £1.3 billion over five years from the New Deal for Schools (NDS).
5.25 The Government is committed to seeing that the core principles of sustainable development underlie the Budget measures. This ensures that the tax system is fair both to future generations, and to the world in which we live.
5.26 This Budget focuses on:
5.27 Measures to pursue these objectives are set out in the following three sections. Some measures, particularly in the transport sector, such as road fuels and Vehicle Excise Duty, may impact upon more than one objective.
The tax and other measures on transport announced in this Budget are just one aspect of the Government's broader work on an Integrated Transport Strategy.
The Integrated Transport White Paper, due to be published in the Spring, will set out the Government's overall strategy for transport, which aims to address the mobility needs of all sections of society, while tackling the twin problems of congestion and the environment.
Within this overall context, the Budget measures contribute specifically to the objectives of reducing the harmful impact of the car and lorry on the environment, and encouraging a shift from the car to other modes of transport.
5.28 The UK has taken a lead internationally in promoting action to reduce greenhouse gas emissions. At the Kyoto international conference on climate change in December 1997, the European Union committed itself to reducing its emissions of six greenhouse gases by 8 per cent on 1990 levels between 2008 and 2012. The European Union has agreed to meet its commitment by burden-sharing arrangements amongst Member States to be negotiated during the next few months. Once these negotiations are complete, and our legally binding target has been agreed, the Government will consult on what sort of measures might be needed to meet its commitments.
5.29 In every developed country, there is a debate on how to improve industrial energy efficiency, and how best to meet internationally agreed targets on climate change. So there is a need to consider a new framework to encourage greater efficiency in the use of industrial energy, and to achieve reductions in emissions of greenhouse gases. This should include a study of whether or not new economic instruments, and/or other market mechanisms should be introduced to help curb industrial emissions and if so, in what form.
5.30 The tax (duty plus VAT) on leaded and unleaded petrol will rise by 4.9pence and 4.4pence per litre respectively. Conventional diesel will be subject to a tax increase of 5.5pence a litre. The new rates take effect from Budget day.
5.31 These duty increases reflect the commitment to increase road fuel rates by at least 6 per cent on average in real terms a year. They will play an important part in discouraging unnecessary journeys, encouraging fuel efficient cars, and so reducing emissions of carbon dioxide. But they also move the relative taxation of petrol and diesel towards a fairer basis on energy and carbon content.
5.32 The duty on gas oil and fuel oil will rise by 0.24pence and 0.18pence per litre respectively on Budget day. These increases are broadly in line with the increases in duty on petrol.
5.33 Vehicle Excise Duty will be frozen for this year. Combined with the road fuel duty changes, this further shifts the taxation of motor vehicles away from ownership and towards use.
5.34 The Government will consult later in the year on graduating Vehicle Excise Duty on environmental criteria for cars. The Government is interested in introducing a reduced starting rate of £100 for the least polluting cars.
5.35 The Government would like to ensure that company car owners who receive free fuel from their employers face the correct incentives and costs when deciding to make extra private journeys.
5.36 From 6 April 1998 there will be a 20 per cent increase, above the usual increase in line with pump prices (including fuel duty), in the scale charges used for assessing income tax and employers' NICs for free fuel provided to employees for private use of company cars by their employers. The diesel scale charges will be further increased from 6 April 1998 to bring them into line with those for petrol cars of the same engine capacity. The Government is committed to increasing the scale charge by a further 20 per cent above increases in pump prices (including fuel duty) in each year for each of the next four years (from 1999-00 to 2002--03). This will discourage employers from providing, and their employees from accepting, free fuel for private motoring in company cars. The scales used to charge VAT on fuel provided by employers for private motoring will be increased to reflect the change in fuel prices.
5.37 The current system of company car taxation, in which an employee with a company car pays less tax if 2,500 or 18,000 business miles are driven, gives an incentive to make extra journeys. In the light of emerging policy in the forthcoming Integrated Transport White Paper, the Government will consider the case for changing the basis of taxation of company cars from bands of business mileage to bands of private mileage.
5.38 As announced in the Pre-Budget Report, VAT will be reduced on the installation of energy saving materials in the homes of the less well off under certain grant schemes. VAT will be charged at 5 per cent from 1 July 1998. This will allow these grant schemes to help an additional 40,000 households a year to insulate their homes and keep warm.
5.39 The Government is continuing to explore with its European partners, the possibility of a wider reduced rate of VAT for energy saving materials.
5.40 The Government's objectives for an integrated transport system include encouraging a shift in the mode of transport from the car to other modes of transport, and reducing the harmful impact on the environment of all forms of transport.
5.41 A number of new tax measures are being taken aimed principally at improving the quality of air, particularly in urban areas. They should also contribute to a reduction in unnecessary car journeys.
5.42 The Government intends to adjust the structure of duties on road fuels, over time, to achieve two broad objectives:
5.43 For ordinary diesel, the increase in duty over and above that of petrol also recognises the adverse effect that the use of diesel has on local air quality. Future Budgets will further increase the duty on ordinary diesel relative to unleaded petrol.
The air in the UK is significantly cleaner today than in the 1950s and 1960s and levels of air pollutants are expected to fall dramatically over the next decade. Nevertheless, in some local areas - particularly congested urban areas - emissions from traffic, industry and other sources can still affect the quality of life for all.
The National Air Quality Strategy has set objectives - which are currently under review - for reductions in emissions of the eight most important air pollutants. These include:
In urban areas, road transport is the major source of air pollutants. For example, road transport can contribute up to 40-50 per cent of winter emissions of particulates in urban areas, and up to 75 per cent in smog episodes.
5.44 Ultra-low sulphur diesel, which is substantially cleaner than ordinary diesel, currently attracts a lower rate of duty, by 1pence per litre, than unleaded petrol and ordinary diesel. But the specification of ultra-low sulphur diesel has proved too liberal - it has been possible for fuels with little environmental or health benefits to qualify for this reduced rate. The specification for this lower rate has therefore been tightened.
5.45 But in recognition of the environmental and health benefits attached to this more tightly specified fuel, the duty difference with ordinary diesel is widened to 2pence. The Government expects to widen this by a further 1pence per litre in the next Budget. The increased duty differential will further encourage the manufacture and use of this fuel, which offers substantial benefits to the quality of air in urban areas by reducing the amount of nitrogen oxides, black smoke, and particulates produced during combustion.
5.46 Super-unleaded petrol contains benzene, a carcinogen. In light of the adverse health affects, the tax (duty plus VAT) on super-unleaded petrol increases by 6.1pence per litre. This will give non-essential users an incentive to switch to less harmful fuels.
5.47 Duty on road fuel gases is frozen in consideration of the environmental benefit these gases offer in relation to other road fuels.
5.48 The extra cost of enabling company cars to run on road fuel gases will be disregarded in calculating the income tax charge on company cars from 6 April 1999.
5.49 Table 5.2 shows the changes in duties on all road fuels and other hydrocarbon oils.
|
Changes in duty (%) |
Effect of tax(1) on typical item (increase in pence) |
Unit |
|
| Leaded petrol | 9.2 | 4.9 | litre |
| Unleaded petrol | 9.2 | 4.4 | litre |
| Super-unleaded petrol | 11.8 | 6.1 | litre |
| Diesel | 11.7 | 5.5 | litre |
| Ultra-low sulphur diesel | 9.4 | 4.4 | litre |
| Gas oil | 9.3 | 0.2 | litre |
| Fuel oil | 9.0 | 0.2 | litre |
| AVGAS | 9.2 | 2.4 | litre |
| Road fuel gas | 0.0 | 0.0 | kg |
1 Tax refers to duty plus VAT, except for gas oil and fuel oil, shown exclusive of VAT.
5.50 Bus fuel duty rebate will be raised to reflect increases in diesel duty over the next twelve months. The Government will consult shortly on how bus fuel duty rebate could be better targeted to provide incentives for lower emission vehicles, and to support rural services.
5.51 In the July Budget, the Government announced that the scheme to reduce Vehicle Excise Duty by up to £500 for lorries which meet a low emission standard would be extended to buses as well. This should encourage owners of lorries and buses to fit a "particulate trap" or convert to gas power. In January this year, the Department of the Environment, Transport and the Regions published details of how the scheme would operate. The scheme will go ahead as proposed from January 1999.
5.52 The Government has announced that there will be a review of the existing system for calculating Vehicle Excise Duty rates for lorries, taking account of decisions in the Department of the Environment, Transport and the Regions Integrated Transport White Paper on allowing heavier lorries onto UK roads. The aim of the review is to develop a system which more accurately reflects the environmental damage caused by different lorries.
5.53 The exemption from Vehicle Excise Duty for vehicles which are at least 25 years old in non-commercial classes will be frozen to include only those vehicles manufactured before 1 January 1973.
The Budget includes a £500 million boost for public transport, including £50million for rural transport services.
This new funding supports the Government's objectives of increasing accessibility and mobility in developing its Integrated Transport Strategy. Improving public transport in rural areas is a key aspect of this, and reflects the particular transport difficulties facing those in rural areas, both car owners and non-car owners. The Government recognises that certain social groups, including especially the elderly, the young, single parents and the disabled, may experience severe transport problems in rural areas. People on low incomes and the unemployed also need cheap, reliable transport in order to travel to work and seek employment.
The bulk of each country's share of the new resources will be allocated to a Bus Partnership Fund (managed by Department of the Environment, Transport and the Regions, the Scottish Office, the Welsh Office and the Department of the Environment (Northern Ireland)) to improve bus services in rural areas. This should provide up to 160 million additional bus kilometres nationwide.
Conventional public transport cannot always meet the increasingly diverse accessibility needs of rural communities. A flexible approach is required, targeted to local circumstances and drawing on the resources of the local community. The remainder of each country's share (around £5million nationwide) will therefore be devoted to community-based initiatives. Resources will be used to build on the success of existing community-based initiatives, such as community mini-buses and taxi-buses, and to facilitate better coordination of voluntary, local authority and commercial services.
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