HMT 1

17 April 2002

The strength to make long-term decisions: investing in an enterprising, fairer Britain

Long-term decisions to invest in a fairer, more enterprising Britain are set out in the Budget delivered by Chancellor Gordon Brown today.

From a platform of economic strength and stability, the Budget provides significant new investment to reform the National Health Service - placing the NHS on a sustainable long-term financial footing.

The Budget takes further steps to promote an enterprise culture throughout Britain, supporting business growth and development by rewarding innovation and reducing regulation and compliance costs.

It also announces the next steps in the Government's programme of welfare reform, introducing a new system of support through the tax and benefit system to promote work and support families with children, extending opportunity and tackling poverty and exclusion across the UK.

To maintain the conditions for economic stability, while advancing the Government's priorities, the Budget raises the level of national insurance contributions and freezes the income tax personal allowance next year.

As a result of personal tax and benefit measures, in 2003-04:

a person on median earnings of £21,400 will pay an additional £3.70 a week in income tax and national insurance contributions;
a single earner family on median earnings of £21,400 and with two children will be £3.90 a week better off as a result of the Child Tax Credit; and
50 per cent of families with children will be better off.

KEY BUDGET MEASURES

Key measures in Budget 2002 include:

a significant increase in resources for the NHS, conditional on reform, to place the health service on a sustainable long-term financial footing;
a 1 per cent increase in national insurance contributions (NICs) paid by employers, employees and the self-employed on all earnings above the NICs threshold from April 2003;
a freeze in the income tax personal allowance for those aged under 65 and the NICs thresholds in 2003-04;
a new Child Tax Credit from April 2003 providing a secure stream of income for families with children;
a new Working Tax Credit from April 2003 to make work pay for people on low incomes whether or not they have children or a disability;
an immediate cut in the starting rate of corporation tax from 10 per cent to zero, and a reduction in the small companies' rate from 20 per cent to 19 per cent;
a new 25 per cent tax credit to boost research and development by large companies, complementing that already available for SMEs;
an increase of £2.50 in the basic credit in the Working Families' Tax Credit, and the couple and lone parent credits in the Disabled Person's Tax Credit from June 2002;
an increase of £3.50 in the child allowances in Income Support and Jobseeker's Allowance from October 2002;
a freeze in the duties on spirits, wine and beer, reduced duty rates for small brewers, an increase in the duty on spirits-based coolers to the level of spirits, and an increase in tobacco duty in line with inflation;
a freeze in all road fuel duties, including ultra-sulphur petrol and diesel, and a freeze in vehicle excise duty rates; and
a package of measures to close loopholes in the tax system, promoting fairness and protecting the government revenue base.

DELIVERING HIGH QUALITY PUBLIC SERVICES

Strong and dependable public services are vital to extend opportunity, tackle poverty and social exclusion and improve the quality of life for all. They also lay the foundations for a stronger economy.

Budget 2002 sustains and increases the resources for public services already announced, adding a further £4 billion to Departmental Expenditure Limits (DEL) in 2003-04. The Budget also sets overall spending limits for the 2002 Spending Review, covering the three years to 2005-06, that allow for:

current spending, excluding spending on health, to increase by 2½ per cent a year in real terms in 2004-05 and 2005-06. Current spending will rise in total by an average of 3.3 per cent a year in real terms over the same period; and
a further increase in net public sector investment from its target of 1.8 per cent of GDP in 2003-04 to 2 per cent of GDP by 2005-06, continuing to tackle the legacy of under-investment in Britain's infrastructure.

A modern National Health Service and social care system

In Budget 2000, the Chancellor invited Derek Wanless to lead an independent review of the factors affecting the health service in the UK over the next two decades and their implications for funding and other resource requirements. Following widespread consultation, and the publication of an interim review in November 2001, the final report of the review is now being published.

The Government welcomes and agrees with the conclusions of the Wanless Review. A health service, free at the point of need, and accessible to all regardless of their wealth, remains the right principle for today's NHS. But Britain needs to invest significantly more in the NHS to achieve the reform and modernisation needed to ensure it matches the world's best.

Budget 2002 takes forward the Government's commitment to improve national healthcare standards throughout the country by announcing the largest ever sustained increase in health spending in the history of the NHS:

immediately allocating £2.4 billion of the new DEL addition to UK health spending, and providing for 7.4 per cent a year real terms growth in UK NHS spending over the next five years - placing the health service on a sustainable long-term financial footing. As a result of this investment:
UK spending on the NHS will rise from £65.4 billion in 2002-03 to £105.6 billion in 2007-08; and
NHS cash spending per household will rise from £2,370 in 2001-02 to £4,060 in 2007-08 - a 48 per cent rise in real terms.

The Government also agrees with the Wanless Review that the interface between the NHS and social care services provided by local authorities requires new investment to get the best out of additional health spending. In Budget 2002 the Government is:

immediately allocating £0.4 billion to social services spending in England in 2003-04 and providing for 6 per cent average annual real terms growth in resources for personal social services over the three years from 2003-04 to 2005-06.

Budget 2002 also releases resources in 2002-03 in order to accelerate delivery in the priority areas of education and crime reduction by providing:

£100 million from the Capital Modernisation Fund for 2002-03 to enhance the ability of schools across the UK to tackle past under-investment. This will enable additional direct capital payments worth almost £2,500 to a typical primary school and over £7,100 to a typical secondary school; and
a package of £250 million, with an extra £110 million from the Reserve, for the Home Office in 2002-03, targeted on efforts to tackle street crime and associated pressures, and countering the threat of terrorism.

MAINTAINING ECONOMIC STABILITY

Economic stability and sound public finances provide the best foundation for long-term investment in public services and rising national prosperity.

The Budget maintains the conditions for economic stability, ensuring that the fiscal rules will continue to be met while taking long-term decisions to promote work and enterprise, tackle child poverty, and invest record amounts in the National Health Service. To ensure sound public finances over the medium-term:

there will be an additional 1 per cent national insurance contribution (NIC) by employers, employees and the self-employed on all earnings above the NICs threshold of £89 per week. This is in addition to existing rates of contribution below the upper earnings limit for employees and the upper profits limit for the self-employed; and
the income tax personal allowance for those aged under 65 and the NICs thresholds will be frozen in 2003-04, except for the pensioners' age-related allowances which will be increased by more than inflation.

As a result of these and other Budget measures, in April 2003:

a person on median earnings of £21,400 will pay an additional £3.70 a week in income tax and national insurance contributions;
a person on 50 per cent of median earnings (£10,700) will pay an additional £1.65 a week in income tax and national insurance contributions;
a person on 150 per cent of median earnings (£32,100) will pay an additional £5.75 a week in income tax and national insurance contributions;
no pensioner aged 65 or over will pay tax on income of less than £127 a week, as well as paying no national insurance contributions; and
as a result of all personal tax and benefit measures, including the Child Tax Credit and Working Tax Credit, a single earner family on median earnings of £21,400 and with two children will be £3.90 a week better off. A single person, aged 25 or over, working 35 hours a week at the National Minimum Wage will be £21.55 a week better off.

The Government believes that general taxation and national insurance contributions are the best way of ensuring that the costs of investment in the health service are spread as widely and as fairly as possible; and that health care is based on need, not ability to pay.

A strong and stable economy

Last year was a difficult year for the world economy, but with sound economic fundamentals and decisive macroeconomic policy action, the UK economy proved more resilient than on previous occasions, growing faster than any other G7 economy over the year as a whole. In Budget 2002:

based on prudent, audited assumptions, the Government remains firmly on track to meet its two strict fiscal rules over the economic cycle, including in the cautious case;
the fiscal stance in the Pre-Budget Report is locked in this year and over the next two years. Compared with the Pre-Budget Report, there is a small fiscal tightening over the next two years as growth gathers pace and the economy returns to trend;
the economy is expected to grow by 2 to 2½ per cent this year and by 3 to 3½ per cent in 2003, before returning to trend in 2004. Growth is also expected to become more balanced as stronger global demand provides impetus to investment and exports; and
inflation is forecast to remain low and close to the Government's target of 2½ per cent for the 12-month increase in the RPI excluding mortgage interest payments. Budget 2002 reaffirms the inflation target.

The Government has also examined the prospects for trend output growth in the UK economy and has concluded that a neutral view of trend growth is 2¾ per cent a year - in line with a number of respected independent organisations, including the IMF. This neutral assumption forms the mid-points of the Budget 2002 economic forecast ranges. For reasons of prudence, projections of the public finances continue to be based on a deliberately cautious assumption for trend output growth that is ¼ percentage point lower than the Government's neutral view. As required by the Code for Fiscal Stability, this assumption has been audited by the National Audit Office who have concluded that basing the fiscal projections on a 2½ per cent trend growth rate is both reasonable and cautious.

Further details are set out in a new paper, Trend growth: Recent developments and prospects, released today.

MEETING THE PRODUCTIVITY CHALLENGE

High productivity growth is vital for long-term prosperity. UK productivity growth has long lagged behind that of other major economies, with a substantial gap against the US, France and Germany. The Government's goal is that Britain should achieve a faster rate of productivity growth than its major competitors over the next decade, closing the productivity gap.

Government has a key role to play in enhancing productivity growth, working alongside business, trade unions and other stakeholders. The Government's Enterprise Bill, introduced on 26 March, implements a comprehensive programme of reform to strengthen the UK competition regime and modernise the laws on insolvency, bringing down barriers to enterprise and helping to create a truly entrepreneurial culture.

Budget 2002 takes further steps to support the drivers of productivity growth - promoting enterprise, innovation and skills across the country.

Encouraging enterprise and supporting small business

The Government is committed to rewarding entrepreneurial spirit, ensuring a ladder of opportunity for all, with support at every stage, to help new and small businesses develop and prosper. Budget 2002 introduces significant new measures, including:

changes to corporation tax rates, with effect from 1 April 2002:
- the corporation tax starting rate is reduced from 10 per cent to zero, meaning that 150,000 companies will no longer pay any corporation tax; and
- the small companies' rate is reduced by 1 percentage point to 19 per cent, benefiting over 335,000 additional companies.

These reforms mean that all companies with taxable profits of less than £10,000 will pay no corporation tax. Small tax paying companies will save a maximum of £3000 and average of £700 every year.

following the recommendations of the Carter review of payroll administration, implementing a three-stage move towards universal electronic filing of employer returns, with incentive payments to assist and encourage smaller employers to make greater use of IT;
easing the impact of VAT on small and medium-sized enterprises by increasing the VAT registration threshold from £54,000 to £55,000, introducing an optional flat rate scheme designed to cut compliance costs, and reforming the VAT annual accounting scheme; and
announcing successful bidders to run six investment readiness pilot projects across the country, to inform small firms about different financing options and offer a programme of practical support to help small businesses become investment-ready.

In addition, the Department of Trade and Industry will shortly consult on a national strategy for business start-ups, including proposals for a new resource pack and help-line for people starting out in business.

Budget 2002 also takes steps to establish and maintain a modern business tax system that competes with the best in the world, including:

an exemption for gains and losses on substantial shareholdings to ensure that important business decisions on corporate restructuring and reinvestment are made for commercial, rather than tax, reasons;
a new regime for providing relief to companies for the costs of intellectual property, goodwill and other intangible assets to encourage business to take advantage of new opportunities in the emerging knowledge-based economy;
abolishing stamp duty for transfers of goodwill, to reduce the costs of buying businesses;
a new regime for loan relationships, derivative contracts and foreign exchange gains and losses from October 2002;
further reform of the rules governing withholding tax at source; and
simplification of the CGT regime, to reduce the compliance costs of those who invest in business.

For further details of these reforms see the separate press releases REV/C&E1 and REV/C&E2.

Enterprise in disadvantaged areas

Budget 2002 takes further steps to promote enterprise, investment and wealth creation in Britain's most deprived communities, establishing 2000 enterprise neighbourhoods across the country:

since November 2001 an exemption from stamp duty has been available for all property transfers up to £150,000 in the UK's most disadvantaged areas. To reduce further the cost to business of investing in these areas, Budget 2002 announces that stamp duty will be abolished on all non-residential property transfers in disadvantaged areas, once state aids approval is obtained. The Government will legislate in the Finance Bill; and
a new Community Investment Tax Credit (CITC), worth 25 per cent of investment, will be introduced to encourage private investment in both not-for-profit and profit-seeking enterprises in under-invested communities. The tax credit will be available to both individual and corporate investors making either debt or equity investments. The accreditation process for the CITC will be run by the Small Business Service and will become operational following EU state aids approval.

Supporting innovation

Innovation is a key catalyst for productivity growth. To improve the UK's innovation performance, the Government is introducing a new tax credit to boost research and development by larger companies, complementing that already available for SMEs. The new relief will:

be a simple volume credit based on the total amount of research and development companies undertake;
provide a 25 per cent rate of super-deduction for qualifying R&D expenditure against taxable profits; and
be granted to the company actually undertaking the R&D so as to provide a deduction for all qualifying R&D undertaken in the UK. To promote business links with academic research, companies that fund research undertaken collaboratively with universities, charities and other not-for-profit organisations will also qualify.

Improving workforce skills

Building Britain's skills base is key to raising productivity. A highly skilled workforce promotes innovation, increases flexibility in the workplace and helps to ensure that the benefits of new technologies are realised.

The Pre-Budget Report set out a vision for UK training and skills based on shared responsibilities between employers, individuals and government, and announced that pilot schemes would be launched to test different approaches to help working people upgrade their skills and support employers who need more highly skilled staff to build stronger business.

Budget 2002 announces further details:

Employer Training Pilots will be operated by local Learning and Skills Councils in Birmingham and Solihull, Derbyshire, Essex, Greater Manchester, Tyne and Wear, and Wiltshire and Swindon from September 2002;
the pilots will offer free basic skills and level 2 courses to low-skilled employees from participating firms, and will provide information, advice and guidance to both individuals and their employers. Participating firms will be asked to offer their low-skilled employees paid time off to train - the pilots will test two different levels of time off; and
participating employers will receive financial support from their local Learning and Skills Council in recognition of the time taken off to train by their low-skilled staff. The pilots will test three different levels of compensation for employers, with small firms (those employing less than 50 people) being paid up to 150 per cent of wage costs.

Further details of the Employer Training Pilots are set out in a new document, Developing workforce skills: Piloting a new approach, published today.

The Government also believes that increasing the take-up of Investors in People (IiP) by small organisations is a key priority for raising skill levels across the economy. Budget 2002 therefore announces additional funding of £30 million for the Learning and Skills Council to encourage small organisations to reach the IiP standard.

INCREASING EMPLOYMENT OPPORTUNITY FOR ALL

Tough action taken by the Government has secured substantial improvements in the strength of Britain's labour market.

The New Deal has been successful in tackling long-term youth unemployment and unemployment among those 25 and over, and help has been extended to lone parents, disabled people and other disadvantaged groups. Employment is 1½ million higher today, than in spring 1997. And unemployment (on the International Labour Organisation definition) is the lowest among the major industrialised nations.

The Government is determined to advance its goal of having a greater proportion of people in work than ever before by the end of the decade. By helping people move from welfare to work and making work pay, the Government is creating employment opportunity for all in every region. Budget 2002 announces the next steps:

a new Working Tax Credit will be introduced in 2003 to help tackle poor work incentives and persistent poverty among working people, including those without children. The Working Tax Credit will replace the adult elements of the Working Families' Tax Credit, the Disabled Person's Tax Credit and the Employment Credit 50+. Budget 2002 announces the rates and thresholds for the Working Tax Credit. On its introduction, the Credit will guarantee minimum incomes of:
- £237 a week for a family with one child and one earner working full time on the National Minimum Wage; and
- £183 a week for a single earner couple without children or a disability, aged 25 or over and working full time on the National Minimum Wage.
the basic credit in the Working Families' Tax Credit and the couple and lone parent credits in the Disabled Person's Tax Credit will be increased by £2.50 a week from June 2002, on top of the increases in line with inflation in April 2002;
the Government's tax and benefit reforms to make work pay are underpinned by the National Minimum Wage (NMW). As announced by the Secretary of State for Trade and Industry on 15 April the NMW will be increased to £4.20 for workers aged 22 and over and to £3.60 for workers aged 18 to 21 in October 2002;
eligibility for the New Deal for those aged 25 and over will be extended in pilot areas to jobseekers who have been unemployed for a total of 18 months over the previous three years. Eligible individuals will be identified at their 6 month 'Restart' interview. Jobseekers who have experienced repeated spells of unemployment are at particular risk of becoming long-term unemployed, and the pilots will test the effectiveness of intervening earlier to support this group;
following success within the New Deal for young people, mandatory Gateway to work courses will be introduced for all jobseekers on the New Deal 25+ in London, Manchester, Dundee and Swansea to help those facing difficulties re-entering the labour market;
following the success of recent pilots, a new mentoring service will start to be introduced to provide support and advice to lone parents seeking to enter work, through their personal adviser interview;
mandatory personal adviser meetings will be extended to all lone parents on Income Support with children under the age of five - the biggest single group of lone parents - ensuring that all lone parents are in future subject to the personal adviser regime;
childcare coordinators will be established in every Jobcentre Plus district from April 2003 to improve access to information about local childcare provision;
eligibility for the childcare tax credit element of the Working Tax Credit will be extended from April 2003 to those who use approved childcare in their own homes - benefiting families who need home-based care, such as those with disabled children or parents who work outside conventional hours; and
further support will be introduced to help jobseeker's travel to work, including a new dedicated £5 million fund to help Action Teams support transport solutions in deprived areas where transport is a barrier to work, and an expansion of personalised travel planning services in Jobcentres.

Details of the Working Tax Credit are set out in a new document, The Child and Working Tax Credits, published today. Further details are also available in the separate press release, REV3.

BUILDING A FAIRER SOCIETY

A strong and productive economy must be underpinned by fairness and social inclusion so that everyone has the chance to fulfil their potential and share in rising national prosperity. Budget 2002 builds on the support already announced or available to help abolish child poverty, tackle poverty among pensioners, encourage and reward saving, tackle international poverty and promote a modern and fair tax system.

Support for families and children

The Government is committed to ensuring that every child has the best possible start in life. It has set a goal to halve child poverty by 2010 and to abolish it within a generation. Budget 2002 takes further steps to support families with children, targeting help on those who need it most, when they need it most. The Government is now:

introducing a new Child Tax Credit from April 2003, which will provide a single, seamless system of income-related support for families with children. The Child Tax Credit will bring together the assistance for children currently provided through the Working Families' and Disabled Person's Tax Credits, the Children's Tax Credit, Income Support and Jobseeker's Allowance. The Budget announces the rates and thresholds for the Child Tax Credit. On its introduction, the Child Tax Credit, and universal Child Benefit, will guarantee support for the first child of:
- £26.50 a week for the 85 per cent of families with an income of less than £50,000 a year; and
- £54.25 a week for the 25 per cent of families with an income of less than £13,000 a year.
increasing the child allowances in Income Support and Jobseeker's Allowance by £3.50 a week from October 2002, to reduce further the numbers of children living in poverty.

Details of the Child Tax Credit are set out in a new document, The Child and Working Tax Credits, published today. Further details are also available in the separate press release, REV3.

As a result of the Government's personal tax and benefit reforms since 1997, including the changes to national insurance contributions and the income tax personal allowance announced in this Budget, by April 2003:

families with children will be, on average, £1,200 a year better off; and
families with children in the poorest fifth of the population will be on average over £2,400 a year better off in real terms;

Fairness for pensioners

The Government is determined to tackle pensioner poverty. Over 2 million pensioners now benefit from the extra support provided by the Minimum Income Guarantee (MIG) which will be uprated in line with earnings throughout this Parliament. Budget 2002 confirms the further, comprehensive package of measures announced in the Pre-Budget Report:

the Pension Credit will be introduced from October 2003 to tackle the complexities and unfairness of the old system and ensure that pensioners on low or modest incomes are rewarded, rather than penalised, for their savings. The Pension Credit will extend support to around half of all pensioner households and provide, on average, just over £400 extra a year to eligible pensioners;
the basic state pension will rise by at least £100 a year for a single pensioner and £160 a year for pensioner couples in 2003-04. The Government guarantees that the basic state pension will rise subsequently each year by 2.5 per cent or the increase in the September RPI, whichever is higher; and
the winter fuel payment will be maintained at £200 for the rest of this Parliament, benefiting around 8 million households each year.

For pensioners who pay income tax, Budget 2002 also increases the income tax personal allowance for 65 to 74 year olds in 2003-04 to £6,610, ensuring that no pensioner aged 65 or over will pay tax on income of less than £127 a week. Subsequently, the age-related allowances will be raised at least in line with earnings rather than prices for the remainder of this Parliament.

As a result of the Government's tax and benefit reforms, compared with the 1997 system, following the introduction of the Pension Credit from 2003:

the average pensioner household will be over £1,150 a year better off - around £22.50 extra a week in real terms; and
the poorest third of pensioner households will have gained over £1,500 a year in real terms.

Supporting saving

Savings and assets provide security, comfort in retirement, long-term independence and increased opportunity.

Helping people provide for financial security in old age is vital to protect future pensioners from the poverty and inequality that many of today's pensioners have had to bear. In addition to the launch of the State Second Pension, and stakeholder pensions, the Government now plans to:

modernise the annuities market to increase the choice for consumers and help to ensure that annuities provide a secure income in retirement. Following consultation, the Government will, consistent with its stated principles:
- work with annuity providers to increase flexibility by allowing those who have an annuity to change the terms of their contract with their existing provider; and
- bring forward powers to enable new generic kinds of annuity to be used to turn pension savings into retirement income.

The Government has also set up three coordinated reviews to examine different aspects of pension provision and will consult on their proposals later this year. The aim will be to reduce complex regulation, improve information and education and consider what action the Government and employers might take to encourage employees to save towards their retirement.

To investigate how best to extend the benefits of saving to lower income groups the Government is also now launching Saving Gateway pilot projects, which are expected to begin in four pilot areas located in Gorton (South-east Manchester), Tower Hamlets (East London), Cumbria and Cambridgeshire, from August 2002, lasting for 2½ years. The Government has reached an agreement with Halifax plc to act as partner in the pilots, providing the services of its branches, staff and account systems in the pilot areas.

A modern and fair tax system

Budget 2002 introduces further measures to promote a modern and fair tax system which reflects developments in business practice, in which everyone - individuals and businesses alike - pays their fair share:

new measures to close loopholes in stamp duty on large commercial property transactions, and a reform to modernise stamp duty on land and buildings in the UK. Legislation will be brought forward immediately to discourage a number of avoidance techniques. Longer-term reform will build on this to modernise the stamp duty charge and help to pave the way for electronic conveyancing in the future, making house-buying faster and more efficient (see press notice REV4 for further details);
important changes to the North Sea tax regime to ensure a regime that raises a fair share of revenue while promoting long-term investment. With effect from Budget day, the new regime introduces a 10 per cent supplementary charge on North Sea profits and provides a 100 per cent first year capital allowance for capital expenditure. The Government intends, subject to consultation on the appropriate timing, to abolish North Sea Royalty (see press notice REV/C&E1 for further details);
measures to modernise the taxation of foreign companies operating in the UK through branches, bringing the UK closer into line with international practice. The new regime will mean that branches pay a fairer share of corporation tax, reflecting the profits they make from activities carried out in the UK. The reform builds on existing rules in the UK tax system that already apply to foreign companies operating in the UK through subsidiaries (see press notice REV/C&E1 for further details);
a freeze in the duties on spirits, wine and beer produced by larger brewers; reduced rates of duty on beer produced by the UK's small brewing industry; an increase in the duty on spirits-based coolers to the level of that on spirits; and an increase in tobacco duties in line with inflation (see press notice C&E1 for further details);
further support through the tax system for charities, including reform of the current VAT reliefs for charity buildings, and new steps to encourage donations. The Government is introducing a new tax relief for gifts to charities of land and buildings, enabling higher rate taxpayers to immediately claim Gift Aid for donations when they make their tax return and announcing plans to allow taxpayers to direct tax repayments to nominated charities;
a package of tax measures to support community amateur sports clubs (CASCs). This will give CASCs access to tax reliefs on income and donations, similar to those available to charities. In addition, £20 million will be allocated to the Capital Modernisation Fund to provide new or refurbished community sports facilities (see press notice HMT3 for further details);
following the successful reforms of betting and pools tax, the Government will, as the next step, consider the scope to abolish the tax on bingo stakes and replace it with a gross profits tax on bingo companies;
a range of further measures to tackle indirect tax fraud and unfair tax avoidance, including:
a comprehensive strategy to tackle the rising problem of oils fraud by tightening controls on the distribution and use of rebated fuels and increasing detection and investigation of their misuse;
a joint programme of cooperation with the spirits industry to identify, trace and track illicit consignments of spirits;
reforms to block a number of abusive VAT avoidance schemes; and
changes to the tax regime for British qualifying films to restrict relief to films intended for theatrical release at the commercial cinema, subject to discussion with the industry on the details of implementation.

The Government is also reviewing the residence and domicile rules as they affect the tax liabilities of individuals. The Government will report on this issue in time for the Pre-Budget Report.

Promoting international poverty reduction

The Government is committed to tackling global poverty and helping to achieve the international community's Millennium Development Goals (MDGs) by 2015. To advance this ambitious agenda, Budget 2002:

announces a new tax credit for R&D into drugs and vaccines to treat specific diseases threatening lives in the least developed countries. The credit will allow companies to deduct from their pre-tax profits an additional 50 per cent of expenditure on R&D into vaccines and medicines for the prevention and treatment of malaria, tuberculosis and some variants of HIV/AIDS. Companies will also be able to claim relief on financial contributions to charities, universities and scientific research organisations conducting research into these diseases;
announces a new relief to encourage industry to donate medicines, medical supplies and equipment to developing countries; and
confirms the launch of a new Commonwealth Education Fund with a £10 million initial endowment to promote high quality primary education for the world's poorest children. The Government will match private contributions to the Fund, pound for pound including tax relief.

PROTECTING THE ENVIRONMENT

While economic growth is key to rising national prosperity, the Government recognises that it must not come at the expense of the environment. Sustainable development is vital to ensure a better quality of life for everyone, today and for generations to come.

Budget 2002 implements and announces further measures to tackle climate change, improve local air quality, regenerate Britain's towns and cities, and protect Britain's countryside and natural resources.

Improving business energy-efficiency

The Government is continuing to encourage business to improve its energy-efficiency, including:

introducing two further exemptions from the climate change levy for electricity generated from good quality combined heat and power, and from coal mine methane, in recognition of their environmental benefits;
following the Green Technology Challenge, introducing new enhanced capital allowances for business investment in five further groups of energy-saving technologies, subject to EU state aids approval; and
enabling business to deliver reduced greenhouse gas emissions at the lowest possible cost through the world's first economy-wide emissions trading scheme, launched in April 2002.

A fair deal for transport

Decisions on fuel duties and other transport taxes must take account of environment, economic and social objectives. To promote its environmental objectives, while responding to recent high and volatile world oil prices, the Government is now:

freezing the duty on all road fuels and road fuel gases - including ultra-low sulphur petrol (ULSP) and diesel (ULSD) - reducing duty by around 1 pence a litre in real terms;
planning to introduce duty incentives favouring sulphur-free fuels in 2003, and to exempt hydrogen from fuel duty in the future, to promote the production and take-up of this environmentally-friendly form of fuel;
freezing vehicle excise duty (VED) rates, and introducing a new low-carbon VED rate offering a £30 discount for the very cleanest cars producing less than 120g/km. Budget 2002 also announces reforms to VED for motorcycles - which will lead to over 600,000 motorcyclists paying lower rates of VED - and a reform of van VED, including a new discounted rate for vans which meet the challenging euro-IV emissions standard;
introducing enhanced capital allowances for the purchase of business cars with the cleanest engines, and on a revenue neutral basis restructuring the fuel scale charge from 2003-04 to relate it to carbon dioxide emissions rather than engine size; and
announcing further details of plans to introduce a distance-based road-user charge for lorries operating in the UK, within the next three to four years, in order to ensure that lorry operators from overseas pay their fair share towards the cost of using UK roads, while ensuring that the overall cost to the UK haulage industry does not rise.

In addition to these measures, Budget 2002 also freezes the rates of air passenger duty (APD) and extends the lower rates of APD that currently apply to flights within the European Economic Area (EEA), to flights to the EU applicant countries and to Switzerland.

Regenerating towns and cities and protecting the countryside

As well as tackling global problems of climate change, the Government is working to address local environmental issues, regenerating towns and cities and protecting Britain's countryside and natural resources:
tightening the enforcement of VED as part of the drive to tackle abandoned vehicles, as announced by the Secretary of State for Transport, Local Government and the Regions earlier this month;
introducing the aggregates levy from 1 April 2002, to reflect the environmental costs imposed by aggregates quarrying;
consulting the waste oils industry on proposals to enhance the marketability of regenerated, or recycled oils;
continuing to monitor the progress of the voluntary package of measures to reduce the environmental impact of pesticides use, which to date has made satisfactory progress, to ensure it delivers benefits above and beyond those that would result from a pesticides tax; and
announcing a review of the role economic instruments might play in addressing environmental issues associated with agriculture, including nutrient pollution.

Further details of the Government's environmental strategy are set out in the separate press release, HMT2.

NOTES FOR EDITORS

Further details of the Budget 2002 announcements can be found on this website. More details are also included in the press notices listed below. Copies of Inland Revenue and HM Customs and Excise Budget Technical Notes can be found on their websites at http://www.inlandrevenue.gov.uk/ and http://www.hmce.gov.uk/ respectively.

HM Treasury:

HMT 1 Budget 2002: The Strength to make long-term decisions: Investing in an enterprising, fairer Britain
HMT 2 Working with business and consumers to protect the environment
HMT 3 Support for community amateur sports clubs

Inland Revenue and HM Customs and Excise:

REV/C&E 1 A modern and competitive business tax system
REV/C&E 2 Supporting small businesses and entrepreneurs

Inland Revenue:

REV 1 Inland Revenue tax rates and allowances for 2002-03
REV 2 National insurance rates 2003-04
REV 3 New tax credits: A £2.7 billion boost for families and the
low paid
REV 4 Stamp duty on UK land and buildings

HM Customs and Excise:

C&E 1 Alcohol and tobacco duties

HM TREASURY PRESS OFFICE

Press enquiries: 020 7270 5238

Non-media enquiries: 020 7270 4558

INLAND REVENUE PRESS OFFICE

Press enquiries: 020 7438 6692 / 6706 / 7327
(out of hours: 07860 359544)

Non-media enquiries: 020 7438 6420
(office hours only)

HM CUSTOMS AND EXCISE PRESS OFFICE

Press enquiries: 020 7865 5471 / 5472
(out of hours:020 7620 1313)

GOVERNMENT DEPARTMENT INTERNET SITES

Further information and all published documents relating to Budget 2002 may also be found at the following addresses:

Inland Revenue http://www.inlandrevenue.gov.uk/

HM Customs and Excise http://www.hmce.gov.uk/

Budget 2002 Press Notices: index