PN 1
12 March 2008
Budget 2008
Stability and opportunity:
Building a strong sustainable future
The Government's economic objective is to build a strong economy and a fair society, where there is opportunity and security for all.
The long-term decisions the Government has taken - independence for the Bank of England, new fiscal rules and a reduction in debt - have created a strong platform of economic stability. With low and stable inflation, interest rates set by the Monetary Policy Committee to meet the Government's symmetric inflation target, and fiscal policy supporting monetary policy over the cycle, the economy has grown continuously for 62 consecutive quarters.
The world economy is now facing a more challenging environment than was apparent at the time of the 2007 Pre-Budget Report, with continued disruption in global financial markets. While the UK and other economies have benefited significantly from globalisation, recent events have shown how interconnected capital markets mean shocks in one region can easily be transmitted elsewhere.
This Budget sets out the action the Government is taking to support the economy in the short term, to ensure the resilience of the past decade continues, combined with action to make further progress against its long-term goals of:
- maintaining macroeconomic stability, ensuring the fiscal rules are met and that inflation remains low;
- sustainable growth and prosperity, through reforms that promote enterprise and business growth, simplify the tax system, enhance flexibility and promote science, innovation and skills;
- ensuring fairness and opportunity for all, tackling child and pensioner poverty, providing opportunity for all children and young people, delivering security for all in retirement, and ensuring a modern and fair tax system where everyone pays their fair share of tax;
- creating stronger communities and effective public services, and improving long-term housing supply and affordability; and
- ensuring an environmentally sustainable world, with action to address the global challenge of climate change.
Maintaining macroeconomic stability
The Government's long-term goal is to maintain macroeconomic stability in order to achieve its objective of a fair society where there is security and opportunity for all.
The UK economy continued to perform strongly in 2007, growing 3 per cent on a year earlier, the fastest growth rate among the G7 economies. Employment reached a record high and claimant count unemployment fell to a 32 year low. The UK is the only G7 economy to have avoided any single quarter of negative growth over the past decade. The flexibility and resilience of the UK economy provides a solid platform from which to face the global economic shocks from the continued disruption in global financial markets and the increase in energy and commodity prices. UK GDP growth is forecast to slow from 3 per cent in 2007 to 1¾ to 2¼ per cent in 2008, before picking up to 2¼ to 2¾ per cent in 2009 and 2½ to 3 per cent in 2010.
Despite the impact of financial market disruption on the public finances, the Budget 2008 projections show that the Government is meeting its strict fiscal rules:
- the current budget shows an average surplus as a percentage of GDP over the current economic cycle, which began in 1997-1998, ensuring the Government is meeting the golden rule. The current budget moves clearly into surplus from 2010-11 onwards; and
- public sector net debt is projected to remain low and stable over the forecast period, stabilising below the 40 per cent ceiling set in the sustainable investment rule.
Sustainable growth and prosperity
Over the last decade, coinciding with significant reform programmes, UK productivity has improved and levels of employment have risen to record highs. However, at a time of far reaching change in the global economy, the Government must continue to provide a stable policy framework, so that business has the certainty to plan ahead, while ensuring that policy remains responsive to changing circumstances.
Budget 2008 includes short-term measures to enable small and growing businesses to access the resources they need during a time of global financial market disruption. At the same time it builds on progress to date by announcing longer-term measures designed around the levers available to Government to encourage productivity growth. These measures include:
- access to finance measures including enhancing the Small Firms Loan Guarantee Scheme and Enterprise Capital Funds to support small firms in accessing the resources they need to start up and grow;
- a package of reforms on regulation and tax simplification and implementation of the business tax reforms announced in Budget 2007, including the lowest rate of Corporation Tax in the G7;
- further implementation of the Leitch and Sainsbury Reviews to build on improvements in the UK skills base and to provide a world-class science base and innovation framework;
- exploring options to make better use of transport infrastructure, on top of the major programme of investment announced in the 2007 Comprehensive Spending Review;
- progress on business support simplification and measures to ensure better access to Government procurement for small firms; and
- a study of public service markets and a new framework for infrastructure procurement.
Further details on these and other measures are set out below:
Access to finance
Budget 2008 introduces a package of measures to support small businesses access the finance and resources they need to start up and grow, responding to business needs in the short term:
- A temporary increase of 20% in the amount of finance available through the Small Firms Loan Guarantee scheme, and relaxation of the restrictions on firm age to allow access to the scheme for a wider range of small firms;
- The Government will work with the banks to explore mechanisms to ensure small firms are able to access the most appropriate forms of finance, including mezzanine products. It will also provide additional Enterprise Capital Funds of £30 million to support this type of provision;
- A new capital fund primarily focused on businesses run by women;
- An increase in the Enterprise Investment Scheme's investor limit from £400,000 to £500,000 in any one tax year (subject to EU State Aid approval), and a consultation on how best to simplify operation of the scheme; and
- An increase in the value of share options an individual can hold under the Enterprise Management Incentive scheme from £100,000 to £120,000.
Regulation
Government will consult on the proposed introduction of regulatory budgets, which would cap the costs of new regulation.
Improved procurement for small and medium sized enterprises (SMEs)
The Government today announces the creation of an advisory committee, to provide advice for the 2008 Pre-Budget Report on necessary action to reduce the barriers to SMEs competing for public sector contracts, and on the practicality of setting a goal for SMEs to win 30 per cent of all public sector business in the next five years. As a part of the Enterprise Strategy the Government also today announces:
- free trial periods for all suppliers newly registering with Supply2Gov; and
- that firms supplying public services to Government will be able to sell public sector invoices to debt specialists.
Enterprise Education
Building on existing provision, a strategy is set out for developing seamless enterprise education, from primary schools to higher education, underpinned by £210 million announced at the 2007 Comprehensive Spending Review. This will include:
- Establishment of a National Enterprise Academy to equip 16-19 year olds with enterprise skills;
- Creation of University Enterprise Networks to further develop relevant skills during higher education.
Enterprise Strategy
Building on the announcements above, the Enterprise Strategy, published today, sets out how Government will further encourage business start up and growth. Focused on small and medium sized businesses, the strategy sets out a new framework for Government action, structured around the enablers of Enterprise - Culture, Knowledge and Skills, Access to Finance, Regulatory framework, and business innovation
Tax simplification
The Government today announces the next stage in its rolling programme of tax simplification to further enhance UK productivity and competitiveness.
Following discussions with business and tax professionals, the Government today announces the initial outcomes on the three tax simplification reviews launched at the 2007 Pre-Budget Report:
- VAT rules and administration: consulting on ideas to simplify operation of the partial exemption regime and capital goods scheme, and exploring the continuing need for business to seek permission from HMRC before taxing otherwise VAT-exempt supplies of land and property;
- Anti-avoidance legislation: repealing outdated and complex anti-avoidance provisions on bond washing, employment securities and other transactions in securities; and
- Corporation Tax rules for related companies: simplifying the associated companies rules relating to the small companies rate of Corporation Tax.
Building on the significant reforms to the business tax system announced in Budget 2007, due to take effect from April 2008, and responding to representations from business, the Budget further simplifies Corporation Tax by:
- reforming capital allowances to allow 500,000 businesses to write off pools of £1000 or less; and
- announcing a new review in which HM Treasury and HMRC, working in partnership with business, will look at how to simplify the Corporation Tax calculations and returns for smaller companies.
The Government also announces over 20 further tax simplification measures, which will help sectors across the UK economy, including further modernising the tax system for financial services and the charitable sector.
North Sea Fiscal Regime Reform
The Government remains committed to ensuring that the North Sea fiscal regime promotes investment and production, while ensuring a fair return for the UK taxpayer. Following the publication of the consultation document Securing a sustainable future in December 2007 the Government today announces a package of reforms to the North Sea fiscal regime to help encourage investment and maximise production. The Government will continue to engage with stakeholders on outstanding issues.
Asset Management
The Government today announces a package of tax measures which will enhance the competitiveness of the UK asset management sector, remove tax as a barrier to commercial developments and make the tax system fairer for investors. The measures include launching a new tax regime for Property Authorised Investment Funds which will commence on 6 April 2008. The package of measures has resulted from close dialogue with the asset management industry, in particular addressing issues raised in the Investment Management Association/KPMG report Taxation and the Competitiveness of UK Funds.
Islamic finance
Following a commitment made in April 2007, the Government has been examining the feasibility of a sovereign sukuk issuance. A final announcement on the outcome of that work at this time would be premature, given the range of issues being considered. The Government remains committed to examining this issue and in Finance Bill 2008 will take legal powers to facilitate any potential future issuance. An update to the work programme, including a response to the recently closed public consultation, will be provided in the summer of 2008.
In addition, the Government has today announced a package of measures to further support Islamic finance in the UK. The Government aims, subject to consultation, to provide relief from stamp duty land tax (SDLT) for alternative finance investment bonds. The Government will also amend legislation to treat these instruments as loan capital for stamp duty and stamp duty reserve tax purposes, and modify legislation that will allow corporation and income tax rules on these instruments to be amended in the future by regulations, should that prove necessary. Finally the Government and the Financial Services
Authority will work together with stakeholders to clarify the regulatory treatment of these instruments.
Science and Innovation
The Science and Innovation White Paper will be published on 13 March and will outline significant progress in implementing the Sainsbury Review's recommendations. The White Paper will also set out DIUS' forward strategy for promoting innovation. The Budget today outlines key commitments including: proposals on how to ensure Government procurement promotes innovation; the development of an independent innovation index to measure innovation throughout the economy; the piloting of a Further Education Specialisation and Innovation Fund; and a doubling of the number of Knowledge Transfer Partnerships supported by the Technology Strategy Board. The Budget also announces that the Government will invest £10 million over five years in "Project Enthuse" to support the professional development of science teachers in all secondary schools, working in partnership with business and the Wellcome Trust.
Further progress towards implementing the Leitch review and improving workforce skills
Through Skills Accounts the Government will ensure that every adult can access investment in their skills. To expand this investment, Budget 2008 announces £60m of additional funding for adult skills, focused on Level 3, which will support increased opportunity and progression. This will provide new opportunities for people to realise their talents, offer adults a second chance to retrain and will be used to test new ways of delivering training. It will also enable leading employers to take on more adult apprentices.
Investing in infrastructure
The Government reaffirms its commitment to exploring national road pricing. Budget 2008 announces an invitation to tender to the private sector to run a number of projects based on charging by time of day, distance travelled and route chosen. The Government will make available sufficient funding to ensure these projects test the impact of financial incentives on driver behaviour.
Today the Government publishes Infrastructure procurement: delivering long term value setting out the next steps the Government is taking to secure value for money in its procurement of assets, infrastructure and long-term service provision.
Fairness and opportunity for all
The Government is committed to employment opportunity for all. As well as ensuring that individuals can take advantage of the opportunities of an increasingly globalised world, it is also crucial to the ambition of eradicating child poverty and promoting saving. The Government's approach to delivering on this commitment is twofold: integrating the tax and welfare system, so that work always pays; and providing everyone with the support they need to find, retain and progress in work. The Government is also committed to providing better incentives for saving, including for old age. This complements the action the Government is taking to enhance financial security for today's pensioners.
The Government is committed to a modern and fair tax system that ensures everyone pays their fair share of tax to support public services and meet the fiscal rules.
This Budget sets out the next steps the Government is taking to support these aims, including:
- further financial support for children, which will lift up to 250,000 children out of poverty;
- Work Capability Assessments for all existing Incapacity Benefit claimants, focusing on what people can do in work;
- further action, with the energy companies and Ofgem, to help vulnerable groups deal with rising energy prices;
- alongside the Winter Fuel Payment, an additional one-off payment of £100 to over-80s households and £50 to over-60s households in 2008-09. This will benefit around 9 million households;
- the Saving Gateway, which is a cash saving scheme for those on lower incomes, will be introduced nationally, with the first accounts available to savers in 2010;
- increasing all alcohol duty rates by 6 per cent. This will add 4 pence to the price of a pint of beer, 14 pence to the price of a bottle of wine and 55 pence to the price of a bottle of spirits;
- increasing tobacco duty in line with inflation. This will add 11 pence to the price of a packet of cigarettes; and
- further reforms to modernise the tax system, modernise tax administration and protect tax revenues.
Further details on these and other measures are set out below:
Residence and Domicile
The Government will implement the package of reforms announced at the 2007 Pre-Budget Report subject to some changes made in the light of consultation.
Key changes following consultation mean:
- income and gains in offshore trusts will only be taxed when they are remitted to the UK, even if these come from UK assets;
- children will not pay the £30,000 charge;
- the £30,000 charge should be creditable against foreign tax;
- art works brought into the UK for public display or for repair and restoration will face no new tax charges;
- where art works owned by offshore trusts are sold in the UK tax will only be paid when the trust remits the gain to the UK; and
- people with unremitted offshore income and gains of under £2,000 are exempt from the £30,000 charge and the changes to personal allowances.
The Budget announces that the rules in this area will not be substantially revisited for the rest of this or the next Parliament.
Background
The reform package strikes the right balance between competitiveness and fairness by keeping the special rules for non-domiciles which help to make the UK an attractive destination for international talent and investment, while also ensuring that people living in the UK over the longer term make a greater contribution.
The reform package covers:
- an annual £30,000 charge on remittance basis users who have been resident in the UK for more than 7 out of the past 10 years;
- the removal of tax free personal allowances for remittance basis users;
- a tightening of the day counting rules which establish UK residence; and
- a package of loophole closing measures.
Child Poverty
The Government is firmly committed to tackling child poverty and since 1997 has made considerable progress against its objectives. The Budget sets out the next steps, including measures to make significant further progress towards the target of halving child poverty by 2010, which are expected to lift up to 250,000 children out of poverty. The Budget announces:
- an increase in the first child rate of Child Benefit to £20 a week from April 2009, reinforcing the Government's commitment to Child Benefit as the foundation of financial support for all families;
- an increase in the child element of the Child Tax Credit by £50 a year above indexation from April 2009 to further help low to middle income families; and
- Child Benefit will be disregarded in calculating income for Housing and Council Tax Benefit from October 2009, improving work incentives for many of the lowest paid families and boosting their incomes. A working family with one child on the lowest incomes will gain up to £17 a week from this change.
Ending child poverty: everybody's business, published today, sets out the strategy for the next decade as the Government takes further steps towards eradicating child poverty by 2020. In line with this renewed approach Budget 2008 also announces that the Government will invest an additional £10 million in 2008-09, £35 million in 2009-10 and £80 million in 2010-11 in piloting new approaches to increasing parental employment and raising incomes, tackling deprivation in communities and improving poor children's life chances across the UK to prepare for the next decade.
Support for pensioners
Building on the Government's substantial commitment to help pensioners, Budget 2008 announces an additional one-off payment of £100 to households with someone aged 80 or over and £50 to households with someone aged 60 or over, to be paid alongside the Winter Fuel Payment in 2008-09.
Helping vulnerable households heat their home
Budget announces further action, with the energy companies and Ofgem, to help vulnerable groups deal with rising energy prices.
Incapacity Benefit Reform
From late 2008, an integrated and simplified Employment and Support Allowance (ESA) will replace the current system of incapacity benefits for new claimants and will have a clearer balance of rights and responsibilities. The introduction of ESA will be accompanied by a new Work Capability Assessment (WCA), which will apply to new claimants from October 2008. To ensure that the increased focus on a person's capability to work has an impact for current as well as future claimants, the Budget announces that all existing incapacity benefits claimants will be required to take the Work Capability Assessment from April 2010.
The Government is also looking at the way it contracts with specialist providers to support existing long-term incapacity benefits claimants. The Government will explore using a new funding mechanism to reward private and voluntary sector specialist providers for investing in helping long-term incapacity benefits claimants to return to work.
Housing Benefit
The Government is already taking forward the largest structural reform of Housing Benefit (HB) for 20 years through the flat-rate Local Housing Allowance (LHA), with national roll-out in the private rented sector from April 2008. The Budget announces that, as the LHA is rolled out, the Government will undertake a comprehensive review of the working age HB system, to look at its effectiveness in promoting work, efficiency and fairness, and to ensure that it represents value for money for the taxpayer.
The Saving Gateway - introduction of a national scheme
Following the success of pilots in promoting saving and financial inclusion, the Saving Gateway will be introduced nationally, with the first accounts available to savers in 2010. The Saving Gateway is a cash saving scheme for those on lower incomes. Individuals in receipt of the following benefits and tax credits will be entitled to open an account in the national scheme: Working Tax Credits; Child Tax Credits paid at the maximum rate; Income Support; Jobseeker's Allowance; Incapacity Benefit; Employment and Support Allowance and Severe Disablement Allowance.
Saving Gateway accounts will be offered by financial institutions such as banks and building societies, and will run for two years. At the end of the accounts the Government will match (make a contribution for each pound saved) money which people have saved into their accounts. Third sector organisations such as credit unions, social housing providers and the Citizens Advice Bureau have expressed interest in providing information and support for savers in the scheme. A consultation document The Saving Gateway: Operating a National Scheme, is published alongside the Budget.
Alcohol Duty Rates
As incomes have risen, alcohol has become increasingly more affordable. A 6 per cent increase in all alcohol duty rates will come into effect on 17 March 2008. This will add 4 pence to the price of a pint of beer, 55 pence to the price of a bottle of spirits and 14 pence to the price of a bottle of wine. In order to ensure that alcohol duties keep pace with rising incomes alcohol duty rates will increase by 2 per cent above the rate of inflation in future years.
Tobacco Duty Rates
Maintaining high levels of tax on tobacco helps to reduce overall tobacco consumption. Budget 2008 therefore announces that, from 6pm on Budget day, tobacco duties will increase in line with inflation, adding 11 pence to the price of a packet of 20 cigarettes.
Smoking Cessation Products
The rate of VAT on smoking cessation products was reduced to 5 per cent on 1 July 2007. Since then retail prices of these items have dropped whilst sales have increased. To further support the Government objective to reduce smoking prevalence the reduced rate will be continued beyond its original expiry date of 30th June 2008.
Review of HMRC Powers: penalties, compliance checks and debt management
The Budget announces further measures from HMRC's review of powers, deterrents and safeguards. This package of measures will:
- extend a common approach to penalties for incorrect tax returns to all taxes and duties and introduce a single framework of penalties for failing to notify a new taxable activity;
- modernise the approach to compliance checks and assessing errors across income tax, capital gains tax, corporation tax, PAYE, VAT and NICs to provide better clarity and consistency and to allow flexible approaches which respond better to taxpayers' circumstances; and
- make it easier for taxpayers to pay what they owe on time and support HMRC in effectively tackling those who pay late by accepting payment by credit card; setting off repayments of one tax against the debts of another; and aligning and modernising HMRC's civil debt enforcement powers.
Stronger communities and effective public services
The Government's aim is to deliver world-class public services through sustained investment matched by reform, supporting strong and sustainable communities and a better quality of life. The Government is supporting schools and wider children's services to raise attainment for all pupils, is bringing forward a package of measures to help respond to short-term and long-term housing challenges and is supporting the third sector with a package of measures to enhance Gift Aid. The Budget announces:
- that in order to maintain the pace of reform the Government will achieve significant further operational savings in the post-CSR period and will launch the Public Value Programme to look at all major areas of public spending to identify where there is scope to improve value for money;
- the Department for Children Schools and Families will take forward a £200 million package over the next three years to bring forward by a year to 2011 the Government's ambition for no school to have fewer than 30 per cent of its pupils achieving 5 A* to C at GCSE, including English and maths;
- a package of measures to deliver decent and affordable housing for all by increasing housing supply and making housing more affordable;
- a Working Group that will take forward market initiatives to improve liquidity in the mortgage-backed securities market. The Working Group will include the mortgage industry, the investment industry and also HM Treasury, the Bank of England and the Financial Services Authority. The Working Group will report initially to the Chancellor in summer 2008 and present proposals at the time of the 2008 Pre-Budget Report;
- the Government is inviting views on options for a UK legislative framework to deliver more affordable long-term fixed-rate mortgages and the lessons to be learned from international markets and institutions. The Government will work with a wide range of stakeholders and experts and will provide an update at the 2008 Pre-Budget Report;
- a transitional rate of Gift Aid worth around £300 million over three years, enabling Gift Aid to be paid at a rate of 22 per cent in 2008-09, 2009-10, and 2010-11 from 6 April; and
- a number of measures that reduce burdens on charities and include major reform to the auditing process, a comprehensive programme for bringing additional smaller charities into Gift Aid and measures to increase the awareness of Gift Aid including the launch of targeted marketing tools.
Further details on these and other measures are set out below:
Value for money
The Budget announces plans to build on the success of the existing public sector efficiency programme. Departments have now reported efficiency savings of over £23 billion for the Spending Review 04 period and have published plans which will deliver another £30 billion of savings by 2010-11. The Government intends to go further than this in the period beyond 2011 and the Chief Secretary to the Treasury will set out detailed plans in the summer for how Government will maintain discipline on administration and back-office costs and ensure efficiency in the public sector keeps pace with developments in the private sector. The Government will set out in Budget 2009 what level of savings will be delivered. Alongside this, the Budget today launches the Public Value Programme to look at major areas of public spending and find smarter ways of doing business and saving money. Initial areas identified for investigation include road-building, commissioning in the health sector, regeneration spending and public sector IT projects.
Bringing forward schools' target
Budget 2008 announces that the Department for Children, Schools and Families (DCSF) will take forward a £200 million package over the next three years, to raise the level of support and challenge for low-attaining schools, bringing forward by a year to 2011 the Government's ambition that there should be no schools with fewer than 30 per cent of pupils attaining 5 A* to C at GCSE, including English and Maths. By 2011, the Government will expect all schools to have achieved this benchmark or to be subject to formal intervention.
The new package will support rolling out the successful London Challenge model across the country; empowering more of the best head teachers to help turn around low attaining schools; creating new trusts and federations based on successful schools; and, in areas of greatest need, driving forward a faster expansion of the Academies programme. DCSF will publish a detailed strategy for delivering the Government's floor target ambition in the summer.
Management of corporate assets
To support the introduction of asset management strategies the Treasury and Shareholder Executive will undertake an assessment of the governance, business plans and future development strategies of each of the trading funds and a selection of public corporations.
Housing Finance Review
The Housing Finance Review published today contains analysis and proposals to improve the mortgage-backed securities market as a stable source of mortgage finance and encourage the availability of affordable and flexible mortgage products which help borrowers manage risks better.
Well-functioning mortgage-backed securities markets are critical for an efficient mortgage market. The UK legislative framework for covered bonds implemented last week makes an important contribution. Furthermore, the Government is announcing a Working Group that will take forward market initiatives to improve liquidity in the mortgage-backed securities market. The Working Group will include the mortgage industry and the investment industry, and also the Treasury, the Bank of England and the FSA. It will present proposals at the time of the 2008 Pre-Budget Report.
Long-term fixed-rate mortgages can bring benefits for some borrowers by helping them manage the risks of a mortgage by protecting them from unexpected interest rate rises over a long period. To help lenders finance more affordable long-term fixed-rate mortgages the Government is inviting views on options for a UK framework to deliver more affordable long-term fixed-rate mortgages, including the lessons to be learned from international markets and institutions. The Government will work with a wide range of stakeholders and experts and will provide an update at the Pre-Budget Report.
Tax incentives for development of brownfield land
The Government will legislate in Finance Bill 2009 to extend land remediation relief to expenditure on derelict land and to the removal of Japanese knotweed by treatment from 1 April 2009. It will also introduce secondary legislation later this year to phase out the landfill tax exemption for waste from the clean up of contaminated land from 1 April 2012.
The Government will consult on draft legislation for both reforms to land remediation relief and the landfill tax exemption for waste from the clean up of contaminated land in the summer.
Stamp duty land tax (SDLT) treatment of shared ownership
From today, changes to SDLT rules will ensure that in the vast majority of cases, buyers of shared ownership products will only pay SDLT on acquiring the final 20 per cent of the property, unless they elect to pay SDLT upfront.
Promoting giving through Gift Aid
Budget 2008 announces a comprehensive package of measures in response to the Gift Aid consultation, including major reform to the auditing process; a programme for bringing additional smaller charities into Gift Aid; redesign of guidance; and the launch of targeted marketing tools. This Budget also announces that although the basic rate of tax will be 20%, Gift Aid will be paid at a transitional rate of 22% from 2008-09 to 2010-11; providing charities with additional Gift Aid worth around £300 million over three years.
A more secure, fair and environmentally sustainable world
Tackling climate change is the most serious and pressing global environmental challenge the world faces. Budget 2008 sets out new policies to reduce emissions across all major sectors of the economy and ensure the UK continues to lead the climate change agenda internationally. The Government is also acting to protect the UK's natural environment.
Budget 2008 announces:
- laying the ground work for the introduction of five-year carbon budgets, and that the first budgets will be set alongside Budget 2009;
- reform of car vehicle excise duty rates and bandings, introducing new bands from 2009 to reward drivers of the cleanest cars, and higher first year rates in 2010-11 to influence purchasing choices. As a result of these changes the majority of drivers will be better or no worse off;
- the planned fuel duty increase of 2 pence per litre in April 2008 will be delayed until 1 October 2008. Main road fuel duty rates will rise by 1.84 pence per litre on 1 April 2009, and will increase by 0.5 pence per litre above inflation on 1 April 2010;
- auctioning 100 per cent of allowances for large electricity producers in Phase III of the EU Emissions Trading Scheme;
- funding for the Green Homes Service to advise consumers on how to reduce carbon emissions, waste and water consumption;
- strengthening the environmental incentives for taxation of business cars, along with simplifying measures;
- incentivising only the most sustainable biofuels, by shifting support away from the duty differential to the Renewable Transport Fuel Obligation in future years;
- increasing climate change levy rates in line with inflation, in order to maintain the environmental incentive effect;
- to strengthen the environmental signal through taxation, forecast tax revenues from the new per plane duty, due to replace air passenger duty on 1 November 2009, will increase by 10 per cent in the second full year of operation;
- an ambition for all new non-domestic buildings to be zero carbon from 2019 with consultation on the timeline and its feasibility and new public sector buildings from 2018;
- extending the Stamp Duty Land Tax exemption from zero carbon homes to new flats, retrospectively from 1 October 2007;
- that to eliminate single-use carrier bags, the Government will legislate and impose a charge if retailers do not take voluntary action; and
- increasing the aggregates levy from 1 April 2009 to maintain its environmental impact.
Further details on these and other measures are set out below:
Long term targets
The UK is currently working towards a long-term goal of reducing CO2 emissions by at least 60 per cent by 2050. The evidence now suggests that as part of an international agreement the UK may have to reduce emissions by 80 per cent. The Government has asked the climate change committee for its advice on this point.
Carbon budgets
The Climate Change Bill will commit the Government to fixed and binding 5-year carbon budgets, based on the advice of the independent Committee on Climate Change. The Government announces its intention to set out alongside Budget 2009 the first three carbon budgets and its plans for meeting them.
UK International and European leadership on Climate Change
The UK has been at the heart of efforts to tackle climate change in the EU and globally. It has been instrumental in the development of emissions trading and carbon markets as a tool for tackling climate change cost-effective, and in the launch of the ambitious EU package in January 2008 and in Bali last December, where the UN launched negotiations for a climate change deal beyond 2012.
100% auctioning for allowances allocated to large electricity generators in Phase III of the EU ETS
From 2013 onwards large electricity producers will have to buy 100% of their EU ETS allowances, if there is scope in the new EU ETS Directive to do so. This will remove the possibility of generators making windfall profits from free EU ETS allowances, ensuring that the polluter pays.
Renewables
In summer 2008, the Government will launch a full consultation on what more we should do to increase renewable energy use, including how to address barriers to renewables such as planning and grid access.
Low carbon technologies
Budget 2008 announces that the Energy Technologies Institute's first projects will be offshore wind (a £40m joint fund with the Carbon Trust) and marine, wave and tidal flow (up to £20m).
Budget 2008 also announces that the domestic Environmental Transformation Fund allocates over £400 million, to ensure that technologies that are in the later stage of development can be brought to market and demonstrated, including:
- Carbon Trust technology programmes (over £90 million);
- Energy efficiency demonstration and deployment (over £45 million); and
- Renewable energy and low carbon technologies (at least £200m).
The Government today announces that, alongside the CCS demonstration competition, BERR will shortly launch a new call for expression of interest to demonstrate component parts of CCS. They will also consult soon on the required regulatory framework, as well as the definition of 'capture readiness', and whether all new coal power stations should prove that they are 'capture-ready'.
Climate change levy (CCL)
The climate change levy package, introduced in 2001, has been the principal element of the Government's policy approach to encouraging business to reduce their energy demand. Budget 2008 announces:
- that CCL rates will rise in line with current inflation from April 2009; and
- a simplification in CCL requirements.
The King Review of low carbon cars
The King Review of low-carbon cars publishes its final report alongside this Budget and the Government welcomes this report. The Review makes recommendations for action to cut emissions from transport in four key areas: reducing vehicle emissions; cleaner fuels; consumer behaviour; and research and development. In light of the Review's key recommendations, Budget 2008 announces:
- Government support for setting an EU-wide longer term target for car manufacturers to reduce average new car CO2 to 100g/km by 2020;
- that the duty differential for biofuels will be abolished in 2010/11 and from then the Renewable Transport Fuel Obligation will provide the total incentive for biofuels, reflecting carbon efficiency and sustainability;
- that the Department for Transport will collaborate with the low carbon vehicle partnership to explore initiatives highlighted by the review to raise consumer awareness of environmental impacts; and
- a £40 million research programme into low carbon vehicle concepts.
A full Government response will be published in the summer.
Vehicle Excise Duty
The King Review found that that a typical driver can reduce their CO2 emissions by 25 per cent by choosing the most efficient vehicle in their preferred class. In addition, the Review concludes that a longer-term target of reducing average new car CO2 emissions to 100g/km by 2020 is achievable. In order to support this target, and further strengthen the environmental incentive to develop and purchase fuel-efficient cars, Budget 2008 announces reform of the Vehicle Excise Duty (VED) structure. From 2009, VED will be restructured so that people gain financially by choosing the greenest cars. From 2010, there will be a new higher first year rate to influence purchasing choices.
Specific changes:
- six new VED bands from 2009-10 - including a new top band (band M) for most polluting cars that emit more than 255g CO2/km;
- reducing the standard rate, in 2009-10, for all new and existing cars that emit 150g of CO2/km or less; and increasing the rate on the most polluting cars to £425;
- from 2010-11, extending the zero rate of VED, during first year of ownership, to all new cars that emit 130g CO2/km or less;
- holding the first year rate for all new cars that emit between 131 to 160g CO2/km equal to the standard rate in 2010-11;
- for the most polluting cars a first year rate of £950 in 2010-11;
As a result of these changes, the majority of motorists are better or no worse off in 2009.
Taxation of business travel
In addition to VED reform, Budget 2008 announces that Government will further promote the take up of cleaner cars through reforms to the taxation of business travel.
Replacing the existing capital allowance treatment for business cars with an emissions based approach
With effect from 1 April 2009 for corporation tax purposes (6 April 2009 for income tax) the capital allowance treatment of all cars will be reformed. Expenditure on cars with CO2 emissions above 160g/km will attract 10 per cent Writing Down Allowance (WDA) and expenditure on cars with CO2 emissions of 160g/km or below will attract 20 per cent WDA. Subject to State aid approval, cars leased to those in receipt of certain disability allowances will be placed in the 20 per cent main pool, regardless of their CO2 performance.
The rules which disallow a proportion of car lease rental payments will be reformed in line with the new capital allowances rules. The new disallowance will be 15 per cent of the relevant payments, applied to cars dealt with in the 10 per cent special rate pool. The Government is considering the option of applying the disallowance only to the final business user in a chain of leases.
In addition to this:
- the 100 per cent first year allowances (FYA) for the cleanest cars will be extended from 31 March 2008 to 31 March 2013 and the qualifying CO2 emissions threshold will be reduced to 110g/km;
- the 100 per cent FYA for gas re-fuelling infrastructure investment will also be extended from 31 March 2008 to 31 March 2013, and its scope expanded to include biogas infrastructure;
- company car tax rates will be increased on all but the cleanest cars emitting less than 135g CO2/km or less in 2010-11;
- the incentive to drive fewer miles will be strengthened by increasing the fuel benefit charge at least in line with the Retail Prices Index from April 2009; and
- tax-free mileage allowances (AMAPs) rates and thresholds will be maintained at current levels.
Fuel Duty Rates
The Government's policy is that fuel duty rates should rise each year at least in line with inflation as the UK seeks to reduce polluting emissions and fund public services. Budget 2008 therefore confirms that main road fuel duty rates will rise by 1.84 pence per litre on 1 April 2009, and announces that rates will then also increase by 0.5 pence per litre above indexation on 1 April 2010.
Budget 2008 also announces that the planned fuel duty increase of 2 pence per litre in April 2008 will now take place on 1 October 2008. The Government can also confirm that rebated oils duty increases will also be deferred until 1 October 2008, when they will rise in proportion to main road fuel duties. These rates will also rise by the same proportion as main road fuel duties in the subsequent two years.
Aviation Taxes
At Pre-Budget Report 2007, the Government announced that it intended to replace air passenger duty (APD) with a duty payable per plane rather than per passenger. This reform will take place on 1 November 2009, and has the objective of sending a better environmental signal, and ensuring that aviation makes a greater contribution to covering its environmental costs and contributing to funding public services. Budget 2008 announces that the Government will continue to strengthen this environmental signal, by increasing the forecast total tax revenue from aviation duty by 10 per cent in 2011-12, the second full year of operation for the new per plane duty.
The public consultation on the design of the new per plane duty opened on 31 January and will close on 24 April.
Package to encourage the Energy Services industry
Energy Service Companies (ESCOs) promote energy efficiency by providing information, finance and energy saving measures. ESCOs can help businesses identify ways to save money and lower their emissions. Budget 2008 announces that the Government will: develop voluntary agreements with energy suppliers to provide and promote energy services; raise awareness amongst businesses of the energy services industry; roll out smart meters to medium and large businesses; and lead by example to help develop the market through innovative procurement.
Zero-carbon non-domestic buildings
Government announces an ambition for all new non-domestic buildings to be zero carbon from 2019. The Government will consult this year on the timeline
for this ambition and its feasibility, and review progress in 2013. The policy is estimated to save approximately 75 million tonnes of carbon dioxide in the next thirty years.
The Government is committed to leading the way toward zero carbon in new buildings. Building on the zero-carbon schools ambition, it is the Government's ambition for all new public sector buildings to be zero carbon from 2018. There are key barriers that will have to be overcome in the coming months and years to deliver this, and there may be specific areas where achieving zero carbon presents particular challenges. The Government will therefore establish a Taskforce to advise on the timeline, how to reduce carbon emissions in the intervening period, and the particular challenges faced in some sectors such as hospitals, prisons and defence establishments.
Zero-carbon homes
To meet the ambition for all new homes to be zero carbon from 2016 the Government today announces that it will:
- extend the Stamp Duty Land Tax exemption to new flats, retrospectively from 1 October 2007;
- set out the definition for a zero-carbon home for the purposes of the 2016 ambition by the end of 2008, following a consultation in summer;
- provide pump-prime funding for a new 2016 delivery unit that will launch this year to guide, monitor and co-ordinate the zero-carbon programme;
- ensure all new homes built on surplus central government land released through the surplus public sector land programme from April 2008 will reach a minimum of Level 3 of the Code for Sustainable Homes.
Consumer information and action
Budget 2008 makes it easier for consumers and individuals to play their part in tackling climate change through the provision of information, support and advice:
Practical advice in the coming year will be provided to over 2 million households through the new Green Homes Service, and the Carbon Emissions Reduction target, which will deliver 154 million lifetime tonnes of carbon dioxide savings through obligations on energy companies to install energy efficiency and microgeneration measures in people's homes
The Energy Savings trust will also be working with Ofgem and energy suppliers to provide consumers access to easily comparable information on export tariffs for microgeneration through the Green Homes Service.
The Government is also supportive of the work Ofgem are doing to cut customer confusion by issuing standards for green tariffs and will be continuing work with them to reduce administrative barriers for microgenerators under the renewables obligation.
As part of their renewable energy strategy in the summer, BERR will consult on the best options for support mechanisms for microgeneration at individual and community levels including feed-in-tariffs.
Single use carrier bags
The Government has already called on retailers to take voluntary action to encourage the shift away from single-use carrier bags. The Government is committed to taking strong action, and so Budget 2008 announces that the Climate Change Bill will legislate so that, if there is not sufficient progress on a voluntary basis by the end of the year, the Government can exercise powers early next year to impose a charge on these bags.
The Government will consult in the meantime on the operation of the charge and how to ensure that any money raised goes to environmental charities. The Government will ensure that donations made by retailers to charitable causes out of any money raised will attract tax relief in the normal way.
Notes to editors
HM Treasury Press Office
Press enquiries: 020 7270 5238
Non-Media enquiries: 020 7270 4558
HM Revenue & Customs Press Office
Press enquiries:
020 7147 0798 / 2328 (Business Tax Desk)
020 7147 2318 / 2333 / 2319/ 0051 / 0394 (Personal Tax Desk)
020 7147 2314 / 0052 (Law Enforcement Desk)
07860 359544 (Out of hours)
Government department internet sites
Further information and all published documents relating to Budget 2008 may be found on the Internet at the following addresses:
HM Treasury: www.hm-treasury.gov.uk
HM Revenue & Customs: www.hmrc.gov.uk
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