17 March 1998
BUDGET 98 - NEW AMBITIONS FOR BRITAIN
A Budget to promote a successful, modern economy and a fairer society was announced by Chancellor Gordon Brown today. It responds to the major challenges facing the UK economy -rewarding work, promoting enterprise and supporting families.The Government's fiscal policies will ensure economic stability based on low inflation and sound public finances.
Tax and benefit reforms and an extension of the New Deal will promote employment.A package of enterprise reforms, including changes to corporation tax, will promote a more dynamic business sector.And a fairness package will help to support families with children, tackle child poverty, improve the environment and ensure that individuals and companies pay their fair share of tax.
The Chancellor said today:
"This is a Budget that recognises the ambitions of the hard-working people of Britain. It is a Budget for stability,work, enterprise and fairness."Creating economic stability
Economic stability is essential for achieving the Government's central economic objective of high and stable levels of growth and employment.This Budget ensures that Britain remains on course for low inflation and sound public finances by:
- re-affirming the inflation target of two and a half per cent;
- maintaining a prudent approach to fiscal policy by ensuring that the deficit reduction plan remains on track;
- implementing the Code for Fiscal Stability to ensure that fiscal policy is open, transparent and in the UK's long-term interests. Encouraging work by making work pay
This Budget reforms the tax and benefit systems to encourage work and opportunity by making work pay. The Working Family TaxCredit (WFTC) and national insurance reform will, alongside the minimum wage, tackle the main obstacles to work: the unemployment trap (when people find themselves little or no better off in work), the poverty trap and the lack of affordable child care. It takes forward the modernisation of the welfare state,building on the measures in the July 97 Budget to help the unemployed and others excluded from the labour market into work.
Today the Chancellor announced:
- the launch of the WFTC to replace Family Credit (FC) from October 1999 which will mean a better and fairer deal for over one million working families. It tackles the poverty trap by ensuring that families can keep more of what they earn (the taper - the amount of benefit withdrawn as income increases - is reduced from 70 per cent in FC to 55 per cent);
- a generous new childcare tax credit within WFTC to give access to quality childcare for low income working families. The new credit will meet 70 per cent of registered childcare costs up to a maximum of 100 pounds a week for one child families, or 150 pounds a week for those with more than one child;
- reform of National Insurance to remove the barriers to employment and ease the regulatory burdens on business;
- further extension of the New Deal to provide employment and training opportunities for the long-term unemployed, partners of the unemployed, the sick and disabled and those living in the most deprived housing estates.
Promoting enterprise
The Government is committed to removing the barriers that hold back growth, enterprise and the development of dynamic businesses. The Chancellor announced today reform of corporate and capital taxes, and a range of other measures, to encourage risk taking, enterprise and investment including:
- with effect from April 1999, cutting the main rate of corporation tax from 1 per cent to 30 per cent; and cutting the small companies rate by 1 per cent to 20 per cent from April 1999;
- abolishing advance corporation tax from April 1999 and introducing quarterly instalment payments of corporation tax for large companies only phased in over four years;
- a capital gains tax reform to tax long-term gains less heavily than short-term gains including, for higher rate tax payers, a rate of tax of effectively 10 per cent on business assets held for 10 years or more;
- a unified Enterprise Investment Scheme (EIS) and CGT reinvestment relief which will stimulate the provision of equity capital for small, higher risk trading companies;
- extension for a further year of enhanced capital allowances. These will be set at 40 per cent for first-year expenditure on plant and machinery by small and medium sized businesses;
- simplifying the rules and easing the regulatory burdens on companies.Creating a fairer society
The Budget takes forward the Government's commitment to fairness in tax and spending. It includes more resources for health and education and measures to tackle child poverty, to spread the savings habit to those on modest incomes and to tackle tax privileges for the few in order to provide a better deal for hard-working families. And it begins to deliver on the commitment to use the tax system to help protect the environment.
To promote a fairer society, the Chancellor announced today:
- that from April 1999, all families gain 2.50 pounds from the new 14 pound rate of Child Benefit for the eldest child. As a result of this change and the new WFTC the poorest 20 per cent of households with children will gain an average of 720 pounds a year;
- more money for key priorities including 500 million pounds for the health service, 250 million pounds to reduce class sizes, 50 million pounds for rural transport and 20 million pounds for a challenge scheme for universities.
- individual savings account to encourage saving, extend the tax free saving environment to many more people and rebalance the existing tax relief to make it fairer;
- measures to curb avoidance, close loopholes and remove unfair advantages,. designed to ensure people pay their fair share of tax. This keeps rates lower for the ordinary taxpayer;
- a package for the transport sector including duty increases on petrol and diesel, a freeze on Vehicle Excise Duty and reform of company car taxation;
- VAT rate of 5 per cent for energy saving materials installed under Government grant schemes from 1 July to help 40,000 additional households a year;
- taking forward a number of consultations and reviews looking at extending environmental taxes including landfill tax, water pollution and quarrying;
- further work on a tax on industrial and commercial use of energy.
HM TREASURY PRESS OFFICE
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