HMT1
07 March 2000
HMT1 Budget 2001: Investing for the long term
New measures to build opportunity and prosperity for all are set out in the Budget delivered by Chancellor Gordon Brown today.
The Budget locks in continued economic stability and underpins the significant expansion of key public services planned over the next three years, while taking further steps to meet the Government's long-term economic goals.
The Budget includes targeted tax cuts to promote work and enterprise and to provide support for families, savers and pensioners. As a result of continued prudent management of the public finances, it is also able to allocate an additional £2 1/3 billion over the next three years for education, health and fighting drugs and drug-related crime.
As a result of personal tax and benefit measures in this Budget all households will on average be £150 a year better off compared with indexation.
As a result of personal tax and benefit measures taking effect this year:
- all households will on average be £240 a year better off compared with indexation; and
- families with children will on average be £420 a year better off compared with indexation.
As a result of changes introduced over the Parliament as a whole:
The direct tax burden on a single-earner family on average earnings with two children will be the lowest since 1972.
Budget Measures
Key measures in Budget 2001 are:
- an additional £2 1/3 billion for key public services over the next three years, consisting of an extra £1 billion for education, £1 billion for health and £1/3 billion for fighting drugs and drug-related crime;
- a widening of the 10p income tax band by £300 over and above inflation benefiting 25 million taxpayers, and increasing the number of people only paying tax at 10p to nearly 3 million;
- an increase in the Children's Tax Credit to £10 a week from its introduction in April 2001 and to £20 a week from April 2002 for families in the year of a child's birth;
- a £5 a week increase in the basic credit in the Working Families? Tax Credit from June 2001;
- major package on maternity pay and parental leave including an increase in Statutory Maternity Pay to £100 a week and an extension of the period of Statutory Maternity Pay from 18 to 26 weeks from April 2003, and the right to two weeks of paid paternity leave for working fathers from 2003;
- an increase in the National Minimum Wage for workers aged 22 and over to £4.10 an hour from October 2001 and, subject to the economic conditions at the time, £4.20 an hour from October 2002, as announced on 5 March;
- no change in alcohol duties and an increase in tobacco duties in line with inflation from 6pm on Budget day;
- a 2p a litre duty cut on ultra-low sulphur petrol (matched by a cut in duty on unleaded petrol until 14 June 2001) and a 3p a litre duty cut on ultra-low sulphur diesel both from 6pm on Budget Day;
- a freeze in all car and motorcycle VED rates and an extension of the small car threshold for VED for existing cars to 1,549cc including some Ford Escorts, Vauxhall Astras, Nissan Micras and Rover Metros, plus a major reform of lorry VED reducing UK rates to among the lowest in Europe for the cleanest lorries; and
- consultation on proposals for a new tax credit to boost R&D by large firms.
Delivering Economic Stability
Budget 2001 demonstrates the Government's continued commitment to delivering economic stability and avoiding a return to the boom and bust cycles of the past.
Pre-emptive action and tough choices under the new frameworks for both monetary and fiscal policy are delivering a stable economy, with unemployment at its lowest level since the 1970s and inflation at its lowest level for over 30 years. The number of people in work in Britain has risen to record levels.
The Government's prudent and responsible approach to fiscal policy has restored the public finances to a sustainable position while enabling new resources to be allocated to key priorities. Today's Budget:
- reaffirms the target of 2½ per cent for the 12-month increase in the Retail Prices Index excluding mortgage interest payments (RPIX) which applies at all times;
- ensures that the Government remains on track to meet its two strict fiscal rules;
- locks in the tough fiscal stance set out in Budget 2000 and the Pre-Budget Report;
- underpins the substantial investment in Britain's key public services over the next three years set out in the 2000 Spending Review; and
- introduces a further package of targeted tax cuts to reward work and enterprise and help families, savers and pensioners, while allocating new resources for education, health and fighting drugs and drug-related crime.
Providing Strong Public Services
The Government's goal is to deliver the best public services that everyone can rely on. The 2000 Spending Review set out substantial increases in resources from this April focused on priority services including health, education, transport and tackling crime.
As a result of prudent management of the public finances, Budget 2001 is able to add to these resources by allocating an extra £2 1/3 billion over the next three years for key public service priorities:
- an extra £1 billion for education (£290/330/380 million). In England, additions of £837 million1 over three years will go to schools. £600 million over three years will go direct to head teachers to modernise buildings and equipment and improve pupil attainment. This will mean primary schools will receive additional direct payments of between £3,000 and £13,000 a year; and secondary schools will get additions of between £10,000 and £23,000 a year. A further £200 million fund will help schools implement new recruitment and retention incentives for teachers;
- an extra £1 billion for health (£360/350/290 million). In England, additions of £835 million over three years will go direct to the NHS. £450 million will go to frontline hospital investment to help pay for new equipment such as scanners, and to replace old Nightingale wards. Each of the acute hospital trusts will get between £½ million and £1 million a year. A further new fund for recruitment and retention will help to tackle shortages of key staff in the health service; and
- an extra £0.3 billion to help tackle drugs (£70/110/155 million). In England and Wales, additions of £220 million over three years will go straight to Crime and Disorder Reduction Partnerships to help local communities drive out drugs and drug-related crime. Each of the 376 Partnerships will get up to £0.5 million over three years and those with larger areas and the worst problems to tackle, up to £1 million over three years. Further resources will also be provided to support voluntary action against drugs by leaders of the business and sporting worlds.
Further details of each of these packages will be announced shortly.
The Pre-Budget Report confirmed that the Chancellor was commissioning a long-term assessment of the technological, demographic and medical trends over the next two decades that will affect the health service. The review will be led by Derek Wanless, former Group Chief Executive of Nat West Bank, who will report to the Chancellor in time for the start of the next Spending Review in 2002.
Meeting the Productivity Challenge
Raising Britain's productivity performance is a key route to higher prosperity and living standards.
The Government has set a goal of achieving a faster rise in productivity than in Britain's major competitor countries over the next decade to help close the productivity gap which currently exists with many other major economies.
Recognising that this productivity challenge is not one for Government alone, the Government last year invited the CBI and the TUC to work together on an agenda to improve productivity. The CBI and TUC have endorsed this approach. Four working groups have been set up focusing on: training, investment, innovation, and dissemination and application of best practice. They intend to come forward with proposals before the 2001 Pre-Budget Report concentrating on what employers, unions and the Government can do in each of these areas to boost productivity.
A separate paper published alongside the Budget, Productivity in the UK: Progress towards a productive economy, takes stock of the UK's productivity performance to date.
Building on a range of measures introduced by the Government so far, Budget 2001 takes further steps to meet the productivity challenge:
R&D and innovation
- consultation on proposals for a new tax credit to boost research and development (R&D) and innovation by large firms, to complement the R&D tax credit for small firms introduced in April 2000. A consultation document, Increasing Innovation, issued alongside the Budget seeks views on the main design issues of such a tax incentive (see REV 2 for further details);
- the Government is also launching an independent study into the supply of highly-skilled scientists and engineers in the UK to ensure that the mechanisms linking business and higher education work as effectively as possible. The study will be led by Sir Gareth Roberts, latterly Vice Chancellor of Sheffield University, and should be completed by February 2002. Combined with new and existing tax incentives and an outstanding science base, this should ensure that the UK remains one of the best places in the world in which to innovate and do R&D;
- the Chancellor and the Secretary of State for Trade and Industry have appointed Professor Martin Cave to conduct the review of the management of the radio spectrum which was announced in the Pre-Budget Report. The review will set out its interests for consultation more fully in the next couple of weeks;
Small businesses
- confirmation of proposals announced in the Pre-Budget Report to reduce the impact of VAT on small businesses, with a package of measures from April 2001 to allow them to manage their entry into the VAT system, reduce their VAT administration burden and improve their cash flow (see REV/C&E 1 for further details);
- consultation on a proposal to help reduce the administrative burdens on business through a radical simplification of the way in which small businesses are required to calculate the tax due on their profits by aligning their profits for tax purposes much more closely with those reported in their accounts (see REV/C&E 1 for further details);
- an expansion of Enterprise Management Incentives (EMIs) so that small businesses can make more flexible use of the benefits in a way best suited to their needs. The Government has decided to go further than the option set out for consultation in the Pre-Budget Report, and from Royal Assent of Finance Bill 2001 the 15 employee limit will be abolished and replaced by a £3 million per company limit on the total value of shares under EMI option - double the current £1.5 million per company limit (see REV/C&E 1 for further details);
Institutional investment
- the Government intends to take forward all the recommendations made by Paul Myners in his review of institutional investment in the UK which was published yesterday. In particular, the Government:
- believes that the principles for institutional decision-making set out in the report are correct and agrees that, following short consultation on the detail of the principles, pension funds and in due course other institutions should set out publicly where they do not comply with any of these and why. The Government is willing to legislate if necessary to ensure that this happens;
- will undertake a public assessment in two years? time of the effectiveness of the principles in bringing about behavioural change;
- will legislate to require trustees to be familiar with the investment issues on which they are making decisions and to incorporate the principle of the US Department of Labor interpretative bulletin on shareholder activism into UK law;
- will restore the differential between the rate of taxation on the withdrawal of pension fund surpluses and the rate of corporation tax to its original level, and change the taxation of insurance companies? limited partnership investments to taxation of the gains as distributed from the fund;
- agrees that it would be helpful if the Law Commission were to examine whether legal change could clarify ownership of pension fund surpluses;
- will consult on abolishing the 20-partner limit for limited partnerships, and will remove the requirement for pension funds to invest in limited partnerships through an FSA-authorised person; and
- will commission an independent review of capital and information flows around personal investment products.
- believes that the Minimum Funding Requirement (MFR) should be abolished and replaced by a long-term scheme-specific approach based on transparency. The Government also wishes to draw on a number of points from consultation responses including, in particular, useful suggestions from the National Association of Pension Funds. The Government will legislate to replace the MFR with a long-term scheme-specific funding standard, with additional protective measures, including a statutory duty of care for the scheme actuary, stricter rules on voluntary wind-up and extension of compensation for fraud. Details can be found in a document, Security for Occupational Pensions published today by the DSS and HM Treasury;
Skills
- examining the need for further action - including from Government - to address the low level of skills in the workforce;
Company tax
- publishing the details of the proposed new regime for providing relief to companies for the costs of intellectual property, goodwill and other intangible assets; and announcing further consultation on the options for introducing relief for companies on the disposal of substantial shareholdings (see REV 2 for further details);
- an extension of film tax relief until 2005, worth up to £200 million to the British film industry over three years (see REV 4 for further details);
Competition
- the Government welcomes the Office of Fair Trading report on restrictions on competition in the professions which has been published today. The report makes a number of recommendations on how competition in these markets can be increased and restrictions on the way in which professional services are supplied could be lifted. These potentially provide significant savings and increased flexibility for consumers of these services. The Secretary of State for Trade and Industry will be announcing the Government's response;
Regional development
- building on the steps taken in the Pre-Budget Report to increase the budgetary flexibility of Regional Development Agencies (RDAs) and provide a new Strategy Fund for innovative schemes, Budget 2001 announces that the RDAs will be given full financial flexibility from 2002-03, including full end-year flexibility to carry over their resources from one year to the next. This increased flexibility will be matched with increased accountability through objectives and targets for meeting their strategic goals under the Single Budget. These objectives and targets will be announced by the Deputy Prime Minister shortly; and
- the Government is taking forward all five recommendations which were made by Sir Ronald Cohen's Social Investment Taskforce in October 2000 and accepted in the Pre-Budget Report. The Government published a consultation document on 1 March on a new tax credit for community investment to encourage private investment in enterprises in disadvantaged communities. Further measures to promote regeneration are set out in the section on Protecting the environment.
Increasing Employment Opportunity For All
The Government is committed to creating employment opportunity for all - the modern definition of full employment - through a strategy to help people to move from welfare to work, ease the transition to work and make work pay. It has set a goal that, by the end of the decade, there will be a greater proportion of people in work than ever before.
Today's Budget takes further steps towards ensuring that every person in every region of the country who is able to work has the opportunity to do so:
- widening the 10p income tax band by £300 over and above indexation to cover the first £1,880 of taxable income. This will benefit 25 million taxpayers and increase the number of these only paying tax at 10p to nearly 3 million;
- working families will receive additional support through a £5 a week increase in the basic credit in the Working Families? Tax Credit (WFTC) from June 2001, on top of increases in line with indexation from April 2001. These increases will be matched in the Disabled Person's Tax Credit (DPTC);
- the childcare tax credit within WFTC and DPTC is currently worth 70 per cent of eligible childcare costs up to £100 a week for a family with one child and £150 for a family with two or more children. To provide further help with childcare costs, the limits will be increased to £135 a week for childcare costs for one child and to £200 a week for two or more children from June 2001. The Government will also consider how to help families who need to use formal childcare in the home, for example by extending the childcare tax credit;
- the National Minimum Wage underpins the Government's tax and benefit reforms. Volume I of the Low Pay Commission's Third Report was published on 5 March and the Government announced that it will increase the National Minimum Wage for workers aged 22 and over from its current £3.70 an hour to £4.10 an hour from October 2001 and, subject to the economic conditions prevailing at the time, £4.20 an hour from October 2002. Workers aged 18-21 and trainees are entitled to a rate of £3.20 an hour. The Low Pay Commission will report on these development rates in May 2001, at which point the Government will consider its recommendations for these groups;
- within the New Deal for Lone Parents there will be further help with training, starting up in self employment and up-front childcare costs, and a new outreach service for lone parents and partners;
- from April 2002, to ensure that lone parents are aware of the help available to them through the New Deal, all lone parents on Income Support will be required to attend work-focused interviews and an additional interview will be introduced at the six-month stage in the Income Support claim; and
- resources will be allocated to enhance the New Deal and other programmes over the coming three years, focusing on employer needs, the hardest to help and the most disadvantaged areas. Additional resources will be invested to tackle the problems facing claimants whose drug problems may be hindering their job search.
Fairness For Families And Communities
The Government is committed to building a fairer and more inclusive society in which everyone can benefit from rising prosperity. Budget 2001 includes new measures to tackle child poverty, provide security in old age and ensure a fair and efficient tax system.
Supporting families and tackling child poverty
The Government has set a goal to halve child poverty in 10 years on the way to abolishing it within 20 years. The Government is already making significant progress. As a result of measures introduced in this and previous Budgets, over 1.2 million children will be lifted out of poverty.
By October 2001, as a result of personal tax and benefit measures introduced during this Parliament, including in this Budget:
- all families with children will, on average, be £1,000 a year better off;
- a family on average earnings of £25,400 a year with two children will be £520 a year better off and have the lowest direct tax burden since 1972; and
- a family on half average earnings of £12,700 a year with two children will be £3,000 a year better off.
Budget 2001 takes significant further steps to support families and children and tackle child poverty:
- the value of the Children's Tax Credit will be increased from the previously announced £8.50 a week to £10 a week from its introduction in April 2001, making it worth up to £520 a year for around 5 million taxpaying families;
- to recognise the additional costs of a new child in the first year, from April 2002 the Children's Tax Credit will be increased by a further £10 a week for families in the year of a child's birth. This means that it will be worth up to £20 a week, £1,040 a year, for some 500,000 families each year;
- increases in the WFTC and DPTC basic credits by £5 a week from June 2001, as set out above;
- an increase in the child premia in Income Support and Jobseeker's Allowance by £1.50 a week from October 2001 as recipients of these benefits will not benefit from the increase in the Children's Tax Credit; and
- a £½ billion a year package of measures on maternity and paternity pay. These include:
- an increase in the flat rate of Statutory Maternity Pay (SMP) and Maternity Allowance from its present £60.20 a week to £75 a week from April 2002 and £100 from April 2003;
- an extension of the period of maternity pay at this enhanced rate from 18 weeks to 26 weeks from April 2003;
- the right to two weeks of paid paternity leave for working fathers from 2003, paid at the same flat rate as SMP;
- paid adoption leave when a child is first placed with a family, to allow one of the adoptive parents to take paid leave for the same period and at the same flat rate as SMP;
- doubling of the threshold for Small Employer Relief to £40,000 from April 2002, so that around 60 per cent of all firms paying SMP each year can reclaim their costs in full, plus compensation; and
- further increase in the Sure Start Maternity Grant from £300 to £500 in April 2002. As announced in the Pre-Budget Report, the £500 capital limit will be abolished from October 2001.
These measures complement the reforms to the Working Families? Tax Credit announced in Budget 2000 and which start this April. Taking the rise in maternity pay and the increased Children's Tax Credit together, there will be up to £2,200 extra in the first year for families with a new baby.
The Secretary of State for Trade and Industry will bring forward in due course further detailed proposals following the Green Paper Work and Parents: Competitiveness and Choice launched in December 2000.
Fairness for pensioners
The November 2000 Pre-Budget Report announced a comprehensive set of reforms for pensioners - based around the principles of acting to end pensioner poverty, enabling today's workforce - tomorrow's pensioners - to plan ahead to make decent provision for their retirement, rewarding today's low and modest income pensioners, and treating pensioners in the tax system fairly.
The Pre-Budget Report set out the Government's proposals for a Pension Credit to be introduced from 2003. The Pension Credit will give extra support to around half of all pensioner households by rewarding low and modest retirement incomes above the level of the basic state pension. It will modernise the system by abolishing the capital rules and weekly means test, and act to end pensioner poverty by simplifying and increasing the Minimum Income Guarantee (MIG) and by linking this to the rise in earnings throughout the next Parliament.
However, the Pre-Budget Report made clear that the Government was determined to deliver benefits ahead of the introduction of the Pension Credit. The Budget:
- confirms the Pre-Budget Report announcement that the basic state pension will rise by £5 to £72.50 a week in April 2001, and by a further £3 to £75.50 a week in April 2002 for single pensioners. For couples, there will be an increase of £8 to £115.90 a week in April 2001, and a further £4.80 to £120.70 a week in April 2002;
- confirms that the lower rates of the MIG will be increased to its highest rate, raised by earnings and then further by the rise in the basic state pension, so that from April 2001 the new, simplified MIG will be £92.15 a week for single pensioners and £140.55 a week for couples; and
- raises the age-related personal allowances by £240 over and above indexation from April 2003. On current forecasts, this would take the allowances to £6,510 for those aged 65-74 and £6,800 for those aged 75 and over. The Government has also decided to raise these allowances by reference to the rise in earnings rather than prices throughout the remainder of the next Parliament.
From April 2001, the average pensioner household will be £600 a year - over £11 a week - better off than in 1997 as a result of the personal tax and benefit changes introduced by this Government.
A fair and modern tax system
- the Budget freezes the duties on alcohol and increases tobacco duties in line with inflation (see C&E 2 for further details);
- General Betting Duty will be replaced with a Gross Profits Tax by 1 January 2002. Under the new system, the current duty of 6.75 per cent on total stakes will be replaced with a 15 per cent tax on bookmakers? gross profits, defined as the difference between the stakes laid with them and the winnings they pay out. This reformed structure makes it possible for bookmakers to absorb the tax and to end the 9 per cent ?deduction? that they currently charge on stakes (see C&E 1 for further details);
- series of reforms to VAT to promote fairness including a reduction in VAT on children's car seats to 5 per cent; widening the range of vehicles available to be purchased VAT free by people with disabilities; simplification and updating of the VAT zero rate on children's clothing and footwear to allow more children to benefit; and a new scheme that will refund national museums and galleries the VAT they incur on their purchases when they allow the public free admission (see C&E 3 for further details);
- over the next few months the Government will consult on whether tax relief might help community amateur sports clubs that make a positive contribution to their local communities; and
- proposals for a new tax credit for research and development on drugs and vaccines to tackle the major killer diseases of the developing world and a new incentive to encourage the pharmaceutical industry to raise the level of donations of drugs and vaccines to developing countries (see REV 2 for further details).
Protecting the Environment
The Government is committed to taking action to tackle climate change and improve local air quality, including through the modernisation of road transport, regenerate Britain's towns and cities, and protect Britain's countryside.
Budget 2001 introduces a number of measures proposed in the Pre-Budget Report plus additional ones to help deliver the Government's environmental strategy.
Tackling climate change and improving air quality
The Government has already taken significant steps to tackle climate change:
- the climate change levy package comes into effect on 1 April 2001. This will encourage energy efficiency and the use of renewables and ?good quality Combined Heat and Power (CHP)?, reducing carbon emissions by at least 5 million tonnes a year by 2010. Every penny of levy revenues will be recycled through a 0.3 percentage point reduction in employers? NICs and a package of support for energy efficiency;
- independent research shows that the average firm could save around 15-20 per cent of energy costs and benefit the environment by improving their energy efficiency. The Government is investing £100 million over three years in the new Carbon Trust - which will provide free energy efficiency advice to businesses and promote low carbon technologies. £50 million of climate change levy revenues over three years will also be invested in developing renewable technologies;
- firms can benefit from 100 per cent capital allowances on a range of energy saving technologies. The new Energy Technology List will be published by 1 April and will be available at http://www.eca.gov.uk/. Firms can further reduce their climate change levy liability by using ?levy-free? new renewables and CHP energy sources;
- a £100 million package of measures announced yesterday to promote environmental technologies, including additional support for renewables such as off-shore wind and energy crops; and
- the Government will consult during the summer on a Green Technology Challenge to make further use of accelerated first year capital allowances to encourage the development of environmentally-friendly technologies.
The transport measures described below are also designed to promote air quality.
Modernising road transport
Following the various consultations announced in the Pre-Budget Report, the Budget sets out a package of measures aimed at encouraging cleaner road transport, improving access to cheaper motoring for people who need to use their cars and enhancing the efficiency and environmental sustainability of the UK haulage industry.
Taken together the package of measures is equivalent to reducing motorists? costs by 4 pence per litre in the price of petrol and cutting hauliers? costs by 7 pence per litre in the price of diesel.
Full details of the Budget road transport measures are provided in the separate press notice HMT/DETR 1.
The main road transport measures implemented in this Budget, in addition to the cash freeze in all road fuel and other oil duties announced in the Pre-Budget Report are:
- a 2 pence per litre reduction in the duty on ultra-low sulphur petrol (ULSP) from 6pm today. From 6pm today until 14 June 2001, the duty on unleaded petrol will also be reduced by 2 pence per litre to guard against any disruption to the wholesale and retail markets in the final stages of transition to ULSP. In this way all consumers will benefit from the ULSP duty cut as soon as possible. By the end of this temporary period ULSP, which offers real benefits to local air quality, will be available to all petrol retailers - independent retailers as well as major oil companies - across the UK;
- a 3 pence per litre reduction in duty on ultra-low sulphur diesel (ULSD) from 6pm today, to maintain the existing balance between the duty rates on the main forms of petrol and diesel;
- abolition of the duty premium on lead replacement petrol and 'super-unleaded? petrol so that it will in future have duty levied according to the sulphur and aromatics content;
- as part of the Government's Green Fuels Challenge to encourage environmentally-friendly alternative fuels, the duty on road fuel gases will be cut by the equivalent of 3 pence per litre and not increased in real terms until at least 2004, while Budget 2002 will introduce a new duty rate for biodiesel set at 20 pence per litre below the ULSD duty rate. The Government will also support a number of pilot projects for hydrogen, methanol, bioethanol and biogas through special duty reductions or exemptions;
- a freeze in all car, motorcycle and bus vehicle excise duty (VED) rates until Budget 2002;
- an extension of the small car VED threshold for cars registered before 1 March 2001 from 1,200cc to 1,549cc from 1 July 2001, backdated to November 2000, providing benefit to a further 5 million car owners;
- as proposed in the Pre-Budget Report, a two-stage reform of authorised mileage rates from April 2001 to encourage the use of cleaner cars for business purposes and a range of measures to encourage the use of public transport and green travel plans at a total Exchequer cost of £40 million in 2001-02;
- a major reform of lorry VED to be introduced from 1 December 2001, reducing the total burden that lorry VED imposes on the haulage industry and bringing UK rates down to among the lowest in Europe for the cleanest lorries. In the meantime, the transitional arrangements announced in the Pre-Budget Report remain in place, with rebates of up to 50 per cent for licences in force on 30 November 2000 and lorry VED rates reduced by up to 50 per cent from 1 December 2000;
- initial allocations from the £100 million Haulage Modernisation Fund announced in the Pre-Budget Report; and
- abolition of VED on tractors, similar agricultural vehicles and other vehicles which currently qualify for the special concessionary rate from 1 April 2001, saving farmers in total over £10 million a year. Rebates will be automatically paid out for outstanding months on current VED discs in May 2001, with the rebate backdated to 1 March 2001.
Regenerating towns and cities and protecting the countryside
Budget 2001 fully implements the package of urban regeneration measures announced in the Pre-Budget Report. Combined with new announcements in the Budget, this takes the value of the urban regeneration package to over £1 billion over five years. The key elements of the package, to take effect shortly after Royal Assent, are:
- complete stamp duty exemption for all property transactions in the most disadvantaged parts of the UK to encourage businesses and families to locate in these areas. The list of areas which will qualify for the relief from the exemption will be published in due course;
- a new 150 per cent accelerated payable tax credit to cover the costs of cleaning up contaminated land to help tackle the blight of the past - going further than the 100 per cent relief announced in the Pre-Budget Report;
- 100 per cent capital allowances to cover the costs of providing flats over commercial premises for letting to help bring life back in to Britain's high-streets; and
- reducing the rate of VAT to 5 per cent for the cost of converting residential properties into a different number of dwellings and an adjustment to the zero rate of VAT to provide relief for the sale of renovated houses which have been empty for 10 years or more.
Budget 2001 also announces:
- a reduction in the rate of VAT to 5 per cent on the costs of renovating homes which have been empty for three years or more; and
- an extension of the reduced rate of VAT to cover conversions of residential property into residential communal homes such as care homes and homes with multiple occupation.
- the Pre-Budget Report announced that the Government was attracted to the idea of a reduced rate of VAT for the repair and maintenance of listed buildings which are used as places of worship. The Commission has indicated that this will be considered in their general review of reduced rates of VAT in 2003. In the interim, the Government is introducing a UK-wide grant scheme, the effect of which will be to reduce the VAT cost to 5 per cent for new work undertaken from 1 April 2001. The Department for Culture, Media and Sport will be consulting on the details;
- the Government welcomes the latest proposals from industry stakeholders to reduce the environmental impact of pesticides. It would like to see the package implemented on a UK wide basis as soon as possible. Progress will be reviewed in the run up to Budget 2002 to assess whether a voluntary approach is delivering significant environmental benefits, over and above those that would result from a pesticides tax;
- the standard rate of landfill tax will be increased from £11 to £12 per tonne from 1 April 2001 as part of a five year programme of increases to encourage recycling and waste minimisation;
- the Government is challenging the waste industry to meet demanding targets to channel a larger share of landfill tax credits to sustainable waste management projects - to help deliver the Government's recycling targets; and
- the aggregates levy will be introduced in April 2002 to reflect the environmental costs of aggregates extraction and encourage recycling. The Government is attracted in principle to the idea of introducing a differential rate for aggregates with the lowest environmental costs and will continue to explore options with interested parties. The Government will be consulting in due course on proposals for the new £35 million aggregates Sustainability Fund which will aim to deliver environmental benefits to the areas affected by quarrying and complement the objectives of the levy itself.
How the Budget Affects UK Households
The measures in this and previous Budgets support the Government's objectives of promoting and rewarding work, while giving extra support to pensioners and families with children.
By October 2001, as a result of personal tax and benefit measures, UK households will be, on average:
- £150 a year better off from this Budget, compared to indexation;
- £240 a year better off from all measures taking effect this year, compared to indexation; and
- £590 a year better off from measures introduced over the Parliament as a whole2.
Families with children
By October 2001, as a result of personal tax and benefit measures, UK families with children will be, on average:
- £180 a year better off from this Budget, compared to indexation;
- £420 a year better off from all measures taking effect this year, compared to indexation; and
- £1,000 a year better off from measures introduced over the Parliament as a whole2.
Supporting working families
The personal tax and benefit measures introduced over the Parliament mean that by October 2001:
- a single-earner family on average earnings (£25,400 a year) and with two children will be £520 a year better off in real terms;
- a single-earner family on half average earnings (£12,700 a year) and with two young children will be £3,000 a year better off in real terms;
- the direct tax burden on a single-earner family on average earnings with two children will be the lowest since 1972; and
- families with someone in full-time work will have a guaranteed minimum income of at least £225 a week, £11,700 a year.
Living standards
- for a single-earner family on average earnings and with two children, real living standards will have risen by 10 per cent over this Parliament;
- for a single-earner family on half-average earnings and with two young children, real living standards will have risen by 28 per cent over the Parliament; and
- for a single person on average earnings, real living standards will have risen by 9 per cent over the Parliament.
Tackling poverty
By October 2001, as a result of the personal tax and benefit measures:
- families with children in the poorest fifth of the population will on average be £1,700 a year better off2;
- over 1.2 million children will be lifted out of poverty; and
- around 2 million of the poorest pensioners will be at least £800 a year better off - a real terms rise in living standards of at least 17 per cent2.
2 Compared to an indexed 1997-98 base.
NOTES FOR EDITORS
1. Further details of the Budget 2001 announcements can be found on this website. More details are also included in the separate press notices listed below. Copies of Inland Revenue Budget Notes and Customs and Excise Budget Notices can be found on their websites:
External links
HM Treasury:
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HMT 1
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Budget 2001 - Investing for the long term: building opportunity and prosperity for all
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HM Treasury/other department(s):
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HMT/DETR 1
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Protecting the environment and supporting Britain's road transport
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Inland Revenue and Customs & Excise:
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REV/C&E 1
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Further help for small businesses
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REV/C&E 2
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Simplifying the tax system
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REV/C&E 3
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Support for families and children
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Inland Revenue:
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REV 1
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Inland Revenue tax rates and allowances for 2001-02
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REV 2
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A competitive and modern tax system for multi-nationals and large business
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REV 3
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Tax boost to employee share ownership
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REV 4
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Extension of film tax relief
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Customs and Excise:
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C&E 1
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General Betting Duty abolished
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C&E 2
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Alcohol and tobacco duties
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C&E 3
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Free admission to national museums and galleries
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HM TREASURY PRESS OFFICE
Press enquiries: 020 7270 5238
Non-media enquiries: 020 7270 4558
1England education allocation: (£244/277/316 million).
2Compared to an indexed 1997-98 base.
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