08 November 2000

PRE-BUDGET REPORT: BUILDING LONG-TERM PROSPERITY FOR ALL

The opportunity to raise Britain's long-term productivity performance and deliver greater employment opportunity and rising prosperity for all is set out by Chancellor Gordon Brown today in the Pre-Budget Report.

Further reforms to ensure that a strong economy goes hand in hand with a fair and inclusive society are outlined, including new help for pensioners and steps to protect and improve the environment.

The Pre-Budget Report, Building Long-term Prosperity for All, describes the opportunity which hard won economic stability now offers. Entrenching a culture of stability and working together to raise Britain's productivity performance is the key to delivering a more prosperous and fairer Britain.

The Chancellor has already begun to consult on the issues and proposals outlined in this Pre-Budget Report, and consultation will continue in the run up to the spring 2001 Budget.

Key Pre-Budget Report announcements include:

increasing the Winter Fuel Payment, which is set at £150 for future years, to £200 for this winter - over 8 million pensioner households with 11.5 million people will gain;
raising the basic state pension by £5 a week next year and £3 a week the year after for a single pensioner, and by £8 a week next year and £4.80 the year after for pensioner couples. This means raising the basic state pension to £72.50 a week in April 2001 and £75.50 a week in April 2002 for single pensioners. For couples an increase to £115.90 a week in April 2001 and to £120.70 in April 2002;
increasing the Minimum Income Guarantee for poorer pensioners by lifting the lower rates to equal its highest rate for a single or a couple, raising this in line with earnings each year, and then increasing it further in the next two years by the same real increase as the basic state pension, so that all pensioners - including the poorest - gain fully. From April 2001, the new, simplified MIG will be £92.15 a week for single pensioners and £140.55 a week for couples rising to at least £100 for single pensioner and £154 for a pensioner couple from April 2003;
new proposals for a Pension Credit from 2003 to reward low and modest income pensioners, and alongside this, proposals for tax changes in 2003-04 to benefit older taxpayers. The Secretary of State for Social Security is publishing a consultation paper tomorrow, Thursday 9 November, outlining detailed proposals which pave the way for further tax and benefit integration;
an additional £200 million will be paid directly to schools in 2000-01 to provide further help to tackle repairs;
a cash freeze in Budget 2001 in all road-fuel and other oil duties, costing £560 million in 2001-02;
consultation on a carefully targeted package of measures for road transport in Budget 2001 worth the equivalent of a 4p real terms cut in duty for a motorist and 8p in real terms for hauliers, including cuts in duty on Ultra-Low Sulphur Petrol and Diesel, extension of the 'small car? vehicle excise duty (VED) threshold to 1,500cc (backdated to November 2000), reform of lorry VED (with, as a first step current year rebates costing up to £265 million), abolition of VED on tractors, support for driver training and a new ring-fenced fund worth £100 million for vehicle modernisation;
retaining the current £7,000 annual ISA contribution limit, including the £3,000 cash sub-limit, for a further five years until April 2006 rather than reducing it to £5,000 (£1,000 cash);
a new package of measures to reduce the impact of VAT on small businesses allowing them to manage their entry into the VAT system, reduce their VAT administration burden and improve their cash flow;
expansion of the Enterprise Management Incentives (EMI) so that small businesses can make more flexible use of the benefits in a way best suited to their needs;
taking forward the new Community Investment Tax Credit and Community Development Venture Fund proposed by the Social Investment Taskforce, to stimulate more private investment in under-invested communities;
a new £1 billion package of tax concessions over a period of five years to help regenerate Britain's cities, including the abolition of stamp duty for all property transactions in Britain's most disadvantaged communities;
a new Job Transition Service to provide extra help where large-scale redundancies hit, helping the people affected to move into new jobs; and
an extension of the New Deal for lone parents starting from Autumn 2001 to provide help and support to all lone parents who are not working, or who are working less than 16 hours a week, that will benefit an additional 150,000 lone parents.

DELIVERING ECONOMIC STABILITY

Through pre-emptive action and tough choices under the new frameworks for fiscal and monetary policy, the Government is delivering economic stability. Steady and stable growth is being accompanied by record levels of employment, historically low inflation and sound public finances.

Locking in economic stability and ensuring no return to the boom and bust cycles of the past provides the essential platform from which to make the long-term choices and investment which will secure sustainable increases in productivity and employment, higher living standards and better public services for all.

The updated projections in the Pre-Budget Report show that the Government remains on track to meet its two strict fiscal rules, with the fiscal stance at least as tight as set out in Budget 2000.

PROVIDING STRONG PUBLIC SERVICES

Budget 2000 set firm spending limits for the next three years, consistent with meeting the Government's fiscal rules while delivering substantial new investment in Britain's key public services.

Through prudent management of the public finances, success in reducing unemployment and by reducing fraud and waste, Spending Review 2000, which reported in July provides new resources for priority services including health, education, transport and fighting crime.

The Pre-Budget Report announces:

an additional £200 million paid directly to schools in 2000-01 to provide further help to tackle repair problems and thereby contribute to raising standards; and
£5 million to help establish the new National e-Learning Foundation and lever-in significant private sector funding. It will provide portable information and communications technology (ICT) equipment offering Internet access, initially in disadvantaged areas.

MEETING THE PRODUCTIVITY CHALLENGE

Raising Britain's productivity performance is the key to achieving higher long-term growth and sustained increases in living standards. It offers the prospect of low inflation, low and stable interest rates and higher growth.

The productivity challenge is one which must be met by everyone working together, at a national level and by promoting enterprise in every region of the UK. That is why last month the Chancellor called on the CBI and the TUC to work with management, unions, educationalists and others in all regions and in all sectors of the economy to confirm the priorities that need to be addressed and how they can be met.

The Government's aim is to achieve a faster rise in productivity than in Britain's major competitor countries over the next decade, and the Pre-Budget Report describes further steps the Government is taking to meet the productivity challenge:

a new package of measures to reduce the impact of VAT on small businesses, allowing them to manage their entry into the VAT system, reduce their VAT administration burden and improve their cashflow; (see separate press notice C&E 1 for further details);
an extension of capital gains tax business assets taper relief to help more employees benefit when they sell their shares. To coincide with the changes announced in Budget 2000, this will, subject to consultation, be made available from April 2000 to employees of a range of non-trading companies, alongside employees of trading companies who are already eligible (see press notice REV 2 for further details);
the Chancellor has also announced further help for companies which may face large and unpredictable National Insurance liabilities on share options awarded to their employees (see press notice REV 2 for further details);
to help smaller companies attract the skilled employees they need to realise their growth potential, the Government intends to expand the Enterprise Management Incentives (EMI) so that small businesses can make more flexible use of the benefits in a way best suited to their needs. The Government will consult on abolishing the limit on the number of employees and replacing it with a limit on the total value of shares under EMI option, and expand this limit from £1.5 million to £2.5 million per company (see press notice REV 2 for further details);
abolition of out-dated requirements for companies to withhold tax on most intra-UK interest and royalty payments, simplifying the administration for payers and avoiding cash flow issues for the recipients. This should help to enhance competition in the financial services sector (see press notice REV 5 for further details);
expansion of the scope of the consultation on the taxation of disposals of substantial shareholdings, to consider the issues surrounding a deferral relief regime in more detail and, as part of a wider discussion on competitiveness, whether alternative approaches, including the possibility of a form of exemption regime, might be appropriate (see press notice REV 5 for further details);
the radio spectrum is an essential raw material for many of Britain's most promising industries of the future. The Government will be launching an independent review of spectrum management to ensure that the framework keeps up with the pace of change;
in Budget 2000, the Chancellor asked Paul Myners of Gartmore Investment Management to carry out an independent review of institutional investment in the UK. The review will make its final report in time for Budget 2001. In the meantime it has put forward two proposals aimed at increasing security for members of pension schemes, improving investment decision making and removing barriers to investment in venture capital by pension funds. Mr Myners proposes replacing the Minimum Funding Requirement (MFR) and changing the law regarding investment in limited partnerships. Both recommendations will be considered as part of wider consultation;
following the recommendations made to the Chancellor by Ronald Cohen's Social Investment Taskforce in October, the Government will consult widely on the proposal for a Community Investment Tax Credit, with a view to taking it forward as early as possible; and will work closely with the venture capital industry and others on setting up the first Community Development Venture Fund. The Government will also encourage banks to disclose their individual lending activities to businesses in under-invested communities; and
Spending Review 2000 announced a strengthened role and additional resources and flexibility for the Regional Development Agencies (RDAs), including a cross-departmental ?Single Pot? budget from April 2002. As part of a major step towards this, there will be significantly increased freedom for the RDAs for next year. The Pre-Budget Report sets out further details of a more than doubling of budgetary flexibility for RDAs. This will enable them to switch resources between individual programmes and target resources more effectively. Also new Strategy Funds for each RDA will help them meet their economic aims that cannot be delivered through existing funding streams. A total of £30 million across all RDAs will be available and will act as a prototype for the Single Pot. Further measures to promote regeneration are set out in the section on Improving the Environment.

INCREASING EMPLOYMENT OPPORTUNITY FOR ALL

The Government is committed to creating employment opportunity for all to fulfil its long-term employment ambition that, by the end of the decade, there will be a greater proportion of people in work than ever before.

The Pre-Budget Report announces:

a new Job Transition Service to provide extra help where large-scale redundancies risk swamping the local labour market, particularly in high-unemployment areas or where there is a high dependency on one industry. The new Service will help people made redundant move into new jobs, building on existing provision such as Rapid Response Units, and working closely with others such as the Regional Development Agencies and Learning and Skills Councils. It will also provide help for others, such as the long-term unemployed, who may be affected more indirectly; and
an extension of the New Deal for lone parents starting from Autumn 2001 to provide help and support to all lone parents who are not working, or who are working less than 16 hours a week, will benefit an additional 150,000 lone parents.

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. The Pre-Budget Report describes the next stage of the Government's reforms to tackle child poverty, provide security in old age, reward saving, and ensure the tax system is fair and efficient.

Supporting families and tackling child poverty

Abolishing child poverty within 20 years and to halve it in ten years is a firm Government commitment. Spending Review 2000 introduced a new Public Service Agreement target to reduce the number of children living in low income households by at least a quarter by 2004.

This year there are real signs of progress being made in reducing the high levels of poverty that built up over the past two decades. In the three years to Spring 2000, the number of children living in households where no-one is in work fell by more than 250,000. The Pre-Budget Report sets out the Government's strategy to abolish child poverty as it develops a new integrated system of support for families and children.

As a result of personal tax and benefit reforms announced so far in the current Parliament, by 2001:

households with children will be, on average, £850 a year better off in real terms; and
a family with two children and a gross income of £12,500 a year will be £2,600 a year better off in real terms.

Fairness for pensioners

Over the past 20 years, the gap between the incomes of rich and poor pensioners has grown dramatically. The Government is committed to developing policies which enable all pensioners to share in rising national prosperity, and which tackle this growing inequality.

The Government's first priority has been to help the poorest pensioners in greatest need. Around 2 million pensioners now benefit from the extra support the Government introduced through the Minimum Income Guarantee (MIG). But the current system continues to penalise pensioners with low and modest incomes who have worked hard to build up savings and second-tier pensions for their retirement.

So the Government's priority for the next Parliament is to also reward savings for pensioners on low and modest incomes.

The new Pension Credit will deliver substantial gains to all pensioners on low and modest incomes from 2003. But ahead of this, the Government is determined to deliver more benefits to them straight away. The Government will therefore:

increase the Winter Fuel Payment, which is set at £150 for future years, to £200 for this year. So this winter, 8.5 million pensioner households will be eligible for £200 - almost £4 a week - double the amount of last year's payment;
increase the basic state pension by £5 a week next year and £3 a week the year after for single pensioners, and by £8 a week next year and £4.80 next year for pensioner couples. This increases the basic state pension to £72.50 a week in April 2001 and to £75.50 a week in April 2002 for single pensioners. For couples an increase to £115.90 a week in April 2001 and to £120.70 in April 2002;
increase the MIG by raising its lower rates to equal its highest rate for a single or a couple, increase this in line with earnings, and then increase it further, so that all pensioners - including the poorest - will benefit from the real increase in the basic state pension. From April 2001, the new, simplified MIG will be £92.15 a week for single pensioners and £140.55 a week for couples.

So from 2003 when the Pension Credit is introduced, based on current forecasts, no pensioner need live on less than £100, or £154 if a couple, and the basic state pension, reflecting the return to normal price uprating, will be at least £77 a week for single pensioners and £123 for couples.

The Government's tax and benefits reforms will mean that next year the average pensioner household will be £580 - over £11 a week - better off since 1997.

Around 2 million poorest pensioners will next year be at least £15 a week, £780 a year, better off compared to 1997. And of the total £4.4 billion extra being spent next year alone on pensioners as a result of the Government's measures, over £2 billion of this will be spent on the poorest third - around 5 times what they would have received if the basic state pension had been linked to earnings.

The Secretary of State for Social Security is publishing a consultation paper tomorrow, Thursday 9 November, outlining detailed proposals for a Pension Credit to be introduced from 2003. The Pension Credit will:

reward low and modest retirement incomes above the level of the basic state pension: a cash reward for every pound of second-tier pension, earnings or investment income for those on the Credit;
modernise the system by abolishing the unfair capital rules and intrusive weekly means test; and
act to end pensioner poverty by simplifying and increasing the MIG and by linking this to the rise in earnings throughout the next Parliament.

By linking the guaranteed minimum income level and maximum Credit to earnings, the Pension Credit will ensure that low and modest income pensioners on the Credit will get, year on year, a greater increase in support than they would get from a n earnings link in the basic state pension.

In designing the Credit, the Government will build on the progress made since 1997 in bringing the tax and benefit systems closer together. Most pensioners have no income tax to pay, and the Credit will not be taxable. But for those who do, subject to consultation, the Government proposes to:

raise the age-related personal allowances in 2003-04 by £240 - more than price indexation. On present predictions this would mean increases to £6,560 for those aged 65 to 74 and to £6,850 for those aged 77 or more; and to
raise this new allowance by reference to the rise in earnings rather than prices throughout the remainder of the next Parliament.

Over 3 million pensioners aged 65 or more will benefit from the increase in the age-related allowance. (See separate press notice REV 1 for further details of the tax changes.)

Supporting saving

The Government wants more people to enjoy the benefits of savings for independence throughout their lives, security if things go wrong and comfort in old age. It is helping people to save by creating the right environment and the right incentives and providing information to help them make the right saving choices.

ISAs are a key element of the Government's strategy for encouraging saving and they have made a successful start. Over 9.3 million ISA accounts were opened in their first year and £28.4 billion paid in - a third more than was put into TESSAs and PEPs in their last, and most successful, year. ISAs? success is continuing into the second year with over £9 billion being invested in the first quarter of 2000-01.

ISAs, particularly mini-cash ISAs, have also attracted relatively more low-income savers than TESSAs or PEPs. More than a quarter of mini-cash ISAs are held by people with household incomes of less than £11,500 a year, compared to around one in five TESSAs and one in six PEPs.

An independent study of the ISA market, carried out for the Treasury by consultants McKinsey & Co has found that CAT standard ISAs have achieved value for money by setting an interest rate floor for cash ISAs and a cap on charges for equity ISAs. A typical saver investing £3,000 a year in an equity ISA would pay £35 a year less in charges than someone investing in a non-CAT ISA.

The Pre-Budget Report takes further steps to support saving:

the Government will build on the success of ISAs by retaining the £7,000 annual contribution limit for a further five years until April 2006. It will also keep the £3,000 limit for cash, which will benefit many younger savers and those on lower incomes for whom mini cash ISAs have been particularly attractive;
16 and 17 year olds will be able to take out cash ISAs for the first time from April 2001;
all PEPs will follow the more generous ISA rules on investments, transfers and administrative procedures;
FSA proposals to modernise investment marketing rules (polarisation) will give savers greater choice and confidence in choosing products and will promote competition. They will also help to improve access to stakeholder pensions and other innovations such as financial supermarkets; and
a separate Treasury paper, published alongside the Pre-Budget Report, Helping People to Save, describes the Government's strategy for removing the barriers which discourage personal saving, the steps taken so far and the way ahead to increase saving among low and middle-earners.

Further details on ISAs can be found in the separate press notice REV 3 and further details on polarisation are in the separate press notice HMT 2.

A fair and efficient tax system - at home and internationally

Betting duty

Following the consultation announced in Budget 2000, the Government believes there is scope to modernise the way betting is taxed in the UK that would provide the right competitive environment for the UK betting industry to thrive, both domestically and internationally, taking full advantage of e-commerce opportunities while protecting the long-term revenues from betting duty and giving punters a better deal. The Gross Profits Tax reform outlined in the consultation document is one approach to such a modernising reform.

Further discussions with the bookmaking industry will be held on how to guarantee that the benefits of any reform could be fairly shared, so that these objectives can be achieved, with a view to an announcement in Budget 2001. (see Notes for Editors 1)

Vaccine research

HIV/AIDs, malaria and TB kill 5 million people a year - most in the developing countries. But research on vaccines suitable for addressing diseases in developing countries remains minimal. The Government has therefore set in hand urgent work to investigate the problem and come forward with new proposals. Working alongside and feeding into a wider review being carried out by the Performance and Innovation Unit, the Treasury will look at a range of tax options, building on the consultations already underway with the pharmaceutical industry.

IMPROVING THE ENVIRONMENT

The Government is committed to ensuring that high and stable levels of growth and rising economic prosperity are achieved while protecting and, where possible, enhancing the environment. The action already taken, together with that planned, means that the UK is on course to go beyond its Kyoto target to cut greenhouse gas emissions by 12½ per cent below 1990 levels by 2008-2012, and to move towards its domestic goal to cut carbon dioxide emissions by 20 per cent by 2010. The Pre-Budget Report takes further steps in this direction:

Modernising road transport

The Government announced an affordable, carefully targeted series of measures to help modernise road transport, increase access to cheaper motoring for people who need to use their cars, and continue to protect the environment.

The package would reduce hauliers? costs by the equivalent of 8 pence per litre in the price of diesel in real terms and motorists? costs by the equivalent of 4 pence per litre in the price of petrol in real terms.

The main measures, which will be implemented in Budget 2001 are:

a cash freeze in all road-fuel and other oil duties - a real terms cut in the price of petrol and diesel of 1½ pence per litre, costing £560 million in 2001-02;
conditional on the oil companies guaranteeing nationwide availability, the duty on Ultra-Low Sulphur Petrol (ULSP) will be reduced by a further 2 pence in Budget 2001, widening its differential with standard unleaded petrol to 3 pence per litre. ULSP can be used in all cars which use unleaded petrol;
also conditional on the cut in ULSP, and to maintain the existing balance between the most commonly available diesel and petrol, a 3 pence per litre cut in duty on Ultra-Low Sulphur Diesel (ULSD) in Budget 2001;
an extension of the 'small car? threshold for vehicle excise duty (VED) from 1,200cc to 1,500cc, backdated to 1 November 2000 costing £250 million a year helping an additional 5.4 million car owners;
a 50 per cent cut in, and reform of, VED for lorries costing £300 million a year and as a first step in this reform £265 million (up to 50 per cent reduction) will be available to rebate VED fees for this financial year;
abolishing VED on tractors and other agricultural vehicles;
support for the haulage industry with a new driver training scheme, and a ring-fenced fund worth £100 million to include incentives or allowances to help modernisation of the vehicle fleet, including introduction of cleaner lorries and new technology.

All these measures, except for the road-fuel and oil duty freeze and the rebate of lorry VED this financial year, are subject to consultation. (See separate press notice HMT/DETR 1 for more details.)

Tackling climate change and improving air quality

from April 2001 there will be an immediate increase in authorised mileage rates. This will bring benefits to those who use smaller, cleaner private cars for business trips. The rates for larger cars will be frozen. To encourage the use of bicycles for short business trips, the cycle rate will be raised from 12p to 20p. The Government will also consult with interested parties about introducing new statutory rates for all cars from April 2002;
assisting and encouraging employers in smaller companies to set up Travel Plans to help their employees to travel to work without using their cars, by reducing the size of works buses qualifying for tax exemptions from 12 to 9 passenger seats;
to improve road safety and encourage cycle use, the Government will remove VAT from the purchase of cycle helmets with effect from 1 April 2001;
negotiations with over 40 energy intensive sectors entitled to rebates on the climate change levy are almost completed. The Government and the sectors concerned are now engaged in ensuring that the final arrangements are concluded to enable participants to receive discounts from the introduction of the levy on 1 April 2001;
as previously announced, £100 million of revenue from the climate change levy will be recycled as enhanced capital allowances for firms making energy saving investments. The Department of the Environment, Transport and the Regions (DETR) will shortly publish a full list of the qualifying technologies; and
building on the £30 million announced in Spending Review 2000 to provide a financial incentive for firms to take on binding emissions reduction targets, a DETR consultation paper is being published today including new proposals for the basic rules of an Emissions Trading Scheme. The Government is seeking comments with a view to putting the broad framework in place in time to allow trading to start in April 2001, with firms signing up to emission targets starting in 2002.

Regenerating our cities and protecting our countryside

As part of its commitment to regenerate Britain's cities and encourage better use of brownfield land - issues addressed by Lord Rogers in the June 1999 report of the Urban Task Force - the Government will introduce in Budget 2001 a new stamp duty relief for all property transactions in Britain's most disadvantaged communities to stimulate the property market and encourage urban renewal (see press notice HMT/DETR 2 for further details);
the Pre-Budget Report also announces the intention to introduce an accelerated payable tax credit for cleaning up contaminated land; provide immediate tax relief for the costs incurred by property owners in converting redundant space over shops and other commercial premises into flats for letting; introduce a reduced VAT rate for the services of converting residential properties into a different number of dwellings (for example, houses into flats); and adjust the scope of the existing zero rate to cover renovated residential property which has been empty for 10 years or more;
the Government will consider the case for providing tax relief for Urban Regeneration Companies, and will be writing to the European Commission today on the scope for reducing VAT on repairs to listed buildings that are used as places of worship (see HMT/DETR 2 for further details); and
a new £35 million aggregates Sustainability Fund will deliver environmental benefits to the areas subject to the environmental costs of quarrying. The Fund will be introduced alongside the aggregates levy in April 2002. The Government is now holding discussions with the devolved administrations on whether there is scope for setting up a UK-wide Fund with shared objectives that maximise the environmental benefits.

NOTES FOR EDITORS

1.Customs and Excise will publish a summary of views provided as part of the consultation exercise on the taxation of betting in the UK. This will be available by clicking on the link below.

External links

Summary of Views

Access to the full set of responses can be arranged by contacting Customs and Excise (Gail Kerr, tel: 0161 827 0907).

HM TREASURY CONTACT POINTS:

Press enquiries: 020 7270 5238

Non-media enquiries: 020 7270 4558

Internal links

Pre Budget 2000 Press Notices index page