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Pre-Budget Report
The Government is committed to building a fairer and more inclusive society in which everyone can contribute to and benefit from economic prosperity. In particular, it is pursuing an extensive programme to tackle the causes of poverty, especially child poverty which it is committed to abolishing within the next 20 years.
The key elements of the Government's strategy to meet these aims include:
5.1 The previous two chapters have discussed the importance of raising productivity and increasing employability for improving the economy's long-term growth potential. But quality of life and economic prosperity cannot be measured by these factors alone. The Government is committed to building a fairer and more inclusive society in which everyone can contribute to and benefit from economic prosperity. A strong and productive economy is one which maximises the potential of every individual, regardless of gender, disability, family circumstance or where they live.
5.2 Work - where it is an option - provides the best route out of poverty and social exclusion. It helps people to become more independent, rather than locking them into dependency. Chapter 4 discusses the Government's strategy to provide employment opportunity for all.
5.3 At the heart of the Government's economic agenda, therefore, is a society in which no group or individual is trapped in poverty, or socially excluded. It recognises that while those who can work have a responsibility to do so, those who cannot have a right to security and support. Opportunity has to be looked at in a dynamic context. It is people's lifetime trajectories that matter most, not simply their current status. Support must therefore be available at the right time in people's lives, to prevent problems becoming entrenched and opportunities being denied.
5.4 In October 1999, the Government published the first of its annual poverty reports. Opportunity for all: Tackling poverty and social exclusion sets out the Government's strategy to tackle poverty. The Government has demonstrated its commitment to tackling the wider problem of social exclusion by setting up, in December 1997, the Social Exclusion Unit. It occupies a central position at the heart of Whitehall challenging traditional approaches to social exclusion and producing "joined up solutions to joined up problems".
5.5 In particular, Britain's level of child poverty is unacceptably high. Evidence shows that disadvantage in childhood frequently leads to disadvantage in adult life, with adverse implications for educational attainment, incomes and employment opportunities. In this way, poverty can lead to a cycle of disadvantage that persists across generations. The Government's long-term economic ambition is to halve child poverty by the end of the next decade as the Government moves forward with its commitment to end child poverty in Britain within the next twenty years. The Government attaches the highest priority to supporting families with children.
5.6 Having access to high quality public services is an important factor in delivering a better quality of life. The Government recognises the vital importance of health and education and has announced that it will spend an extra £40 billion over the three years from April 1999 to embark on a long-term programme of modernisation to bring standards up to those of the very best. Spending on public services for future years will be allocated in the 2000 Spending Review.
5.7 Ensuring adequate Government resources for these priorities partly relies on achieving high and stable levels of economic growth. But it also requires prudent management of the public finances, careful prioritisation of spending programmes and the assurance that everyone pays their fair share of tax.
5.8 Strong and safe communities are an essential element of ensuring a fair and inclusive society. The Government believes that everyone should have access to a decent home in a neighbourhood in which they feel safe to live. Community and voluntary groups and charities also have an important role to play in strengthening community life. The Government recognises that solutions do not always come top down from government, but bottom up from the community itself. Often, the most effective solutions are those which bring voluntary and community action, the private sector, and the Government together.
5.9 The physical environment in which we live also affects our quality of life. Chapter 6 discusses the Government's strategy to protect the environment, for current and for future generations.
5.10 This chapter describes how the Government is applying these principles to help deliver a fairer society and a better quality of life for all. It describes the Government's approach to, and support for, the following:
5.11 The Government recognises that realising Britain's long-term economic potential means investing in our children. Today's children will be our future teachers, our doctors, scientists, employers, workforce, and parents. Society must give them the opportunity to achieve their ambitions. The Government therefore sees it as a national goal that every child should have the best possible start in life. This approach is based on two principles:
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Box 5.1: The Government's first annual poverty report, 'Opportunity for all: Tackling poverty and social exclusion' 'Opportunity for all: Tackling poverty and social exclusion', the Government's first annual report on poverty and social exclusion, was published on 21 September 1999. It sets out the Government's strategy to tackle poverty and reduce social exclusion by:
The report also identifies key indicators of poverty and social exclusion and the main policy milestones which the Government will publish in future editions of the report to monitor progress. These indicators include measures of worklessness, low incomes, health and poor housing, reflecting the fact that poverty is a multi-dimensional and complex problem. |
Child poverty and life chances
5.12 In Britain, poverty and inequality have increased dramatically since 1979. By 1997, 12 million people lived in households with less than half average income almost a quarter of the UK population. Children have fared worse than the rest of the population, with 4.4 million a third of all children living in relative poverty by 1997. The accompanying paper Supporting Children through the Tax and Benefit System1 describes how the evidence on child poverty has informed Government policy. It explains in detail how policies to reform the tax and benefit system have made a difference to family incomes, and will help to lift up to 800,000 children out of poverty by the end of the Parliament.
5.13 Child poverty is a particular problem as deprivation can worsen children's life chances. The evidence of inter-generational transmission of poverty illustrates that children's outcomes as adults are closely linked to those of their parents. A child's chance of subsequently ending up in the top quarter of the earnings distribution are four times higher if their father was also in the top quarter of the distribution rather than the bottom quarter. Children who grow up in disadvantaged families are also more likely to become teenage mothers and live in social housing, be out of work and have a low income.
5.14 The Government's ambition is to halve child poverty within a decade. Its strategy consists of four key strands:
Improving financial resources available to families
5.15 All families should be fairly supported through the tax and benefit system. Between 1969 and 1997 the tax burden on families with children increased by nearly 20 per cent under successive Governments. This Government has reversed that trend, and it has increased universal support while ensuring that substantial extra resources are targeted on those who most need help.
Child Benefit
5.16 Child Benefit was introduced in 1977, but has failed to rise in real terms throughout the 1980s and most of the 1990s, and in some years has not even increased with inflation. The Government is committed to the principle of universal Child Benefit, paid to the main carer, as the foundation of its support for children. Since coming into office, the Government has raised the level of Child Benefit for the first child from £11.05 a week in April 1997 to its current level of £14.40 a week an increase of 25 per cent. This represents the largest ever increase in Child Benefit. As announced in Budget 99, from April 2000 Child Benefit will be increased by a further 3 per cent in real terms, to £15 a week for the first child and £10 a week for subsequent children.
Targeted support
5.17 As discussed in the accompanying Treasury paper Supporting Children through the Tax and Benefit System, families on low incomes face particular challenges and difficulties. As well as increasing support for all families with children, the Government therefore believes that additional resources should be targeted towards those who need help most.
Working Families' Tax Credit
5.18 The Working Families' Tax Credit, launched on 5 October 1999, concentrates help on low and middle income working families. For the first time, the Working Families' Tax Credit is integrating the tax and benefit system to tackle the causes of child poverty. The Working Families' Tax Credit will help to make work pay for families with children. Full details are set out in Chapter 4.
5.19 From April 2000 the Working Families' Tax Credit will provide more generous support for families with young children, increasing the under 11 credit in the Working Families' Tax Credit by a further £1.10 over and above indexation.
Children's Tax Credit
5.20 The married couple's allowance and its related allowances will be abolished from April 2000. It will be replaced by a new Children's Tax Credit from April 2001, available to families with one or more children. The Children's Tax Credit will be tapered away from families where there is a higher rate taxpayer, ensuring the greatest support for those who need it most. The credit will be worth up to £416 a year, more than double the value of the married couple's allowance which it replaces. Around 4.5 million families will benefit as a result:
Income Support
5.21 The Government is supporting all families with children in and out of work, including those on Income Support. Families are most likely to be under financial pressure when their children are young. The Government is therefore targeting extra support for children under 11. Budget 99 announced an additional £4.70 per week from October 1999 for children under 11 in families on income-related benefits. They will receive a further £1.05 a week in April 2000 over and above indexation. As a result, compared with April 1997 the Government will be providing almost £10 a week more for each of these children.
A better deal for all families and children
5.22 All of the above measures taken together provide extra support for families with children and mean that 7 million families will be on average £740 a year better off. Families with children in the bottom fifth of the income distribution will be on average £1,080 a year better off. Overall, including the National Minimum Wage and the new 10p starting rate of income tax, these measures will lift 1.25 million people out of relative poverty, 800,000 of them children. They constitute the first step towards meeting the Government's aim to abolish child poverty within a generation.
New measures and future policy development
5.23 Although the reforms so far have delivered extra resources targeted fairly, the Government sees a case for going further in improving the transparency and administration of income-related payments for children through the tax and benefit system.
5.24 The Chancellor announced in the Budget that the Government's long-term goal is to bring together the different strands of support for children in the Working Families' Tax Credit, in Income Support and in the Children's Tax Credit, to create an integrated and seamless system of financial support for children, building upon the foundation of universal Child Benefit.
5.25 An Integrated Child Credit, for those in and out of work, would be paid to the main carer, complemented by an Employment Tax Credit paid through the wage packet to working households, with or without children (see chapter 4). In principle, an Integrated Child Credit would have a number of attractions, providing:
Gains for families as a result of children´s measures announced in Budgets 98 and 99
5.26 The introduction of an Integrated Child Credit would be a major structural reform for the longer term, posing a number of operational and policy challenges. A critical test will be whether the integration of child payments can be delivered efficiently and effectively.
5.27 The Government will also examine whether the Working Families' Tax Credit or other measures can give additional help to the mother who wishes to stay at home in the first months after her child is born.
Improving educational opportunities for all
5.28 While increasing financial resources to all families, the Government is committed to raising standards in education to unprecedented levels, enabling more people to fulfil their potential. Over the three years from April 1999, the Government will be spending an additional £19 billion on education, the highest growth in real terms over any period of three years since 1978-79.
Importance of a good start in education
5.29 Education is a crucial influence upon life chances: the link between education and earnings in later life is strong. In the late 1970s people who stayed on at school beyond sixteen had earnings which were, on average, 40 per cent higher than those who had left school by this age. By 1990 this had increased to 60 per cent. To fulfil their potential in later life, children need:
5.30 New measures to tackle exclusion and truancy, Education Action Zones and the Excellence in Cities programme are all helping to ensure that more pupils are able to benefit from full-time education. The Government is also radically re-shaping the delivery of education services, including:
5.31 The Government has made PFI credits of £350 million a year available to education in England. But even this provision has been over-subscribed and some very good schemes have not yet found a place in the programme: the Government is now making a further £100 million of credits available, to enable several more major projects to go ahead.
5.32 The New Deal for Schools has so far funded improvements at about 11,000 schools. From the receipts of the Windfall Tax, the Government is now adding a further £50 million provision to this scheme across the UK. As an illustrative example this could replace 500 mobile classrooms over 20 years old with classrooms equipped with the latest technology.
5.33 The piloting of Education Maintenance Allowances from September 1999 aims to encourage pupils who might leave school aged 16 to remain in learning. Education Maintenance Allowances are already proving popular with young people and their families. All sixteen pilot local education authorities have successfully started making payments to young people or their families. Early evidence points to increases in staying-on rates, particularly by young people from the poorest families.
Special intervention where necessary
5.34 The Government also recognises the challenges and difficulties faced by some families, especially at particular times in their children's lives. The early years of a child's life are critical for its future outcomes, so the Government is increasing its investment in support to help in those early years.
Sure Start
5.35 Sure Start is a new programme which aims to promote the physical, social and emotional development of disadvantaged children between birth and three years old. £540 million has been allocated over the three years from April 1999 to build local programmes and to ensure that every child is ready to learn when they begin school. This money will be spent complementing and enhancing existing services, providing new facilities and information, delivering extra training and improving co-ordination between existing service providers.
5.36 The first 60 trailblazers were approved in October 1999 and will shortly come on stream. They will reach about 50,000 children. As announced in July 1999, a second wave of 69 programmes is expected to be underway by the middle of 2000. Sure Start aims to have 250 programmes up and running by 2001-02, each covering between 50 and 1,000 children under four years of age.
5.37 Sure Start programmes are designed to be accountable to local communities, especially parents. The programmes will be led by partnerships which include local authorities, social services departments, local voluntary organisations and local parents themselves. The Government sees the notion of empowering communities going even further in the future. In time, the Government hopes to devolve to local communities the running of partnerships, putting the communities wholly in charge.
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Box 5.2: Ensuring equal opportunity for women Many of the policies which the Government has announced to support families and children will help to promote equal opportunities for women. The Government believes that gender issues should be considered throughout all aspects of decision-making and policy development. Over the last year, the Government has carried out a major consultation exercise, 'Listening to Women', to reach those women whose voices are not always heard. The Government is:
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5.38 In addition, 20 Sure Start Plus pilots will pioneer special initiatives to support teenage parents in Health Action Zones.
Sure Start Maternity Grant
5.39 The period before and immediately after childbirth is important for a child's development. Budget 99 announced that, to help with the initial costs of having a new child, a new Sure Start Maternity Grant will replace the Maternity Payment from next April, with payments doubled to £200. The increased payments will be linked to contact with a healthcare professional to ensure expert advice on child development and services.
Community action
Children's Fund
5.40 The voluntary and community sector has pioneered work with deprived children and their families for at least a century. The sector is:
£6 billion a year extra on children by 2001
5.41 The Government will establish a Children's Fund in the 2000 Spending Review to develop a new strategic partnership with the voluntary sector in tackling child poverty. The Fund will support pioneering work by voluntary and community organisations with children in poverty - work that makes a real difference to the life-chances of disadvantaged children. In the coming months the Government will explore the best way for the fund to deliver to the voluntary sector and to children, through consultation with organisations working in the field.
The Government's commitment to families and children
5.42 The combined effect of the above measures will be to increase fairness for families with children and boost incomes for the poorest families. Together they form a concerted and comprehensive approach to supporting family life. By the end of this Parliament, the Government will be spending an additional £6 billion a year on children. The increases in Child Benefit for all children have been accompanied by targeted measures - including the new Working Families' Tax Credit - and will lift around 800,000 children out of poverty.
5.43 Last year, the Government set out in 'A New Contract for Welfare' its commitment to provide help and opportunities for people with disabilities to live fulfilling and independent lives. People with disabilities have a huge contribution to make. The Government is committed to tackling discrimination, giving those who want to work the help and rehabilitation they need, and ensuring dignity and independence to those who cannot:
Anti-discrimination measures
5.44 Discrimination against people with disabilities is unacceptable in a fair and inclusive society:
5.45 Pensioners who have contributed a life of work and caring deserve help in their retirement, and the Government remains committed to ensuring that pensioners share fairly in the increasing prosperity of the nation. The Government is ensuring fairness for all pensioners by:
5.46 In addition to these measures, free TV licences will be available to pensioners aged 75 and over from autumn 2000. Over three million households - nearly half of which are in the bottom three income deciles - will benefit from this measure, targeted on those pensioners most in need.
Targeted support
5.47 The Government has also focussed additional help on pensioners in most need:
5.48 As a result of the pensioners package, all pensioners are better off. After all announced measures have been introduced, pensioner households will be on average £300 a year better off. These measures demonstrate that the Government is meeting its commitment to help pensioners.
Government's strategy on savings
5.49 The Government has an over-arching strategy on savings, in line with its objectives of:
5.50 The Government wants to encourage more people to save for the future. For example, half the population have savings of less than £200 and up to four million people earning between £9,000 and £20,000 a year do not contribute further to their pensions above the compulsory minimum. The Government therefore wants to work with the savings and pensions industry to produce a financial environment which will encourage the emergence of low cost, good value and easily understood savings and pensions products.
10p rate and savings
5.51 Within this strategy, the Government has announced that it is extending the 10p rate of income tax to savings income with effect from April 1999. As a result over 2.5 million people will see their tax bill decline by up to £150 - £30 on average - many of whom (1.5 million) will be pensioners. Corresponding changes will be made to capital gains tax from April 2000 to keep it in line with the tax rates for savings.
Individual Savings Accounts
5.52 Individual Savings Accounts (ISAs) were introduced in April 1999 as part of the Government's strategy to encourage savings. Cash ISAs have been highly popular, taking almost £4 billion and the stocks and shares component has also experienced significant take up (about £3.2 billion in the first quarter).
5.53 ISAs are helping to extend the savings habit to those with little or no savings and encourage saving, mainly for short to medium-term needs, within a tax-free environment. ISA savers can put money into a tax-free bank or building society account, including National Savings, life insurance products, and stocks and shares. And savers can use ISA CAT standards to recognise easily products with fair Charges, easy Access and decent Terms.
Stakeholder Pensions
5.54 At the same time, the Government has set out a framework for flexible, secure and value-for-money stakeholder pension schemes. It wants to encourage those who can to join good-value occupational pensions but there are about 5.3 million people on middle incomes who do not have such occupational pension provision. Many of this group lack any secondary tier pension and find current pension arrangements either unsuitable or too expensive. Stakeholder pensions are intended as a good value, low cost alternative primarily for this group.
5.55 As part of the stakeholder development, the Government has recently proposed the introduction of an integrated tax regime for all pensions other than final salary schemes. Under these radical proposals, contributions could be made up to £3,600 a year without reference to earnings. This opens up pensions to many who do not currently have access to a second pension such as carers, and mature students. These proposals have been very well received, both by independent commentators and by the pensions industry.
5.56 The Government has also proposed that all pensions vehicles, including stakeholder pensions, should be able to invest in a Pooled Pension Investment (PPI). The PPI is a financial instrument which would make it easier and cheaper for people to transfer their savings between pensions and help reduce the confusion that pensions can sometimes cause.
Coordinated savings policy
5.57 The stakeholder and ISA initiatives are fully compatible since:
5.58 Together, these measures provide a clearer and simpler framework than available in the past, within which people will be better able to make well-informed decisions about how best to provide greater financial security for their own and their families' futures.
5.59 Everyone is entitled to expect access to high quality public services, including good schools and a modern health service. In particular the Government has embarked upon a programme of modernising public services, the first results of which are already becoming apparent.
Focusing on outputs and improving service delivery
5.60 On coming into power the Government reviewed the spending plans it inherited. The Comprehensive Spending Review (CSR), completed in July 1998, re-allocated Government expenditure to its key priorities for the three financial years from April 1999.
5.61 Over the three years from April 1999, the Government is investing an additional £40 billion in health and education, as well as investing for reform in other areas of the public services. It is focusing on concrete improvements and service delivery, and has set over 600 output and efficiency targets through Public Services Agreements (PSAs). These are being closely monitored in order to ensure that services become more modern, efficient and responsive, bringing all areas up to the level of the best. The Government will report on progress against these targets in spring 2000.
5.62 The Government's emphasis on improving outputs from public services is demonstrated by significantly increased provision for renewal, reform and modernisation of the UK's infrastructure. The Government has set up a £2.5 billion Capital Modernisation Fund to support innovative capital projects which will improve the quality of public service delivery.
5.63 The Government also believes in applying private sector expertise to raising public sector productivity where appropriate. The Public Sector Productivity Panel is working with government departments to highlight and tackle key areas for improvement. The Government also believes that many of the best ideas for improving efficiency will come from within public services themselves. The Invest to Save Budget therefore allows services to bid for funds for innovative projects which will improve efficiency and effectiveness through joint service delivery.
5.64 The Government is determined to further improve public services as the bedrock to strengthening communities and increasing fairness for all.
Education
5.65 Reflecting the importance it places on education, the Government is investing an additional £19 billion in education over three years from April 1999, doubling the capital budget for schools, expanding further and higher education and providing resources to meet its manifesto commitment on reducing class sizes for children aged 5, 6 or 7.
Health
5.66 One of the Government's central objectives is to improve the health of the nation, especially that of those on low incomes, delivering care of a uniformly high standard right across the country. An additional £21 billion has been allocated to health over the three years from April 1999.
Transport
5.67 The CSR announced that spending on transport, excluding one-offs, will increase by 27 per cent in real terms between 1998-99 and 2001-02 - an additional £1.8 billion. The CSR gave priority to tackling the road maintenance backlog, improving traffic flow, and improving and integrating public transport.
Crime and Justice
5.68 The Government is investing significant additional resources in tackling crime and the causes of crime. Over three years (1999-2002) it will put an extra £1.24 billion into the police in England and Wales, and spend £250 million on a Crime Reduction Programme to fund promising new approaches.
2000 Spending Review
5.69 As discussed in chapter 2 the 2000 Spending Review will review the efficiency with which public services are delivered and public money is spent, and will consider how best departments can contribute to the achievement of the Government's objectives.
5.70 Strong community networks are an essential foundation for the future success and prosperity of the nation. A strong community gives its members freedoms and responsibilities - freedom to work and earn a living, responsibilities to care for the weaker, younger or older members of the community. A strong community is able to adapt to a constantly changing environment and use the experience of all its members to meet new challenges.
5.71 In addition to improving access to all public services, the Government recognises individual needs and the specific problems of particular groups or geographical areas. To deliver a better quality of life for all, and a fairer and more inclusive society, the Government is supplementing investments in all public services with a number of targeted initiatives to strengthen community life.
The New Deal for Communities
5.72 The New Deal for Communities puts local people in charge of their own futures. It provides the resources they need - in partnership with business and the statutory agencies - to close the gap between their neighbourhoods and the rest of the country. The Government has set aside £800 million for the programme over the three years from April 1999. The New Deal for Communities is set against four key outcome goals:
5.73 A further 22 communities will shortly be invited to join the New Deal, and the Government will respond to the first of the 17 pathfinders' detailed delivery plans. National targets for the programme as a whole will be announced shortly.
5.74 Business has a key role to play if the New Deal for Communities is to succeed in bringing jobs and enterprise back to deprived urban neighbourhoods. Last year the Government provided a further incentive for businesses to engage with schools by reintroducing tax relief on the salaries of staff seconded from business to educational establishments. The Government is now considering whether more needs to be done to make sure business secondments to regeneration partnerships can benefit from the same advantages. The New Deal for Communities will be fully monitored and evaluated to ensure that the lessons learnt can benefit other deprived neighbourhoods.
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Box 5.3: Our wider community: debt forgiveness for the Heavily Indebted Poor Countries Poverty and social exclusion are international as well as national issues. Not only does the Government have a moral obligation to help those in suffering worldwide, but the British people themselves have a natural sympathy for those in need. Poverty breeds conflict, disease and environmental problems. As the world becomes a smaller place, these overseas problems increasingly become our problems. The Government is committed to the International Development Target of halving world poverty by the year 2015: debt relief is an important part of achieving this goal. The first agreement on a strategy to reduce the debt burdens of the poorest countries the Heavily Indebted Poor Countries (HIPC) Initiative was reached at the Annual Meetings of the World Bank and IMF in 1996, but by 1997 not one country had been through the process. Concerned that debt relief was not sufficient and was not getting through fast enough to the countries that needed it, the Government launched its Mauritius Mandate soon after coming to office in order to speed up the timetable of countries coming forward for assistance. In September 1998, the Government called for, and got agreement to, a review of the HIPC Initiative. It has since led the way in proposing an improved HIPC Initiative, and at the IMF-World Bank Annual Meetings in September 1999 an enhanced framework was agreed. This will:
More importantly though, this debt relief will go not to finance military weapons or bureaucracy, but to the social priorities of improving basic health and education and the reduction of poverty. A new IMF-World Bank Poverty Reduction and Growth facility will help to ensure:
In order to fund the enhanced HIPC initiative, a new HIPC Trust Fund has been set up. The UK Government is contributing $221 million to the Trust Fund - the largest bilateral pledge with the exception of the US. In addition, the UK Government has persuaded the European Union that monies from the European Development Fund should be made available for debt relief up to 1 billion euros. These developments, which the UK Government has been at the forefront of bringing about, offer new hope to families and children in the world's poorest countries. By targeting resources on priorities in health and education, including prevention and treatment of AIDS and measures to reduce infant mortality, real social progress can be achieved. The Government will follow the progress of these poverty reduction measures carefully and will maintain its leadership in this area. In the long run, the key measure of success will be not just how much debt is cancelled, but how many people in the world community are lifted out of poverty. |
Housing
5.75 Housing policies are central to building strong communities, but in the past they have often had the opposite result, creating unbalanced communities and concentrations of deprivation. The Government's aim is to avoid this by building communities that involve a mix of tenures and by improving the way the social housing sector works.
5.76 Social tenants need to be given more choice and social landlords need to deliver a better service to their communities. The newly created Housing Inspectorate and the success of the transfer programme should both contribute to these aims. Progress also needs to be made on achieving a more coherent pattern of rents in the social housing sector.
5.77 The Government will set out its housing vision in a Housing Green Paper which it expects to publish early next year. The Green Paper will also consider ways of improving the housing benefit system.
National Strategy for Neighbourhood Renewal
5.78 Communities suffering from multiple deprivation need special help. The Government's National Strategy for Neighbourhood Renewal, which is currently being drawn together by the Social Exclusion Unit to be published next year, will set out a comprehensive long-term agenda for tackling the problems of Britain's poorest estates. The strategy will draw on the reports of the 18 inter-departmental fast track Policy Action Teams, which have brought together policy makers from across Whitehall, outside experts, and those on the ground to take a renewed look at issues facing low income estates.
Capacity building in local communities
5.79 Social enterprises are businesses run for social goals not for profit. They can play a significant role in the regeneration of local economies by providing missing goods and services, as well as employment opportunities. The activities of social enterprises range from credit unions, local finance initiatives and retailers to operators of childcare facilities. The contribution this sector makes to the regeneration of deprived areas is, however, inhibited by difficulties in accessing support services and finance, due to a lack of awareness and understanding of their needs by providers.
5.80 The Small Business Service and Regional Development Agencies, together with local authorities, have key roles to play in recognising the contribution that social enterprises can make to neighbourhood regeneration. Chapter 3 describes a series of new measures to stimulate comprehensive and effective service delivery through locally-rooted partnerships between the public and private sectors.
Our wider community
5.81 The Government also recognises our moral obligation to help those in need worldwide. Box 5.2 describes the Government's recent efforts to reduce the debt burden of the world's poorest countries.
The vital role played by the voluntary and community sector
5.82 Voluntary and community activity is fundamental to the development of a democratic, socially-inclusive society. Community self-help groups solve local needs - such as the need for children's playgroups - by engaging local skills and enlisting volunteers. Voluntary organisations often act as pathfinders, involving users in the design and delivery of services and bringing new issues to light . The voluntary and community sectors are important agents of change, enabling society to adapt continually and informing government of the changing needs of its citizens. The Government is currently promoting the voluntary and community sector through a series of initiatives:
Review of charity taxation:
Getting Britain Giving in the 21st Century
5.83 Charities make an enormous contribution to the life of the nation. In fields as diverse as poverty relief, the arts and international aid, millions of people in the UK give their time, their money or both to charities and other voluntary organisations. In parallel with its wider policies, the Government has undertaken a comprehensive review of charity taxation, including a consultation exercise which invited responses to a wide-range of proposals aimed at encouraging more people to give to charity and modernising the tax system as it affects charities.
5.84 Independent research has shown a decline in recent years in the number of people giving to charity. Research undertaken as part of the review of charity taxation shows that the UK is still a nation of givers. However, although a large proportion of the population are aware that there are tax effective ways of giving, fewer than 10 per cent of givers take advantage of them. These findings confirmed that there is a pressing need to make the tax incentives for giving more attractive and easier to use, and to increase awareness of them.
5.85 In the light of the responses to the consultation and the research findings, the Government has decided to go further than the proposals that were set out in the consultation document2, with a radical package of measures to encourage more individuals and businesses to give more, and to make the taxation system simpler for donors and charities to use. Most of these measures will be enacted in the 2000 Finance Bill or through regulations as necessary.
Deed of Covenant and Gift Aid
5.86 The Deed of Covenant scheme provides tax relief on regular, fixed donations to charity over a period of at least three years. There are no maximum or minimum amounts for donations. Gift Aid provides tax relief for one-off donations to charity. There is no maximum limit for donations, but there is currently a minimum limit of £250, which must be paid in a single payment. The consultation exercise and the research show that while there is much support for a tax relief for regular giving to charity, many find the Deed of Covenant scheme complicated to use. The responses to the consultation also show that the minimum limit for Gift Aid donations makes that scheme inaccessible to many donors.
5.87 The Government has therefore decided to remove the minimum limit for Gift Aid donations, so that the scheme will apply to all donations, large or small, one-off or regular. There will no longer be a need to enter into a deed of covenant to get tax relief for regular, small donations, although donors will be able to continue using a deed if they wish. In addition, the Government is reforming the Gift Aid rules to make the scheme more accessible to low-income donors who pay tax at a rate below the basic rate. These changes will take effect in April 2000.
Boosting the Payroll Giving Scheme
5.88 Under the Payroll Giving scheme, employees authorise their employer to deduct charitable donations from their pay packet and receive tax relief on the donation at their top rate of tax. There is relatively low take-up of the scheme by employers and employees. Responses to the consultation and the research indicate that there is considerable untapped potential for Payroll Giving. 21 per cent of respondents to the research exercise whose employer did not offer the scheme said that, were their employer to offer the scheme, they would be likely to take it up. The Government has therefore decided to boost Payroll Giving with a promotional campaign, starting in the summer of 2000, to increase awareness of the scheme and encourage more employers to offer the scheme to their employees and operate it more effectively. To back up the scheme, the Government has also decided to introduce a 10 per cent supplement on donations, to be paid to charities from April 2000 for three years. In addition, the Government has decided to remove the £1,200 maximum limit for Payroll Giving donations.
Other measures to encourage giving
5.89 The Government has also decided to introduce further new tax reliefs to encourage giving to charity, including new income tax reliefs for gifts to charity of quoted shares and securities and for people who settle property on trusts for charity.
Making life easier for charities themselves
5.90 For tax and charity law reasons, charities who want to raise funds from trading activities normally have to set up a trading subsidiary which then pays all its income to the parent charity under a deed of covenant or Gift Aid. This is a burdensome arrangement for smaller charities. The Government has therefore decided to introduce a de minimis exemption which will allow charities that engage only in small-scale trading activities to do so directly, without the need to set up a subsidiary company. Broadly the exemption will apply to all trading with a turnover of less than £5,000, and where the trading turnover represents less than 25 per cent of the charities' total income, up to a maximum of £50,000. The Charity Commission for England and Wales supports this proposal and has confirmed that this could significantly reduce the need for charities to set up trading subsidiaries. The existing tax and VAT exemptions for indirect tax treatment of charity fundraising events will also be changed to exempt a wider range of events and to align them to produce consistent treatment. New measures will also be introduced to make the VAT tax system more generous for specific transactions such as advertising.
5.91 Unfairness in the tax system can take various forms. For example, where individuals and businesses develop schemes to avoid paying tax or National Insurance Contributions (NICs), or to defer or reduce their liabilities, it leads to a higher burden of tax falling on the majority of taxpayers. But also the detailed workings of the system may unintentionally skew the distribution of the tax burden in favour of particular groups of individuals or businesses and against others. The Government is committed to addressing unfairness in the tax system, whatever form it takes.
Tackling tax abuse
5.92 Tax driven schemes, devices and structures, if allowed to flourish unchecked, not only cause ordinary taxpayers to have to make good the resultant loss of revenue but can also give one business an unfair competitive advantage over another. They can also undermine the credibility of the tax system generally. The Government remains firmly committed to tackling tax abuse and avoidance.
5.93 Among the key measures the Government is introducing to tackle avoidance and protect the revenue base are:
5.94 Faced with growing avoidance of Stamp Duty, the Government will bring forward changes in Finance Bill 2000 to prevent the use of devices which seek to reduce the rate at which duty is payable. The Government is also considering how best to modernise Stamp Duty legislation so that any new devices can be countered as they arise.
5.95 The Government also remains committed to international initiatives aimed at fighting tax abuse and evasion and promoting fair tax competition. Harmful preferential tax regimes distort investment decisions and erode tax revenues, thereby undermining fiscal stability. British business has much to gain from being able to compete internationally on a level playing field.
Tobacco
5.96 Tobacco use is detrimental to health, with significant wider social costs. The price of tobacco plays an important role in cutting levels of smoking. The increases under the current escalator, which was introduced by the previous Government in 1993 and increased under this Government, have been effective in increasing the cost of tobacco.
Forestalling
5.97 However, the success of this policy has been threatened by increases in tax evasion and tax avoidance. Predictable annual increases have encouraged tobacco manufacturers and importers to build up large stocks of cigarettes in the months leading up to a Budget change and pay duty on their accumulated stocks only very shortly before the Budget increase takes effect. In this way they have been able to avoid paying the new, higher, rate of duty for up to six months, and have therefore been able to avoid passing it on in prices. It also costs the public purse some £300 million a year and leads to greater uncertainty over the timing of revenue flows to the Exchequer.
Smuggling
5.98 Smuggling undermines legitimate businesses, puts consumers at risk, and erodes social responsibility through the participation of many normally law-abiding people in illegal acts.
5.99 Customs' latest estimates for revenue lost (excise duty and VAT) through cross-Channel smuggling in 1999 and cross-border shopping in 1998 are set out in table 5.1 below:
Table 5.1: Revenue lost through cross-Channel smuggling and legitimate cross-border shopping
| Cross-border | Cross-Channel smuggling | ||
| £ million | shopping in 1998 | in 1999 | |
| Tobacco | 85 | 1,055 | |
| Alcohol | 290 | 215 | |
| Total | 375 | 1,270 | |
Figures have been independently rounded to £5 million. Components may not therefore sum to the totals shown.
Figures do not include any amounts for smuggling by air passengers, or revenue evaded through commercial fraud or in very large freight consignments.
The figures shown use Customs' assumption that between 70 per cent and 80 per cent of all alcohol purchased abroad substitutes for similar purchases in the UK.
5.100 Customs' latest assessment of overall revenue losses associated with all forms of tobacco smuggling in 1999 is of the order of £21/2 billion.
5.101 The Government will take further steps to ensure that tobacco smuggling does not pay. Having taken advice from Martin Taylor, the Government will introduce a range of measures designed to tackle the evasion of tax on tobacco. These will include:-
New technology
5.102 This year, almost £11/2 billion of revenue is expected to be lost through illegally-imported tobacco hidden in freight containers. The Government will invest in a national network of x-ray scanning equipment. A start will be made immediately. There is a range of technology being developed:
Pack marks
5.103 From early 2001cigarette packs and hand rolling tobacco pouches sold in the UK will be required to carry a mark to show that UK duty has been paid on them:
|
UK DUTY PAID
Not to be sold after |
5.104 The complete pack mark will fill the centre of the top third of the front face of the pack. So anyone buying or selling tobacco will know immediately whether they are dealing with legitimate goods and it will make it easier for the police and trading standards officers to help HM Customs and Excise in their enforcement role.
5.105 Following the introduction of pack marks, new offences will be brought in to ensure that those who deal in smuggled goods can be prosecuted more quickly and effectively.
5.106 As already outlined above, tobacco manufacturers and importers avoid duty increases by building up large stocks of cigarettes in the months leading up to a Budget change. The new mark will help to reduce stockpiling at all points in the supply chain by making it an offence to sell tobacco products after the date shown on the mark.
5.107 HM Customs and Excise will publish a technical note setting out the practical details of the pack mark scheme shortly.
Other measures
5.108 The travelling public should not be under any illusions about the extent of their right to import excise goods. Except where such goods are purely for personal use, their importation without paying UK duty is illegal. The Government will publicise these arrangements more widely so that people know what they can and cannot do.
5.109 Asset confiscation powers can already be used in criminal proceedings against smugglers. Next year the Government will announce new arrangements for improving the system of confiscation to make it both more effective and a better deterrent.
5.110 HM Customs and Excise already have powers to confiscate those assets which are used directly in smuggling, especially vans and other vehicles. These powers and the level of payments for return of the assets are discretionary. Customs will use these powers vigorously to combat smugglers.
5.111 Smuggling relies on an illicit retail network. People pushing illicit tobacco often operate in pubs or other licensed premises. Licensees have a duty to ensure that their premises are not abused in this way. To enforce this effectively, a graduated range of penalties such as temporary closure as well as the existing option of revoking the licence is required. Further details of the proposed new licensing framework will be published early next year.
Health
5.112 The Government is fully committed to reducing smoking. The Government's Smoking Kills and Saving Lives White Papers set out an integrated policy approach to reducing smoking and tackling cancer and coronary heart disease. The White Paper policy framework includes ambitious outcome-based targets, including reducing the death rate in people under 75 with cancer by at least a fifth and reducing the death rates in people under 75 with heart disease and stroke by at least two-fifths. The Government is committed to meeting those targets. The integrated policy includes a three year public education campaign, a ban on tobacco advertising, better help for people who want to quit smoking, identifying high-risk groups and giving people effective treatment when they need it.
Tobacco duty
5.113 There is a strong ongoing health case for year-on-year real terms increases in the price of cigarettes and tobacco to complement such measures. The Chancellor will in future form his Budget judgements on the appropriate level and timing of increases taking into account a wide range of factors including the Government's health objectives. Any additional revenue raised from real increases in tobacco duties in future would be spent on improved health care. For example, the extra revenue from a 5 per cent real terms rise in tobacco duty next spring would raise £300 million that would go to a further additional investment in the National Health Service from next April.
Off-shore betting
5.114 The Government has been disappointed by the actions of a number of bookmakers in using off-shore centres to take 'tax-free' bets from UK customers. The Government takes this threat to the revenue and to the future funding of horse and greyhound racing very seriously.
5.115 The Government has ruled out no options for maintaining the revenue from betting and gaming, and maintaining a thriving bookmaking and racing industries within the UK. As a first step, the Government will be reinforcing the advertising ban on offshore bookmakers and is considering what additional measures it could bring forward in the Budget.
Air Passenger Duty
5.116 Air passenger duty was introduced under the last Government, but was implemented in a legally defective way. Seeking to rectify this breach of the Treaty by extending the return leg exemption to European Economic Area flights would mean that such flights bore no UK duty at all. So the Government will in the next Budget remove the return leg exemption and introduce duty rate reductions to ensure this change is revenue neutral. In the pre-Budget period HM Customs and Excise will consult on a reduced rate structure for lower fares to achieve that.
5.117 The Government also recognises the importance of air transport to the most remote areas of the UK. HM Customs and Excise will, therefore, also consult on introducing an exemption from air passenger duty for flights from airports in the Scottish Highlands and Islands when the return leg exemption is abolished.
1Supporting Children through the Tax and Benefit System, No. 5 in the Modernisation of Britain's Tax and Benefit System (November 1999). Copies can be obtained from the Treasury Public Enquiry Unit on 0171 270 4558, or on http://www.hm-treasury.gov.uk.
2Review of Charity Taxation, HM Treasury, March 1999.
