The Government's economic objective is to build a strong economy and a fair society, where there is opportunity and security for all.
The long-term decisions the Government has taken - independence for the Bank of England, new fiscal rules and a reduction in debt - have created a strong platform of economic stability. With low and stable inflation, interest rates set by the Monetary Policy Committee to meet the Government's symmetric inflation target, and fiscal policy supporting monetary policy over the cycle, the economy has grown continuously for 62 consecutive quarters.
The world economy is now facing a more challenging environment than was apparent at the time of the 2007 Pre-Budget Report, with continued disruption in global financial markets. While the UK and other economies have benefited significantly from globalisation, recent events have shown how interconnected capital markets mean shocks in one region can easily be transmitted elsewhere.
This Budget sets out the action the Government is taking to support the economy in the short term, to ensure the resilience of the past decade continues, combined with action to make further progress against its long-term goals of:
* maintaining macroeconomic stability, ensuring the fiscal rules are met and that inflation remains low;
* sustainable growth and prosperity, through reforms that promote enterprise and business growth, simplify the tax system, enhance flexibility and promote science, innovation and skills;
* ensuring fairness and opportunity for all, tackling child and pensioner poverty, providing opportunity for all children and young people, delivering security for all in retirement, and ensuring a modern and fair tax system where everyone pays their fair share of tax;
* creating stronger communities and effective public services, and improving long-term housing supply and affordability; and
* ensuring an environmentally sustainable world, with action to address the global challenge of climate change.
Maintaining macroeconomic stability
The Government's long-term goal is to maintain macroeconomic stability in order to achieve its objective of a fair society where there is security and opportunity for all.
The UK economy continued to perform strongly in 2007, growing 3 per cent on a year earlier, the fastest growth rate among the G7 economies. Employment reached a record high and claimant count unemployment fell to a 32 year low. The UK is the only G7 economy to have avoided any single quarter of negative growth over the past decade. The flexibility and resilience of the UK economy provides a solid platform from which to face the global economic shocks from the continued disruption in global financial markets and the increase in energy and commodity prices. UK GDP growth is forecast to slow from 3 per cent in 2007 to 1¾ to 2¼ per cent in 2008, before picking up to 2¼ to 2¾ per cent in 2009 and 2½ to 3 per cent in 2010.
Despite the impact of financial market disruption on the public finances, the Budget 2008 projections show that the Government is meeting its strict fiscal rules:
* the current budget shows an average surplus as a percentage of GDP over the current economic cycle, which began in 1997-1998, ensuring the Government is meeting the golden rule. The current budget moves clearly into surplus from 2010-11 onwards; and
* public sector net debt is projected to remain low and stable over the forecast period, stabilising below the 40 per cent ceiling set in the sustainable investment rule.
Sustainable growth and prosperity
Over the last decade, coinciding with significant reform programmes, UK productivity has improved and levels of employment have risen to record highs. However, at a time of far reaching change in the global economy, the Government must continue to provide a stable policy framework, so that business has the certainty to plan ahead, while ensuring that policy remains responsive to changing circumstances.
Budget 2008 includes short-term measures to enable small and growing businesses to access the resources they need during a time of global financial market disruption. At the same time it builds on progress to date by announcing longer-term measures designed around the levers available to Government to encourage productivity growth. These measures include:
* access to finance measures including enhancing the Small Firms Loan Guarantee Scheme and Enterprise Capital Funds to support small firms in accessing the resources they need to start up and grow;
* a package of reforms on regulation and tax simplification and implementation of the business tax reforms announced in Budget 2007, including the lowest rate of Corporation Tax in the G7;
* further implementation of the Leitch and Sainsbury Reviews to build on improvements in the UK skills base and to provide a world-class science base and innovation framework;
* exploring options to make better use of transport infrastructure, on top of the major programme of investment announced in the 2007 Comprehensive Spending Review;
* progress on business support simplification and measures to ensure better access to Government procurement for small firms; and
* a study of public service markets and a new framework for infrastructure procurement.
Further details on these and other measures are set out below:
Access to finance
Budget 2008 introduces a package of measures to support small businesses access the finance and resources they need to start up and grow, responding to business needs in the short term:
* A temporary increase of 20% in the amount of finance available through the Small Firms Loan Guarantee scheme, and relaxation of the restrictions on firm age to allow access to the scheme for a wider range of small firms;
* The Government will work with the banks to explore mechanisms to ensure small firms are able to access the most appropriate forms of finance, including mezzanine products. It will also provide additional Enterprise Capital Funds of £30 million to support this type of provision;
* A new capital fund primarily focused on businesses run by women;
* An increase in the Enterprise Investment Scheme's investor limit from £400,000 to £500,000 in any one tax year (subject to EU State Aid approval), and a consultation on how best to simplify operation of the scheme; and
* An increase in the value of share options an individual can hold under the Enterprise Management Incentive scheme from £100,000 to £120,000.
Regulation
Government will consult on the proposed introduction of regulatory budgets, which would cap the costs of new regulation.
Improved procurement for small and medium sized enterprises (SMEs)
The Government today announces the creation of an advisory committee, to provide advice for the 2008 Pre-Budget Report on necessary action to reduce the barriers to SMEs competing for public sector contracts, and on the practicality of setting a goal for SMEs to win 30 per cent of all public sector business in the next five years. As a part of the Enterprise Strategy the Government also today announces:
* free trial periods for all suppliers newly registering with Supply2Gov; and
* that firms supplying public services to Government will be able to sell public sector invoices to debt specialists.
Enterprise Education
Building on existing provision, a strategy is set out for developing seamless enterprise education, from primary schools to higher education, underpinned by £210 million announced at the 2007 Comprehensive Spending Review. This will include:
* Establishment of a National Enterprise Academy to equip 16-19 year olds with enterprise skills;
* Creation of University Enterprise Networks to further develop relevant skills during higher education.
Enterprise Strategy
Building on the announcements above, the Enterprise Strategy, published today, sets out how Government will further encourage business start up and growth. Focused on small and medium sized businesses, the strategy sets out a new framework for Government action, structured around the enablers of Enterprise - Culture, Knowledge and Skills, Access to Finance, Regulatory framework, and business innovation
Tax simplification
The Government today announces the next stage in its rolling programme of tax simplification to further enhance UK productivity and competitiveness.
Following discussions with business and tax professionals, the Government today announces the initial outcomes on the three tax simplification reviews launched at the 2007 Pre-Budget Report:
* VAT rules and administration: consulting on ideas to simplify operation of the partial exemption regime and capital goods scheme, and exploring the continuing need for business to seek permission from HMRC before taxing otherwise VAT-exempt supplies of land and property;
* Anti-avoidance legislation: repealing outdated and complex anti-avoidance provisions on bond washing, employment securities and other transactions in securities; and
* Corporation Tax rules for related companies: simplifying the associated companies rules relating to the small companies rate of Corporation Tax.
Building on the significant reforms to the business tax system announced in Budget 2007, due to take effect from April 2008, and responding to representations from business, the Budget further simplifies Corporation Tax by:
* reforming capital allowances to allow 500,000 businesses to write off pools of £1000 or less; and
* announcing a new review in which HM Treasury and HMRC, working in partnership with business, will look at how to simplify the Corporation Tax calculations and returns for smaller companies.
The Government also announces over 20 further tax simplification measures, which will help sectors across the UK economy, including further modernising the tax system for financial services and the charitable sector.
North Sea Fiscal Regime Reform
The Government remains committed to ensuring that the North Sea fiscal regime promotes investment and production, while ensuring a fair return for the UK taxpayer. Following the publication of the consultation document Securing a sustainable future in December 2007 the Government today announces a package of reforms to the North Sea fiscal regime to help encourage investment and maximise production. The Government will continue to engage with stakeholders on outstanding issues.
Asset Management
The Government today announces a package of tax measures which will enhance the competitiveness of the UK asset management sector, remove tax as a barrier to commercial developments and make the tax system fairer for investors. The measures include launching a new tax regime for Property Authorised Investment Funds which will commence on 6 April 2008. The package of measures has resulted from close dialogue with the asset management industry, in particular addressing issues raised in the Investment Management Association/KPMG report
Taxation and the Competitiveness of UK Funds.
Islamic finance
Following a commitment made in April 2007, the Government has been examining the feasibility of a sovereign sukuk issuance. A final announcement on the outcome of that work at this time would be premature, given the range of issues being considered. The Government remains committed to examining this issue and in Finance Bill 2008 will take legal powers to facilitate any potential future issuance. An update to the work programme, including a response to the recently closed public consultation, will be provided in the summer of 2008.
In addition, the Government has today announced a package of measures to further support Islamic finance in the UK. The Government aims, subject to consultation, to provide relief from stamp duty land tax (SDLT) for alternative finance investment bonds. The Government will also amend legislation to treat these instruments as loan capital for stamp duty and stamp duty reserve tax purposes, and modify legislation that will allow corporation and income tax rules on these instruments to be amended in the future by regulations, should that prove necessary. Finally the Government and the Financial Services
Authority will work together with stakeholders to clarify the regulatory treatment of these instruments.
Science and Innovation
The Science and Innovation White Paper will be published on 13 March and will outline significant progress in implementing the Sainsbury Review's recommendations. The White Paper will also set out DIUS' forward strategy for promoting innovation. The Budget today outlines key commitments including: proposals on how to ensure Government procurement promotes innovation; the development of an independent innovation index to measure innovation throughout the economy; the piloting of a Further Education Specialisation and Innovation Fund; and a doubling of the number of Knowledge Transfer Partnerships supported by the Technology Strategy Board. The Budget also announces that the Government will invest £10 million over five years in "Project Enthuse" to support the professional development of science teachers in all secondary schools, working in partnership with business and the Wellcome Trust.
Further progress towards implementing the Leitch review and improving workforce skills
Through Skills Accounts the Government will ensure that every adult can access investment in their skills. To expand this investment, Budget 2008 announces £60m of additional funding for adult skills, focused on Level 3, which will support increased opportunity and progression. This will provide new opportunities for people to realise their talents, offer adults a second chance to retrain and will be used to test new ways of delivering training. It will also enable leading employers to take on more adult apprentices.
Investing in infrastructure
The Government reaffirms its commitment to exploring national road pricing. Budget 2008 announces an invitation to tender to the private sector to run a number of projects based on charging by time of day, distance traveled and route chosen. The Government will make available sufficient funding to ensure these projects test the impact of financial incentives on driver behaviour.
Today the Government publishes Infrastructure procurement: delivering long term value setting out the next steps the Government is taking to secure value for money in its procurement of assets, infrastructure and long-term service provision.
Fairness and opportunity for all
The Government is committed to employment opportunity for all. As well as ensuring that individuals can take advantage of the opportunities of an increasingly globalised world, it is also crucial to the ambition of eradicating child poverty and promoting saving. The Government's approach to delivering on this commitment is twofold: integrating the tax and welfare system, so that work always pays; and providing everyone with the support they need to find, retain and progress in work. The Government is also committed to providing better incentives for saving, including for old age. This complements the action the Government is taking to enhance financial security for today's pensioners.
The Government is committed to a modern and fair tax system that ensures everyone pays their fair share of tax to support public services and meet the fiscal rules.
This Budget sets out the next steps the Government is taking to support these aims, including:
* further financial support for children, which will lift up to 250,000 children out of poverty;
* Work Capability Assessments for all existing Incapacity Benefit claimants, focusing on what people can do in work;
* further action, with the energy companies and Ofgem, to help vulnerable groups deal with rising energy prices;
* alongside the Winter Fuel Payment, an additional one-off payment of £100 to over-80s households and £50 to over-60s households in 2008-09. This will benefit around 9 million households;
* the Saving Gateway, which is a cash saving scheme for those on lower incomes, will be introduced nationally, with the first accounts available to savers in 2010;
* increasing all alcohol duty rates by 6 per cent. This will add 4 pence to the price of a pint of beer, 14 pence to the price of a bottle of wine and 55 pence to the price of a bottle of spirits;
* increasing tobacco duty in line with inflation. This will add 11 pence to the price of a packet of cigarettes; and
* further reforms to modernise the tax system, modernise tax administration and protect tax revenues.
Further details on these and other measures are set out below:
Residence and Domicile
The Government will implement the package of reforms announced at the 2007 Pre-Budget Report subject to some changes made in the light of consultation.
Key changes following consultation mean:
* income and gains in offshore trusts will only be taxed when they are remitted to the UK, even if these come from UK assets;
* children will not pay the £30,000 charge;
* the £30,000 charge should be creditable against foreign tax;
* art works brought into the UK for public display or for repair and restoration will face no new tax charges;
* where art works owned by offshore trusts are sold in the UK tax will only be paid when the trust remits the gain to the UK; and
* people with unremitted offshore income and gains of under £2,000 are exempt from the £30,000 charge and the changes to personal allowances.
The Budget announces that the rules in this area will not be substantially revisited for the rest of this or the next Parliament.
