Pre-Budget Report Nov 2008 - Facing global challenges-supporting people through difficult times
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24 November 2008
The Government’s objective is to build a strong economy and a fair society,
where there is opportunity and security for all. The 2008 Pre-Budget Report,
Facing global challenges: supporting people through difficult times, presents
updated assessments and forecasts of the economy and public finances, and
reports on how in the face of major global economic shocks the Government
intends to support the economy, businesses and households through these
uncertain times while delivering its long-term goals.
This Pre-Budget Report describes the next steps the Government is taking to
support the economy, business and households through these difficult times and
to maintain macroeconomic stability in the long-term:
- ensures financial stability, with further action to meet the global
- supports business, through an immediate support package for business
adversely affected by global economic conditions, and reforms that continue to
promote the long-term competitiveness of the UK;
- helps people and ensures fairness, by providing support for low and middle
income households now when they need it, helping homeowners, tackling child
poverty, supporting employment, and delivering security for all in retirement;
- improves public services, locking in investment alongside public service
reform, while ensuring the economy is supported in the short term and public
finances remain sound in the medium term; and
- delivers on the environmental goals, such as climate change and the need
for greater energy efficiency, while supporting low carbon growth.
Maintaining macroeconomic stability
Over the past year, major shocks have hit the economies of every country in
the world. While commodity prices have recently eased, the credit shock has
intensified into the worst global financial crisis for generations, a crisis
that is being addressed by a global policy response of unprecedented scale and
scope. These developments mean economic prospects are subject to exceptional
uncertainty, but it is clear that the UK, like many advanced economies, has
moved into recession. Asset markets and the financial sector have been severely
affected, with persistent implications for the public finances.
The economic and fiscal climate is exceptionally challenging, but because of
the macroeconomic framework introduced in 1997 the UK is facing these shocks
from a solid foundation. The Government remains committed to the macroeconomic
framework and the objectives enshrined within it. Credible medium-term
objectives and mechanisms for short-term flexibility mean that the Bank of
England and the Government can deliver the necessary support to the economy
without compromising their respective commitments to low inflation and sound
The Government’s immediate priority is to continue to support the economy
through these difficult times. This Pre-Budget Report announces that the
Government will support families and businesses, including by:
- temporarily reducing the Value Added Tax (VAT) rate to 15 per cent with
effect from 1 December 2008 to 31 December 2009; and
- bringing forward £3 billion of capital spending from 2010-11 to 2008-09
and 2009-10 the years when the impact of the shock is likely to be the
Over the medium term, the Government’s fiscal policy objective is to ensure
the sustainability of the public finances, in order to protect economic
stability and long-term growth. The Government will therefore deliver a
sustained fiscal consolidation from 2010-11, when the economy is expected to be
recovering and able to support a reduction in borrowing. In particular:
- the income tax personal allowance will be restricted for those with
incomes over £100,000 from April 2010 and a new additional higher rate of
income tax of 45 per cent will be introduced for those with incomes above
£150,000 from April 2011;
- the employee, employer and self-employed rates of National Insurance
Contributions will increase by 0.5 per cent from April 2011, when economic
growth is forecast to be above trend rates and real incomes are growing
- the Government will increase its Value for Money target in 2010-11 by £5
billion. Current spending will grow on average from 2011-12 to 2013-14 at 1.2
per cent a year in real terms, and public sector net investment will move to
1.8 per cent of GDP by 2013-14.
To underpin this consolidation, consistent with the Code for Fiscal
Stability, the Government is setting a temporary operating rule: to set policies
to improve the cyclically-adjusted current budget each year, once the economy
emerges from the downturn, so it reaches balance and debt is falling as a
proportion of GDP once the global shocks have worked their way through the
economy in full.
The fiscal projections set out in this Pre-Budget Report are consistent with
returning to cyclically adjusted current balance and debt falling as a share of
the economy by 2015-16 when the global shocks will have worked through the
economy in full. They imply, as the economy emerges from the downturn, an
adjustment in the cyclically-adjusted current balance of over 0.5 per cent of
GDP a year from 2010-11.
Ensuring financial stability
Since July 2007, the global economy has experienced levels of financial
instability not seen for generations. The Government’s objectives for addressing
these threats to the financial system have been focussed around the need to
support stability and restore confidence in the financial system; protect
depositors’ money; and safeguard the interests of taxpayers. The Government has
intervened decisively to prevent system collapse, addressing concerns about
liquidity, solvency and funding.
Given the global nature of the instability, the Government’s international
- as the 2009 Chair of the G20, making rapid progress on priority issues for
the future of the international financial regulatory system;
- ensuring that the EU learns the lessons from the crisis, in particular
regarding supervision and deposit protection arrangements for banks operating
across borders; and
- reviewing the long term opportunities and challenges for the UK’s crown
dependencies and overseas territories as financial centres.
Within the UK, the Government’s immediate priorities include:
- continuing to monitor the financial system to ensure that it is able to
support the wider economy, including through appropriate levels of lending to
businesses and households;
- strengthening the Banking Bill to enhance the Authorities’ ability to deal
with banking group holding companies and the insolvency of investment firms;
- introducing measures to facilitate the raising of equity capital.
Further details on these and other measures are set out below:
Rights Issue Review Group
The Government welcomes the report by the Rights Issues Review Group - a
working group co-chaired by HM Treasury and the FSA. The Government agrees with
the recommendations to improve the efficiency and orderliness of the UK’s equity
capital raising process by shortening the rights issue process from the 39 days
it can take to 32, and for many issues shortening the process to 16 days.
Efficient and orderly capital raising techniques are essential to enable
companies to raise capital at least cost and preserve the integrity of the
market and the issuer’s reputation. Improvements will therefore benefit the
market, companies and shareholders.
Review of offshore financial centres
The Pre-Budget Report today announces a review into the long-term
opportunities and challenges for the UK’s crown dependencies and overseas
territories as offshore financial centres. The review will enable the UK
Government and Governments in the territories to take a considered look at the
position of the UK’s offshore financial centres in the global economy. The
review will cover financial supervision and transparency; fiscal arrangements;
financial crisis management and resolution arrangements; and international
cooperation.The review will not consider changes to the UK's constitutional
relationship. Interim conclusions will be produced for Budget 2009, with fuller
conclusions later in the year.
Businesses are facing an exceptionally challenging economic climate with
uncertainty over the short to medium term. The Government is taking action to
help businesses to respond in the short term, through:
- measures to help small and medium sized enterprises (SMEs) facing credit
constraints, including a new Small Business Finance Scheme;
- a new HMRC Business Payment Support Service to allow businesses in
temporary financial difficulty to pay their HMRC tax bills on a timetable they
- more generous tax relief for businesses now making losses, by allowing
temporary additional carry-back of up to £50,000 of losses; and
- the modification of a number of planned tax reforms, including the
deferral of the increase in the small companies rate of corporation tax, a
temporary increase in the threshold at which an empty property becomes liable
for business rates, and the reform of air passenger duty, rather than
proceeding with a per plane tax.
To ensure the UK is in a strong position to respond to the longer-term
challenges, the Government will take forward further measures, including:
- a package of reforms to the taxation of foreign profits, including the
introduction of a foreign dividend exemption for large and medium-sized
businesses, supported by a worldwide debt cap on interest;
- a review of the controlled foreign companies anti-avoidance rules
consistent with a further move towards a territorial approach;
- measures to enhance SMEs’ access to government contracts, including a new
online portal for all government contracts over £20,000; and
- a set of devolutionary proposals, to be agreed with local authorities in
city-regions on a voluntary basis to increase their ability to drive
sustainable economic growth.
Further details on these and other measures are set out below:
Measures to improve the availability of finance for SMEs
To help SMEs with working capital and investment needs:
- early in 2009, the Government will launch a Small Business Finance Scheme
- a new temporary guarantee scheme to enable up to £1 billion of new
Government supported lending by banks;
- the Export Credits Guarantee Department, in conjunction with the banks,
will introduce a temporary guarantee scheme to support a £1 billion facility
providing smaller exporters with better access to short-term working capital;
- the Government will also make available a capital fund of £50 million
providing equity or quasi-equity to SMEs who are overleveraged;
- earlier in November 2008, Advantage West Midlands launched a transition
fund for viable SMEs facing financial difficulties. Other RDAs will launch
similar loan funds, now totalling £25 million, to help businesses over the
next six months. The package of measures above includes £110 million of
contribution from RDAs; and
- early in 2009, the Government will launch, with Business Link, a new
easily accessible portal, to direct credit-worthy SMEs who are experiencing
problems accessing credit.
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Temporary extension to loss relief rules
To further help the cash flow position of businesses that have recently
become loss-making, trading loss carry-back will be temporarily extended from
one to three years for up to £50,000 of losses. This measure will apply for one
year from 24 November 2008 for companies and unincorporated businesses.
HMRC Business Payment Support Service
Her Majesty’s Revenue and Customs (HMRC) will provide a new service for
businesses in temporary financial difficulty and unable to pay their tax bills
to spread payment of their bills over a timetable they can afford. The service
will cover all taxes paid by business, including corporation tax, VAT, PAYE,
income tax and National Insurance Contributions.
Small companies’ rate of corporation tax
The Government is deferring for one year the planned increase in the small
companies’ rate of corporation tax. The rate will remain at 21 per cent during
Empty Property Rate Relief
The Government is temporarily increasing the threshold at which an empty
property becomes liable for business rates. For financial year 2009-10 empty
properties with a rateable value of less than £15,000 will be exempt from
business rates - exempting an estimated 70 per cent of empty properties.
Interest-free payment schedule for backdated business rates bills
To reduce the cash flow impact on businesses, given current economic
difficulties, the Government will legislate to give more time to pay certain
backdated business rates bills issued before 31 March 2010. Business facing such
bills will be able to pay their liability for previous years in equal
interest-free installments over 8 years, rather than immediately. Beneficiaries
will include several occupiers of ports who have been affected by recent rating
Taxation of foreign profits
The Government is today announcing reforms to enhance the competitiveness of
the corporate tax system to make the UK a more attractive location for
The Government will bring forward a balanced package of reforms to the
taxation of foreign profits in Finance Bill 2009 to deliver an exemption from
tax for most foreign dividends received by large and medium sized groups,
regardless of the level of shareholding. A Targeted Anti-Avoidance Rule will
apply to protect against any avoidance activity seeking to exploit these
dividend exemptions. The exemption will be supported by a worldwide debt cap on
interest, extension of the unallowable purpose rules, and consequential changes
to the Controlled Foreign Company (CFC) rules. In addition, the existing
Treasury consent rules will be reformed. Draft clauses will be issued in
December for consultation.
The Government will also continue to examine options for reform of the CFC
rules. Any reform will aim to improve the way the CFC rules achieve their
objective of taxing profits diverted from the UK. Coupled with the exemption for
foreign dividends, this represents a clear move further towards a territorial
approach to taxing foreign subsidiaries so that a new CFC system should not tax
profits that are genuinely earned in overseas subsidiaries. There will be
continued consultation through 2009.
European Investment Bank
The Government welcomes the commitment of UK lenders to approach the EIB to
access these funds. Following negotiations between UK banks and the EIB, £1
billion of EIB funds will be available to SMEs in the UK by the end of 2008.
Following discussions with business, the Pre-Budget Report sets out the next
set of simplifications from its four ongoing simplification reviews and further,
targeted measures to help sectors across the UK economy, including employers,
the self-employed and the financial services sector.
North Sea Fiscal Regime
The Government remains committed to maximising the economic recovery of the
UK’s oil and gas reserves. Following further discussions with stakeholders, the
Government is today publishing its proposals for further reforms to the North
Sea fiscal regime.
Insurance claims equalisation reserve
The Government today announces its intention to legislate to align the tax
treatment of Lloyd’s claims equalisation reserves with that of other general
Competition in the Water Markets
PBR announces a package of measures to extend and enhance retail competition
in water markets for large non-domestic customers in England. The Government
will: lower the usage threshold above which businesses are eligible to switch
supplier from 50ML to 5ML; extend the competition regime to retail wastewater
services; remove the current access pricing arrangement for water from
legislation replacing it with simplified criteria to be introduced by Ofwat; and
introduce nationally agreed codes to be co-ordinated by Ofwat. The Government is
strongly minded to mandate the legal separation of the retail arm of a company
from the rest of its operations and will respond to this when it receives the
final report of the Independent Review of Competition and Innovation in the
Water Markets. The Government will consult on the implementation of the
The Government’s response to Francesco Caio’s review of next-generation
In response to Francesco Caio’s independent review of investment in
super-fast “next-generation access” broadband (NGA), the Government will support
market-led investment through initiatives to remove uncertainties and lower the
cost of infrastructure roll-out. The Government will also set out its vision for
NGA and undertake a benchmarking exercise when the full response is published
later this week. In addition the Government today announces that it will look
again at the spectrum to be released by Digital Switchover in order to maximise
benefits for UK companies and consumers.
Government’s response to the Glover Committee Independent Report
The Government accepts all of the recommendations put forward in the Glover
Committee’s report, published alongside the 2008 Pre-Budget Report. The
Committee was set up in Budget 2008 to provide advice on how the Government can
help small firms win a greater share of public procurement. The Government will
advertise Government contracts worth more than £20,000 in a single free online
portal, introduce measures to reduce bureaucracy and make opportunities more
transparent for small businesses.
Regional Policy Highlights
PBR announces that Government will develop new devolutionary proposals with
local authorities in key city-regions to support growth. The Government will
task Regional Development Agencies to work with city-regions to ensure local
economic capacity is in place.
Meeting the economic challenges in every region is also published alongside
PBR, setting out how the Government will continue to support the national and
sub-national levels of the economy and outlining how RDAs and other regional and
local partners are focusing their activity on supporting businesses through
tougher economic times.
The UK Economy: addressing long term strategic challenges
The UK economy: addressing long-term strategic challenges sets out how
Government will respond to the main challenges that are likely to face the UK
economy over the coming decade. It shows how the Government has made it a
priority since 1997 to build macroeconomic stability, and to promote UK
productivity growth. Looking forward, the Government will continue to promote
macroeconomic stability and ensure that the outcomes of the programmes crucial
for long-term growth are protected during economic slowdown, whilst ensuring
value for money.
Helping people fairly
The Government has already taken action to help people through the current
global economic difficulties. To provide additional support for low- and
middle-income taxpayers, the Government will:
- make permanent the £600 increase in the income tax personal allowance
announced in May 2008 with a further increase of £130, meaning basic rate
taxpayers pay £145 less tax a year in 2009-10;
- bring forward April’s increase in Child Benefit to January, worth an
additional £22 on average to families and bring forward its commitment to
increase the child element of the Child Tax Credit by £25 above indexation in
April 2010 to April 2009; and
- pay £60 to all pensioners in the New Year, which is equivalent to bringing
forward the April increase in the Basic State Pension for a single pensioner
The Government is committed to supporting households facing financial
difficulties. A new Lending Panel will improve monitoring of lending to
households and businesses. Individuals can also expect:
- help through mortgage rescue and support for Mortgage Interest Schemes for
eligible homeowners in difficulty;
- a commitment from major mortgage lenders on the Panel not to initiate
repossession action within at least three months of an owner occupier going
into arrears; and
- free and impartial debt advice through increased Government funding.
To ensure that those facing redundancy and seeking employment are helped back
into work as quickly as possible the Government announces:
- an additional £1.3bn to continue delivering effective support for the
unemployed to find a new job;
- a National Employment Partnership bringing together the Government and
major employers to tackle rising unemployment; and
- refocusing Train to Gain to provide support in pre-redundancy situations,
expanding the Rapid Response Scheme to target small and large scale
redundancies and extending local employment partnerships to focus on the short
Further details on these and other measures are set out below:
Personal tax and National Insurance Contributions
This Pre-Budget Report makes permanent the £600 increase in the personal
allowance and the £1,200 reduction in the basic rate limit announced in May, and
announces further reforms to personal tax. These changes will provide additional
help for low to middle income families next year. In April 2009, the Government
will increase the personal allowance by £130 above indexation. This is on top of
the £600 increase for 2008-09. It means 22 million basic rate tax payers under
65 will pay £145 less tax in real terms in 2009-10.
The Government will also maintain the additional £130 of personal allowance
in April 2010. The real terms benefit will increase in 2010-11 when the RPI
measure of inflation is projected to be negative.
The Government is also taking action to consolidate the public finances:
- from April 2010 the personal allowance will be restricted to half its
value for those with incomes over £100,000, so that it is worth the same as to
a basic rate taxpayer, and to zero for those with incomes over £140,000;
- from April 2011 an additional higher rate of income tax of 45% will be
introduced for incomes above £150,000;
- from April 2011, the lifetime and annual allowances for tax-free pension
savings will be held constant at £1.8 million and £255,000 respectively, for
five years, up to and including 2015-16; and
- from April 2011 a 0.5% increase in the employer, employee and
self-employed rates of NICs (both main and additional rates) alongside an
increase in the point at which people begin to pay NICs to align this with the
income tax personal allowance.
These reforms and the measures announced in May, will permanently reduce the
number of households paying more net tax as a result of the Budget 2007 personal
tax changes from 5.3 million originally to 500,000 by 2011-12. As a result of
all the measures taken since Budget 2008, in April 2011, 23 million taxpayers
with incomes below £40,000 will pay less tax and NICs than in April 2008 in real
terms. The benefit from the increase in the point at which people start to pay
NICs in April 2011 will mean that people earning less than £20,000 will pay less
NICs, even with the 0.5 per cent increase in the NICs rate.
Extension of debt advice services
The Government is committed to ensuring that any family facing debts which
they cannot manage can access free impartial debt advice to help them get back
on track. Building on ongoing Government investment in the debt advice sector,
today’s Pre-Budget Report announces additional Government funding of £5.85
million for an extension of telephone advice services and £10 million to extend
face-to-face advice services to ensure everyone has access to free debt advice
when they need it. This additional funding for increased debt advice capacity
will be complemented by an online destination at
http://www.direct.gov.uk/debtadvice (opens in a new browser window)which
will enable people to get information on free and impartial sources of debt
Households and Housing
Building on the September Housing Package, the Government is providing
additional support in order to help people and households in financial
- establishing a Lending Panel to monitor lending to both businesses and
households. Reporting to the Chancellor of the Exchequer and the Secretary of
State, BERR, the Panel will bring together lenders, trade bodies, consumer
groups, and the Government, regulators and the Bank of England;
- a commitment for the coming year by the major mortgage lenders, not to
repossess homes within three months of the owner occupier going into arrears;
- protecting more vulnerable homeowners in financial difficulty by extending
the Mortgage Rescue scheme to cover second charge lending; and
- increasing the generosity of the Support for Mortgage Interest scheme for
homeowners who lose their jobs.
The Government is also supporting housing supply and affordability through:
- as part of the broader fiscal stimulus package, bringing forward a further
£775m of housing and regeneration investment including £575m to provide
additional support for social rented homes;
- helping more people get on the property ladder by assessing the need for
further tax-relieved savings options for first time buyers saving for their
- welcoming Sir James Crosby’s report published alongside PBR, and
proceeding to work up a detailed scheme based on Sir James’ recommendation of
a government guarantee, for a temporary period, on the interest and principal
of high quality mortgage-backed bonds, and seeking State Aid approval to
proceed. The Government will take into consideration the interaction between
this recommendation and the Credit Guarantee Scheme, and update on its
position by the Budget. It will continue to keep under review what more can be
done to ensure the continued supply of secured and unsecured credit in the
The Government remains firmly committed to eradicating child poverty and
since 1997 has made substantial progress. The Pre-Budget Report sets out the
steps the Government will be taking, including:
- bringing forward its commitment to increase the child element of the child
tax credit by £25 above indexation in April 2010 to April 2009. The child
element will therefore increase by £75 above indexation to £2,235;
- bringing forward its commitment to increase Child Benefit from £18.80 to
£20pw for the first child, and from £12.55 to £13.20pw for subsequent children
to January 2009; and
- setting out that the Prime Ministers announcement to legislate on the
commitment to eradicate child poverty by 2020 will be taken forward through a
child poverty bill in 2009.
Supporting people in later life
The Government is committed to uprating the basic State Pension by RPI or
2.5%, whichever is higher. In April 2009 the level of a full State Pension will
rise in line with prices to £95.25 a week. In addition, the Government
announces that it will make a payment in the New Year of £60 for each pensioner,
equivalent to bringing forward uprating of the basic State Pension from April to
January. A £60 payment will also be made to 2.5m individuals who are in receipt
of certain other benefits.
The Government today also announces an above-indexation increase in Pension
Credit’s minimum income guarantee to £130.00 for single pensioners and £198.45
for couples in 2009-10.
The Saving Gateway
The Government today announces that it will contribute 50p for each pound
saved in the new national Saving Gateway. This will provide a strong and easily
understood incentive to save for around 8 million people on lower incomes. The
Saving Gateway will be introduced nationally in 2010.
People on qualifying benefits and tax credits will have the opportunity to
open Saving Gateway accounts through a range of financial institutions such as
banks, building societies and credit unions. Building on the strength of the
Post Office as a trusted brand, the Saving Gateway will also be available
through the Post Office.
The Government is responding to rising unemployment with a comprehensive
package of support to help people move back into work as quickly as possible.
This PBR announces that an additional £1.3 billion will be set aside for the
Department for Work and Pensions over the next two years to ensure Jobcentre
Plus capacity is in place to respond effectively to rising unemployment.
The Government is also refocusing and expanding three existing schemes, to
help people facing redundancy move seamlessly into a new job. This includes:
- Substantial expansion of Jobcentre Plus’ employer engagement capacity;
- Strengthening and expanding the Rapid Response Service; and
- Extending Train to Gain to provide new training to people before they are
This package will be underpinned by a radical new partnership with employers.
Over 20 Chief Executives from top national companies have agreed to support the
Government through a National Employment Partnership – chaired by the Prime
The Government firmly believes it is unfair to allow a minority of
individuals to benefit financially from shifting part of their income to someone
else who is subject to a lower rate of tax, known as income shifting. The
Government has consulted on this issue but, given the current economic
challenges, the Government is deferring action and will not bring forward
legislation at Finance Bill 2009. The Government will instead keep this issue
A Charter for HMRC
The Government today announces that it will begin consultation in January on
the wording of a Charter for HMRC, as an important contribution to its
relationship with individuals, businesses and tax agents. This follows a major
consultation over the summer on the scope of a Charter.
Improving public services
Over the last ten years, record levels of investment coupled with reform have
generated real and enduring improvements in Britain’s schools, hospitals and
other public services. The 2008 Pre-Budget Report continues high levels of
investment, reprioritises spending to support the economy and announces an
ambitious extension of its plans to increase value for money.
The Pre-Budget Report announces:
- as part of the Government’s fiscal stimulus package, bringing forward £3bn
of capital spending from 2010-11 into 2009-10 and 2008-09;
- new spending measures including additional funding for Jobcentre Plus to
help people move back to work;
- that the Government has overachieved against the targets set by the
Gershon efficiency programme including delivering £26.5bn in savings;
- that additional value for money savings have been identified through the
work of Operational Efficiency Programme;
- that further value for money savings will be delivered within the 2007 CSR
period and beyond through a set of Public Value Programme (PVP) reforms across
major areas of spend;
- assumptions for spending growth from 2011-12 onwards, with current
spending growing in real terms by 1.3% in 2011-12, 1.2% in 2012-13 and 1.1% in
2013-14 and public sector net investment moving to 1.8% of GDP by 2013-14.
Further details on these and other measures are set out below:
Building on record levels of investment in public services since 1997, the
Government will act to support the economy through the downturn by bringing
forward £3bn of capital spending in a number of sectors including transport,
housing and regeneration, health and education, and the environment. This
package will support different industries and jobs across the country.
Value for money and future spending growth
2004 Spending Review: final report on the efficiency programme is published
alongside the Pre-Budget Report, and details the Government’s significant
over-delivery of its efficiency, workforce and relocation targets for the 2004
Spending Review period.
Pre-Budget Report announces emerging findings from the Operational Efficiency
Programme, which suggest that billions of pounds of savings could be realised
across the Programme’s five workstrands, including back office functions and
asset management. It also announces the appointment of Sir Michael Bichard,
Executive Director of the Institute for Government, to lead work on local
incentives and empowerment.
Building on this record of delivery, and on the emerging findings from the
Operational Efficiency and Public Value Programmes, the existing
cross-Government value for money target for 2010 will be increased to £35
billion, releasing £5 billion of additional recoverable savings in 2010-11.
Savings that can be achieved by individual departments will be set out, and
allocations for 2010-11 adjusted accordingly, at Budget 2009.
Further value for money savings beyond the CSR07 period will be identified
through the Operational Efficiency and Public Value Programmes, reporting in
Delivering on environmental goals
Action to achieve environmental goals remains a high priority for the
Government in current economic circumstances. The Pre-Budget Report contributes
to meeting the UK’s ambitious long-term environmental goals, while supporting
low-carbon growth by:
- introducing a green stimulus – ensuring part of the fiscal stimulus
supports low-carbon growth and jobs by accelerating £535 million of capital
spending on energy efficiency, rail transport, and adaptation measures;
- successfully securing inclusion of aviation in the EU Emissions Trading
Scheme from 2012 and holding Europe’s first Phase II carbon auction on 19
- retaining the Renewables Obligation to provide financial support for
large-scale renewable electricity and extending it by at least ten years,
ensuring investors can plan with confidence for the future; and
- following a fall in pump prices by over 20 pence per litre from their
summer peaks, the postponed two pence per litre fuel increase will go ahead on
1 December 2008.
At the same time, the Pre-Budget Report shows how environmental policies can
respond flexibly to help people and businesses through tough times, while
reducing carbon emissions:
- installing 600,000 insulation measures this winter, up to 70 per cent on
last winter, through the £6.8bn Home Energy Saving Programme, half of which is
funded by energy companies;
- continuing to provide a clearer environmental signal through reform to
vehicle excise duty, while ensuring that no driver in any given band will pay
more than £5 extra in 2009 or £30 extra in 2010; and
- reforming air passenger duty from 1 November 2009, moving from two to four
distance bands to improve environmental signals.
Further details on these and other measures are set out below:
As part of the fiscal stimulus, the Government is accelerating and providing
additional resources worth £535 million to promote its environmental objectives
and support low-carbon growth. This stimulus will help to sustain and expand the
estimated 350,000 jobs in the UK low-carbon sector.
The stimulus comprises:
- £100 million of new funding for Warm Front on top of £50 million spending
on the programme brought forward now to support the economy. This stimulus
will help around 60,000 households in total cut their energy bills through
insulation and improved heating systems.
- £60 million to provide 16,000 social houses with energy efficiency and
heating measures as part of an accelerated Decent Homes programme.
- £300 million to accelerate the delivery of up to 200 new carriages to
expand capacity on the rail network.
- £20 million of spending on flood defences.
- £5 million of spending on British Waterways network infrastructure.
Auctioning allowances in Phase II of the EU ETS
The UK held the first ever auction of carbon allowances under Phase II of the
EU Emissions Trading Scheme (EU ETS) on 19 November. Four million allowances
were sold raising over £54 million. The EU ETS caps emissions from power
generation and heavy industry and covers around half of UK carbon dioxide
Supporting low carbon technology and infrastructure
Today, the Secretary of State for Energy and Climate Change has confirmed
that the Government is committed to retaining the Renewables Obligation for
large-scale renewable electricity and will extend it by a further ten years to
at least 2037. This will ensure that investors can plan with confidence for the
future, making renewable electricity more viable.
As a result of falling oil prices, pump prices have now fallen by more than
20 pence per litre from their July peaks. The Pre-Budget Report therefore
announces that the 2 pence per litre increase in fuel duty planned for 2008 will
now take place on 1 December 2008. However, as a result of the 2.5 per cent cut
in VAT this December, the cost of petrol and diesel will fall for private
motorists who should see no increase in the price they pay at the pump this year
from this measure.
The Pre-Budget report also confirms that, as pre-announced in Budget 2008,
main fuel duties will further increase by 1.84 pence per litre on 1 April 2009;
and 0.5 pence per litre above indexation on 1 April 2010.
Vehicle excise duty
Since 2001, post-2001 vehicle excise duty (VED) has been based on different
rates depending on carbon dioxide emissions from cars. Budget 2008 announced
further reform of this structure, to reflect changes to the fuel efficiency of
The Pre-Budget Report confirms the introduction of new VED bands in 2009.
However, it also announces that to reduce pressures on motorists during the
current economic downturn there will be no significant rate changes until 2010,
and no driver in any given band will pay more than £30 more in that year.
Details of this reform include:
- from April 2009, six new bands of VED will be introduced, taking the total
to 13. However, VED rates will not increase by more than £5 for any car in
- from April 2010, in order for the new bands to create an environmental
incentive, the Government will start to separate out the 13 differential
- from April 2010, a differential First-Year Rate for new vehicles will be
introduced as announced in Budget 2008, in order to provide a stronger signal
to consumers at the point of purchase; and
- cars that emit over 225 g/km, but were registered between 1 March 2001 and
23 March 2006, will be moved into new band K in 2009 and stay there in 2010.
This will mean that they maintain their exemption from the top rate of VED.
Cars registered before 2001 – which account for around a third of the fleet –
are not subject to these reforms, because comprehensive data on their CO2
emissions is not available. Instead, pre-2001 cars are subject to a separate VED
regime, based on engine size.
At the 2007 Pre-Budget Report, the Government announced it would consult on
proposals to replace air passenger duty (APD) with a per plane tax.
The Government has listened to the points made during the consultation
process, and its decision on aviation taxation has been determined by the need
to ensure greater stability in tax policy at a time of economic uncertainty
while maintaining its commitment to environmental objectives. The Government has
decided to reform the APD regime rather than proceed with a per-plane tax.
From 1 November 2009, APD will be structured around four distance bands, set
at intervals of 2000 miles from London. This reform will ensure that those
flying farther, and therefore contributing more to emissions from aviation, will
The Government believes that action at an international level is needed to
ensure the sustainable development of this sector. The Government has succeeded
in its aim of obtaining unanimous agreement to include aviation in the EU ETS
from 2012 at a cap of 97 per cent of 2004-06 emissions. Phase III details are
being negotiated as part of the EU Climate and Energy package.
Capital allowances for business cars
The Pre-Budget Report confirms the Government’s intention to modernise the
tax relief for business expenditure on cars. The existing arrangements will be
replaced by an emissions based approach. This reform will take effect from 1
April 2009 for corporation tax and 6 April 2009 for income tax. A technical note
and draft legislation setting out the full detail will be published shortly.
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Article Published/Sorted/Amended on Scopulus 2008-11-25 01:25:10 in Tax Articles