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BUDGET: BUILDING A BRITAIN OF ECONOMIC STRENGTH AND SOCIAL JUSTICE

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New measures to build a Britain of economic strength and social ...
New measures to build a Britain of economic strength and social

justice are set out in the Budget, delivered by the Chancellor,

Gordon Brown, today.

Against a backdrop of global economic uncertainty and hostilities in

Iraq, the Budget sets out the long-term reforms that will leave

Britain well placed to deal with the impact of global events, and

benefit from the coming global upturn, to build a Britain of economic

strength and social justice, a Britain that is enterprising, flexible

and fair.

>From strong foundations, and having steered a stable course through

the most rapid slowdown in the world economy for thirty years, Budget

2003:

- forecasts the economy to grow by 2 to 2-1/2 per cent this year as

the world economy recovers, rising to 3 to 3-1/2 per cent in 2004

and 2005;

- shows that the public finances remain sound, and that the

Government is firmly on track to meet its strict fiscal rules over

the economic cycle, while meeting international and public spending

commitments;

- announces new measures to enhance flexibility and dynamism in

labour, product and capital markets - measures for flexibility that

will deliver opportunity and prosperity in every region; and

- takes steps to advance fairness with flexibility, with further

support for some of the most vulnerable pensioners in the country

and a new Child Trust Fund to help strengthen the saving habit of

future generations.

KEY BUDGET MEASURES

Key announcements in Budget 2003 include:

- a new Child Trust Fund providing children born from September 2002

with an initial endowment at birth of £250, rising to £500 for the

poorest families, to strengthen the saving habit of future

generations;

- an extra £100 on top of the £200 winter fuel payment, to households

with a pensioner aged 80 or over, for the lifetime of this

Parliament;

- an extension, to 52 w eeks, of the period over which all pensioners

in hospital receive their full state pension;

- a package of support for new and growing businesses, including

proposals to improve access to finance, simplify tax and reduce

regulatory burdens, and measures for the 2,000 Enterprise Areas;

- new measures to increase the supply of housing, promote flexibility

in the housing market, and streamline and simplify the planning

regime;

- further steps to improve skills in the workforce, with Enterprise

Advisers in schools, details of additional Employer Training Pilots

and reforms to facilitate migration as a source of skills in the

economy;

- substantial reform of Housing Benefit to improve gains to work,

facilitate labour mobility, and deliver a more reliable service to

claimants;

- more intensive support to help lone parents and partners of out-of-

work benefit claimants find work, with pilots of a new worksearch

premium for lone parents and an enhanced New Deal for partners;

- a new compliance and enforcement package to protect direct tax

revenues and designed to save £1.6 billion over the next three

years;

- an increase in tobacco, beer and wine duties in line with inflation

and a freeze in the duty on spirits, sparkling wine and cider; and

- a deferred increase in the main road fuel duties in line with

inflation from 1 October, new duty incentives for

environmentally-friendly road fuels, and a new lower rate of

vehicle excise duty for the cleanest cars.

MAINTAINING MACROECONOMIC STABILITY

Economic stability and sound public finances provide the best

foundation for rising national prosperity and long-term investment in

public services.

Increased global uncertainty in recent months has led to sharp

declines on equity markets and rising oil prices, restraining global

economic activity. G7 growth this year is now forecast to be weaker

than expected at the time of the Pre-Budget Report, with prospects

for the Euro-area particularly badly affected. GDP in the G7

economies is now expected to grow by just 1-3/4 per cent in 2003, and

that in the Euro-area by just 1 per cent.

International developments continue to influence prospects for the UK

economy and persistent uncertainty and subdued global growth have

affected business confidence and investment in recent months.

Nonetheless, low inflation and sound public finances have allowed

macroeconomic policy to support the economy during this period of

global weakness and left the UK better placed than in previous world

slowdowns to maintain economic stability. Comparisons with major

competitors show the UK, with North America, as the fastest growing

of the G7 industrialised economies in 2001 and 2002.

The Budget 2003 projections show that:

- the economy is forecast to grow by 2 to 2-1/2 per cent in 2003 as

uncertainties diminish and the global recovery strengthens, and by

3 to 3-1/2 per cent next year and in 2005 as the economy returns to

trend;

- RPIX inflation is forecast to remain low and close to the

Government's 2-1/2 per cent target throughout the forecast period;

and

- the public finances remain sound. Based on prudent audited

assumptions, and despite continued uncertainty in the world

economy, the Government is firmly on track to meet its two strict

fiscal rules over the economic cycle, including in the cautious

case, while meeting its international and public spending

commitments.

PROMOTING PRODUCTIVITY AND FLEXIBILITY

Productivity growth underpins strong economic performance and

sustained increases in living standards. The Government's long-term

goal is that Britain will achieve a faster rate of productivity

growth than its main competitors, closing the productivity gap.

In the modern global economy, faster productivity growth demands new

flexibil ity in labour, product and capital markets. Flexibility

ensures that the economy responds to economic change efficiently and

quickly, and in a way that maintains high employment, low inflation

and unemployment, and growth in real incomes. Were the UK to join

EMU, the need for flexibility would be greater still, as the ability

to adjust interest and exchange rates would no longer be available.

Dynamic labour, product and capital markets, and a stable and

flexible housing market, would be vital to avoid putting at risk high

and stable levels of growth and employment.

Building on the reforms to the competition regime and the support for

businesses already introduced, Budget 2003 sets out the further steps

the Government is taking to support the drivers of productivity

growth.

Promoting enterprise and innovation

The Government is committed to building an enterprise society in

which people from all backgrounds and all areas of the country

consider and act upon enterprise opportunities. Budget 2003 announces

further action to support small and growing businesses, including:

- proposals to improve access to finance for small businesses, with

consultation on Small Business Investment Companies, reforms to the

Enterprise Investment Scheme and Venture Capital Trust provisions,

and tax relief for the incidental costs incurred by SMEs in issuing

equity. Further details of the Government's proposals are set out

in a new document, Bridging the finance gap: a consultation on

improving access to growth capital for small businesses, published

alongside the Budget;

- deregulatory reforms to ease the regulatory burden on small

businesses, including amendment of the Company Law definition of

small- and medium-sized companies to increase the turnover

thresholds to the maxima allowed under EU law. Legislation to

establish the new definitions will be introduced as soon as the new

EU maxima come into f orce later this year;

- further steps to promote research and development (R&D) activity by

business, including reforms to improve the operation of existing

R&D tax credits to ensure that more businesses can claim a wider

range of relief and consultation on improving the definition of R&D

used for the tax credits to ensure it remains consistent with

technological developments and is competitive internationally;

- further proposals to help businesses in Enterprise Areas, including

a second community development venture fund and enhanced capital

allowances. From 10 April, all non-residential transactions in

these areas are exempt from stamp duty, regardless of value;

- £16 million over two years to fund Enterprise Advisers to work

alongside headteachers in around 1,000 secondary schools in

deprived areas to ensure that pupils gain better knowledge of

business and enterprise. Budget 2003 also launches a new £1 million

Enterprise Promotion Fund, to support private and voluntary sector

creativity in promoting enterprise;

- a new package of training support for SMEs delivered in partnership

with high street banks. The package will use the banks' existing

communication networks to stimulate demand for advice and training.

It will be managed by a steering group chaired by Sue Brownson,

chief executive of Blue Bell BMW;

- a series of measures to simplify VAT for businesses, including an

increase in the registration threshold in line with inflation and

extension of the optional flat rate and annual accounting schemes

to businesses with turnover of up to £150,000;

- further reform of capital gains tax (CGT), including an extension

of business assets taper relief to improve access to let property

for unincorporated traders and new measures to simplify the CGT

regime;

- a package of measures to simplify employee share schemes, to enable

and encourage companies to offer them to their employees;

- an extension of 100 per cent first year capital allowances for

small businesses investing in information and communication

technologies for one further year; and

- the abolition of Petroleum Revenue Tax from 1 January 2004 on all

new third party tariffing business under contracts completed on, or

after, Budget day relating to the use of pipelines and other

infrastructure in the UK and on its continental shelf.

Further information on these and other reforms to help businesses are

set out in the separate press notices, PN 05 and PN 06.

Improving UK skills

Improving skills is central to raising UK productivity growth.

Skilled labour is an important driver of economic performance and

helps to deliver a more flexible and adaptable labour market,

enabling firms to update working practices and products at the rate

demanded by global markets and making the economy more flexible and

productive in the long term.

The Government is planning to publish a Skills Strategy in June 2003,

setting out a framework for action by government, individuals and

employers to tackle deficiencies in the skills base. The Strategy

will propose measures to support employers facing barriers in raising

skills levels, improve vocational opportunities for young people,

engage more low-skilled adults in training, and make further

education funding and qualification structures more responsive to the

needs of the economy. Budget 2003 announces further support to

improve levels of skills throughout the UK workforce, including:

- the launch of six new Employer Training Pilots in Berkshire, East

London, Kent, Leicester, Shropshire and South Yorkshire to test new

approaches to improving access to training for those in the

workforce. The new pilots will be backed by £130 million of funding

and will now run in around one quarter of local Learning and Skill s

Council areas. The extension of Employer Training Pilots will help

to strengthen evaluation of the scheme and provide important

evidence to inform the development of national policy,

complementing work in other areas;

- improvements to the Highly Skilled Migrants Programme, including a

new threshold for eligibility to encompass a wider range of highly

skilled applicants, a new category for younger applicants, and

taking partners' achievements into account in assessing individual

applications. The changes will take effect from August 2003; and

- further steps to facilitate migration as a source of skills in the

UK, including a new entitlement for foreign students of science,

technology, engineering and maths to work in the UK for 12 months

after graduation from a UK institution, reform of the Working

Holidaymakers scheme, and action to improve potential migrants and

employers' access to information on migration routes.

Improving housing supply and simplifying planning

A stable and flexible housing market is essential to a healthy

economy and has a significant influence on macroeconomic stability.

Housing market imbalances can act as a brake on economic development

and lead to social disadvantage. The effect the housing market has on

macroeconomic stability could be much more significant were the UK to

join EMU.

The Government's Sustainable communities strategy includes reforms to

increase the supply of housing, particularly affordable housing.

Budget 2003 announces further significant measures, including:

- a new requirement that local authority plans make provision for at

least 10 years potential supply of housing, while continuing to

prioritise brownfield development;

- a new right for the Deputy Prime Minister to call in for his own

decision major housing developments where local authorities are not

delivering housing numbers and where intervention will spe ed up

delivery;

- a new review, to be led by Kate Barker, of issues affecting housing

supply in the UK, including competition, the capacity and finance

of the house-building industry, new technology, possible fiscal

instruments, the interaction of these factors with the planning

system, and sustainable development objectives;

- consideration of whether, in the medium term, the Government's

objectives will require a system of binding local development plans

to increase certainty and ensure the stability of the housing

market; and

- a new review of the UK mortgage market, by Professor David Miles,

to assess the supply and demand side factors limiting the

development of the market for fixed and long-term fixed rate

mortgages.

The Government's long-term goal is employment opportunity for all -

the modern definition of full employment. Its aim is to ensure a

higher proportion of people in work than ever before by 2010.

A dynamic and flexible labour market that equips people to adapt to

changes in global and domestic demand, and which has the

institutional flexibility to deliver high employment and low

unemployment across the economic cycle, is key to achieving the

Government's goal.

The UK labour market generally exhibits a high degree of flexibility.

This has helped to deliver a strong performance in recent years,

despite difficult and uncertain global conditions. The New Deal

programmes have helped to deliver substantial reductions in the

numbers of young and older long-term unemployed people and help has

been extended to other workless benefit claimants, including lone

parents, disabled people and partners.

Reforms to the tax and benefit system, underpinned by the National

Minimum Wage and the Working Tax Credit, have improved incentives to

work, helping the labour market to respond flexibly to economic

shocks, while preserving a degree of stability in workers' incomes .

Unemployment in the UK on the International Labour Organisation (ILO)

definition is the lowest among the G7 economies and employment has

risen to record highs.

Building on measures to raise levels of skills in the workforce,

Budget 2003 describes the additional steps the Government is taking

to strengthen flexibility in the labour market, ensuring it can adapt

to changing circumstances and deliver high and sustainable

employment, including:

- extra help for unemployed people searching for jobs. Budget 2003

introduces a series of reforms to improve the effectiveness of

Jobseeker's Allowance at helping people adapt to changing economic

conditions, including additional interventions in the first six

months;

- greater flexibility and discretion for Jobcentre Plus districts to

respond to local conditions, with a new discretionary fund to

address specific employment barriers affecting local communities, a

more flexible approach to the length and design of the options

within the New Deal for young people, and greater rewards for

successful managers;

- reform of Housing Benefit to improve financial gains to work,

facilitate labour mobility, and to deliver greater reliability in

the service to claimants. From April 2004, claims will disregard

the first £11.90 of income for tenants eligible for the Working Tax

Credit, and the claims process will be simplified. The Government

also intends to introduce a new flat rate local housing allowance

in the private sector throughout the country as soon as possible,

starting with pathfinders from October 2003. A flat rate system in

the social sector will be introduced as soon as rent restructuring

and increased choice create a better market;

- extending the help provided by Employment Zones more widely and

encouraging innovation among providers. From April 2004, Employment

Zones will replace the New Deal for lone parents (ND LP) in the five

London Zones, and will replace the New Deal for lone parents

returning for a second or subsequent work-focused interview in the

other Zones. Multiple providers will also be introduced in the five

London Employment Zones, as well as in the Birmingham, Liverpool

and Glasgow Zones;

- a package of reforms to help lone parents, including a new £20 per

week worksearch premium in eight pilot areas for lone parents

actively seeking work, a flexible fund to help Jobcentre Plus

managers improve access to debt advisory services, and a new

communications and outreach strategy in six cities with high lone

parent populations;

- an enhanced New Deal for partners in April 2004, offering greater

help to unemployed partners of benefit claimants. The enhanced New

Deal will provide the same package of support as that available to

lone parents, including a training allowance and help with

childcare; and

- extra support to help people from ethnic minorities, including a

new policy fund of £8 million over the next two years to help

Jobcentre Plus managers help people from ethnic minorities into

work, and specialist advisers in areas with high ethnic minority

populations.

As announced last month, the National Minimum Wage for adult workers

aged 22 or over will be increased to £4.50 an hour from October 2003

and, subject to a review by the Low Pay Commission (LPC) next year,

to £4.85 from October 2004. For workers aged between 18 and 21 and

those in training, the rate will rise to £3.80 from October 2003 and

to £4.10 from October 2004. The LPC estimates that at least 1.3

million low paid workers will benefit from the new rates in October

2003 and 1.7 million in 2004.

Paid from this month, the Working Tax Credit will help to tackle poor

work incentives and persistent poverty among working people.

Alongside the National Minimum Wage, it will hel p to ensure that the

labour market responds flexibly to economic shocks, while preserving

a degree of stability in workers' incomes. From October 2003, the

Working Tax Credit and the National Minimum Wage will guarantee

minimum incomes of:

- £241 a week for a family with one child and one earner working

full-time on the National Minimum Wage; and

- £187 a week for a single earner couple aged 25 or over and working

full-time on the National Minimum Wage.

BUILDING A FAIRER SOCIETY

The Government is determined to ensure that flexibility and fairness

are advanced together so that rising national prosperity can be

shared by all. Policies for flexibility need not be implemented at

the expense of those for fairness, but should be pursued together.

Budget 2003 sets out the next steps in the Government's strategy for

supporting families, providing security in old age, encouraging

saving, and delivering a modern and fair tax system.

Support for families and children

The Government is committed to ensuring that every child has the best

possible start in life and has set a long-term goal to halve child

poverty by 2010 and to eradicate it within a generation.

The Government is committed to a Public Service Agreement target to

reduce the number of children living in low-income households by a

quarter by 2004-05. Between 1998-99 and 2001-02 the number of

children in low-income households fell by 400,000 after housing costs

and by 500,000 before housing costs. The Government is therefore

around halfway towards meeting its target in half of the time. On one

measure it is over halfway, while on the other, it is slightly less

than halfway.

Paid from this month, the Child Tax Credit will help to lift more

children out of poverty, advancing the Government's child poverty

goal. Around 5-3/4 million families with children are expected to

benefit from the Child Tax Credit. As a result of all perso nal tax

and benefit measures taking effect from this month, including the

Child and Working Tax Credits and the freezing of the income tax

personal allowance and increase in national insurance contributions

announced in Budget 2002:

- a single earner family on median earnings of £21,400 and with two

children will be nearly £5.00 a week better off, largely because of

the new Child Tax Credit; and

- 50 per cent of families with children will be better off, even

after the changes to income tax and national insurance

contributions.

As a result of all personal tax and benefit measures since 1997, on

average, families with children are £1,200 a year better off in real

terms, while those in the poorest fifth of the population are £2,500

a year better off in real terms.

Building on the reforms already introduced, Budget 2003 announces

further steps to improve support for families with children,

including:

- a review of financial support for 16 to 19 year olds, including the

financial incentives for young people to participate in education

and training. The Government has also agreed that the Low Pay

Commission should look into the advantages and disadvantages of a

minimum wage for 16 and 17 year olds and will consider the

interaction between existing support and any new minimum wage as

part of this review. The review will report in spring 2004;

- tax relief for employer contributions to home-working costs. From

April 2003, the income tax charge that arises when employers

contribute to additional household costs incurred by employees

working at home will be abolished, increasing incentives for

employers to offer flexible working arrangements for their staff;

and

- a new personal tax exemption for foster carers receiving less than

£10,000 a year per residence plus an additional amount per child,

to facilitate recruitment and retention o f carers.

Fairness for today's pensioners

The Government is committed to tackling pensioner poverty and to

ensuring that all pensioners are able to share in rising national

prosperity.

The introduction of the Pension Credit from October 2003 - at a cost

of £2 billion in the first full year - will ensure that millions of

pensioners who have saved for their retirement benefit from having

done so. Around half of all pensioner households stand to gain an

additional £400 a year on average under the Pension Credit, with some

gaining up to £1,000 a year.

The Government is pursuing a comprehensive strategy to maximise

take-up, involving personal direct mailing and extensive publicity to

ensure that all pensioner households claim what they are entitled to.

The Government is determined that at least three million households

should receive the Pension Credit by 2006 - the first time a

Government target has been set for the take-up of an entitlement.

To provide further support forsome of the most vulnerable pensioners

in society, Budget 2003:

- provides an additional £100, on top of the £200 winter fuel

payment, to households with a pensioner aged 80 or over, for the

lifetime of this Parliament; and

- extends, to 52 weeks, the period over which all pensioners in

hospital receive their full state pension. Since the introduction

of the welfare state, hospital inpatients, including pensioners,

have seen their benefits and state pension reduced after just six

weeks, leading to financial insecurity and distress. This reform

will provide greater financial security for all those who

experience longer stays in hospital.

>From 2004-05, following the introduction of the Pension Credit, the

Government will be spending around £9.2 billion more in real terms on

pensioners as a result of measures introduced since 1997. Compared

with the 1997 system, as a result of the Government's measures to

support pensioners, including the Pension Credit, on average, from

October 2003:

- pensioner households will be £1,250 a year better off in real terms

- around £24 extra a week; and

- the poorest third of pensioner households will have gained £1,600 a

year in real terms - over £30 extra a week.

Support for tomorrow's pensioners

Above the foundation of support provided for today's workers in

retirement, individuals, where possible supported by their employers,

are responsible for deciding the level of income on which they plan

to retire, and need to plan their saving and working patterns

accordingly. The Government is taking steps to help today's workers

plan effectively for their retirement, by:

- consulting on proposals set out in the Pensions Green Paper to

raise levels of pension saving. A series of seminars and events

have been held with key stakeholders and around 750 responses have

been submitted. The Government is currently considering responses

and has established a new Pensions Commission to review the regime

for private pensions and long-term savings and to assess the

voluntarist approach. The Commission expects to publish its work

programme shortly; and

- consulting on proposals to simplify the taxation of pensions. The

consultation period ends on 11 April and the Government intends to

publish its plans for legislation in the summer.

Promoting saving and asset ownership

Saving and assets provide people with security in times of adversity,

long-term independence and opportunity, and comfort in retirement.

Budget 2003 introduces a new Child Trust Fund providing every child

born from September 2002 with an endowment at birth of £250, rising

to £500 for children in the poorest one third of families who also

qualify for the full Child Tax Credit. Both progressive and

universal, the Child Trust Fund wi ll help to strengthen the saving

habit of future generations and spread the benefits of asset

ownership to all. Further details are set out in press release PN 03.

The Government welcomes the aim of the Sandler Review of Long-term

Savings to minimise tax-generated distortions and create a more level

tax playing-field in savings and investment. The Government intends

to consider the Review's recommendations relating to the taxation of

life insurance policies further within a wider framework that takes

account of ongoing regulatory change and other developments such as

corporation tax reform.

Delivering a modern and fair tax system

Budget 2003 introduces further measures to deliver a modern and fair

tax system which keeps pace with developments in business practice

and raises sufficient revenue to support the Government's objectives.

Taxpayers who contribute their fair share of taxes expect that others

will do likewise and that the Government will take action against

those who abuse the system. Budget 2003 therefore takes further

action to prevent abuse, avoidance and non-compliance in the tax

system, including through:

- the launch of a new compliance and enforcement package designed to

strengthen the Inland Revenue's ability to target its compliance

activity towards high-value and high-risk areas and to produce £1.6

billion in total additional revenue over the next three years. An

additional £66 million is being provided to the Inland Revenue to

implement the package, which will focus on three high risk areas,

including the non- payment of tax and national insurance debts from

failure to file tax returns, the use of offshore accounts, and

avoidance of corporation tax and national insurance contributions;

- immediate action to close loopholes in the direct tax system.

Measures announced today will save up to £250 million per annum in

future years, reducing burdens on compliant taxpayers and

protecting revenue for investment in public services; and

- a package of further measures to reduce VAT fraud and avoidance,

building on the first ever concerted strategy for tackling VAT

revenue losses launched at the time of the 2002 Pre-Budget Report.

Further details of these measures are set out in the separate press

release, PN 07. In addition, Budget 2003 announces further action to

modernise and simplify the tax system, including:

- details of a major reform of stamp duty, announced in Budget 2002,

to tackle avoidance by companies and reduce distortions in the

charge applying to leases, while protecting small businesses and

paving the way for e-conveyancing. From December 2003, subject to

further consultation, the existing charge applying to leases will

be replaced with a single one per cent charge on the total value of

rental payments, and a new exemption for all commercial transfers

under £150,000 will be introduced, lifting many small business

purchases and leases out of stamp duty. Further details are set out

in the separate release, PN 05;

- new rates of tobacco and alcohol duties. Budget 2003 raises tobacco

duty in line with inflation - adding eight pence to a typical

packet of 20 cigarettes. Beer and wine duties rise in line with

inflation, adding one penny to a pint of beer and four pence to a

standard bottle of wine. The duty on spirits, cider and sparkling

wine is frozen;

- further steps to modernise the taxation of gambling, replacing the

existing bingo duty with a single 15 per cent tax on the gross

profits of bingo companies from 4 August 2003. The Government will

also consult shortly on reform of Amusement Machine Licence Duty;

and

- review of the residence and domicile rules as they affect the tax

liabilities of individuals. As the next steps in this review, a

background paper is published alongside the Budget to provide a

framework for further analysis and discussion and ensure that any

specific options for reform are based on the widest possible

understanding of their effect.

DELIVERING HIGH QUALITY PUBLIC SERVICES

Strong and dependable public services lay the foundations for a

flexible, high productivity economy. They are also central to the

Government's strategy for tackling poverty and social exclusion. A

healthy and educated workforce, modern and reliable transport

network, and adequate supply of affordable housing promote

productivity and flexibility and help to ensure opportunity and

security for all. The Government's long-term goal is to deliver

world-class public services through sustained increases in investment

and reforms to deliver efficient and responsive services which meet

public expectations throughout the country and deliver value for

money to taxpayers.

Budget 2002 delivered the largest ever sustained increase in spending

on the UK National Health Service (NHS) - 7.2 per cent annual average

real terms growth over five years - funded by a 1 per cent increase

in national insurance contributions (NICs) on all earnings above the

NICs threshold from this month and a freeze in the income tax

personal allowance for those aged under 65 in 2003-04. Matched with

comprehensive plans for reform, these resources reverse three decades

of underinvestment in health and will secure the future of an NHS

that is free at the point of use and accessible to all. Budget 2003:

- provides £332 million to invest in counter-terrorism measures over

the next three years, to ensure that UK citizens are protected

within the UK from the threat of international terrorism;

- sets out key issues to be investigated in the run-up to the next

Spending Review, including a new study into the scope for

relocating public service staff from London and the South East to

other parts of the country, and a n update of the long-term

challenges in implementing the 'fully engaged' scenario set out in

last year's Wanless Review of long-term health trends, with a

particular focus on preventative health and health inequalities;

- sets out a framework for raising public services productivity,

which complements the Government's wider approach to raising

productivity in the private sector, in a new discussion paper,

Public services: meeting the productivity challenge, published

alongside the Budget; and

- provides details of the next steps in reform, with steps to

increase regional and local flexibility in public service pay

systems and to increase transparency about performance, including

through the introduction this month of regular reporting on the

Treasury website of performance against all new Public Service

Agreement targets.

PROTECTING THE ENVIRONMENT

The Government's Sustainable Development Strategy aims to deliver a

better quality of life for everyone, today and for future

generations. This requires action to improve and preserve the quality

of the environment. The Government is determined to meet the

challenges of climate change, poor air quality and degradation in

urban and rural areas, ensuring that economic and social progress go

hand in hand with environmental improvement.

Promoting energy-efficiency and better waste management

Budget 2003 outlines the next steps in the Government's work to

promote greater energy efficiency by businesses and households and

more effective management of resources in the waste stream,

including:

- further action to improve waste management to help tackle climate

change and local disamenity and to promote recycling, including:

- an increase in the standard rate of the landfill tax of £3 per

tonne in 2005-06 and increases of at least £3 per tonne in future

years, on the way to a medium- to long-term rate of £35 per tonne.

The landfill tax rises to £14 this year, to £15 in 2004-05, and to

£18 in 2005-06;

- further detailed consultation on options to ensure that landfill

tax increases are revenue neutral to business as a whole;

- a Waste Management Performance Fund to help local authorities

improve waste performance for all households; and

- a new sustainable waste delivery programme to reduce waste volumes

and to promote recycling and the development of new waste

management technologies;

- a freeze in the rates of the climate change levy;

- new enhanced capital allowances to promote investment in energy-

saving new technologies and to encourage more efficient water use;

- detailed consultation on specific measures to encourage household

energy efficiency, following initial consultation; and

- a freeze in the rates of the aggregates levy.

Transport and the environment

Decisions on fuel duties and other transport taxes must take account

of environmental, economic, and social objectives. Budget 2003:

- defers annual revalorisation of the main road fuel duties until 1

October 2003, owing to the recent high and volatile level of oil

prices as a result of military conflict in Iraq. The duty on

biodiesel also rises in line with inflation from the same date,

while that on road fuel gases is frozen;

- introduces a duty differential for sulphur-free fuels of half a

penny per litre relative to the rates for ultra-low sulphur fuels

from September 2004, to encourage the early introduction and use of

these fuels;

- introduces a new lower rate of duty for bioethanol of 20 pence per

litre below the rates for ultra-low sulphur fuels from 1 January

2005;

- increases the duty on red diesel and fuel oil by one penny per

litre above revalorisation, in view of the high sulphur content of

these fuels;

- introduces a new lower rate of v ehicle excise duty (VED) for the

most environmentally-friendly cars with very low levels of carbon

dioxide emissions. Car and van VED rates are revalorised and

rounded to the nearest £5. VED for motorcycles and lorries is

frozen; and

- freezes the rates of air passenger duty.

Further details of the government's environmental strategy are set

out in the separate press notice.

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