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KENNETH CLARKE'S BUDGET SPEECH SECTION 6: TAX AND UBR

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'Air passenger duty - First, air travel is under-taxed compared to other sectors of the economy. It benefits not o...
'Air passenger duty - First, air travel is under-taxed compared to other sectors of the economy. It benefits not only from a zero rate of VAT; in addition, the fuel used in international air travel, and nearly all domestic flights, is entirely free of tax. A number of countries have already addressed this anomaly.

I propose to levy a small duty on all air passengers from UK airports. This will be set at £5 for departures to anywhere in the UK and the European Union; and £10 for departures to other destinations. The new duty will come into force next October, and will raise some £330 million in a full year.

There will be exemptions for transfer passengers and small planes. This means, for example, that most flights between the Scottish islands will not bear tax. Insurance premium tax

Second, we have always tended to tax financial services in this country much more lightly than other sectors, including manufacturing. In this Budget, I have decided to tackle one sector of this industry which is exempt from VAT. Virtually every other member state charges an ad valorem tax on insurance premiums. I propose now to do the same.

The rate will be 3%, among the lowest in Europe, and the tax will apply to most general insurance of risks located in the United Kingdom. It will come into force next October, and will raise over £750 million in a full year.

To avoid driving business offshore, I propose to exempt the re-insurance of risk, and the insurance of most ships, aircraft and international transit goods. To avoid taxing exports, I propose to exempt export credit. And to avoid taxing savings, I shall exempt long-term insurance such as life assurance, including assurance for endowment mortgages.

For the typical family with motor, home contents and building insurance, this tax will cost about 35 pence a week.

Mr Deputy Speaker, I shall return later in my statement to the existing indirect taxes, and particularly to VAT. But before I do, let me set out my proposals for direct taxation.

First, I propose to freeze again the personal allowance for income tax, the threshold for higher rate tax and the income limit for the age-related allowances. I do not propose to change the inheritance tax threshold or the exempt amount for capital gains tax; or the lower, basic or higher rates of income tax. The 20 pence lower band will be extended by a further £500 next year as planned, to £3,000.

I intend to raise one allowance which has been frozen for the last four years - the blind person's allowance. This will rise next April from £1,080 to £1,200.

These proposals will yield £550 million in 1994-95, relative to an indexed base, rising to £720 million in 1995-96.

Married couple's allowance

Now that husbands and wives are taxed independently, the married couple's allowance is a bit of an anomaly. As announced in March, from next April it will be limited to 20 per cent. Given the need to raise extra revenue, I propose to reduce the rate of relief further, to15% from April 1995. This will yield £830 million in 1995-96, rising to over £1 billion in a full year.

Mortgage interest relief

I propose to take a similar approach to mortgage interest relief. As the House is aware, the rate of mortgage interest relief will fall from 25 to 20 per cent in April. From April 1995, I propose to reduce it further, to 15 per cent, raising an additional £950 million in 1995-96. For those with mortgages of £30,000 or more, this will cost around £10 a month. This is a tiny fraction of the benefit borrowers are still receiving from the very substantial reduction in mortgage rates in the last three years. The limit on loans qualifying for mortgage interest relief will remain at £30,000.

BUSINESS TAXATION

Mr Deputy Speaker, the tax increases I have announced will enable me to give some modest help to businesses. Corporation tax. There will be no change to the main rate of corporation tax, which remains the lowest in the European Union, or to the small companies' rate. But I propose to raise the profits limit for smaller companies by 20%. This will reduce corporation tax bills for 30,000 companies.

Foreign income dividend scheme

To help reinforce Britain's place as Europe's most attractive location for international business, I shall implement proposals to make surplus advance corporation tax repayable on dividends paid out of profits earned abroad by companies based in the United Kingdom.

Export credit

For exporters, I propose to make an extra £200 million of export credit cover available in 1996-97, and to cut export credit premiums for certain important developing markets, including India, Mexico and Turkey. British exporters of capital goods have been very successful in winning orders over the last year, particularly outside Europe. My RHF the President of the Board of Trade and I want to see that continue.

Uniform business rates

The business rates poundage increase next year, based on the 1.8 per cent September retail prices index, will be the lowest since introduction of the uniform business rate. For properties in England and Wales still protected by transitional relief, I propose to cut the maximum real increase in rate bills next year by a half, to 10% for larger properties and 7 1/2 per cent for smaller properties. Small properties which are used for both domestic and business purposes - the shop where the owner lives at the back - will face no real increase at all. Separate arrangements will be made in Scotland and Northern Ireland.

This will bring significant relief next year to over 600,000 business properties throughout the UK. It will cost a little over £100 million next year.

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