Finance Bill Tracking Service 2010 | Budget 2010

Press Notice 1 - Securing The Recovery

The Government's economic objective is to build a strong economy and fair society, where there is opportunity and security for all. Budget 2010, Securing the recovery, presents updated assessments and forecasts of the economy and public finances. It reports on how the Government will be delivering support to business and households to build strong, sustainable, growth whilst protecting the frontline services that people rely on. The Government is acting to ensure sound public finances to provide a stable platform for growth and maintain macroeconomic stability.

Budget 2010 is fiscally neutral and confirms the Government's plans to more than halve the deficit over four years, maintaining a credible path of fiscal consolidation. On public spending, Budget 2010 identifies the £11 billion of cross-cutting savings announced under Smarter Government department-by-department and provides further details on how the Government will deliver £5 billion of savings from targeting and prioritising spending. On tax, the Government intends to make further progress in Finance Bill 2010 passing into legislation its tax consolidation plans, and Budget 2010 announces the continuation of above inflation increases in fuel, alcohol and tobacco duties to 2014-15.

Budget 2010 also confirms that overall spending will continue to rise in 2010-11 to help support the economy through the recovery. But, as announced at the 2009 Pre- Budget Report, public sector current expenditure will grow at the slower rate of 0.8 per cent a year on average from 2011-12 to 2014-15, and public sector net investment will fall to 11/4 per cent of GDP by 2013-14 and remain at that level in 2014-15.

Budget 2010 announces measures to promote sustainable growth including:

•    support for small and growing businesses, through new lending commitments with RBS and Lloyds Banking Group, continuing Time to Pay arrangements, a temporary increase in the level of small business rate relief for half a million businesses, a doubling the Annual Investment Allowance and Entrepreneurs' Relief, the launch of UK Finance for Growth, and the creation of a small business credit adjudicator.

•    investment in skills and innovation, including to fund the teaching costs of 20,000 extra undergraduate Higher Education places in September 2010;

•    investment in infrastructure, including additional funding for transport and local roads and creating a Green Investment Bank; and

•    support for employment through extending Young Person's Guarantee after to March 2012.

Budget 2010 also provides targeted support for households and individuals, including: increased support through tax credits for families with children aged one and two, continuing to provide an additional payment for pensioner households alongside the Winter Fuel Payment, and a two-year stamp duty relief for first time buyers for property purchases up to £250,000 from alongside an additional 5 per cent rate of stamp duty for residential property purchase over £1 million from 2011-12. Budget 2010 also announces the Inheritance Tax threshold will be frozen to 2014-15.

Maintaining Macroeconomic Stability

The global economy is in the early stages of recovery following the most severe and synchronized downturn since the Great Depression in the 1930s. The UK economy stabilised in the second half of 2009, aided by the significant macroeconomic policy stimulus and government intervention in the financial system. In line with the judgement made in Budget 2009 and the 2009 Pre-Budget Report (PBR), UK output returned to modest growth in the final quarter of 2009. The Government's forecast for GDP growth remains largely unchanged from the 2009 Pre-Budget Report with slightly lower growth in 2011 reflecting weaker growth in UK export markets. While extreme downside risks to the economy have receded over the year, the Budget 2010 economic forecast remains subject to significant uncertainty and risks. Macroeconomic policy will continue to support the economy throughout this year; monetary policy, in particular, is expected to continue to provide an ongoing and powerful stimulus.

In recent months, tax receipts have been higher than expected in Budget 2009 and the 2009 Pre-Budget Report. As a result, public sector net borrowing in 2009-10 is now projected to be £11 billion lower than forecast in the Pre-Budget Report. That contributes to a fall in the net financing requirement in 2009-10 and 2010-11, which means that the remit for gilt sales in 2010-11 is £25.7 billion lower than projected in the Pre-Budget Report.

The policies announced in Budget 2010 are fiscally neutral, providing further support for growth in 2010-11, balanced by measures that raise revenue in later years. Discretionary policy delivers a £1.4 billion loosening in 2010-11, more than offset by tightening in later years, building to a £1.6 billion tightening in 2014-15. Forecast and policy changes in Budget 2010 result in a lower path for borrowing and debt in each year of the forecast period relative to Budget 2009. The Budget forecast shows:

•    PSNB declining to 5.2 per cent of GDP in 2013-14 and 4.0 per cent in 2014- 15;

•    cyclically-adjusted or 'structural' net borrowing falling from 8.4 per cent of GDP in 2009-10 to 2.5 per cent in 2014-15, a reduction of more than two-thirds over the forecast horizon; and

•    net debt projected at 74.5 per cent of GDP in 2013-14, £100 billion lower than the Budget 2009 forecast, and peaking in 2014-15 at 74.9 per cent of GDP.

The Fiscal Responsibility Act (FRA) has passed into law, setting a ceiling for public sector net borrowing in 2013-14 and a requirement for debt to be falling in 2015-16. Budget 2010 provides a margin of flexibility against these requirements should future revenues turn out to be lower than expected. If the economy performs better than expected, the Government will be able to reduce the structural deficit more quickly than the path shown in this Budget.

Budget 2010 makes further progress in setting out the detail of the Government's fiscal consolidation plans, including further details of how the Government will deliver lower growth in public spending.

Following the passage of Finance Bill 2010 the Government intends that around half of the tax measures that have been announced as part of the consolidation plan will have been passed into legislation.

Reforming Financial Services

A strong and sustainable financial services sector supports strong, sustainable economic growth. Delivering this positive contribution, and ensuring that the benefits of efficient financial services accrue to businesses and consumers, requires an effective framework of regulation and competition (both domestically and internationally), and good governance and accountability among financial institutions themselves.

The Government is taking a leading role in the international reform agenda, working with its G20 and European partners. Budget 2010 announces:

•    principles to guide international work on a systemic risk tax which will ensure that the activities of financial institutions reflect the costs associated with systemic risk as well as helping to meet the wider costs of crises; and

•    the Government will formally consult on draft regulations to require enhanced disclosure of remuneration in the financial services sector, and will consider whether the tools available to shareholders to effectively control executive remuneration need to be strengthened, including greater upfront approval of the terms under which employees are remunerated.

The Government is committed to ensuring that the supply of lending to the economy supports the recovery. Budget 2010 announces:

•    the agreement of Lloyds Banking Group and The Royal Bank of Scotland to lend £105 billion to homebuyers and businesses over the next 12 months. £41 billion of this will be lent to small businesses;

•    the creation of a new Small Business Credit Adjudicator with statutory powers to enforce its judgements. The Adjudicator will work closely with an expanded Financial Intermediary Service to ensure that small businesses are treated fairly when applying for loans; and

•    steps to help companies diversify sources of finance to non bank lending channels.

The Government is committed to promoting competition in the financial services sector in order to drive efficiency and choice for consumers. Through the divestments from Lloyds Banking Group and The Royal Bank of Scotland, and the return of the Northern Rock bank business to the private sector, competition and diversity in the marketplace will increase substantially.

Effective competition is also promoted by informed consumers, and the Government is committed to ensuring that consumers have access to appropriate financial services and are properly equipped to exercise a choice. Budget 2010 announces that the Government will:

•    introduce a new right to open a basic bank account;

•    increase the contribution made by the banks to the community lending sector; and

•    ask the Retail Financial Services Forum to consider to what extent financial services firms' staff targets and incentives lead to poor outcomes for consumers and employees and how they can be reformed.

Further details on these and other measures are set out below.

Systemic risk tax

The Budget today announces that it believes progress could be made soon on an internationally coordinated systemic risk tax. Several key principles that the Government believes should guide further international work are set out in the Budget.

Bank lending

The Government is committed to ensuring that the supply of lending to the economy supports the recovery. The Government has agreed with Lloyds Banking Group and RBS that they will lend £105 billion to homebuyers and businesses over the next twelve months with £41 billion of this total being lent to small businesses. The Budget also provides a report on the performance of Lloyds Banking Group and RBS against year one of the lending commitments.

Small Business Credit Adjudicator

The Budget also announces the creation of the new Small Business Credit Adjudicator. The Adjudicator will work closely with a newly enhanced Business Link Financial Intermediary Service in order to ensure that small businesses are treated fairly when applying to their bank for finance. The Adjudicator will be given statutory powers as soon as possible to ensure that the judgments it makes are enforceable.

Community Finance Levy

The Government will continue to work to improve the supply of affordable credit for low-income households, including by supporting third sector lenders. It will consult on options to make sure banks make an appropriate contribution to community lenders, through regulatory action or a new community levy to be funded by retail banks.

Universal Service Obligation

In October 2009 the Government announced that it had met its shared goal to reduce the number of adults without access to current accounts by half. The Government believes one step towards reducing would be to introduce a new right to open a basic bank account. The Government intends to introduce a new "universal service obligation", giving people the right to a basic bank account under certain conditions and will consult on the details.

Remuneration

In order to assist shareholders the Government is, through draft regulations in the Financial Services Bill, implementing the Walker Review recommendations that there should be enhanced disclosure of remuneration in the banking sector. After the Bill gains Royal Asset, the Government will formally consult on those regulations. As part of that process, and given the key role that shareholders should play in managing remuneration contracts, the Government will consult on whether further practical measures can be identified to facilitate the consent of shareholders in agreeing executive remuneration in the financial services sector.

Supporting Business And Growth

The Government took decisive action to support the economy during the financial crisis and its aftermath. As the UK emerges from recession, it remains vital to maintain some targeted assistance to support the recovery through 2010. This Budget announces action to promote sustainable economic growth over the decade ahead, by providing a stable platform for growth and through targeted government action to unlock private sector investment. These measures will support startups and small and medium-sized enterprises (SMEs), position the UK as a leading centre for research and innovation, and ensure that the UK is equipped with skills for growth and the infrastructure it needs to be successful in a low-carbon economy. The Government is:

•    continuing to offer Time to Pay arrangements, which will help viable businesses spread their tax payments as part of a package of measures that continue to support business through the recovery;

•    supporting start-ups, SMEs and growing businesses by providing a temporary increase in the level of small business rate relief; launching UK Finance for Growth to oversee more than £4 billion of the Government's SME finance products including the Growth Capital Fund; doubling the Annual Investment Allowance to £100,000 and the Entrepreneurs' Relief lifetime limit to £2 million;

•    launching a University Enterprise Capital Fund to exploit the commercial potential of the UK's world-class research base; and, subject to state aid clearance, introducing a tax relief for the UK's video games industry;

•    providing a £270 million Modernisation Fund to drive efficiencies in Higher Education and fund the teaching costs of 20,000 extra undergraduate places in key courses in September 2010; and

•    meeting the UK's infrastructure and energy challenges by: publishing a Strategy for national infrastructure, including an intention to create a Green Investment Bank; acting on the findings of the Energy Market Assessment; creating a £ 120 million grant for Accelerated Development Zones (ADZs); providing a £100 million fund to repair local roads following recent cold weather; and investing £ 250 million in the road network to improve capacity.

Further details on these and other measures are set out below.

Supporting a return to growth

Time to Pay

HMRC will continue to offer Time to Pay for all viable businesses having difficulty in meeting their tax obligations. Since it was launched in November 2008 the service has given over 200,000 businesses, collectively employing more than 1.4 million people, more time to pay over £5.2 billion of tax.

Building an enterprise economy

UK Finance for Growth and the Growth Capital Fund

The 2009 Rowlands Review of Growth Capital found a permanent, structural gap in the supply of capital for growing SMEs. To support the growth of such SMEs, the Government is creating the Growth Capital Fund. This will act as a new channel for private sector investment in UK SMEs alongside Government investment. It will provide a new source of finance to growing small and medium businesses that need between £2 million and £10 million of capital for investment and growth.

The Budget announces that, working with retail banks, the Government has raised a cornerstone investment of £200m for the fund. This includes contributions from Lloyds Banking Group, RBS, Santander and Clydesdale/National Australia Bank alongside Government investment. These initial contributions will enable the fund to raise additional investment to help secure our ambition of a £500 million fund.

Increase to Annual Investment Allowance

The Budget announces an increase in the threshold of the Annual Investment Allowance to £100,000 for qualifying expenditure incurred from April 2010. The Budget also announces the introduction of a targeted anti-avoidance rule from 24 March 2010 to ensure this measure is focused on support for genuine business investment.

Extending Entrepeneurs' relief

The Budget announces an extension of Entrepreneurs' Relief for Capital Gains Tax from the first £1 million to the first £2 million of qualifying gains made over a lifetime, effective from April 2010. This will provide support to business owners and those investing in businesses with growth potential.

Support for small and medium businesses

Small business rate relief

The Budget announces that the Government will fund a temporary increase in the level of small business rate relief in England, so that eligible small businesses occupying properties with rateable values up to £6,000 will pay no business rates for one year from October 2010. Small businesses that benefit from the rate relief taper (rateable values up to £12,000) will receive significant reductions.

Enhanced online services and further HMRC support for businesses

HMRC will build on the success of Time to Pay in engaging with businesses early and offering a single point of contact by enhancing the online support it provides to SMEs by the end of 2011. This will include personalising businesslink.gov.uk for start-ups and making it easier for businesses to register for multiple taxes online with a single interactive form.

Simplifying regulation

The Budget announces new Better Regulation measures from the new Parliament, designed to help business by managing the flow of new regulation, the cost of existing regulation, proposals from Europe, and enforcement.

From the next Parliament, the Government will set out the package of regulatory proposals that it intends to consult on over the next 12 months, and ask for ideas for offsetting simplifications in the areas covered by new proposals. New measures will only be added in exceptional circumstances. In future all consultations will include the option of doing nothing, and if possible an alternative to regulation. The Government will consider whether it should introduce a benefit to cost threshold for new regulation, and whether the Government should conduct an affordability analysis as well as a cost-benefit analysis. We have set out estimates for how we expect the £6.5 billion simplification target for reducing regulatory costs to be delivered by regulatory theme. The UK will press the EU to consult on Impact Assessments and cost its proposed regulations earlier. The Government will work with regulators to identify and review regulations that could be simplified.

Encouraging investment

Creative industries

The Budget announces that, following consultation on design, the Government will introduce a tax relief for the UK video games industry, subject to state aid approval from the European Commission.

Developing skills for growth

The Government is committed to maintaining a world class Higher Education sector. The Budget announces that the Government is creating a £270 million Higher Education Modernisation Fund in 2010-11. This fund will enable universities to identify and drive efficiencies in the sector and fund an extra 20,000 undergraduates on courses starting in September 2010, with priority given to key subjects like science, technology, engineering and mathematics.

The Higher Education Modernisation Fund also includes £20 million for a shared service pilot scheme to support efficiency programmes between universities. Alongside this, the Government is allocating £15 million for shared service pilots between Further Education institutions.

Investment in infrastructure

Strategy for National Infrastructure

Alongside this Budget, Infrastructure UK publishes a Strategy for National Infrastructure. This provides an overview of the current state of the UK's infrastructure, identifies overarching challenges and opportunities, and sets out areas for action.

Key announcements:

•    Infrastructure UK will be responsible for managing the establishment of the Green Investment Bank. It will be mandated to invest approximately £2 billion of public and private sector capital in the low-carbon sector and will consider, in particular new energy and transport projects;

•    Infrastructure UK will develop a National Infrastructure Framework, alongside the next Spending Review, that will contain a potential portfolio of public and private infrastructure investment to deliver a long-term vision for infrastructure in the UK; and

•    Infrastructure UK will commission an investigation into the cost of civil engineering works for major infrastructure projects in the UK.

Local authority transport

The Budget announces an additional £84 million to fund repairs for local roads damaged by the recent adverse weather. This funding will be distributed to local highways authorities over the coming months based on the length and condition of roads they are responsible for. This funding will help road users by reducing the congestion and damage to vehicles caused by potholes.

Managed motorways

The Budget announces an additional £250 million investment to enable further progress on the Managed Motorways programme and other transport projects, part funded by reductions in the Department for Transport's marketing and communications budgets and other lower value spend. This funding will be spent through 2010-11 and will speed up the delivery of key road projects.

This will deliver reduced congestion and improved journey time reliability and safety benefits to road users.

Regional growth

To support investment in infrastructure in our cities and other centres of growth the Government is announcing that £120 million will be made available for the introduction of an Accelerated Development Zone (ADZ) pilot programme in 2011-12.

Selected authorities will receive capital grant funding to help support projects that deliver key infrastructure and commercial development to unlock growth. The Government will use the pilots to assess the impact of investment on business rates growth within the defined ADZ areas to further understand the case for introducing Tax Increment Financing.

Consortium relief

The Government today announces that it will amend the consortium relief rules so that EU and EEA resident companies engaged in UK consortia will be allowed to pass on the losses of those consortia to their UK resident subsidiaries. At the same time, the Government plans to strengthen the rules designed to ensure that consortium relief is given only in proper proportion to the member company's involvement in the consortium.

Achieving Fairness And Providing Opportunity

The Government has taken swift and wide-ranging steps to support the UK economy in response to the global downturn, which helped to ensure that growth returned at the end of 2009. Unemployment has risen far less than many external forecasters expected at the beginning of the downturn, and 47,000 fewer people are claiming Jobseeker's Allowance now than in October 2009. As the UK emerges from the downturn, the Government will continue to work to foster recovery by providing targeted support to those who need it most. In particular, the Government announces the following measures to help households through the recovery:

•    extending the Young Person's Guarantee after March 2011 to ensure that young people adversely affected by the recession continue to be guaranteed a Future Jobs Fund job, training or work experience if they cannot find work within six months;

•    increased support through tax credits for families with children aged one and two;

•    continuing to provide an additional payment alongside the Winter Fuel Payment in 2010-11, worth £100 to households with someone aged over 80, or £50 if someone is over the female State Pension Age;

•    extending the temporary freeze in the Standard Interest Rate applied to the Support for Mortgage Interest scheme until December 2010; and

•    a two-year stamp duty land tax relief for first-time buyers, for residential property purchases up to £250,000.

Alongside the substantial support provided, the Government is setting policy to create the right economic environment to promote stability and growth in the medium term. Key actions include:

•    a comprehensive strategy to promote savings, including the launch of the Saving Gateway in July 2010 and the indexation of ISA limits over the next Parliament; and

•    publishing Ending Child Poverty: Mapping the Route to 2020 alongside Budget 2010, setting out ways that child poverty could be reduced in line with the 2020 target.

The Government is also ensuring that it lives within its means in a way that is fair and responsible.

On the back of previously announced fiscal consolidation measures, Budget 2010 announces:

•    the introduction of an additional 5 per cent rate of stamp duty land tax for residential property over £1 million from 2011-12;

•    an extension of the freeze in the inheritance tax allowance of £325, 000 until 2014-15; and

•    details of the operation of the restriction of pensions tax relief for those on high incomes.

Tobacco duty rates will increase by 1 per cent above inflation from today and by 2 per cent above inflation for the next four years. Cider duty rates will increase by 10 per cent above inflation. Other alcohol duty rates will increase by 2 per cent above inflation as announced at Budget 2008. In addition, all alcohol duty rates will increase by 2 per cent above inflation for two further years, until 2014-15.

Further details on these and other measures are set out below.

Employment package

The Young Person's Guarantee provides a guaranteed job, training or work experience place for all young people claiming Jobseeker's Allowance for six months or more. The guarantee is backed up with the Future Jobs Fund, which is creating 120,000 paid jobs for young people, and 50,000 jobs for unemployed people aged 25 or over in those areas worst affected by the recession.

Unemployment has remained well below levels anticipated by external forecasters, and the Government has not therefore required the full £5 billion of additional resources set aside to provide support for the unemployed. Budget 2010 announces that funding released from this underspend will be used to extend the guarantee in 2011-12 to ensure that young people adversely affected by the recession continue to receive the support they need.

Budget 2010 also announces a package of measures to help people make the transition back to work, including:

•    moving people from the Employment and Support Allowance through the 'disadvantage test' of the disability element in Working Tax Credit so that they automatically qualify for this element; and

•    enabling the eligibility of the Working Tax Credit to people aged 60+ if they work at least 16 hours a week, rather than 30 as currently.

Promoting Savings

Saving Gateway

The Saving Gateway is a cash savings scheme, to encourage saving for working- age people on lower incomes and to promote financial inclusion. The Saving Gateway will be introduced nationally, and the first accounts will be available in July 2010. An estimated eight million people will be eligible to open accounts, and will have the opportunity to receive 50p from the Government for each £1 they save.

Indexing ISA limits from 2011

From 6 April 2010, the ISA limits for all savers will rise to £10,200, up to £5,100 of which can be saved in cash. Building on this rise, from 6 April 2011, and annually over the course of the next Parliament, the ISA limits will be indexed in line with the Retail Prices Index (RPI).

Each September's RPI figure will be used to set the ISA limits for the following tax year. The ISA limits will be rounded each year to the nearest multiple of £120 to enable savers to plan monthly saving more easily.

Child poverty

In line with projections by the Institute for Fiscal Studies the Government projects that between 1998-99 and the end of 2010 the number of children in relative poverty will have fallen by around one million. This includes the impact of measures coming into effect from April 2010 such as moving to a full disregard for child maintenance in income-related benefits, the extension of Free School Meals, and over indexation of tax credits, which in total are expected to lift around 100,000 children out of poverty.

The Government is committed to the sustainable eradication of child poverty and enshrined this pledge in legislation. Ending Child Poverty: Mapping the Route to 2020, published today, sets out the strategic priorities to inform the first National Child Poverty Strategy to be published within a year of Royal Assent of the Child Poverty Bill. The document sets out the ways in which child poverty could be reduced in line with the targets and the potential impact achieving various outcomes could have on relative poverty.

Paid employment is the single most important factor in reducing poverty and supporting additional earners to move into work is a vital part of the strategy to eradicate child poverty. The Budget 2010 announces that the Government will consider options to improve the work incentives and support for second earners moving into and progressing in the labour market.

Budget 2010 also announces further support for low-income families including:

•    supporting families with young children, from April 2012, the Government will introduce additional support in the child element of the Child Tax Credit for each child aged 1 and 2 by £4 per week;

•    supporting parents with childcare by simplifying and improving the responsiveness of the childcare element of the Working Tax Credit. This will allow parents with short- term childcare needs to receive payments when they incur them, such as in the school holidays, rather than receiving a smaller, average payment over the course of the year as is currently the case; and

•    from April 2011, special guardianship payments will be disregarded as income when calculating entitlement to Housing Benefit and Council Tax Benefit bringing these payments into line with the treatment of Child Maintenance. This will ensure that guardians who receive payments from local authorities do not see reductions in their Housing Benefit or Council Tax Benefit to take these payments into account.

Support for pensioners

Building on the Government's commitment to help pensioners, Budget 2010 announces an additional payment of £100 to households with someone aged 80 or over and £50 to households with someone aged over the female State Pension Age, to be paid alongside the Winter Fuel Payment in 2010-11.

Extending working lives

Employers have the legal right to require individuals to retire at the Default Retirement Age, currently 65. Budget announces that the Government intends shortly to launch a formal consultation on reforms to the Default Retirement Age. No changes will be made before April 2011.

Restriction of pensions tax relief

Individuals on high incomes are benefiting disproportionately from tax relief on pension contributions; around a quarter of relief went to individuals with incomes of £150,000 and over in 2008-09, around two per cent of pension savers.

In order to protect tax revenues and ensure consolidation of the public finances, the 2009 Pre- Budget Report announced that, from April 2011, tax relief on pension contributions will be restricted for those on gross incomes of £150,000 and over, where gross income incorporates all pension contributions, including those provided by an employer. This is subject to an income floor of £130,000 (excluding employer pension contributions).

Following a formal consultation, Budget 2010 announces decisions on how the restriction of relief will be applied and delivered, and that deemed contributions to defined benefit pension schemes will be valued using the age-related factors method.

A summary of consultation responses and a final Impact Assessment have been published alongside the Budget.

Welfare reform

Budget 2010 announces that from October 2011 the most expensive rents in the country will be excluded when calculating Housing Benefit rates for tenants in private rented accommodation. This will help ensure that Housing Benefit does not fund tenants to live in properties that would be unaffordable to other low-income households, strengthening work incentives and saving £125 million by 2014-15.

Housing

Budget 2010 announces a two-year stamp duty land tax relief for first-time buyers for residential property purchases up to £250,000 to help reduce the upfront transaction costs faced by this group. The relief would be equivalent to a reduction in the average deposit for first-time buyers of £1,500. In order to offset this relief and to sustain public finances in the longer term, Budget 2010 also announces the introduction of an additional five per cent rate of stamp duty land tax for residential property over £1 million from 2011-12.

Budget 2010 announces that the Standard Interest Rate used to calculate Support for Mortgage Interest (SMI) will be frozen at 6.08 per cent for a further six months.

Over 200,000 homeowners have benefited from the SMI rate freeze since it was announced in the 2008 Pre-Budget Report. The extension of the rate freeze will run until 31 December 2010, providing continued support to those facing financial difficulty and helping protect them against repossession.

A fair tax system

Offshore evasion

The Government today announces tough new penalties for individuals who fail to pay taxes due on offshore income or gains, with penalties of up to 200 per cent of tax for deliberate and concealed evasion. It is more difficult for HMRC to check an offshore tax position when there is limited or no scope to exchange information. Higher penalties for non-compliance will therefore be linked to the tax transparency of the jurisdiction in which the non-compliance arises. Where a jurisdiction agrees to share tax information automatically with the UK, these tougher penalties will not apply.

The Liechtenstein Disclosure Facility (LDF) was set up following an agreement between the UK and Liechtenstein in August 2009. The LDF, which runs until 31 March 2015, allows people with unpaid taxes linked to investments or assets in Liechtenstein to settle their tax liability, including interest and penalties. It is estimated that, over the lifetime of the LDF, this will bring in £940 million.

Inheritance tax

The 2009 Pre-Budget Report announced that the inheritance tax (IHT) allowance would be frozen at £325,000 in 2010-11. The Budget announces that the freeze at £ 325,000 will be extended until 2014-15. Even following the freeze, just 4 per cent of estates left at death are expected to pay IHT in 2014-15.

Alcohol duty

As announced at Budget 2008, alcohol duty rates on beer, wine and spirits will increase by two per cent above inflation on 29 March 2010. This will add 2 pence to the price of a pint of beer, 10 pence to the price of a bottle of wine, and 36 pence to the price of a bottle of spirits.

Cider duty rates will be increased by 10 per cent above inflation on 29 March 2010 to bring them more into line with the duty rates on other alcohol products. From 1 September 2010, the technical definition of cider will be changed to ensure products that more closely resemble made- wines are taxed appropriately.

In addition, alcohol duty rates on all products will increase by two per cent above inflation for a further two years until 2014-15.

Tobacco duty

On 24 March 2010 tobacco duty rates will increase by 1 per cent above inflation. This will add 15 pence to the price of a packet of cigarettes.

Budget 2010 also announces that tobacco duty rates will increase by two per cent above inflation each subsequent year to 2014-15.

Protecting Public Services

The Government's short-term priority, as Britain emerges from recession, is to foster economic recovery whilst continuing to provide targeted support to those families and businesses that need it most. Budget 2010 announces new measures to stimulate economic growth, including a £270 million university Modernisation Fund to finance 20,000 additional student places and £450 million to extend to March 2012 the guarantee of a job, training or work placement for every 18 to 24 year old who has been claiming Jobseeker's Allowance for six months. Budget 2010 also announces that pensioner households will receive an extra payment alongside the Winter Fuel Payment later this year. For the medium term, Budget 2010 sets out further details on the Government's plans to protect key public service priorities whilst meeting its commitment to halve public sector net borrowing over the next four years. Planned levels of overall spending in 2010- 11 will continue to rise, supporting the economy through recovery, but from 2011-12 spending growth will be slower.

Public sector current expenditure will grow at an average of 0.8 per cent a year from 2011- 12 to 2014-15 and public sector net investment will fall to 11/4 per cent of GDP by 2013-14. Budget 2010 confirms that spending on frontline schools and NHS, 16 to 19 education and Sure Start will be protected in the years to 2012-13, with sufficient funding provided to maintain police officer numbers. At the same time, Budget 2010 announces further details of the tough choices the Government is making elsewhere, including:

•    action to control public sector pay, including confirming a one per cent cap on basic pay uplifts for 2011-12 and 2012-13, saving £3.4 billion a year, and a new Code of Practice on senior pay-setting, with greater use of independent Remuneration Committees and escalation of decisions to ministers, or audit and regulatory bodies, where there is a proposal to pay above agreed norms;

•    £11 billion of operational efficiencies and other cross-cutting savings, to streamline the centre of government;

•    further detail on £5 billion of savings from targeting and prioritising spending, as announced at the 2009 Pre-Budget Report;

•    reforms to the welfare system to increase fairness and improve work incentives, further reducing social security spending over the next five years on top of the existing forecast saving of £1.2 billion;

•    rationalising regional structures and removing burdens on local government, including giving local authorities new discretion over £1.3 billion of funding that is currently ring-fenced; and

•    plans to manage assets and property more effectively by creating new strategic property vehicles by April 2011, to help realise savings of £5 billion a year in property running costs and £20 billion savings in asset disposal by 2020. The Government will also relocate 15,000 civil service jobs out of central London within five years.

Further details on these and other measures are set out below.

Public Sector Current Expenditure (PSCE) and Public Sector Net Investment (PSNI) assumptions from 2011-12 to 2014-15.

The Budget confirms the assumptions for spending growth, from 2011-12 to 2014-15, as set out in the 2009 Pre-Budget Report, which allows continued investment in public services whilst ensuring sustainable public finances in the medium term: with current spending growing by an average of 0.8 per cent a year in real terms and public sector net investment reducing to 11/4 per cent of GDP by 2013-14 and remaining at that level in 2014-15.

Smarter government savings

The Budget announces further details on delivering £11 billion a year savings by 2012-13 set out in "Putting the frontline first: smarter government" to be achieved through delivering services in a smarter, more effective way.

The 2009 Pre-Budget Report announced that in the next Spending Review period the Government will deliver savings of over £11 billion a year by 2012-13 through operational efficiencies, streamlining Arm's Length Bodies, cutting consultancy and marketing spend, raising energy efficiency, reducing spend on IT projects, cutting the costs of staff in the public sector and improving customer channels. Budget 2010 announces that over £11 billion of savings have now been identified department-by-department for the years from 2012-13. Departments are publishing further details alongside Budget 2010 on how these savings will be delivered.

Public value programme savings

The Government has continued to look for opportunities to deliver efficiencies across the public sector by cutting lower value or lower priority programmes or projects. On the basis of ongoing work from the Public Value Programme, the Budget announces further detail on delivering the £5 billion a year of additional savings by 2012-13 announced in the 2009 Pre-Budget Report, including for example reforms to criminal justice system across courts, prisons and legal aid, and improving the targeting of housing growth and regeneration spending.

Senior Pay

In line with the ambitious package of reforms to senior pay announced in the 2009 Pre-Budget Report, the Government is today publishing the results of a review of senior pay in the public sector by the Senior Salaries Review Body (SSRB), including committing to a new Code of Practice on senior pay setting. This recommends greater use of independent Remuneration Committees - which will include 'taxpayer champions' - and escalation of decisions to ministers, or audit and regulatory bodies, where there is a proposal to pay above agreed norms. The Government is asking all public sector organisations to explain, publicly, how they will comply with the Code by the end of the year. The Government will, working with the SSRB, consult on detailed implementation of the Code's provisions.

To support the taxpayer champions in their work, the SSRB will recommend new benchmarks in non-departmental public bodies, reporting by the summer. In addition to this, the Prime Minister will ask the SSRB, working with other relevant individuals as appropriate, to draw up sector-by- sector benchmark pay ranges for the wider public sector, reporting first on local authority chief executives and senior managers across the health sector by the end of the year. The Government will work with the SSRB to determine what legislative and non-statutory means are most appropriate to enforce compliance.

Assets and Property

The Budget announces an update on the progress Government has made in commercialising the assets set out in the Operational Efficiency Programme: Asset Portfolio including launching a sale processes for High Speed 1 and the Tote this summer. The Budget also announces the creation of strategic property vehicles to help the Government realise savings of £5 billion a year in property running costs and £20 billion in disposals by 2020. They will also help deliver the Government's shorter-term targets of £1.5 billion annual savings in property running costs and £2 billion of central government property disposals by 2013-14.

Civil Service Relocation

Alongside Budget, Ian Smith publishes his report 'Relocation: Transforming where and how Government works'. The report recommends mechanisms that when implemented will reduce the long-term complement of Civil Servants in London by a third starting with the relocation of 15,000 jobs over the next five years. These relocations will deliver efficiency savings and stimulate economic vibrancy in the regions, bringing government closer to the people and promoting 21st century, efficient and fit for purpose public sector campuses.

The Government accepts the recommendations made in the report and will work towards implementing them over the coming months. Progress is already being made: for example, the Ministry of Justice's estates strategy will relocate 1,000 posts out of central London by 2015. Where value for money is demonstrated these posts will be relocated out of London and the South East and at least 50 per cent will move to other regions. This will enable the Ministry of Justice to rationalise its London estate saving £41m per annum by 2015.

Social Investment Package

The Budget announces a number of measures that demonstrate the Government's commitment to strengthening the social investment market. These include setting out the model for a Social Investment Wholesale Bank, supporting the first Social Impact Bond pilots and committing to recycle the income from existing social investment loan funds into further social investment. In order to maximise the size of the social capital market, the Government will also be conducting a broader examination of the structure of public funding for social investment as part of the next Spending Review.

The Social Investment Wholesale Bank's aim will be to deliver financial inclusion and other social returns by linking mainstream investors with organisations with social impact. The bank will receive up to £75m of Dormant Accounts money, to form a minority investment in what will be a majority private sector, social investment fund. It will operate as a fund of funds, investing in those funds and organisations that themselves invest in third sector organisations and projects. The Government will look to appoint a fund manager following an open competition, selecting on the basis of their ability to leverage in private capital for social investment.

Social impact bonds are an innovative way to raise up-front private finance and contract preventative services, involving third sector partners in the delivery. Government will reward investors if desirable social outcomes are achieved.

Arm's Length Bodies Review

The Budget today announces a package of significant reforms to the Arms Length Body (ALB) landscape that will save at least £500 million a year by 2012-13. These include abolishing and merging existing ALBs, and the introduction of tough new rules governing their foundation, activities and management.

Shared services

The Budget confirms that we will set up new shared-service vehicles to help drive efficiency in Government's back-office processes. As a first step, the Budget announces that DWP Shared Services will take on four new customers move to a new corporate model by April 2011. We will also create a small team of experts at the centre of government, reporting to the Chief Secretary to the Treasury, to set new standards for shared services, standardise processes, ensure delivery of savings, and explore more opportunities to use private sector involvement to commercialise these platforms further.

Securing Low-carbon Growth

The Government is building a platform for strong, long-term, sustainable growth. Support for the low-carbon economy is central to this as it will provide new opportunities in key growth industries of the future. In the past year, the Government has announced £1.8 billion of extra support for low-carbon sectors. This will enable £15 billion of additional low-carbon investment, providing new opportunities for business growth, boosting innovation and creating new high skilled jobs.

The Government has an important role to play in enabling the investment needed for the transition to a low-carbon economy - particularly in the energy sector, where the scale of the investment challenge is unprecedented. To support the financing of low-carbon investment and new low- carbon jobs, Budget 2010 announces:

•    a commitment to reform the energy market to provide clean, secure and affordable energy in the long term. The Government will bring forward proposals this autumn, with a White Paper by spring 2011; and in the shorter term, a summer consultation on mechanisms to provide greater certainty for low-carbon investment;

•    to address emerging equity finance gaps, the Government intends to create a Green Investment Bank, with a mandate to invest in low-carbon infrastructure. The Government will start by investing up to £1 billion from the sale of infrastructure- related assets and will seek to match this with at least £1 billion of private sector investment;

•    the launch of UK Finance for Growth to streamline the Government's SME finance support - including to help businesses seeking to commercialise low-carbon technologies;

•    up to £60 million for the development of port sites to support offshore wind turbine manufacturers looking to locate new facilities in the UK and secure low carbon manufacturing jobs;

•    a commitment to reduce government departments' carbon emissions by at least 30 per cent by 2020, and enabling energy efficiency finance to help millions of homes save money and energy by developing Pay As You Save arrangements; and

•    a halving in company car tax for ultra-low carbon cars for five years from April 2010, to contribute to making the UK one of the best places in the world to design and build low- carbon vehicles.

To drive the transition to a low-carbon and resource-efficient economy, while also contributing to the Government's plans for fiscal consolidation, Budget 2010 announces:

•    that, to ease pressure on business and household incomes at a time when other prices are rising, the main fuel duty increase for 2010 will be staged, with an increase of one penny per litre on 1 April and one penny per litre on 1 October 2010, then 0.76 pence per litre on 1 January 2011. Fuel duty will also rise by one penny per litre in real terms on 1 April each year from 2011 to 2014; and

•    an £8 per tonne increase in the standard rate of landfill tax on 1 April 2014, to encourage alternatives to landfill.

Further details on these and other measures are set out below.

Energy and business

Energy Market Assessment

Budget 2010 announces the interim findings of the energy market assessment launched at the 2009 Pre-Budget Report. The initial findings of the energy market assessment are that:

•    the existing energy market in Britain is delivering investment in the new infrastructure necessary to provide clean, secure and affordable energy to 2020; and

•    the challenges beyond 2020 are significant and will increasingly place pressure on the market in its current form.

Energy market reforms are therefore needed to meet these long-term challenges and ensure continuing security of supply, aid decarbonisation and ensure that consumers get a fair deal.

The assessment sets out a range of options for future reform. The Government is ruling out a single buyer agency and recognises the need to do more than provide greater price certainty alone. The Government will bring forward proposals for consultation this autumn, with a White Paper setting out conclusions by spring 2011. This will enable decisions to be taken in time to give clarity to developers who will be seeking to make investment decisions in the period after 2011.

The Government believes that a global climate deal and subsequent tightening of the EU ETS cap provides the best long-term solution to secure a more robust carbon price. However, the Government also acknowledges the need for greater certainty. Budget 2010 announces that, as part of its further energy market assessment work, the Government will consult in the summer on the most appropriate mechanism to deliver greater certainty for low-carbon investment, with the intention of bringing forward proposals in the 2010 Pre-Budget Report.

Green Investment Bank

Budget 2010 announces the Government's intention to establish a Green Investment Bank (GIB) that will operate on a commercial basis and involve both public and private sector capital. The Government will start by investing up to £1 billion from the sale of infrastructure-related assets and will seek to match this with at least £1 billion of private sector investment, creating a fund of approximately £2 billion. The GIB's mandate will be to invest in the low- carbon sector. It will consider new energy and transport projects in particular, where there is a significant risk of a gap emerging in the provision of equity capital to large, complex low-carbon infrastructure projects in the next few years. It is expected that this will catalyse further investment to accelerate the rate of deployment of further projects. It is likely that the GIB will focus initially on offshore wind electricity generation.

Budget 2010 announces that the Government is launching UK Finance for Growth (UKFG), which will improve the effectiveness of the Government's low-carbon SME equity support schemes through working in partnership with relevant departments. It will provide a framework for sharing market intelligence and coordinating equity support schemes, including the £170 million stock of low-carbon finance products under UK Innovation Investment Fund's low-carbon fund, and the Carbon Trust's venture capital activities. Low carbon businesses will also be able to access the wider £4 billion stock of SME finance products overseen by UKFG, where appropriate. UKFG will also join the Low-Carbon Innovation Group, the body established to agree an overall strategy for the Government's low-carbon grant programmes.

Budget 2010 announces up to £60 million for the development of UK port sites, to meet the needs of offshore wind turbine manufacturers looking to locate new facilities in the UK. Subject to state aid approval, the Government will launch a competition shortly to identify suitable locations and recipients. The development of sites for wind turbine manufacturers will help to attract inward investment, and establish the UK as a global offshore-wind manufacturing hub.

Transport

Budget 2009 announced that main fuel duty would increase by 1 penny per litre in real terms on 1 April each year from 2010 to 2013. This equates to an increase of 2.76 pence per litre on 1 April 2010. Budget 2010 announces that this increase will be implemented in stages. Main fuel duty will therefore increase by 1 penny per litre on 1 April 2010, by 1 penny per litre on 1 October 2010, and then by 0.76 pence per litre on 1 January 2011. This will ease pressure on business and household incomes at a time when other prices are rising. The duty rates for rebated oils will rise in proportion to each main fuel duty increase.

Budget 2010 also announces that main fuel duty will increase by a further 1 penny per litre in real terms in April 2014. In addition to supporting the public finances in the medium term, fuel duty increases from 2010 onwards are expected to save 1.7 million tonnes of CO2 per year by 2014-15.

Budget 2010 announces a halving in company car tax for ultra-low carbon cars, for five years from April 2010. Together with the company car tax exemption for zero-carbon cars announced in the 2009 Pre-Budget Report, this will incentivise the uptake of cleaner cars, by lowering the tax paid when ultra-low and zero-carbon cars are chosen by business for their employees.

Natural resources

Budget 2010 announces an increase of £8 per tonne in the standard rate of landfill tax on 1 April 2014, and a freeze in the lower rate of landfill tax at £2.50 per tonne in 2011-12. The Government is committed to provide certainty to the industry by confirming that the standard rate will not fall below £80 per tonne in the future.

Budget 2009 launched a consultation on reforms to landfill tax legislation to ensure the tax remains robust in the long term and continues to reduce the amount of waste sent to landfill. A summary of responses was published on 4 December 2009. The Government has now finished its dialogue with key stakeholders.

Budget 2010 announces that the list of wastes that qualify for the lower rate will remain broadly the same. The Government will publish a new set of qualifying criteria for the lower rate of landfill tax in the autumn. This will provide a clearer environmental rationale for lower rating wastes. In addition, the Government does not plan to proceed with changes to the definition of taxable disposal.