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The Government's economic objective is to build a strong economy
and a fair
society, where there is opportunity and security for all.
The long-term
decisions the Government has taken – giving independence
to
the Bank of England, new fiscal rules, and a reduction in debt – have
created
a strong platform of economic stability. The UK economy grew continuously
throughout the global turndown that began in 2001, while many of the
world's
major economies experienced recession. The UK is now experiencing the
longest period of sustained low inflation for over thirty years and
unemployment is the lowest of the G7 major industrialised economies.
Economic
stability provides the platform for building prosperity, achieving
social justice with security and opportunity for all, and maintaining
investment
in public services. With the world economy now strengthening, the
challenge
is to lock in the UK's stability and strength, and equip the UK
to continue to
succeed over the long term in a more competitive global economy.
In
an increasingly knowledge-driven global economy, success lies in
a flexible
economy with a strong science and innovation base, and a highly
skilled and
educated workforce. The Budget sets out a programme of long-term
investment in schools, colleges and universities, to give every
young person
the chance to make the most of their talents. It also sets out
plans for new
investments in science and innovation, and in a highly skilled
workforce
through apprenticeships and a New Deal for skills.
The Government
is determined that continued progress towards a flexible and
highly productive economy is matched with reforms which promote
fairness.
This Budget continues the action the Government is taking to
create a fairer,
more inclusive society with opportunity and security for all.
Maintaining Macroeconomic Stability
The Government's long-term
economic goal is to maintain macroeconomic
stability, ensuring the fiscal rules are met and that inflation remains
low.
Following growth of 0.8 per cent in the third quarter, UK GDP rose
by 0.9 per
cent in the final quarter of 2003, above trend rates and the fastest
rate of quarter-on-quarter growth for over three and a half
years. As in the 2003 Pre-
Budget Report, the recent pick-up in activity seen over the latter
half of 2003
is expected to be consolidated through 2004 and into 2005. The Budget
2004
forecast is that:
-
UK GDP is expected to grow by 3 to 3½ per cent in both
2004 and 2005,
unchanged from both the Budget 2003 and the 2003 Pre-Budget Report
forecasts. By 2006, with the output gap closed, growth is expected
to
return to its trend rate of 2½ to 3 per cent; and
- CPI
inflation is expected to rise through the course of this year
to reach
its 2 per cent target by mid-2005, as the lagged effects of
sterling's
depreciation against the euro since 2002, combined with the
effects of
the strengthening recovery in the world economy, feed through
to higher
import prices. The credibility of the Government's monetary
policy
framework is also expected to contribute to returning inflation
to target
through anchoring inflation expectations.
The public finances are
sound and the Government is on track to meet its
fiscal rules.
Promoting Productivity and Flexibility
Productivity growth underpins
strong economic performance and sustained
increases in living standards. The Government's long-term goal
is for the UK
to achieve a faster rate of productivity growth than its main competitors.
Recent data show that the UK is making some progress in closing the
productivity gap with Germany and France. Budget 2004 sets out the
next
steps the Government is taking to build on this success and further
strengthens the drivers of productivity growth, including:
- the publication of a consultation document to inform the
preparation
of a ten-year investment framework for science and innovation, as
part of the 2004 Spending Review, committing to grow public investment
in the science base faster than the trend rate of GDP growth over
the
next Spending Review period;
- a commitment to increase
NHS funding for R&D by £100
million by
2008, to underpin the creation of a new UK Clinical Research
Collaboration for the effective and efficient translation of
scientific
advances into patient care;
- a New Deal for skills to ensure
that individuals are helped to develop
the skills they need for employment and employers can develop
the skilled
workforce needed for the success of their business, and
extending Employer Training pilots to six new areas;
- reforms
to reduce the regulatory burden on businesses, including
consulting on the implementation of phasing out payment
via employers
for Working Tax Credit, strengthened Government scrutiny
of regulatory
proposals, and changing the structure of the UK's
tax administration;
- devolving delivery of regional and
local Business Link services
from the Department of Trade and Industry to the Regional
Development
Agencies;
- full details of the Local Authority Business
Growth Incentives
scheme, allocating £16 billion over three years to boost the role
of local
authorities in promoting enterprise and economic growth;
- the Barker Review of housing supply, published today,
concludes that
house building must rise substantially to reduce
house price inflation and
increase the number of affordable homes. The Government
agrees with
the need for a significant increase in housing development
over time. It
intends to implement a programme of reform to planning
and
delivery of development as recommended in the Review
and
consider a package of measures to increase housing
supply,
including social housing investment, alongside a
Planning-gain
Supplement by the end of 2005;
- a new entitlement for graduates of the world's
top 50 business
schools to come to the UK to seek employment; and
- seeking views on how property investment funds (a
UK version of the
successful US Real Estate Investment Trusts) should
be structured, to
encourage more efficient investment in commercial
and residential
property.
Further information on these and other reforms to help businesses
are set out
in the separate press notice, PN 4.
Promoting Flexibility Across the Regions
Budget 2004 also takes new steps
to promote greater regional flexibility. In a
flexible and dynamic economy, regions must be empowered to harness
their
indigenous strengths, tackle weaknesses in enterprise, skills and innovation,
and to promote growth and full employment in all communities. Key steps
include:
- developing further the framework to ensure that regional
and local
institutions have the flexibilities they need to harness indigenous
strengths and overcome regional economic disparities. The Regional
Development Agencies (RDAs) were asked to work together to identify
the top ten institutional barriers that they believe are currently hindering
effective coordination of policy decisions and service delivery in the
regions. The Government has published today a full response to the
RDAs in Devolving decision making: 2 – Meeting the regional
economic
challenge: Increasing regional and local flexibility;
- the involvement
of the nine English RDAs in preparatory work for the
Budget. Budget 2004 reflects and responds positively to their
contributions; and
- as a valuable contribution to the
Government's commitment to
achieving
a greater regional balance of economic acitivity, publication
of Sir
Michael Lyons' final report, Well Placed to Deliver? – Shaping
the
Pattern of Government Service, which sets out a series of
recommendations for relocating civil servants and other public
sector
workers from London and the South East.
The RDAs have an excellent understanding
of what is needed to drive
economic growth in the regions and how delivery organisations can cooperate
more effectively to deliver this. Building on their input into last
year's
Budget,
the RDAs were asked to provide policy advice in five areas: barriers
to
business start-ups; provision of Government services to small businesses;
access to finance for small and medium sized firms; barriers to skills
provision; and knowledge transfer between businesses and universities.
The Government is announcing several new measures today in response
to
the RDAs' representations, including:
- overcoming barriers to business start-ups, the Government
is
announcing today specific proposals to ensure that the measures it
has
introduced provide support for businesses that re-invest their profits
and
grow their businesses;
- providing government services to small
businesses, the
Government is announcing today that regional and local Business
Link
services will be devolved to the RDAs, with a framework for
setting
national standards and services to be developed with SBS, the
RDAs
and other Government departments funding business support;
- improving access to finance for small and medium sized firms,
the
Budget announces measures to smooth the flow of funds into Venture
Capital Trusts, and its intention to launch a pathfinder round
of
Enterprise Capital Funds, which will be commercial funds investing
a
combination of private and public monies in small high-growth
businesses;
- overcoming barriers to skills provision, as set out
in Devolving
Decision Making: 2 – Increasing Regional and Local Flexibility,
the
Government is announcing today its commitment to address any
institutional barriers identified by the Regional Skills Partnerships
to
creating an effective and integrated approach to regional skills
delivery,
whilst taking into account the balance with national policy;
and
- encouraging knowledge transfer between universities and
businesses, the Government is announcing today that it will build
the
Higher Education Innovation Fund as a permanent third stream of
funding for universities in England to further build the capacity
in the
university sector for knowledge transfer. The Government will
develop
this policy as part of its ten-year investment framework for
science and
innovation.
The Government has set out its full response to the RDAs' input
into Budget
2004 in a series of regional press notices published today.
Increasing Employment Opportunity for all
The Government's long-term
goal is employment opportunity for all - the
modern definition of full employment. It aims to ensure a higher proportion
of
people in work than ever before by 2010. To achieve this, individuals
who
want and are able to work should be provided with the support they
need to
enable them to find employment and develop skills. The Government
recognises that each individual will face different barriers to work.
Delivering
full employment therefore requires a personalised approach, with services
tailored to the needs of the individual and local circumstances. The
Government is taking further steps to move towards its aim of full
employment
opportunity for all, including:
- the piloting of a mandatory work-focused interview regime
for
some existing claimants of incapacity-related benefits in the
Pathways to Work pilot areas;
- the piloting of a preparation premium
of £20 per week
in the
Pathways to Work pilot areas, for existing claimants of incapacity-related
benefits who undertake relevant activity that supports a return
to work;
- the introduction of a worksearch premium
of £20 per week, available
to those in a family in receipt of the Working Tax Credit who
are not
working, in six pilot areas with high levels of worklessness;
- the introduction of a second set of Local Housing Allowance
Pathfinders in the private rented sector from April 2005;
- a package
of measures to simplify the rules around Housing
Benefit;
- from October 2004, an increase in the adult and youth
rates of the
National Minimum Wage to £4.85 and £4.10 respectively, and
the
introduction of a National Minimum Wage for 16 and 17 year
old
workers of £3.00 an hour; together with the Learning and Skills
Council
and employers, the Government will work to achieve minimum
pay levels
for apprentices in England of £70 to £80 per
week;
- an extension of measures for lone parents in six
cities with large lone
parent populations, including access to NVQ level 3 training;
and;
- 'Fair Cities' initiatives, to be established
in three areas later this year,
to improve employment outcomes for people from disadvantaged
ethnic
minority groups.
Building a Fairer Society
The Government is committed to promoting fairness
alongside flexibility and
enterprise so that everyone can take advantage of opportunities to
achieve
their full potential in a modern, flexible economy. The reforms of
the welfare
state introduced by this Government reflect its aims of eradicating
child
poverty, work for those who can and ensuring security for all in old
age. The
Government is also committed to a modern and fair tax and benefit system,
which encourages work and saving and ensures that everyone pays their
fair
share of tax. This Budget sets out the next steps the Government is
taking to
support these aims, including:
- reforming financial support for 16 to 19 year olds, to increase
the
proportion of young people who reach the age of 19 equipped with the
skills they need to succeed in a modern global economy;
- additional funding for Sure Start, early years and childcare of £669
million in 2007-08 compared to 2004-05, an average annual real growth
rate of 17.3 per cent;
- a Children's Centre in
all of the 20 per cent most disadvantaged
wards in England by 2008, moving towards the goal of a Children's
Centre for every community;
- a £100 payment
to pensioner households with someone aged 70 or
over to help with their council tax bills;
- simplifying the taxation
of pensions, replacing the complexity of eight
existing regimes with a single, simplified regime with a lifetime
allowance
for tax-privileged pension saving;
- promoting financial inclusion,
focusing on helping households access
affordable banking and credit;
- taking action to protect revenues
and modernise the tax system,
including measures to combat fraud and avoidance; and
- implementing the O'Donnell review recommendations
to establish a
new customer-focused tax service, integrating the Inland
Revenue
and HM Customs and Excise.
As a result of personal tax and benefit measures
coming into effect in 2004-
05, including the £180 per year increase in the child element of
the Child Tax
Credit announced in the 2003 Pre-Budget Report, by October 2004, in
real
terms:
-
families with children will be, on average, £175 a year
better off, while
those in the poorest fifth of the population will be, on average, £425
a
year better off;
- a single earner couple with 2 children, with
earnings up to the median
for full time workers - £22,000 per year - will be at least £4.20
a week
better off; and
- a lone parent with 2 children, working 16 hours
a week at the National
Minimum Wage, will be at least £16.00 per week better off.
As a result of all personal tax and benefit measures introduced since
1997, by
October 2004 families with children will be, on average, £1,350
per year better
off in real terms while those in the poorest fifth will be, on average, £3,000
a
year better off in real terms.
As a result of personal tax and benefit
measures introduced since 1997, in
2004-05 pensioner households will be, on average, £1,350 a year
better off in
real terms while the poorest third will be, on average, £1,750
a year better off.
Delivering High Quality Public Services
The Government's goal is
to establish world class public services, with extra
investment tied to reform and results. The Government's strategy
is to deliver
improvements in public services through sustained investment and reform
to
ensure that taxpayers receive value for money.
The 2004 Spending Review
will set spending plans for 2006-07 and 2007-08
and will confirm the plans set for 2005-06 in the 2002 Spending Review.
In
doing so it will consolidate and build on the step change in funding
for key
public services achieved in previous spending reviews. In Budget
2004, the
Government:
- sets out plans for public service efficiency savings of 2.5
per cent
a year over the Spending Review period, building on the findings
of
the Gershon Efficiency Review, the Lyons Review of public sector
relocation and the O'Donnell Review of the revenue departments,
and
sets out how this efficiency agenda will be developed in the 2004
Spending Review; and
- to reflect the high priority the Government
attaches to education,
England education spending will grow by an annual average
of
4.4% in real terms across the 2004 Spending Review period.
By
2007-08, spending will be £7.4 billion higher in England
than in 2005-06
and £8.5 billion higher for the UK on top of the uplift
for 2005-06 already
in spending plans. By 2007-08, education spending in the
UK will be
5.6% of GDP, up from 5.4% in 2004-05.
This will mean:
- Children's Centres in each of the 20% most disadvantaged
wards,
reaching over half of all poor children in England;
- a transformation
of all secondary schools to 21st century standards in
the next 10 to 15 years with up to one thousand more
specialist schools
and academies;
- more schools offering extended services,
making after schools provision
and support the norm, and binding schools into the
heart of
communities;
- continued progress on standards in schools,
and closing the gap in
attainment between the best and worst off pupils;
and
- an expansion of Higher Education to deliver an
advance in progress
towards the Government's target that by 2010, 50
per cent of young
people will have gone to Higher Education by age
30, while maintaining
per student funding levels in real terms.
Protecting the Environment
The Government is committed to delivering
sustainable growth and a better
environment. It is using a range of economic instruments to address
the
challenges posed by sustainable development, to tackle local environmental
threats and to control and reduce emissions of the gases responsible
for
climate change and poor air quality. Budget 2004 describes the next
steps in
the Government's strategy, including:
- new eligibility criteria for climate change agreements, which
will
increase the number of businesses that can participate in the scheme,
and a freeze in the rates of the climate change levy;
- a package
of measures to promote household energy-efficiency
including a reduced rate of VAT for ground source heat pumps,
and
possibly for micro-combined heat and power units from 2005,
and
incentives for the private rented sector to invest in energy-efficiency;
- duty rates for sulphur-free fuels raised in line with inflation
from 1
September 2004, the duty for ultra-low sulphur fuels set
at 0.5
pence per litre above this level from the same date, an increase
in
rebated fuels rates, and three-year certainty for duty rates
on
biofuels and road fuel gases;
- reforms to the tax treatment
of company vans and emergency
vehicles, taking 85 per cent of drivers of company vans
out of the
system altogether;
- publication of the third progress report
on the lorry road-user
charging scheme, which now moves the scheme into the
procurement
phase, and sets out decisions on key aspects of the scheme's
design;
and
- reform of the aggregates levy relief scheme in Northern Ireland.
Further details of the Government's environmental strategy are
set out in the
separate press notice, PN 03.
Notes for Editors
Further details of Budget 2004 announcements can be
found on the HM
Treasury website:
www.hm-treasury.gov.uk. Additional detail is also
included
in the press notices listed below. Copies of Inland Revenue and HM
Customs
and Excise Budget Notes can be found on their websites at
www.inlandrevenue.gov.uk and www.hmce.gov.uk respectively.
HM Treasury Press Office
Press enquiries: 020 7270 5238
Non-media enquiries: 020 7270 4558
Inland Revenue Press Office Press enquiries: 020 7438 6692 / 6706 / 7327
(out of hours: 07860 359544)
Non-media enquiries: 0845 300 3939
(office hours only)
HM Customs and Excise Press Office Press enquiries: 020 7865 5471 / 020 8929 4637
(out of hours: 07659 598491)
Non – media enquiries: 0845 010 9000
(National Advice Service)
Government Department Internet Sites Further information and all published
documents relating to Budget 2004 may
be found on the Internet at the following addresses:
HM Treasury www.hm-treasury.gov.uk
Inland Revenue www.inlandrevenue.gov.uk
HM Customs and Excise www.hmce.gov.uk
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