PN 1: Investing for our future: Fairness and opportunity for Britain’s hard-working families

The Chancellor of the Exchequer, Gordon Brown, today set out measures to deliver the Government’s objective of building a strong economy and fair society, where there is opportunity and security for all.
Over the past four years, while many industrialised countries have suffered economic downturns, including the US and much of the euro area, the UK has continued to grow every quarter – now with 50 quarters of unbroken economic growth, the longest period since records began – with unemployment at record lows and low and stable inflation and interest rates.

This economic stability provides the platform for building prosperity, advancing enterprise and productivity and achieving social justice with security and opportunity for all.

In the face of the challenges and opportunities of the rapidly evolving global economy, the Government is committed to taking the long-term decisions to invest in the UK’s future. In particular, high levels of education and skills will allow the UK to harness technological improvements and become more productive, and are key to the Government’s ambition of creating a flexible, enterprising and innovative economy.

Today’s Budget:

shows that the economy is growing strongly and that the Government is meeting its strict fiscal rules for the public finances;
announces a long-term programme of investment to deliver twenty-first century facilities in primary schools, along with further support for ICT in schools and funding to help schools deliver extended services;
sets out further measures to help young people develop skills, including improving financial support for 16 to 19 year olds in learning; and piloting a new allowance for 16 to 17 year olds not in education, employment and training;
sets out radical reforms to reduce the regulatory burden on business, through implementing the recommendations of the Hampton Review of regulatory inspection and enforcement, the recommendations of the Better Regulation Taskforce report on controlling the stock and flow of regulations, and applying the principles of better regulation in Europe;
announces free local bus travel for people over the age of 60 and disabled people from April 2006, and an additional payment guaranteeing that council tax paying households with someone over 65 will receive £200 towards the cost of council tax;
announces further measures to help families, including a commitment to increase the child element of the Child Tax Credit in line with average earnings up to 2007-08;
takes further steps to extend employment opportunity for all, through measures which focus help and support on those who face the greatest barriers to work;
doubles the starting threshold of stamp duty land tax to £120,000 for all residential property transactions;
provides a further £340 million for the special reserve in 2004-05 and £400m in 2005-06 for military operations in Iraq and the UK’s other international obligations;
announces a new better targeted Local Enterprise Growth Initiative to drive forward local business-ked regeneration, following the end of time-limited relief on commercial property purchases in disadvantaged areas;
introduces a range of measures to modernise the tax system and to tackle tax fraud and avoidance; and
defers the inflation-based increase in main road fuel duties to 1 September 2005, in response to sustained volatility in oil prices.

Maintaining Macroeconomic Stability

The Government's long-term economic goal is to maintain macroeconomic stability, ensuring the fiscal rules are met at all times and that inflation remains low. The domestic stability delivered by the Government's macroeconomic framework has enabled the UK economy to grow steadily through a challenging period for the global economy.

World growth in 2004 recovered to its strongest level for nearly 30 years and it remains robust. For 2004 as a whole, UK GDP rose by 3.1 per cent, its fastest rate of growth for four years, consistent with the 3 to 3½ per cent forecast range that the Government maintained unchanged after it was first published in the 2002 Pre-Budget Report. Growth has already become more balanced, with a further acceleration in business investment in 2004 and private consumption growing at sustainable rates. With world growth retaining much of its momentum and UK business and consumer confidence strong, GDP is expected to grow by 3 to 3½ per cent in 2005 as the remaining slack in the economy is absorbed before the output gap is closed around the end of the year. Growth is then expected to return to between 2½ to 3 per cent in 2006, consistent with its trend rate.

The Budget 2005 projections for the public finances are broadly in line with the 2004 Pre-Budget Report and show that the Government is meeting its strict fiscal rules:

the current budget shows an average surplus as a percentage of GDP over the current economic cycle, even using cautious assumptions, ensuring the Government is meeting the golden rule. Beyond the end of the current cycle, the current budget moves clearly into surplus including, by the end of the projection period, the cyclically-adjusted current budget in the cautious case; and
public sector net debt is projected to remain low and stable over the forecast period, stabilising at a level well below the 40 per cent ceiling in the sustainable investment rule.

Meeting The Productivity Challenge

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 major competitors. The Budget announcements include:

a package of radical reforms to tackle the burden of regulation on business, while maintaining standards of protection for the public, consumers and employees, through:
- adopting a risk-based approach to inspection and enforcement, streamlining regulatory structures and increasing accountability in order to reduce the costs to business of administering regulation, as recommended by the Hampton Review, and setting new targets to reduce the administrative burden over time;
- building on the success of the Panel for Regulatory Accountability (PRA) by ensuring that regulation is only used where necessary, that it is not ‘gold plated’ if it originates from EU law, and that all Whitehall departments strengthen their focus on removing outdated and unnecessary regulations as recommended by the Better Regulation Task Force (BRTF); and
- applying the principles of better regulation in Europe through the Six Presidencies initiative.
consistent with the Hampton principles, a strategy to meet stretching new targets to reduce the administrative burden of the tax system for small businesses, including in the short term cutting the tax return for 500,000 of the smallest businesses and rolling out options for paying and managing VAT online;
taking forward the ten-year Science and Innovation Investment Framework, including a UK Stem Cell Initiative, chaired by Sir John Pattison, to formulate a ten-year vision for stem cell research, creating a platform for co-ordinated public and private research funding; a mandatory requirement that at least 2.5 per cent of public sector extra-mural R&D spending will be with SMEs; and engaging with business to ensure that the R&D tax credit better supports UK businesses with high potential to become major innovative firms of the future;
to support the Government’s major new investment in education and skills announced in chapter 6, including plans for investment to deliver twenty first century facilities in primary schools and significant investment in further education colleges, plans to enhance workforce skills including continued support for the Employer Training Pilots and support for the new Union Academy;
further support for enterprise, through a new Local Enterprise Growth Initiative worth £150m per year by 2008-09, to boost enterprise in the most deprived areas of England, following the end of the time- limited commercial stamp duty land tax credit disadvantaged areas relief; and Regional Development Agencies’ (RDAs) plans for the development of business coaching focused on businesses with high growth prospects;
a package of measures to increase the contribution of creativity to productivity growth, including a review, led by George Cox, on how best to use the UK’s world class creative industries and universities to support and develop the creativity of SMEs; and action by the RDAs to support the integration of design into corporate strategy and product and market development, including through the Design Council’s Immersion Programme; and
as a further step in reforming the investment chain, taking forward the Morris Review recommendations to promote greater competition in actuarial services and in advice to pension funds on investment issues, including asset allocation and fund manager selection, and to strengthen regulation of the actuarial profession.

Further details of these and other measures to encourage enterprise, productivity and skills are set out below.

Regulatory reform

The Chancellor today announced a serious systemic reform of Britain’s regulatory system to deliver lower costs to business while maintaining excellent regulatory outcomes. Building upon reforms made in the 2004 Pre-Budget Report, the Budget announces new measures to ensure that regulation is only applied where there is no alternative, that the burden to business of administering regulations is reduced over time and that the UK presses forward with regulatory reform in Europe.

Hampton Review: the final report of the Hampton Review, 'Reducing Administrative Burdens: Effective Inspection and Enforcement’ is published alongside the Budget. The Government accepts its recommendations in full. The review recommends a set of principles which all regulatory bodies will adopt. Regulators will incorporate a comprehensive risk based approach to their inspection and enforcement activities, focusing resources upon the areas of high risk and ensuring that businesses have access to [good advice]. Once implemented, the need for inspections could be reduced by a third (around one million fewer inspections), the number of forms sent out by regulators could be reduced by twenty five per cent, and 31 existing national regulatory bodies will be rationalised into 7 thematic areas so that businesses have fewer regulators to deal with. See Press Notice 4 for further detail.

Regulating only where necessary: building on the success of the Prime Minister’s Panel for Regulatory Accountability (PRA), which has delivered commitments from the DTI and Defra to reduce the regulatory burden they impose upon businesses by £1 billion and 25 per cent respectively, the Government is further strengthening its focus upon removing unnecessary regulations. The Budget accepts the recommendations of the Better Regulation Task Force’s (BRTF) report, published alongside the Budget, (Regulation - Less is More: Reducing Burdens, Improving Outcomes) and will adopt a more rigorous approach to assessing new regulatory proposals that force departments to focus upon the removal of outdated and unnecessary regulations whenever they make new regulatory proposals. Businesses and business organisations will also, for the first time, have a formal role to play in helping government identify deregulatory proposals.

Tackling goldplating: alongside the Budget, the Government is publishing new guidelines for the transposition of European legislation into UK law to ensure that the UK implements EU laws in the clearest and least burdensome way possible. UK law will have to follow EU law as closely as possible, not going beyond the minimum standards and scope required by the EU unless specifically approved by the PRA, with clearer guidance for parliament and businesses and new checks to prevent over-implementation.

Reducing the cost of administering regulation: as well as pursuing better and more proportionate regulation overall, the Government believes that the costs to businesses of administering regulations should be as low as they possibly can be, without compromising regulatory outcomes. The Government accepts the recommendation of the BRTF report that it should measure the burden to businesses of administering regulations and set a target or targets for reducing it. Departments will achieve reductions against these targets by implementing the recommendations of the Hampton Review.

Implementation of reforms: the Government will bring forward early legislation to implement the recommendations of the Hampton Review. The Review anticipates that it will take 2-4 years to implement its reforms fully, and Philip Hampton has agreed to work with the Government to oversee implementation. The Government will also establish a new Better Regulation Executive (BRE) in the Cabinet Office to bring greater weight behind the implementation of the radical reforms announced in the Budget.

Regulatory reform in Europe: in December 2004 the Finance and Economics Ministers of Ireland, the Netherlands, Luxembourg, the UK, Austria and Finland launched an updated and extended initiative establishing regulatory reform as a priority of the six EU Presidencies through to the end of 2006. The initiative presented a series of proposals for ongoing reform of the regulatory regime in Europe, including to further develop the competitiveness testing of all new regulations, exercise stronger and more effective control over the administrative burdens associated with EU regulation, make faster progress in simplifying the existing stock of EU laws, and improve business input into the regulatory reform process. During its presidency of the EU in the second half of 2005, the UK Government will seek to promote the risk based principles of best-practice, recommended by the Hampton Review, resisting inflexibilities in dossiers such as the working time directive and chemicals regulation.

Reducing the administrative costs of tax for small business

Following the final report of the Hampton Review, the Government has today published its vision of how, once integrated, HM Revenue and Customs (HMRC) will deliver real improvements in its relationship with small business and minimise administrative burdens. Working towards a new relationship: A consultation on priorities for reducing the administrative burdens of the tax system on small business provides an opportunity for small businesses and their advisors to comment on whether the vision and measures outlined in the paper reflect their concerns and priorities, and seeks to initiate a dialogue that will lead to an improved relationship.

As a result of the measures set out in the paper, small businesses can, over time, expect to understand their tax liabilities more easily and:

provide information to HMRC only once;
spend less time dealing with inspections;
benefit from a range of modern flexible payment options;
enjoy a single point of contact with the new department; and
have access to co-ordinated, clear and helpful support and education when and in the form they need it.

The new department will set stretching targets for real cost reductions that will be set and published.

Enterprise in deprived areas

Local Enterprise Growth Initiative (LEGI): the Government is introducing a new LEGI worth £50 million in 2006-2007, rising to £150 million per year by 2008-2009 (subject to confirmation in the 2006 Spending Review), as part of its commitment to reducing the enterprise gap and improving the business environment in the most deprived areas of England. A consultation document has been issued today to determine the final details of the policy.

The LEGI will provide long-term, flexible investment in the most deprived local communities – determined by the Neighbourhood Renewal Fund areas – to support locally-developed proposals that pursue new or proven ways of stimulating economic activity and productivity through enterprise development. The LEGI will provide local authorities and their communities new freedoms to make decisions, in partnerships with business and the Regional Development Agencies, on how best to support both small business start-ups and existing business to grow.

The Government will provide £10 million worth of pump-priming resources to eligible local authorities during 2005-06, to support the development of local enterprise growth proposals, with the first round of funding from LEGI worth £50 million per year being made available during 2006-2007. The Office of the Deputy Prime Minister – with support from the Small Business Service – will administer the LEGI through the network of Government Offices.

The LEGI will follow the time-limited commercial stamp duty land tax disadvantaged areas relief which the Budget announces will end of 16 March 2005. LEGI will better target support to drive forward local enterprise development and business regeneration for the long term. State aid clearance for the temporary stamp duty relief expires on 31 December 2006. The enhanced residential stamp duty threshold of £150,000 will continue to benefit home buyers in Enterprise Areas.

Film tax reliefs

The Government announced in the 2004 Pre-Budget Report that it would review the relief used by large budget films, to ensure that it remains an effective means of delivering Government objectives for supporting a sustainable UK film industry. The Government has concluded that the current relief for large budget films is no longer effective for this purpose. The Government is concerned that the sale and leaseback structures currently used to access the relief are inefficient, a target for abuse, make the cost of providing support untenable and might contribute to industry fragility and instability.

The Government therefore intends to replace the current relief used by large budget films next year with a structure similar to the new tax relief model that has previously been proposed for low budget films, details of which were launched in an Inland Revenue Technical Note, on 21 September 2004. The Government remains committed to the principles and terms of the proposed new relief but recognises that the industry has concerns, in the short term, about its practical operation. The Government has therefore decided to extend the current relief for low budget films until at least 31 March 2006.

This will enable the formal consultation on draft legislation to consider issues across the entire film sector and will ensure that tax reliefs for low and large budget film production are provided on a coherent and consistent basis. An announcement of the timetable for publication of a consultation document, including draft legislation and formal consultation with the industry will be made shortly. The transition from the current to the new film tax reliefs will then be effected next year, subject to state aid clearance.

Promoting Flexibility Across The Regions

The Budget takes new steps to stimulate regional growth, promote further devolved decision making and strengthen regional institutions. The Government believes regions should have the freedom and flexibilities to harness their indiginous strengths, tackle weaknesses in enterprise, skills and innovation and promote growth and full emloyment in their communities.

Stimulating regional growth: Budget 2005 welcomes the Regional Development Agencies’ (RDAs) publication of High Growth Business Coaching, which sets out how they will develop and deliver focused coaching for new and existing businesses with high growth prospects and high-potential entrepreneurs in the pre-start-up phase in each region. It also announces:

the designation of further Science Cities in Nottingham, Birmingham, Bristol;
proposals for a new Local Enterprise Growth Initiative (LEGI) worth £150 million per year by 2008-09, to promote enterprise and economic activity in the most disadvantaged areas of England;
measures to raise productivity through plans to reduce compliance costs for business by implementing the Hampton Review;
measures to increase the contribution of creativity to productivity growth, including a review by George Cox of how SMEs can make better use of design.

Strengthening regional institutions: the Government will strengthen regional institutions by:

announcing the emerging proposals of the HMT/ODPM Review, aimed at improving the efficiency and effectiveness of the Government Office Network;
introducing an independent assessment, conducted by the National Audit Office, for the RDAs on a rolling basis during 2005/06. This is based on last year’s Initial Performance Assessment (IPA) of the London Development Agency (LDA).

Devolving decision making: the Government has consulted on proposals to give the regions a stronger voice in future spending reviews, including establishing regional transport funding allocations for the first time and providing guidance on long term planning assumptions for regional transport, housing and economic development. The Government has held consultation events with stakeholders across the English regions, and received 107 written responses by the consultation deadline of 10 March, and is currently considering this feedback. The Government will set out how it intends to proceed in due course.

The Government intends to increase flexibilities for the LDA and strengthen its accountability to the London Mayor in the way it offers financial assistance, recognising LDA's 'good' rating in its Initial Performance Assessment

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. The Budget announces:

improvements to the incapacity benefits linking rules, including an automatic guarantee of entitlement to the rules on a move into employment; a single, extended linking rules period of 104 weeks; and immediate re-qualification for the rules on a return to benefit;
examining Jobseeker’s Allowance sanctions and the potential for a fixed fines system, to maintain an effective balance between rights and responsibilities by improving the capacity to respond swiftly and effectively in cases of non-compliance;
supporting young people not in education, employment or training (details set out below);
accepting the National Employment Panel’s recommendations on employment and small business growth for ethnic and faith minorities, and developing proposals for implementing the report’s recommendations, including the establishment of Centres for Vocational Excellence in Entrepreneurship;
a package of measures to help simplify and improve Housing and Council Tax Benefit by making further improvements in administration; and
improving IT links between Local Authorities and the Department for Work and Pensions to allow faster and more accurate processing of Housing Benefit claims.

Further details of measures to increase employment opportunity announced today are given below.

Incapacity benefit linking rules

The Government is committed to enabling people with a health condition or a disability to move into work. This Budget announces an improvement to the incapacity benefits linking rules, which allow claimants who move into employment to reclaim any higher rates of benefit on the same terms. The changes include an automatic guarantee of entitlement to the rules on a move into employment; a standard linking rules period of 104 weeks for all; and, where they need to return to incapacity benefits during this period, ensuring that claimants re-qualify immediately for the rules rather than having to wait a further 28 weeks.

Jobseeker’s Allowance sanction

An effective balance between rights and responsibilities requires effective penalties for failure to carry out responsibilities. The current sanctions for jobseekers can be heavy-handed, with lengthy processes, and are often imposed long after the instance of non-compliance. The Government will therefore examine Jobseeker’s Allowance sanctions and the potential for a system based on fixed fines.

Ethnic minorities

The Government is determined to narrow the gap between the ethnic minority employment rate and the overall employment rate to ensure that all ethnic and faith minority groups are fully benefiting from the Government’s policies. To add to previous targeted interventions such as ethnic minority outreach, specialist employment advisers and Fair Cities, the National Employment Panel (NEP) is recommending a new commitment by government and the private sector to eradicate the disadvantage faced by some ethnic minority groups. The recommendations include a new focus on five major cities to improve and encourage the growth of employment and enterprise for ethnic and faith minority groups. The Government accepts the NEP’s recommendations, and will develop proposals for taking them forward.

Building A Fairer Society

The Government is committed to promoting fairness alongside flexibility and enterprise to ensure that everyone can take advantage of opportunities to fulfil their potential. Measures include:

building on previous increases in financial support for families, a commitment to increase the child element of the Child Tax Credit at least in line with average earnings up to 2007-08;
enhancing the development of young people’s skills, through measures to improve financial support for 16 to 19 year olds in learning, including through extending Child Benefit and the Child Tax Credit from April 2006;
to support parents and improve children’s learning, an additional £35 million in 2006-07 and 2007-08 for the Parenting Fund and to improve early learning help for families;
free off-peak local area bus travel for all people over 60 and disabled people in England from April 2006;
an additional payment guaranteeing that council tax paying households with someone over 65 will receive £200 towards the cost of council tax;
extending the existing higher Individual Savings Account limits to April 2010, to promote further saving;
consulting on payments at secondary school age in the Child Trust Fund;
investing up to £100 million over the next three years, to deliver the Government’s response to the Russell Commission report on youth volunteering, including a volunteering opportunities fund rising to £40 million by 2007-08, conditional on matched contributions from the private sector support;
doubling the starting threshold of stamp duty land tax to £120,000 for residential property transactions, exempting 300,000 more home buyers from stamp duty every year;
increasing the threshold for inheritance tax to £275,000 in 2005-06, £285,000 in 2006-07 and £300,000 in 2007-08;
fair tax treatment for Shari'a compliant financial products, ensuring a level playing field with equivalent banking products; and
further reforms to modernise the tax system, including better aligning North Sea corporation tax payments with those for petroleum revenue tax, and a number of measures to clamp down on tax fraud and avoidance.

Further detail of these measures is set out below.

Extending financial support to 16-19 year olds

Today the Chancellor confirmed his intention to extend Child Benefit and the Child Tax Credit to the families of unwaged trainees and 19 year olds finishing a course they started before they turned 19. These measures demonstrate the Government's commitment to increasing the flow of skilled young people into employment by raising post-16 participation in education and training. Around 180,000 young people a year will benefit from this extension of financial assistance, supporting their choice between education and training and enabling them to complete their course and gain qualifications.

To engage 16-17 year olds not in employment and ensure that no teenager faces long-term unemployment, the Chancellor also announced that, from April 2006, £60 million over two years will be allocated to a new Activity Agreement and Allowance pilot through which 16-17 year olds can receive an allowance in return for taking steps to progress towards formal learning. Building on the success of the Education Maintenance Allowance in raising post-16 participation, the aim is to support and encourage all young people to achieve their potential through education and training.

Fairness for today's pensioners

The Government is continuing to ensure that all pensioners can share in rising national prosperity by announcing several measures to benefit pensioners. These include free off peak local area bus travel for disabled people and those aged over 60 in England from April 2006.

The Government understands the position of older people on fixed incomes facing pressures such as council tax bills. Alongside Council Tax Benefit for poorer pensioners, the Government believes it is right to help elderly households with their council tax. This Budget announces an additional payment to all council tax paying households with someone over 65. This means that, in addition to the Winter Fuel Payment, announced in the 2004 Pre-Budget Report, some 4.7 million council tax paying households with someone over 65, will also receive £200. These payments will be made at the same time as the 2005 Winter Fuel Payment.

Pensioners entering hospital from April 2005 will also continue to receive their state retirement pension entitlement and their full entitlement to Incapacity Benefit, Severe Disablement Allowance and Income Support for the duration of their stay in hospital from April 2006.

Promoting saving and asset ownership

The Government seeks to provide targeted support and incentives for saving from childhood, through working life and into retirement. The Budget announces action to further promote saving and asset ownership:

Individual Savings Accounts (ISAs): ISAs continue to be extremely popular with savers. Over 16 million people - more than one in three adults - now have an ISA and over £160 billion has been subscribed since 1999. These savings are supported by around £1.6 billion in tax relief every year. When ISAs were introduced in 1999 they were guaranteed to run for an initial ten years to 2009, and the overall annual investment limit was set at £5,000, with a maximum of £1,000 in cash. The Government set higher initial limits to encourage new saving. The Chancellor announced in the Budget that, in response to representations, the Government has decided to extend the existing higher ISA limits not just to 2009 but a year further to 2010, extending the guaranteed duration of ISAs from 10 to at least 11 years and taking the cumulative total that could be saved tax-free since 1997 to over £100,000.

Child Trust Fund: the Government launched the Child Trust Fund in January 2005. The list of official providers and distributors has continued to grow and there are now over 90, including institutions from across the financial services industry and numerous high street retailers. All children born since 1 September 2002 receive at least £250 to invest in a long-term savings and investment account and children from families with lower incomes receive £500. Children, parents, family and friends are together able to contribute up to £1,200 a year to each account and there is no tax for them to pay on any interest or gains made on this money. Child Trust Fund accounts become fully operational on 6 April 2005.
The 2004 Pre-Budget Report announced that the Government is consulting on a further payment of £250 for all children at age seven, with children from low-income families receiving £500. In today’s Budget, the Chancellor announced that the Government will now consult on what further payments should be made at secondary school age.

Stamp duty land tax relief

The Chancellor announced today that the starting threshold for residential stamp duty land tax will double to £120,000 from 17 March 2005. This increase will take 300,000 more homebuyers out of the scope of stamp duty every year, and mean that over 50 per cent of first-time buyers will now not pay stamp duty.

Shari’a compliant financial products

Shari'a compliant financial products were given a boost by the announcement of new measures in the Budget to ensure fair tax treatment. Following consultation announced in the 2004 Pre-Budget Report, legislation will be included in the Finance Bill to amend the tax rules so that the mark-up on a Murabaha transaction and the profit-share on a Mudaraba arrangement are taxed on a level playing field with equivalent banking products. Stamp duty land tax reliefs for Islamic house purchase schemes will be extended to include a new Shari'a compliant product.

Russell Commission

The Russell Commission, led by Ian Russell, Chief Executive of Scottish Power, reports today, concluding that there is widespread support and enthusiasm for a step change in the number of young people volunteering, the diversity of young volunteers and the quality of the volunteering opportunities. The Government welcomes the report and will invest up to £100 million over the next three years to set up a new national framework for youth volunteering, including a volunteering opportunities fund rising to £40 million by 2007-08, conditional on matched contributions from the private sector support, to achieve the shared ambition of a million new young volunteers within 5 years.

Modernising the business tax system and protecting tax revenues

The Government is taking forward further proposals to modernise the business tax system, including changes to the way oil companies pay North Sea corporation tax.

A package of measures to combat tax fraud and avoidance has been announced by the Chancellor today. Further details are set out in PN3.

Delivering High Quality Public Services

The Government's aim is to deliver world-class public services through sustained investment and ongoing reform. Budget 2005 sets out a long-term investment programme for education. To ensure that rising educational standards are locked in and to address future challenges, the Budget announcements include:

a long-term programme of investment to deliver twenty-first century facilities in primary schools, rebuilding or radically refurbishing over 50 per cent over around 15 years;
further support for ICT in schools to help the most disadvantaged pupils;
funding to help schools deliver extended services; and
steps towards every 16-18 year old having access to education and training.

The Government is taking its agenda for public services reform further, and will announce proposals to rationalise inspection and regulation of public services, building on the approach of the Hampton Review. The Government will merge the eleven main public services inspectorates currently operating into four bodies, reducing costs and the burden on front-line public services.

Investing in skills

The Government has committed record levels of investment to education, and expenditure on UK education is projected to rise to 5.6 per cent of GDP by 2008. Budget 2005 builds on this progress by announcing further investment to support the Government's vision of schools at the heart of the community and delivering personalised learning that meets the needs of all pupils.

Budget 2005 announces:

a long-term commitment to deliver twenty first century learning facilities in primary schools, and ensuring that they are able to play a role at the heart of their communities connecting local public services. Additional funding of £150m will be available in 2008-09, rising to £500m. Together with funds for strategic investment already in the system, the Government estimates that this additional funding will, over around 15 years, provide for a wide-ranging programme of rebuilding, refurbishing and upgrading covering at least 50 per cent of primary schools in England. Those primary schools not benefiting directly from the programme will continue to receive support for their maintenance and smaller scale capital needs;
to help schools meet the challenges that provision of extended services involves in the shorter-term, an increase in the grant paid directly to every primary and secondary headteacher in England in 2006-07 bringing the payment in that year for a typical primary school up to around £34,000 and for the typical secondary school up to around £109,000. A further increase the following year will bring the payment for a typical primary school up to around £36,000 in 2007-08, and for the typical secondary school to around £115,000;
an additional £350 million of capital investment in the further education estate to be made over 2008-09 to 2009-10, a step change in capital investment to the sector allowing transformation towards world class vocational establishments, responsive to the needs of employers and learners. The Government aims to transform the further education sector to create world-class institutions of learning, supporting increased post-16 and adult participation in education and training and enhancing the reputation of the vocational and apprenticeship route;
a further £25m ICT capital funding in 2006-07 and 2007-08, allocated to schools in deprived areas to bridge the digital divide. Budget 2005 also announces that DfES will double their contribution to the e-Learning Foundation to £500,000 a year from 2005-06, to allow the Foundation to increase their support for schemes which enable schools to lease laptops to pupils.
additional funding to support the roll out of the Teach First scheme across four further cities from 2007 to help outstanding graduates to gain experience teaching students in challenging schools. The Government has already announced the expansion of the Teach First scheme to Manchester from 2006;
new measures to ensure 16 to 18 years olds who have left school are in the education and training, including:
- a pilot scheme offering 16 and 17 year olds who are not in education, training or employment financial support in return for a commitment to progress towards formal learning; and
- piloting a negotiated Learning Agreement for all 16 and 17 year olds in work with no training, building on the existing statutory right to time off to study or train. The pilots will test the effectiveness of a range of financial incentives in encouraging employers and employees to take up this offer and in supporting apprenticeships as a key route for 16-17 year olds in the labour market.

Rationalising public service inspectorates

Alongside the Hampton Review, the Chancellor today announced a rationalisation of public service inspection that, it is expected, will merge 11 public service inspectorates into 4. The reforms follow up the Government’s policy on inspection, agreed with all inspectorates, in July 2003 and should be in place by 2008.

The new inspectorates will cover: justice and community safety; adult social care and health; children’s services, education and skills; and local services. The new inspectorates will work together to develop common, risk-based, approaches, providing assurance to the public as well as driving improvement. Burdens on providers will be reduced through a more co- ordinated approach with, for example, the development of a gatekeeper and co-ordinator for all inspection activity impacting on local authorities.

A major programme of consultation, legislation and implementation will be needed to get the new bodies up and running. Closer working between inspectorates is already under way and formal consultation on the proposals for a single justice and community safety inspectorate and a single local services inspectorate will be published shortly. Further proposals will follow in due course.

Invest to Save Budget – inclusive communities

The Government is announcing the allocation of £37 million from the Invest to Save Budget – Inclusive Communities Fund, to 37 innovative projects, encouraging new and joined-up ways of working that strengthen local communities. A number of partnerships plan to make use of volunteers and mentors to improve services for the most needy and vulnerable. In the year of the volunteer, Invest to Save – Inclusive Communities will fund some 5,000 volunteering opportunities.

Protecting The Environment

The Government is committed to delivering sustainable growth and a better environment and to tackling the global challenge of climate change. The Budget announces:

in support of the UK’s leadership role in tackling climate change, including through its EU and G8 presidencies, a package of new measures to support further action on the abatement of greenhouse gas emissions, including new fiscal incentives, an energy services summit, a new UK energy research partnership and a new energy efficiency theme as part of the Government’s Invest to Save Budget;
the publication of an independent evaluation of the climate change levy, which concludes that this measure will deliver annual savings of over 3.5 million tonnes of carbon in 2010, well above the originally forecast savings;
two new reduced rates of VAT for the installation of low carbon technologies, and an extension of the Landlord’s Energy Savings Allowance to cover solid wall installation;
the deferral to 1 September 2005 of the inflation-only increase of main road fuel duties, reflecting sustained volatility in oil prices, and of a 1.22 pence per litre increase in duty on rebated fuels, which will support the strategy to tackle oils fraud;
a freeze in the threshold for the minimum percentage charge rate of company car tax at 140g per kilometre for 2007–08, and simplifications to the company car tax system;
a freeze of the vehicle excise duty (VED) rates for the lowest four bands of graduated VED for cars – the majority of new cars – and the standard increase of £5 for the two most polluting bands and for the over 1549cc band for pre March 2001 vehicles;
progress on work to assess the feasibility of a biofuels obligation as part of a package of measures to support the development of biofuels;
a freeze in the rate of the aggregates levy, and the rates of climate change levy and air passenger duty; and
an increase in line with inflation of the landfill tax credit scheme.

Progress with environmental fiscal measures

This Budget includes assessments of the Government’s experience to date of using environmental taxes, which show that they are meeting their objectives. An independent review of the climate change levy concludes that it should deliver savings of over 3.5 million tonnes of carbon (MtC) by 2010. On the aggregates levy, sales of primary aggregate in Great Britain fell by 8 per cent between 2001 and 2003 against a background of buoyant construction growth, and recycled aggregates are increasing. On the landfill tax, the amount of waste going to landfill is falling.

Delivering a clean and efficient transport system

Road fuel duties: since 2000, duty on main road fuels used in the UK has fallen in real terms by nearly 12 per cent, a saving of nearly 6 pence per litre of fuel for motorists, while the cost of motoring has also fallen to below 1990 levels, in part owing to increasing fuel efficiency. It is the Government’s policy that fuel duty should rise at least in line with inflation as the Government seeks to meet its targets of reducing polluting emissions and funding public services. The Budget announces today an inflation-only increase of 1.22p per litre for main road fuel duties but owing to the sustained volatility in the oil market, the changes in rates will be deferred until 1 September 2005.

Promoting biofuels: the Government considers that biofuels can offer a cost-effective option for reducing emissions from road transport, as well as contributing to the future sustainability of fuel. As announced at the 2004 Pre-Budget Report, the Government is undertaking a feasibility study and consultative process on a possible Renewable Transport Fuels Obligation (RTFO). The RTFO would require a specified proportion of aggregate fuel sales to come from a renewable source and would draw on the experience of the Obligation for Renewable Electricity. A cross-Government group led by the Department for Transport (DfT) has been set up and is currently holding a series of stakeholder workshops to discuss specific aspects of how an RTFO could work in practice. Detailed work will continue over the coming months with a view to informing decisions later in the year.

VED: a freeze of the vehicle excise duty (VED) rates for the lowest four bands of graduated VED for cars, and the standard increase of £5 for the two most polluting bands, as well as for private and light goods vehicles of over 1549cc registered before 1 March 2001. The VED bands will be re-named A-F, from the current lettering of AAA-D, while retaining their current carbon dioxide emission level. This will align VED lettering with new the new energy efficiency labelling being introduced by industry into car showrooms later this year, ahead of EU proposals for such labels. This will help consumers to make fully informed vehicle choices

Notes For Editors

Rationalising public services' Inspectorates

The report of the review, Inspecting for Improvement, developing a customer focused approach and the Government’s Policy on Inspection of Public Services, along with further material on the strategy for reforming inspection are available on the Cabinet Office website

Further details of Budget 2005 announcements can be found on the HM Treasury website

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