PN1 - Britain meeting the global challenge: Enterprise, fairness and responsibility

5 December 2005

2005 Pre-Budget Report

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. World growth in 2005, while still robust by historical standards, has moderated compared with 2004, in part due to a sustained rise in oil and petroleum product prices. This slowdown has been more pronounced among advanced economies, especially the UK’s main export markets. Despite this, the UK economy continues its longest unbroken expansion since records began, with GDP now having grown for 53 consecutive quarters.

The global economy is undergoing a major transformation, with far-reaching and fundamental changes in technology, production and trading patterns. Faster information flows and falling transport costs are breaking geographical barriers to economic activity. This fast pace of change, combined with the emergence of rapidly industrialising economies such as China and India and their integration into the global economy, presents new opportunities for the UK as well as new challenges.

The response to globalisation requires action from businesses to respond to transformed markets and new opportunities, and action from government to establish the right business environment. The Pre-Budget Report sets outs further reforms to support the UK’s response to globalisation – including to increase the supply and improve the affordability of housing and strengthen the planning system, to reduce further the regulatory burden on business, to create a world–class environment for scientific research and development, and to improve the skills of the nation.

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 UK’s strong macroeconomic framework has helped to underpin increased stability compared with earlier decades, and has put the UK in a strong position to resist the inflationary pressure brought by recent sustained increases in oil prices. The OECD’s most recent report on the UK economy states that the UK is now the most stable economy in the G7 and the OECD. Economic stability provides the platform for building prosperity, achieving social justice with security and opportunity for all, and maintaining investment in public services.

Sound macroeconomic fundamentals continue to support growth and stability in the UK, helping the economy to remain far more resilient to challenges and shocks than it has in the past. However, there have been three significant developments affecting the outlook for UK growth since Budget 2005: significant statistical revisions of the quarterly profile of growth; external shocks such as higher oil prices and weaker demand growth in the euro area; and some weakness in domesticallygenerated growth. UK GDP is now expected to rise by 1¾ per cent in 2005 as a whole. Growth in 2006 is forecast to remain below trend at between 2-2 ½ per cent, picking up to 2 ¾-3 ¼ per cent in 2007 and 2008, leading to a closing of the output gap in 2008-09.

The interim forecast update of the projections for the public finances published in this Pre-Budget Report show that the Government is meeting its strict fiscal rules:

the current budget since the start of the current economic cycle in 1997-98 shows an average annual surplus up to 2008-09 of 0.1 per cent of GDP and the Government is therefore meeting the golden rule on the basis of cautious assumptions. There is a margin against the golden rule of £16 billion in this cycle, including the Annually Managed Expenditure (AME) margin. The current budget returns to balance by 2007-08, and the cyclically adjusted current budget in the cautious case moves into surplus by the end of the projection period; and
public sector net debt is projected to remain low and stable over the forecast period, stabilising at around 38 per cent of GDP, below the 40 per cent ceiling set 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 comparator economies. The 2005 Pre-Budget Report sets out the next steps the Government is taking to drive productivity growth and meet the long-term challenges of the global economy, including:

taking forward the goals of the ten-year Science and Innovation Investment Framework with measures to create a world-class environment for health research, to enable the UK to maintain a leading role in stem cell research, and a strengthened partnership with the biomedical industry to increase private investment in medical R&D by up to £500 million in the short to medium term, rising to £1 billion per year in the medium to long term;
setting out the Government’s strategy for tackling the long-term lack of supply and responsiveness of housing, responding to Kate Barker’s independent review of housing supply, and bringing forward Real Estate Investment Trusts to improve efficiency in the UK’s commercial and residential property investment markets;
building on the planning reforms already put in place by launching a review, led by Kate Barker, to consider how planning in England can better deliver sustainable economic development in a timely and transparent manner;
progress implementing the recommendations of the Hampton Review to reduce the costs on business of administering regulations. HM Revenue and Customs (HMRC) will set a target for reducing administrative burdens in the tax system in Budget 2006 and, as a first step towards this target, plans have been announced for £300 million savings for business through reforms to tax administration;
measures to reduce costs on business by removing unnecessary regulatory burdens including: the abolition of Operating and Financial Reviews for quoted companies; a ten-point action plan to reduce regulatory burdens in the financial services industry; greater consistency in local authority regulation and a review of gold-plated regulations derived from Europe;
announcing an Independent Review, led by Andrew Gowers, to ensure that the UK's intellectual property framework is appropriate for the digital age;
publishing the interim report of the Leitch Review of Skills advancing the evidence base on the UK’s existing skills profile and highlighting the need for the UK to raise its ambition if it is to have a world-class skills base by 2020; and
additional support for higher education exports to sustain the UK’s world
leading position and attract more highly skilled overseas students.

Further details of these and other measures are set out below:

Barker Review of Land Use Planning

The Chancellor and the Deputy Prime Minister have invited Kate Barker to conduct a review to consider how, in the context of globalisation, planning policy and procedures can better deliver economic growth and prosperity alongside other sustainable development goals.

Boosting higher education exports

Today the Chancellor announced a package to help the Higher Education sector benefit from the opportunities of globalisation, and ensure the UK retains its reputation as one of the most attractive places for students to study abroad. The package announced today includes six new measures:

work with British Universities International Liaison Association and the Council for International Education (UKOSA) to encourage best practice in meeting the needs of international students;
increase by 50 per cent Government support for marketing and promotion of UK higher education to non-EU students, with matched funding from the sector;
establish a new UK-China University Partnership Scheme to support scholarships and encourage academic exchanges and collaboration between centres of excellence in science and technology;
allow all international students on completion of post-graduate degree, or an undergraduate degree in a shortage sector, to work in the UK for up to 12 months, benefiting up to 50,000 students;
under the new point-based system for managed migration, award bonus points in Tier 1 (highly skilled migrants) and Tier 2 (skilled migrants with a job offer) to people who have previously studied in the UK; and
improve the efficiency of the visa process.

Regulatory reform

The Chancellor today announced progress in delivering the important reform of Britain’s regulatory system announced in Budget 2005, to deliver lower costs to business while maintaining excellent regulatory outcomes. The Pre-Budget Report 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.

Regulating only where necessary: building on the success of the Prime Minister’s Panel for Regulatory Accountability (PRA), the Government has adopted astrengthened regime that forces Government Departments to focus upon simplifying and removing existing regulations. Specific measures to remove regulatory burdens from business include:

abolition of the ‘gold-plated’ requirement for all quoted companies to produce an Operating and Financial Review, reducing the burden on business by £33 million but maintaining enhanced reporting standards;
details of a ten point action plan of reforms to the regulation of wholesale and retail financial markets to reduce burdens; and
further details of the review, by Neil Davidson QC, the former Solicitor General for Scotland, who will work with the Better Regulation Executive to scrutinise ‘gold-plated’ aspects of UK law that go beyond the regulations required by the EU.

Reducing the cost of administering regulation: as the Hampton Review set out, by focusing regulatory resources on areas of greatest risk, the administrative burden of complying with regulation for the vast majority of compliant business can be reduced, with one-third fewer inspections and 25 per cent less form-filling, while maintaining or improving the UK’s record of excellent regulatory outcomes.Implementing this approach, the Government has:

created the Better Regulation Executive to deliver these reforms and, with the PRA, hold Government Departments to account for delivery;
prepared the Regulatory Reform Bill, to reinforce the principles of risk-based regulatory enforcement at the heart of regulatory practice and ease the removal of complex or outdated regulation;
begun the merging of regulatory bodies which, by April 2009, will see 31 existing national regulators consolidated into just seven bodies; and
launched a review of regulatory penalty regimes, to ensure that penalties reflect the impact of the offence.

The Pre-Budget Report also announces that the Government will work with Local Authorities to establish a new body - the Local Better Regulation Office. This is not a new regulator, but will work to ensure a single coordinated set of priorities for all Local Authority regulatory services, not just trading standards, and deliver a riskbased approach to inspection and enforcement that minimises burdens on business.

Regulatory reform in Europe: the Government has placed regulatory reform at the heart of its presidency of the EU. The Pre-Budget Report announces that under the UK Presidency, the following has been delivered:

revised impact assessment guidelines with an enhanced competitiveness
test, published by the Commission in June 2005;
the withdrawal of 68 items of pending EU legislation announced in
September;
a three-year programme of simplification tackling 1,400 rules and regulations which businesses have indicated are the most burdensome; and
a European methodology to measure the administrative burdens of EU regulations, and calls for the Commission to develop proposals for measurable targets for reducing burdens on business.

Furthermore, the UK presidency will propose tomorrow, with the incoming Austrian and Finnish presidencies, a further programme of European regulatory reform for 2006 and beyond. This call is for further progress toward risk-based regulatory enforcement, greater regulatory convergence between the EU and other major economic regions and increased business engagement in Europe’s regulatory reform agenda.

Promoting creativity

The Government welcomes the recently published Cox Review of Creativity in Business and will be taking forward the recommendations it makes to the public sector. In particular, the Design for Business programme will be made available across the country by the Regional Development Agencies (RDAs), and the Higher Education Funding Council for England will lead the piloting of centres of excellence combining capabilities in business, engineering, technology and creativity as part of its Centres for Excellence in Teaching and Learning. The Government has also considered the recommendations that Sir George Cox has made to the review of R&D tax credits and will be taking a number of them forward.

Sir George Cox will work with industry leaders from design, the arts and business and in partnership with the London Development Agency and other RDAs to develop plans for creativity and innovation centres in each English region, including a national hub in London.

Cave Review of Public Spectrum Holdings

The public sector is the single largest user of radio spectrum, which is an important resource for defence, aeronautical, maritime, and emergency services. Spectrum is also a key input for many communication services, including broadcasting, broadband, radio and telephony. The Government recognises that, with rising demand for spectrum, the public sector must ensure that it makes the most efficient use of the spectrum it holds.

In the 2004 Pre-Budget Report, the Chancellor asked Professor Martin Cave to carry out an independent audit of public sector spectrum with the aim of identifying scope for more efficient use. Professor Cave’s final report, published today, recommends the introduction of market mechanisms to facilitate the release ofspectrum to the market where it is currently being used inefficiently. The Government welcomes the report and will work alongside Ofcom to implement the audit's recommendations and the transition to the new approach.

Promoting Flexibility Across The Regions

The RDAs have been asked to contribute to the development of Budget 2006 on innovation, business support, and increasing private investment in economic development and regeneration, reflecting their role as strategic leaders of economic development.

The Pre-Budget Report also announces that an Independent Performance Assessment is being rolled out across the RDAs, with all results published by March 2007. This assessment will provide better public information about regional performance that helps improve regional accountability and scrutiny. Also announced today is a new RDA evaluation framework to improve the regional evidence base and provide information for the Comprehensive Spending Review in 2007.

Towards implementing Christopher Allsopp's recommendations in improving statistics for regional policy, the RDAs have agreed to work in partnership with the Office for National Statistics (ONS) to deliver a full regional statistical presence, by March 2007.

As a further step to increase regional and local input into policy, the Government recently published assessment criteria for local authorities to apply for Local Enterprise Growth Initiative funding. The deadline for submission of applications from local authorities and partners for financial support is 9 December 2005 and successful applicants will be announced in early 2006.

The Pre-Budget Report highlights the release of a consultation document on the London Mayor’s powers, looking at options for increasing the Mayor’s powers over key strategic functions in order to improve delivery outcomes for London.

Increasing Employment Opportunity For All

The Government’s long-term goal is employment opportunity for all – the modern definition of full employment. Delivering this requires that everyone is provided with the support they need to participate in a successful labour market.

The 2005 Pre-Budget Report describes the steps the Government is taking towards its aim of employment opportunity for all, including:

extending the support offered through the New Deal Plus for lone parents (NDLP+) pilots, in the existing five locations for two years to 2008;
extension of the NDLP+ pilots to two further Jobcentre Plus districts in Scotland and Wales from October 2006;
outreach support for people who are neither in work nor on benefit;
introduction of a Commission of Business Leaders to advise on helping the private sector to tackle racial discrimination, building on NEP recommendations;
providing funding to ensure that all local authorities can take steps to reduce Housing Benefit fraud by reviewing or visiting at least 50 per cent of their claimants each year, in line with best practice; and
raising the earnings disregard in Housing Benefit and Council Tax Benefit in line with inflation to £14.90 per week in April 2006, ensuring that claimants gain from increases in the rates of Working Tax Credits.

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

New Deal Plus for Lone Parents pilots (NDLP+)

The NDLP+ pilots are testing a more progressive model of active engagement for lone parents on benefit, based on clearer guarantees of advice and support. The Government announced today that it will:

extend the support offered through the NDLP+ pilots in the existing five locations for a further two years, to 2008; and
extend the NDLP+ pilots to two further districts in Scotland and Wales from October 2006.

Implementing National Employment Panel recommendations

The Government today announced the implementation of two more of the National Employment Panel’s recommendations on employment and small business growth for ethnic and faith minorities:

new private and third sector led employment teams will be introduced to deliver outreach support for people who are neither in work nor on benefit; especially, the non-working partners of people in low income families, in groups which face particular barriers to employment, and
a new Commission of Business Leaders will be asked to advise on helping the private sector tackle race discrimination in employment. The Commission will report to the Chancellor in early 2007.

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. The Government’s reforms of the welfare state reflect its aims of eradicating child poverty, supporting families to balance their work and family lives, promoting saving and ensuring security for all in old age. The Government is also committed to a modern and fair tax system that ensures everyone pays their fair share of tax. The Pre-Budget Report sets out the next steps the Government is taking to support these aims, including:

an extension of Winter Fuel Payments paid at £200 for households with someone aged 60 or over, rising to £300 for households with someone aged 80 or over, for the rest of this Parliament;
an additional £300 million over three years to enable pensioners on Pension Credit to have central heating systems installed free of charge, and to provide a £300 discount on all central heating systems to all other pensioners who do not already have one in their homes
investing £53 million over the next two years to improve services and support for families and children, including piloting new Parent School Advisors in over 600 primary and secondary schools
a tax credits package to provide more certainty around tax credit awards while maintaining the flexibility to respond to falls in income and changes in circumstances;
establishing an implementation body to take forward the Russell Commission recommendations on youth volunteering, with £3.5 million already committed from seven corporate Founding Partners;
action to protect tax revenues and modernise the tax system, including a number of measures to tackle fraud, avoidance and taxmotivated incorporation;
an increase in North Sea oil taxation, striking the right balance between
promoting investment and ensuring fairness for taxpayers; and
further steps to promote debt relief and international development, including the launch of the pilot International Finance Facility for Immunisation.

Further details of these measures are given below:

Support for parents: the best start for children

Today the Government is publishing Support for Parents: the best start for children which assesses the progress made since 1977 in reforming the delivery of services for children and families. The Government announces that it is investing £53 million over the next two years to improve services and supports for families and children in the following areas:

piloting a new school-based outreach role - Parent Support Advisors - in over 600 schools, both primary and secondary;
a series of Single Account Holder Pathfinders in six to ten high-achieving local authorities to determine whether a budget-holding lead professional model might be implemented more widely;
a new pilot project to establish peer-mentoring schemes in 180 secondary schools over two years. This will deliver 3,600 matched mentor and mentee pairs;
a pilot mentoring scheme for 600 young looked after children aged ten to fifteen; and
an evaluation of new practices in local authorities for managing cases of children on the threshold of being taken into care.

Tax credits: increasing flexibility and certainty

The Child and Working Tax Credits are central to the Government’s programme of tax and benefit reform, and have brought about a step change in the way in which households draw support from the Exchequer. There are over 6.1 million families with 10.3 million children benefiting from tax credits. Initial estimates of take up suggest that, in its first year of operation, around 80 per cent of families eligible for the Child Tax Credit claimed it. This compares to 65 per cent in the first year of Working Families’ Tax Credit, and 57 per cent in the first year of Family Credit.

Once fully implemented, the measures the Government announces today will mean
that:

there will be greater certainty for claimants, particularly for families who see a rise in income;
the flexibility to respond to falls in income and changes in circumstances will be maintained; and
in return, claimants will have clear responsibilities to report changes promptly and will be helped to keep their records up to date, including through more proactive contact by HM Revenue and Customs.

Pensions tax simplification

From 6 April 2006, a single universal regime for tax-privileged pension savings will be introduced. The new regime will provide individuals with greater flexibility and choice over their retirement savings. To prevent potential abuse of the new regime, the Government has today announced that:

Self Invested Personal Pensions (SIPPs) and all other forms of self-directed pensions will be prohibited from obtaining tax advantages when investing in residential property and certain other assets, such as fine wines, from 6 April 2006. This action will ensure that tax relief is only given to those whose purpose in making the contribution is to provide themselves with a secure retirement income; and
action will also be taken to prevent abuse of the rules for tax-free lump sums from 6 April 2006. The legislation will remove tax advantages where lump sums are recycled back into funds in order to generate artificial levels of tax relief.

To encourage investment in a range of assets as part of pensions saving, the Government is minded to allow SIPPS to invest in genuinely diverse commercial vehicles that hold residential property, such as the proposed Real Estate Investment Trust model (detailed in PN04). Action will be taken if it becomes apparent that people are trying to use collective vehicles to get around the rules for prohibited assets. HMRC has today published detailed technical guidance on the prohibition.

North Sea oil tax regime reform

The Pre-Budget Report announces today reform of the North Sea oil taxation regime to strike the right balance between producers and consumers, by promoting investment and ensuring fairness to taxpayers. The measures include:

an increase in the rate of supplementary charge from 10 per cent to 20 per cent with effect from 1 January 2006;
an option for North Sea companies to elect to defer 100 per cent relief for capital expenditure incurred in 2005 into the following year; and
a new Ring Fence Expenditure Supplement to uplift all expenditure by North Sea oil companies without taxable income to ensure that the value of the tax relief is maintained over time.

The Government is clear that there will be no further increases in North Sea taxation during the life of this Parliament.

Follow discussions with industry, measures are announced today to change the way North Sea oil is valued and priced to achieve a fairer and less distortive tax pricing system. The measures, effective from 1 July 2006, are designed to ensure that companies pay tax on the full value of oil as it is delivered, eliminating tax driven behaviours that can distort commercial practice.

Tackling fuel poverty

The Government will use additional revenue from the nation’s North Sea oil resources to help consumers most affected by the significant increases in global oil and energy prices. Higher fuel and heating prices can cause particular problems for pensioners on fixed incomes. The Government will therefore use additional revenue from the North Sea to support pensioner households and to invest for the longer term in tackling fuel poverty.

The Government will extend the Winter Fuel Payments at the level of £200 for households with someone aged 60 or over rising to £300 for households with someone aged 80 or over for the duration of this Parliament.

To further assist pensioners with their heating costs, the Government announced today that it will set aside £300 million to enable pensioners on Pension Credit to have central heating systems installed free of charge, and provide a £300 discount on all central heating systems to all other pensioners who do not already have one in their home.

Youth volunteering

The Russell Commission report, published at Budget 2005, set out recommendations to deliver a step change in the diversity, quality and quantity of young people’s volunteering, with an ambition of attracting one million more young volunteers over five years. Budget 2005 also announced public investment for this work of up to £100 million over the next three years.

An independent implementation body will be chaired by Rod Aldridge, currently chair of the Capita Group. The Government will also establish a cross-departmental Ministerial group on youth volunteering, chaired by the Chancellor, to support the work of the implementation body. The Pre-Budget Report also announced that £3.5 million has already been committed from T-Mobile, ITV, KPMG, MTV, Tesco, Sky, and The Hunter Foundation as Founding Partners.

Further details can be found at Russell Commission

Modernising the tax system

A package of measures to reduce administrative burdens for small and mediumsized business, with changes to the tax regimes to help these businesses, were announced today. These further measures follow the speech made by the Chancellor to the CBI on 28 November and the publication by HMRC of ‘Making the new relationship a reality’. Savings to business of around £300 million were announced which will arise from significant improvements to some key forms businesses identified as causing them most difficulty, improvements to the guidance, and new approaches to making the transfer of information to HMRC easier.

Taxation of small business: the zero per cent and minimum rates of corporation tax were introduced to encourage small companies to retain and re-invest their profits for growth. However many self-employed and employed people are being advised to incorporate simply to reduce their tax and national insurance liability. The Government has considered the issue of continuing tax-motivated incorporation in the light of responses to its discussion paper issued in the 2004 Pre-Budget Report where most respondents favoured simplification over options which risked introducing additional complexity. The Government has therefore decided to replace the non-corporate distribution and zero per cent rates with a new single banding set at the current small companies' rate of 19 per cent. This will simplify the corporation tax calculations for most small businesses, refocus incentives, and leave the small companies' rate at its lowest since its introduction in 1973.

The Government will continue to keep the structure of tax and national insurance contributions under review to ensure an appropriate balance between fairness for individuals and employers, incentives to work, save and invest, and reducing administrative burdens.

Reform of Film Tax Incentives: British films form an important part of our cultural heritage. Following consultation, the Government today announces a package which will sustain the UK film industry’s reputation for excellence in a globally competitive market.

Small budget films will receive an enhanced tax deduction of 100 per cent with a payable cash element of 25 per cent, amounting to a benefit worth at least 20 per cent of qualifying production costs. For qualifying co-productions spending at least 40 per cent in the UK, this represents a benefit of at least 10 per cent of total costs. Large budget films will receive an enhanced deduction of 80 per cent with a payable cash element of 20 per cent, amounting to a benefit typically worth 16 per cent of qualifying costs. Film production companies will be able to access this support when the new tax incentives come into effect from 1 April 2006.

Details of a new cultural test for British films are released today by the Department of Culture, Media and Sport. Further details of who is eligible for the relief, transitional rules and changes in the basic treatment of film expenditure can be found on HMRC’s website.

The new incentives have been designed to be robust against abuse and avoidance. The Government continues to closely monitor the use of existing reliefs and will continue to take firm action to stop avoidance.

Gambling taxation: following a comprehensive review of gambling taxation, announced in Budget 2004, the Government has concluded that the existing system remains appropriate for the industry going forward and will only be making changes to the taxation of gaming machines and remote gaming needed to align with the Gambling Act. Further details can be found on the HMRC’s website.

A package of measures to combat tax fraud and avoidance have also been announced by the Chancellor today, further details of which 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. The 2004 Spending Review set outcome-focused targets and spending plans to 2007-08 that built on the increased resources delivered in previous spending reviews. The Pre-Budget Report confirms that the Government is on course to meet these targets, with Departments and local authorities reporting annual efficiency gains totalling £4.7 billion by the end of September 2005.

The Pre-Budget Report outlines further measures directing resources towards the Government’s public service priorities, including:

an additional £53 million to expand Youth Opportunity Funds, enabling young people to run their own projects and secure amenities and activities they want in each local authority. This will mean an average local authority receiving £500,000 over the next two years;
reallocating an additional £305 million in 2006-07 and £508 million in 2007-08 into grant for local authorities, enabling them to continue delivering high quality public services alongside low council tax increases;
providing an additional £85 million to advance the ongoing expansion of the security and intelligence agencies, and extending the availability of the £50 million Counter-Terrorism Pool beyond 2005-06; and
providing an additional £580 million for the special reserve in 2005-06 for military operations in Iraq and the UK’s other international obligations.

The Pre-Budget Report sets out further details of the preparations for the 2007 Comprehensive Spending Review (CSR). A decade after the first CSR, the 2007 CSR will assess what the sustained increases in spending and reforms to public service delivery have achieved since 1997, identify what further investments and reforms are needed to equip Britain for the challenges of the years ahead.

Details of these and other measures are given below.

Funding for local services

The Government is increasing the direct grant for local authorities by £305 million in 2006-07 and £508 million in 2007-08, reallocated from central programmes. By 2007-08, local authorities will have seen real terms increases in grant every year since 1997. This increased funding is supported by other measures to reduce pressures. Together, these steps will insure that local authorities will be able to continue delivering high quality public services while ensuring that council tax rises are kept in line with those of the next two years, which have seen their lowest average increases for ten years.

National Sports Foundation

As announced at Budget 2005, a National Sports Foundation will be established from April 2006, bringing public and private sectors together to invest in grass roots sport. The Government has committed £27.5 million over the next two years, and will be encouraging the private sector to match this funding, aiming to raise at least a further £30 million from private investors over this period. From 2006 this funding will be invested in three specific programmes to strengthen grass roots sport:

Fit for Sport – projects to improve both physical and human infrastructure for community clubs. This programme will aim to provide up to ten new multipurpose pitches over the next five years and an extra 50 new sports coaches for the under 15s by 2008;
2012 Kids – building on the success of the Olympics, projects to encourage children to take up sport, particularly in schools; and
Women into Sport - projects to increase female participation in sport, including providing coaching and support for female teams.

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 Pre-Budget Report sets out the Government’s strategy for delivering a strong economy built on a sound environmental basis, and reports on recent and forthcoming actions to achieve this goal. These include:

support for alternative sources of energy including further consultation on carbon capture and storage, collaboration with Norway on this technology, and additional funding for Carbon Abatement Technology demonstration;
further measures to improve energy efficiency through the proposed Green Landlord Scheme and £35 million for the Carbon Trust to provide interest free loans for the introduction of energy saving measures;
continuation of the freeze in main fuel duty rates and the duty rates for road fuel gases, due to continued oil market volatility; and a 1.22 pence per litre increase in duty on rebated fuels, which will support the strategy to tackle oils fraud;
a commitment to introduce a Renewable Transport Fuel Obligation and Enhanced Capital Allowances for the cleanest biofuels plants, to stimulate the development of alternative fuels;
in support of the UK’s continuing leadership in addressing the international challenge of climate change, progress on taking forward the Gleneagles Plan of Action agreed by the G8 under the UK’s Presidency and the Stern Review on the economics of climate change; and
progress towards the inclusion of the aviation sector within the EU emissions trading scheme.

Further details of measures to protect and enhance the environment are set out below.

Climate change and energy efficiency

Support for alternative energy technologies and low carbon energy sources: carbon abatement technologies - including carbon capture and storage (CCS) - could potentially make a significant contribution to reducing carbon emissions both domestically and globally while also promoting energy security and reliability. The Government announced today further support for alternative energy technologies including:

working collaboratively with Norway on the issues surrounding the costs of CCS and possible economic incentives;
consultation on the barriers to wide-scale commercial deployment of CCS in the UK and the potential role of economic incentives in addressing those barriers;
providing additional funding of £10 million for demonstrations under DTI’s Carbon Abatement Technology Strategy; and
further support for microgeneration technologies through the extension of reduced VAT rates for the installation of wood-fuelled boilers.

Measures to improve energy efficiency: the Government continues to encourage energy efficiency as the most cost effective way for individuals and business to reduce both energy costs and carbon emissions and today announces:

its intention to reform the existing Wear and Tear Allowance by making it conditional on the energy efficiency level of the property;
for the business and public sectors, £35 million for the Carbon Trust to provide loans for the introduction of energy saving measures;
Ongoing discussions between Government and business to further examine the steps required to improve investment in energy efficiency.

Delivering a clean and efficient transport system

Alternative transport fuels: at the 2004 Pre-Budget Report, the Government announced a feasibility study and consultative process on a possible Renewable Transport Fuels Obligation (RTFO). An RTFO would require transport fuel suppliers to ensure that a percentage of their sales are from a renewable source, and could deliver significant carbon reductions from road transport, while supporting the Government’s air quality and diversity of supply objectives.

The Government will now go ahead with an RTFO, expected to be launched from April 2008, with a target level of 5 per cent in 2010-11. The Government today announces that discussions with stakeholders will be undertaken over the next three months to inform the decision on the target level for the RTFO in 2008-09 and 2009- 10, with the levels set out in Budget 2006, along with the duty level for 2008-09.

Further consultations on the detail of the RTFO will be taken forward over the next 12 to 18 months.

Enhanced Capital allowances (ECAs) for biofuels: the Government also announces today that, subject to State Aid approval, it will go ahead with a 100 per cent first year ECA for biofuels plant that meet certain qualifying criteria, which make a good carbon balance inherent in the design. The ECA will work alongside the RTFO, and add value by creating an additional incentive for the most environmentally beneficial production of biofuels in the UK. The Government anticipates that the scheme will be introduced in 2007 subject to State Aid approval.

Fuel duties: in response to the continued volatility in oil markets, the Government is continuing the freeze in main fuel duty rates until Budget 2006. Duty rates for road fuel gases are also frozen until Budget 2006.

To support the UK Oils Strategy and reduce incentives for fraud, the Government today announces an increase of 1.22 pence per litre in duty on rebated gas oil. The Government also announces a 1.22 pence per litre increase in heavy fuel oil to take account of the polluting nature of the fuel.

Haulage industry: the Government welcomes the report of Burns inquiry into the impact of fuel duty and competition from overseas on the UK haulage industry. It recognises that there are also a number of other important challenges facing the haulage industry and is therefore inviting key industry associations to participate in a joint task group to place the findings of the inquiry in this broader context. The task group will also assess how the pressures identified by the Burns inquiry compare with those facing other sectors which are open to international competition or have experienced rising input costs.