Investing in Britain’s Potential: Building our Long-Term Future

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. In the UK, with low and stable inflation, interest rates set by the Monetary Policy Committee to meet the Government’s symmetric inflation target, and fiscal policy supporting monetary
policy over the cycle, the economy has grown continuously throughout this period. The UK economy is currently experiencing its longest unbroken expansion since quarterly records began, with GDP now having grown for 57 consecutive quarters.

The global economy is in the midst of radical transformation with far reaching and fundamental changes in technology, production and trading patterns. Rapid technological change continues to impact on how individuals, business and communities interact with each other and how they expect to interact with the state. Global security is being reshaped as the international community responds to the ongoing threat of international terrorism, conflict and the challenges of ending world poverty. The pressures that economic and population growth are placing on the earth’s natural resources and climate are increasingly apparent, presenting an urgent need for international cooperation.

This transformation will present both challenges and opportunities for the UK. Individuals, businesses and communities all need to be ready to respond to the changing global environment. Stable, flexible, skilled and innovative economies will prosper. This Pre-Budget Report sets out further reforms to lock in stability and to invest in the UK’s future – including: a new ambition for
world-class skills; a commitment to further investment in education; reforms to the UK’s planning and transport infrastructure; measures to tackle the global challenge of climate change; and further measures to secure fairness and opportunity for all.

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.

Growth of the UK economy since Budget 2006 has been higher than forecast. Domestically, growth has been driven by higher than expected business investment. Externally, the recovery in the euro area has boosted export growth. The UK economy is currently experiencing its longest unbroken expansion on record, with GDP now having grown for 57 consecutive quarters. With volatility in the UK economy at historically low levels and now the lowest in the G7, the domestic stability delivered by the Government’s macroeconomic framework puts the UK in a strong position to respond to the global economic challenges of the next decade.

In light of new evidence published since Budget 2006, the Treasury has reviewed the underpinning assumptions for its neutral trend growth assumption from 2007 onwards, which it has revised to continue at 23/4 per cent a year, consistent with the neutral rate since 2001. This revised 23/4 per cent trend rate of output growth anchors the Pre-Budget Report economic
forecast. GDP is forecast to grow by 23/4 per cent in 2006, above the Budget 2006 forecast range, rising to 23/4 to 31/4 per cent in 2007 when the output gap is expected to close. Growth is expected to remain close to trend in 2008 and 2009.

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 2006-07 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 £8 billion in this cycle, including the Annually Managed Expenditure (AME)
margin; and
public sector net debt remains low and stable over the forecast period, remaining below 39 per cent of GDP, below the 40 per cent ceiling set in the sustainable investment rule.

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Meeting The Productivity Challenge

In an increasingly integrated and competitive global economy, raising UK productivity is critical to delivering continued economic growth and sustained increases in standards of living. In the last decade, significant progress has been made to strengthen UK productivity growth, through investment in infrastructure, a more highly skilled workforce, and increasing the
attractiveness and openness of the UK as a place to invest. The 2006 Pre- Budget Report sets out how the Government is building on this success to lay the foundations for sustained long-term productivity growth. Key measures include:

investing in a new ambition for world-class skills, increasing adult skills across all levels and strengthening employer voice in their provision – by taking forward the recommendations of the Leitch Review;
investing in the growth of the UK’s science and innovation system – through a single health research fund of at least £1 billion, taking forward the recommendations of the Cooksey Review, and ensuring a more balanced, coherent and flexible regime for intellectual property, as set out in the Gowers Review;
enabling greater flexibility in the land use planning system to ensure it contributes to economic growth while delivering its wider sustainable development goals – by taking forward the Barker Review;
investing in transport infrastructure to maximise the return on investment in transport – by taking forward the recommendations of the Eddington Transport Study;
investing in the growth of sustainable housing supply – including further acceleration of the release of surplus public sector land and greater ambitions for assisted home ownership through shared equity schemes; and
increasing business flexibility by reducing unnecessary burdens on business – by creating certainty for business, by implementing the recommendations of the Varney Review of HMRC Links with Large Business, and driving forward implementation of the Hampton Review’s risk-based approach to regulation, and the Davidson Review’s recommendations to reduce any gold plating of EU legislation.

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

Skills

The Leitch Review of Skills, published on 5 December, sets out a vision for achieving a world-class skills base in the UK by 2020. This means doubling attainment at most levels and establishing stretching targets for improving the basic, intermediate and higher level skills of the workforce by 2020.

The Government welcomes the Leitch Review and will consider how best to achieve the Leitch ambitions and implement its recommendations, alongside the level of resources it will allocate to them, as part of the 2007 Comprehensive Spending Review process.

This Pre-Budget Report confirms the appointment of Sir Digby Jones as the Government’s Skills Envoy to work with employers to build a national consensus on skills. In particular, he will encourage all leading employers to
commit to supporting training for their low skilled employees.

Promoting and Facilitating Health Research

The Cooksey Review of Health Research into the establishment of a new single health research fund is published today. The Government welcomes the review, and will take Sir David’s recommendations forward, including establishing the Office for Strategic Coordination of Health Research (OSCHR). The OSCHR will work with the Medical Research Council (MRC)
and Department of Health (DH) to: set the Government’s health research strategy; set the budget required to deliver the health research strategy and the objectives for the DH and the MRC; and monitor the delivery of the health research strategy against objectives. The Government has appointed Professor John Bell as Acting Chair of OSCHR.

The Intellectual Property Regime

The Government welcomes the Gowers Review of Intellectual Property, published today, and will take forward the recommendations for which it is responsible to ensure that the UK Intellectual Property (IP) regime is fit for the digital age. The Government firmly believes in the importance of strong enforcement of IP to support the UK’s most creative industries. The review’s recommendations on IP enforcement will bring significant benefits for UK businesses. So that copyright law is effectively enforced, the Government will allocate an additional £5m to Trading Standards in 2007-2008 to support the
implementation of new powers and duties to tackle copyright infringement.

The review also recommends a number of measures to improve access and reduce costs for businesses using the IP regime. An independent Strategic Advisory Board for Intellectual Property policy will be established to raise the performance of IP policy-making. This Board will receive £500,000 from the Patent Office to commission research on emerging IP trends.

Planning and Infrastructure

The final report of the Barker Review of Land Use Planning was published on 5 December. It sets out a range of recommendations for improving the speed, responsiveness and efficiency of the planning system, and the fiscal incentives holding and developing brownfield land and commercial property, in the context of the Government’s wider sustainable development objectives. The Government welcomes Kate Barker’s report, which it will take forward and agrees with her overall analysis. The Government will set out, in a White Paper in spring 2007, its proposals in response to her recommendations for improving the speed, responsiveness and efficiency of land use planning, and for taking forward Kate Barker’s and Rod Eddington’s proposals for reform of major infrastructure planning.

Transport and Sustainable Economic Growth

Last week, Sir Rod Eddington published his study on the long-term impact of transport decisions on the UK’s productivity, stability and growth. The Government welcomes the study and announces that, in the light of its findings, it will review the long-term transport policy framework to support sustainable economic growth, as well as the transport implications for the
Comprehensive Spending Review.

Promoting home ownership through shared equity schemes

The Shared Equity Task Force report is published today. In response to this report, the Government will seek to extend the reach of the Open Market HomeBuy Scheme to households on lower incomes, and will be launching a competition for lenders to join in a 2008-09 to 2010-11 round of the scheme. The Government now expects that over 160,000 households will be assisted into homeownership through shared equity schemes by 2010.

Delivering Better Regulation

Last week, the Chancellor outlined a series of policies that will encourage faster implementation of the Hampton principles set out in Implementing Hampton: from enforcement to compliance. This will ensure that the risk PN01 based approach to regulation is embedded at both the national and local level, resulting in fewer forms, fewer inspections, better advice, and better
coordination between regulatory bodies.

The Government also welcomed and accepted in full the recommendations of the Davidson Review on Implementation of EU Legislation and the Macrory Review, Regulatory justice: making sanctions effective, to reduce unnecessary over-implementation, creating a level playing field for all businesses and ensuring that there is no financial incentive from noncompliance.

Peter Rogers (Chief Executive, Westminster City Council) has agreed to work with the Better Regulation Executive to examine approximately 60 areas of legislation that local authorities enforce, and recommend, by the Budget, specific high-risk national priorities. Local authorities will be free to add their own local priorities.

Sir David Varney’s Review of Links with Large Business

The Government has endorsed in full the recommendations of Sir David Varney’s review of links with large business. The review’s proposals will provide business with greater certainty about the tax treatment of transactions; more efficient resolution of tax issues; and a more cost effective approach to administering tax affairs based on an efficient risk-based audit approach.

Competition

The Pre-Budget Report describes how, as a result of the Enterprise Act and other reforms, the UK Competition Authorities, which are ranked within the global top five (Competition Review 2006) have launched investigations into over 800 mergers and 150 potential cases of abuse of dominance or cartel behaviour. 24 potentially anticompetitive mergers have been remedied and
formal decisions made on 39 abuse of dominance or cartel cases, leading to estimated consumer savings of at least £750 million.

The Regional Dimension

The Pre-Budget Report announces measures to improve the performance of regional institutions, further develop the regional evidence base, and ensure strong regional input into the Budget process, including:

setting out the Government’s progress against its regional performance target. There is emerging evidence of narrowing the gap in growth rates between the best and worst performing regions, underpinned by strong employment and skills performance in the North, Midlands and South West regions; and
asking the Regional Development Agencies to contribute to the development of Budget 2007 in three key areas: engagement with and the role of the private sector; regional competitiveness in a global context; and improving evaluation and transparency.

Increasing Employment Opportunity For All

The Government’s long-term goal for the labour market is to achieve employment opportunity for all – the modern definition of full employment. This means that everyone should be given appropriate support and advice to enable them to find and retain a job, with the opportunity to gain skills and experience, thereby helping to meet the productivity challenge. This Pre-
Budget Report describes the further steps the Government is taking towards the attainment of employment opportunity for all:

extending the support offered to lone parents who move into work by maintaining the In-Work Credit in the current pilot areas for a further six months;
improving the Jobseeker’s Allowance intervention regime by offering expert work-search support at the new claim stage, and extending the Job Grant of £100 (£250 to claimants with children) to 18-24 year old jobseekers;
improving enforcement of the National Minimum Wage by increasing by 50 per cent the resources allocated to tackle non-compliance and raising penalties for the seriously non-compliant;
providing funding to improve the administration of Housing Benefit and to raise awareness that Housing Benefit is available to those in work;
taking forward measures to simplify and reduce error in the benefits system; and
raising the earnings disregard to Housing Benefit and Council Tax Benefit in line with indexation to £15.45 in April 2007, ensuring that claimants gain from increases in the rate of Working Tax Credits.

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

Lone parents and work

Helping lone parents move into work is a key Government objective. The Pre- Budget Report announces an extension of the In-Work Credit for lone parents in the current pilot areas until June 2007. This means that around 250,000 eligible lone parents will continue to benefit from improved financial gains to work.

Increased support for jobseekers

To increase support for jobseekers, the Chancellor announced today that every new Jobseeker’s Allowance claimant will be offered expert help with their job search, delivered through Jobseeker Direct, as soon as they make a new benefit claim. This will enable new jobseekers to start looking for work as soon as they become unemployed, and ensure that they are given the help they need to move back into work as quickly as possible.

Housing Benefit

In order to ensure that people claiming Housing Benefit or Council Tax Benefit gain from the increases in the rates of Working Tax Credit, this Pre-Budget Report also announces that the earnings disregard in Housing Benefit and Council Tax Benefit will be raised in line with indexation, increasing to £15.45 in April 2007.

The Government today announced a package of measures to further improve the administration of Housing Benefit, including funding to complete the rollout of the National Performance Management Framework, which will allow local authorities to benchmark and track their performance. In addition, the Government will fund improved data transfer between the Department for Work and Pensions and local authorities.

National Minimum Wage

The National Minimum Wage guarantees a fair minimum income from work. From October 2006, the adult rate of the National Minimum Wage rose to £5.35 and the rate for workers aged 18 to 21 rose to £4.45. For the National PN01 Minimum Wage to be effective, and in order to ensure that workers see the benefits of the increased rate, it must be adequately enforced. The Chancellor therefore today announced that resources devoted to National Minimum Wage enforcement in 2007-08 will be increased by 50 per cent.

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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 that everyone pays their fair share of tax. This Pre-Budget Report sets out the next steps the Government is taking to support these aims, including:

announcing that from April 2007, the value of the child element of Child Tax Credit will rise by £80 to £1,845 per year;
from April 2009, additional support for all families, with every mother to be becoming eligible for Child Benefit from week 29 of their pregnancy, so that women will be up to £200 better off;
an extension of the Warm Front programme, targeting 300,000 of the most vulnerable pensioner and other households, community by community;
making Individual Savings Accounts (ISAs) permanent, beyond 2010, to provide stability for savers and certainty for the industry. In addition, the introduction of a package of reforms to the ISA, designed to simplify the regime, will make it more flexible for savers and providers and further promote saving;
a package of measures responding to the consultation on the role of the third sector in social and economic regeneration, including the establishment of a new £30 million Community Asset Transfer fund and the guarantee of three years of funding passed on to third sector organisations;
the establishment of an international research collaborative for the development sciences, led by a high level steering board including leading scientists; and
further reforms to modernise the tax system and protect tax revenues, including work to tackle avoidance.

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

Extending child benefit to pregnant women

The Government remains firmly committed to its goal of eradicating child poverty in a generation. In recognition of the importance of a healthy diet during pregnancy, and the additional costs that parents face when their children are born, the Government will introduce from April 2009, a new entitlement for all pregnant women to receive Child Benefit from the 29th
week of their pregnancy. The additional entitlement will be worth up to £200.

Fuel poverty

New investment to further enable the efficient and effective co-ordination and delivery of Warm Front and Energy Efficiency Commitment was announced by the Chancellor today. A fund of £7.5 million will bring forward projects aimed at using an area-based approach to identify households and provide them with the right coordinated set of advice and measures.

Reform of the ISA regime

The conclusion of the Government’s internal review of the Individual Savings Account was published alongside this Pre-Budget Report. Individual Savings Accounts: proposed reforms sets out the Government’s proposals for implementation and seeks views on a range of practical measures, including;

making ISAs permanent with an overall annual investment limit of at least £7,000;
bringing Personal Equity Plans (PEPs) within the ISA wrapper;
removing the Mini/Maxi distinction within ISAs;
allowing Child Trust Fund accounts to roll over into ISAs on maturity; and
allowing transfers from the cash into the stocks and shares component of ISAs.

The third sector

The Government’s interim report into the future role of the third sector in social and economic regeneration is published alongside this Pre-Budget Report and announces:

a new Community Assets Fund of £30 million to support communities and community groups to take on the management or ownership of assets;
a commitment from Government to see three-year funding settlements passed to third sector organisations as the norm, rather than the exception; and
allocation of an extra £6.5 million within the Safer and Stronger Communities block of Local Area Agreements.

New initiatives to tackle financial inclusion

Today the Government announced details of a number of measures being implemented as part of its wider strategy to promote financial inclusion. Key measures include:

details of a £5.4 million campaign to assist financially excluded people to access mainstream banking and credit products; and
new funding of £2.5 million to increase the number of new advisers, specialising in free face-to-face debt and money advice in areas of high financial exclusion, to over 500.

The Chancellor today announced measures to ensure the tax system continues to keep pace with developments in business practice and the global economy by enhancing certainty and reducing complexity, thereby maintaining the competitiveness of the UK tax system.

Modernising the tax system

Controlled Foreign Companies (CFCs) and foreign profits

The Government is determined to maintain the overall competitiveness of the UK and since the Budget has held a productive dialogue with stakeholders on the taxation of foreign profits. Following the recent European Court of Justice PN01
judgment in the Cadbury Schweppes case, changes are announced today to the CFC rules to ensure they remain effective and to provide increased certainty for business. The Government remains committed to exploring a wider package of reform relating to the taxation of foreign profits, in consultation with business, in 2007.

Reform of insurance tax

As part of its commitment to simplification, the Government is announcing a package of measures to simplify some of the tax rules governing life assurance companies, and to reform and modernise the current taxation rules for general insurers’ reserves.

Stamp Duty on Shares

To enhance and develop the market in Exchange Traded Funds (ETFs), the Chancellor is announcing today the removal of Stamp Duty Reserve Tax from the purchase of overseas ETFs.

Construction Industry Scheme

The Chancellor today confirmed that the new Construction Industry Scheme will be introduced in April 2007. The scheme will help the construction industry comply with their tax obligations, while reducing regulatory burdens.

Reform of EU Travellers’ Allowances

The Chancellor today welcomed the recent decision by EU Member States to double the tax-free allowance for international travellers returning from trips outside the EU.

A package of measures to combat avoidance has also been announced by the Chancellor today, further details of which are set out in Press Notice 3.

Delivering High Quality Public Services

The Government’s aim is to deliver world-class public services through sustained investment and far-reaching reform. The 1998 Comprehensive Spending Review (CSR) put in place a modernised framework for public spending and performance management to support the delivery of the Government’s long-term priorities.

A decade on from the start of the first CSR, the Government is now conducting a second CSR reporting in 2007. Building on an analysis of the PN01 key long-term challenges facing the UK, the 2007 CSR provides the opportunity to assess what further investments and reforms are needed to equip the UK to respond. In preparation for the 2007 CSR, this Pre- Budget Report announces:

solid progress in the Government’s SR04 efficiency programme, with departments and local authorities reporting gains of £13.3 billion by September 2006, over halfway towards the target of over £21 billion by 2007-08;
building on this success, the baseline savings ambition for the 2007 CSR period will be at least 3 per cent per year across central and local government, with a focus on net cashable savings to free-up resources to meet the challenges ahead;
administration budgets across departments will be reduced by at least 5 per cent per year in real terms over the 2007 CSR period, releasing resources for reallocation to frontline services;
an early CSR07 settlement for the Department for Constitutional Affairs, which will see its budget fall by an annual average of 3.5 per cent in real terms over the 2007 CSR period;
an early CSR07 settlement for education capital with investment rising from £8.3 billion in 2007-08 to £10.2 billion in 2010-11, a total of £36 billion over the next four years; and
the publication of Sir David Varney’s review of public service transformation, making recommendations to strengthen and join up public service delivery and make public services more efficient and responsive to the needs of users.

The Pre-Budget report outlines further measures directing resources to the Government’s priorities, including:

a further £130 million direct to schools in England in 2007-08, including to support personalised teaching and extended services;
an increased focus on small group and one-to-one support, with the Every Child a Reader scheme rolled out nationally to 30,000 children a year by 2010-11, and an additional £10 million in 2007-08 to increase personalised support in schools where boys are falling behind; and
an additional £84 million to support the ongoing expansion of counterterrorism capabilities in the Intelligence Agencies.

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

2007 Comprehensive Spending Review (CSR)

A decade on from the start of the first Comprehensive Spending Review (CSR), the Government is now conducting a second CSR reporting in 2007, to assess what further investments and reforms are needed to equip the UK to respond to the challenges and opportunities of the decade ahead.

In preparation for the CSR, all departments have been assessing the potential for delivering better value for money in public services. The Pre- Budget Report confirms the baseline savings ambition of at least 3 per cent per year across central and local government over the CSR period. In addition, administration budgets across departments will be reduced by 5 per cent per year in real terms, taking them to a new low as a share of public spending.

This Pre-Budget Report also announces an early CSR 2007 spending settlement for the Department for Constitutional Affairs (DCA), which will see its budget reduce by an annual 3.5 per cent in real terms over the CSR period. This settlement, together with £100 million of up-front transformation funding, will enable DCA to take forward a series of investments and reforms to
improve the efficiency and delivery of justice.

Transforming public services

Sir David Varney today published his review of service transformation. The Government strongly welcomes this report and will:

implement a service transformation programme as part of the 2007 Comprehensive Spending Review. This will improve the quality of public services for citizens and businesses, in particular the most vulnerable in society who have the hardest task in accessing services;
publish a delivery plan next year to implement the review’s recommendations for the 2007 CSR. This will include plans for better coordinating online services, contact centres and face-to-face services across Government;
study the feasibility of a change of circumstance service, under the leadership of the Secretary of State for Work and Pensions, starting with bereavement; and
strengthen substantially the cross-government DirectGov and Businesslink e-services programmes, working with the key departments involved.

Education

The Chancellor today announced a four-year settlement for educational investment. Building on the substantial increases in education capital investment since 1997, investment will rise to £10.2 billion in 2010-11, with additional investment of £250 million, £750 million and £1,850 million over the years 2008-09 to 2010-11, a total of £36 billion invested in the fabric of
educational institutions over the next four years. This is equivalent to annual average growth in real terms of 4.1 per cent over the CSR 2007 period.

The Chancellor also announced a package of measures to improve pupil literacy and help reduce the gender attainment gap, including a £130 million increase in direct payments to schools in England to support personalised teaching and extended services. Direct payments to schools in England will rise to an average of £200 per pupil for primary schools and £225 per pupil for secondary schools.

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Protecting The Environment

The Government is committed to delivering a strong economy based not just on high and stable levels of growth and employment but also on high standards of environmental stewardship. Climate change is a very significant challenge, and the recently published Stern Review on the Economics of Climate Change has highlighted how long-term global prosperity will be
undermined if early and coordinated international action is not taken. This Pre- Budget Report sets out the next stage in the Government’s strategy for tackling climate change both domestically and globally, including:

promoting the development of a global carbon market through the expansion and strengthening of the EU Emissions Trading Scheme and linking it to schemes outside the EU;
taking further steps towards realising carbon capture and storage technology, including tendering for consulting engineers to help enable a decision in 2007 on whether to support a UK-based demonstration plant;
an increase in all rates of air passenger duty, with effect from 1 February 2007, in recognition of the environmental costs of air travel;
an inflation-based increase of 1.25 pence per litre (ppl) in the rate of road fuel duty with effect from midnight tonight; and the same increase of 1.25 ppl in duty for rebated fuels, maintaining the differential with main fuel duty rates;
a package of measures to encourage the development of the biofuels market and innovative types of biofuels;
an ambition for all new homes to be zero carbon within a decade with a time-limited stamp duty exemption for the vast majority of new zerocarbon homes that meet this standard;
legislation to ensure householders installing microgeneration are not subject to income tax on any payment for surplus electricity exported back to the grid; and
the extension of the Landlords Energy Saving Allowance to 2015 and to corporate landlords.

The Pre-Budget Report also reports on the Government’s strategy for tackling other environmental challenges, including:

confirmation that the standard rate of landfill tax will increase by £3 per tonne to £24 per tonne with effect from 1 April 2007. The Government will also consider the case for steeper increases in the tax from 2008.

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

Climate change and energy efficiency

Following the Stern Review, the UK will continue to make links with other countries across the EU and internationally to deepen and strengthen emissions trading. The Pre-Budget report announces:

Europe’s Finance Ministers, led by the UK, have secured the first step towards expanding the European Union Emissions Trading Scheme (EU ETS), as the countries of the European Free Trade Area (Iceland, Norway, Switzerland and Liechtenstein) have agreed in principle to work towards the creation of a pan European trading scheme;
a partnership between the UK and the Government of New Zealand to develop joint work and to share advice and experience on emissions trading and other economic instruments to tackle climate change; and
a partnership between the UK Treasury and the French Finance Ministry to develop joint work on economic instruments to tackle climate change, particularly around the improvement of the functioning of the EU emissions trading scheme.

Carbon Capture and Storage (CCS)

The Stern Review highlighted the role that CCS technology could play in lowering emissions, particularly in fast-growing economies with growing fossil fuel consumption. The Pre-Budget Report announces:

that the Department of Trade and Industry will tender for consulting engineers to ensure that the Government’s understanding of the costs of CCS is robust and help ascertain the value for money of supporting a demonstration plant in the UK, as a step towards taking a decision on this in 2007; and
further collaboration on CCS with Norway, agreeing the terms of reference for a joint study of the infrastructure needed to transport and store carbon dioxide below the North Sea.

Air Passenger Duty (APD)

The Government remains committed to inclusion of aviation within the European Union Emissions Trading Scheme (EU ETS) but recognises the challenges in introducing emissions trading to this sector. In the light of this, the Pre-Budget Report announces that rates of air passenger duty will double with effect from 1 February 2007.

Main road fuel duties

In Budget 2006, owing to sustained oil market volatility, the inflation-based increase in main fuel duty rates was deferred until 1 September 2006. However, with the risk of volatility remaining high, the Government announced in July that the increase would not go ahead in September and the position would be reviewed at the time of the Pre-Budget Report. Since July pump
prices have fallen back on average by between 8 and 12 pence per litre. The Pre Budget Report announces that:

main fuel duty rates will increase in line with inflation by 1.25 pence per litre from midnight tonight; and
the changes to other fuel duties announced at Budget 2006 will also take effect from midnight.

Haulage

Following the successful cooperation in the Haulage Industry Task Group, the Government today publishes a report by the Group that summarises the outcomes of this work. The Government will also undertake a detailed feasibility study into options for establishing a database covering all foreign hauliers entering and working in the UK - including a vignette - in order to
establish whether this would provide good value for money.

Measures to encourage Biofuels

The Pre-Budget Report announces:

an extension of the 20ppl biofuel duty differential to enable a pilot involving the use of biomass in conventional fuel production to go ahead;
an extension of the 20ppl biofuel duty differential to a new second generation biodiesel which offers potential environmental benefits;
a duty rate reduction for pilots which will use biofuel mixed with rebated gas oil, to develop the off-road use of biofuels; and
that the Government will consider the case for extending the duty incentive for renewable natural gas (biogas) and for an incentive in company car tax to support the take up of flex fuel vehicles capable of using high-blend bioethanol E85.

Stamp duty exemption for new zero carbon homes

It is the Government’s ambition that within a decade, all new homes in England and Wales will be zero carbon. The Pre-Budget Report announces a time limited exemption from stamp duty for the vast majority of new zerocarbon homes. Full details will be made available at Budget 2007.

Improving waste management and managing natural resources

Landfill tax

Landfill tax increases the price of waste sent to landfill, encouraging more sustainable ways of managing waste. The standard rate of landfill tax, applying to active wastes (those that give off emissions), is currently £21 per tonne. The Pre-Budget Report confirms that from 1 April 2007, the standard rate of landfill tax will increase by a further £3 per tonne to £24 per tonne.

The Government will also consider whether the standard rate needs to increase more steeply from 2008 onwards, or go beyond the £35 per tonne already committed to for the medium to long-term in order to encourage greater diversion of waste from landfill and more sustainable waste management options.

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