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Mr. Deputy Speaker : Order. The House should listen to the Chancellor.
Mr. Lamont : My intention is to legislate for this proposal this year.
Social security benefits will, of course, rise automatically to reflect the price effect of this change, but I recognise that this will cause particular problems for those on low incomes. My right hon. Friend the Secretary of State for Social Security will take this into account when the income-related benefits are uprated next year. Taken together with the measures which have already been announced, these tax proposals take Britain two thirds of the way to meeting the Rio target, and they will do so in a way that does the least possible damage to the competitiveness of British industry. I am confident that the remaining gap can be filled through sensible energy-saving measures, as and when the convention is ratified by our major industrial competitors.
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The measures I have announced so far will raise substantial revenue in 1994-95 and beyond. I turn now to my measures for business.DEREGULATION
Self-assessment and simplification
As the House is aware, the Government have embarked on a major drive to reduce the burden of regulation on industry. I will therefore start with three significant measures of deregulation, which should be of particular benefit to the self-employed and to small businesses generally. Self- assessment of income tax has operated successfully in many countries, including the United States, but none of my predecessors has found a way of introducing it here. For most people, that has not been a problem--the PAYE system already deals very simply with the tax affairs of some 16 million employees--but for the 8 million taxpayers who have to fill in a tax return each year, the current arrangements are very far from simple. Following a detailed consultation exercise, I now propose to offer these people, including 4 million self-employed, the option of self-assessment on income tax. Legislation will be brought forward in next year's Finance Bill to implement the proposal from the earliest practicable date, which is 1996- 97.
For those who choose to take it up, self-assessment should provide a significant reduction in bureaucracy and paperwork ; and it will also bring out more clearly the link between public spending and the burden this places on the individual taxpayer. A more transparent tax system can only lead to more informed choices and debate ; and I believe that self- assessment for a third of all taxpayers will contribute to that.
But for self-assessment to work, the system has to be simple enough for taxpayers themselves to be able to fill in their own returns. My second reform will achieve a significant simplification, particularly for the self -employed. One of the least attractive features of our present tax system is that it is simply too complicated for them to work out how much tax they owe : people setting up in business on their own are more or less forced to employ an accountant. Since 1926, the self-employed, working under the so- called "preceding year" basis of assessment, have generally paid a tax bill based on profits they made up to two years previously. People with several different sources of income may be assessed on a number of different bases, with separate tax bills and payment dates for each. It would be difficult to invent a more complicated system for taxing the self-employed, even if one set out with that very intention. Under my new proposals, people will have just one tax bill each year, covering all their income, and the self- employed will pay tax on the profits they make in the current year, not the preceding year. This should be a major simplification ; and I am sure it will be warmly welcomed.
Taken together, these two measures amount to the most fundamental reform of income tax administration since the introduction of pay-as-you-earn in 1944.
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Statutory audit
My third announcement is of particular interest to smaller businesses.
At present, all businesses which are incorporated have to have their accounts audited. While it is clearly important that accounts should be reliable and indeed that the Inland Revenue and other users should have the assurance they need that the accounts have been drawn up properly, the current statutory audit requirement imposes a disproportionate cost on many small businesses. My right hon. Friend the President of the Board of Trade will therefore shortly be issuing a consultative document setting out options for reducing this burden, at least for the very smallest businesses that are incorporated. This would deliver significant savings and would represent a major step in cutting out red tape and bureaucracy.
BUSINESS TAXES Reducing the Government's borrowing requirement will benefit business by ensuring that the recovery is sustained, but, as I said in my Mansion House speech last October, the Government are determined to keep our policies under continuous review to ensure that British business has the backing it needs to compete in world markets. This is particularly true of our tax policies.
Britain already has the lowest rate of tax on business profits in the industrialised world, and we have a personal tax system which makes it attractive for entrepreneurs and managers to live and work in Britain. We intend to see that continue.
Britain has had an outstanding record over recent years in attracting investment from overseas--indeed, we have attracted no less than a third of all foreign investment into the European Community over the last few years- -but we cannot be complacent. With the advent of the single market, the competition in Europe to secure inward investment has become ever more intense. So my Budget sets out to ensure that our business tax regime retains its clear competitive edge.
Surplus ACT and the taxation of dividends
In discussions with business organisations over the last few months, one issue has come up again and again the problem of surplus advance corporation tax, or ACT. Many believe that this feature of our tax system both penalises successful British-owned international companies and distorts investment decisions.
This issue has, of course, been with us for many years, and it has so far defied solution. Nonetheless, I made a commitment in my Budget last year to return to this subject, and I am pleased to be able to report to the House that I have now found a way forward.
I hope that the House will bear with me, as I am afraid that my proposals are complex, but they do attack the problem of surplus ACT, they are central to the strategy of this Budget, and they raise significant amounts of revenue.
At present, ACT is paid on dividends at 25 per cent. This funds a tax credit which covers the basic rate income tax bill of the shareholder, but, as its name implies, it is also an advance payment of the company's corporation tax bill.
In normal circumstances, the system works very well, but sometimes it does bring problems, particularly for companies which earn a large proportion of their profits overseas. These companies often end up paying an ACT bill on their dividends that is greater than their entire
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United Kingdom corporation tax liability. The so-called "surplus ACT" that results cannot be claimed back, so in effect it becomes an extra tax on profits.This can have damaging economic effects. For example, it gives some companies a strong incentive to move important activities, including research and development, abroad, leading to the loss of skills and jobs in this country. It cannot be right to distort the commercial decisions of British companies in this way or to give companies a positive incentive to move elsewhere in Europe ; so today I am putting forward some proposals that will go a long way towards alleviating the problem.
First, I shall establish a special tax regime from 1994-95 to help foreign- owned international companies which are considering setting up their headquarters in the United Kingdom. This will make it more attractive for international companies to base their operations in Britain, and it will further promote London's position as Europe's leading financial centre.
Secondly, I am today issuing a consultation document proposing a scheme under which British companies may choose to class any dividend paid out of overseas profits as a "foreign income dividend". Unlike normal United Kingdom dividends, this will not carry any tax credit, and although ACT would initially be payable in the usual way, the company will be entitled to a refund if it gives rise to surplus ACT. Once fully operational, this scheme could reduce the build-up of surplus ACT by some £250 million a year.
Finally, I have one further proposal which will help not just companies with surplus ACT, but all dividend-paying companies ; and it will do so in a way that will raise considerable revenue. I propose simply to reduce the rate of ACT in two stages, from 25 to 22 per cent. in 1993-94 and then to 20 per cent. in 1994-95. This will give companies which pay dividends a cash flow benefit of about £2 billion over the next two years, and it will reduce the build-up of surplus ACT by about £300 million next year.
I also propose to reduce from 25 to 20 per cent. in 1993-94 the tax credit that shareholders get when they receive a dividend. Those who are familiar with these issues--a select few, I fear--will know that tax credits affect two main groups of shareholders. Those with no tax liability, particularly pension funds, can claim a cash payment from the Inland Revenue for the tax credit, and higher rate taxpayers have to make up the difference between the 40 per cent. top rate of tax and the 25 per cent. tax credit they receive. The reduction in the tax credit that I am proposing will therefore have two important effects. First, the payments that lower rate payers, non -taxpayers and particularly pension funds, get from the Inland Revenue will be reduced by five percentage points, saving the Exchequer no less than £1 billion a year. Secondly, higher rate payers will have to pay an extra 5 per cent of tax on the dividends they receive in order to discharge their liability to tax at the top rate of 40 per cent. This, in turn, will yield an extra £200 million a year.
Finally, in order to ensure that most ordinary shareholders are not affected by this change, I propose to reduce the rate of tax on dividends from the current basic rate of 25 to the lower rate of 20 per cent. The effect of this, combined with the change to the tax credits, is to leave basic rate taxpayers neither better off nor worse off than they are now.
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Thus, these proposals achieve three objectives at the same time. They will give companies a £2 billion cash flow boost over the next two years, they will significantly reduce the problem of surplus ACT for the future, and they will raise £900 million extra revenue for the Exchequer from 1995-96 onwards.There is, however, one group for whom I believe it would be desirable to ease the immediate effect of these changes. I therefore propose for charities to phase in the effect of the reduction in the tax credit over a four-year period. I also have some further measures for charities, to which I shall turn later.
Export credit The House will be relieved to hear that my next measure is a little less opaque, but it is equally important for the long-term success of British manufacturing.
In the autumn statement, I announced a substantial increase in export credits to help British businesses win major contracts abroad, but the fact remains that export credit insurance has proved expensive for the taxpayer. For that reason, the Government have negotiated hard over the years to secure a reduction in the subsidies offered by other countries. Some progress has been made, and we shall continue in that effort, but in the meantime British firms, in my opinion, are sometimes at a competitive disadvantage in seeking business overseas. My right hon. Friend the President of the Board of Trade and I have therefore looked again at the whole range of ECGD services and have decided to make some important changes. The first relates to premiums. Last year, premiums were cut on average by about 20 per cent., but there is scope to do more. We have therefore decided to make a further reduction of 7 per cent. in the average level of ECGD premiums. This means that, while premiums for individual export markets will always differ, the average level of premiums paid by British exporters next year will be down to around the average paid by their G7 competitors.
The second is export credit cover. In the autumn statement, I increased the cover available to exporters by £200 million this year, and by a further £500 million for 1993-94. Over the next three years, my right hon. Friend and I propose that additional cover of £1.3 billion should be made available for those exporting into some of the fastest growing and most important markets around the world. Taken together with my autumn statement announcement, this means that the annual cover for these markets will have increased by more than 75 per cent. in just four years.
As a result, British firms will now be able to go into export markets with greater confidence that they can compete on a more equal basis with their overseas competitors. I am sure that they will seize the opportunities that are now available to them.
Insurance
Over the years, one of Britain's most successful exporting industries has been insurance, but for some years now the industry has argued that the tax reliefs available to some of their European counterparts put them at a competitive disadvantage. In fact, that is not the whole story ; in other respects, our own tax system is very favourable. Nevertheless, having reviewed the position
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again, I believe that there may indeed by a case for allowing tax relief on certain types of equalisation reserves covering occasional, exceptional losses.However, if such reserves were to be allowable for tax, they would also have to be within the regulatory framework for the industry. This would be a major departure for both the tax and regulatory systems. A consultation document will be issued later this spring to consider the options.
Lloyd's
I also propose to introduce a significant reform of the tax regime for Lloyd's. I propose to tax the gains on the disposal of assets which form the premiums funds of Lloyd's names in the same way as those of corporate insurers, and I intend to replace the current reserve arrangements with a better targeted reserve, which should enhance Lloyd's ability to deal with the particularly volatile type of risk which makes up most of its business.
My proposals will greatly simplify the taxation of Lloyd's. Lloyd's has certainly had a difficult time recently, but it remains vital if London is to retain its pre-eminent position in the world insurance market. Taken together, the two reforms I am proposing will cost the Exchequer nothing.
SMALL BUSINESS
The measures I have announced so far will be of help particularly to large businesses, but small firms play a crucial role in our economy. Small businesses do not follow the economy ; they lead it. That has been demonstrated time and time again. In this Budget, I shall set out some further proposals which will help small businesses to lead the recovery once again.
Loan guarantee scheme
Following heavy losses in recent years, the banks are bound to be more cautious in their lending in future. Moreover, the fall in property prices has reduced the security for many of their loans. As the recovery progresses, small firms may therefore find that their prospects for expansion are increasingly threatened by a shortage of bank finance. My first proposal is directed precisely at that problem.
The Government's loan guarantee scheme helps entrepreneurs who have viable projects but who do not have the track record or loan security to attract sufficient finance on their own. It enables them to borrow with a Government guarantee, usually for 70 per cent. of the value of the loan, in return for paying a premium of 2 per cent. on the guaranteed part of the loan.
In Germany and the United States, a large proportion of lending to small businesses is done at fixed rates of interest. By contrast, in Britain, most borrowing is linked to the level of base rates. I have long believed that many small businesses would benefit from making more use of fixed-rate finance, which would give them more stability and would enable them to plan ahead.
I propose therefore to make a substantial reduction in the loan guarantee scheme premium for guarantees on fixed-rate lending. This will fall to per cent. and will, I hope, encourage more fixed-rate lending. I also intend to reduce the premium on other variable rate loans to 1 per
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cent. The premiums will henceforth apply to the whole loan, not just the guaranteed portion. This change should take effect in the next month or so.I also propose that the limit on the size of loan allowed to such businesses should be raised from £100,000 to £250,000, and the proportion of the loan guaranteed increased from 70 per cent. to 85 per cent. I am sure that those proposals will be warmly welcomed by small businesses. My right hon. Friend the President of the Board of Trade and I will be taking this forward urgently with the banks.
CGT reform
My second measure relates specifically to entrepreneurs who have built up successful businesses and now wish to sell them in order to start up a new one.
The current capital gains tax regime provides generous annual exemptions to those who make regular capital gains from trading in shares, but it is much less generous to the entrepreneur. Typically, he sells shares in his own company only once, so has only one year's annual exemption to set against gains built up by hard work over a lifetime. Thus, for every £100 taken out of the old company at the margin, he has only £60 to invest in a new one. It is hardly surprising that entrepreneurs complain that they are locked in by the CGT regime, and prevented from investing their talents elsewhere. For this reason, I propose in future to defer the payment of CGT for any entrepreneur whose gains from the sale of his own company are reinvested in another qualifying unquoted trading company, or companies. I know that this will be widely welcomed by the venture capital industry.
I also propose to relax the conditions for CGT retirement relief by reducing the qualifying shareholding from 25 per cent. to 5 per cent. ; and to extend this relief to cover full-time employees as well as directors. These changes will cost £50 million in a full year.
VAT threshold
I turn now to the VAT regime, which for many small businesses takes up a great deal of time and can be a particular source of worry. The best way to help is to keep them out of the VAT system altogether. I am therefore raising the VAT threshold to the maximum extent possible. The new threshold will be £37,600.
Cash accounting and bad debt relief
Over the past couple of years, I have also announced measures to allow traders to reclaim VAT on debts which remain unpaid after 12 months, and to encourage firms to take advantage of the cash accounting scheme under which traders only have to pay VAT to Customs when they themselves have been paid by their customers. I now intend to take this further in a way that will help many small businesses. I propose to increase the ceiling on turnover below which firms may join the cash accounting scheme by £50,000 to £350,000. This will allow an extra 15,000 businesses to benefit, on top of the 400,000 that qualify already.
I also intend to help businesses which are too big to take advantage of the scheme. At present, VAT can be
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reclaimed on any invoice which remains unpaid after 12 months. I propose to halve that qualifying period to six months.These measures will give considerable help to companies, improving traders' cash flow by some £150 million in the year ahead.
VAT penalties
In addition, I have a further series of reforms to propose to the current system of VAT penalties.
First, I intend to focus the rules better so that only larger errors and the most persistent offenders will incur the "misdeclaration penalty". This will reduce the number of penalties imposed by over 40 per cent. Secondly, I propose to place a three-year limit on the number of years' interest that can be charged when tax has been underpaid. Thirdly, I have decided to reform the VAT default surcharge so that traders will be notified sooner of default and surcharged at a lower rate, and only on larger defaults. This will make the surcharge more effective, but remove some 125,000 small traders from the default surcharge altogether. I know that this will be welcomed by small businesses.
Keith Report
I have one final reform of the VAT penalty system. Following Lord Keith's 1983 review, the Government concluded that it would be wrong to give Customs discretion over the level of VAT penalties. After considerable debate, this conclusion was eventually accepted by the House--I remember the strong debates very well--but the controversy has continued ever since, and, over time, more and more people have come to believe that it is wrong to have a penalty regime which is almost entirely automatic.
I have considered this matter all over again, and I have concluded that the time has come to make a change. I propose, therefore, that Customs should be given some discretion to mitigate the penalties for misdeclarations, to enable them to take account of the individual circumstances of the trader. If necessary, of course, the trader will still be able to appeal to a VAT tribunal, which will also have greater scope for discretion.
These reforms will put the VAT compliance system on to a secure long-term basis. They will be of most benefit to small businesses, for whom the burden of compliance is heaviest ; and I know that they will be widely welcomed on both sides of the House.
Bloodstock
I have already announced my intention to extend value added tax to domestic fuel and power from 1 April next year. I have one further announcement to make on VAT.
As the House knows, it has long been this Government's intention to switch the burden of taxation from direct taxes on income to indirect taxes on consumer spending. It is perhaps less well known that Britain has one of the lowest effective rates of VAT in the European Community.
Against this background, and in a Budget designed to place the public finances on a sound footing, I have inevitably had to look very carefully at the whole structure of our current VAT regime, and particularly at whether all
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of our existing zero rates should be maintained. Some of these zero-rated goods--for example, food and water-- are clearly amongst the most basic necessities of life. Others--for example, sewerage and newspapers--perhaps fall into a different category.Having reflected carefully, I have decided nonetheless not to extend the VAT base beyond fuel and power. I do, however, have one further announcement on VAT, which will I hope offer some consolation to those hon. Members who would rather be at Cheltenham today, watching the Champion Hurdle.
For some time, the bloodstock industry has been concerned about competition from other EC countries which levy a lower rate of VAT on horses. The single market has exacerbated this problem and created a major incentive to move bloodstock business abroad, threatening 30, 000 jobs.
There have been intensive discussions between the Jockey Club and Customs, and I am pleased to announce that a way forward has been found. As a result of proposed changes in the Jockey club's rules, owners who wish to do so will now be able to organise their racing activities in a more commercial way. This in turn will enable them to meet the normal business test for VAT registration and to claim credit for VAT on purchases, subject to the usual rules.
I know that there have been representations on this from both sides of the House, and I know that registration on this basis meets the industry's concerns over this problem. No Government have done more for racing than this one--and quite rightly so, for it is an important industry, and a vital part of our national life. This measure will be welcomed by the industry and by its many supporters in this House.
UBR
I have one final announcement, which will be of direct help to many businesses.
My last Budget helped many thousands of firms by altering the business rates transitional arrangements to accelerate the gains of those who gained most from the change in the system, while freezing real rates bills which otherwise would have risen substantially. The freeze applied for one year only, so many businesses now face a substantial increase in their rates bills in the year ahead--up to 20 per cent. over and above inflation on large properties and up to 15 per cent. on small properties.
It would, I believe, be wrong to impose such increases in present circumstances. I therefore propose for a further year to freeze in real terms the rates bills of those losing from the new system. As a result of this and last year's measures, no business will face a real increase in its rates bill in the year ahead, and many will benefit from reductions. In cash terms, that means that no bill will rise by more than 3.6 per cent.-- the increase in the RPI in the year to last September.
Subject to Parliament's approval, the Government will again pay extra sums into the business rates pool to ensure that the income of local authorities is not reduced. My right hon. Friend the Secretary of State for the Environment will shortly introduce a Bill to implement these proposals. Full details will be published today in a press notice.
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The new measure will reduce the total business rates bill in England and Wales next year by 2.6 per cent. Bills in Scotland and Northern Ireland will likewise be reduced by 2.6 per cent. in aggregate. My right hon. Friends the Secretaries of State for Scotland and for Northern Ireland will be announcing the details. These measures will again bring significant and early benefit to many thousands of businesses throughout the United Kingdom. About 800,000 business properties will benefit. The revenue cost is estimated to be some £370 million in 1993-94, and some £260 million in 1994-95.Taken together, the measures I have announced will reduce the burden on business by about £1 billion in the year ahead. I hope that the House will agree that this is the best possible use for the sums I have been able to raise this year.
NATIONAL LOTTERY AND CHARITIES
The House is aware, also, of the Government's plans to introduce a national lottery from next year. This will provide a substantial increase in resources for a number of good causes : charities, sport, the arts, the national heritage and the millennium fund. I have no doubt that the lottery will be both popular and successful. We have always made it clear that the national lottery will be taxed. In deciding the tax rate, I have taken into account the level of tax on other forms of gambling and the extent to which spending is likely to be diverted from other taxed activities. Much, of course, will depend on how the lottery develops and I shall keep the position under review, but for the first year of its operation I propose that national lottery tickets should be taxed at a rate of 12 per cent. Existing society and local authority lotteries will be exempt. Winnings will incur no tax whatsoever. I believe that these proposals will make sure that the national lottery gets off to a good start. Since 1979, the Government have done an enormous amount to help charities. Indeed, their special position in society is recognised by the substantial tax reliefs, approaching £1 billion, that they already receive, and they will also benefit from the new lottery. I now have two further changes to propose.
First, I intend to raise the annual limit for income tax relief under the payroll giving scheme from £600 to £900 with effect from 6 April. Secondly, I propose that the minimum gift attracting tax relief for single donations under the gift aid scheme should be reduced from £400 to £250 from today, thus increasing substantially the incentive, through the tax system, to charitable giving. These measures build on the principle that tax reliefs for charity should focus on what individuals give, rather than what charities themselves spend. Taken together, they will boost tax relief on donations to charities by some £30 million in a full year. EMPLOYMENT MEASURES
In the autumn statement, the Government announced a number of measures to help the unemployed, and in my Budget I have set out my further proposals to help business and sustain recovery. That it the best way to promote employment.
However, we know from experience that unemployment may continue to rise for a while even after growth has resumed. That is a matter of great concern to the whole country, and it is a concern which I fully share. My right
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hon. Friend the Secretary of State for Employment and I have therefore decided to take further special measures to help an extra 100,000 unemployed people.First, we have decided to provide more help for those who wish to set up their own businesses under the business start-up scheme. This offers advice and financial assistance, and has been one of the most successful employment schemes. We propose to offer an additional 10, 000 places in 1993-94. That will give a direct boost to small business creation and self- employment in years ahead.
Secondly, the Secretary of State for Employment proposes to introduce a new initiative to allow the long-term unemployed to learn the practical skills they need to find work. In the past the benefit rules have been an obstacle to allowing them to study. We intend to introduce an education allowance that will enable 30,000 long-term unemployed people to study on full-time vocational courses. Thirdly, it is widely agreed that, in every community, there are plenty of jobs needing to be done, and plenty of people who want to do them. My right hon. Friend the Prime Minister has recently indicated the importance of offering more unemployed people the opportunity to undertake some form of useful work or other activity. We are therefore launching a new community action programme to allow 60,000 of the long-term unemployed to do part-time work in their local communities, organised by voluntary groups. Those involved will be paid an allowance based on their previous benefit rates plus a small premium. The scheme will start as soon as possible. Those who have been unemployed for a long time tend to lose touch with the job market, and the problem is that they find it increasingly difficult to find an employer who wants to take them on. We propose to test in pilot schemes the feasibility and effectiveness of a new approach under which, rather than pay benefit to the long-term unemployed to do nothing, payments will instead be made, for a limited period, to an employer who recruits them. Employers taking on people who have been out of work for at least two years will receive a one-year subsidy based on the benefits which would otherwise have been paid. That subsidy will taper off as the period of employment progresses. Pilot schemes using different approaches will be launched this summer in four parts of the country. If they can be made to work, I believe that they could be useful, and would lead to permanent jobs for the long-term unemployed as the economy recovers.
Finally, the establishment of training and enterprise councils throughout the country has successfully brought local business people into the design and running of training and enterprise programmes for the unemployed. I now propose to offer the TECs a new £25 million fund. My right hon. Friend the Secretary of State for Employment will invite TECs to submit competing applications to develop the most imaginative schemes to help the long-term unemployed and stimulate job creation. The degree of local business involvement will be an important criterion against which each application will be judged. These measures will cost £230 million, and will give special help to those who need it most, including disabled people. The disabled will be given priority in the vocational education initiative and in community action, helping us to build on our achievements in helping the disabled back to work. In the first nine months of 1992-93
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the Employment Service found jobs for 31,000 unemployed disabled people, 25 per cent. more than in the same period of 1991-92. I am sure the House will welcome this.PRIVATE FINANCE
Mr. Deputy Speaker, in my autumn statement I announced significant changes to the rules for the private financing of major infrastructure projects. This initiative has met with an enthusiastic response, and today I have a number of specific developments to announce.
First, hon. Members will recall that legislation has already passed through both Houses permitting the construction of a new fast rail link that will cut the journey time between Heathrow and Paddington. I can now announce that BAA plc and British Rail have agreed to proceed with this project, the Heathrow Express. This is a major new joint venture, involving private sector investment of nearly £300 million. As well as providing a substantial boost to the construction industry, this project will significantly enhance the transport infrastructure of the nation's capital.
Secondly, there is crossrail, a public sector project first proposed in 1989 to reduce congestion in central London. The Government remain committed to securing for London the benefits that crossrail will bring, but we now believe it would be preferable to take this project forward as a joint venture with the private sector. The present proposals for crossrail will therefore be re-examined. Our aims will be to maximise the participation and financial involvement of the private sector and to secure the best value for money for the taxpayer.
One of the most ambitious civil engineering projects ever conceived has been made possible by private finance. I refer, of course, to the channel tunnel. This will provide a fast link between Britain and Paris, cutting journey times dramatically, but those times could be cut still further by reducing the time taken for journeys within Britain itself. For that to happen, a new rail link will be required--from London down to the channel tunnel itself. This will be a massive undertaking--one of the largest infrastructure projects in this country since the war--but, after careful consideration, the Government have decided to make a firm commitment to the project. So I can announce today that the channel tunnel rail link will go ahead.
My right hon. Friend the Secretary of State for Transport will be inviting the private sector to come forward with bids so that the project can be taken forward as a joint venture as soon as possible. We will discuss timing with the private sector. We hope to be able to introduce a Bill as soon as the legislative timetable permits, and to see the new line fully completed around the end of the decade. The Government will make their own financial contribution, recognising the benefits that will accrue to domestic travellers from the new link. Full responsibility for the project, its management and completion will be transferred to the private sector.
Subject to the results of detailed work by British Rail over the next few months, the London terminus of the new link will be located at St. Pancras. This will provide a new lease of life for this magnificent Victorian building, which will become the gateway to London for international passengers. My right hon. Friend the Secretary of State for Transport will make a statement on the details of the route shortly.
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Over the years ahead, my private finance initiatives will play an ever increasing role in the modernisation of Britain'sinfrastructure. The projects I have announced today represent a considerable step forward. They will not only improve the country's transport network ; they will also create jobs. I am sure they will be warmly welcomed by the country and by the House.
INCOME TAX
I turn finally to income tax. My priority in this Budget has been to set out a clear strategy for reducing public sector borrowing over the medium term. I am therefore unable this year to reduce the basic rate of income tax. I also propose to leave the higher rate of tax unchanged at 40 per cent.
However, in my Budget last year, I opened up an alternative route for moving over time towards our ultimate objective--a 20p basic rate of income tax for everyone. The new lower rate band I announced last year at a stroke took 4 million taxpayers on low incomes down to the 20 per cent. rate, cutting their marginal rate of tax by a fifth. In this Budget, I have taken my reform a step further. The Government's 20p pledge not only involves a reduction in marginal tax rates for 19 million basic rate taxpayers, but, also, when the basic rate is eventually brought down to 20p, tax reliefs for basic rate taxpayers will, of course, be worth 20p in the pound, too. In this Budget, I have brought forward that change by restricting three specific tax reliefs to 20 per cent., not just for basic rate taxpayers, but for all taxpayers.
First, I have reduced the tax credit on dividends to 20 per cent., to cut the rate of advance corporation tax which companies pay on dividends. Secondly, I will be reducing the rate of relief on mortgage interest payments to 20 per cent., to cut the subsidy on borrowing and to pay for a reduction in the tax on housing transactions. Thirdly, I will be restricting the tax relief for married couples to 20 per cent., to make it worth the same for all taxpayers.
All these measures are sensible reforms in their own right. When revenue has to be raised, it is far better to do this by broadening the tax base than by increasing tax rates ; but, in addition, the restrictions I have introduced will also allow me to make further progress in getting income tax rates down.
I therefore propose to increase the width of the new 20p band in 1993-94 by £500 to £2,500. That will help all taxpayers currently paying tax at 25 per cent., and it means that, in the coming year, nearly 5 million taxpayers will
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face a marginal rate of income tax of only 20 per cent. Already, for about a fifth of all taxpayers, I will have delivered on our promise of a 20p rate in the first Budget of the Parliament, and I will have done so by a sensible and fair reform of the tax system. But I can also go further. The measures I have announced today will also allow me to make a further extension of the 20p rate in 1994-95. From 1 April next year, I propose that the 20p band should cover the first £3,000 of taxable income, £500 more than in the year ahead ; and we shall continue to widen the 20p band in the years to come--year by year, we will make our progress towards our objective : a 20p basic rate of tax for everyone.CONCLUSION
In the first Budget of this Parliament, I have set out the Government's economic strategy. I have cut the tax burden on business ; and given help for small businesses, exports and the unemployed. I have demonstrated clearly how we will bring Government borrowing down in the years ahead. That is the only way to sustain growth and build a strong and sound economy in the 1990s.
This is a Budget for sustained recovery and a Budget for jobs--not just for this year and next year, but right through this decade. I commend it to the House.
Provisional Collection of Taxes
Motion made, and Question,
That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions :--
(a) Beer (rate : existing regime) (motion No. 2) ;
(b) Wine and made-wine (motion No. 5) ;
(c) Cider (motion No. 8) ;
(d) Tobacco products (rates) (motion No. 9) ;
(e) Hydrocarbon oil (rates) (motion No. 11) ;
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