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Challenge Funding
We are also rapidly developing our innovative idea of challenge funding. Challenge funding invites groups to compete for public funds to improve local services. That is another way in which the quality and value for money of public services is improved.
The first single regeneration budget challenge fund bidding round ensured that every £1 of public money attracted another £1 of private funding. Some
£250 million has been made available for the third and fourth bidding rounds for the single regeneration budget challenge fund. That will help to regenerate many areas, including inner cities. More than £300 million of challenge funding will be made available to speed up the transfer of deprived housing estates to housing associations and other private landlords.
Challenge funding has enormous potential for projects of all kinds. My right hon. Friend the Secretary of State for the Environment is considering more challenge funding for a wider range of local authority capital provision, and he will be making an announcement in this debate later this week. Challenge funding ensures that the best possible projects get the money, while fostering genuine local commitment to the project.
Public spending as a share of national income varies from year to year, but under this Government's policies-- and I have described our policies, which are policies of change and of priorities--over the past 16 years, the trend has been downward.
In the mid-1970s, when public spending peaked, it did so at 47¼ per cent. of national income. The next peak reached 45½ per cent. in the early 1980s and the last peak was 43½ per cent. in the recession of the early l990s. I now expect total public spending to be 42 per cent. of national income this year.
When I became Chancellor two and a half years ago, I said that we should aim to push the ratio below 40 per cent. and keep it there. The decisions I am announcing today will
achieve that aim. The ratio will be below 40 per cent. from 1997-98 onwards. That is far below the ratio in any other major European country. Controlling public spending is crucial to our goal of making the economy more successful and the enterprise centre of Europe.
I have now taken £53 billion out of projected public spending in my three Budgets. I judged that necessary to reduce Government borrowing following the international recession of the l990s. Even with the extra money for schools, the extra money for hospitals and the extra money for the police, I now expect total planned public spending to be kept broadly unchanged in real terms over the next three years.
When we first set out our public spending control totals three years ago, most of the pundits did not believe that we would stick to them. The doubters have been proved wrong.
Not only have we stuck to our plans, but I have managed to reduce them again, for the third year running. Next year, the control total will be £3¼ billion below the level that I set in last year's Budget. That is £12 billion below the level we expected it would be for that year when I was first appointed Chancellor.
Having carefully reviewed the latest projections for public borrowing in the light of those decisions, I have concluded that we can now return to the task of starting to cut taxes again. [Interruption.] I hope that some Labour Members begin to understand that there is a correlation between the two in a well-managed economy. I am able to make tax cuts broadly equivalent to the spending reductions, with Government borrowing still falling to zero by the end of the decade.
After the Budget measures are taken into account, I expect the PSBR to continue to fall at roughly the rate we have now achieved in the past two years. I expect it to fall from £29 billion this year to £22½ billion in 1996-97 and £15 billion in 1997-98. Broad balance should be reached after a further two years. The financial deficit is now expected to be close to the Maastricht reference level of 3 per cent. of GDP in 1996-97 and to fall well below it in subsequent years.
So fiscal policy will remain tight. That is why the measures in this year's Budget are economically and socially responsible. I have made it clear all along that every Budget I deliver will be dominated by the long-term interests of the British economy. Let me now turn to my tax proposals.
I have had to consider carefully where tax cuts might fall. Since 1979, this Government have shifted the tax burden away from direct taxes, which fall on income and employment, and towards indirect taxes on spending and consumption. That is the best way to encourage enterprise and investment and it is the best way to improve the long-term performance of the British economy. Before moving on to direct tax, let me run through my proposals for indirect taxes.
Last year I proposed a new landfill tax, which is a charge on the disposal of waste in, for example, tips and
old quarries. That will come into effect on 1 October 1996. It will be charged at a standard rate of £7 a tonne and a lower rate of £2 for inactive waste.
That is a tax on waste in order to enable me to reduce the tax on jobs. The money raised by the landfill tax will allow for a matching cut in the main rate of employers' national insurance contributions by a further 0.2 per cent. to 10 per cent. from April 1997. That will cut the cost of employment by half a billion pounds and will make it cheaper for businesses to create new jobs.
Next, I intend to stick to my commitment to raise road fuel duties by at least 5 per cent. on average in real terms. From 6 pm this evening, tax on petrol and diesel will rise by 3½p a litre. I also plan to increase the tax on super-unleaded petrol by a further 4p next May. That reflects its higher emission of pollutants such as benzene and the dangers to the Revenue of switching to super-unleaded from leaded petrol. Despite those increases, petrol prices in this country should remain lower than in any other major European country.
Last year I froze the duty on gas used in road vehicles, that is, liquid petroleum gas and compressed natural gas, pending further work on their impact on the environment. Studies since then have confirmed that those are relatively clean fuels. The Government would like to help to encourage further use of those fuels, and I propose to reduce the duty on them by 15 per cent.
We expect emissions of most pollutants from vehicles to fall over the next few years, but emissions of some pollutants may remain at high levels, so the Government now intend to look into ways of using vehicle excise duty to encourage low-emission vehicles. [Interruption.] I am glad that someone welcomes it.
This year, the tax disc for cars will rise by £5, but I am freezing the rates for lorries for the sixth consecutive year.
Honest motorists are irritated by tax disc evaders. The Secretary of State for Transport and I are publishing today a revised proposal on continuous licensing, which will make it easier to enforce the collection of vehicle excise duty, but we shall not be requiring licences for vehicles when they are kept off the road. To make sure that the new system does not penalise vintage and classic car enthusiasts, many of whom run their cars on the road only occasionally, we shall be exempting from duty all cars and motor cycles over 25 years old, taking 150,000 historic vehicles out of tax. [Hon. Members: "Well done."] My parliamentary private secretary is not the only hon. Member who approves of that.
The national lottery has been an outstanding success and over £1 billion has been raised for good causes over the past year, but its success has affected other parts of the gambling industry in Britain.
I am satisfied that the industry's concerns are genuine and I propose to cut general betting duty by 1 per cent. The benefits should be spread between the betting industry and horse and greyhound racing. If satisfactory agreement can be reached quickly, the duty cut can take effect from 1 March.
The pools companies have also been affected by the success of the national lottery. I propose to reduce pool betting duty by a further 5 per cent. from 3 December on top of a similar cut that I made last year. I am willing to reduce pool betting duty by a another 1 per cent. from 5 May, if the pools companies will agree to pass on that extra 1 per cent. equally to the Football Trust and the Foundation for Sport and the Arts. That reduction will help the trust and the foundation to continue their valuable work, and I am sure that it will be welcomed--indeed, it has been--on both sides of the House.
In my 1993 Budget, I gave a commitment to raise duty on tobacco by at least 3 per cent. a year in real terms in future Budgets. I thought then that that was the most fair and effective way of backing up health warnings on smoking and I remain convinced of that today. From 6 pm this evening, the tax on a packet of 20 cigarettes will increase by 15p, on a packet of small cigars by about 6p and on a 25 g packet of pipe tobacco by about 8p. I intend to freeze duty on hand-rolling tobacco this year because it is proving to be by far the easiest product to smuggle.
Next is alcohol. Cross-border shopping and the smuggling of alcohol is a serious problem for the retail drinks industry in Britain and it affects Government revenue, although our total revenue is still rising. Shopping abroad is one of the greater freedoms gained for consumers in the European single market. But smuggling is a crime that we will continue to fight.
Our duty levels are higher than those of our continental neighbours. Each member state must retain its freedom to set its own tax levels and we accept the downward competitive pressures on tax in a single market. We therefore have to address the legitimate concerns of the British drinks industry, but at the same time minimise losses of revenue that would otherwise have to be raised by other taxes.
This year I propose to freeze the duty on beer and wine. Tax as a share of the cost of a pint of beer will be the lowest that it has been in this country for more than 20 years.
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