| Previous Section | Index | Home Page |
OTHER TAXES
Windfall Tax
I turn now to the utilities. My right hon. Friend the President of the Board of Trade will speak about the regulatory regime that protects consumer interests in his speech in the Budget debate on Thursday. I have been
looking at the case for a windfall tax on the utilities. I have been told that it has many splendid qualities. It is a one-off tax, often described as if it hurts nobody. It is claimed that it has no impact on the economy and apparently can be used to pay for up to 10 public spending proposals which cost far in excess of the amount of tax that it actually raises. What a potential pot of gold; an elixir to cure all the ills of some people.
Of course, a windfall tax is nothing of the kind. It would damage investment and threaten the quality of customer service. It is an illusion that a windfall tax is paid by the company. It is paid by its shareholders, including many small shareholders and pension funds, and it would mean higher future prices for customers. The whole point of privatisation is to benefit consumers, not simply the Exchequer. I have no intention of introducing such a tax. [Interruption.] If that decision is meant to be a help to the Labour party, heaven help it. I do not think that it can make much of that.
Let me turn to some other proposals that I do not intend to make. I have no plans and I never did have any plans to change the rules that allow the first £30,000 of redundancy payments to be received free of tax. I also never contemplated any increase in insurance premium tax, nor air passenger duty. Those ideas were inventions of the newspapers that wrote about them.
Tax law has become too long and complicated. That campaign is certainly well founded. Some experts have described tax law as incomprehensible. The Inland Revenue will shortly be publishing a report on tax simplification. We shall propose that the Revenue tax code is rewritten in plain English--a major task. The House has a duty to set out clear legislation, which in that area we have not done. We in the House will need to look at our procedures, to see how that tax rewrite can be sensibly handled.
The Government's commitment to home ownership remains as strong as ever. Today there are 16 million homes in the United Kingdom occupied by their owners-- 40 per cent. more than when we came to power in 1979. All surveys show that the vast majority of people still want to own their own homes.
We therefore have a target in our housing White Paper of a further 1.5 million home owners over the next 10 years. I reaffirm that mortgage interest relief will remain unchanged for the lifetime of this Parliament.
We have already introduced measures for mortgage lenders to make it easier for people with negative equity to move home, and the Finance Bill will pave the way for housing investment trusts, which will encourage investment in private rented housing.
I have considered very carefully the case urged upon me for special measures to revive the housing market. Many housing experts, sadly and reluctantly, are forced to the same conclusion as I am--that none of the affordable proposals would actually make any difference.
The problem at the moment is not the cost of house purchase to the purchaser. There have never been such bargains on the market. An average mortgage costs only around £180 per month, far less than renting an equivalent property, and houses are more affordable than they have been for years.
I remain convinced that what the housing market needs above all is steady growth in the economy and low inflation. That is what this Budget delivers. This Budget will reinforce my ability to keep interest rates and mortgage costs down. That matters most of all to the housing market. All the major lenders expect prices to start to rise next year, and as confidence grows I expect the market to start to move soon.
I now turn to my proposals for direct taxation. I want to do four things this year. I want to give people more security by ensuring that their needs will be met in old age. I want to help people to have a greater personal share in the prosperity and success of the businesses for which they work. I want to encourage enterprise, particularly small businesses. And I want to allow people to keep more of the money that they earn, or that they save, to spend as they choose, not as the state chooses. That is essential in a modern dynamic economy.
In this Budget I shall be helping people who are earning and people who are saving. But I also want to help the people who have worked and saved all their lives. Some of them may be unfortunate enough to need care in residential or nursing homes in their old age. If they do, they may find their savings eaten away quickly to pay for that care. Of course, that is one of the rainy days for which people save. But the balance between the state paying and the family paying must be right. If it is not, many prudent people will complain that they are being treated unfairly compared with those who were unable or unwilling to save at all.
To help people who have already put money aside, it was recently decided to exempt from VAT some forms of care provided in someone's own home. I now have two important further proposals.
First, I intend to exempt from tax the benefits from a range of insurance policies that provide long-term care benefits. We should encourage, not penalise, people who decide to take more responsibility for themselves.
Secondly, at present only people with assets worth less than £3,000 are not asked to make any contribution from their capital towards the costs of residential or nursing home care. People with assets worth more than £8,000 receive no financial support from the Government. When applied to care in residential and nursing homes, those limits are far too low.
From April, and sooner if practicable, we shall more than treble the lower threshold, from £3,000 to £10,000, and double the upper threshold, from £8,000 to £16,000. That means that people in residential care who have worked hard and saved will now keep more of their own money. It will give many elderly people and their families more financial security and greater peace of mind. But we also want to find more ways of helping people who are now in work or recently retired and want to plan ahead to prepare for their old age.
We shall be consulting shortly on an innovative range of proposals to encourage people to make provision for long-term care. We are studying in particular the concept
of so-called partnership schemes. The essence of those schemes will be that individuals who plan ahead to meet a proportion of long-term care costs themselves will be able to retain more of their assets above the £l6,000 capital threshold.
State-funded care will, of course, still be there for all those who need it, but those who have provided for themselves will be able to keep more of their savings. The partnership approach combines state provision for the needy with reward for the thrifty who make provision for themselves.
In addition, I have asked the Inland Revenue to consult on the possibility of extending to members of occupational pension schemes the option to take a variable pension. That could provide a larger pension in later years, when people are more likely to need long-term care, in exchange for a smaller pension earlier on. For future generations, long-term care will be a growing problem for the finances of many families. The Government have put in a lot of work to put together a package to meet their concerns. We shall now go out and consult and explain our ideas in detail.
For all retired people living on their savings, the pensioners bonds that I introduced have proved a very popular National Savings product. The House will recall that I introduced them two years ago. I am today announcing that we are reducing the qualifying age for purchases of those bonds from 65 to 60.
Taken together, this package of measures covering the big problems of savings and long-term care for the elderly is the mark of a Government who care about our elderly, their families and their sense of security. It also shows yet again that we are a Government who look to the long term in all those difficult areas of social policy.
I am proud of our record of wider share ownership, which has seen the number of shareholders in this country treble. There are now 10 million shareholders in Britain. Thanks to our policies, shareholding is no longer a minority interest.
All the old-fashioned distinctions between employee and employer, between capital and labour, are being broken down in our modern enterprise economy. Most employees understand that their rewards depend on the success of the businesses for which they work. Most businesses believe that the best way to motivate staff is to let them share in the rewards of success. The public's willingness to embrace and understand those principles has been a major culture change over the past 16 years.
An important part of that change has been the spread of employee share ownership, which is one of the most attractive features of what has become known as popular capitalism. Holding shares in the company for which they work gives people a stake in the company's future success. Nobody in the House has advocated the cause of performance-related rewards and employee share ownership more than I have over the years, and I started doing so well before those ideas become fashionable.
We have two tax-privileged schemes to encourage share ownership for all employees: save-as-you-earn schemes that encourage share ownership through share options linked to savings plans and profit-sharing schemes that allow employees to receive free shares. There are around 1 million people in each scheme. I want to build on those successes by improving both schemes.
The minimum period for saving under a SAYE scheme will be reduced from five years to three and the minimum contribution will be halved to £5 a month. The holding period under profit-sharing schemes will also be reduced from five to three years. Those changes will increase significantly the attractiveness of those employee share-owning schemes. But I am going to do more.
In July, I withdrew the tax privileges attaching to some so-called "executive" share options. The overwhelming majority of companies used those options for their more senior employees. I approved of such options so long as they were linked to genuine performance, but I did not see any justification for maintaining their tax privileges.
The resulting debate brought out the fact that there was a demand for a third type of wider share ownership scheme, to provide a more flexible basis of granting options to lower-paid employees. I am, therefore, introducing a new tax relief that will enable companies to grant options, under a scheme approved by the Inland Revenue, up to a limit of £20,000.
| Next Section
| Index | Home Page |