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Pre-Budget Report

Part of Oral Answers to Questions — Work and Pensions – in the House of Commons at 3:29 pm on 24th November 2008.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer 3:29 pm, 24th November 2008

If we see a stronger economy and increased tax revenues, we will review whether we need to take these tax raising measures, but I believe that it is right that, as we all benefit fairly from the exceptional measures we take today, we should all share fairly the burden of the future. Taken together, these steps will ensure that there is extra money flowing into the economy now when it is needed most, but we can reduce borrowing as growth returns. And as a result of my decisions today to provide support now and to balance the books in the future, I will bring the current budget back into balance by 2015-16: fiscal support now and fiscal sustainability both now and in the future.

Small and medium-sized firms are the engine of our economy. They make up the vast majority of businesses and employ around 60 per cent. of the private sector work force. They also face continuing difficulties with cash flow and credit. I know that many profitable businesses are concerned that those twin problems threaten their future, and I want to help them. So, my objectives today for businesses are threefold: first, to help equip them for the challenges of the future; secondly, to improve access to credit and ease cash flow; and thirdly, to reduce burdens on them at this difficult time. I will maintain a focus on the long-term competitiveness of the UK, to increase our attractiveness as a base for global businesses. To do so, I will introduce an exemption for foreign dividends in 2009 for large and medium businesses, and improve our rules for taxing controlled foreign companies. To build on that, I have also today published an analysis of the long-term global trends impacting on the UK economy, and the Government's response to them.

Small businesses need help to reduce their costs, and I have two announcements to ensure that they receive this help. First, to help small firms meet their running costs, I can announce a temporary increase in the threshold for empty property relief. From 2009-10, all empty commercial properties with a rateable value below £15,000 will be exempt from business rates. This exemption covers an estimated 70 per cent. of all empty properties.

Secondly, at this time of real difficulties for many small businesses, they need time to pay when meeting their tax bills, and I intend to meet that need. From today, Her Majesty's Revenue and Customs will enable firms facing difficulties to spread their tax on a timetable that they can afford. This will cover not just VAT, as some have suggested, but all business taxes—VAT, corporation tax, income tax and national insurance; and not for six months, but for as long as they need. That is real help when businesses need it most. I will also allow several hundred businesses in ports to spread out their payment of backdated business rate bills.

We must continue to address the difficulty that many small and medium-sized firms face in getting loans. As part of the recapitalisation scheme, we agreed that banks receiving Government funding would maintain the availability of lending to small and medium-sized enterprises at 2007 levels, and I welcome the commitment announced at the weekend by Royal Bank of Scotland, one of the recapitalised banks, not to increase pricing on SME overdraft prices for at least a year. That will give security and reassurance to up to 1 million small businesses, and it should become the benchmark for all UK banks. We are closely monitoring the commitments given by banks to treat business customers fairly and decently, and I will take whatever action is necessary to make sure that that happens.

We are also acting directly to improve access to finance. First, we have agreed a £4 billion deal with the European Investment Bank to provide money to the banks to pass on to small and medium-sized enterprises, and I can report today that seven UK banks have already asked the EIB for that money, and £1 billion will be available to their customers by the end of this year.

Next, I can also announce that the Government are able to offer credit through a temporary small business finance scheme, and that is worth another £1 billion to small businesses. It should allow small businesses to borrow sums from £1,000 to £1 million on more flexible terms than before, making lending more affordable and easily accessible. That will help SMEs experiencing short-term cash-flow problems to get the funding that they need. We are also going to support companies that export, through the Export Credits Guarantee Department. From January, it will offer a temporary facility to support the availability of short-term working capital for smaller exporters, and that will mean yet another £1 billion worth of support to help ease the financing constraint faced by firms trading in the current difficult circumstances. So that is real support, quickly, for all types of small business, and it is possible only because we have made a deliberate choice to support businesses through this crisis.

I have two more measures to announce to help business save tax. First, I have decided to defer the increase in the small companies rate of corporation tax that firms pay on their profits. That will provide a boost to small companies, leaving their tax rate in 2009 unchanged. Secondly, I want to support viable small companies that are finding it harder to make a profit at the moment. We already have a system of tax repayments, which are available to help those businesses, previously profitable, but now making losses. Currently, companies are able to offset losses only against profits made in the last year, but it is important to offer more support to businesses at the moment. So I am today extending this repayment scheme so that losses of up to £50,000 can be offset against profits made for the last three years. An estimated 75,000 businesses will benefit from this change, by receiving tax repayments. And of these, 90 per cent. will have their full current losses wiped out.

This is a comprehensive package of support, which business has been asking us to provide. A package to support businesses—£1 billion-worth of tax cuts and £2 billion in loan guarantees, along with £4 billion of European money. That is a £7 billion package of measures—real help. It is funding that we can provide because we have decided to take action to support our economy through this recession.

I believe that these steps will help businesses through their current difficulties and enable them to invest so that they can make the most of the opportunities that will arise when the global economy recovers. I am also determined that the present economic uncertainty will not push aside the importance of protecting the environment and our long-term needs for a greener and secure energy future. We are already on track to exceed our emissions reduction targets under the Kyoto protocol, and we are further ahead than all the other G7 countries. We have now increased our commitment for emissions reductions to be at least 80 per cent. by 2050—by far the most ambitious in the G7. Through the Climate Change Bill and the new five-year carbon budgets, the UK becomes the only country in the world where legislation sets a binding commitment to cut emissions. The Government will set out detailed proposals for meeting that new carbon budget, laid before Parliament in the summer of next year.

Our climate change strategy is based on a range of policies—encouraging more fuel-efficient businesses and transport; better energy use at home; and targets for renewable energy generation. Central to that is the European Union emissions trading scheme. Last week, we conducted the first auction of carbon allowances in Europe, which gives firms the incentive to cut overall emissions. As the Government have demanded, aviation will now be included in the emissions trading scheme from 2012. That is a major step towards achieving our environmental objective of reducing the impact of aviation on climate change. It has enabled me to look again at our proposals for reforming air passenger duty.

Last year, there was cross-party support for a reform of air passenger duty and converting it to a tax per plane. Much as I am in favour of a bipartisan approach, it seems in this case not to have reached the right conclusion. I believe that this proposal could harm the aviation industry at a time when it is facing huge problems. So instead, I have decided to reform air passenger duty into a four-band tax system, ensuring that those who travel further and have a larger environmental impact meet the cost. I believe that this will be a better and more effective way of reducing emissions from aviation.

Improving insulation and energy efficiency will also help us reduce emissions, as well as cutting energy bills for families. In September, we announced a £6.8 billion home energy-saving programme. This is expected to lead to a 70 per cent. increase in installation rates for cavity wall and loft insulations this winter. The Warm Front scheme has already used its additional £50 million to help modest-income households get free energy efficiency measures. Today I can announce that I am providing an additional £100 million in new money and bringing forward another £50 million, to help up to 60,000 more households insulate their homes.

The most pressing energy problem for many families is paying heating bills. We have already tripled cold weather payments for this year, up to £25 a week, for those on modest incomes. But I know that there is widespread concern that the fall in the price of wholesale energy has not been reflected quickly enough in reduced household bills. I can tell the House that Ofgem, the regulator, is to monitor price changes and publish quarterly reports detailing the link between wholesale and retail prices. Alongside that, if sufficient progress is not made in the next few months in closing gaps in pricing between payment methods, the Government will use statutory powers to end unjustifiable pricing differentials.

Oil and gas from the North sea remain an important part of our energy supply. I am consulting closely with the industry over how, together, we can put in place the right incentives to increase production from marginal oil fields.

The economic recovery must support our environmental objectives, and not come at their expense. Government policies will drive more than £50 billion of investment and activity in the low-carbon sector over the next three years. This year, we became the world leader in offshore wind energy capacity, but we must make even more of our transition to a low-carbon world. As part of our commitment to bring forward capital spending, the Government will invest £535 million more quickly on energy efficiency, rail transport, and environmental protection. That will mean more homes benefiting from better heating and insulation, better flood defences as well as 200 additional trains. That is one of the many steps we are taking to secure high-value green-collar jobs—a potential 1 million jobs in the low-carbon industries in the next 20 years.

I have one further announcement in this context. Renewable energy, along with nuclear power, will play an increasing role in meeting our energy future. I can announce today that the Government will, therefore, extend the renewables obligation for an additional 10 years to 2037. By requiring energy companies to generate a share of energy from renewable sources, that obligation will underpin investor confidence and support the development of renewable energy. We are taking the right long-term decisions to protect the environment, to ensure low-carbon jobs, and to provide energy security.

I also want to take steps to improve the supply of mortgages, to avoid repossessions, and to increase the number of new homes. Today, I can set out proposals to do that. The current problems in the housing market are a result of the credit crisis, which has drastically reduced the opportunities for people to get a mortgage loan. Last month, we took decisive action to recapitalise the banks so that they could maintain the availability of lending, including mortgages. Today, I welcome the publication of Sir James Crosby's report on finance in the mortgage markets. His principal recommendation is that the Government should support the mortgage market by providing, for a temporary period, guarantees for securities backed by new mortgages. I share Sir James's concerns about the availability of mortgage finance. To implement his recommendation, the Government would need to obtain state aid approval from the European Commission and resolve some of the technical and practical considerations. However, we will work up a detailed scheme based on his recommendations and seek state aid approval to proceed. I will also take into consideration the interaction between that proposal and the credit guarantee scheme, and I will report back by the time of the Budget.

I am also setting up a new body, a lending panel, which will monitor lending both to businesses and households. It will bring together the Government, lenders, trade bodies, consumer groups, regulators and the Bank of England to monitor lending levels and practices by the banks. We intend to consider how else we can help to ensure that those in work but facing financial difficulties can remain in their homes. It is not just the availability of new mortgages that is a problem in the housing market; it is also fears about meeting the cost of existing loans.

It is right in these cases that repossession should be the last resort, and I am pleased to say that this has been recognised by the lenders. The major lenders have agreed today that when someone is facing repayment difficulties with their home mortgage, they will wait at least three months after the borrower falls into arrears before initiating repossession proceedings. That will give many home owners time to work with lenders to find a solution. I also welcome the commitment, lenders to explore all possible options, including accepting a minimum payment, or mortgage rescue products, before and after home owners get into difficulty. It is also important that families worried about their finances and mortgages can get expert and impartial advice, so I am announcing today £15 million of new funding for free debt advice, available to everyone, regardless of their circumstances, and available across the whole country.

I intend to take two further steps to help home owners facing financial difficulties. First, in September we extended the support for the mortgage interest scheme, which covers mortgage interest payments for those who have lost their jobs. Today I can announce that we will increase the upper limit of that scheme for mortgages up to £200,000 from the present limit of £100,000. That will, I hope, ease worries for home owners who have lost their jobs as they look for new employment. I have also agreed that, for six months, the level of interest rates covered by the scheme will remain, despite the recent base rate fall, at just over 6 per cent.

Secondly, I can also announce new mortgage support for people in work. In September, we set up a mortgage rescue scheme, which is helping vulnerable home owners who face difficulties to stay in their homes. Today, I am extending that scheme so it will also cover those at greater risk as a result of taking out second mortgages. Together, that provides help against repossession worth £200 million.

First-time buyer demand, and long-term housing supply, are the two essential cornerstones of the housing market. In September, to boost the market as a whole, I agreed £700 million of Government spending for new social-rented homes and shared equity schemes, and we agreed that they should be brought forward to this year and the next.

Today, as part of the acceleration of capital spending, we will bring forward an additional £775 million this year and next to invest in thousands of new and modernised social homes as well as regeneration projects. Overall, this is a package of support for housing worth £1.8 billion—support that can be provided only because I have decided that we must act to give people real help. It will help home owners of today to stay in their homes, and help the home owners of tomorrow to buy their first home.

As the economy slows, it is crucial that the Government minimise the impact of that on employment. Unemployment has started to rise and people's worries have increased about losing jobs and the difficulty of finding another one. I am determined to do what I can to ease those concerns and to help those who are made redundant move quickly into a new job.

The evidence shows that the longer people are out of work, the more difficult it becomes to re-enter the labour market. Since 1997, we have made good progress on offering people the individual support that they need to find a job. We have halved the time it takes to find new work. Even as unemployment has been rising over the last three months, 1.2 million people have found new jobs.

I have three proposals to make. Those facing redundancy need greater support. As the success of the rapid response service of Jobcentre Plus has demonstrated, support in the workplace in the form of advice on job-search, careers and accessing existing vacancies can make a huge difference to employment prospects. We will now further expand that service so that its work includes all redundancies, not just those at the largest workplaces. And to complement that, I will offer greater provision of pre-redundancy retraining through the Train to Gain scheme. We will also target the successful local employment partnerships not just on the harder to reach groups, but also on the short-term unemployed.

There are still over half a million unfilled vacancies, and today I can announce a new initiative to help to fill them through national co-operation with the country's major employers. The national employment partnership, chaired by the Prime Minister, will involve 20 of the largest employers, including Tesco, Centrica and the Royal Mail, who have agreed to take part. Together, they employ over 2 million people. I welcome their commitment to work with us in speeding up recruitment, increasing vacancies through Jobcentre Plus and stepping up access to work-related training.

It is the high-quality support provided by Jobcentre Plus and the new deal programmes to those out of work that has underpinned the success in the last few years in helping people quickly back into employment. I am determined to provide the resources so that the network can continue its excellent service, and I am setting aside additional funding to ensure that Jobcentre Plus and the new deal have sufficient capacity.

Today's employment measures are worth a combined £1.3 billion—essential to prevent a temporary job loss from becoming permanent unemployment. Again, all of those measures are possible only because we have taken the deliberate decision to support businesses, protect jobs and help home owners. I have set aside £1 billion in the reserve so that we can continue to help during difficult times and ensure that we emerge from the current downturn stronger and ready to seize the opportunities in front of us.

I can also announce additional help for people of all ages. Turning first to motorists, we rightly have a system of car taxation that takes into account the environmental impact from different types of car. In the last Budget, I announced that I was going to take this further by increasing the number of bands for vehicle excise duty.

As planned, the differential first year rates, which people pay when they buy a new car, will be introduced in April 2010 because they give powerful incentives to provide less polluting cars.

I intend to go ahead with the introduction of new bands, reflecting fuel efficiency, but it would be wrong to do this in a way that places undue burdens on motorists at this time. So I have decided to help people by phasing in new rates and lower rates of increase.

First, in 2009, duty rates for all cars will increase by a maximum of only £5, as has been normal practice for a number of years. Secondly, from 2010, we will bring in differential increases in duty. In the original proposal, some cars would have seen increases of up to £90. Instead, I now propose that the more polluting cars will see duty increased, but up to a maximum of £30, and less polluting cars will see no increase, or a cut of up £30.

For savers, we want to encourage those with modest incomes to put money aside. To help them, we are setting up a saving gateway, which will mean that the Government add money to every pound saved. From 2010, up to 8 million people on low incomes who put money into the saving gateway will get 50p added for every pound that they save. The saving gateway will be widely available through a range of banks, building societies and credit unions, and also the Post Office.

I also intend to step up help for families with children. We have already announced that the child element of the child tax credit will increase by £50 above indexation next April. We have also announced a further increase in that credit of £25 above indexation in 2010. I now intend to pay both those increases together this April, making it worth, in total, £2,235 for modest-income families.

The Government are also working with local authorities to improve further the take-up of tax credits and benefits, because they have a key role in working well with families to tackle disadvantage and to extend opportunities for children.

We are introducing a child poverty Bill next year, which will set in legislation our historic commitment to eradicate child poverty by 2020. I have already announced that child benefit, which was only £11.05 in 1997, will increase from £18.80 to £20 a week in April next year. We are supporting families as well as creating opportunities for all children.

I also want to do more for pensioners. First, for pensioners on modest incomes, I can announce today an increase in pension credit in April. I will increase it from £124 to £130 a week for individual pensioners, and from £189 to £198 for pensioner couples. That is an increase above indexation—and the biggest increase in pension credit since it was introduced in 2003.

I can also confirm that state pensions will increase in line with the highest rate of inflation this year. This will increase the basic state pension for a single person from £90.70 to £95.25—an increase of £4.55 a week. Now that inflation is expected to fall quickly, pensioners should see a real benefit.

I do not want people to have to wait for this extra money. I want them to get it as quickly as possible, which will benefit them as well as the economy. So families will not have to wait until April to receive their increase in child benefit. Instead, they will start to get it in January—three months early.

I want to do the same for pensioners. Pensioners are already getting the winter fuel payment—increased again this year. However, I want to do more. So I will ensure that every pensioner gets a one-off payment of £60, on top of the £10 Christmas bonus, from January. For couples, that figure will be £120, also paid from January. That £70 payment will also go to children with disabilities.

In total, 15 million people will gain from the beginning of next year. We are helping pensioners, children and the economy.

These are exceptional times and they require exceptional measures. They require action now to help people—and action now to help build a stable economy. We have made our choice. We are helping businesses and home owners. We are helping people into work and boosting incomes.

All that is possible only because the Government have taken the deliberate decision to support people and businesses through these difficult times.

I commend the statement to the House.

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