SELECCIÓN DE LA RED DE COMUNICACIÓN INDUSTRIAL

Chancellor: Gordon Brown; Prime Minister: Tony Blair (Labour)

Context

941

HC Deb 27 November 2002 vol 395 cc318-322 942 PBR November 2002, paragraphs 3.49-50 943 FSBR 2003, page 195 944 PBR November 2002, page 103 945 PBR November 2002, paragraphs 7.52-3 946 PBR November 2002, page 105 947 FSBR 2003, page 193 948

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Growth was weak in 2002 at 2.1 per cent. This reflected sluggish world growth prospects — the G7 growth forecast for 2003 was 1¾ per cent. Unemployment fell in the 12 months to April 2003 but only by about 20,000. Furthermore, the war in Iraq was producing additional economic uncertainty.949 The global slowdown and the extra defence commitments continued to exert pressure on the public finances and a £3 billion contingency fund had to be assigned to Iraq expenditure. The 2002-3 estimated out-turn for the public sector current budget was double the deficit forecast in the 2002 PBR.950 Inflation, however, remained low and on target; the 12 month inflation rate had edged up but stood at around 3 per cent in April.

Overall Budget Objectives

The themes in 2003 followed previous years with the majority of the Budget documents devoted to tackling long-term challenges and goals: “The Budget sets out the next steps in the Government's programme of economic reform to build a stronger, more enterprising economy based on dynamic and flexible markets and underpinned by fairness and social justice”.951 There were measures “to promote enterprise, innovation and skills, and support to help people find and succeed in work… further steps to advance flexibility and fairness together…[and] reforms to tackle avoidance and advance fairness in the tax system, to ensure that everyone contributes fairly to the public services from which they benefit”.952 The Chancellor argued in his speech “Having reformed the economy since 1997, the Budget marks the next stage; it is to achieve, in our time, a more flexible, more enterprising, full employment Britain: a Britain of economic strength and social justice”.953 There was also the usual emphasis on productivity, with the Chancellor arguing that “despite the progress made, Britain and the rest of Europe still have a productivity gap… our Budget reforms will learn from American innovation, competition and enterprise”.954 On the use of fiscal policy, again automatic stabilisers were a crucial support to monetary policy: “In the short term, the operation of the automatic stabilisers means that fiscal policy is supporting monetary policy in maintaining economic stability as the economy remains below trend”955 but there was no action to stimulate the economy or significantly tighten policy in response to short term changes in the public finances. As in the previous year, there were sizable remissions to support long-term goals - these will largely be classified as exogenous – and a major anti- avoidance package to help fund public services.

Major Budget Tax Measures

The 2003 Budget’s major changes were more numerous and smaller in size in usual. The remissions were:

• Improvements to the R&D tax credit from 9th March 2003 as “Innovation is an increasingly important source of productivity growth”.956 I classify this as exogenous, long-run.

• Reform of North Sea infrastructure taxation from 1st January 2004 which was “the result of constructive dialogue between the Government and industry, who have made it clear that the benefits of the change will be passed on to infrastructure users”.957 This measure is therefore designed to support business and the industry in general; I classify this as exogenous, long-run.

• Changes to policyholder rate and apportionment of profits for life companies from 1st January 2003, 6th April 2003, 6th April 2004. These help “to simplify and rationalise the taxation of life insurance companies”.958 The 2003-4 cost is £25 million and the 2004-5 cost is £40 million. I therefore assign £25m to 1st January 2003 and £15m (the difference) to 6th April 2004. There is no simple way of splitting the cost across the two 2003 dates. I classify these changes as exogenous, long-run.

• Introduction of gross profits tax for bingo (abolishing bingo duty) from 4th August 2003. The EFSR explains “This will benefit players, through higher prizes or lower prices, and bingo clubs, by promoting increased participation in bingo”.959 I classify this change as exogenous, ideological. 949 EFSR 2003 paragraph 1.3 950 EFSR 2003 paragraph 2.32 951 EFSR 2003 paragraph 1.4 952 EFSR 2003 paragraph 1.13 953

HC Deb 09 April 2003 vol 403 c272 954

HC Deb 09 April 2003 vol 403 cc275-6 955

EFSR 2003, chapter 2: introduction. 956

EFSR 2003, page 61 957

EFSR 2003, page 71 958

EFSR 2003, pages 187 and 192 959

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• Revalorise beer and wine, freeze other rates from 13th April 2003 “To increase fairness in the alcohol duty regime”.960 Little further justification is given. I therefore classify this as a political decision – being a remission against indexation – and designate it exogenous, ideological.

• Introduce a new duty rate for bioethanol from January 2005 “to offset the additional production costs of bioethanol and allow the UK to benefit from the reduction in greenhouse gases and local pollution that it can offer”.961 I classify this as exogenous, ideological.

• Freeze air passenger duties from 9th March 2003. Discussions with industry on the most effective means of taxing aviation were mentioned but little justification is given. I therefore classify this as a political objective and exogenous, ideological.

• 100 per cent first year capital allowances for ICT were introduced from 1st April 2003 as part of the “steps the Government is taking to strengthen the drivers of productivity growth”.962 I classify this as exogenous, long-run.

The increases were:

• A much discussed compliance and anti-avoidance package. The EFSR repeats the comments made in previous Budgets about public service funding. Furthermore, in the introduction, the EFSR announces “reforms to tackle avoidance and advance fairness in the tax system, to ensure that everyone contributes fairly to the public services from which they benefit”.963 The anti-avoidance measures included: avoidance related equity remuneration from 9th April 2003 and 10th July 2003 – I assign this to the first date as there is no way to split the yield; loopholes in chargeable gains rules, capital gains tax, loan relationships and avoidance involving sale and repurchase agreements, all from 6th April 2003; avoidance of income tax through relevant discounted securities from 27th March 2003. Furthermore, the Government “is applying its approach to tackling tobacco and other excise fraud”.964 This involved two measures, the first from 10th April 1003 and 10th July 2003, the second from 10thApril 2003 and 16th April 2003. Without a good way to split the yield I use the 10th April 2003 for both. I classify this package as endogenous, spending-driven. Excluding this package, remaining policy changes provide a net remission, mostly for long-run or ideological purposes.

• The Landfill tax was increased from 6th April 2005 “to minimise the amount of waste generated and to develop more sustainable waste management techniques”.965 I classify this as exogenous, ideological.

• Changes to the company car tax from 6th April 2005 which improved on previous measures. The EFSR explains “The Government’s long-term goal is to support the switch to a low-carbon economy, including zero emissions transport.... Since April 2002 the system of company car taxation has been based on carbon dioxide emissions”.966 I classify this as exogenous, ideological.

• Increases in the duty on rebated oils by 1p above revalorisation from 9th April 2003 as “Duty incentives have been effective in encouraging an early switch to environmentally-friendly road fuels, but rebated gas oil and fuel oil continue to contribute to local air quality problems”.967 I classify this as exogenous, ideological.

• Confirmation of the Landfill Tax escalator increase from 1st April 2003. I stick with the original classification as exogenous, ideological.

These changes account for nearly 80 per cent of the increases and over 70 per cent of the cuts.