JPRS ID: 10388 WEST EUROPE REPORT

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• Document Number (FOIA) /ESDN (CREST): CIA-RDP82-00850R000500040034-5
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• Sequence Number: 34
• Content Type: REPORTS

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JPF~S L/ 10388
.
15 M~rch 1982
West Euro e Re ort
p p
(FOUO 16/82)~
Fg~$ FOREIGN BROADCAST INF~RMATION SERVICE
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JPRS L/10388
15 March 1982
_ WEST EUROPE REPOR~
~ (FOUO 16/821
COIVTENTS
ECONOMIC ,
Budget Speech to Commons by Chancellor of the Exchequer
(Geoffrey Howe; THE TIlKES, 10 Mar 82) 1
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i .
1
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j _ a- [III - WE - 150 FOUOj
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ECONOMIC UNITED KINGDOM
BUDGET SPEECH TO CO1rIlrI0NS BY CHANCELLOR OF THE EXCAEQUER
� , PM101017 London TAE TIMES in English 10 Mar 82 pp 8-10
[Unattributed Parliamentary Repflrt on Annual Budget Report Delivered to
British House of Comanons on 9 March by Chancellor of the Exchequer Sir
Geoffrey Howe: "Strat~gy Directed to Helping Industry, Jo~�s and People"]
[Text] Sir Geoff rey Howe, Chancellor of the Exchequer, opened his speech by
paying tribute to Lord Butler whose death had been announced earlier i.n the
_ day. He recalled tha~ it was almost 30 years to the day since Rab had intro-
duced his first budget and t'.:~re were now only a handful of present members
who were present on that occasion. '
~ It was an historic occasion because it marked the end of the transition of the
economy from war to peace and the beginning of the prosperity which was a
feature of the.1950s and 1960s. That had been the first of four budget
speeches and with the exception of Mr Denis Healey, Lord Butler was the
longest serving chancellor since the war.
The tradition has emerged since Rab's titae that the budget speech should be
composed in some sense as though it was a detective story with many lengthy
passages of exposition before the denouement. It was supposed to have some-
thing to do with waiting for the markets to close.
Having listened to a good.many of those annual rituals, since f irst I entered
the house, the thought has occurred to me--as.no doubt it has to other~-that
perhaps an element of tantalising suspense was thought desirable to ~.eep the
attention of the MP's to fever pitch.
At any rate, I propose to break with that tradition; and to tell the house,
without more ado, that in this budget I shall be proposing substantial reduc-
- tions in taxation, while at the same time reducing the government's borrowing
requirement.
This will be a budget for industry--and so a budget for ~obs. But it wi11 be
- a budget for people as well. It is a budget that will strengthen the founda-
tions of economic recovery. .
To set my proposals in context, it is necessary to start with a word about the
past. Within the memory of every meuaber of thia house, almost everyone in
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this country took it for granted, for example, that our buses, cars, or motor
cycles were made in~Britain, from British steel. Most of the world's finest
sh3ps were still being built in our yards.
It is only 11 years since the Erskine Bridge over the Clyde was completed-~ta
a design which would allow to pass below it a steady line of cunarders from
John Brown's world-beating yards at Clydebank. So until quite recently we
took f or granted one of the highest living standards it: Europe, if not in the
world.
But by 1970, all that had changed. We had seen infla~ion go above 15 per~ent
and unemploymen~ close to 1.5 million. Less than half the new cars bought in
Britain were made here. ~
Instead of building three out of every 10 merchant ships supplied to the
markets of the world, as we did ~ust 25 years ago, we were building only three
out of every 100. Our share of world trade had bEen halved. And living
standards in several European countries were at least half as high again as
ours.
UK Problems
We had been paying ourselves too much and producing, and selling, too little.
During the 1970s money~ ~ncomes had gone up 20-tim~s as much as real output.
That was a sure recipe for inflation, lost markets, and lost ~ ~bs.
Through all t'his, of course, many companies, many individuals, continued to
- record outstanding successes. But all too often they were swimming against the
tide. For c,ur overall economic performance had become one of the weakest and
most inflation-prone of all the ma~or industrial countries.
At the last e3.action we ma.de all this very clesr. We made it plain too that
reversing this decline would require a ma~or effort, that would n~ed to be
sustained over the lifetime of more than one parliament. And so it will be.
But this country's problems are not ours alone. In the summer of 1979, the
whole world was hit by the fresh surge of inflation and renewed recession that
followed the second huge increase in the price of oil. The average price of a
barrel of oil last year was $34. That was 26 timea as much as in 1970, when `
it cost only $1.30.
The oil shock made the task of restoring our economy both more urget~t and much
more dif~icult, and it coincided with the surge in pay, and public spending,
which the outgoing government bequetl.~d to us.
So, in spite of North Sea oil, Britain entE:red the recession in poor shape,
and rather earlier than oth~r ~?a~or countries.
Britain has, therefore, suffered worse than many. But we have not suffered
alone. In the United States, in France, and in many smaller economies,
unemployment has been rising sharply. In Germany last year, the number rose
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by over half a million. There are now about 26 million people out of work in
the industrial countries.
Even so, most governments 'have reacted by continuing to give priority to the
fight against inflation. And they have been making progress in that fight.
But the battle is by no means won. So the outlook.for the growth of world
trade remains subdued.
It is :n the light of this internat:ional environment that British policy has
to be fashioned. All too often p~�ople still talk--and behave--as if British
government decisions alone were all that mattered for the British economy, and
as if we could protect or subsidise ourselves against the impact of our
competitors or the decisions of other governments.
Yet the house knows how important for the Uiiited Kingdom are the policies of
the OPEC countries in the world's oil markets, of the United States in relation
to economic activity, inflation and interest rates throughout~the world, and of
Japan for the balance of world trade.
I shall~have gomething to say later on about the impact of recent changes in
the oil market. They are likely to have an encouraging effect on the interna-
- tional outlook for prices and output, and, in the medium term, on the stability
of interest rates and exchanges rates. But at present interest rate volatility
- is causing understandable concern. ~
At a time of growing international tension, the United States is shouldering
burdens for the defense of freedom for whlch all of those.on this exposed
flank of Europe should be grateful. The United States Government is also show-
ing admirable co~nitment to the ma.intenance of monetary disciplines.
_ And for that too, we should be ~rateful. For American inf lation affects us
all, because of the importance of the United States and of the dollar in the
, worlds economy.
We and our other friends have, therefore, a legitimate interest in the success
- of the United States~administration in reconciling its spending obligations
with its own responsible pursuit of monetary discipline. If that success were
only partial, there would be a risk of continuing high interest ratea, which
would be damaging to.recovery--in the less developed world as well as in the
industrial countries.
As I have told the house on a previous occasion, there is no reason to
suppose that we in this country could insulate ourselves from such pressures
by the simple step of participation in the European exchange rate mechanism.
That has not been the experience of the existing participants.
Nor would concerted intervention in exchange markets be able, for any length
of time to.contain the movement of funds that can be generated by the widening
~ of interest rate differentials.
There is therefore, all the more reason for the cloaest possible understanding
between those responsible for managing the ma~or economies. For as I have
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said their policies can all have a direct and often speedy, impact upon each
other. We in this country must do our best to exercise our influence on the
policies of our allies and associates. Both directly and through the Euro-
pean community, the Commonwealth, OECD and the International Monetary Fund.
And we do. That is why I attach so much importance to the regular meetings
of community finance ministers, and of the World Bank and the fund, and why I
look forward to welcoming to London this summer my counterparts fronn through-
out the Commonwealth.
But let no-one pretend that we could expect to exert any influence at all ~f -
our own policies failed to command respect abroada
It is however widely recognised abroad--though not always by some at home--
that in the last three,years we have made substantial progress in tackling
our long-term problems.
Thanks to last year's budget, public borrowing has gone down as a percentage
of gross domestic product, giving us interest rates lower than they would
othert~~ise have been. In the six months following the budget, our rates were
on average four points below American and French levels, and on a par with
German rates, in spite of the difference between German and British levels
of inflation. And output started rising from the middle of the year.
Inflation has been almost halved since the spring of 1980. It should be in
single f igures during this year, and lower still in 1983.
Productivity has been rising sharply. In manufacturing industry last year,
output per man rose by about 10 percent.
Lower pay increases, combiped last year with fast productivity growth, meant
that unit labor costs in manufacturing rose hardly at all. Our performance
was comparable with Germany and Japan, and better than all our other ma~or
competitors..
And exports were rising again by the end of 1981. In the last four months,
their value and volume was well up on a year earlier. Business surveys, and
~ most economic forecasts, point to a further rise over the next year.
In the economy as a whole, we now expect it to grow by 1.5 percent in 1982
and by rather more in 1983.
This gives the lie to all those who argued, not least at the time of last
year's budget, that our policies were foredoomed. The recovery that we fore-
- saw, and worked for, is now taking place. My aim in this budget, is to nurture
and help sustain it. ~
I shall start by discussing the central issue of unemployment. Helping indus-
try to become more competitive is the best way of creating future employment.
But there is a clear case for direct action by government as well. I shall
have a new proposa]. to bring before the house.
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I shall then have something to say about monetary policy, and the level of
government borrowing in the year ahead.
Finally I shall come to the tax and other measures which we intend to take,
primarily for the benef it of industry and ~obs.
- Jobs and Pay ~
So, I begin with unemployment. To have millions.of people at a time without
work, many of them for long periods, is a tragic loss to the co~unity. To
be una~~le to find work is an affront to personal self respect. This waste of
human resources is toda}r the misfortune of many societies besides our own.
It is a cause of deep concern to every member of this house.
It is no service to~ the unemployed to suggest that t~ere is any swift or
~ simple remedy. ~
For years, for example, it has been argued--it is still argued today--that we
could get unemploym~nt dawn, if only we were less concerned to fight infla-
tion. The right dose of relation, more generous public spending, so the
argument runs, would soon see unemployment tumbling down.
Would that it were so easy! But successive governments for 20 years have been
t_empted to act on that advice. And with what result? All the time the tide
of unemployment has been rising insistently from one business cycle to the
next.
The truth is that "reflation" does not create ~obs that last. In the longer
run; it helps to destroy them. ~
If more public spendfng was the proper engine for growth and 3obs, Britain
would now lead the world in bofh. Yet in fact.unemployment today is almost
eight times higher than twenty years ago.
'The uuemployed deserve a mo.re considered response than that! One tltat i's
based on analysis of the root causes of the social blight of.unemployment.
So I want to remind the house once more of two figures that virtually tell it
all. Since 1960 the real purchasing power of the average citizen in Britain
has risen by over two-thirds. But the real rate of return on the capital
' employed in Britain industry has fallen by five-sixths. In other worda, our
present living standards have for years been plundered from the store of
investment for the future.
Nor have we put to good use the inveatment that has been made. Too often we
have tried to mitigate the inescapable consequences of poor productivity and
shrinking international competitiveness, by clinging to manning levels that
could not be sustained.
We have only to recall the history of the British Steel Corporation. Had we
not, throughout the middle 1970s, put off the painful choices, the corporation
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and those who work in it would have faced the current slump in world demand
for steel in f ar better shape to weather it.
~ Far fewer ~obs would have been lost. Acquiescence in poor productive
performance, and overmanning,.may put off the evil day. But it only makes
the inevitable ad~ustment all the harder when it comes, as come it must.
And so today we face the huge task of helping to create the conditions in
which the unemplc~yed can obtain work, in ~obs that will last. And, as a
vital step in this, encouraging wages to be at a level which will enable
these, more secure, ~obs to be created. My principal budget measures will
_ help us in the right direction.
Some of the obstacles to fuller employment have been created by successive
governments. Actions taken with exactly the opposite intention have often
had the effect of keeping people out of 3obs, actually adding to unemployment.
This government has taken action to remove a number of these obstacl2s. We
are seeking, by our employment legislation, to create a more reasonable
- balance of bargaini,ng power between the partners iri industry. But in truth
� we need much wider change than can be brought about by government or parlia-
ment alone. .We need a clear-sighted change in our national understanding of .
the problem. And then a much more practical, more flexible approach.
The key point is.this. Somewhere in the gap between the levels of income
which we pay to those out of work and the earnings en~oyed by those~who have
a~ob, are rates of pay which those now out of work would be glad to take,
if they had the chance. But convention and a narrownes.s of vision prevent
those bargains being struck. ~
When ~obs are in abundance, any employer will make sure that he keeps up with
the mark.et, by offering high enough pay to recruit and ~retain the workers he
needs. lind trade unions will naturally encourage him.
But when business~is tight and ~oba are scarce, the eame employer owes it to
the unemployed, as well as to his own employees, to react to the changed
market, to pay at rates which leave room for him to earn enough for further
business and further investment--and for new ~obs.
In this situation too, trade unions have--or should have--exactly the same
interest. That is the best service that any employer or union leader can
offer to the unemployed.
Attitudes are changing in�.this direction. And so~prospects for employment
- are improving. But it will take time.
That is why we have alxeady committed substantial sums for special employment
and training measures to help those hardest hit. Our plans for 1982-83
provide nearly 1,SOOm pounds for special employment and training measures. By
1984-85, its first full year, we plan to spend over 1,OOOm pounds a year on
the new youth training scheme alone--a ma~or advance for school leavers who
cannot find ~obs. ~
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- A number of these measures--for example, the young workers scheme--are intended
to help the labour market work more flexibly, to help *.nake wage levels more
responsive to economic reality, and so lead to the creation of lasting ~obs.
We should all like to do more, within what the economy can afford, to reduce
the continuing personal burdens of unemployment. It is clearly right to do
all we can for those obliged to spend a long time without a proper job.
We can all see, in our local communities, tasks of environmental improvement,
or of bringing help to those in~need, that are crying out to be performed.
Lord Scarman rightly drew attention to this in his recent report. He pointed
out that there could be great advantage in schemes for socially useful
activity, in place of current unemployment and social security arrangements.
Most people believe--certainly this government does=-that it sheuld be possi-
ble to take further constructive action along these lines. Let me give the
house some indication of what we now have in mind. .
The central idea would be to give those who have been on the unemployment
register for some time the chance to work for the benefit of their own
community, while still getting broadly the equivalent of their benefit entitle-
ment plus an addition for expenses and the like.
. They would remain free to take a regular ~ob if it came along, and it would be
for them to decide whether or not to participate in such a scheme.
This concept may be unorthodox. Certainly it is no substitute for long-term
~obs. But in ~oday's world it makes a lot of practical sense. The government
would like to see it tried, to see it carried throua:~ successfully, on a wide,
indeed a nationwide, scale, with people working on non-prof it-making pro3ects
brought forward by local sponsors of all kinds, including voluntary organi-
zations and the churches, and indeed local authori.ties.
- The Secretary of State.for Employment (Mr Norman Tebbit) is, therefore, asking
the manpower services commission to work up urgently a flexible and voluntary
scheme on these lines, so that the government can take firm decisions in the
early summer on a new initiative for the commission to run alongside the
present community enterprise programme.
We shall look for the commissio.n's advice on what is possiblE~, but, for illus-
tration, net additional expenditure of some 150m pounds a year excluding
supervision costs ought to be able to support around 100,000 places.
That would be excellent value for the taxpayers' money--value for the community
and constructive opportunity for~those who choose to take part. We should in-
deed be ready to back this kind of de:alopment on an even larger scale, if the
demand is there.
The government hopes that all those in the community who could play a part in
promoting this~scheme wi~l give it their early and careful consideration. And
i hope that this new in~tiative will also be welcomed in all parts ~f the
house.
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Monetary Policy
I propose next to descri.be to the house how monetary policy will operate in .
the year ahead. I shall nevertheless, do so as brief ly as I can, to avoid
trying the patience of the house with detail. The technically-minded will ,
find ample solace in the lap idary prose of the red book. .
Ever since the collapse of the Bretton Woods system of f ixed exchange rates
in 1971, the need to control the money supply has been accepted world-wide.
In this country, published targets for monetary growth were initiated by my
predecessor in 1976, the year he had to seek help from the IMF.
Then as now, monetary control was supported by progressively lower public
borrowing. I am sure that he was right to be converted to monetary and
financial restraint, to persuade individuals and comganies alike that infla-
tion would come doun~.
The medirjm term financial strategy which the government launched two years
ago is an extension of~this approach. ~
It has helped us to reduce inflation, and will continue ro do so. We now have
a real prospect of sustainable recovery. It is clearly right to maintain the
strategy. Of course it is right to ad~ust, in the light of experience, the ~
way we pursue it. ~
But maintain it we must, for it establishes the financial framework within
which duy to day policy decisions are taken.
- In last year's budget speech, I emphasised that no single measure of money can
fully describe monetary conditions--they must be assessed in the light�of all
the available evidence. And this remains tt.e basis of our polic,.
As intended, the overall effect of policy in 198J.-82 has been to maintain
downward pressure on inflation. Sterling m3 has grown faster than the target
set a year ago.
This was due partly to the civil service strike. It has been affected to be
structural changes in the market place--such as the rising market-share of the
banks--which could have long-term affects. ~
The growth of the wider measures of money probably also reflects greater
demand for liquid assets as a medium for saving. This too could last for some
time. So though the stock of broad money is higher than originally expected,
our ~udgement is that this is consistent with maintaining the steady pressure
needed t~ achieve a downward trend 1.i: inflation.
Certalnly, the evidence as a whole does not suggest loose monetary conditions.
As in several other countries, the narrow aggregates have grown more slowly
than the wider ones. The effective exchange rates have been high--both in
nominal and in real terms. The price of some important assets, for example
houses, has been constant or falling.
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I have taken account of these factors in setting somewhat higher ranges than
were suggested for Sterling M3 in last yedr's red book. The target range for
1982-83 will be $-12 percent. This ad~ustment in the monetary target does
not imply any relaxation of purpose. On the contrary, it is a recognition
of the pace of progress thus far, and, in the light of that, our judgment
that the new ranges will be consistent with continued progress against
inflation.
The new target represents a realistic restatement of our determination to main-
tain a responsible monetary policy. It should be consistent with growth of
money GDP at 10 percent a year, with continued progress against inflation, and
with a strengthening recovery of the real economy.
We shall continue to monitor a range of indicators. To make more explicit
the way in which we do this, the ranges I have just announced will apply ro
both the broad measures of money--Sterling M3 together with PSL2--and the
narrow measure, M1.
The exchange rate also normally gives usef ul information on monetary condi-
tions. For while the government has no target for the exchange rate, its
effect on the economy and, therefore, its behaviour, cannot be ignored.
Evidence on all these variables wtll continue to be taken into account.
Policy decisions will be aimed at ~.::Lntaining a monetary environment conducive
to the reduction of inflation.
Targets for the years after 1982-83 will be set nearer the time. Slower mone-
tary growth is central to the medium term f inancial strategy. The path for
further reductions in the rate of money growth from year to year is illus-
trated in the budget red book. The ranges have been constructed on the
assumption that there are no ma~or changes in the exchange rate from year to
year.
What I have ~ust described provides the framework for continuing the conquest
of inflation. We are winning the battle. We are determined to see it through.
Monetary Control ~
I ought also to mentiun changes which have been made over the past year in the
techniques of monetary control. Erom last August, minimum lending rate ceased
- to be posted.
The main purpose of this change was to allow market forces a grater influence
on the structure of interest rates, and to allow rates to be ad~usted more
promptly in response to changing economic conditions. These ob~ectives have
been met. The new arrangements have coped successfully with some severe
swings both in the international markets and in the money markets here at
home. .
We have also been working to even out the flow of revenue over the year, in
order to ease the problems for money market operations and monetary control
generally.
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Let me give three examples. Over the last nine months, customs and excise
have taken steps, with the agreement of the companies concerned, to secure a
more even mon~hly flow of VAT into the Exchequer, by ad~usting the quarterly
dates on which certain traders are required to account for VAT.
Second, we are seeking a smoother payment of the building societies' composite
rate tax.
Finally and most important, the proposals for oil taxation which I shall
describe later, will spread the payment of petroleum revenue tax mor~ evenly
over the year.
A central element in the government's f inancial policy is that the gap
� between public sector spending and revenue should be financed in a way that
is consisten.t with our monetary target. We have therefore greatly improved
the balance of government funding.
In 1979-80, when the PSBR was aimil:ar to this year's, sal.es of gilt-edged
stock were more than eight times larger than the contribution from national
savings. This year the.ratio was down to about 2 to 1. National savings
have exceeded their target, which was raised to 3,500m pounds last autumn.
I congratulate the department on achieving these higher inflows through
increased eff iciency, while making its contribution to civil service staff
reductions.
Interest rates have come down since the current national savings certificate
was introduced.
It will therefore be withdrawn from tomorrow (Wednesday) and replaced as soon
as possible by a new savings certif icate offering a lower but still competi-
tive rate of return. . ~
New sales of gilts to the public in the past year have not needed to be more
than about 7,500 million pounds, with less emphasis on conventional long-dated
high-coupon stocks. In our funding policy we have demonstrated our confidence
in our policies for reducing inflation. Last year I announced, as one part
of our pol.icy of diversified funding, the introduction of inflexed gilt-edged
stock. Over the past year, sales of this indexed stock amounted to some 2,500
million pounds. ~
The right to buy this indexed gilt was restricted to pension funds and certain
other institutions in respect of their UK pension business.
~ I have now de.cided to remove this restriction. The Bank of England is
announcing this afternoon a new issue of indexed stock on an unrestricted
basis.
- The restrictions on the existing indexed gilts already in the market will
_ also be removed today. The house may recall that the original prospectus for
these stocks itself provided for the possib ility of removing the restrictions.
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Tl?is broadening of the market should increase the usefulness of indexed gilts
as a funding instrument.
Our policy of diversified funding will continue next year, with contributions
~oming from indexed.gilts, conventional gilts and national savings. In the
_ case of national savings, the target for 1982-83 will be 3,000 millian
pounds, ~ust a little below the figure for last year.
Borrowing ~
_ As well as setting a proper framework for money supply growth, the MTFS sets
out the government's views on the proper level of public borrowing in the
years ahead. This cannot make excessive demands on the funds availablz with-
out putting upward pressure on interest rates. That is what governments in ~
other countries have found out, to their cost.
Recent experience throughout the world exposes the myth that big budget
deficits are good for growth and employment. On the contrary,~a responsible
fiscal policy is essential for both. .
Last year I budgeted for a PSBR of 10,500 million pounds. Since then output
has moved as broadly as expected at the time of the last budget, and the 1981-
82 PSBR is still on track for the forecast outcome.
Some argue that our f iscal policy is excessively tight, once account is taken
of the affects of the recession. I do not accept this. The acid test for the
PSBR is the level of interest rates at which it can be financed.
My budget decisions last year took account of the recession, and in~assessing
the impact of fiscal policy on the economy it is actual spending and tax pay-
ments that matter--not hypothetical estimates of what they might have been,
if the world we~e somehow different.
But there are some who say that our interest rates are really determined in
New York anyway; and hence that the amount that we decide to borrow is
neither here nor there. Such reasoning is mistaken, and conclusions drawn .
from it dangerously wrong. ~ . ~
Of course, it is true that international interests rate movements affect the
price that we must pay for money borrowed here. But that in no way diminishes
the responsibility upon us to choose policies likely to iiold our interest
rates in the lower part of the international range.
Let us remember what happened last autumn. We could not resist the pressures
of rates rising sharply all around the globe: we would not have been able to
do so whatever the level of our own domestic borrowing.
But because of the firm line taken in my last budget, our own interest rates,
even after the increase in.the autumn, did not soar to the levels reached in
- the financial markets of a number of our competitors.
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Had I, last March, thrown caution to the winds, our rates of interest would not
have come down last spring, and would have had to go up far higher last autumn.
Indeed the 10,500 million pound PSBR set for the year now ending, and the
determined measures we have taken to achieve it, have again been helping us in
r~cent weeks to bring down the cost of borrowed money. . ~
The fact is that while there are limits to the influence we can have on the
world background, we can do something more directly about our own borrowing.
The larger the PSBR we start with, the higher the interest rates we shall end
up with and the opposite is also true.
In coming to a~udgment about what we can responsibly plan to borrow in the
next financial year there is one further international dimension which I cannot '
ignore: the recent fall in oil prices around the world.
I cannot stress too strongly that a lower level of oil prices, if it is�sus-
tained, is basically good news for Britain and the world. It helps to lower
inflationary ex-pectations. It makes room for a faster growth in output, con-
sistent with the proper monetary discipline which is now so widely applied.
And as the balance of earning power between the advanced industrial countries
and the ~il producers undergoes some correction, the weight of highly mobile
financial surpluses, which have been such a destabilising inf luence on world
capital markets in recent years, is likely to be diminishe~.
For this reason, the prospects for~international inflation, f or interest
rates, for growth, and for exchange rate stability have all improved in
recent weeks.
But, for my budget ~udgment, this does to some extent work both ways. My task
has in part already been done for me. A drop in oil prices affects our own
= economy in much the same way as a cut in indirect taxes, or excise duties, or
national insurance surcharge.
Lower oil prices reduce costs and prices all round. They leave people in this
country with more money in their pockets to spend on other things. They lower ~
the costs of production and distribution. And in addition--which a cut in our
own tax-rates cannot do--a fall in the world oil-price promises to increase
activity worldwide, and with it the purchasing power of many of our traditional
customers in the non-oil rieveloping countries.
But that is not the whole story. When the price of oil drops our tax take from
North Sea production is correspondingly reduced. Other things being equal,
this would increase the borrowing requirement, though not by as much, since
the beneficial effects of the oil price cut boosts our revenues from other
forms of activity. The prospect is bound to be uncertain.
But in determining the size of the PSBR for the year that starts in April I
can assure the house that I have made allowances for these factor.s as we know
them today.
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Abviously, if there was to be a prolonged fall in the oil price below the level
_ we currently expect, then both the benef icial effect on activity and domestic
prices and the revenue-loss effect on the PSBR, would be increased. It would
be wholly irresponsible for me to rule out the possibility of having to take
action to correct the fiscal balance, if that were to happen.
The illustrative projections presented with last year's budget envisaged a
PSBR for 1982-83 equivalent to 3.25 percent of GDP. This would be around
9,000 million pounds at current prices.
~ In the light of the latest assessment of the prospects I have thought it right
to provide for a PSBR of around 9,500 million pounds in the coming year,
equivalent to 3.5 percent of GDP.
This is about 1,000 million pounds below the expected outturn for this year.
But is also about 1,300 million pounds above what the PSBR would have been
" next year on the conventional assumptions--that is to say if the changes to
income tax and specific duties which I am proposing today were only to take
account of the past year's inflation.
That 1,300 million pounds is the PSBR cost of my budget proposals in 1982-83.
Their net cost to the Exchequer in a full year is over 3,000 million pounds
compared with this years' tax and duty rates.
The new revenue and borrowing pro~ects published in the red book envisage a
further decline in the PSBB over the following two years to 2 percent of GDP,
on the assumptions about growth and inflation which are there set out.
So the size of the government's borrowing in real terms will continue to
decline from year to year. This will further ease the pressure it imposes on
financial markets. And it will assist progress towards lower interest rates
and lower inflation.
. So much for borrowing. I now turn to expenditure.
Public Spending
On 2 December I announced the government's public expenditure plans for
1982-83. Today (Tuesday) we are publishing the annual public expenditure
white paper. This sets out the plans for next year in more detail and also
contains our provisional proposals for the two following years.
At the same time, the supply estimates for 1982-83 are being presented to the
house. The house will note the new and greatly improved presentation in the
white paper. I certainly find it much easier to follow.
- In the last two years these documents have been published on budget day, so
that all the information would be available at the same time. In this way, the
budget debate can cover both sides of the account. The treasury and civil
service committee is, I know, considering the handling of these matters, and I
await its recommendations with interest..
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I explained to the house in December why we had decided to increase planned
expenditure in 1982-83 by some 5,000 million pounds compared with the plans
set out in last year's white paper.
'~he increases included some 1,300 million pounds of extra finance for th~ .
~ nationalized industries, 500 million pounds more on defence, and another 800 ~
millian pounds on special employment programmes. '
They were partly offset by a general reduction in most cash limited expendi-
ture. ~
Although most of the measures~which I shall announee today involve reductions
in taxation. I am also proposing some additions to public expenditure, .
totalling some 350 million p.ounds in 1982-83. This includes an increase of 150~
million pound in t.he contingency reserve to accommodate some of the expenditure
measures; this brin:~~ the reserve in 1982-83 to 2,400 million pounds. .
The planning total for 1982-83 given in the white paper is 115,150 million
pounds in cash, compared with 110,200 million pounds which is the cash
~ equivalent of last year's pro~ections for 1982-83. But the increases I now
propose will be more than offset by other changes in costs, and the total will . .
therefore be 114,900 million pounds. , .
Total public sector capital spending is next year planned to be about the
same--1,500 million pounds--as expected this year. The plans allow for new
investment by natioaalized industries (including that finan~ed from their own
resources) of over.7,500 million pounds in 1982-83, some 26 percent higher.
than the out-turn now expected in~ 1981-82 and 40 percent higher than in 1980-
81.
Taking account of ineasures which I shall be announcing a little later, spend-
ing on construction is expected to rise by 14 percent to 10,250 million
pounds in 1983-83.
In particular housing investment, and work done on water and sewerage pro~ects,
should be liigher in real terms next year than this. In all these ways the
government is planning for the continued improvement of public sector
services.
For the f irst time we have published f igures for the whole period in cash.
The planning totals for later years are 120,000 million pounds for 1983-84,
4,000 million pounds and 6,000 million pounds respectively, which is included
tn the figures for each of these years, has been set to give realistic totals
in a cash planning regime. .
The programme ~igures are provisional and will be reviewed in future surveys.
The starting point will be the cash programmes resulting from this after-
noon's announcements. The figures will not be automatically increased if
inflation turns out to 'ue higher than~e::oected. Any alteration will be a
matter of deliberate political decisio:i. That is the essence of cash planning.
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I foreshadowed these developments in my budget speech last year. I am confi-
dent that they will help us to keep expenditure under control.
8ocial Security
By far the largest single element in public spending is social security. In
1982-83 it will account for 32,000 million pounds, over one quarter o~ the
total.
About half of ~his goes to tlie elderly, who deserve our special consideration.
This government has been determined to preserve the fu11 purchasing power of
the social security retirement pension. We shall accordingly raise the
pension rates, to cover the expected increases in prices for the 12 months
to next November.
When I published the industry act forecast last December, I expected that
increase to be 10 percent.~ That was an appropriately cautious central fore-
cast. But the outlook for inflation has clearly improved since December. My
similar forecast now is that; prices will go up tiy only 9 percent in the same
12 months period. �
But I do not propose to raise the pension rates only by 9 percent. We intend
also to compensate pensioners for the fact that last year's increase was based
on a forecast of the rise in prices that was 2 percent below the actual rise.
Retirement pensions will thus go up next November by a total of 11 percent.
The standard rate will be increased by 3.25 pounds to 32.85 pounds a week,
for a single person, and by 5.20 pounds, to 52.65 pounds for a married couple.
. There is of course no government commitment to full price protection except
for the retirement pension and associated benef its. During the debate on the
government's public expenditure plans, we said that a decision about the 2
percent shortfall in the value of other benefits would~be~announced at budget
time. ~
The main ones are unemployment benefit and supplementary allowance, sickness
and in~ury benefit, and ~naternity allowance. I have received many representa-
tions that the 2 percent shQrtfall should be restored on these benefits also.
And we have decided that it should be.
This means that the rate of unemployment benefit will riae from 22.50 pounds a
week to 25 pounds for a single person, and from 36.40 pounds to 40.45 pounds
for a married couple. Details of the other benef its will be announced tomorrow
(Wednesday) by the Secretary of State of Social Services (Mr Norman Fowler).
We have also decided on some changes in the rules governing payment of bene-
f its. These are in response to representations we have received, and will be ,
widely welcomed. The secretary of state will give details in his announcement
tomorrow. �
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There are, however some further changes which I should announce today. First,
child benefit, which is an important source of income for saany, especially the
lower paid with large �amilies. From next IJovember it.will go up by 60P a
week from 5.25 pounds to 5.85 pounds. It will thus have been increased by
~3 percent over t~o years, and so fully protected against inflation.
The additional one-parent benef it will be increased by 35P to 3.65 pounds.
And in the case of the family income supplement, the prescribed amount for a
one child family will go up from 74 pounds to 82.50 pounds.
I shall have something to say a little later hbout the military allowance.
The f ull year public expenditure cost of all the changes in the social
security which I have mentioned will be some 3,000 million pounds. The extra
cost in 1982-83 will all be accommodated within the public expenditure totals
I have ~ust announced. ~ ~
I turn now to.help for charities.
The government is deeply conscious of the contribution to our national life
that is made by our charitab2e organizations. ~
Two years ago, I introduced substantial new tax xelief f or covenanted dona-
. tions to charities. I also doubled the exemption from capital transfer tax
for charitable bequests or gifts made within one year of death.
We have been urged to relieve charities from VAT on their purchases. The
attractions of this are obvious, but it raises substantial difficulties. The
more one studies how it might be done--and we have looked into it exhaus-
tively--the more inseparable appear the problems of def inition, of administra-
tion, and of equity that stand in its way. So reluctantly, I have had to be
satisfied with other ways of helping charities instead.
First, I propose to take the capital transfer tax exemption for qualifying
gifts to charities a stage~further, by increasing it, for gifts made within
- a year of death, from 200,000 pounds to 250,000 pounds.
Second, I intend to abolish stamp duty completely on transfers of assets to
charities.
Third, as the National Council for Voluntary Organizat ions has suggested, I
propose to remove beyond all doubt any liability to development land tax where
a charity disposes of property which has been sub~ect to roll over relief.
Taken together, those measures constitute significant new assistance to
charities and voluntary organisations. They build still further upon the
significant benef its which charities have derived from earlier actiun by this
government. Our record continues to be one in which we can ~ustif iably take
pride.
I now come to the particular problem of the disabled which we have always had
very much in mind. Last year, the international year of the disabled, I
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introduced a range of value.added tax reliefs for charities cAncerned with the
disabled. I am concerned with the disabled. I am able to announce three fur-
ther measures of help.
- First, there will be some extension of the existing VAT reliefs for disabled
people and the charities serving them.
Second, mobility allowance. The rate taill be increased by more than the
expected rise in prices--from 16.60 pounds a week to 19.30 pounds. This will
mean that it has risen by over 80 percent since the government took office.
This represents a.considerable increase in real terms.
In addition, I propoae this year to respond to a particularly imgortant request
made on behalf of the disabled to successive governments in .recent years.
- I propose that from 1 April the mobility allowance should be wholly exempt from
income tax. This is a ma3or step: It means an increase in net income of up to
5 pounds a week for the working disabled. They deserve every encouragement,
and the change wi11, I know, be widely welcomed.
. ~
Public Sector
Turning to management of the public sector, starting with the civil service,
the chancellor said: The provision and organization of welfare benef its in .
only one of the many tasks of government.
The whole cost of government a�ministration does indeed impose a formidable
burden upon the taxpayer. Out of total spending of 105,OOOM pounds in the
current year, the government's running costs amount to over 12,OOOM pounds.
The importance of keeping tight control of these~costs.is, therefore, mani-
fest. ~
This is why we set ourselves the task of reducing the.size of the civil
service, from 732,000 in 1979 to 630,000 by April, 1984. We are.on target.
Numbers are down already.by 57,000. We now have ths smallest civil service
for 15 years. ~
Local authority manpower, on the other hand, has come down by only 3 percent
since 1978, less than half as much as in the civil service. The importance
of further progress ne~ds no underlining. Effiaient cost control means
' getting pay rates right, as well as controlling staff numbera.
Later in the year, the Committee of Inquiry under Sir John Megaw will be making
recommendations about civil service pay arrangements for the future. In con-
sidering their report we shall aim to be fair to public aervants, and to the
taxpayer.
But the government is also responsible for the nationalised industries.
In deciding how much public finance to make available to them, the government
must be influenced by their performance in controlling their own costs. Every
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1 percent they save on labour costs ia worth another 140M pounds that they
could use for investment, or to reduce prices.
Yet even now this lesson has not been fully learnt. Seven out of every ten
days lost because of strikes in the last two years were within.the public
sector. The continuing rail dispute, about productivity improvements and
up-to-date labour practices that should haye been introduced years ago, .
demonstrated how far there is still to go.
In the absence of increased productivity, willingly accepted, it is not easy
to ~ustify increased investmen~.
_ This is why we intend to widen the expasure of the public sector to the
discipline of the market place.
One way of doing this, that has been commended on all sides of the house, is
by the introduction, under the right conditions, ,of private capital. Those
conditions must ensurP fair competition with the private sector for capital.
They must also ensure that the consequent higher cost of borrowing is offset
by greater efficiency.
The government has now decided to accept, in principle, the proposal for
British Telecom to issue a bond to raise market capital in this way. The
return to the investor would be based on the prof its earned by the corporation.
British Telecom will be expected, as a condition of accESS to market f inance,
_ to keep tariff increases at least 2 percentage points below the annual move-
ment in the RPI, and to reduce real unit costs, in 1982-83, by a minimum of
_ 5 percent, with further reductions to be agreed for.later years.
- We shall have to satisfy ourselves, in the light of market conditions nearer
the time, that the bond represents good value to the government and British
Telecom, as well as to the investor. Sub~ect to that condition, the aim will
be to go ahead with an initial sale in the autumn, of up to 150M pounds. This
will be an important experiment in exposing the performance of a nationalised
industry to the ~udgement of.the market place.
But above all it remains our purpose, wherever possible, to transfer.to the
private sector assets which can be better managed there. In the private
sector, businesses have to respond to consumer needs. The pressure on enter-
prises, formerly in.the public sector, to do the same at once becomes much
greater if they are transferred.
We have made considerable progress. There has~been some controversy about the
method of selling shares in Amersham International. But for those inclined to
be wise after the event, it is worth pointing out ~ust how much greater public
interest tn the sale proved to be than commentators expected when the terms
were first announced.
It is, in any case, a cause for satisfaction that the great ma3ority of
Amersham employees are now shareholders in the enterprise for which they work.
For the great ma3ority of people, this is the right kind of public ownership.
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+ Legislation is on the stature book ena,bling us to transfer to the private
sector the British Transport Docks board, and British Airways, and to permit
the sale of subsidiaries in British Telecom and British Rail. Within the
last few weeks we have transferred the National Freight Company to a consor-
Cium led by its own management. And British Aerospace, and cable and wire-
_ Iess, are now firmly established in the private sector.
- Our plans assumed that asset sales of this kind would total about SOOM pounds
, this year. We expect to achieve that target. The government looks forward
to further disposals in the next two years.
We are seeking powers to sell the offshore assets of British gas and to permit
the introduction of private capital into the National Bus Company. The most
important transfer will be the sale of 51 percent of BNOC's oil-producing
business, for which a bill is now before the house.
I now turn to what can be done in this budget directly to benef it business,
Industry, and hence ~obs.
Our prime purpose is to help private commerce and industry to help itself, by
cutting its costs, and I have no doubt, from the representations I have
received, that the single measure business would, most welcome is a reduction
in the national insurance surcharge.
This surcharge was imposed and then increased by the previous government.
Indeed, in their last two and a half years in off ice the last government
increased the combined charge on employment, the employers national insurance
contribution and the national insurance surcharge, from 8.5 percent to 13.5
percent.
The surcharge is of course a tax on employment. It raises products~costs. It
is not rebatable on exports and it either puts up prices or cuts into profits.
But it is an extremely cos~-effective tax. It raises large amounts of revenue, ~
at little administrative cost. It is much easier to put on a tax of ~this kind
than to take it off.
This government has already protected 'ousinesses, and so employment from any
increase in employers national insurance contribu~ion rates for two consecutive
years. Had we not done so, employers would have had to find nearly 1,OOOM
pounds more in the coming year than will actually be the case.
It is now time to offer more positive relief. I accordingly propose to cut
the rate of the national insurance surcharge from 3.5 to 2.5 percent. This
will help reduce costs throughout the economy and will be of value to all
businesses, whatever their tax position.
_ The cut will operate from 2 August which is the earliest practicable date.
But I am anxious that industry should not suffer from this unavoidable delay.
I shall therefore propose an extra half percent reduction between August 1982
and April 1983. The effect of this will be to en~oy in the last two-thirds of ~
_ 1982-83 the equivalent of a whole year's reduction of 1 percent in the surcharge.
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This proposal is intended to reduce business costs in the private sector.
flowever public sector employers also pay the surcharge and in order to leave
them exactly where they would have been without the change, appropriate reduc-
tions will be made in the relevant cash limits and the votes of central
government and the NHS, in the rate support grant to local authorities, and
~ _ in the external financing limits of the nationalized industries.
The necessary changes will be announced as soon as possible. This will reduce
. the cost to a net f igure of 640M pounds in 1982-83.
The aim of the relief I have ~ust announced is to help business costs and
employment. If it were to find its way into higher pay, that would totally
defeat the ob~ect of the exercise, and would obviously have to be taken into
account in future.
It is crucial that this should not happen. In proposing this reduction, we
are offering business and industry, management and workforce, an exceptional
opportunity to improve their own performance and prospects. I believe that
they will take it.
Indirect Tax
I come now to the indirect taxes. I propose no change in the rate of VAT. .
~ For the excise duties there has grown up in recent years a sensible presum.p-
tion that they should be ad~usted on line with the movement in prices from
one year to the next. That, after all is what happens automatically with VAT
and the ad valorem duties, and also to the personal tax allowances, unless
parliament decides otherwise. And that is the basis of my approach to excise
duty changes this year.
I start with the duty on tobacco. Last year duty was increased twice--in
March as part of the budget measures and in July to help recoup the loss of
revenue from the DERV duty redu~tion.
I have taken account.of that in proposing this year an increase that is the
equivalent of 5P including VAT; on the price of a typical packet of 20
_ cigarettes. There wiYl be consequential increases for other tobacco products.
These changes will take effect from midnight on Thursday.
Next, alcoholic drinks. I propose to increase the duties from midnight
tonight by amounts.which represent about 2P on the price of a typical pint
of beer, lOP on.a bottle of table wine, and 13P on a bottle of sherry--all
_ including VAT.
The full increase in the price of a bottle of spirits necessary to take
account of inflation would have been over SOP.
However, in the light of the representations about the state of the Scotch
Whisky Industry which I have received from conservative MPS representing
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Scottish constituer~cies and others. I have dec~ded that it would be
appropriate to limit the increase on spirits to 30P a bottle~, again including
VAT .
Next, the oil duties. Last year, as the house will recall, I felt it right to
go some way to meet the representations made to me by MP5 in fanour of a lotaer
increase in the case of DERV than of petrol, in view of the impact of DERV ~duty
on industrial and distribution costs. I have decided this year slightly--to
widen that differential.
There is a strong case for a larger increase in the petrol duty than in the
other duties, for our average pump prices are curren~ly among the lowest in ~
the European commiunity. They have moreover been favourably affected by recent
changes i~n the price of oil. Pump prices have been falling rapidly.
In proposing a rather larger percentage increase in the duty on claret than on
whiskey I have at no stage had in mind adding to the difficulties nf the social
democratic candidate in Hillhead. (laughter) I fancy he may have enough
troubles of his own already.
Against this, it has been impressed upon me by a number of conservative MPS
from rural const.itutencies in all parts of the Kingdom, that pump prices in
~remote areas are very much higher than those in more heavily populated areas.
Yet dependence on cars for transport is greatest in the more scattered
communities. . .
On balance, I think it would be right, at least at this stage, not to impose
any real increase in the oi1 duties. I propose, therefore, to limit the
increases in the~duties on both petrol and DERV to amounts which no more than
compensate for'one years' inflation.
The duty on petrol will accordingly increase by the equivalent, including VAT,
of about 9P a gallon or 2P a litre. This will still leave most pump prices
lower than they were at the end of last year. '
The duty on DERV will increase by the equivalent, including VAT of about 7P
a gallon or 1.5P a litre. As almost all DERV is used in businesses, this
- smaller increase will help to hold down business costs.
As last year, I propose no change in the rate of duty on heavy f uel oil. I
am not able, as some would wish, to cut the duty rate; but leaving it unchanged
will help industry as the duty burden continues to fall in real terms.
Last year I undertook to review the rate of duty applied to aviation gasoline,
or avgas. ~ ~
I have given very careful consideration to the representations which I have
received on behalf of air taxis, flying schools, crop-sJ,raying and ~ther
specialist services, and from those con~erned with sir travel in the high-
lands and islan~s of Scotland. I cannot acc~it in =~:i1 tlie arguments which
have been put to me, but I have decided thr~t {t wuuld lie right'to reduce the
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avgas duty rate to one half of that on petrol. Including VAT, this amounts to
a reduction of about 32P a gallon or 7P a litre.
All these changes take effect for oil delivered from ref ineries and warehouses
from 6pm tonight (Tuesday).
I also propose to increase mqst rates of vehi.cle excise duty.. For the motorist
the increase will be 10 pounds from 70 to 80 pounds. Duty levels on most other
- groups of vehicles will be increased by about 12 percent.
I propose to.make two importan* changes in the vehicle excise duty on commer-
cial vehicles. I have decided that it would offer a substantial, and
~ustifiable, help.to small and medium sized business at this time to bring
the duties on about half a million light commercial vans more closely into line
with those on cars.
On the other hand, it would be appropriate, in the light of the conclusions of
the Armitage report, to impose on the heavier lorries--the 80,000 or so of more
than 9 tons unladen weight--a licence duty which more closely reflects the
actual cost which they impose on the road network.
So.the duty on this category will be increased by about a quarter. T:nese
changes have effect for licences taken out after today.
The changes I propose for commercial vehicles reflect the government`s inten-
tion to get a fairer balance between the taxation burden on different groups
of lorries and their road costs. .
I propose to take.a further. step in this direction by including in the finance
bill provisions for restructuring the basis of vehicle excise duty on heavy
lorries, to a gross weight method of assessment and for taxing all light
commercial vehicles in due course at the same rate as cars.
The house will recall that the framework for this ma~or reform of the system
was set out in the 1981 Transport Act. It will involve substantial changes
in the pattern of commercial vehicle taxation and I think it right that the
road transport industry should have time to ad~ust. I therefore propose that
~ the rates of duty on the new gross weight basis should take effect from
1 October.
And, last of the excise duties, taxes on betting and gaming. Many conserva-
tive MPS pressed last year for substantial changes in July. I now propose no
further increase'in the rates of duty on general betting and bingo, both of
which were increased then.
But I have decided that pool betting duty, which has~been unchanged since
1974, should go up from 40 percent to 42.5 percent from 1 April. I also
propose increases from the same date in the rates of duty on casinos, where
I believe the existing rates are too low.
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Full details of the new rates, and other.changes which I shall be announcing
today, will be given in press notices.
- The Chief Secretary (Mr Leon Brittan) announced last su~er that customs and
extise would undertake a comprehensive review of gaming machine taxation. A
very large number of representations were received during the course of this
review, from and on behalf of clubs, public houses, amusement arcades, and
others. ~
In the light of these representations I have decided that it would not be
appropriate to introduce an ad valorem duty on gaming machines, or to impose
an excuse duty on amusement machines, such as space invaders. I have also .
decided that duty should no longer be charged on 2P gaming machines which are
mostly to be found in the seaside arcades.
- However, I have decided that there should be signif icant increases from
1 October in most rates of the existing licence duty on 5P and 10 gaming
machines.
The total effect of all these changes in excise duties will be to raise an
additional 1,150M pounds in 1982-83 and 1,165M pounds in a f ull year.
Tlie impac~ effect on the PRI will be about three-quarters of one percent.
This has been fully taken into account in my forecast of falling inflation
in the year ahead. . ~
Oil Taxation ~
I have spoken of the oil duties: I now turn to the oilf ields. The develop-
ment of the North Sea has been a story of enterprise and success, which is
almost entirely due to the skill and enterprise displayed, and risks accepted.,
- by the private sector. ~ ~ .
As a nation, we must never.forget the great debt we owe to those on the oil
rigs and elsewhere, who have been responsible for exploration and development.
It is important for them as well as for the British peogle that the rewards
should be fairly shared. ~
Last year, in the light of the massive increase in oil prices which had
occurred in earlier years, we changed the structure of North Sea.tax, to make
it more responsive to changes in price. At the same time tax revenue from
the North Sea was brought forward, with an increase in the total level of ~
taxation.
I also invited the industry to suggest better ways of raising the revenue we
needed. I am grateful.to them, and others who have commented, for their
careful and considered response. ' ~
As I have mentioned, the current fall in oil prices reduces the revenue the
, Exchequer receives. I recognize that it reduces the revenues of the oil
companies as we1l--but it also reduces the tax they have to pay.
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Detailed study has convinced me that, sub~ect to some marginal ad~ustment, the
total tax burde.n is not such as to discourage exploration or development. Nor
- is it so high as to deprive the oil industry of a reasonable, and aften
attractive, yield.
In these circumstances I cannot reduce the overall tax burden to the extent.
- that the industry would have wished. But I do agree with them on the need for
some change of structure. I see, in partic.ular, the advantage of prof it-
related taxes in relation to additional investment in existing fields. .
The supplementary petroleum duty will therefore be abolished with effect from
the end of this calendar year.
_ I propose at the same time that the rate of petroleum revenue tax.should be
increased from 70 percent to 75 percent; and that arrangements should be
introduced for advancing PRT payments. Advance payments of PRT, although
computed in the same way as SPD, will not be a separate tax but simply an
acceleration of the existing tax.
They will thus differ fundamentally from SPD in being fully set off without
limit against ordinary PRT liabilities when these arise. This structural
change is one which representatives of the industry have proposed.
As from mid-1983, there will also be a monthly installment system of payment .
of PRT in order to secure a smoother public sector cash f low.
These changes will not affect the revenue yield of rather more than 6,OOOM
pounds in the coming year. But in 1983-84 there will be a net cost, af ter
allowing for the saving in interest due to the new system of.installment pay-
~ ments, of some 70M pounds.
I have spoken earlier about current uncertainties in relation to oil prices
and the future yield of tax from the North Sea. But I am aware of the concern
felt by the industry about the number of changes in the regime there have been
in recent years. .
For this reason, my hope is that the new tay ~tructure I have proposed will
provide a more secure and stable regime for the future, permitting development
- to go ahead uninhib ited by ma~or fiscal uncertainties.
~I propose a number of other minor changes, partly in response to the views
put forward by the industry. And I propose that regional development grants
paid in respect of expenditure incurred af ter budget day should be taken into
account for the purposes of PRT and ring fence corporation tax.
We shall also need to legislate next year to deal with certain special prob-
lems affecting PRT expenditure reliefs, pipeline tariffs, and other non-oil
receipts: these will be the subject of a consLltation document which will be
issued shortly.
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Those fiscal measures, combined with the decisions which have already
announced on the abolution of the state's sole right to buy gas, and on the
creation of the new private sector oil company, will provide a sound basis
for another decade of successful enterprise in the North Sea.
I turn now from the.energy industry to its industrial customers, to whose
problems we have given a great deal of attention in recent years.
Energy Costs
Last year, I announced substantial.help for industry on energy prices. The
NIDC task force, which has made a valuable contribution to a wider understand-
ing of these matters reported in November that these changes had signif icantly
improved the position of large energy users here, compared with their continen-
tal competitors.
- But we are very conscious of the problems which remain at least for some
industries.
The government has accordingly discussed with the elECtricity supply industry
their pricing proposals for 1982-83. I am glad to be able to announce that
these will include ne*a special arrangements to benef it larger users who face
the greatest diff iculties.
A scheme will be introduced, under which customers can ~ain signif icant reduc-
tions in their charges in return for a commitment to accept load reductions..
The industry estimate that over one hundred ma~or companies should benefit.
This will be in addition to the arrangements for electricity prices which I
announced last year and which will continue this year. But both the number
of customers able to benefit from the new scheme, and the extent of the bene-
f its on average will be greater. ~ . ~
To pay for these measures, we are increasing the external financing limits for
the electricity industry (including Scotland) by some 100M pounds in 1982-83.
These costs are additional to the external f inance.limits shown in the public
expenditure white paper.
Some large industrial users of gas face similar problems; and here, too, we
propose significant relief. For contract customers the price of gas taken
after the first 25,000 therms in the contract year will be frozen at the level
charged on 1 April 1982. This freeze will apply until the end of 1982. The
_ cost of this measure is forecast to be sorie 6UM pounds.
In addition, we have asked the National ,;oal Board to renew the measures
first announced last year, so as to avoid further increases in the list prices
_ for foundry c oke until the winter. The board's def icit grant and external
f inance limit wi17. be ad~usted accordingly and the cost will be met from the
contingency reserve. ~
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Last year I announced the introduction of grants towards the costs of con-
verting from oilfired boilers to coal. We have now decided to extend the
scope of these grants to cover conversions of other industrial oil-fired
equipment and conversions of gas-f ired equipment to coal.
The scheme will also now cover conversions in service industries as well as
in manufacturing. At the same time we are reducing the qualifying threshold.
for the total project cost from 25,000 pounds to 15,000 pounds, this will
- help a large number of smaller f irms, particularly in the horticultural
industry. The cost of these changes will be met from within the 50M pounds
allocated for this scheme. .
Taken together with the measures announced in my last budget, these three
measures--special arrangements for large electricity users, the freeze on gas
contract renewal prices and on list prices for foundry coke--should reduce
_ the energy costs of British industry, compared with what they otherwise would
have been by over 250M pounds. Over the two years concerned, they represent
a serious and significant response to the industry's representations on energy
prices. ~
I.turn now to the continuing effort to encourage innovation in industry. If
we are to win still more worthwhile orders both at home and abroad, British
industry must continue to improve its design and production techniques.
There is no more important area to which this applies than micro-electronics
and information technology. The government has already given a lead by
designating 1982 as information technology year. We have already authorised
investment of well over 2,OOOM pounds in the British telecommunications net-
work in the coming year--more in real tertns than at any time since 1974-75.
This investment will breed new services, new f irms and new 3obs. So will the
development of alternative and competing services f or electronic communica-
tion, such as the new mercury network for business.
Because new technology is important on a wider front, I propose to make a fur-
ther allocation for this purpose. The Secretary of State for Industry, (Mr
Patrick Jenkin) will shortly be announcing a series of new and expanded
schemes. These will include additional assistance towards space technology,
and production engineering--including the introduction of a special scheme of
assistance to small engineering f irms.
And the 100 percent first year allowance~ for leased television sets, which
were due to be phased out this June, will be extended for a further year for
sets incorporating a teletext facility. This will encourage the wider use of
a leasing product of British information technology.
These measures will be worth 130M pounds over three years.
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Final Justice
I have now virtually completed my review of proposals involving spending,
and spending foregone. I have described my decisions on excise duties, and
the ma~or cut in national insurance surcharge which we propose. In the
remainder of my speech I shall be dealing primarily with f iscal issues.
I wish to deal f irst, and briefly with the key issue of fiscal 3ustice. All
chancellors of the Exchequer come under pressure every year to remedy hard-
ships and anomalies in the tax system. This year has been no exception and
by the end of this.afternoon I shall have been able to meet a large numbe~ of
such points. ~
But there is another side to this medal. Justice is indivisible. Justice to
the taxpayer must be matched by ~ustice to the Exchequer. The revenue must be
protected and maintained if the burden is not to fall more heavily on the
general body of taxpayers.
We must all be ~lad to see the courts adogting a new approach towards artif i-
cial avoidance schemes. As a direct result, we expect to collect a very large
sum of tax, possibly as much as 400M pounds, which might otherwise have been
avoided. '
The proper vigilance of the revenue departments in these mattars needs to be.
matched by the determination of parliament to legislate where this is needed.
Last year I asked parliament to do so on a number of important matters. This
year I propose further action.
We must, however, tread a very careful path between safeguarding the interests
of the taxpaying community on the one hand and avoiding economic damage of the
other.
This need for caution applies, for example, to the proposals affecting the tax
liability of companies engaged in international business, on which the inland
revenue put out consultative papers last year.
Those papers and the draft cuases dealing with these matters have caused con-
siderable anxiety. In the case of company resider~ce the prim.ary ob~ective was
simply to reF~lace the present ill-def ined rules with ones which were clearer
and more certain. This was not an attempt to extend the coverage of the tax.
But I accept that some people might be adversely affected. The matter there-
fore needs to be looked at again.
The problem of tax havens was a different one.
If one has an open world in which there is free movement of capital and of
persons--something which in itself is a good thing--this offers increased
opportunities for tax avoidance. We must be very careful not to pre~udice
levitimate business, particularly because of the importance of London as a
financial centre.
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We need to find the right middle road, and one which is accepted as right. It
is to this end we shall be directing our efforts. Clearly this precludes
legislation this year on any of these topics.
I now turn to the areas in which I do propose to take action in this financ~
bill. ~
First, international leasing. At present, assets leased abroad attract
capital allowances at wtiat is, in many cases, a favourable rate of 25 percent
per annum. Leasing of this kind has grown sharply.
Moreover, there is evidence of United Kingdom tax incentives being used to
subsidize deals between other countries--deals by foreign businesses in for-
eign made goods, competing with our own home producers. I therefore propose
for new commitments after today, to reduce from 25 percent to 10 percent the
rate of writing down allowance for all assets leased abroad.
Second, films. Investment in f ilms qualif ies for 100 percent first year
allowances. ~
As with other capital allowance provisions, these investment incentives are
available without regard to whether the film is made in~this country or over-
seas. There is evidence that schemes for investment of this kind--primarily
in foreign-produced films--are currently being marketed'actively in this
country. The pot~ntial loss to the revenue is very great. ~
I propose, therefore to withdraw the 100 percent f irst year allownce for
films and to introduce in its place a provision which will in broad terms,
allow companies to write off expenditure over the income-producing life of the
f ilm. ~
A change of this kind could have serious implications for the British f ilm
industry, if introduced immediately, at a time when there are signs that it
is just beginning to establish a new and more competitive position. I intend
therefore to introduce transitional relief for British-made f ilms--broadly
speaking, films registered for the purposes of the EADY level arrangements--
for a 2 year period. I shall be consulting the industry about the form which
this assistance might take.
Third, shipping. Here again, arrangements are being made to exploit invest-
ment incentives for the benefit of foreign businesses.
In this case, a typical arrangement may involve a foreign shipping company
chartering a vessel built abroad from a company specially set up in the United
Kingdom to attract 100 percent capital allowances.
I propose to reduce the rate of capital allowance in these cases to the 10
percent rate for international leasing generally. I am concerned to safeguard
the position of British companies chartering their vessels abroad in the course
of a genuine shipping business, and I shall be discussing with the shipping
industry how best to do this... .
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On each of these three sub~ects--international leasing, films, shipping--the
. changes will take effect from today. I shall be bringing forward the neces-
sary detailed legislation at committee stage.
l~ourth, so-called Section 233 loans. These are contrived arrangements und~r
which interest paid on certain bank loans escapes liability to corporation
tax in the hands of the banks. In future these payments wi11 be taxe~ like
other interest payments. The new rules will apply from today. In the case of
contracts entered into before today, the new rules will apply to payments due
on or after 1 April�1983.
Fifth, by taking advantage of double tax relief banks can lend overseas at
- abnormally low interest rates at the expense of the UK taxpayer.
I propose to include in the coming finance bill measures to ~top this exploita-
tion of our tax system. They will take effec~t from 1 April 1982 but in the
case of existing loans will apply only to interest arising from 1 April 1983.
While, the measures I hav~ announced will help, we shall need to give much .
further thought in the coming year to the problem of how best to ensure a
sufficient contribution to tax revenues from the bankirig sector. The problem
is not an easy one, as the benefit of some of the devices I have 3ust described
is shared between the banks and their domestic customers.
There is a danger that measures directed to ensuring that the banks pay a more
equitable amount of tax are all too simply by-passed by the banks shifting the
burden on to their custamers. For these reasons I have foreborne from taking ~
action earlier, but as Burke said "there is howevex a limit at which forbear-
ance ceases to be a virtue."
On a different note, a number of building societies have recently issued a new
form of negotiable bond. I have no reason to believe that any improper use .
has been made of these new bonds. But as an obvious precaution, I propose to
extend to these bonds, from today, the existing provisions dealing with the
"manufacturing of dividends."
, I also propose some tightening up of the law relating to very large golden
~ handshakes. The tax relief will be withdrawn on a sliding scale with the
effect that the excess of sums over 75,000 pounds will be fully charged~to tax.
We owe it to the ordinary taxpayer to take action in these fields. .It is o~:
- him that the cost would fall if we did not do so.
~Construction .
- I now revert to my principal theme: Help for business and induatry, and hence
for ~obs and people. Last year's budget contained a number of ineasures to
help the construction industry, an industry which can make a particularly
signif icant contribution to the creation of new ~obs. It~is, accordingly,
right to give it further help~this year.
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As I have already mentioned, our new public spending plans provide work for
the construction industry in 1982-83 worth about 10,250M pounds--an increase
of 14 percent.
This year local authorities have ~greatly underestimated the success of our ~
policy of selling council houses and land. The extra revenue which this is
bringing in has not been spent. ~
For 1982-83, they have been assured that they can spend up to a total of some
3,OOOM pounds on housing. This will include about 1,OOOM pounds of funds
which they can expect to receive mainly. as a result of the success of the
right-to-buy legislation. This should allow an increase of nearly a third in �
the scale of their capital spending, compared with what they seem likely to
spend in 1981-82.
In addition I now propose a change for 1982-83, designed to help private home- �
owners whose houses fall well short of today's standards.
The value of grants given for ma~or repairs, and for the provisYon of basic
amenities in the home, under the home improvement grant system, will be
increased for a limited period, to a maximum 90 percent of the eligible cost,
instead of the 75 percent currently available. ~
This increased rate of grant will apply only to applications received before
the end of 1982. The purpose is not to add to longer term demands on the
industry but to encourage the take-up of immediate spare capacity. We also
intend both to enable more people to get grants for home insulation and to
i.ncrease the value of these grants.
To pay for these changes and to encourags local authorities to make more
general improvement grants available, their capital allocations in 1982-83
will be increased by 100M pounds. This will be over and above the expenditure
provided for in the white paper.
The Secretary of State for the Environment, Mr Michael Heseltine has already
announced measures for 1982-83 to give priority to inner city pro~ects that
offer the greatest degree of participation by the private sector.
Building on this, up to 70M pounds of the provision f or the urban programme
and for derelict land reclamation in 1983-84 will be earmarked for pro~ects
that encourage participation by the private sector. We have also decided to
offer further encouragement to the private sector and nationalised industries
to bring derelict land into productiee use. We shall increase tY~e grants
payable, from 50 percent of the cost of reclamation to 80 percent, in assisted
areas and derelict land clearanCe areas when legislation can be brought for-
ward. The cost will be contained to new private investment in housing for
rent.
I now propose to introduce capital ollowances, at the rate of 75 percent for
the first year only., for expenditure on the construction of properties wholly
for letting as assured tenancies by bodies approved by the secretary of state.
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The scheme will run for an experimental period of five years. Allowances may
be claimed for expenditure incurred as from today.
- In my budget two years ago, I introduced the small industrial workshop scheme,
utlder which industrial buildings allowance can be claimed on the construction
of small buildings at the rate of 100 percent. The scheme has been a resound-
ing success. ~
More than 5,000 new workshops have already been constructed for letting to
small businesses, at an estimated Exchequer cost, spread over several years
of 125M to 3.50M pounds.
The scheme has succeeded in increasing the stock.of industrial workshops at or
near the upper size limit. But there has been relatively little investment at
the very small end of the range. I therefore propose to extend the acheme for
very small workshops, of not more than 1,250 square feet, for a further two
years, until March 1985.
I also propose to bring within the scope of rhe industrial buildings allow~ance
certain kinds of servicing, repairing and warehousing activities. This too
will improve the small workshop scheme. ~
I also propose to deal with the liability to VAT of certain kinds of building ^
alterations, where there has in the past been serious doubt about what was
liable to charge.
A recent ~udgement of the House of Lords would have led, if applied in its
entirety, to VAT being charged at the standard rate on a range of non-
structural building alterations which had previously been free of charge.
Though clarifying the law, this ~udgement would have imposed an extra 80M
pounds of tax on the influstry, which it can i11-afford at present.
So I intend to re-establish the clarity needed, but in a way which will
relieve the industry of all but lOM pounds of the extra tax burden.
I shall, in due course, lay before the house an order, which will have the
effect of continuing to zero-rate three important kinds of alterations which
might otherwise be adversely affected by the Souse of Lords' ~udgment. These
are the most commonly recognized forms of double glazing, loft and cavity wall
insulation and damp-proof coursing. This useful simplication of the law will
cost the revenue about 70M pounds a year.
The other kinds of nonstructural alternation covered by the 3udgment will .
become sub~ ect to VAT but, pending the campletion of discussions with the
industry, no steps will be taken to apply the tax before about the beginning
of September.
My final proposal in this area concerns stamp duty on house purchase. I pro-
pose to raise the exemption by 5,000 pounds to 25,000 pounds and the other
- thresholds also by 5,000 pounds at a total cost of 70M pounds in 1982-83.
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This change should be widely welcomed. It will help to improve ~ob mobility
- and give some encouragement to house construction. But most of all it will
help those who have been saving to buy their f irst homes.
gy the end of this parliament, nearly three out of every five families will
own their own homes. This will represent a signif icant extengion of the
property-r~wning democracy.
Small Firms
And taken together, these proposals will mean more work for the construction .
~ industry, and more ~obs for those who work in it.
Evident in the measures I have announcec7 so far is the government's consistent
determination to helg create the righx conditions for the new investment
needed to create new 3obs. But this budget, like its two predecessors, is
designed also to provide a special ~onic for small buainesses.
There can be no~doubt that higher rates of interest and the consequent
reluctance of companies to borrow long-term at high fixed rates have caused
a distortion of balance sheets.. Too much reliance is now placed on short-term
bank finance. As a.result there is additir,nal pressure on monetary growth.
A n~ber of suggestions have been made for reducing the burden of interest
rates on companies.. We are all indebte:i to Mr M~chael Grylls (North West
Surrey, C) and others for the way in w~zich they have focused public attention
_ on this problem. In many cases, the sQlectivity in the remedies proposed
would favour lending by the banks, and lending to "tax-exhausted" companies.
We have considered Chese ideas very carefully. But they raise diff icult ques-
tions of principle, and we are not persuaded that they offer the best solu-
tions to the problems they are designed to solve. Moreover coasultations are
still not complete on some corporation tax green paper, which raises major
questions about incentives to investment, and we are still considering how
best to ensure a.proper contr~i~ution to tax revenue by the banking sector.
However, we can all agree that the basic problem of financing prof itable
expansion ~and investment demands urgent and continuing attention. A par-
ticularly important aspect of this is the pxovision of equity capital, about
which I~have some new proposals to make.
The businesa start-up schem~, which provides income tax relief for investment
of up to 10,000 pounds in the equity of companies starting new trades, has
been widely welcomed. I propose for 1982-83 and 1983-84 to increase the
annual limit from 10,000 pounds to 20,000 pounds.
As less than a full year has elapsed since it became law, some potential
investors may have been unable to use up the full 10,000 pound limit in 1981-
82. I therefore propose that, in addition, any unused balance of this year's
limit should be added to next year's. This means that, in some cases, the
effective limit for 1982-83 will be as much as 30,000 pounds. These improve-
ments should provide a further stimulus to investment in new enterprises.
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- Where capital for small businesses generally is concerned, many people have
emphasised the importance of the new provisions introduced in the 1981 compa-
nies act for companies purchasing their own shares.
Clearly it would be wrong to change the tax laws in such a way that these
provisions could be used to pay out what would amount to tax-tree dividends.
But there is scope for tax changes which will signif icantly increase the
attractions of equity capital, both to the investor and to the entrepreneur.
I now propose that certain purchases of their own shares by unquoted trading
companies, mainly small and family businesses, should not be sub~ect to ACT
and income tax. They will be treated instead as sales of shares by the share-
holder, and therefore, sub3ect in most cases to capital gains tax only. This
measure will be of special benef it to small companies which have a limited
market for their shares.
Two years ago, I relaxed the conditions governing profit-sharing schemes and
ieintroduced legislation enabling employees to take up options to buy shares
in their companies without incurring income tax liability. ~
I did this because I have no doubt that employees who own shares in the
company for which they work develop a greater sense of commitment to the
suc~ess of the business. Since I made my first changes two years ago, the
increase in the numbers of employee share schemes has been extremely encour-
_ aging. In 1979 there were only thirty such schemes. Now there are over 400.
This is exactly as we should wish. ~
Wider share ownership is good for the business, good for the worker and good
for Britain. It is important to maintain and extend this progress.
Accordingly, I now propose to increase the value of shares that can be allo-
cated each year to any one employee from 1,000 pounds to 1,250 pounds.
I also propose to amend the detailed rules to help simplify the administrative ~
~ problems arising on rights issues. - ~
We should also give some help and incentive to those who acquire share
options outside the gambit of approved achemes. I.therefore propose to make
it easier for them to pay the income tax cha.rgeable on the exercise of such
an option, by providing that it should be collected ov~er three years, rather
than in a single swn. ~
In the last two years, we have substantially relaxed the rules for tax relief
for interest.on money borrowed to invest in small cumpanies. This year I
propose to move a stage further. If a shareholder works full-time in the ~
management of a business he will in future be able to qualify for tax relief
to invest in that business even though he does not have more than 5 percent
of the shares.
Now, loan f inance. In my last budget I announced the establishment of a pilot
loan guarantee scheme. The scheme started in June 1981. Since then the demand
for loans has far exceeded expectations. ~
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Last October, in response to thnt demnnd. w~ ii~cre~ead th~ ullocutiuu Lur 1.44
- first year from 50 million pounds to 100 million pounds but with 2,700 loans
worth almost 100 million pounds already approved after only nine months, some
further increase is desirable.
Accordingly, I propose to increase the amount which the participating institu-
tions may lend to 150 million pounds for the f irst year. In addition a further
150 million pounds will be available for loans under the scheme during its
second year, to June 1983.
I also propose that the limits for the "small companies" rate of corporation
tax should go up again from 80,000 pounds to 90,000 pounds and from 200,000
pounds to 225,000 pounds. This will mean that this government has increased
the lower limit by 80 percent and the upper limit by more than 150 percent.
As a further help for new businesses, the period for income and corporation
tax relief for pre-trading expenditure will be extended from one to three
years.
Many MPS, I know, have been impressed by the value of the work done by local
enterprise agencies. These agencies depend in the main on businesses already
established in the local community. They clearly play a valuable part in
helping small local firms to start and to prosper. ~
- I therefore propose to allow businesses to deduct for tax purposes the con-
tributions they make to certain enterprise agencies, which concentrate on
.helping small firms. �
I hope this measure will encourage more widespread suppoit for such agencies.
The relief will be available from 31 March and will run ~for 10 years.
On VAT, I have two princi~al changes to propose. The registration thresho~d
will be increased from 15,000 pounds to 17,000 pounds. And I propose to intro-
duce VAT relief for services supplied before registration. This measure, and
the extension of relief for pre-trading expenditure, will reduce the costs of
starting a new business.
The total revenue cost of these measures to help small firms is about 80 mil-
lion pounds in a full year.
I also want to make it easier for those who have recently left school or
college to start a business. Hitherto they have not been able to qualify for
the so-called 714 certif icates under the construction industry tax deduction
scheme. The present system, designed to prevent tax evasion, may actually
keep young people out of work as sub-contractors in the industry.
The certif icates are widely used in the industry but the existing rules
require an individual to show that he already has three years good record as
a taxpayer before he can secure a certif icate. By definition, someone who has
~ust left school or college cannot quaZify under this three-year rule.
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~ I now propose to change it, so as to enable school and college leavers to
obtain special certif icates. I also propQSe a guarantee scheme which may help
. others to obtain these special certif icates.
.
~inally, the self -employed. A decade.of inflation has eaten into the value of
money which they had put aside to provide for their retirement.
I, therefore, propose to increase the limits on retirement annuity relief for
contributors who are now in their 50s and 60s; to 20 percent for those born
between 1916 and 1933; to 21 percent for those born in 1914 or 1915; and to
24 percent for those born in 1912 or 1913.
I also propose to alter the present restrictions on the relief to allow more
self-employed people to benefit from these higher levels. These changes will
cost 12 million pounds in 1982-83 and 25 million pounds in a full year. They
will provide a signif icant improvement in the position of the older cont~ibu-
tor whose lifetime savings have suffered particularly from high rates of
inflation in the 1970s. ~
The self-employed play a key role in the economy. Their contribution to its
vitality, its adaptability, is apparent to all. Along with small businessmen,
they fully merit this extra encouragement.
Capital Taxes
- I turn now to a part of our tax system which is impeding the eff icient working
of capital markets and doing in~ustice to individuals and businessea alike:
the capital taxes.
There is room for wide differences o~ view about the principle of taxing
capital. But there is no case whatever for maintaining a system of capital
taxes which, by holding back business success and penalizing personal
endeavor, does serious economic and social damage. .
In each of the last two budgets, we have taken signif icant steps to reduce
such damage. I propose a stage further today. ~
~ The threshold for capital transfer tax will now be increased to 55,000 pounds.
, The rate bands which apply above the thresholds have remained virtually un-
' altered since the tax was introduced in 1975. It is time they were extended.
Under the new scale, details of which will appear in the FSBR, the top rate of
Cax will be reached at 2.5 million pounds. In real terms, this is still not
as high as the f igure set by my predecessor, when he introduced the tax, in
1975. The lifetime scale will be improved to a similar extent. The cost this
year will be 35 million pounds; and in a full year 85 million pounds.
I also propose that the indexation principles, already applied to income tax
allowances, ahould in future apply as well to the CTT threshold and bands.
.
I should add that it is my intention that the f inance bill should deal with
the new regime for settled property. Draft clauses were published in December.
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The comments we have received.will help us to clarify and improve the provi-
sions. They have more than 3ustif ied this exercise in open government. I am
grateful to all those who have contributed.
There will also be a number of technical provisions related to the heritagQ.
I~have decided, in the light particularly of the reductions in the lifetime
rates of charge I made~last year, not to alter the ra'te at which the periodic
charge is payable. ~
I also propose that foreign currency accounts belonging to individuals who
have no connexion with the United Kingdom should not be caught by the CTT.
It is important for London's position as the world's leading f inancial centre
_ that this matter should be cleared up.
I now come to the incidence of capital gains tax on inflationary gains. This
is a matter which has.rightly given rise to a great deal of discontent. No
one has yet succeeded in finding a solution to this problem.
Innumerable proposals for full indexation, for tapering and other ingenious
devices have been put forward. None, unfortunately overcame all the practical
difficulties. I cannot, however, allow this in~ustice to continue, it is
intolerable for people to be permanently condemned to pay tax on gains that
are apparent but not~real--that exist only on paper.
I propose, therefore, that, as from this April, gains, including those of
companies, will in pxinciple, be calculated after taking account of inflation
which occurs after that date. No relief will, however, be given in respect
of the first year of ownership. ~
The problem we seek to solve is one which relates essentially to assets held
for a period of years, and it ~ould not be appropriate to extend relief to
assets bought and sold within a comparatively short period of time.
Because we have not found it possible to extend the new scheme to cover past
gains, I propose also that the exempt slice should be increased to 5,000
pounds. That is the best solution to the problem and will simplify
administration both for the taxpayer and the revenue. For the future, I
intend that this threshold too should be statutorily indexed.
There will be nn revenue cost in the coming year. In 1983-84 the cost of
these two measures will be 55 million pounds.
But this ought not to be looked at as a measure of the cost to the Exchequer.
It is rather a measure of the tax which ought never to have been levied in the
f irst place. This change is no more than simple ~ustice, which should be
welcomed on all sides of the house.
The benefit of these measures will be of substantial help to business as well
as the individual. They will significantly increase the attraction of
equities to United Kingdom taxpayers. One result should be that companies ~
can raise more equity at lower cost than would previously have been possible.
An increase in the scale of equity issues by companies will help to reduce
their dependence on bank barrowing.
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I also propose a number of other specific changes; in future, rollover relief
- will be available on compulsory purchase: and, completing our policy of
avoiding a double charge to CGT and CTT on the one event, rollover relief will
also be available on assets coming out of trust. These proposals involve no
cost this coming year~and a cost of 11 million pounds in 1983-84.
I believe that these changes, taken together, will be widely welcomed as a
further ma~or reform of the capital taxes.
Income Tax
But for the vast ma~ority of individuals what really matters is income tax.
And income tax is far and away the biggest source of government revenue. This
year about 26 million income taxpayers will contribute, in round f igures,
about 30,OOOM pounds to the Exchequer.
_ Quite rightly, people look for some reduction in their own tax burden. As I
have explained at the outset, and demonstrated by my own proposals, the para-
mount aim of this budget is to help industry, to encourage business, to create
~obs. But I want also to assist people directly. The one help.s the other.
People need industry: but industry also needs people--as workers, as cusComers,
as investors. We remain f irmly committed as ever, over the years, to reduce
the burden of direct taxation. It is essential to do so: to improve~incen-
~ tives: to remove disincentives: to reduce the poverty trap. .
There are always, of course, competing arguments as to whether one should
reduce the rates of income tax or raise the thres~old at which people pay tax.
Any chancellor would like to be able to do both. But this year, given my
princigal aim, I have had to make a choice.
We have already reduced the basic rate of tax from 33 percent to 30 percent,
and reduced the higher rates of tax as well. I propose, therefore, to concen-
trate the relief that is available this year on raising the tax thresholds.
The single personal allowance will accordingly be increased by 190 pounds to
1,565 pounds and the married allowance by 300 pounds to 3,445 pounds.
The additional allowance for single parents will, as a consequence, rise by
110 pounds to 880 pounds. So. too will the widow's bereavement allowance. And
there will be corresponding increases in the age allowan~es, the higher rate
threshold and bands, and the threshold for the investment income surcharge.
Effect will be given to changes under pay as from the~f irst pay day after
26 April.
These increases are up to two percentage points more than the 12 percent
required to take account of inflation in 1981. They are worth 1,800 million
pounds this year and almost ~2,500 million pounds in a full year.
~ As a result some 1,200,000 people who would have paid tax next year will not
now have to do so. This news will be very welcome both to the house and to
the country at large.
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In framing this.year's budget it has been my purpose to give as much encourage-
ment as I believe we can afford to an economy which is now moving in the right
direction.
hearken to the voices that urge us only to "borrow, borrow, borrow," would
perforna nc~ service to British industry or to the unemployed. On the contrary,
- it would lead only to the dead end of a plummeting exchange rate or a rocket-
_ ing rate of interest--or both. �
Better by far to ~ecure, as I have done, a prospective level of borrowing that
is below that of the y.ear~now ending--and so to maintain our progress towards
stable prices. . ~
And at the same time, as in eacli of my three earlier budgets, to achieve sub-
stantial tax reforms, to.promote the wider ownership of wealth, and to encour-
age the productive private sector, which in these past three years has made
giant strides towards the restoration of our reputation as a trading nation.
This is a budget that will give confidence at home that growing markets will
- be there for those prepared to go out and win them and so a better prospect
of employment opportunities for those who look only for the chance to work;
and confidence abroad, to put a dismal record of performancA behind us, once
and f or all .
This budget is designed to give that double boost to conf idence. I cammend it .
to the house and to the nation.
The chancellor spoke for one hour and 50 minutes.
COPYRIGHT: Times Newspapets Limited, 1982
CSO: 3120/48 ~
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