Marianne Curphey, The Guardian
This pre-budget report was primarily aimed at parents, says Marianne
Curphey - but look closer and there were benefits for businessmen and
significant changes to the pensions rules, too.
While the City tends to focus
on Gordon Brown's borrowing levels and inflation targets, the chancellor
always likes to throw in a few surprises for the ordinary taxpayer. This
pre-Budget report was no exception - it was unashamedly aimed at parents
and entrepreneurs, while also proposing some major changes to the pension
If you are an amateur sports
fan with a couple of young children and a job as head of a small science
or technology business, then the chancellor had nothing but good news for
you. Appealing to popular enthusiasm for sport following England's rugby
world cup win in Australia, Gordon Brown announced he was going to do more
to foster young sporting talent in this country. He is giving amateur
sports clubs an 80% rate relief, which he hopes will encourage young
people to become involved in local activities.
As a new father, the chancellor
jokingly claimed that it was not the state of the economy or the
opposition parties which were giving him sleepless nights. He had plenty
of positive news for fellow parents with young children, claiming that a
package of child benefits, worth £1bn a year, would help working families
from next April. Currently, Britain does not have a good record on
childcare: it is way behind countries like Sweden, for example, in terms
of care and parental rights.
The increase in tax credits
from the new tax year next April is another move which will benefit
parents, as the child element will be increased by 13%. According to Mr.
Brown, this will mean an extra payment for seven million children of £180
a year - which amounts to an extra £3.50 a week each. The maximum help
for the first child will rise to £58 in April, and for two children to £100
a week. The chancellor claimed that both figures are more than double the
amounts in place when Labour came to power in 1997. We should, however, be
a little cautious about the detail of these claims. Gordon Brown has a
habit of making bold assertions about the benefits of his budget policies
in his speech which don't look quite so generous when examined in detail.
He claimed that, before housing costs, a two-parent family on half the
national income would be £75 a week better off from next April, with the
aim of eradicating child poverty within a decade. "With the best
schooling, services and financial support, every child has the chance to
develop their potential to the full," he said, before outlining how
every employer will be able to give childcare benefits of £50 a week for
every employee, free of any national insurance.
The definition of approved
childcare will be extended to include care at home, which the chancellor
said would double the number of childcare places available to 1.5 million.
While in theory this sounds great for individuals, particularly those who
are trying to work flexibly, it could become a massive headache for
Take the retail trade, for
example, which has a huge female workforce, the majority of whom would
probably like to take advantage of such a scheme. Even though employers
will have a corporation tax reduction and pay no NI on the credits to
staff, they are expected to fund it themselves. It could end up meaning
that firms in certain parts of the economy face a sudden and substantial
cost in setting up and running such a scheme. Flexibility for employees
does not always spell more flexibility for employers.
Also published today were the
government's new proposals for simplifying and changing the tax regime for
pensions. This is the second draft of a consultation paper, with the
government asking for responses by March next year. The possible changes
to pension rules, discussed in both the first and second draft papers,
include the cap on the maximum pension benefits available at retirement,
greater flexibility within annuity rules and the opportunity for people to
take a pension much earlier.
One of the most controversial
proposals within the first draft had been the plan to cap the value of an
individual's benefits at £1.4m, a move which the chancellor said would
only affect 5,000 people. After representations from the industry he said
today that he had asked the National Audit Office to examine this figure
of those affected, and report back.
One concession being offered
appears to be that the tax regime on the funds above the £1.4m would be a
rate of 25%, rather than the 33% which was proposed in the first draft.
Even so, this issue tends only to affect the very wealthy, since for the
majority of Britons the problem is of under- rather than over-funding a
The chancellor hinted that the
current state pension scheme was "sustainable", since it
represented only 5% of gross domestic product (GDP), compared with three
times that in Europe. However, the implications of not increasing those
levels in this country mean that the state pension won't provide a
particularly good income in the future. In the chancellor's eyes, while
our fellow Europeans struggle against unsustainable (but more generous)
state schemes, we are taking a more prudent line.
For entrepreneurs, the
chancellor promised a further extension of tax credits for research and
development - including help for the British film industry. He said red
tape would be cut with the scrapping of 147 regulations, making this
country able to compete on a global and European basis. This will be good
news for small businesses in particular, which claim that bureaucracy and
form-filling takes up a disproportionate amount of their time and makes
them less competitive. The chancellor likes to think of himself as the
catalyst for the creation of, and investment in, new businesses around the
country. As a consequence, he announced a consultation on ways of
encouraging real estate investment trusts, and incentives to fund start-up
business via more generous tax break for venture capital trusts.
Overall, the pre-budget report was a little more subdued than usual - overshadowed by the fact that the many economists believe the chancellor is still too optimistic about economic growth. But he still found time to promise a freeze of duty on whisky, if a workable arrangement to stop spirits smuggling can be found with the drinks industry.