Building A Fairer Society

Introduction

5.1 To achieve the Government's goal of high and stable levels of growth and employment everyone of working age in Britain must have the chance to share in rising economic prosperity. Economic growth, opportunity and fairness go hand in hand: an economy in which a significant proportion of the population is unable to fulfil its potential will be poorer and less productive. The Government is therefore committed to:

• ensuring that everyone has access to high quality public services, including decent schools and a modern health service;
• supporting families with children;
• targeting support on:

• work as the best way out of poverty (as set out in Chapter 4);
• help for those not in work, including giving a better deal to pensioners;

• ensuring that economic growth takes place in a sustainable way which respects the environment and is fair to both current and future generations.

5.2 The CSR focused on how public services could be modernised to meet these goals, and put in place Public Service Agreements that set explicit aims, objectives and targets to be achieved by the public sector with the funding provided. Budget 99 focuses on tax and other measures that will make Britain a fairer society and help protect the environment.

High Quality Public Services

5.3 High quality public services are the bedrock of a fair society and affect the quality of all of our lives. The outcome of the CSR announced last July set out how the Government will invest in and reform key public services over the next three years. These reforms mean public services will be able to meet the changing demands of a modern world and promote wider opportunities for the many people using them.

5.4 Key elements of these plans include:

• additional investment of £19 billion in education, doubling the capital budget for schools, expanding further and higher education, and providing resources to meet manifesto commitments on reducing class sizes;
• £21 billion for health, modernising the NHS and supporting the largest hospital building programme in the history of the NHS;
• a new integrated transport strategy, supported by £1.7 billion of additional spending on public transport and the road and rail network; and
• £4.4 billion to regenerate cities and housing, tackling the council house repairs backlog, and providing a New Deal for Communities - expanding economic opportunity, improving neighbourhood management, and bringing housing and regeneration together in some of the most deprived neighbourhoods in the country.

5.5 The CSR also provided for the Invest in Britain Fund which will double public sector net investment over the next three years. Departmental Investment Strategies have been prepared to ensure efficient use of this investment, and will be published shortly.

5.6 Within the Invest in Britain Fund (and the overall CSR spending plans), a £2.5 billion Capital Modernisation Fund (CMF) was set aside to fund additional innovative investment projects. The CMF is being allocated competitively across the Government's priorities to provide specific step changes in the quality of designated public services and infrastructure. This will complement the improvements across the public sector as a whole set out in the Public Service Agreements.

Box 5.1: Capital Modernisation Fund The Government has announced a major boost to investment in access to computers, a modern NHS and the fight against crime, financed from the Capital Modernisation Fund totalling £1.1 billion over the next three years. The £2.5 billion Fund was set up in the CSR to support capital investment to improve public services. It initially provided £1 billion for spending in 2000-01 and £1.5 billion in 2001-02. The Government now believes, consistent with the fiscal rules, that there is scope for a more rapid start in these three key areas and has brought forward £250 million of the Fund from 2001-02 to 1999-2000. The national IT Strategy As part of the £1.7 billion national IT strategy, £470 million has been allocated from the CMF to provide extensive access to technology in the community, in schools and in homes: for communities, it will fund a network of learning centres for adults across the country, allowing maximum scope for partnerships with local authorities, companies and others, supporting the University for Industry network and alongside additional investment from the New Opportunities Fund (NOF); for schools, to raise standards further, it will offer super-specialist facilities, building on the National Grid for Learning, and subsidised loans to teachers to buy computers, so that they can make the most of their NOF-financed training; and in homes, it will support a scheme for renting computers for family use, which will complement a tax relief for employees who are loaned computer equipment by their employers. Modernising the Health Service for the 21st Century £430 million will be invested in the NHS over the next three years to modernise hospitals and primary care. This will complement existing programmes modernising Accident and Emergency departments, further improving primary care facilities and ensuring that patients get faster and more convenient access. Safer Communities £170 million will provide a substantial boost to the Government's fight against crime, building on the Crime Reduction Programme. Further allocations from the CMF will be announced in due course.

Support for all families with children

5.7 To build a strong economic future, the Government recognises the need to invest in children. The share of tax paid by households with children has increased since the 1970s. Since 1972 the tax burden for a one earner couple with two young children on male mean earnings has increased from around 18 per cent of earnings to 21 per cent in 1997-98. This Budget and the last reverse the decline in the provision society makes for families with children through the tax and benefits system.

5.8 The Government has made clear that support for children will in the future be built on universal Child Benefit paid to the main carer and, as a recognition of its importance, Child Benefit for the eldest child will be raised from April 1999 by £2.95 a week. From April 2000, Child Benefit, as a result of Budget 99, will be increased by a further 3 per cent in real terms to £15 for the first child and £10 for subsequent children.

5.9 Budget 99 goes further in ensuring that financial support provided through the tax and benefits system is fairer, and that the tax burden on families with children is further reduced to its lowest level since 1972.

5.10 The married couple's allowance and related allowances are not simply restricted to married couples, being available at the same flat rate to single parents and unmarried parents living together. The MCA does not serve its purpose in recognising marriage because it is possible for twice the normal level of allowances to be paid in the year a married couple with children separate.

Children's Tax Credit

5.11 The married couple's allowance and its related allowances will be removed from April 2000. It will be replaced with a new Children's Tax Credit from April 2001. The Children's Tax Credit will be available to families with one or more children. It will be worth £416 a year compared to a married couple's allowance worth £197. It will go to around 5 million families.

5.12 The Chancellor made clear in his last Budget that the Government was determined to increase substantially support for families with children and to do so in the fairest way. The new Children's Tax Credit will therefore be tapered away for families where there is a higher rate taxpayer. Chapter 1 of the FSBR contains further details. In the light of this reform, the Chancellor has decided not to tax Child Benefit in this Budget.

5.13 The Government sees a case for improving the transparency and administration of income-related payments for children through the tax and benefit system. It is examining, for the longer term, the case for integrating the new Children's Tax Credit with the child premia in Income Support and the Working Families Tax Credit - an integrated child credit. This could allow families' entitlement to income-related child payments to be assessed and paid on a common basis. A single seamless system, without disruptions in financial support, would provide a secure income for children in the family's transition from welfare to work. Such an integrated child credit, for those in and out of work, could be paid to the main carer, complemented by an employment tax credit paid through the wage packet to working households, with or without children (see paragraph 4.67 above).

Targeted support

5.14 The Government also recognises the challenges and difficulties faced by low income families, especially at particular times in their children's lives. The evidence shows that:

• one in three children is growing up in poverty - this is the highest rate in Europe;
• most children are poor because their parents do not have work or have insufficient work. The number of children growing up in workless households is higher than in any other EU country;
• disadvantaged children fall behind from a very early age - by 22 months there are significant differences in educational development;
• once they have fallen behind they are very unlikely to catch up through school, but early intervention programmes are effective; and
• the incomes of families with children have fallen relative to other families and 10-15 per cent of families fall into poverty when they have a child.

5.16 Reducing the number of workless households with children is crucial to relieving childhood disadvantage. Chapter 4 sets out the strategy and measures for encouraging and equipping people to move into work.

Working Families Tax Credit

5.16 A key element of this strategy is to make work pay. The tax burden on poorer families has increased sharply over the past 30 years. In 1972, a one earner couple with two young children on half male average earnings paid 2.1 per cent of their earnings in tax. By 1997-98 this figure had risen to 8.8 per cent. The introduction of the Working Families Tax Credit in October 1999 will provide extra help to 1.4 million families on lower incomes. Budget 99 increases the level of support available through the Working Families Tax Credit - ensuring all low-paid working families will see the benefit of increased support for children.

5.17 From October 1999, the basic credit in the Working Families Tax Credit will also be increased by £2.50 and the under-11 child credit will be increased by £4.70 with a further increase of £1.10 over and above indexation from April 2000. These measures, along with the new 10p rate of income tax, will mean that from October 1999 the minimum income guarantee for families with someone in full-time work will be £200 a week or £10,400 a year.

5.18 Families are most likely to be under pressure when their children are young. The Government is targeting extra support for children under 11. It announced increases of an extra £2.50 a week for each child under 11 to families on income-related benefits in the last Budget.

5.19 Budget 99 increases the under 11 child credit in WFTC and, from October 1999, gives an extra £4.70 per week for children under 11 in families on income-related benefits, with a further £1.05 in April 2000 over and above indexation. There will be additional increases to ensure that families on income-related benefits enjoy the full value of the planned increases in Child Benefit.

Sure Start Maternity Grant

5.20 The period before and immediately after birth is also crucial to a child's development. The Social Fund Maternity Payments paid to mothers in low-income households to help with the initial costs of having a new child have been frozen at £100 since 1990. This is an increasingly inadequate contribution towards providing new babies with early essentials. In this Budget a new Sure Start Maternity Grant will replace the Maternity Payment with the payments doubled to £200. The increased payments will be linked to contact with a healthcare professional to ensure expert advice on child development and services.

5.21 A strategy to help families and children must also recognise that parents need support in balancing family life with work. At the moment women in low-paid part-time work do not qualify for paid maternity leave. Entitlement to Maternity Allowance will be extended to women earning less than the lower earnings limit (£66 pw) but at least £30 a week. This will mean that, for the first time, all pregnant working women can feel able to take adequate time off around childbirth. Research shows that improvements in UK maternity provisions have been crucial in reducing the financial penalties of motherhood. Similarly, the new parental leave provisions will mean that from next December working fathers and mothers can each take up to 3 months off work, with job protection, to be with a young child. This should also help families achieve a better balance between work and family life, whilst retaining their jobs. Many of these families will already be entitled to claim WFTC or Income Support during such leave.

Box 5.2: Public Services to help the youngest children To prepare children to be ready to thrive at school the Government allocated a total of £540 million to Sure Start as part of the CSR. This is a new programme to pioneer a coordinated approach to services for families with children aged under 4, covering childcare, early education and play, health services and family support. The Sure Start Public Service Agreement set a target of 250 local programmes by 2001-02. The Government has also provided nursery places for all eligible 4 year olds whose parents want one since September 1998. The CSR included provision to increase the number of nursery places for 3 year olds, targeted on areas of greatest social need, from 34 per cent to 66 per cent by 2001-02.

Effect of Budget 99 for families with children

5.22 The last Budget gave an increase in support for children to the seven and half million households with children. Budget 99 will build on that, cutting the tax burden for working families. The combination of both budgets will mean that households with children gain on average £740 a year compared to all households who gain on average £380 a year.

Chart 5.1: Children and working families gain the most from Budget 98 and Budget 99

The figures underlying the chart are for the average change in net household income from all the direct tax and benefit measures announced in Budget 99 and Budget 98 which take effect in 1999-00 to 2001-02. The changes are relative to indexation.

5.23 Taken together Budget 99 and the last Budget will mean that a one earner couple with two children on £20,000 (average male earnings) will be £460 a year better off. For the same couple the effective tax rate will fall from 21 per cent in 1997-98 to 19 per cent in April 2001, the lowest since 1972. Chart 5.2 shows how the tax burden on a family on average earnings with two children will change as a result of the Budget measures.

Chart 5.2: Tax burden on a family on average earnings with two children

5.24 Support for low income families has also been increased. As a result no family with children will pay net income tax on earnings of less than £235 a week.

5.25 On average, WFTC will give families an extra £24 a week compared to Family Credit.

5.26 The measures announced in this Budget and the last will take around 700,000 children out of poverty.

Box 5.3: Women and the Budget The Government is committed to deliver for women. The average increase in weekly income for women as a result of measures in Budget 99 and Budget 98 will be £5.40, compared to £4.20 for all individuals. Women make up a disproportionate number of the poorest groups in society. Budget 99, together with previously announced measures, will particularly benefit low-earning women and women who work part-time, increasing the average take home pay of women. The new measures in Budget 99 demonstrate the Government's commitment to ensuring that women get a fair deal out of the tax and benefits system. Women will gain from the introduction of the 10p rate of income tax, from the further National Insurance reforms, as well as from the extension of maternity pay to low-earners and from the new Sure Start Maternity Grant. This is on top of measures announced in previous Budgets which will benefit women: the Working Families Tax Credit with its childcare tax credit, the National Minimum Wage, the National Childcare Strategy and the forthcoming legislation on parental leave and part-time workers.

Fairness to Pensioners

5.27 Pensioners also need fair and decent support. The Government has continued to honour its commitment to providing more help for pensioners. The first step came with the package of measures for pensioners in the CSR, including:

• an allocation of £500 million over three years from April 1999 to make winter fuel payments of £20 to all pensioner households;
• a minimum income guarantee through Income Support. For single pensioners aged between 60 and 74 this will be set at £75 per week from April 1999 - over three times the increase pensioners would have received under normal uprating; and
• the introduction of free eye tests for pensioners from April 1999.

5.28 Building on this foundation, Budget 99 introduces a new package of measures for pensioners worth a further £1 billion every year. This package includes:

• a fivefold increase in the winter allowance from £20 to £100. This increase helps every pensioner household;
• a commitment to uprate the minimum income guarantee by earnings rather than prices in April 2000. The minimum income guarantee, which will be introduced from April 1999, itself represents an increase several times above indexation compared to previous Income Support rates for pensioners. The commitment to uprate by earnings in April 2000 ensures that poorer pensioners will continue to benefit; and
• the introduction of the Minimum Tax Guarantee. Age-related income tax personal allowances will be increased by up to £200 over indexation. This will mean that no pensioner aged between 65 and 74 with income of £110 per week or less will pay income tax. For those aged 75 or more, no pensioner with income of £115 per week or less will pay income tax. And pensioner couples who already receive the married couple's allowance will be able to keep this entitlement.

5.29 Combined with the new 10p and 22p tax rates, 200,000 pensioners will be taken out of income tax altogether as a result of measures in Budget 99. Moreover, the average pensioner household will be £240 per year better off. Together with the CSR package, the additional £1 billion of spending each year on pensioners ensures that the Government is meeting its manifesto pledge to help pensioners "share fairly in the increasing prosperity of the nation".

5.30 Pensioners with savings will also be offered more choice. The Government will introduce new pensioner bonds offering fixed monthly income as existing Pensioner Bonds do, but at terms of less than five years. This will give pensioners the security of a guaranteed income, without having to lock away their savings for as long as five years.

5.31 Finally, the Government has undertaken to ensure adequate pension incomes for future pensioners. The Pensions Green Paper sets out proposals to improve provision by dramatically improving state second pension rates for people on low earnings compared to SERPS. The aim is to ensure that people who have spent a lifetime in work get more out of their pension and do not have to rely on means-tested benefits in retirement.

5.32 The Green Paper also sets out details of the stakeholder pension, a central element to the Government's savings strategy.

Fairness in saving

5.33 The Government wants to encourage people to save, both to underpin long-term investment and to secure their own financial welfare for the future. This underpins the Government's policy of work for those who can and security for those who cannot.

5.34 Encouraging people to save does not mean compulsion. It means encouraging more of those who are able to take responsibility for their own security through saving. It means promoting awareness of saving opportunities and improving investor confidence through reforming the regulatory framework. And it means challenging the industry to produce better, low-cost, simple savings products.

5.35 Government is introducing or has introduced:

• Stakeholder pensions. This new type of pension will combine the low overheads and high security of occupational pensions with the flexibility of personal pensions, and will be available to all. They are particularly designed to help those on middle incomes between £9,000 and £20,000. Tax relief will be available on contributions to stakeholder pensions in a similar way to occupational and personal pensions, but will have simpler limits;
• Individual Savings Accounts (ISAs), which will start on 6 April 1999. The aim of ISAs is to extend the savings habit to the half of the population that has little or no savings at the moment. Savers will be able to put their money into bank or building society accounts, including National Savings, life insurance products and stocks and shares. Interest, dividends and capital gains on assets held within the account will not be liable to income or capital gains tax and a 10 per cent tax credit will be payable on dividends from UK equities during the first 5 years. And savers can get access to their savings in an ISA whenever they want to.

5.36 But the Government also wants people to consider where to put their savings to see if they fit the level of risk and reward they find acceptable. It is important that those wishing to invest and get tax relief are all able to do so confidently. To this end:

• there will be a wide variety of ISAs on offer and CAT standards will help savers recognise fair Charges, easy Access and decent Terms for each of these;
• we are consulting on a Pooled Pension Investment (PPI) to enable any kind of pension vehicle (including stakeholder pensions, when available) to invest in pooled investment funds. The PPI should make it easier and cheaper for people to transfer their pension savings from one kind of pension to another. And because the PPI is transparent it should help demystify pensions and make it harder for mis-selling to occur.

Fairness in Housing

5.37 A modern housing policy is essential if we are to ensure that everyone has the opportunity of a decent home. But Britain's current housing system is failing those in need.

5.38 Successive Governments have reduced both the rate and level of tax relief on mortgage interest payments. Both short-term and long-term interest rates have fallen considerably over the last year. The Government has therefore decided to abolish Mortgage Interest Relief from April 2000, to improve the functioning of the housing market and to contribute to the long-term stability of the economy.

5.39 Alongside reforms for owner-occupiers, the Government is planning reforms for renters. In the social rented sector, there are few incentives for efficient use of the housing stock; and rents bear little relationship to the size, location and condition of properties. Under-occupation of council housing exists side by side with homelessness and overcrowding.

5.40 Housing Benefit can exacerbate these problems. Many other European countries have a flat rate element in personal housing support. In Britain, tenants on Housing Benefit are often given little interest in the rent - provided it falls within local limits, it can be reimbursed in full. This means that there are few checks on the rents that landlords can charge at the bottom end of the private rented sector. This pushes up the welfare bill and hits those on low and middle incomes but not on Housing Benefit.

5.41 The current housing system is bad for the labour market as well as the housing sector. For many families, Housing Benefit is a disincentive to work, contributing to the poverty trap and the unemployment trap. Evidence suggests that the low visibility of Housing Benefit as an in-work benefit is a major disincentive to taking a job. A number of independent studies have proposed the integration of personal housing support with the tax credit system for those in work.

5.42 Housing Benefit is extremely complex. This makes it difficult for local authorities to administer; difficult for claimants to understand; and extremely prone to fraud. It is estimated that as much as £600 million a year is lost through Housing Benefit fraud.

5.43 The Government's ambition is to tackle these problems by modernising housing policy. In the social rented sector, the Government is investing heavily to improve the stock and to modernise service delivery. It is drawing up a national strategy for neighbourhood renewal, to tackle problems on our most deprived estates, to bring vacant properties back onto the market and to reduce rough sleeping. Moreover, the Government has been working in partnership with local authorities to develop proposals for simplification and improvement of the existing system of Housing Benefit.

5.44 For the future, the Government is looking at options for strengthening the link between social rents and the size, location and condition of properties. Other options for study include the possibility of wider reforms to the system of personal housing support.

5.45 Further details will be announced in a Housing Policy Green Paper later in the year, which will complement the Urban White Paper and the Rural White Paper already announced. Thereafter, there will be extensive consultation with all stakeholders. It is important that any reforms help make the housing market and labour market fairer for all concerned.

Recognising the contribution of charities

5.46 The Government recognises the excellent work that charities do delivering services and supporting individuals and communities, complementing but not replacing the role of Government.

5.47 It is reviewing charity taxation in order to move towards a tax system which encourages more people and businesses to give to charity and is as simple as possible for donors and charities to operate.

5.48 As part of this ongoing review, the Government is publishing today a consultation document setting out options for change. It includes options to:

• reduce the minimum limit for Gift Aid payments from £250 to £100 from 2001 and allow donations to be made by instalments;
• encourage take-up of the Payroll Giving scheme by removing the current upper limit on the size of donations, and providing a "kick-start" top up on donations;
• simplify and improve the tax system for charities, including the alignment of direct and indirect tax rules for fund-raising events, and a single helpline that charities can ring for advice on all aspects of tax; and
• modernise and simplify the existing VAT reliefs, including the relief for advertising.

5.49 The Government also wants to encourage businesses to give to charity. In Budget 99 the Government is therefore extending to all charitable causes the tax relief for gifts of trading stock and equipment by business.

Tackling tax abuse

5.50 Budget 99 shows the Government's commitment to promoting opportunity and fairness for all. When individuals and businesses abuse the system to avoid paying tax or reduce their liability, it undermines the fairness of the system, leading to higher burdens falling on the majority of taxpayers.

5.51 The Government is committed to countering abuses and contrived avoidance schemes, whilst recognising the right of businesses and individuals to manage their tax affairs efficiently.

5.52 Budget 99 contains a package of measures to ensure that individuals and businesses pay their fair share of tax. Further details are listed in the FSBR. Among the key measures are:

• rules to prevent individuals avoiding income tax by providing personal services through intermediaries, such as service companies;
• rules to prevent companies avoiding tax by channelling UK dividends through controlled foreign companies;
• a package of measures to combat avoidance of VAT; andm
• an independent evaluation of the strategy to counter excise duty fraud and evasion, and in particular the growing threat of tobacco smuggling.

Protecting the environment

5.53 The Government is committed to ensuring that economic growth takes place in a sustainable way which respects the environment and is fair to future generations.

5.54 Environmental objectives must be achieved in the most efficient way available, taking into account the advantages and disadvantages of different policy options for securing those objectives.

5.55 This agenda has been taken forward in an open and consultative way, and the Government has sought to build consensus where possible on the best way forward. Examples of this approach include:

• the Task Force led by Lord Marshall on the role of economic instruments and the business use of energy;
• a consultation document on a graduated Vehicle Excise Duty (VED) system for cars to encourage cleaner vehicles; and
• the publication of the results of reviews (e.g. on landfill tax) and research (e.g. on the environmental costs and benefits of aggregates extraction).

5.56 Budget 99 presents the biggest ever package of environmental tax reforms in this country. This includes measures aimed at:

• tackling climate change;
• improving local air quality and supporting the Government's integrated transport strategy;
• encouraging sustainable waste management; and
• limiting the impact of land use and water pollution.

Chapter 1 of the FSBR contains full details of these measures.

5.57 Box 5.4 explains how the Government is also reviewing its policies aimed at improving the quality of life in urban areas.

Box 5.4: Urban renaissance and the Urban White Paper The Government's objective is to offer everyone the opportunity of a decent home. Population and household projections indicate that over the next two decades the number of households in England will substantially increase, as the population lives longer and forms more one-person households. A White Paper will be published later this year setting out the Government's approach to improving the quality of urban areas. This will complement the work of the Urban Task Force, led by Lord Rogers of Riverside, which is due to report in the early summer on how urban areas may be rejuvenated. The Government will also consider what measures might be appropriate to encourage the repair and better use of the existing housing stock, a significant proportion of which is empty or under-used.

Climate change

5.58 Climate change is recognised as one of the greatest environmental threats facing the world. Latest forecasts from the Meteorological Office's Hadley Centre estimate that average temperatures will rise by up to 3.5ºC by the end of the next century.

5.59 A consultation document was published on 26 October 1998 which set out a range of possible options for meeting the UK's legally binding target of a 12.5 per cent reduction in greenhouse gas emissions on 1990 levels by 2008-2012, and for moving towards the Government's domestic goal of a 20 per cent reduction in carbon dioxide emissions on 1990 levels by 2010. The consultation period closed on 12 February. Over 700 responses were received. The Government has been assessing these responses, with a view to producing a draft programme later this year.

5.60 All sectors of the economy will need to play their part in tackling the problem of climate change. A mix of policy instruments will also be needed. As part of this, the Government is taking forward Lord Marshall's recommendation on a dry run emissions trading pilot, and is discussing with industry the details of setting up such a scheme. This could give industry and Government valuable experience of trading, and help to give the UK a lead in this area.

5.61 In March 1998, the Chancellor asked Lord Marshall to consider whether, and if so, how best, economic instruments could be used to improve energy efficiency in business and reduce greenhouse gas emissions from this sector. In developing its strategy on climate change, the Government has considered carefully the recommendations made by Lord Marshall, published in November 1998.

5.62 The Government agrees with Lord Marshall that there is a role for a tax, as part of a package of measures, alongside negotiated agreements and emissions trading, if businesses of all sizes and from all sectors are to contribute to improved energy efficiency and help meet the UK's emissions targets. But the Government is also mindful of the need to protect the competitiveness of UK industry.

Climate change levy

5.63 The Government therefore intends to bring forward legislation in the Finance Bill 2000 to introduce a climate change levy from April 2001 raising around £1.75 billion in its first full year.

5.64 The Government also agrees with Lord Marshall's recommendation that the levy must be designed in a way that protects the competitiveness of UK firms. The Government therefore intends to recycle the revenues to business through a cut of 0.5 percentage points in the main rate of employer NICs. Businesses will also benefit from schemes aimed at promoting energy efficiency directly and stimulating the take-up of renewable sources of energy, like solar and wind power. The introduction of the climate change levy will therefore entail no increase in the burden of taxation on business.

5.65 The Government also recognises the need for special consideration to be given to the position of energy intensive industries given their energy usage, the separate Integrated Pollution Prevention and Control regulation and their exposure to international competition. In line with the recommendations made by the CBI, there will not be taking a blanket 'across the board' approach to setting the appropriate level of the new levy. Subject to any legal and practical constraints, the Government intends to set significantly lower rates for those energy intensive sectors that agree targets for improving energy efficiency which meet the Government's criteria.

Supporting integrated transport

5.66 The White Paper A New Deal for Transport: Better for Everyone, published in July 1998, set out the Government's integrated transport strategy. This aims to extend choice in transport and secure mobility in a way that supports sustainable development.

5.67 A mix of policy instruments is being used to address the environmental problems associated with road transport. The White Paper proposed a number of new measures affecting road traffic, such as powers for local authorities to introduce road user charges and workplace parking charges to reduce congestion and to generate revenue to fund complementary local transport projects. Box 5.5 shows how measures in Budget 98 complemented measures in the White Paper aimed at meeting the accessibility needs of rural areas.

5.68 Economic instruments have an important role to play in influencing travel choice. They can ensure that the price of transport reflects all costs, including environmental costs. The previous 2 Budgets have reinforced the integrated transport strategy by:

• increasing the commitment to raise road fuel duties from 5 per cent in real terms a year to at least 6 per cent. This remains the key policy instrument for reducing emissions of carbon dioxide from this sector;
• moving towards a fairer tax treatment of petrol and diesel, when calculated on an energy or carbon basis. This means that the duty on diesel should be higher than that for unleaded petrol;
• increasing the duty differential between ultra low sulphur diesel (ULSD) and standard diesel to encourage the use of this cleaner fuel. This will reduce emissions of particulates and nitrogen oxides from existing vehicles and, over time, encourage the use of cleaner diesel technology. Box 5.6 describes the dramatic impact this policy has had already on the take-up of ULSD;
• encouraging the use of road fuel gases, which produce much lower emissions, especially of particulates, than conventional fuels; and
• increasing the fuel scale charges for company cars.

5.69 Budget 99 includes a series of major reforms which will help meet the Government's environmental objectives, and help underpin its integrated transport strategy. These include:

• a fundamental reform of the company car tax regime to be implemented on a revenue neutral basis in April 2002. This will replace incentives to drive extra miles with an incentive to use more fuel efficient cars. Reductions in business mileage discounts and older car discounts in April 1999 are a first step towards this longer term reform. Box 5.7 contains additional details;
• a new £100 reduced rate of Vehicle Excise Duty for cars with engines up to 1,100cc to be introduced from 1 June 1999. From Autumn 2000, Vehicle Excise Duty rates for new cars will be based primarily on their carbon dioxide emission rates. In Budget 2000, Vehicle Excise Duty rates will be set to secure a revenue neutral system;
• a package of seven measures to encourage employers to establish "green transport plans" and promote environmentally sensitive commuting by their employees;
• honouring the commitment to increase fuel duties, and altering duty differentials to further encourage ultra low sulphur diesel and road fuel gases; and
• a package of Vehicle Excise Duty measures for heavy goods vehicles to discourage the use of heavy lorries and encourage cleaner ones.

Land use and water pollution

Landfill tax

5.70 The Government announced its intention to review the existing National Waste Strategy in January 1998. A consultation paper for England and Wales, Less Waste: More Value, was launched on 9 June 1998. A draft strategy will be published later in the Spring, with a view to adopting a final strategy by the end of this year. Parallel strategies are being developed for Scotland and Northern Ireland. The new strategy will set out the Government's vision of sustainable waste management over the next twenty years.

5.71 In March 1998, the review of the operation and level of the landfill tax was published. To ensure that the tax continues to help minimise the environmental damage of landfill, Budget 98 announced:

• an increase in the standard rate of landfill tax from £7 a tonne to £10 a tonne from April 1999; and
• an exemption for inert waste used in restoring landfill sites and filling mineral workings.

5.72 The Government intends to reinforce the signals to move towards a more sustainable waste management system. As part of that, Budget 99 announces an escalator in the standard rate of landfill tax of £1 a tonne each year, from April 2000 until at least 2004, when the National Waste Strategy will be subject to further revision. The rate increases will mean that more money will be available to be claimed as tax credits for contributions to environmental bodies. A number of changes will also be made to the environmental bodies scheme to clarify and simplify the rules. This will make it easier for landfill operators to support environmental projects, including research and education on recycling and other forms of sustainable waste management.

Extraction of aggregates

5.73 Budget 98 announced that the Government was pursuing further work into the environmental costs of the extraction of aggregates, such as noise, dust, visual intrusion, loss of amenity and damage to biodiversity, and considering a tax alongside other options as a means of addressing these costs.

5.74 Results from the second round of research into the environmental costs of aggregates extraction shows that there are significant environmental costs associated with the extraction of aggregates. The Government believes there is a case, in principle, for an aggregates tax. As a result of the consultation on how a possible aggregates tax might work, draft legislation for a tax on the extraction of sand, gravel and hard rock used as aggregates will be published shortly for consultation.

5.75 However, before coming to a final decision on whether to proceed with a tax, the Government would like to pursue further the possibility of a package of voluntary environmental improvements by the quarrying industry. Should the industry not be able to commit to an acceptable improved offer, or fail to deliver an acceptable package of voluntary measures, the Government would then introduce a tax.

Water pollution and pesticide use

5.76 The quality of rivers has improved significantly in recent years. In the UK about 95 per cent of river length is now classified as "very good", "good" or "fair". However, the Government wishes to see further improvements in water quality. Much of the investment necessary to deliver these quality improvements will be agreed as part of the Periodic Review of water company price limits.

5.77 Against this background of further targeted improvements, the Department of the Environment, Transport and the Regions commissioned research into the practicalities of a national tax or charge on water pollution discharges. The emerging results of the research suggest that a national tax or charge may not be the most effective way to secure further improvements in water quality. The Government is therefore not inclined to introduce a national tax or charge on pollution discharges. Improvements in water quality will continue to be sought, however, through focused use of the regulatory system.

5.78 The Government has also been considering the case for introducing a pesticide tax, as part of its policy for pesticide minimisation. A research report commissioned by the Department of Environment, Transport and the Regions on the possible impact and design of a tax or charge on pesticides will be published shortly. The Government will seek views on a number of issues the report raises before reaching a conclusion on this issue.

Environmental appraisal of the Budget measures

5.79 The Government is committed to ensuring that environmental impacts are taken into account in assessing different policy options. Central government guidance makes clear that appraisal systems should try to take account of all environmental costs and benefits, even when they are not easily quantifiable. There is detailed guidance on how to do this, including issues of proportionality and the extent of quantification and valuation.

5.80 The establishment of the Environmental Audit Committee of the House of Commons, with its remit to scrutinise the contribution that government departments make to environmental protection, has helped reinforce the Government's commitment to environmental appraisal.

5.81 The requirement to appraise properly the environmental consequences of policy applies to all Budget measures, irrespective of whether a primary aim of those measures is environmental improvement. All potential Budget measures from the Chancellor's departments must therefore undergo an environmental appraisal.

5.82 Budget 98 contained, for the first time, a table showing the environmental appraisal of Budget measures. That approach is developed in Budget 99 in Table 5.1, which includes those measures which have a significant impact on the environment or whose aim is primarily environmental.

5.83 Wherever possible, the Government attempts to quantify these environmental effects. For example, estimates are quoted of the savings of carbon dioxide emissions from the road fuel duty escalator. There are significant margins of error surrounding these estimates and undue weight should not be placed upon the figures shown. In other cases, it is extremely difficult to quantify the environmental effects, or the precise details of the reform are not yet well defined.

5.84 Table 5.1 also refers to the draft "headline" indicators of sustainable development which were set out in the consultation document Sustainability Counts, published on 26 November 1998. One of the aims behind these indicators is to convey complex environmental issues in a more readily understandable format. Table 5.1 integrates the indicators as a way of improving the accessibility of the table and emphasising the role of environmental taxation in underpinning the Government's commitment to sustainable development.

Table 5.1: The environmental impact of Budget measures

	Environmental impact1	Policy objective
A- Budget measures
Climate change levy	Estimated to produce savings of around 1.5 million tonnes of carbon (MtC) a year by 20102, a reduction of 2% in estimated CO2 emissions from business in 2010	Kyoto target of 12.5%reduction in UK greenhouse gas emissions on 1990 levels by 2010 Domestic goal of 20% reduction in CO2 emissions by 2010
Company car tax reform	Estimated to produce savings of around 0.5 to 1 MtC3	Kyoto target of 12.5% reduction in greenhouse gas emissions
Tax measures to encourage	Small reductions in congestion and emissions	Encourage more environmentally
green transport plans	of carbon dioxide and local air pollutants	sensitive commuting and business travel
Fuel duty increases4,5	Escalator over the period 1996 to 2002 estimated to produce carbon savings of 2 to 5MtC6 by 2010, some 5 to 12% of CO2 emissions from transport in 2010; and a reduction of 1% in NOx emissions and 1.2% in particulate emissions7	Kyoto target of 12.5% reduction in greenhouse gas emissions National Air Quality Strategy (NAQS) targets
Increase duty on standard diesel4 relative to unleaded petrol	Reduction of 1-3% of particulates and Nox5, 7. Very small increase in emissions of CO2	NAQS targets
Increase duty differential for ULSD4	Reduction of 21% of particulates and up to 2% of Nox=, 7	NAQS targets
Reduction in duty on road fuel gases	Reduction in emissions of particulates and NOx	NAQS targets
Minor oils duties	Small reduction in emissions of CO2 and other local air pollutants	Kyoto target NAQS targets
Graduated Vehicle Excise Duty for cars	Reduction of emissions of CO2, NOx and particulates3	Kyoto target NAQStargets
New rates of Vehicle Excise Duty for lorries	Reduce road wear	Internalise costs of lorry use
Increase Vehicle Excise Duty reduction for clean lorries and buses up to £1,000	Reduction in emissions of particulates and Nox	NAQS targets
Increase standard rate of landfill tax by £3 this year, and £1 for the following five years	Reduction in proportion of waste going to landfill	Reduce landfill and encourage recycling
B- Measures under consideration
Package of voluntary measures as a possible alternative to an aggregates tax	Possible reductions in noise, dust, visual intrusion, damage to wildlife habitats and other environmental impacts	Internalise environmental costs of aggregates extraction Encourage use of recycled aggregate
Pesticides tax	Improve water quality, biodiversity and reduce impact on wildlife	Reduce use of pesticides
1 These estimates are subject to significant margins of error.
2 See Lord Marshall's report on the Use of Economic Instruments for the Business Use of Energy. Estimates calculated using the DTI energy model.
3 Exact size of effects will depend upon design of the measures.
4 Based on assumption that the fuel duty escalator continues at its present level, increases of at least 6 per cent a year on average in real terms, until the end of this Parliament.
5 The reductions in particulates and NOx emissions are calculated as a percentage of 2010 emissions from urban road transport. The reductions in CO2 emissions are the estimated annual reduction by 2010.
6 Estimated carbon savings based on DETR's 1997 Road Traffic Forecast and the methodology set out in Energy Paper 65, DTI 1995.
7 Estimates of effect on emissions of local air quality pollutants based on DETR's 1997 National Road Traffic Forecast.
8 The "prudent use of natural resources" is one of the four aspects of sustainable development, not a draft headline indicator of sustainable development.

Other relevant policy initiatives	Draft sustainability indicator affected
See climate change consultation document UK Climate Change Programme, DETR October 1998	Emissions of greenhouse gases
Measures in A New Deal for Transport:Better for Everyone, DETR July 1998; and Breaking the Logjam, DETR December 1998	Emissions of greenhouse gases Road traffic
Measures in A New Deal for Transport:Better for Everyone, DETR July 1998	Road traffic Days of air pollution
Consultation document UK Climate Change Programme Measures in A New Deal for Transport:Better for Everyone and Breaking the Logjam Consultation document Report on the Review of the National Air Quality Strategy, DETR January 1999	Emissions of greenhouse gases Road traffic Days of air pollution
Consultation document Report on the Review of the National Air Quality Strategy, DETR January 1999	Days of air pollution
Consultation document Report on the Review of the National Air Quality Strategy, DETR January 1999	Days of air pollution
Consultation document Report on the Review of the National Air Quality Strategy, DETR January 1999	Days of air pollution
Consultation document Report on the Review of the National Air Quality Strategy, DETR January 1999	Emissions of greenhouse gases Days of air pollution
Consultation document Report on the Review of the National Air DETR October 1999	Emissions of greenhouse gases Days of air pollution
See Sustainable Distribution, DETR March 1999	Road traffic
Consultation document Report on the Review of the National Air Quality Strategy, DETR January 1999	Days of air pollution
Consultation document Less Waste: More Value, DETR June 1998	Waste and waste disposal
See Minerals Planning Guidance: Guidelines for Aggregates Provision in England, DoE 1994	Prudent use of natural resources8
Consultation document Economic Instruments for Water Pollution, DETR November 1997	Rivers of good or fair quality Populations of wild birds