Fairness for families and communities
5.1 The previous chapters set out how the Government is helping to build a strong and stable economy for the long-term, based on high and stable levels of growth and employment. But Britain's prosperity cannot be measured by these factors alone. A strong and productive economy must be underpinned by fairness and inclusion, enabling every individual to fulfil their potential - regardless of gender, disability, ethnicity, age, family circumstance, or the area in which they live.
5.2 The Government believes that where work is an option, it remains the best route out of poverty and social exclusion. Work brings with it independence for workers and their families. Chapter 4 sets out the Government's strategy to provide employment opportunity for all.
5.3 Social inclusion and the spread of opportunity to all are therefore at the heart of the Government's economic agenda. The Government recognises that while those who can work have a responsibility to do so, those who cannot have a right to security and support. But it also believes that opportunity has to be viewed dynamically, so that opportunity is not one-off but repeated and continuous. Support must be available at the right time in people's lives, to tackle problems before they take root, and to prevent opportunities being denied.
5.4 In particular, this means tackling child poverty, which is still at an unacceptably high level. The Government is committed to the eradication of child poverty within a generation, ensuring that people's life-chances are no longer unfairly determined by their childhood circumstances. This is why the Government is targeting financial help on those families, with children, who need it most, and developing new services to support children from particularly deprived backgrounds.
5.5 A fair society is also one that guarantees security for people in their old age. The Government is committed to ensuring that all pensioners share in the country's rising prosperity, creating a system of support for pensioners that is sustainable in the long term and targets most resources on those pensioners who need them most. For many people, savings - however modest - are a good way of ensuring security and independence. The Government wants to promote the right environment for supporting those who make provision for the future by saving some of their income.
5.6 Excellent public services, accessible to all, are essential to the development of a society that is fair and just. The availability of high quality education and health services, and the standard of public infrastructure, are key determinants of quality of life. The Government is committed, through the 2000 Spending Review, to a large programme of increased investment in Britain's key public services, with the long-term aim of bringing standards up to those of the very best.
5.7 The opportunity for the Government to make sustained increases in investment in public services depends partly on maintaining high and stable levels of economic growth. But it also requires prudent management of the public finances, based on a tax system in which everyone pays their fair share.
5.8 This chapter describes how the Government is applying these principles to help deliver a fairer society and a better quality of life for all. It describes the Government's approach to, and support for:
SUPPORT FOR FAMILIES AND CHILDREN
5.9 Over the past two decades, while the economy has grown, the proportion of children living in low-income households has more than doubled. This has denied opportunities to many in society and has also restricted the economy from growing at its full potential.
5.10 Alongside the rise in the number of children in low-income households, families with children overall have taken a decreasing share of national income. Between 1979 and 1995-6, average incomes after housing costs rose by 35 per cent for working households with children, and by 43 per cent for those without.
The challenge of child poverty
5.11 The Government's aim is for every child to have the best possible start in life. A substantial body of evidence suggests that children who grow up in low-income households experience disadvantage and lack of opportunity that affect not only their own experience as adults but also the life chances of their children.1
5.12 Lack of opportunity is of greatest concern when it persists between generations - when an individual's life chances are determined by their family background, rather than by their own skills and aspirations. Children's outcomes as adults are clearly related to their families' economic circumstances. For example, evidence shows that:
5.13 The influence across generations is strengthened further as children who grow up in disadvantaged families are more likely as adults to be dependent on benefit and unable to afford their own home. Daughters from disadvantaged families are also more likely to become teenage mothers.
5.14 Educational development over the first ten years of a child's life is linked to a range of factors that are more likely to occur in disadvantaged families, such as large family size, housing overcrowding and unemployment of the father. Even after allowing for such characteristics, low income has an additional adverse impact on educational outcomes. Children who grow up in poverty have poorer school attendance records, are less likely to remain in school at or beyond 16, and are up to ten percentage points more likely to have no qualifications. The effect of poverty on education may explain around half of the impact of childhood disadvantage on adult economic and social outcomes.
5.15 It is unacceptable that children's life-chances are affected by their family circumstances in this way. This is why the Government has set a long-term commitment to halve child poverty within ten years and to abolish it within a generation. A new milestone along the way is the 2000 Spending Review Public Service Agreement to reduce by at least a quarter by 2004 the number of children living in households with an income of less than 60 per cent of the median.
5.16 Child poverty is a complex problem. It therefore requires a multi-dimensional approach. The Government's strategy includes:
5.17 The Government's second annual report on tackling poverty and social exclusion2sets out progress the Government has made in these areas and the scale of the task ahead. The report sets out a range of child poverty indicators, including a set of five headline indicators covering low income, worklessness, education, housing and health to monitor progress towards eradicating child poverty in 20 years. The report makes the commitment to improve the lives of children in all of these key areas.
5.18 The Government is making progress in tackling the high levels of poverty that built up over the past two decades:
Financial support for families with children
5.19 The Government's approach to tax and benefit reform for families with children is underpinned by two principles:
5.20 With these principles in mind, the Government has introduced the following changes over the Parliament so far:
5.21 Chart 5.1 shows that the Government has increased support for all families with children. It also shows that the greatest increases have been targeted on families on lower incomes.
5.22 As a result of measures announced so far in the current Parliament, by 2001:
5.23 Over the Parliament as a whole, the tax and benefit measures introduced will lift around 1.2 million children out of poverty. Chart 5.2 above shows that all families have gained from the Government's measures to support children, but that the largest gains have been by those on the lowest incomes.
Support for families in the early years of a child's life
5.24 Around two fifths of children are born into poverty. Mothers on low incomes face particularly difficult and restricted choices about how they help their children in the early months. In the past, the tax and benefit system has not provided adequate support. Financial help has not been available quickly enough - some of the lowest-paid women have not been entitled to maternity pay or to tax credits when their child is first born.
5.25 During this Parliament, a number of reforms have been introduced to address these problems, and better reflect the needs of new parents on low incomes:
5.26 In making these reforms, the Government is ensuring that more help is directed towards the poorest families, to give these mothers more choice about how they support their family around the birth of a child and whether and how to plan a return to work.
5.27 In Budget 2000, the Chancellor announced a review of what further improvements might be made to maternity pay and parental leave. The review is being led by the Secretary of State for Trade and Industry, and the intention is to publish a formal consultation document before the end of this year. The Government will bring forward firm proposals in the light of the responses it receives.
Public services to tackle child poverty
5.28 The Government is committed to tackling the causes of poverty and social exclusion, not just the symptoms. This principle formed the basis for many of the announcements in the 2000 Spending Review.
5.29 The 2000 Spending Review announced resources of £450 million for a new Children's Fund, over the three years to 2003-04. The majority of the Fund will be targeted at increased preventative services for children (primarily those aged 5 to 13) and their families, helping them before they hit crisis. Part of the Fund, £70 million over three years, will be distributed directly to local community groups through a network of local funds administered by the voluntary sector itself, for children of all ages.
5.30 Problems facing children and their families are often multi-dimensional. To make a real difference, support needs to be integrated, for example through learning mentors, out of school activities and parenting support. The preventative stream of the Children's Fund will aim to develop services so that children at risk of social exclusion and failure are identified early and provided with a package of support which enables them to overcome barriers and disadvantage, and start to meet their aspirations.
5.31 The Children's Fund will engage voluntary and community groups both through the network of local funds and by ensuring that they are closely involved in drawing up and delivering proposals for increased preventative services. The Government is hosting a conference in November 2000 to help develop the Children's Fund and engage the views of key players including the voluntary and community sector, private sector, local government and young people themselves.
5.32 Sure Start is a central part of the Government's campaign to eradicate child poverty by 2020. The programme is committed to tackling the causes of poverty and social exclusion by working with parents and children to promote the physical, intellectual and social development of pre-school children. Initially, the Government committed funds to the creation of 250 local programmes by 2001-02. Of these, 129 programmes are already in place. Sure Start programmes are managed by local partnerships between local parents, private and voluntary organisations and statutory services, to offer a coherent, joined-up service that addresses local needs.
5.33 Significant further investment in the 2000 Spending Review demonstrates the Government's determination to ensure wider coverage for the Sure Start programme. The new money includes provision for a major geographical expansion of Sure Start - doubling the number of programmes to at least 500 by 2004 and more than doubling planned expenditure to almost £500 million by 2003-04. By 2004, Sure Start will reach one third of poor children under four years old. The Government is currently looking at ways to integrate Sure Start practice into all services for under-5s as part of its overall strategy for halving child poverty by the end of the decade.
5.34 Sure Start is an evidence-based policy, drawing on the results of numerous studies conducted in the US and elsewhere. This research shows that the environment a child is exposed to, both during pregnancy and in the first years after birth, is crucial to later development. Focused intervention in early childhood can significantly improve the development and life opportunities of a child. For example, Sure Start is committed to developing local services for pregnant women: Budget 2000 increased the Sure Start Maternity Grant, and the 2000 Spending Review includes additional resources for local services for pregnant women, setting a new public service agreement target of a 10 per cent reduction in the number of mothers in Sure Start areas who smoke during pregnancy by 2004.
The importance of a good start in education
5.35 Education is an important influence on a child's life chances. It is critical to employment opportunity and to the well being of people throughout their lives. Together with extra resources provided in Budget 2000, the 2000 Spending Review allocated resources that will result in average real growth in education spending of 6.6 per cent a year across the UK over the four years from 1999-2000 to 2003-04.
5.36 Strong numeracy and literacy, together with good communication and technology skills, are essential prerequisites for making the most of the opportunities offered by the modern economy. Good progress has already been made, particularly in primary schools. For example, between 1998 and 2000 the number of pupils achieving the standard expected for 11 year-olds in maths rose by 13 percentage points, to reach 72 per cent; while in literacy there was an improvement of 10 percentage points, to 75 per cent. Schools across the country are well on course to achieve the existing targets for 2002 of 75 per cent in maths and 80 per cent in literacy.
National e-Learning Foundation
5.37 Learning through ICT boosts attainment, with the greatest gains often experienced by the most disadvantaged children. The Government has decided to allocate £5 million additional money from the windfall tax reserve to help establish the National e-Learning Foundation. Building on pilots run over the last two years, this will lever-in significant private sector funding to provide portable ICT equipment offering Internet access. It will be targeted at the most disadvantaged areas first, where the digital divide is greatest.
5.38 The 2000 Spending Review provided for the progressive introduction of the Connexions personal adviser service to support young people aged between 13 and 19 to remain in education or undertake training. As a young person's vulnerability increases, more help will become available. Alongside Connexions, there will be an expansion of other services for vulnerable young people, such as the treatment of drug and mental health problems.
Educational Maintenance Allowances
5.39 Educational Maintenance Allowances (EMAs) are enabling young people from poorer families to pursue education beyond the age of 16. Budget 2000 announced an extension of the pilots to enable local education authorities in 56 of the most disadvantaged areas across England to provide EMAs from September 2000. As set out in the 1998 Comprehensive Spending Review White Paper, "if successful, EMAs would replace Child Benefit after 16 for those staying in education beyond their GCSEs".3
5.40 Although it is too soon to reach a judgement about the success of EMAs, evidence from early evaluation of the pilots is encouraging. This includes an estimated increase in participation rates during the first year of around five percentage points. In addition, there have been significant improvements in attendance, effort and quality of coursework. The approach of linking payment of EMAs to delivery of the student's 'learning agreement' has proved particularly successful.
FAIRNESS FOR PEOPLE WITH DISABILITIES
5.41 The Government is determined to increase opportunities for people with disabilities to live fulfilling and independent lives. The New Deal for Disabled People, described in Chapter 4, is helping those who want to work, with advice and support specific to their needs. The Disabled Person's Tax Credit, also set out in Chapter 4, increases the gains to work for people with disabilities and removes the administrative complexity of a separate benefit claim and cheque. From October 2000, the disabled child credit in the Disabled Person's Tax Credit was extended to families in receipt of the Working Families' Tax Credit.
Disability Income Guarantee
5.42 Budget 2000 announced that from April 2001, severely disabled people under 60 years of age on income-related benefits will receive a guaranteed income delivered through a new premium, of at least £134 a week for single people, and £176 a week for couples. The Secretary of State for Social Security will be announcing a further £200 million a year package of measures to help disabled people and carers in the coming days.
5.43 Also from April 2001, children aged three to four with severe disabilities will receive an additional £37.40 a week through the extension of the Disability Living Allowance. Reforms to Incapacity Benefit will provide up to £26.70 a week more for people who were disabled before the age of 20.
5.44 From January 2000, the maximum earnings disregard in the Independent Living Fund was increased from £30 to £106.50 per week. This further removes barriers to work for people with disabilities, and ensures that work pays for those Fund beneficiaries who wish to take up employment.
5.45 In June 2000, the Government announced a package of measures aimed at easing the burdens on families with children suffering from vaccine damage. From July 2000, the one-off payment under the Vaccine Damage Payment (VDP) scheme was increased to £100,000 (a threefold increase from 1997 levels) and previous VDP recipients will also receive top-up awards to bring the value of their payment (at current prices) up to the new level. The Government intends to bring forward legislation to reduce the disability threshold for eligibility to VDP from 80 per cent to 60 per cent and to extend the time limit for making a claim to encompass all young people up to 21 years.
FAIRNESS FOR PENSIONERS
5.46 Over the past 20 years, the gap between rich and poor pensioners has grown so that pensioner incomes are now as divergent as those of the population as a whole. The Government is committed to developing policies which enable all pensioners to share in the country's rising prosperity, and which tackle this growing inequality. This means:
Tackling pensioner poverty
5.47 The Government's first priority has been to help those in greatest need. The pattern of pensioner incomes now reflects that of earners. Like earners, the top fifth of pensioners are now three times better off than the lowest fifth. As this gap between the richest and poorest has widened, too many pensioners have not shared in the rising prosperity of the country.
Minimum Income Guarantee
5.48 To address this first priority quickly, the Government built on the existing structure of Income Support to introduce a more generous Minimum Income Guarantee (MIG). The MIG has raised the income of poorer pensioners and has risen in line with earnings, ensuring the incomes of these pensioners have kept pace with the incomes of the wider population. Around 2 million pensioners now benefit from this extra support, and the Government has been running the largest ever advertising campaign and simplifying the claims process to promote further take-up of the MIG.
5.49 The current system, however, continues to penalise low-income pensioners who have worked hard to build up savings for their retirement. This is why, as a first step, the Government has taken action on the capital rules attached to the MIG. Currently these capital rules allow pensioners to have only £3,000 of savings without any reduction in benefit. Savings over that level reduce benefit entitlement. With over £8,000 of savings, MIG entitlement is removed altogether. As announced in Budget 2000, from April 2001, the Government will double the lower limit to £6,000 and increase the upper limit from £8,000 to £12,000 to reward savers. As a result, half a million pensioners will gain an average of £5 a week.
5.50 To help protect future pensioners from the poverty and inequality today's pensioners have had to endure, the Government is giving today's workers a real opportunity to build up a decent second-tier pension by the time they retire through:
Security for all pensioners
5.51 The Government is also committed to ensuring security in retirement for all pensioners, not just the poorest, so it has introduced:
5.52 The Government is also determined to ensure that pensioners who pay tax are treated fairly. Six out of ten pensioners aged 65 and over do not have any income tax to pay. But for those who do, the Government has made a series of changes to the tax system to ensure that pensioners who have provided for their retirement continue to enjoy this security:
5.53 In order to simplify the tax system for older taxpayers, the Government has decided to announce changes to the levels of the age-related tax allowances in the preceding Pre-Budget Report for the years 2001-02 and 2002-03. This will mean that people see the benefit of increases in the allowances from April and will help to make their tax affairs easier to understand. The age-related personal allowance will rise in 2001-02, in line with prices, to £5,990 for people aged 65-74 and to £6,260 for people aged 75 or more. The income limit for these and other age-related allowances will also rise in line with prices.
5.54 The Government has also recently launched a 'Taxback' campaign to encourage pensioners and other savers to claim back any tax due to them. It is estimated that there is around £100 million to be claimed by some 1.5 million pensioners.
Next steps: the Pension Credit - rewarding low and modest income pensioners
5.55 The Government believes that there is more to do - to tackle pensioner poverty and inequality, and to help ensure all pensioners share in rising prosperity. This means providing greater support - not just for the very poorest, but also for those on low and modest incomes.
Need for radical reform of the current system
5.56 The Government's priority for the next Parliament is therefore to reward savings for those on low and modest incomes. Too many pensioners work hard to provide for their retirement, building up second-tier pensions or other savings, only to find that they get little or no benefit from them. The current system has been successful in getting more help more quickly to those in greatest need. But it still:
The Pension Credit
5.57 The Government is determined to tackle the inequalities and unfairness of the current system. Budget 2000 said that the Government intended to examine for the longer term whether, through an income taper or other measures, the MIG could provide extra help to people who have provided for themselves. The Secretary of State for Social Security is therefore publishing, for consultation, detailed proposals for a Pension Credit to be introduced from 2003. The Pension Credit will:
5.58 By linking the guaranteed minimum income and maximum Credit rate to earnings, the Pension Credit will ensure that low and modest income pensioners on the Credit will get, year on year, an increase in support greater than they would receive from an earnings link in the basic state pension. So, based on trend forecasts, an 80-year-old with a basic pension of £77.00 a week and a Pension Credit of £20 a week will get £4.30 a week more the following year, more than the £3.45 a week delivered by linking the basic state pension to earnings.
Increases for pensioners who pay tax
5.59 In the same way that the Pension Credit will deliver year-on-year increases to poor and modest income pensioners, so the Government intends to help older taxpayers too.
5.60 Most pensioners have no income tax to pay. But for those who do, the Government proposes, subject to consultation, to raise the age-related personal allowances in 2003-04 by £240 over and above indexation. On current forecasts, that would take the allowances to £6560 for those aged 65 to 74 and to £6850 for those aged 75 or more. The Government then proposes to increase the allowances by reference to the rise in earnings rather than prices throughout the remainder of the Parliament. In the same way that a pensioner on an income of £130 a week will be entitled to a Credit of £2 a week extra, so a pensioner paying tax at 22 per cent on income of £170 a week would receive £1 extra a week in 2003-04 through this more generous tax allowance. Over 3 million pensioners aged 65 or more would benefit from the increase.
5.61 In designing the Credit, the Government is seeking ways to build upon the progress made since 1997 in bringing the tax and benefit systems closer together. That progress is set out fully earlier in this chapter and in Chapter 4. This programme of tax-benefit integration has been informed by the following principles:
5.62 The Pension Credit and associated changes build on these principles and represent a further step towards tax and benefit integration. The consultation document to be issued by the Secretary of State for Social Security will explain these changes in more detail. Over time, it is the Government's intention to take tax and benefit integration further: in particular, to make receipt of the credit more automatic; to take steps to reduce overlap between the two systems; and ultimately to merge support for older people through the credit and the tax system to create a seamless and integrated system of support.
Moving towards a Pension Credit
5.63 The new Pension Credit will deliver substantial gains to all pensioners on low and modest incomes from 2003. But ahead of this, the Government is determined to deliver benefits to them straight away. The Government will therefore:
Based on current forecasts, from 2003, when the Pension Credit is introduced, the earnings-linked guaranteed minimum income will be at least £100 a week for single pensioners, and for couples at least £154 a week. By then, reflecting the return to normal price uprating, the basic state pension will be at least £77 a week for single pensioners and £123 a week for couples.
5.64 As Chart 5.3 shows, all pensioners will have gained from the Government's measures during this Parliament, with those in greatest need benefiting the most. Next year, around
5.65 The Government's tax and benefit reforms will mean that next year the average pensioner household will be £580 a year - £11 a week - better off. Virtually all pensioner households will be better off as a result of the Government's measures than they would have been with an earnings link in the basic state pension. Next year, the Government will be spending over £2 billion more on the poorest third of pensioners - five times more than an earnings link in the basic state pension would have given them.
The Government's savings strategy
5.66 The Government wants more people to enjoy the benefits of having savings for independence throughout their lives, for security if things go wrong, and for comfort in old age. The Pension Credit will ensure that people who have saved for their retirement are not unfairly penalised. The Government is tackling a number of other problems that may have discouraged saving in the past, including poor returns for small savers, inaccessible and inflexible savings products and a lack of effective competition in the financial services industry.
5.67 These measures fit within the Government's overall strategy to encourage saving, which is to:
5.68 Further details of the Government's strategy are set out in the Treasury paper Helping People to Save4, published alongside the Pre-Budget Report.
Individual Savings Accounts (ISAs)
5.69 Individual Savings Accounts (ISAs) were introduced in April 1999 to encourage tax-free saving, particularly among lower-income savers. In the first year, 9.3 million accounts were opened and over £28.4 billion invested - a third more than was invested in Tax Exempt Special Savings Accounts (TESSAs) and Personal Equity Plans (PEPs) during their last, and most successful, year. More than £9 billion has been invested in ISAs during the first quarter of 2000-01.
5.70 ISAs - particularly mini cash ISAs - have succeeded in attracting relatively more low income and younger savers than TESSAs and PEPs. More than a quarter of mini cash ISAs have been taken out by those earning less than £11,500 per year, compared with around one in five TESSAs and one in six PEPs5. To build on the success of ISAs, the Government will retain the £7,000 contribution limit for a further five years until April 2006. Keeping a higher £3,000 limit for cash will particularly help those low-income and younger savers who have saved in mini cash ISAs. From April 2001, this will include 16 and 17-year olds, who will be able to save in a cash ISA for the first time. There are 100,000 16 and 17 year-olds who work and pay tax and could benefit from the opportunity to save tax free.
Encouraging small savers
5.71 The Government's priority for saving is to encourage people on low or moderate earnings to save. It is already beginning to achieve this with ISAs. From April 2001, 4 million people on low or moderate earnings without access to good occupational pension schemes will have access to stakeholder pensions which will offer a low cost, flexible and secure way to save for retirement. The Government will continue to look at ways of encouraging people on low and moderate incomes to save.
Fair treatment for savings
5.72 The Government will also ensure that small savers are not unfairly penalised by the tax and benefit system. The Pension Credit will provide fair treatment for pensioners with savings. By October 2001 the Government will abolish the £500 capital limits in the Sure Start Maternity Grant and Funeral Payments to ensure that families on low incomes with small amounts of savings receive support from the Government to help cover the costs associated with the birth of a baby or the death of a close relative. This will benefit up to 25,000 low-income families every year. The next phase of modernising the social security and tax credit system offers an opportunity for a thorough review of the treatment of income and capital in assessing entitlement to support for working-age families.
An integrated approach to saving
5.73 People have wide-ranging saving needs for the short and longer term. ISAs and stakeholder pensions provide simple, flexible products that meet those needs. The Government is also making the savings system more integrated by improving transferability between vehicles. New tax rules for pensions will allow someone to contribute at least £3,600 a year regardless of earnings, allowing them to start saving in an ISA and transfer the money into a pension when they are ready to save for the longer term. Also, anyone who builds up substantial shareholdings in a new All-Employee Share Ownership Plan will be able to transfer shares directly into an ISA or a stakeholder pension. The Government wants to increase flexibility where possible and is currently investigating with the pensions industry whether it would be useful in practice to allow certain eligible ISA collective investments to be transferred directly into a stakeholder pension and to be placed in an Individual Pension Account.
Transparent savings products
5.74 To give people confidence to take out ISAs and other financial products, the Government developed CAT standards as voluntary benchmarks for charges, access and terms. A study of the ISA market, carried out for the Treasury by McKinsey's, has found that CAT standards have helped ISA savers achieve value for money. They have set an interest rate floor for cash ISAs, while a typical saver investing in a CAT-standard equity ISA would pay £35 a year less in charges than someone investing in a non-CAT ISA.
Competitive financial services
5.75 The Government wants to promote effective competition in the financial services industry. The Treasury has therefore endorsed proposals from the Financial Services Authority (FSA) to work towards modernising the regulations on how retail investments are sold (see Box 5.4).
Information on financial products
5.76 Within its wider regulatory role, the FSA is responsible for promoting understanding of the financial system. Following consultation, the FSA is moving closer to launching published tables of information about several ranges of retail financial products. Those to be published first, in early 2001, will cover endowment policies, investment bonds, mortgages, personal pensions and pooled fund ISAs. The tables will be accurate, authoritative and kept continuously up to date on the FSA website. The Government will work with the FSA to consider ways of increasing access to good, impartial information and advice for low-income savers.
HIGH QUALITY PUBLIC SERVICES
5.77 By ensuring that tough fiscal rules are met and economic stability is maintained the Government has been able to free significant resources to strengthen Britain's public services. The Government is committed to improving frontline public services in order to achieve its priorities.
5.78 The 2000 Spending Review provides for a doubling of net investment in infrastructure over the next three years (see Box 5.5) to deliver integrated transport and modern schools and hospitals, while current spending will increase by 2.5 per cent a year in real terms. Three-quarters of this increase will be spent on the Government's priorities of health, education, transport, housing and law and order.
5.79 On a consistent basis, £43 billion of additional funding has been allocated to Departmental Expenditure Limits by 2003-04 (see Table B15). This provides for average real growth for the three years from 2000-01 of 5.2 per cent a year for education (UK); 5.6 per cent a year for health (UK); 20 per cent a year for transport; 12 per cent a year for housing; and 4.2 per cent a year for the criminal justice system. The Government is able to afford these increases to deliver improvements in key public services because of prudent management of the public finances, its success in reducing unemployment and by dealing with fraud and unnecessary bureaucracy.
Public Service Agreements
5.80 The quality of public services, however, depends not only on how much the Government spends but also on how effectively it spends it. Following the Comprehensive Spending Review in 1998, the Government introduced a new system of performance management for public expenditure. The 2000 Spending Review allocates spending and sets out in Public Service Agreements (PSAs) the outcomes that every part of government will deliver to the public. It details the improvements in public services the public can expect over the next three years and describes how the Government will allocate its funds to achieve these improvements.
5.81 The publication of PSAs is an important step in improving democracy, transparency and accountability. PSAs are agreements with the public, showing the taxpayer exactly what the Government will deliver in return for his or her investment. By publishing clear and measurable targets, the Government is making it possible for everyone to judge whether it meets them.
5.82 This is the most ambitious attempt internationally to set explicit goals for outcomes across the whole of Government. On 3 November, departments published their plans for the good management of their resources to achieve these objectives in new Service Delivery Agreements (SDAs).6
A modern National Health Service
5.83 In Budget 2000 the Government announced a substantial increase in health funding, with growth averaging 6.1 per cent a year in real terms over the four years to 2003-04. This is the longest period of sustained high growth in the history of the NHS, and will fund extra investment in NHS facilities such as new hospitals and increases in numbers of doctors and nurses. The 2000 Spending Review also increased social services funding significantly in real terms to provide resources for the elderly, children and other vulnerable groups. Challenging new PSA targets include:
5.84 The Government needs to look further ahead to ensure that the NHS will always have access to the level of public funding that it needs to provide a comprehensive, high-quality service available on the basis of clinical need and not on ability to pay. Budget 2000 announced that the Chancellor is commissioning a long-term assessment of the technological, demographic and medical trends over the next two decades that will affect the health service, to report to him in time for the start of the next spending review in 2002.
5.85 The extra funds for education announced in the 2000 Spending Review will add over £10 billion to spending on education and training in England by 2003-04. A 33 per cent real increase in spending is projected for UK education between 1996-97 and 2003-04. These funds will enable schools, colleges and universities to achieve even higher standards. PSA targets from the 2000 Spending Review include:
Extending the New Deal for schools
5.86 To tackle further the backlog of repairs in schools, and to ensure that our children are learning in a suitable environment, the Government will invest a further £200 million in school buildings across the UK in 2000-01. These resources have been released from the revenue raised by the windfall tax, due to lower unemployment, and will be additional to those made available for schools in the 2000 Spending Review.
5.87 The Government is committed to transforming the country's transport system with public investment rising to over £6 billion a year by 2004, a doubling in real terms. The Ten-Year Plan for Transport will reduce road congestion, produce better and more reliable trains, and deliver a renaissance in local public transport. New PSA targets include:
5.88 To build a safe, just and tolerant society the Government is tackling crime and strengthening communities by raising police spending to record levels, making major investment in local crime prevention and setting challenging targets for reduction in vehicle crime, burglaries and robberies. Key PSA targets include:
STRENGTHENING COMMUNITY LIFE
5.89 Conditions in Britain's most disadvantaged communities are unacceptably poor. For example, child poverty in the poorest 10 per cent of wards is three times the national average. Those living in poorer neighbourhoods have to put up not only with a rundown physical environment and limited opportunities, but often also the poorest public services.
Government intervention in deprived areas
5.90 The 2000 Spending Review set for the first time specific PSA targets to start narrowing the gap between our poorest communities and the rest of the country on education, health, worklessness, crime and housing. This will ensure that the new resources announced in the 2000 Spending Review go to the places that need them most. Further details of the Government's response to the longer-term challenge will be set out in the National Strategy Action Plan to be published shortly. This will be taken forward by the new Neighbourhood Renewal Unit announced by the Prime Minister in September this year.
Neighbourhood Renewal Fund
5.91 The Neighbourhood Renewal Fund will channel £800 million over the next three years to the most disadvantaged areas to help local authorities and others make early progress in improving services in poor neighbourhoods. The Fund will provide extra money to enable more spending on teachers, police officers, crime prevention programmes, social services or other services that can deliver real improvements for the community. Local people, councils, those who provide local services, business and the voluntary sector will form Local Strategic Partnerships to decide how the money can best be spent to meet the individual needs of their communities.
The New Deal for Communities
5.92 There are now 39 neighbourhoods benefiting from the New Deal for Communities - with investment totalling around £2 billion over ten years. To help learn the emerging lessons, the next phase of the New Deal will focus on supporting more, smaller schemes, including additional support for helping local people influence public services, promoting community involvement at local and neighbourhood level, establishing a National Centre for Neighbourhood Renewal and providing better neighbourhood-level data.
5.93 The Government has also taken further action to encourage enterprise and business growth in disadvantaged communities within a clear framework bringing regions, cities, districts and neighbourhoods together to deliver higher prosperity for all. Box 3.4 describes the Government's strategy for urban renewal and summarises further proposals to help transform disadvantaged communities and make the most of successful towns and cities. The forthcoming Urban White Paper will set out a comprehensive strategy for improving the performance of all the UK's towns and cities.
Strengthening rural communities
5.94 The Government recognises the challenges the countryside is facing, and will work with rural people to overcome them. In the forthcoming Rural White Paper the Government will set out its vision for a vibrant and living countryside with thriving rural communities. It will focus, among other things, on how best to involve local people in the decisions that shape their communities; how market towns can be rejuvenated; and how best to support the delivery of vital services that are at the heart of village communities. Chapter 6 describes the steps being taken by the Government to reduce pressure on the rural environment.
Modernising local government
5.95 The 2000 Spending Review announced a new initiative to strengthen links between local and central government and improve the delivery of services through:
5.96 Local authorities will commit to enhanced targets covering key national and local priorities, while rules and regulations that are unnecessarily getting in the way of better performance will be removed and improved performance rewarded. The Government aims to reach agreements with 20 pilot local authorities for 2001-02, ahead of a planned wider rollout in 2002-03. Local PSAs will focus on key local services such as education, social services and transport, and cross-cutting issues such as social exclusion, linking to other locally-based initiatives such as the Neighbourhood Renewal Fund.
Charity taxation: getting Britain giving
5.97 Budget 2000 introduced a number of measures from April 2000 to encourage and simplify giving to charity:
5.98 The Government remains committed to developing a thriving voluntary sector. It wants to develop a culture of giving, of both time and money, and to continue to work together in partnership with the voluntary sector to achieve this.
Promoting payroll giving
5.99 In October 2000, the Government launched a national publicity campaign to promote awareness of the income tax relief attracted by payroll giving. The campaign stresses the simplicity of payroll giving and encourages larger employers to provide a payroll giving scheme to their staff or to improve their existing scheme.
5.100 To help meet its aim of achieving a sustained increase in charitable giving, the Government has also agreed to support a voluntary sector-led publicity campaign to encourage donations of both money and time, and to improve awareness of existing tax reliefs.
5.101 Volunteering and helping each other out are central to healthy, democratic and socially inclusive communities. The 2000 Spending Review set out a package of measures to deliver substantial progress by 2004 towards one million more people being actively involved in their communities.
A FAIR AND MODERN TAX SYSTEM
Modernising the tax system
5.102 The Government is modernising the administration of the tax system to help facilitiate e-commerce and make electronic dealings with government easier. A new system for electronic conveyancing, enabled under the Electronic Communications Act, will remove the need for paper documents. It is intended that the legislation required to modernise stamp duty to deal with the new system will be published before Budget 2001.
Construction Industry Scheme
5.103 Building on the review of the Construction Industry Scheme (CIS) undertaken since Budget 2000, the Government has decided to extend the scope of electronic data exchange starting at the end of November 2000. As a first step, more sub-contractors will be able to qualify for the CIS5 certificate, which removes the requirement for them to present a certificate in person, and which allows contractors to provide details of payments electronically to the Inland Revenue. The change to CIS will help around 8,000 businesses and save over £1 million, in administration costs across the industry. The Government believes that, in the longer term, big savings can be achieved through a more fundamental shift to electronic data exchange, and will continue to consult with the construction industry on the precise steps required to achieve that shift.
5.104 The Chartered Institute of Taxation and the Inland Revenue will publish a joint report on enquiries into Self-Assessment tax returns in the next few days. The report will make some suggestions for improvements in the law and practice relating to enquiries. The Government will announce its response to the report at the same time.
5.105 The Chancellor will continue to base Budget judgements on the future level of tobacco taxes on a wide range of factors, including the Government's health objectives. The Government believes that there is a strong case for year on year real terms increases in the price of cigarettes. A vital part of the Government's strategy is to reduce the supply of cheap smuggled tobacco.
5.106 Tobacco smuggling not only undermines the Government's objective of reducing the levels of smoking in the UK as cheaper cigarettes become available, but brings with it widespread and serious criminality. Smuggling cost the Exchequer £2.5 billion in lost revenue in 1999. The Government has demonstrated its determination to tackle this threat by investing £209 million over three years in deploying almost 1,000 more Customs and Excise staff and establishing a nationwide network of the latest x-ray scanning technology, increasing substantially the amount of freight which can be examined.
5.107 In the 1999 Pre-Budget Report, the Government announced its intention to introduce a legal requirement for cigarette packs and hand-rolling tobacco pouches sold in the UK to carry a fiscal mark showing that UK duty has been paid on them. From 1 April 2001 the fiscal mark will be introduced allowing anyone buying or selling tobacco to know immediately whether they are dealing with legitimate goods.
5.108 Forestalling is a tax avoidance practice whereby manufacturers and importers build up large stocks of cigarettes in the months leading up to a Budget change and pay duty on their accumulated stocks just before the Budget increase takes effect. The November 1999 Pre-Budget Report announced that steps would be taken to put an end to this practice, which cost the Exchequer around £280 million in 1999-2000. There will be restrictions on clearances of cigarettes from duty-suspended warehouses in the months immediately preceding a Budget. These will be in place in time for the run-up to Budget 2001.
Reform of General Betting Duty
5.109 In March 2000, the Government launched a consultation exercise on the scope for modernising general betting duty. The Government's objective in considering the response to the consultation has been to assess the scope for a modernisation of General Betting Duty that would deliver a business environment in which the British betting industry can compete in both the domestic and international markets, taking full advantage of the opportunities offered by the development of e-commerce, while ensuring that the future revenue stream from betting is protected.
5.110 The Government believes there is scope for a modernising reform of General Betting Duty to deliver this objective. The Gross Profits Tax reform outlined in the consultation document is one such approach. The Government intends to hold further discussions with interested parties in the coming months, including with the betting industry, on how to ensure that the benefits of any change are fairly shared, with a view to an announcement at the time of Budget 2001.
PROMOTING FAIRNESS INTERNATIONALLY
5.111 The Government continues to apply the principles of economic reform and social justice to its work abroad. It supports the challenging targets set by the international community for 2015, such as
5.112 Among the greatest barriers to achieving these targets are the world's killer diseases, particularly HIV/AIDs, malaria and TB. Together these diseases kill 5 million people a year - most in the developing countries. AIDS alone has already created 13 million orphans. The Department for International Development and others are already undertaking a wide range of projects, but a particular problem is that drugs and vaccines are not likely to be available in the immediate future. But research on vaccines suitable for developing countries remains minimal, with only a tiny fraction of new patents addressing diseases in developing countries. This is mainly because those who might be able to develop vaccines fear they would not be able to recoup the significant research expenditures that will be needed.
5.113 The Government has therefore set in hand urgent work to investigate the problem and come forward with new proposals. Working alongside and feeding into a wider review being conducted by the Performance and Innovation Unit, the Treasury will look at a range of tax options, focusing on creating the right incentives and tackling the scale of the perceived risks. This will build on the consultations already underway with the pharmaceutical industry, and will depend heavily on developing a shared commitment to tackle this issue. Throughout, the Government will keep closely involved with international efforts to solve the burden of infectious diseases.
4The Modernisation of Britain's Tax and Benefit System, Number Seven, "Helping People to Save", HM Treasury, November 2000.
5Inland Revenue analysis of the 1999-2000 NOP Financial Research Survey.
6Spending Review 2000: Service Delivery Agreements 2001-2004: A Guide, HM Treasury (Cm 4915), November 2000.