GORDON BROWN tried to tax himself out of trouble yesterday with raids on oil company profits and dormant bank accounts to fund “winter warmer” payments for pensioners, gap years for students and help for motorists. In a Pre-Budget Report seen as preparing the way for a Brown premiership, the Chancellor imposed extra taxes of £2 billion a year on North Sea oil firms to ease the pressure on public finances. He aims to have his Budget back in surplus by 2008, a year before the next election, which he expects to fight as Prime Minister.
The Chancellor was forced into an embarrassing U-turn on self-invested personal pensions (Sipps) when he backtracked on his own initiative that would have allowed investors 40 per cent tax relief on second homes by putting the properties into them. Under the scheme, which was due to come into force on April 6, savers would have needed an initial investment of just £60,000 to buy a second property worth £150,000. Opposition MPs had said that high earners would take advantage of the rules to buy holiday homes and buy-to-lets, inflating property prices. Insurers also feared widespread misselling of the products.
Yesterday the Chancellor said that tax relief would not be available on residential properties in Sipps, or on other exotic investments such as antiques, art, vintage cars and fine wine.
Mr Brown announced a new national youth community service, to be funded in part by a deal with the banks and building societies to use assets that have lain unclaimed in accounts for more than 15 years.
That is expected eventually to raise £600 million but Mr Brown handed out £100 million of initial finance. The scheme is intended to fund gap volunteering in Britain and abroad for youngsters who could not afford it otherwise, and part-time and full-time community service across the country.
Mr Brown endured jeers as he was forced to halve his growth forecast for this year, from 3-3.5 per cent to 1.75 per cent, and admit that borrowing will be £5 billion higher than expected. The economy had had its “toughest and most challenging year”, he said.
For the fifth year in a row the Chancellor’s figures showed that public finances were sliding deeper into the red than anticipated. He now plans to borrow £37 billion this financial year, 2005-06 — up from the £32 billion expected in March.
For the following year, borrowing is also expected to be £5 billion higher at £34 billion, while over the period from 2005-06 to 2009-10, Mr Brown intends to borrow £17 billion extra — taking total borrowing to more than £150 billion.
Mr Brown also courted controversy and left some City analysts perplexed with a further overhaul of his “golden rule” — which says that over an economic cycle he should borrow only to pay for investment spending. Having been accused of fiddling the figures in the summer when he changed the cycle’s estimated start date to begin two years earlier, in 1999, yesterday he said that it would now finish in 2008-09, rather than in March next year.
Mr Brown’s estimate that the changes would leave him meeting the golden rule’s stricture by £16 billion, compared with the £6 billion he claimed at the time of the Budget, raised eyebrows among economists when set against hefty increases in borrowing announced yesterday.
He surprised economists by gambling on a strong economic bounce next year, suggesting that growth could rise by a healthy 2 to 2.5 per cent, and 2.75 to 3 per cent in the two years after that, as borrowing began to subside.
The Conservatives said that Mr Brown would face a tax shortfall of £32 billion over the next five years because of his “double downgrade” of growth from 3.5 per cent in March, to 2.5 per cent in September, to 1.75 per cent yesterday.
George Osborne, the Shadow Chancellor, roused the Tories with a strong attack on Mr Brown’s record. “I don’t remember him telling the electorate before the election that the economy was facing a tough and challenging year,” Mr Osborne said. “What he told the country at the time of the general election about the state of the economy was not true. It is difficult to believe that he didn’t know it at the time.”
In a move to keep council tax rises below 5 per cent over the next two years, Mr Brown promised extra funding for local authorities totalling around £1.1 billion.
Mr Brown upset the oil industry by announcing that companies would have to pay corporation tax at 50 per cent instead of 40 per cent. As a result, Mr Brown will pull in an extra £2 billion next year, £2.2 billion the year after, and £2.3 billion the year after that.
Some £800 million of that will pay for maintaining the £200 winter fuel payment (£300 for the over-80s) for pensioner households for the rest of this Parliament and extra help for half a million pensioner homes without central heating.
Preparations for the 2012 Olympics in London and England’s 2018 football World Cup bid were given a boost by the creation of a new National Sports Foundation.
To increase the numbers of new houses available, Mr Brown asked local councils to bring forward more brownfield areas for development. Local authorities would be “obliged to accelerate housing consent” in planning decisions.
Real estate investment trusts would be set up to increase funding and consultation would begin on plans to allow councils to get “a fair share of planning gains”, where land is sold at an increased price with planning consent.
Three of the biggest building societies were joining the Government in boosting shared equity schemes to make home ownership more affordable.
WINNERS
Motorists petrol and diesel duties still frozen
First-time housebuyers shared equity schemes help them on to property ladder
Council taxpayers £305m next year to reduce bills
Pensioners winter fuel payments of £200 a year
Voluntary sector gap years for young people who cannot afford them British sport National Sports Foundation set up
Film-makers tax credit to help to offset project costs
LOSERS
Oil companies who face £2bn annual extra tax
Landowners face £3bn windfall tax on sale profits
Wine buffs who can’t put favourite vintage into Sipps
Second-home owners can’t put rental profit into Sipps
David Cameron after Brown “stole” his volunteer scheme
Banks unclaimed assets will go to improve youth and community facilities
