27 November 2001

Building a stronger, fairer Britain in an uncertain world

The Government's objective is to build Britain's economic strength and create a fairer society. That means maintaining economic stability and raising productivity and employment, securing the resources needed to tackle child and pensioner poverty, and delivering high quality public services and rising living standards for all.

The Pre-Budget Report outlines the next stage of reforms, including measures on which the Government will consult in the run up to Budget 2002. Key announcements in the Pre-Budget Report include:

an updated forecast, which shows that even in an uncertain world the British economy is expected to sustain steady growth with low inflation and sound public finances. Growth is expected to be 21/4% this year and the Government is on course to meet its strict fiscal rules;
a package of measures to raise productivity by promoting enterprise and skills, including tax incentives to boost research and development and investment in disadvantaged areas, and proposals to give lower skilled working people greater access to training;
further steps to promote employment, through a new Working Tax Credit from 2003 that will make work pay for people on low incomes, whether or not they have children, and expanding the New Deal;
a further package of support for pensioners, including a guaranteed minimum increase of £100 a year, every year, in the basic state pension; a new Pension Credit from 2003; and continued higher winter fuel payments;
additional steps to support families and tackle child poverty, through a new Child Tax Credit from 2003 that will provide a secure stream of income for families with children; and
an additional £1 billion for the National Health Service in 2002-03. The Government is considering the long-term funding requirements for the health service, on the basis of an independent review commissioned by the Chancellor.

Building Britain's economic strength....

Maintaining a stable economy

These are testing times for Britain and the world economy. Economic growth has slowed in almost every region of the world, while the tragic events of 11 September are having an impact around the globe.

No country can insulate itself fully from world economic events. But as a result of the action the Government has taken to deliver economic stability, the British economy, with low inflation and sound public finances, is better placed to sustain steady and stable growth.

Repaying debt

Source: ONS and HM Treasury

The Pre-Budget Report shows that:

the economy is forecast to grow by 2¼% this year - the fastest rate of all the 7 major industrialised economies (G7). The economy is expected to grow by 2-2½% next year and by 2¾-3¼% in 2003 as world growth recovers;
inflation has remained lower for longer than any time since the 1960s and interest rates are at their lowest since 1964. Inflation is expected to remain low and close to the Government's target of 2½%; and
the public finances remain on track to meet the Government's strict fiscal rules. The Government has repaid debt in each of the past three years and the UK now has the lowest level of debt (as a proportion of national income) of all the G7 countries.

Delivering high employment

The Government wants to see a higher proportion of people in work than ever before by the end of the decade as it seeks to ensure full employment in every region of the UK. Since it was set up 4½ years ago, the Government's New Deal has helped bring down youth unemployment by 75% and long-term unemployment by more than 70%. It is also helping to provide employment opportunity for lone parents and people with disabilities. Over the same period, employment has risen by around 1¼ million.

The number of people in work

Source: Labour Force Survey

Building on the New Deal and reforms to make work pay, the Pre-Budget Report describes the steps the Government is now taking to deliver employment opportunities across the country:

strengthening the Job Transition Service to provide further help for people affected by large-scale redundancies in disadvantaged areas that suffer from higher unemployment;
taking further steps to help communities with high levels of long-term unemployment by piloting transitional employment opportunities for hard to help groups in certain deprived areas; and
creating a new Working Tax Credit to be introduced in 2003, rewarding the work of people on low incomes whether or not they have children.

Meeting the productivity challenge

The amount of output produced per worker (productivity) in Britain has historically been lower than in countries such as the US, Germany and France, leading to a substantial productivity gap. The Government's aim is that Britain will achieve faster productivity growth than its main competitors, closing the productivity gap.

Productivity - output per worker

Source: OECD

Raising Britain's productivity performance, alongside higher levels of employment, will help to deliver the resources needed to tackle poverty, improve public services and ensure higher living standards in the future. To help build a more enterprising and highly skilled economy, the Pre-Budget Report sets out:

new measures to increase enterprise and innovation by British business, including further consultation on tax incentives to boost research and development by large companies;
proposals for new pilot measures to improve access to training and enable lower skilled people in employment to upgrade their skills; and
further steps to promote enterprise and investment in Britain's disadvantaged communities, including stamp duty exemptions for property transfers in deprived areas and tax incentives to invest in enterprises in these areas.

Creating a fairer society.......

Supporting families and pensioners

The Government wants to build a fairer and more inclusive society in which everyone can contribute to, and share in, rising economic prosperity. It is committed to tackling child and pensioner poverty, supporting families, extending opportunity for all children and providing security for all pensioners. Building on previous measures, the Pre-Budget Report describes the further steps the Government is taking to ensure fairness for families and pensioners:

introducing a further package of support for pensioners, including:
- a guaranteed minimum increase in the basic state pension of £100 a year for single pensioners and £160 for couples in 2003-04;
- maintaining the winter fuel payment paid to 8 million households at £200 a year for the rest of this Parliament; and
- a new Pension Credit from 2003 to reward pensioners who have built up modest savings or occupational pensions.
creating a new Child Tax Credit to be introduced in 2003 to provide a single system of income-related support for families with children, building on the foundation of universal Child Benefit.

Delivering high quality public services

The Government is committed to delivering high quality public services which meet the needs of all citizens in all areas of the UK. The Government's commitment to prudence and stability means that spending on public services in 2003-04 will be £50 billion higher than it was in 2000-01.

Spending on health and education

Source: HM Treasury

The Pre-Budget Report shows how 75% of this increase will be spent on the Government's priorities of health, education, transport, housing and law and order. Between 2000-01 and 2003-04, in real terms:

education spending will grow by an average of 5.6% each year;
health spending will grow by an average of 5.7% each year; and
transport spending will grow by an average of 14% each year.

Building on these increases, the Government is:

considering the long-term funding requirements for the UK health service, on the basis of an independent review commissioned by the Chancellor;
allocating an additional £1 billion for the National Health Service in the UK in 2002-03; and
conducting a Spending Review to determine how departments can best deliver further improvements in public services and set new spending plans for 2004-05 and 2005-06.

Protecting the environment

The Government believes that economic growth must be achieved while protecting the environment to ensure a better quality of life for everyone, today and for generations to come. It is committed to tackling global problems, such as climate change, as well as improving the local environment, regenerating Britain's towns and cities and protecting the countryside.

The Pre-Budget Report sets out new steps being considered including:

further tax incentives to encourage business to invest in cleaner, energy-saving technologies;
encouraging cleaner road transport by reforming motorcycle VED and taxation of vans. The Government wants to ensure that lorries contribute fairly towards the costs of using UK roads irrespective of their nationality, while ensuring that taxes on the UK haulage industry do not rise; and
launching shortly a new strategy for promoting future road vehicles which run off less polluting, low-carbon fuels.

Where taxpayers' money is spent.......

Total public spending is expected to be around £394 billion this year, around £6,500 for every man, woman and child in the UK. It is set to rise to £418 billion in 2002-03 and to £444 billion in 2003-04.

Where taxpayers money is spent

Source HM Treasury 2001-02 figures

Total managed expenditure £394 billion

1 includes spending on central administration, culture, media and sport, international cooperation and development and public service pensions plus spending yet to be allocated and some accounting adjustments.

Where taxes come from

Source: HM Treasury 2001-02

Total receipts £391 billion

1 includes capital taxes, stamp duties, vehicle excise duties and some other tax and non-tax receipts (eg interest and dividends).

Internal links

Pre-Budget Report 2001: index