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18 June 2001

Enterprise for all - the challenge for the next parliament

New measures to tackle the productivity gap with Britain's major competitors were set out today by Chancellor Gordon Brown, Trade and Industry Secretary Patricia Hewitt, and Education and Skills Secretary Estelle Morris:

radical reform of the UK's competition regime;
a Capital Gains Tax regime that is overall more favourable to enterprise than that of the USA;
modernisation of insolvency laws with abolition of Crown Preference;
better tax treatment for share options, extending Enterprise Management Incentives to larger companies;
a Green Paper, later this year, on reforming the planning system;
a review of the long-term retail savings industry led by Ron Sandler;
a major review of the role of enterprise and business in education led by Sir Howard Davies;
new measures to help small businesses grow including extension of the 10p corporation tax rate and help with VAT compliance;
a review of payroll services to small business;
an immediate review of DTI's support to business, starting with industrial manufacturing;
targets for each of the English regional venture capital funds.

Speaking following a business breakfast held at No 11 Downing Street, the Chancellor said:

"Four years ago the Government began its mission to raise the economy's sustainable rate of growth. In our first term this Government put stability in the macro-economy and work first. In our second term we must build on the platform of stability and employment. Today, we bring forward radical measures to tackle our productivity gap and create in Britain a true enterprise culture where the chance to start and succeed in business is genuinely open to all."

Patricia Hewitt said:

"This Government will help UK firms get to the future first. Enterprise is key to our future prosperity. We must remove obstacles to innovation, and make competition work properly for the consumer, so that UK companies become the best at meeting consumer needs. We must back success and remove opportunities to break the rules."

Estelle Morris said:

"It is vital for a healthy economy that young people understand the importance of enterprise and are given the support they need to succeed in their working lives. The Learning and Skills Council provides a very important link between the business community and young people. We are also making sure that schoolchildren get more chances to do work experience to help them prepare for the world of work. So I am pleased to announce today that, to encourage an enterprise culture, Sir Howard Davies has been commissioned to conduct a review of the role of enterprise and business in education."

Today's statement sets out a package of radical reforms to drive through improvements in the UK's productivity performance.

These changes build on the reforms the Government made in its first term to improve competitive pressures in the economy, remove barriers to the effective operation of markets and ensure that our tax system properly incentivises enterprise and investment.

Measures include:

1. Reform of the competition regime. A White Paper will be published in July setting out proposals for early legislation:

modernising 'complex monopoly' powers allowing the competition authorities independence to investigate sectoral markets under clear competition principles;
a strong legal basis for competition authorities to promote competition across the economy;
full independence backed by additional resources for the competition authorities; and
consultation on introduction of criminal penalties for those involved in cartels.

2. A new Capital Gains Tax regime that is overall more favourable to enterprise than that of the US. From April 2002 effective CGT rates for business assets will be reduced to 20 per cent after one year and 10 per cent after two and all subsequent years. The Government will also consider whether, during the lifetime of this Parliament, further changes to the non-business asset regime are necessary to improve incentives to invest and help businesses attract finance.

3. Major reforms to modernise UK insolvency laws to reduce the penalties for honest failure and to create a modern and fair commercial system. A White Paper in July will propose:

removing the Crown's preferential right to recover unpaid taxes ahead of other creditors; and
ensuring collective procedures are used instead of administrative receivership, which allows just one creditor to have control. (Special arrangements will be considered for securitisation).

4. Improvements to the tax treatment of share options with a consultation on doubling the size of company that can qualify for Enterprise Management Incentives (EMI) to assets of £30 million.

5. Publication later this year of a Green Paper on Reform of the Planning System to set out proposals for significant improvements in the processes for determining planning applications, to ensure that the system strikes the right balance between economic and environmental considerations and is flexible and well-adapted for the diverse needs of the regions.

6. The appointment of Mr Ron Sandler, former CEO of Lloyd's of London and Chief Operating Officer of Nat West, to conduct an independent review into the long-term retail savings industry including life-insurance. Working with the FSA, the reviews purpose will be to identify the competitive forces and incentives that drive the industries concerned, in particular in relation to their approaches to investment, and, where necessary, to suggest policy responses to ensure that consumers and the investment needs of the economy are well served.

7. A major review of the awareness of business, enterprise and the economy across schools and further education, led by Sir Howard Davies, chairman of the Financial Services Authority, to create a strong enterprise culture for the future. This will report to Gordon Brown, Estelle Morris and Patricia Hewitt in January 2002.

8. New measures to help small businesses start-up, grow and prosper:

The extension, in Budget 2002, of the 10 per cent corporation tax band to reduce the tax bills of more small businesses;
help for up to half a million businesses with the removal of automatic fines for late payment of VAT for firms with a turnover of less than £100,000. In future fines will only be levied after a written communication is first sent offering help and advice to sort out problems;
publication today of proposals for a flat rate VAT scheme which will mean hundreds of thousands of small companies paying less tax and facing lower compliance costs.

9. A review of payroll services for small firms, to make the system more effective and less costly. This will be led by Mr Patrick Carter, a member of the Public Services Productivity Panel. The review will focus on how payroll can be done more efficiently, with better support and use of technology. He has been asked to report by the end of September 2001.

10. A review of DTI's business support, in consultation with stakeholders and customers. The review will start by examining support to industrial manufacturing, and its initial findings will be reported to the Secretary of State for Trade and Industry in September.

11. Announcement of progress on new Regional Venture Capital Funds for each English Region. Following the state-aids clearance the Government is announcing:

agreement in principle to invest up to £60 million by the European Investment Bank's venture capital arm, the European Investment Fund;
seed funding by Government of up to £80 million;
indicative targets for each region:

£30 million for the North West

£20 million for the East of England

£30 million for the South East

£25 million for the South West

£25 million for Yorkshire and Humberside

£15 million for the North East

£20 million for the West Midlands

£20 million for the East Midlands

£50 million for London

12. As announced in Budget 2001, publication shortly of a consultation document to ensure that Britain has a corporate tax regime that helps create the best possible environment for long-term business investment, both in and from the UK.

13. A consultation paper 'Radio Spectrum Management Review' published today by the Radio-communications Agency is part of an independent review headed by Professor Martin Cave. The paper raises a number of areas for debate, including the best regulatory framework for the management of the spectrum; and pricing and auctions of the spectrum.

Notes for editors

The Chancellor of the Exchequer, the Secretary of State for Trade and Industry, Patricia Hewitt, and the Secretary of State for Education and Skills, Estelle Morris spoke at No 11 Downing Street earlier today.

Alongside the statement, the Treasury published a document, 'Enterprise and the Productivity Challenge' that sets out full details of the measures announced. Alongside this, the independent Cave Review of Radio Spectrum Management has published a consultation document, and HM Customs and Excise has published a consultation document on the Optional Flat Rate VAT Scheme.

Copies of the publication are available from this site or from the Treasury Public Enquiry Unit.

Internal links

Click here for Productivity in the UK: Enterprise and Productivity Challenge

External links

REVIEW OF LONG-TERMS SAVINGS INDUSTRY

Mr Ron Sandler has been appointed to conduct the review into the long-term savings industry recommended by the Myners report. Ron Sandler, 49, is chairman of Computacenter plc and Kyte Group. He was Chief Operating Officer of NatWest Group from October 1999 until March 2000, when he resigned following the take-over of NatWest by The Royal Bank of Scotland. Previously, he was Chief Executive of Lloyd's of London, where he played a pivotal role in the design and execution of Lloyd's Reconstruction and Renewal programme, which was successfully completed in 1996.

The review the of long-term savings industry will cover the markets for medium and long-term savings products purchased by retail customers - large pools of assets which have a significant impact on the allocation of capital in the UK economy.

Its purpose will be to identify the competitive forces and incentives that drive the industries concerned, in particular in relation to their approaches to investment, and, where necessary, to suggest policy responses to ensure that consumers are well served. It will look at the applicability of the principles of investment proposed by the Myners review of Institutional Investment.

In order to do so, building on the work underway in the FSA of topics relevant to these questions, and changes envisaged in the regulatory regime, it will examine such important influences as:

the drivers underlying competition;
information flows to consumers, and consumers' understanding of them;
the nature and quality of consumer advice;
advisors' incentives and skills;
charging structures for products; and
the principles of governance within the relevant products.
review of Enterprise and the economy in education

The review of enterprise in schools and further education will be conducted by Sir Howard Davies, Chairman of the FSA. Its terms of reference will be to consider how to promote better understanding of business, the economy and enterprise throughout the school and further education systems.

It should examine:

current attitudes towards business, enterprise and the economy amongst students and teachers, and the factors that drive those attitudes;
the level of financial literacy and how this affects attitudes;
the scale and effectiveness of existing activities in education institutions;
the outputs that Government should aim to achieve in this area;
international comparisons.

The review should make specific and costed recommendations to the Government on how to achieve the outputs that it proposes. The review should report by the end of January 2002.

REVIEW OF THE PAYROLL SYSTEM - MAKING IT MORE EFFICIENT

The review of the payroll system will be carried out by Mr Patrick Carter. He is a member of the Government's Public Services Productivity Panel. Its terms of reference will be to review the market for payroll services to small enterprises in the UK, to identify ways of reducing the total costs to business and the economy of compliance with payroll obligations.

In particular, the review should:

examine the supply side: the services available to and used by small enterprises to meet their obligations for running payroll, how these are evolving to reflect new technology, and what more might be done to drive the quality, reduce the cost and increase the accessibility of the services available, particularly to very small firms; examine the demand side: the relationship between firms' internal information needs and the costs of complying with their obligations as employers, the barriers to small firms using the most efficient means of performing the payroll task, the impact of existing Government interventions such as Business Support Teams and the help provided through the SBS, and what more might be done to help firms meet their obligations more efficiently within existing polices for the structure of the tax system. The review should make recommendations to meet the goal set out above, and identify the likely resource implications, by 30 September 2001.

CAPITAL GAINS TAX TAPER RELIEF

Legislation is to be introduced as part of the Finance Bill 2002 so that, with effect for disposals from 6 April 2002, the rate of business assets taper relief will be:


	Proposed new rates (disposals from 6 April 2002)		Existing rates
Whole years asset held	Percentage of gain charged to tax	Effective rate of tax for higher rate taxpayer (%)	Percentage of gain charged to tax	Effective rate of tax for higher rate taxpayer (%)
Less than 1	100	40	100
1	50	20	87.5
2	25	10	75
3	25	10	50
4 or more	25	10	25

The Government will also consult whether there are worthwhile and good value for money options to simplify Capital Gains Tax within the existing policy framework. Views on simplification of CGT should be sent by 14 September 2001 to:

Ms DY Fyfield

Inland Revenue

Capital Taxes Policy Group

Room 121

Somerset House

Strand

London, WC2R 1LB

Tel 020-7438 7497

The Government will also consider whether, during the life time of this Parliament, changes to the regime for non-business assets are necessary in order to improve incentives for investment and help businesses attract finance.

Enterprise Management Incentives

The Government is proposing to increase the gross asset limit to allow more companies to grant share options under the EMI scheme. At present small higher risk companies can grant these options over shares worth, at grant, up to £100,000 to their employees, normally with no income tax or National Insurance Contributions (NICs) to pay on grant or exercise. The asset limit for companies is currently £15 million.

Many higher risk companies have said that small but growing companies continue to need the help provided by EMI in recruiting and retaining employees to enable them to realise their growth potential.

The Government is now consulting on increasing the current gross assets limit of £15 million to £30 million from Budget 2002. This should enable more companies to continue to benefit as they grow. The Government would be interested in views on whether £30 million is the appropriate limit to maintain an advantage for smaller, high-risk companies whilst allowing more companies to benefit from EMI. Replies to this request for consultation should be sent by 14 September 2001 to:

Richard Lambert
Inland Revenue
Capital and Savings
Room 138, New Wing
Somerset House
Strand

London WC2R 1LB

Consultation on VAT flat rate scheme

HM Customs and Excise have published a consultation document outlining proposals for a new optional VAT flat rate scheme for 500,000 small businesses. Under this scheme, businesses will only have to make one simple calculation to work out their VAT liability, rather than having to account for each individual transaction. It is estimated that this will reduce compliance costs by up to £1,000.

In the March 2000 Budget, the Government announced that it would consult in the summer on introducing a flat rate scheme for businesses with a taxable turnover limit of up to £100,000. Within the flat rate scheme, small businesses will be able to calculate their net VAT liability as a simple flat percentage of their turnover rather than having to account for all the individual amounts of VAT incurred and charged on each of their purchases and supplies. The proposed scheme has been designed to generate broadly the same amount of VAT payable, but will be much simpler to use and result in much lower compliance costs.

The consultation document, 'Easing the Impact of VAT: Consultation on a flat rate scheme for small firms', sets out the scope and mechanics of the proposed flat rate scheme, and invites businesses and other groups to submit comments by early September.

Copies of the document are available on the Customs website - link below.

External links

HM Customs website

Customs are also consulting on proposals designed to increase take-up of the VAT annual accounting scheme, whereby small businesses submit an annual VAT return rather than quarterly returns to ease cash flow and reduce their compliance costs. The proposed reforms include removing the 12-month qualifying period for participation in the scheme, allowing small businesses to move onto the scheme as soon as they become registered for VAT.

Support and advice on VAT for small businesses

For businesses with turnovers of less than £100,000, the Government will remove the presumption that fines be levied automatically. In the future, where firms are facing difficulties paying VAT on time, Customs' first response will be to offer advice and support rather than simply imposing automatic fines.

In general, under the current system, businesses that fail to make their VAT payments on time go onto the 'default surcharge' regime for a minimum twelve-month period. Under this regime, they face escalating penalties if they default on any further payments.

This regime will be reformed so that, where companies with a turnover of less than £100,000 are having difficulties in paying VAT on time, a penalty will be levied only after a written communication is first sent offering advice and help to sort out the problem.

This reform will complement a number of other changes Customs are making to ensure that the service they provide better reflects the needs of business, including:

providing help and incentives to encourage businesses to send in VAT returns via the Internet and make their VAT payments electronically;
providing better advice through a lifelong business support programme and a National Advice Service, through which businesses will be able to seek advice and help from a team of fully-trained officers via a telephone helpline; and
providing new businesses with a wider and more helpful range of videos and leaflets designed to introduce them to the VAT system and encourage them to seek advice and support from Customs.