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Last Updated: Wednesday, 1 December, 2004, 15:37 GMT
Pre-Budget report: What we already know
By Sarah Toyne
BBC News personal finance reporter

Young people
Changes afoot: Childcare rules and Child Trust Funds

Gordon Brown's eighth pre-Budget report on Thursday may leave you with a feeling of deja vu. Here is a guide to what we already know to expect, based on the chancellor's past pre-Budget and Budget reports.


Dormant accounts

In Budget 2004, the Treasury said it would report back on the issue of dormant accounts in the pre-Budget report.

The chancellor wants to redirect money held in dormant accounts - savings untouched for a period of up to three years - to be "reinvested in society" and used for good causes.

Between 5bn and 20bn is lying around in bank coffers - and boosting bank profits.

Two major investment banks have already passed over their unclaimed assets to an organisation called the "Balance Charitable Foundation for Unclaimed Assets".

Basic bank accounts

An estimated three million UK households do not have a bank current account. These households can miss out on discounts and cheaper methods of paying bills, such as direct debit.

The government said in Budget 2004 that it would work in partnership with the financial services sector and with voluntary and community bodies to tackle financial exclusion.

Rigid rules introduced to tackle money laundering since 9/11 can make it hard for people to open accounts, particularly people on low incomes, as the bank requires a variety of documents before it can open an account.

Stephen Timms, financial secretary to the Treasury, recently told BBC 1's Politics Show that legislation could be used as a "backstop" if the banks failed to widen account access.

Savings and benefits

From April 2006, the threshold above which someone's savings reduces their eligibility for income support, jobseeker's allowance, housing benefit and council tax benefit is changing.

Those with savings of up to 6,000, instead of 3,000, will have their savings disregarded when they are assessed for these benefits.

The government announced the change in Budget 2004.

Mutuals and actuarial advice

Veteran City fund manager and Marks & Spencer's chairman, Paul Myners, is looking at the governance of mutual insurers and whether the boards of these institutions are as accountable to their members as companies are to their shareholders.

A separate review is looking at the Government Actuaries Department (GAD), following Lord Penrose's report into the Equitable Life scandal. It is chaired by Sir Derek Morris and will report by Spring 2005.



There are two big changes on the horizon.

From April 2005, all employer-supported childcare, not just childcare in work-based nurseries will qualify for National Insurance (NI) and income tax relief, capped at 50 a week.

Six million families receive tax credits
The government is also anxious to reward people who are in work - and make work pay
Unlike Child Benefit, tax credits are not paid to all families with children but only those on low to middle incomes

The Daycare Trust, a childcare charity, says this will be worth about 1,000 a year to a higher-rate taxpayer and about 900 to a lower-rate taxpayer who can benefit from the scheme.

The government is also expanding the range of provision that can qualify for childcare help through tax credits, so that nannies and other types of childcare, such as breakfast clubs and childminders who care for children over the age of seven, can qualify.

Providers will need to be accredited before they can qualify for the scheme, undergoing a Criminal Records Bureau check, first aid and a basic childcare training course.

Parents on low to moderate incomes will be able to claim help through the childcare element of the Working Tax Credit - if they use these accredited schemes.

Grandparents can qualify for tax credit payments under the new accreditation scheme, as long as they are caring for other children as well as their own grandchildren, according to the Daycare Trust.

Couples with two or more children who have a joint income of up to 43,500 a year and those with one child with an income of up to 32,000 will qualify.

Families who are eligible for childcare help through tax credits can also receive help through the employers' childcare scheme - if their workplace offers such help.

Children's Centres

The government said in Budget 2004 that it will create 1,700 Children's Centres by March 2008.

These will provide services and childcare places in all of the 20% most disadvantaged wards in England by 2007 to 2008, it has promised.

Child Trust Funds

The Child Trust Fund is a radical scheme to encourage savings.

The government will give 250, rising to 500 for low income families, to babies born since September 2002.

Every fund may also be topped up by families or friends with extra contributions up to a maximum limit of 1,200 a year.

It is hoped the money, which cannot be accessed until the child is 18 years old, will help towards university costs or for a deposit on a home.

The government has promised that in addition to the initial payment, it will make another payment to children on their seventh birthday.

How much that payment will be has not yet been announced.


Property Investment Funds (Pifs)

The property industry is eagerly awaiting an update on Property Investment Funds (Pifs), a new way of investing in commercial and residential property.

The trusts are already popular in many countries around the world, including Australia and US, where they are known as Real Estate Investment Trusts (Reits).

The trusts offer investors easy access to pooled property investments, which have special tax advantages.

Reits are firms that can trade property assets within their portfolio without paying corporation tax
They allow people with modest means invest in a diversified property portfolio Reits operate in most major western economies including Japan and the US
In the US Reits use 90% of their income to pay dividends to investors

Kate Barker, an economist who was commissioned by the Treasury to investigate the UK's housing supply, suggested similar trusts should be open to UK investors.

The exact structure of Pifs, their tax advantages and the timing of introduction is not yet clear. Whether further details are give in the pre-Budget report or are kept on ice and saved for later remains to be seen.

Housing Benefit

Almost four million people pay their rent in the UK with help from housing benefit.

It is one of the last areas of welfare reform for this government to tackle.

It is now busy piloting a new "free market" system, whereby tenants receive benefit based on the size of their family, where they live and their income - and not the rent they pay.

The idea is it will empower tenants and provide an incentive for them to shop around.

The government has already announced it intends to introduce a second round of "pathfinders" or trials from April 2005.


Self assessment

The Revenue is in the process of rolling out a four page self assessment tax return. From April 2005, about one and a half million taxpayers, with simple tax affairs including employees and pensioners, will receive a short tax return.


The Chancellor could announce the results of its latest consultation on the taxation of trusts in the pre-Budget report. The consultation closed on 5 November 2004.

The government first announced its intention to tackle tax avoidance schemes using trusts in its 2003 pre-Budget Report.

Trust supporters say they are a good way of controlling and, therefore, protecting assets. For example, as a way for a grandparent to leave money for a grandchild - without that squandering the money on fast cars or booze.

Inheritance tax

The government wants to tax people who are living in homes they used to own, under the so-called "pre-owned assets" rules.

From April 2005, an income tax charge will be incurred in situations where people have transferred their houses to another family member, but continue to live in it.

Critics say the new tax regime will penalise people who are property rich, but cash poor.

Clarification over whether equity release schemes will be caught within the new tax regime is still being sought by accountancy bodies.

Sophisticated tax planning

The government has introduced a new "Tax Avoidance Disclosure regime", an attempt to stop wealthy people from using creative tax avoidance regimes to avoid their tax liabilities.

Accountants must now submit tax schemes to the Revenue for inspection.

And they are now bracing themselves for a clampdown on some of the more creative schemes, either now or after the election.

Residence & Domicile

This issue has just rumbled on and on. The government has been consulting about whether it should change favourable domicile rules for people who are resident in the UK but are not domiciled here for more than two years.

Supporters of the existing rules say any crackdown would damage UK plc, as it could scare away existing and potential wealthy investors.

Whether any changes will be brought in is very uncertain.


Small business tax

The UK's 3.75 million small and medium-sized businesses, account for more than 55% of business employment and 52% of business turnover.

Small businesses and the self-employed should brace themselves for a "discussion" document on taxation.

A van
White van man: Some will get a nasty tax shock in 2007

An overhaul of the way small and medium sized businesses were taxed was first mooted in pre-Budget report 2003 and later in Budget 2004.

The government needs to patch up an estimated 1bn in lost tax revenues, caused by its Budget 2002 decision to cut the rate of corporation tax on the first 10,000 of profits to zero.

The move caused a stampede of sole traders incorporating their businesses to take advantage of the new rate.

Accountants believe the government may also seek to clarify the rules surrounding so-called "settlements legislation" which affects husband and wife businesses where the spouse receives a dividend.


The Chancellor announced the Hampton Review, led by Philip Hampton, chairman of J. Sainsbury, in Budget 2004 to investigate red-tape.

Employees provided with vans and some double-cab pick ups by their employers and who use their vehicles for private use, such as picking up their children from school, will see their tax bills increase dramatically from 2007
The move was announced in Budget 2004
Van owners that use their vehicles privately will be charged a flat rate of 3,000 from 2007 - a six fold increase on the current rate of 500.

At a conference earlier in November, Gordon Brown said he would "do more to reduce regulations in Britain in the area of inspection, audit and enforcement," in this pre-Budget report.

Start-up loans

The Graham review of the Small Firms Loan Guarantee (SFLG), which helps small businesses and start-ups from borrowing money, was published in October.

Ms Graham recommended increasing funding available from 100,000 to 250,000 and limiting loans to start-ups.

The chancellor has promised a further statement at the time of the pre-Budget report.



From 6 April 2006, eight existing tax regimes will be replaced with one single lifetime limit on the amount of pension savings that can benefit from tax relief.

From April 2005 a pension can be deferred for more than five years
Under new proposals the deferred pension can be taken as a lump sum, rather than as a weekly "top up"

The Budget set out that the lifetime allowance will be 1.5 million in 2006; 1.6m in 2007; 1.65m in 2008; 1.75m in 2009; and 1.8m in 2010.

From April 2005, the government is also introducing the option of taking a deferred state pension as a taxable lump sum instead of higher weekly pension payments.

Pensions take-up

Sir Peter Davis, the former chairman of Prudential, who now chairs the government-backed employers' taskforce on pensions, is due to report in December on measures needed to increase the uptake of pensions at work.

The work is also tied into the ongoing review of the Financial Services and Markets Act 2000 and regulation of financial advice.

There is a worry that employers could find themselves liable for misselling if they gave advice on pensions which later turned out to be incorrect.

The government has recently introduced legislation which offers a new 150 tax exemption for pensions advice and information given in the workplace.

However, Mercer, a human resources consultancy has pointed out that if the cost to the employer is over 150, the whole amount will be subject to tax.


Tackling worklessness

New measures to encourage people to move off benefits and back to work were unveiled in Budget 2004.

Pilot a 20 "job preparation premium" of 20 a week for people on incapacity benefits
20 a week for non-working partners in low income families in six pilot areas who are looking for work
Childcare taster pilots from April 2004, giving parents formal childcare for up to one week

There are more than 4.2 million people of working age and almost 1.8 million children living in workless households.

Youth volunteering

The Chancellor announced in Budget 2004 a new commission headed by Ian Russell of ScottishPower to report on the way forward for a National Youth Volunteering Strategy.

The commission was originally supposed to report by the end of the year, but it will now be submitted in Spring 2005.



The government is struggling to control spirit smuggling and is losing an estimated 600m a year as a consequence.

In pre-Budget 2003 and Budget 2004 the chancellor announced an attempt to crackdown on spirit smuggling by introducing tax stamps.

From 2006, producers will be required to apply a UK paid "tax stamp" on their products.


Bioethanol fuel

As announced in Budget 2003, a 20p a litre reduction in duty for bioethanol fuel will be introduced from 1 January 2005.

Liquid Petroleum Gas

The government is now increasing the duty rate for Liquid Petroleum Gas (LPG) over the next three years.

The move was welcomed by the Energy Savings Trust as it believes there are more energy efficient cars - such as hybrids - on offer to consumers.

Landfill taxes

As announced in Budget 2003, the standard rate of land fill tax will be increased by 3 per tonne in 2005/06 and by at least 3 per tonne in the following years to reach a medium-to-long-term rate of 35 per tonne.

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