10p rate 'when time is right'

A 10p rate of income tax will be introduced when it is right for the economy, the Chancellor, Gordon Brown, said in his Budget statement.

He reaffirmed Labour's election pledge not to raise basic or top rate income tax throughout the life of this Parliament and announced that no National Insurance contributions will be paid on the first £81 of earnings each week.

The Budget was, he said, designed to ensure that work paid more than benefits. To that end, he announced a new Working Families Tax Credit to replace Family Credit from October 1999. As part of the initiative, families with two children will pay no income tax until they earn more than 50% of average earnings.

He also said the Government will provide a tax credit of as much as 70% of childcare costs, up to a maximum of £100 a week for first child and £150 for two or more children.

In addition he announced a new tax credit for disabled people in work, to be paid through the wage packet.

Saving encouraged

Plans announced in the July '97 Budget to replace current tax-free saving schemes, Peps and Tessas, with Individual Saving Accounts were confirmed.

However, the Chancellor said that capital and accumulated gains in Peps and Tessas will continue to enjoy tax relief even after they cease to accept new contributions from April 1999. There will be no limit on transferring cash from existing Peps and Tessas.

He also increased the amount of cash that can be held for the first year in new ISA's from £1,000 to £3,000.

In addition, he guaranteed 10 years tax relief for ISA savings of up to £5,000 a year.

Homes and inheritance

No changes were announced in mortgage tax relief for homeowners, but stamp duty is to rise to 2% for house purchases over £250,000 and to 3% for houses costing more than £500,000.

The threshold for payment of inheritance tax is to rise by £8,000 to £223,000.

Draft legislation for anti tax avoidance is to be published next month. Gordon Brown said £1.5bn worth of loopholes will be closed.