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Wednesday, 28 November, 2001, 16:52 GMT
Pre-Budget report: BBC's Dharshini David
The BBC's Dharshini David joined us to discuss the chancellor's pre-Budget speech.

To watch coverage of the forum, select the link below:

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Chancellor Gordon Brown has unveiled his pre-Budget report to the House of Commons, announcing a significant increase in spending on the NHS in future years.

Saying he was "cautiously optimistic" for the British economy despite uncertain times ahead, the chancellor used his pre-Budget speech to announce an extra 1bn for the health service next year, committing the government to a "world class", publicly-funded healthcare system

What is your reaction to the chancellor's pre-Budget speech? Do you think the government is now on course to deliver on its economic promises?


Transcript:


Newshost:

Kylie Bull, UK: Year after year, the budget is for families, unemployed, or the elderly. This would be admirable if it were done so effectively, but instead, these groups, and young businesswomen such as myself, are left out in the cold. Your thoughts please?


Dharshini David:

She is absolutely right. If you look at what Gordon Brown said yesterday, and as ever whenever the Chancellor stands up to speak, there is a whole raft of measures he goes through - he sits down and you can hardly remember any of them. But the main ones did look at those various groups - children, pensioners, the low paid, the unemployed. Basically, for anyone in those groups, then you could qualify for a tax credit. The various details of those schemes are still being ironed out but we will be hearing about them in the coming months.

But, as Kylie was saying, for the rest of us, very little indeed. I think that is really a sign of what's going on at the moment with the Treasury's coffers and also with the economy at large. Basically, Gordon Brown can't afford to give away large sums of money because the economy is looking a little bit shaky at the moment. Also because we know that people would like to see more money invested in the health service, in education and things like that. It is like any of us - the only way we can actually afford to spend more is by counting the pennies and not giving away so much and he has got to be a little bit prudent like that.


Newshost:

Can you just explain very simply how a tax credit works?


Dharshini David:

It is not like giving away money as a tax cut - basically you get a credit off your tax bill. If you are, say, a pensioner or if you are earning less than a certain amount of money or if you have got children and you're earning less than a certain amount of money - you get something off your tax bill. So it is not like getting money directly into your pocket but it is effectively the same thing - you end up with a smaller tax bill, so effectively more money.


Newshost:

A couple of questions from people interested in changes to small businesses. James Thornill, UK asks: How exactly does the Chancellor's simplified VAT structure for small business work and what size of business does it affect?

Steve, England asks: My wife is a successful sole trader who would like to grow the business but can't pass on the VAT charge to customers. Will the VAT changes help her to grow?


Dharshini David:

These VAT changes were new in the sense it's the first time they've been mentioned in any kind of pre-Budget report or a Budget. But he has been mentioning these ever since the summer - it is something that the Chancellor likes to do.

Basically, if your turnover is less than 100,000, it is going to simplify your VAT structure - you pay a flat rate. If you do get into trouble, the Government is not going to automatically stick a penalty onto you, which is what they have done in the past. They fined people and put them into even more debt and made their problems even worse. Instead they will offer you help and advice. So something that small businesses in particular very much need as we all know. The Chancellor's buzz-words at the moment seems to be: innovation, investment and enterprise. So basically he's trying to further all those and hopefully that will simplify things for smaller businesses and it will help you to grow for a sole trader.

If people do need more advice about this, the Treasury or Customs & Excise seem to be the place to go. They'll be fully primed on the new measures and they could give you all the latest rates etc.


Newshost:

As James asked - you mentioned a turnover figure - what size of business are these changes affecting?


Dharshini David:

Less than 100,000 a year is the latest we've heard from the Treasury on that.


Newshost:

Damien, UK: I am very confused - what happened to Education, Education, Education?


Dharshini David:

If you listened to the speech yesterday, you may have thought - education, does it still exist? We didn't hear very much about it. What's happened is that the Chancellor has actually raised spending on education - or rather he is planning to raise spending on education - but he announced it a couple of years ago.

What he does is he announces spending plans for the next three years, not just for this year. So there are billions of extra pounds due to be spent on education. In fact in the March Budget he announced even more money to go into education as well. So that should be filtering through in the next three years. A lot of that is to go on, what they call, investment projects - building new schools, improving equipment etc. For those kinds of things, it takes time to actually get round to putting those projects in place - so it's going to be a kind of a slow start, I think. But hopefully, the extra billions of pounds - and they do run into the tens of billions here - should be apparent over the next three years. The question is, what happens after that if he wants to carry on raising spending at that rate?


Newshost:

Is this Chancellor unique in the way he announces things? Because as you said in the pre-Budget report there was very little mention of education and yet money has been announced for education previously - you'd expect that to have come up in a big announcement like yesterday.


Dharshini David:

That's right - you'd expect some kind of reminder with him saying - I'm giving you all this extra money by the way, just remember that for the next two years.

But something the Chancellor is sometimes criticised for is for announcing measures over and over again until we don't know what is new and what isn't. So I think he was scared that if he came out and said - well actually I am going to spend extra money on education - people would say - so that's on top of what you've already said - which he can't really afford to do right now.

But if you want to know what's going to happen to spending on education, keep your eyes out next July for the spending review. That's when he announces his next three-year spending plan. That's when the extra money should come through for schools, hopefully.


Newshost:

Khalid, United Kingdom: What is the Chancellor trying to achieve in the long-term?


Dharshini David:

A very political point that. I think if you asked Mr Brown - as we know from listening to some of his speeches in the past - his favourite words are things like prudence and stability. So he wants to keep the economy on a steady path and that means not giving too much money away in one go or taking too much out of the economy because that tends to destabilise things a bit.

His other plan, as we've been hearing about, is a fairly political one - it is improving the quality of public services. If you look at what has been going on in health and education in particular, spending there has fallen behind in recent years. So their plan, apparently, is to build that up again and over the next couple of years, spending is going to grow in those key areas by over 5% per year - now that's a very fast rate. To put that figure in perspective, in the past 20 years or so, it has only grown at about 3% per year. So their plan is to invest in the public services. But at the same time we can't have everything. So I don't think tax cuts are there in the years to come.


Newshost:

Agust Flygenring, Iceland asks: Do you think it's true that Britain will not suffer as much during this recession because of a more flexible labour market?

The Chancellor said yesterday, he was very optimistic about how Britain was going to weather the downturn. Is it because of the flexible labour market?


Dharshini David:

I think among other things, yes, that will help. The fact that it is easier to hire and fire people here. It is easier for us to create part-time jobs and hire temporary workers to tide us over good times and let people go temporarily and cut down their hours to tide us over bad times means that we have got a more stable economy in that sense - we're not going to be on that roller-coaster, hopefully, that some of our competitors are on.

Having said that, there is more to the picture. Some people might say that the Chancellor is being a bit too optimistic about growth next year. I think possibly he is. But if you look at what's going on around the other major economies - unlike the US, unlike Germany - we may well escape recession. But it is more about the fact that we have got the Bank of England here who've cut interest rates seven times - as Gordon Brown was saying yesterday - now that's helped and consumers are still spending. So hopefully if we carry on spending - which is our duty for the economy right now - that's should keep us hopefully out of the red next year.


Newshost:

C. Lewis, United Kingdom: What effect will the new children's tax benefit have, if any, on absent parents struggling with payments to the Child Support Agency? And what reforms are planned to look at the CSA and replace it with a fairer system?


Dharshini David:

With the children's tax benefit or tax credit, we've got very few details at the moment. It is one of those things they've said - yes, we're going to put it in place but we're not going to give you the rates as yet, we've got to go away, do our sums and come back and we'll let you have all the details. So hopefully we'll get some more details on that in the coming months at which point it should become clearer whether or not it's going to have any impact on those paying CSA payments. As we know that system does put a burden quite largely on a few people.

So, at the moment, I am not aware of any plans to look into the CSA but at the moment there are a lot of things that the Government is consulting on. Perhaps they're thinking - well let's get these out the way and then we will look at it. So maybe that will come up during the next wave but not in the immediate future, no.


Newshost:

Eve, UK: Gordon Brown says he is abolishing Stamp Duty "in some areas". Is Cardiff included as such an area or does it depend on which part of Cardiff? My daughter is about to sign a contract for a house under 150,000 and would like to know if she is affected.


Dharshini David:

When listening to that speech, we all sat there and thought - yes, great, Stamp Duty is being reduced - abolished in fact. But as Eve says, it is only in some areas. The way that Gordon Brown has termed it is that it is going to be in those most deprived areas. We don't know exactly where those areas are right now. The kind of department that would deal with that is something like the Department for Environment, Transport and the Regions - that or the Land Registry who have to record every single housing transaction that happens in the country. You pay your Stamp Duty to the Government when you actually complete your purchase.

So if you want more details on whether or not your area is covered, the best thing to do is get in touch with the Department of the Environment, get in touch with the Land Registry to find out. This measure comes into force on Friday. So even if you're signing a contract now, that's ok, as long as you're completing a purchase after Friday, you could still see that smaller bill at the end of the day.


Newshost:

Chris Ware, UK: We have heard this all before from Gordon Brown. We have been paying extra taxes for the last four years, so when will Labour finally fulfil its pledges?

Whether taxes are going up or whether they are being reduced - this is always something which Gordon Brown is criticised for. What is the balance between the taxes which he has abolished during the Labour Government and those which have been introduced?


Dharshini David:

That's a very good question and it's quite difficult to measure and I'll tell you why. It's because we're talking about the difference between tax rates and that amount of tax taken in from the taxpayer. What people tend to talk about when they talk about taxes going up under the current government is the fact that they've taken more money away from the taxpayer. That's not so much to do with a new tax burden being introduced, it's more to do with how well the economy's been doing, we think, and that the fact that the Government has just got a little bit more efficient at collecting taxes off us.

So in the next few years, if the economy is not doing quite so well and we're not earning quite so much and companies' profits aren't so great - then the tax taken may well go down. In fact what the Government seems to be saying is yes, ok, we admit it - taxes are higher - I think the sum was some 20 billion higher than it was when they came to power in 1997 - but it's going to go down in the next few years - we think the tax take is actually going to fall a bit. So he is absolutely right, we have been paying more in tax in that sense.


Newshost:

Jane, London: This was obviously the pre-Budget report, do you think this means it's going to be a good budget?


Dharshini David:

Good for who is the question. It is a pre-Budget report and basically the aim of a pre-Budget report is to lay out some of the ideas Gordon Brown has got for the Budget and for the years ahead. It's also sometimes to talk about any emergency tax measures that he doesn't think can wait until March for the real Budget.

Looking at what he was saying yesterday, he seemed to be saying - we need to invest more in our public services, we need to invest more in our health service. Now we've heard Tony Blair say that he'd like to get spending on health up to the EU average in terms of as a proportion of our national income. We were talking to some experts today at an academic think tank called the Institute of Fiscal Studies. They were telling us that they've got their work cut out, this government, if they want to do that. It's going to mean raising taxes at the end of the day and I think Gordon Brown was trying to pave the way for that yesterday.

So I think in the coming Budget we may see some tax rises. I think the good news is that we're not going to see them in some of those areas that can affect people most - things like petrol taxes, tobacco etc. The experts are saying that those kind of areas may not see big rises. But we could see ourselves hammered in different ways. So don't look for a big give-away Budget seemed to be the message we were getting yesterday from Gordon Brown.

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