Government presents back to work Budget

The Chancellor of the Exchequer presented the UK Government's Budget in March 1998. The measures aimed at getting unemployed people back to work and out of poverty were supported by the social partners.

The Budget presented by the Chancellor of the Exchequer, Gordon Brown, to parliament on 17 March 1997 has been described as the "make work pay" Budget. The Chancellor said that the tax and benefit system should reflect the value that are placed upon the responsibilities and rewards of work. Thus, as well as measures to encourage long-term investment both in jobs and skills, the Budget contains other measures to encourage employment directly, such as extending the "New Deal" scheme for unemployed people (UK9710175N) to new groups, and radical tax and benefit reform measures which, along with the forthcoming national minimum wage (UK9712190N), should help to make work pay (ie, more attractive than receipt of social security benefits).

As part of the New Deal, the Budget provides for an extra GBP 50 million to be made available to help young unemployed people. The New Deal will also be extended through the expenditure of GBP 100 million on pilot initiatives to help 70,000 long-term unemployed people aged over 25. There will also be new measures to help back to work lone parents, non-working partners of unemployed people, and disabled people.

Included in the tax and benefit reform is a new "Working Families Tax Credit" (WFTC) to help those on lower incomes. To be introduced from October 1999, this will provide support of around GBP 5 billion for those in work and benefit nearly 1.5 million families, by:

  • guaranteeing working families a minimum income above and beyond the minimum wage. Families with a member working will now have a guaranteed income of GBP 180 per week;
  • reducing the tax burden on families, raising the point at which they effectively begin to pay income tax to GBP 220 per week, the highest level since the 1960s; and
  • granting a tax cut of GBP 66 a year from 1999 to all employees paying National Insurance contributions (NIC s). Also from 1999, a reform of employers' NICs will cut the cost of employing workers on low and middle incomes.

The social partners largely welcomed the measures. The Confederation of British Industry (CBI) sees them as a sensible complement to setting the national minimum wage at a level modest enough to avoid destructive effects on employment. The CBI has, however, urged a reduction in employers' NICs, since the proposals will increase the costs of employment for higher-skilled and higher-paid elements of the workforce.

The general secretary of the Trades Union Congress (TUC), John Monks, said that: "help for families with children was the TUC's number one budget priority and I welcome the Chancellor's measures ...The Chancellor has taken some bold first steps towards the reform of taxes and benefits, but we still need to see more details." The TUC's main worry is the prospect of economic slowdown; it wants the Chancellor to cut interest rates to bring down the high exchange rate of the GBP.

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