U.K. BUDGET SEES 1987 GDP GROWTH AT THREE PCT
Chancellor of the Exchequer Nigel
Lawson, presenting his budget for fiscal 1987/88 to Parliament,
said U.K. Economic growth was forecast at three pct in calendar
1987.
    He said the Treasury expected a current account balance of
payments deficit in 1987 of 2.5 billion stg, after a 1.1
billion shortfall in 1986.
    Inflation is expected to be 4.0 pct at the end of this
year, Lawson said.
    "As I forecast in the Autumn Statement, inflation may
continue to edge up for a time, perhaps exceeding 4.5 pct by
the summer, before falling back to 4.0 pct by the end of the
year," he added.
    Turning to the Public Sector Borrowing Requirement (PSBR),
Lawson said the likely outturn for fiscal 1986/87 was 4.0
billion stg, or 1.0 pct of GDP.
    The planned PSBR for 1987/88 was set at 4.0 billion stg.
    On monetary policy, Lawson confirmed the target range for
the narrow M0 measure would be two to six pct in fiscal
1987/88.
    No explicit target was set for the broad sterling M3
aggregate, he said. "But broad money will continue to be taken
into account in assessing monetary conditions, as of course
will the exchange rate," the Chancellor told Parliament.
    Lawson said the low outturn of the PSBR in 1986/87 "is
chiefly attributable to the remarkable buoyancy of non-oil tax
revenues in general, and the corporation tax paid by an
increasingly profitable business sector in particular."
    On oil prices, Lawson said he was sticking to his earlier
assumption that North Sea crude prices will average 15 dlrs per
barrel in calendar 1987.
    He said "it is clear that the increased flow of non-oil tax
revenues, coupled with the prospective further growth of the
economy in excess of the growth of public expenditure, puts the
public finances in a very strong position."
    Lawson said the Treasury would strive to keep the PSBR at
1.0 pct of GDP in future.
    "We have reached what I judge to be the (Medium Term
Financial Strategy's) appropriate destination - a PSBR of 1.0
pct of GDP. My aim will be to keep it there over the years
ahead," Lawson said.
    "Inevitably, this greatly diminishes the scope I have this
year for reducing the burden of taxation, which of course
remains a major objective of government policy."
    "But I am sure it is right to err on the side of prudence
and caution, and to build a still firmer base for the future."
    Lawson said the time had come to strike the Exchange
Control Act from the Statute book.
    On corporation tax, he said the rate will remain unchanged
at 35 pct in 1987/88. But companies' capital gains will be
charged at the "appropriate corporation tax rate."
    He said that under the new proposed system, companies
should be able to set Advanced Capital Tax (ACT) payments
against tax on capital gains.
    "Taken together, these changes should yield 60 mln stg in
1988/89," Lawson said.
    Lawson said he will propose that all companies and building
societies be treated the same way on payment of corporation
tax, "with all liable to pay corporation tax nine months after
the end of the accounting period on which the tax is due."
    "I also propose to legislate now to pave the way for a new
method of collecting corporation tax, to be known as Pay and
File."
    This would be part of a wider programme of streamlining tax
collection, and would not come into force until the early
1990s.
    Lawson said he planned two reliefs on Petroleum Revenue Tax
(PRT). As from today, companies may elect to have up to 10 pct
of the costs of developing certain new fields set against their
(PRT) liabilities in existing fields, until the income of those
new fields exceeds the costs incurred.
    Second, there will be a new relief against PRT for spending
on research into U.K. Oil extraction that is not related to any
particular field.
    On business employment, Lawson said employers will receive
tax relief for retraining workers.
    Lawson said that in future, traders registered for Value
Added Tax (VAT) would be able to choose to account for the tax
on the basis of cash paid and received.
    Small businesses may account for VAT annually instead of
quarterly. The VAT compulsory registration period was being
extended to 30 days, he added, and VAT registration thresholds
are to be raised to 21,300 stg.
    New measures are planned to combat VAT avoidance, he added.
    The capital gains tax retirement relief limit would now be
set at 125,000 stg.
    Lawson said he proposed to change the law so that companies
in multinational groups with dual residence will no longer be
able to secure tax relief twice on the same interest payment.
The change will take effect on April 1, 1987, but "genuine
trading companies" will not be affected.
    He also planned to end the present treatment of tax credit
relief for foreign withholding tax paid on interest on bank
loans, also from April 1.
    "In future, banks will be able to offset this tax credit
only against tax on the profit on the relevant loan," he said.
    The standard rate of taxation is being reduced by two
pence, to 27 pct from 29 pct.
    Lawson reiterated the government's aim of reducing basic
taxation to 25 pence in the pound, but added "given my decision
to use the greater part of the fiscal scope I now have to
reduce the PSBR, that goal cannot be achieved in this budget."
    Small companies' corporation tax is also being reduced to
27 pct, he said.
    On the Lloyd's insurance market, Lawson said he planned to
change the tax treatment of Lloyd's syndicates, bringing it
into line with that of provisions for outstanding liabilities
made by ordinary insurance companies and of comparable
provisions made by financial traders.
    The Inland Revenue would be told to consult urgently with
Lloyd's about the details of the legislation, he said.
    "The new rules will first apply to premiums payable for the
Lloyd's account which closes on December 31 this year," Lawson
said.
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