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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