CHANCELLOR of the Exchequer Gordon Brown has delivered a Budget of pre-election sweeteners in the run-up to Labour's bid for a third term in power.

Bitter pills may yet be served in HM Treasury small-print, but – as expected – Brown’s Financial Statement delivered vote-winning measures such as child benefit rises, early learning help, renewed focus on secondary and vocational education and a number of new allowances and rebates for pensioners.

For Britain’s 32 million motorists the Budget news was good news: a temporary freeze on company car tax, petrol duty and on vehicle excise duty for small to medium vehicles.

But describing his Budget as one of ‘affordable cuts and essential improvements’ Brown also announced a £65m spend on new centres for vocational qualifications and on employee training, along with a £2,000 return-to-work bonus and a target of 300,000 young people in apprenticeship schemes by 2008.

Low inflation and low interest rates were key to continued British stability and growth, and he saw the country’s business future as a world leading location for ‘science based, knowledge based, skills based industries’.

Adding that there was to be no raise in corporation and capital gains taxes, the insurance premium tax (IPT), nor the climate change levy, Brown told Parliament he was not cutting small business support either and has earmarked £300m in local business-led regeneration.

The Conservatives immediately attacked the Budget speech as ‘The Bribes of March’. Leader Michael Howard said the Government had run out of solutions with its ‘vote now and pay later’ approach, and that ‘this is the last Budget this Chancellor will ever deliver’.

Key points:

Fuel duty

Road fuel duties will rise in line with inflation by 1.22p per litre, deferred to September 1 in recognition, the Chancellor said, of volatile oil markets.

Brown also said the planned duty differentials for biofuels and road fuel gases will continue until 2007/08.

Vehicle excise duty

VED rates will be frozen for the four least polluting carbon dioxide bands and increased by a standard £5 for the two most polluting bands, as well as for cars and LCVs of more than 1,549cc registered before March 1, 2001. The changes will take effect from April 1.

The VED bands will be renamed A-F, from the current lettering of AAA-D, while retaining their existing carbon dioxide emission level. This will be done in order for the VED lettering to match that of the new energy efficiency labelling being introduced this year.

Company car tax

The Chancellor announced a freeze in the threshold for the minimum percentage charge rate of company car tax at 140g/km for 2007/08 and simplifications to the company car tax system:

Company car fuel: For 2005/06 the fuel benefit charge will be frozen at £14,400

Alternative fuels: For 2006/07 the cost of converting cars to run on fuels such as LPG and CNG will be disregarded for bi-fuel gas and petrol cars converted but there will no longer be an additional 1% discount.

There will be a 2% discount on P11D price for bi-fuel gas and petrol cars manufactured or converted before type approval.

There will be a 3% discount for hybrid electric cars and the 6% discount for electric cars will remain.

These measures will replace the existing system of:

Company car tax rules

Taxable benefit on the use of a company car is calculated by applying a percentage to the list price of the car. Related to the engine’s carbon dioxide (CO2) emissions, the BIK tax ranges from 15% to 35% in 1% increments for a petrol-engined car.

Diesel-engined cars that do not meet Euro IV emissions standards attract a 3% supplement on the petrol percentages, capped at 35%. However, from April 2006, the waiver of the 3% supplement for Euro IV diesel will be withdrawn for all cars registered from January 1, 2006.

CO2 emissions qualifying for the minimum petrol percentage (15%) charge in the 2005/6, 2006/7 and 2007/8 tax years have been frozen at 140 grams per kilometre.

Industry comment

Kevin McNally, managing director of LeasePlan, said it was a ‘steady as you go’ Budget with ‘no surprises so far’. But he added: ‘From LeasePlan’s perspective it was disappointing there were no measures which might attract drivers back from cash schemes into leasing.’

The RAC Foundation welcomed as 'prudence at the pumps' the Chancellor's decision to put increases in fuel duty on hold for six months and to freeze VED for smaller cars. 'The Chancellor has been shrewd as well as prudent,' said RAC Foundation executive director Edmund King. 'He is obviously aware of the voting power of 32 million motorists.'

Ray Holloway, petrol retailers' director for the Retail Motor Industry Federation (RMI), said: ‘Fuel prices are likely to remain volatile during the Spring, so the Chancellor’s decision to freeze fuel duty levels until September is a wise one, especially with a general election on the horizon. The Chancellor has donned velvet gloves for this Budget, but regardless of who wins in May, there will be a post-General Election budget, and then all bets will be off.'