§ I have already drawn attention to the imbalance between savings and investment and its effects in the late 1980s. As companies found more and more opportunities to invest, we needed more savings; but instead, the saving ratio fell. In successive Budgets, my predecessors introduced new tax incentives to save. Many forms of saving now enjoy a highly privileged tax position.
§ Last year in particular, my right hon. Friend the Prime Minister announced a new scheme, the tax-exempt special savings account. TESSA has proved a spectacular success since it arrived on the savings scene nearly three months ago, and has encouraged the savings habit among ordinary taxpayers. Already, over 1.illion people have opened accounts.
§ My right hon. Friend also announced in his Budget last year the abolition of composite rate tax. From 6 April, non-taxpayers will no longer have to pay tax on their accounts with banks and building societies. These are far-reaching reforms, which need time to settle down and take effect, so this is not the year to disturb the regime that we have just put in place, or to risk causing confusion with further schemes. My main concern has been to consolidate the system that we already have, although I have some modest changes to announce.
§ I propose to raise the capital gains annual exempt amount to £5,500 and the inheritance tax threshold to £140,000 this year in line with inflation.
§ National Savings continue to play an important role, particularly for small savers. This summer, I propose to introduce a new National Savings children's bond for children under 16. There will also be a new issue of fixed-interest savings certificates, with a maximum investment of £5,000 compared with £1,000 on the last issue. Other changes to National Savings products will be set out in a press release issued today.
§ I am also removing the restrictions on friendly societies writing tax-exempt life insurance policies for children, and increasing the limit on premiums for their tax-exempt policies generally from £150 to £200.
§ Personal equity plans remain an important means of promoting direct share ownership. Since their introduction in 1987, about 1.2 million PEPs have been taken out, and over £3 billion has been invested. I have some further changes to announce.
§ First, I in tend to allow investment in European Community, as well as United Kingdom, shares both for individuals and for unit and investment trusts. Second, to promote the development of single-company PEPs, I propose to allow investors to put up to £3,000 a year in a single-company PEP, as well as up to £6,000 a year, as now, in a general plan. This will allow total investments of £9,000 a year.
§ While single-company PEPs are available to any investor, I believe that they provide a natural home for shares acquired under employee share schemes. I therefore propose to allow shares acquired under approved all-employee share schemes to be transferred directly into the company PEP, with no charge to capital gains tax.
§ Employee share schemes and PEPs have encouraged individuals to become shareholders, but many people have bought their first shares in big offers, mainly privatisations. The first of these to catch the public's imagination 178 was British Telecom. The Government currently still own some 48 per cent. of the shares, and I can announce today that I intend to sell part of this holding in the coming year.
§ Privatisations have been a great success. The next step is to encourage people to invest in shares more generally. One problem is that, to the small investor, the stock market can seem remote, intimidating and somewhat expensive. The development of a genuine retail market for shares in high streets up and down the country would be highly desirable.
§ To give this the boost it deserves, the Government are considering a change in the way in which they market privatisations. For future large flotations, I am today inviting proposals from the private sector for arrangements to distribute shares directly to the public through high street retail networks.
§ I hope that there will be proposals both from financial institutions—banks or building societies—and from companies outside the financial sector. If satisfactory proposals can be developed in time, I will consider using such a high-street network in the sale of British Telecom shares.
§ Such a high street network could be used for primary issues, not only by the Government but by private sector companies and, in the longer term, it could provide a cheap and accessible way for individuals to buy and sell in the secondary market.