Queen's Speech Outlines UK Plans On Taxes, Deficit Reduction

By Laurence Norman

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--U.K. Prime Minister David Cameron's new government laid out its legislative program for the next 18 months on Tuesday, including plans to redirect billions of pounds in revenue from the prior government's planned payroll-tax increase in an effort to lower the tax burden on most U.K. taxpayers.

The details were presented as part of the queen's speech Tuesday, which opened the new parliamentary session and presented the government's plans for the term, which will last until late 2011.

The government plans a string of economic bills, all of which were flagged in advance by Cameron's Conservative-Liberal Democrat coalition. In addition to promising to accelerate deficit reduction, one bill would set up the Office for Budget Responsibility, which will police the government's tax and spending plans.

The government said the national-insurance-tax bill would "safeguard jobs and support the economy."

In its March budget, the Labour government reiterated that it would introduce a payroll-tax increase for employers and employees in April 2011, saying at the time it would raise some 9 billion pounds ($12.99 billion) in revenue. To soften the blow on lower-income families, Labour set aside some GBP3 billion of that revenue to raise national-insurance-tax thresholds.

Fleshing out the details of one of the key election pledges of Cameron's Conservative Party, the new government said it will recycle the remaining GBP6 billion of expected revenue to increase the level at which people pay income tax and further increase payroll-tax thresholds for employers and employees.

The government said that "under the full changes, most people would be better off relative to the previous government's plan," taking into account the rise in income-tax and national-insurance contribution thresholds.

Acting Labour leader Harriet Harman promised effective opposition to the government's program, including support for some of the government's pledges like reforming the political system and enhancing the role of Parliament.

But she said Labour wouldn't "pull its punches" and would oppose spending-cut plans that threaten front-line services or harm the recovery.

"We will be determined to prevent unfairness," she said. "We will speak up for the public services that matter. We will be vigilant in protecting jobs and businesses."

The government said it plans legislation to deliver a "fairer and simpler" tax and benefits system, along with welfare reform.

However, in a shift in language, the government said Tuesday it planned to raise capital gains taxes on nonbusiness assets "closer" to the 40% income-tax rate from the current 18% level. In last week's coalition accord, the Conservatives and Liberal Democrats had agreed to lift the capital-gains tax rate "similar or close to" income tax rates.

The prime minister's spokesman insisted there was no policy change on the capital-gains tax, but said any details on the new rate would have to wait until the June 22 emergency budget.

The government also plans a financial-services regulation bill that will hand "control" of systemic risks to the Bank of England and give it "oversight" of bank supervision.

There will be legislation to order the partial privatization of the state-run Royal Mail postal services and to make "fair and transparent" payments to policy holders who incurred losses after the collapse of Equitable Life insurance company.

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