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. MORE