Green Budget: Welfare to work - New Deal provides pounds 4bn package to get jobless off the dole

Millions of jobless households will be offered a pounds 4bn package of measures aimed at getting them back to work, the Chancellor of the Exchequer, Gordon Brown, pledged yesterday.

The deal, mostly financed from the July windfall tax on utilities, will include out-of-school childcare clubs, staffed by 50,000 newly trained carers, cheaper travel for young people and training grants of up to pounds 1,700 for businesses that recruit and train the unemployed.

But Mr Brown warned that those already in work must be prepared to accept pay restraint as part of his Government's overall job-creating strategy - or risk higher interest rates to curb a future consumer boom. "It is in no one's interest if today's pay-rise threatens to become tomorrow's mortgage rise," he said.

The Chancellor's comments came as he renewed Labour's commitment to a 10p starting rate of tax, down from 20p at present, "when it is prudent to do so".

Mr Brown said that to achieve the Government's jobs and training reforms, "fairness and openness" were central to its strategy on taxation.

"Tax avoidance harms those who pay their fair share of taxes. I give notice that the [next] Budget [in March] will introduce those measures that are necessary to root out tax avoidance."

This would include a "fair approach" to North Sea oil taxation, alcohol and tobacco - where a review of taxes will be completed next year, plus the charities sector.

He said the Government would publish a document next week on its proposals to encourage greater savings, particularly among low income earners, through an Individual Savings Account (ISA).

The ISA, to be launched in April 1999, will replace existing tax-free schemes, including Personal Equity Plans (Peps) and Tax Exempt Special Savings Accounts (Tessas) introduced by the Conservatives in the 1980s. It has been estimated that Peps and Tessas are costing the Inland Revenue about pounds 1bn a year in unpaid taxes.

To promote greater willingness to work among unemployed people with families, the Government is proposing to introduce a "working families tax credit", backed by affordable child care.

The Chancellor said: "We will consider in detail the working families tax credit; cash paid through the wage packet directly to families on low incomes, side by side with the national minimum wage. He also hinted at the possibility of offering tax breaks to people paying for their own child care: "The proposal would build on the successful elements of family tax credit, and involve better help through the tax system for child care costs."

Mr Brown promised to review the present National Insurance system, whereby contributions of 2 per cent are levied as soon as wage earners are paid more than pounds 62 a week, rising to 10 per cent on every pound earned thereafter. "Under the current system, some low-paid employees face marginal tax rates of over 100 per cent," the Chancellor said.

"To improve rewards from work, to simplify administrative burdens on employers, as we want to do, and to encourage them to take on more people, it is right to consider the scope for bringing the National Insurance structure for the low-paid more closely in line with income tax."

The Chancellor told MPs that one in five working-age households, 3.5 million families, have no one in work, while the proportion of manufacturing business reporting skills shortages is up 70 per cent on a year ago.

"We will introduce pilot projects nationwide under which any employer who takes on and trains a young or long-term unemployed person and keeps them on can now receive three-quarters of their New Deal [training] allocation, thus giving immediate help with training costs - in the case of young people about pounds 1,700 and for the long-term unemployed pounds 1,500."

Alongside these grants, Mr Brown added that David Blunkett, Education and Employment Minister, would shortly publish his proposals for a "University for Industry", together with "Learning Accounts" to encourage further training for employees.

Mr Brown added: "To ensure that work pays for families with children, we propose a working families tax credit, backed up by affordable child care ... side by side with the national minimum wage.

He said the first wave of reforms aimed at helping the young unemployed would start with a pilot project in January, extending nationwide in April. A number of bus and rail companies would be introducing a new pass for young people taking part in the Government's work scheme, cutting fares by at least 50 per cent.

Projects to find work for the disabled, part of the previously announced pounds 195m programme for people with disabilities, would start in the spring of next year, with the Social Security and Education and Employment departments inviting bids for the first wave.

Mr Brown added: "Helping lone parents into work is the most effective long-term way to tackle their family poverty. The New Deal for lone parents began in eight areas in July. Already it is yielding results where it counts - in higher living standards for lone parent families.

"So from next year our welfare to work programme will be extended to help every lone parent who wants advice and help. And from April every single parent coming on to benefit will be offered help to find work, if that is what she or he wants."

Mr Brown claimed the programme would help restrain pay spirals: "The more people return to the world of work, and the more we tackle skill shortages, the less pressure there is on employers to bid up wages in the short term."