In addition to its much publicised welfare to work spending proposals and the windfall tax, Labour's first Budget in 18 years contained a number of radical taxation and spending proposals.

The welfare to work New Deal for young people, the long-term unemployed, lone parents and schools will largely be funded by the windfall tax on the 'excess' profits of privatised utilities which the Treasury expects to generate £5.2 billion.

But the windfall tax is not the only source of new revenue.CORPORATE TAXATION AND DIVIDENDSThe Labour party widely voiced its concern in the months leading up to the general election that UK companies were investing too small a proportion of their profits as a result of the pressure to distribute profits to meet the demands of their investors.Pension funds are key investors in the UK equity market.

Pension funds typically hold 85% of their assets in company shares, and 40% of the value of shares quoted on the London Stock Exchange is currently held by pension funds, giving the investment needs of UK pension funds considerable weight in the market.

Equity investment is attractive to fund managers as equities provide a capital hedge against inflation, and, as dividend payments have risen significantly in real terms, a high income return.

The Government has concluded that the demand for dividends by such pension funds was augmented by the tax regime.On payment of a dividend a UK company generally accounts for advance corporation tax (ACT) to the Inland Revenue.

The ACT paid is also treated as a pre-payment of the company's corporation tax liability.

Before Budget day, recipients of a dividend also generally received a tax credit of 20% of the gross dividend which corresponded to the ACT paid.

The gross dividend is taxable at the lower rate of income tax (20%) and the tax credit therefore satisfied the liability of lower rate and basic rate taxpayers.

Tax-exempt shareholders, such as pension funds, were able to reclaim the tax paid.

The repayment of tax credits on dividends to tax-exempt investors cost the Treasury approximately £3.5 billion per year.Despite lobbying from the pensions industry, the abolition of the tax credit was therefore widely anticipated.

Individuals and charities will be sheltered from the changes until 6 April 1999 but, with effect from Budget day, UK companies and pension funds will receive no refundable tax credit on dividends paid by UK corporates.

This change is likely to have a significant impact on the equities market.As from 6 April 1999, dividend tax credits for individuals will be reduced to 10%.

Higher rate tax payers will be compensated for the reduction by a lowering of the higher rate on dividend income to 32.5%.

Individual shareholders whose income is within the lower or basic rate bands will be liable to tax at the reduced rate of 10% on their dividend income.Under double taxation treaties negotiated by the UK with overseas jurisdictions, overseas shareholders were able to claim pa yment of all or part of the tax credit carried by the dividends received.

The reduction of the tax credit from April 1999 will mean that the value of the reclaimable tax credit under these treaties will be significantly reduced or eliminated.In addition to the changes to the taxation of dividends, there was a largely unexpected reduction in the corporation tax rate to 31%.

The corporation tax rate payable by small companies was also reduced from 23% to 21%.

The rate of ACT remains unchanged at 0.25% of the net dividend paid.The Chancellor's announcement that Foreign Income Dividends (FIDs) will be abolished from April 1999 was also unanticipated.

Under existing legislation, if certain conditions are met, a company can elect for a dividend to be treated as an FID.

ACT is payable on the dividend but shareholders receiving a FID are not entitled to a repayable tax credit on receipt of the dividend.

Non-taxpayers, such as exempt pension funds, were not therefore able to recover the 20% deemed to have been paid on the FID.

The advantage of FIDs is that to the extent that the FID is paid out of foreign income which is subject to overseas tax, the company is able to reclaim any ACT it is unable to offset against its corporation tax liability.

The regime is therefore of considerable import to UK-based multinationals.

The FIDs regime will continue to apply in a modified form to certain international headquarters companies.The UK banking industry will also be affected by the decision to tax dividend income in the hands of traders.

As of Budget day, dividends on shares held as trading assets will be taxable as trading profits.

This will have significant ramifications for certain financings used by UK-based banks and other finance houses.Other corporation tax changes include a change in the ability of companies to carry back trading losses which has been restricted from a three to a one year carry-back.

Companies are also no longer able to set off losses against franked investment income (UK dividend income) to obtain a repayment of the tax credit.STAMP DUTYStamp duty on the transfer of all forms of property (except shares) has been increased to 2% (that is £2 per £100 or part thereof) where the consideration is over £500,000 and 1.5% (£1.50 per £100 or part thereof) where the consideration is more than £250,000 but not more than £500,000.

This change will apply to private and commercial real property transfers.Although there has been no change in the duty charged on rentals the new rates will apply to lease premiums.

Under the new proposals a transfer or lease document will need to contain a certificate of value if it is to qualify for the 1.5% or 1% rate.

These provisions will apply to transactions which complete on or after 8 July which were not the subject of commitments made before 2 July.

The stamp duty increases will also affect transfers of other property rights.

Assets transferred under a business sale such as goodwill and intellectual property rights will therefore also be subject to the higher rate of duty.As the rate of duty on shares will remain at 0.5%, the effect of the changes will mean that business transfers will become relatively expensive.

Share sales will look increasingly attractive in comparison.VAT AND CAPITAL ALLOWANCESThere has been a temporary increase in allowances for plant acquired by small or medium sized UK businesses (defined as companies with turnover less than £11.2 million, assets less than £5.6 million and not more than 250 employees).

The allowance rate will be increased from 25% to 50% and from 6% to 12% for long life assets for expenditure incurred before 1 July 1998.The government also announced certain changes to the capital goods scheme which apply with immediate effect.

The scope of the anti-avoidance legislation introduced in the last Finance Act relating to the exercise of the option to tax for land to be occupied for exempt or partially exempt purposes will be extended.As expected the rate of VAT on domestic fuel will be cut from 1 September 1997 from 8% to 5%.

The VAT registration threshold is increased from £48,000 to £49,000.PERSONAL TAXATIONWhilst the focus of the Budget was clearly on the corporate sector, in addition to the changes mentioned on the taxation of dividend income for investors, proposals were announced for a new savings account called the Individual Saving Account.

Details of the account will be announced in mid 1998.

The government has announced its intention to build on the success of TESSAs and PEPs.

Individual Savings Accounts should be available in 1999.

In announcing a general review of tax avoidance in the direct tax field, the government has also signalled its intention to conduct a detailed investigation into tax leakage and avoidance.

This review will consider introducing a general anti-avoidance provision which would have far-reaching consequences.More details on the above changes will be available in the coming weeks following the publication of the Finance Bill and discussion in committee.