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Understand The Budget.

The Chancellor of the Exchequer's Financial Policy Statement.

Introduction

The Treasury is legally bound to present two economic forecasts per year. Between 1993 and the 1997 election, this was done in the Budget which was held in November and the Summer Economic Forecast (late June/early July).

Since May 1997, under the new government, the Chancellor presents a Budget in the Spring but also presents a Pre-Budget Report in the Autumn which provides a progress report on what has been achieved so far, gives an update on the state of the economy and the Government finances and sets out the direction of Government policy in the run up to the Spring Budget.

The first ever Pre-Budget Report took place on 26 November 1997. The aim was to begin a national debate on the major economic issues facing Britain. Ministers held a series of 'roadshows' around the country as part of this debate which helped to inform decisions in the Spring 1998 Budget.

Budget Origins

The origins of the Exchequer go back to the Norman period. The Norman system was based on two departments to deal with finance: the first, the Treasury, received and paid out money on behalf of the monarch; the second, the Exchequer, had a "lower office" connected with the Treasury which received money, and it had an "upper office", a court of law concerned with regulating the King's accounts. The word "exchequer" comes from the Latin "scaccarium" meaning a chessboard. The name was given to the court because counters were moved on a square table. The word 'budget' comes from an old French word "bougette" which mean little bag.

There is normally a photo-call on the steps of Number 11 Downing Street with the Chancellor holding up the "Budget Box". The box, in which successive Chancellors have carried their Budget speech from Number 11 to the House, is believed to have been made for Mr Gladstone, around 1860. It is a wooden box, lined in black and covered in Scarlet leather. Lord Callaghan, when Chancellor in 1965, was the first Chancellor to break tradition and use a newer box - but later Chancellors' reverted to using what has become known as the "Gladstone box".

In July 1997, Chancellor Gordon Brown became the second Chancellor to break with tradition and use a new box for the Budget. Made by industrial trainees at Babcock Rosyth Defence ltd ship and submarine dockyard in Fife, the new box is made of yellow pine, with a brass handle and lock, covered in scarlet leather, embossed with the Royal initials and crest and the Chancellor's title. Mr Brown shared his photo-call with four trainees from the dockyard. There was an additional break from tradition in 1997 when the Chancellor and his Ministerial team enjoyed the first ever Budget day breakfast at the Chancellor's flat in Number 10.

The Budget speech

Speeches in the past lasted anything from three quarters of an hour to a couple of hours. The longest Budget speech is believed to have been by William Gladstone on 18 April 1853, lasting four hours and forty five minutes. Benjamin Disraeli is said to hold the record for brevity, at forty five minutes on 4 April 1867. Gordon Brown's speech in July 1997 lasted for one hour, in 1998 and 1999 it lasted for just under one hour. As soon as the Chancellor returns to his seat, information is made available to Members of Parliament, the public and the press. Details of the Budget measures are generally contained in a number of press notices.

Chancellors by tradition may refresh themselves with alcoholic drink during Budget speeches. This privilege does not extend to any other Member or to any other occasion. Not all Chancellors have availed themselves of this concession, relying instead on non-intoxicating liquid refreshment. Gordon Brown has chosen Scottish water at his Budget speeches so far.

Budget broadcast

The Chancellor of the Exchequer traditionally makes a Budget Day broadcast to the nation during the evening of Budget Day. The broadcast provides the Chancellor with a further opportunity to outline the intentions and ideas behind his Budget to the public. The Opposition Parties have an opportunity to respond in their own Budget broadcasts during Budget week.

Chancellors Since World War II

Date of Appointment and Chancellor:

26 July 1945 Hugh Dalton
15 November 1947 Sir Stafford Cripps
19 October 1950 Hugh Gaitskell
26 October 1951 R A Butler
24 December 1955 Harold Macmillan
14 January 1957 Peter Thorneycroft
7 January 1958 Derek Heathcoat Amory
27 July 1960 J Selwyn Lloyd
13 July 1962 Reginald Maudling
16 October 1964 James Callaghan
29 November 1967 Roy Jenkins
19 June 1970 Ian Macleod (died 20 July 1970)
25 July 1970 Anthony Barber
5 March 1974 Denis Healey
5 May 1979 Sir Geoffrey Howe
11 June 1983 Nigel Lawson
26 October 1989 John Major
28 November 1990 Norman Lamont
27 May 1993 Kenneth Clarke
2 May 1997 Gordon Brown

Budget resolutions: Annual and permanent taxes

Most UK taxes, including all indirect taxes, petroleum revenue tax and taxes on capital are "permanent". On the other hand, income tax, corporation tax and advanced corporation tax are annual taxes and must be renewed each year. This annual review of certain taxes gives the House of Commons the opportunity to review the imposition of these taxes.

If annual taxes are reimposed as a whole, their detailed provisions, with a couple of exceptions, remain as they were in the previous year. The first and very important exception concerns the indexation of personal allowances and rate bands for income tax; this is discussed in more detail below. The second exception is that the ceiling on relief for mortgage interest payments needs to be fixed each year.

Legislative process

The reimposition of annual taxes, and most other tax changes announced in the Budget are legislated in the annual Finance Bill. This is normally published in early January and is considered by Parliament in the Spring, with Royal Assent being given by the start of May. One of the key features of tax legislation, which distinguishes it from any other legislation, is that measures announced in the Budget may take effect before the Finance Bill is enacted. The approval of Budget Resolutions permits this to take place.

The Budget resolutions are tabled as soon as the Chancellor has finished the Budget speech. Under the Provisional Collection of Taxes Act 1968, these resolutions, once passed by the House of Commons, authorise the imposition of certain taxes or of changes in their rates. Under the Unified Budget procedures, there is also a resolution (unconnected to the Finance Bill) which welcomes the Budget spending plans.

Rules for tax changes

All tax changes that are to be enacted in the Finance Bill have to be covered by resolutions. Some changes, such as those that increase or extend a tax, take away or reduce an existing relief, or are to have immediate effect need specific resolutions. Other changes can be covered by a more general resolution known as the Amendment Law Resolution. The Amendment Law Resolution is generally the first resolution in the list tabled at the end of the Budget speech and is the formal subject of the Budget debate. Only the Government can move an increase in taxes. This is because the right to impose taxes derives from the Crown's right to demand revenue (or supply); a demand which can only be expressed through the Government of the day.

There is another general resolution known as the Incidental Charges Resolution. This covers situations where the complexities of the tax system mean than an increase income tax relief can, in some circumstances, lead to taxpayers having to pay more on a different tax, even though their overall tax bill is not going up.

Immediate tax changes

The Budget resolutions are tabled at the end of the Chancellor's statement and they are voted on at the end of the Budget debate. If passed they can then take effect. In recent years the Budget debate has lasted for five days. To cover the intervening period, a Resolution under Section 5 of the Provisional Collection of Taxes Act can be moved immediately the Chancellor finishes speaking. This Resolution cannot be debated or amended and, if approved by the House, gives authority for specified changes to have immediate effect pending the passage of the main Resolutions. The effect of such a Resolution lapses if the main Resolution, to which it gives effect, is not passed within ten sitting days. Under the procedures for Autumn Budgets the changes on excise duties often take effect from 6pm on Budget Day, but sometimes a later implementation date is chosen.

Time limit on main resolutions

Furthermore, the main Resolutions themselves are temporary; the changes to which they give effect are nullified if the Finance Bill does not receive a second reading within 30 sitting days of the Resolutions being passed, or if the Bill does not receive Assent within a certain period. The 30 sitting days period was set in the 1993 Finance Act; previously it was 25 days. The deadline for Royal Assent to the Finance Act is 5 May for an Autumn Budget (for a March/April Budget it had been 5 August). The Resolutions also lapse if Parliament is dissolved or prorogued.

Long-Term Budget Effects

(20:40 Thursday 17th March 2005 news story)

Some of the effects of the budget cannot be ignored by any so-called money saving expert or DebtBusting Patient:

If you're cursing 7p on a packet of 20 cigarettes, assuming a moderate 20-a-day consumption, it's an extra 49p a week. That's £25 over the year. Factor-in the interest lost at say 5%, and you're gonna inhale an extra £500 over 10 years. Or £1,000 for a 40-a-day habit. Smoking is the biggest waste of money on Earth. Think about it: You're setting fire to dried-up bits of plants every hour, but instead of calling the fire brigade or simply running away, you actually inhale the smoke on purpose, and pay well over £50 a week for the opportunity. Changing hurts far less than the pain you inflict on your finances AND your health. Take a deep breath Cough and say it with me... "I will give it up". Please. It's easy. I dare you.

Anyway back to the budget, why are so many pensioners moaning that "Gordon Brown's £200 refund off the council tax is just an election bribe". Or "That £200 still isn't enough to cover the 2 band rise we have to fork out for". Yeah, we know it's a bribe, and we know that council tax is a complete rip-off but hey, if you don't want the 200 quid, send it to us, here at Money Surgery. E-mail us, and we'll reply with the address to send your cheques, you ungrateful lot. Gordon, if you're paying £200 for a single grey vote, how much is a strawberry-blonde or dark-brunette vote? I'm open to offers, but £200 will do. I'd vote for anyone who gives me £200, even screaming lord Kilroy-Silk. Well, maybe. Allright, I wouldn't, but I nearly went there for a second. I was wavering. Just think how many imperial mints £200 could buy, pensioners, for you to suck while you ride around and around all day on the local free bus. Best days of yer life!

Finally, although Money Surgery is completely independent and has absolutely no political affiliations (they're all a bunch of losers), a thought has occurred to us: If you don't let Gordon win, you let Letwin win. Aargh!
He didn't need any bribes after all, did he, pensioners?

Good Luck to Wales chasing a Grand Slam this Saturday, by the way.

5-Minute Budget Guide

(20:00 Wednesday 16th March 2005 news story)

Here's our quick Budget fact sheet, from Gordon Brown's speech this afternoon:

• Stamp Duty threshold raised to £120,000 from £60,000 for home buyers.
• Inheritance tax threshold raised to £300,000 over the next three years.
• Tax on a packet of 20 cigarettes raised by 7p.
• Tax on a pint of beer raised by 1p.
• Tax on a bottle of wine raised by 4p.
• ISAs to be maintained until 2010.
• Personal income tax allowances increased with inflation.
• Council tax refund of £200 for pensioners.
• Free local bus travel for pensioners.
• £2,000 return-to-work golden hellos for single parents.
• Petrol duty inflation tax rise is postponed until September.

The chancellor's speech also included economic statistics that Mr Brown was keen to flaunt as proof that Labour is expertly handling Britain's economy, with record levels of employment, sustained low inflation and low interest rates, and high, and accurately forecast, economic growth figures.

The budget was definitely "feelgood" and emphasised the government's capable handling of the economy, and the end of the boom-and-bust cycles that had been a feature of previous regimes. However, there wasn't the great giveaway expected by some people. Rather, as Evan Davies of the BBC's six o'clock news commented, Mr Brown seemed to ask the electorate, "Who do you trust with the economy?"

March the 16th: A Date With Gordon

(Wednesday, 23rd February 2005 news story)

It's a date for the diary - Wednesday 16th March. The day when Gordon Brown is taking us to the sweet shop, and he's paying. And you can have anything you want. Because it's the day of the last budget before this year's general election, there's bound to be sweeteners.

We wonder what the Chancellor has in store for us. Maybe a visit to the tax-back tuck shop, giving us all a cut in basic rate income tax, or perhaps it'll be a trip to the supermarket confectionary aisle where all the tax-hikes on consumables will be held back, or maybe a little walk to pension rise pound-store, where pensions will rise by twice the rate of inflation. Who knows - we'll find-out next month. It'll certainly put a pre-election, post-winter smile on our faces.

No Chances from the Chancellor

(Friday 3rd December 2004 news story)

In his Pre-budget speech, yesterday, Chancellor of the Exchequer, Gordon Brown, outlined plans to retain the current contribution limit of £7,000 for Maxi ISAs and £3,000 for Mini ISAs. He had intended to reduce the amount to £5,000 and £1,000 respectively from April 2006.

For parents, he wants to extend paid maternity leave from six months to nine months and allow mothers to transfer the leave to the father. The childcare tax credit will also increase for parents earning less than £59,000 a year while three and four-year olds will get 15 hours of free nursery care from April 2007 (it's only 10 at the moment). Schools will also be given extra funds if they open from 8am to 6pm to look after children whose parents are at work.

In a further boost for new parents, children will get £250 from the government for their Child Trust Fund when they reach seven years old on top of the £250 paid at birth. (For parents on low incomes the contribution will be £500).

Single parents and the long-term sick are to get a £40 a week bonus for a year if they return to work and the winter fuel payments for the over-70s will increase by £50 to £250. The higher rate for the over-80's will increase to £350.

An emergency £1 billion cash injection for local government aims to ensure that council tax will rise by no more than 5 per cent before the general election, but this ignores increases generally following rebanding.

Clearly, these measures were aimed at the electorate. And are likely to be very effective, covering all age, earnings and lifestyle bands, almost clinically. Now, lets update the MoneySurgery How to Understand ISAs page...

Budget 2002 Commentary

(Wednesday 17th April 2002 news story)

If you're single and working, Gordon Brown has just made you 3 or 4 pounds a week worse off. On the other hand, if you're a pensioner or a parent, consider yourself slightly better off. That's the budget in a nutshell for Joe Public but what about the effect of the budget on the economy and society?

At the Surgery, we are worried about the effect on jobs and industry of the National Insurance double-whammy: 1% extra employer contribution and 1% extra employee contribution. It will have the effect of taxing employment that will be most unwelcome for the City and struggling manufacturers, while every employee gets an effective pay reduction of one percent. "We won't raise income tax", said Gordon Brown. He didn't but he still got his money.

Unfortunately, Mr Brown consistently lowers the taxes on gambling which is not always a great debt control environment, and this budget was no exception with the abolition of Bingo taxation. We heard someone on radio comment that this will "Hopefuly stimulate parents and children to go out and be entertained at bingo halls." Healthy / Unhealthy? You decide.

The help for small businesses we feel is counterbalanced by the effects of the national insurance increases. The money allocated for the national health service is beyond criticism: You asked for it, as we wrote in our previous article, below.

We welcome the increase to £200 per year for the pensioners fuel allowance. I can see them all now. Grey haired, rosy faced and cosy, furiously marking off their numbers in countless bingo halls across the land. Its a roundabout way to keep warm using the winter fuel allowance, I suppose.

Budget 2002 preview

(Sunday 14th April 2002 news story)

Gordon Brown will present his 2002 budget on Wednesday. We think he will challenge the electorate to put its money where its mouth is and stump up more money for health and education. He is likely to increase the money the government gets overall through taxation to show that public services are well supported.

At the Surgery, we have made a shortlist of possible budget changes that might affect those of us who are fighting debt. We think that the VAT rate might be lifted to 20%, from 17.5%, which might reduce the burden on the Bank of England to raise rates to counter consumer demand. The amount that the government gets through National Insurance payments might be increased, perhaps by raising the upper threshold, but we are not likely to see an increase in the basic rate of income tax, as this was an election pledge. Since 1997, when Mr Brown became Chancellor, he has been expected to reform inheritance tax. We might see an extension to the "potentially exempt transfer period" from 7 to 14 years and an increase of the nil-rate band for estates to £500,000. Increasing the bands for stamp duty paid on home purchases also seems logical, given the sharp increase in house prices since they were last set. However sensible it may be to reform stamp duty, it is only a "possible" budget tweak.

We won't moan very much if cigarettes and alcohol get a few pence extra tax but we expect only cigarettes to be targetted by the alcohol-friendly but T-total Mr Brown. There might be a simplification of family benefits and more tax favouritism for "green" car drivers. Pensions and annuities are likely to be left untended as usual. All will be revealed on Wednesday. One thing is for sure: The budget can only have a limited effect. The global economy has far more influence on our economy than the contents of any red briefcase. Similarly, each one of us has responsibility for their own personal finances and in that respect, we have far more control than Gordon Brown.

Copyright 2000 - 2007 ©Kevin Anthony Jones. All rights reserved.