The Budget

What is the Budget?
The Budget is the Government’s annual financial statement and review of levels of taxation. It also includes the Government’s future financial strategy and economic forecast.

Find out more about the budget and what the implications of the most recent one, click below.

Where does the word ‘budget’ come from?
The word ‘budget’ comes from an old French word ‘bougette’ which meant ‘little bag’.

Why is there a Budget every year?
Because certain taxes, such as income tax, are annual taxes (not permanent), so they must be renewed each year.

What happens after the Chancellor’s Budget speech?
Traditionally, the Leader of the Opposition, rather than the Shadow Chancellor replies to the Budget speech. This is usually followed by four days of debate on the Budget Resolutions (the basic parts of the Budget that renew annual taxes, such as income tax), covering different policy areas such as health, education and defence.

What is the Finance Bill?
The Finance Bill makes the tax proposals announced in the Budget into law.

What is the Red Book?
The Red Book (named after the traditional colour of its cover) is the Financial Statement and Budget Report (FSBR).
The Red Book contains an analysis of the economy and a summary of the Budget tax measures.

What is the Budget Box?
The Budget Box is the red, leather-covered box containing the Budget Speech.
Traditionally the Chancellor is photographed on Budget day on the steps of 11 Downing Street holding up the Budget Box.

Is it true that the Chancellor can drink alcohol during the Budget speech?
Yes it is. Previous Chancellors have chosen whisky (Kenneth Clarke), gin and tonic (Geoffrey Howe), brandy and water (Benjamin Disraeli), sherry and beaten egg (Gladstone) and spritzer (Nigel Lawson). Gordon Brown chose to drink mineral water.

Brutal Budget: Good or Bad?

Eat your heart out Geoffrey Howe. Take a back seat Norman Lamont. Austerity has a new champion and his name is George Osborne. The chancellor not happy with £73bn of tax increases inherited from his predecessor decided to add an extra £40bn of tightening himself. Strong stuff but if things go to plan, Britain could reap the rewards. The bulk of Britain’s deficit will have disappeared if all goes well. That all rests, though, on a very big “if”: the ability of the enfeebled and unbalanced UK economy to withstand these draconian measures without slipping back into recession. Should that be the case the coalition could be dead in the water within 18 months.
Let’s start with some plus points. For a new chancellor, Osborne delivered his budget like a grizzled veteran: he was clear, crisp and eschewed the irritating gimmicks that Gordon Brown used to favour.
What’s more, there was clear evidence that lessons had been learned from Tory mistakes of the 1980s and 1990s, both in the effort to shield the poorest from the full force of the measures – at least for the time being. There were plenty of regressive taxes in the budget – the VAT increase, the three-year freeze on child benefit, the indexing of benefits to consumer prices rather than retail prices – but this was not a crude “soak the poor” affair.
A supposedly unfair Budget then underline by the soft-touch approach to the City. The increase in capital gains tax was smaller than expected and the £2bn bank levy was hardly suitable punishment given the role of the financial sector in Britain’s most grievous post-war recession that will take the axe to departmental budgets in the three years from 2011-12. These cuts are likely to fall disproportionately on the poor families that rely most on public services.
Distinct to Howe in 1981, the Chancellor was able to disguise his Budget as an equitable sharing of unavoidable misery. Indeed, his summing up – “We’ve had to relearn the virtue of financial prudence. Osborne’s macro-economic objectives were similar to another ‘blast from the past’ on the other hand. Both Stafford Cripps and Osborne wanted Britain’s resources to be biased towards investment and exports rather than consumption; in the 1940s the squeeze came in the form of a continuation of wartime rationing; over the next few years it will come largely through a shrinking of the state.
The rebalancing was easier to finesse in the 1940s than it is now. At that time Britain was the second biggest manufacturing nation in the world, the US had fully recovered from the Depression, the global economy was poised for a reconstruction boom, and many rival powers – Germany, France, Italy, Japan – had seen their industries ravaged by the war. In 2010, Britain’s share of world manufacturing has shrivelled, the recovery in the US is petering out and the eurozone – the destination for more than 50% of UK visible exports – is crisis-ridden and economically stagnant.
As such, this budget is a colossal gamble. There was little evidence before the election that Darling’s fiscal plans – themselves draconian – were insufficient to keep the febrile financial markets sweet. The pound and gilts strengthened during the election campaign, even though the possibility of a hung parliament was ever-present. The international backdrop is less favourable now than it was two months ago, both because growth prospects are weaker and because the deficit-cutting fraternity have the upper hand in the G20. Far from being a terrible evil, government spending spared Britain from an even worse recession in 2008 and 2009, and Osborne’s doctrinaire approach to deficit cutting risks not just slower growth and higher unemployment, but a fresh leg to the downturn.
Not all the lessons of the 1980s have been learned, it seems.

Why have they misled us?

I am so stupid – I believed them when Cameron said it, when George Osborne said it and when William Hague said it. I was hopelessly naive to believe them. Doubtless I should have known better, but when David Cameron said time and again during the election campaign that the Tories had no plans to raise VAT, I believed him.
Prior to the election the Tories said that they felt 80% of the deficit should be tackled by cutting public spending, while tax increases would account for the remaining 20 per cent. That is exactly what the Chancellor done. The rise in VAT is estimated to generate £13bn, and no other tax comes close to this suggesting that this was their plan all along! But if the Tories have been economical with the truth, the Lib Dems have been downright deceitful.
After all, Messrs Cameron, Osborne and Hague did not overtly rule out increasing VAT. They simply said it was not envisaged. On the other hand, the Liberals, in accurately predicting that the Tories would raise VAT, pledged themselves to resist it by all achievable means. Now they support a policy which only two months ago they said they would fight to the death. What is their justification? It is that conditions have changed. Europe’s economic problems have supposedly worsened in recent weeks, and now that they have looked at the books the Lib Dems say they can see that an increase in VAT is inescapable after all.
No one believes this rubbish. Europe’s troubles were fairly bad enough two months ago, and the awful state of Britain’s public finances were bare for all to see.
Little or naught has changed. The reason that the Lib Dems have changed their minds on VAT is straightforward. It is the price they have had to pay for being in coalition with the Tories – for having their greasy fingers on the levers of power.
It was a good and necessary budget. but when I look at the two parties in our coalition Government embracing measures which only seven weeks ago they said they wouldn’t, I have a depressing sense that politics is a game played by the political classes in their own interests at our expense.

This was a guest post by ‘Young Economist.’ Check out his blog for more like this!