What is the Budget?

This issue brief relates to a developing news event. For full details of the 2008 Budget visit our in-depth Budget section.

The Budget is the government of the day's main set-piece economic event. It comprises two key elements: the Chancellor's Budget speech to the House of Commons and the publication of the government's detailed financial reports.

This second element is formally called the Financial Statement and Budget Report (FSBR), but is colloquially known as the Red Book or the Budget Report.

Legally, the government of the day is bound to present to Parliament two economic forecasts a year. Since 1997, this has consisted of an Autumn Pre-Budget Report , which is a progress report of the economy so-far and sets out the direction of the government's economic policy, and a Spring Budget, which often concentrates on regulatory or taxation changes.

Prior to 1998, detailed spending plans used to be contained within the government's second financial statement, not the Budget. But since Gordon Brown's chancellorship these have been contained within a separate Comprehensive Spending Review (CSR). This takes place every two years and allocates money to individual departments and objectives.

But, many major announcements are still reserved for the Budget proper.


Background

The Budget is one of the oldest political events in the calendar and can be traced back hundreds of years. It is the device by which money is formally raised for government spending.

Proposals contained within the Budget have to be authorised by Parliament in the form of the subsequent Finance Bill before they can come into force. But following the Provisional Collection of Taxes Act 1968 some changes in duties, for example vehicle excise duty, can take effect immediately from the Chancellor's announcement.

Indirect taxes, such as VAT, are permanent, whereas direct taxes, like income tax, are annual and have to be renewed by Parliament each year.

The practise of having one bill that deals with all tax changes began in 1860 to prevent the House of Lords rejecting draft legislation. Money and Finance bills, which cover spending and taxation, are the only bills that do not need to be passed by the House of Lords.

If the Lords were to attempt to reject any of the measures within a single Finance Bill, it would constitute an amendment and an infringement of the Commons' privilege.

There is a significant amount of ritual attached to the delivery of the Budget, beginning with a morning photo-call outside Number 11 Downing Street during which the Chancellor holds up the 'Budget Box'. This red leather box is used by Chancellors to carry their budget papers to the House of Commons and is believed to have been made for Gladstone in 1860. Chancellor Gordon Brown has a new box, made in 1997 by Scottish industrial trainees.

The Chancellor is traditionally allowed an alcoholic drink during the Budget speeches. No other member of the Commons is allowed this privilege, nor is the Chancellor on any other occasion. Nigel Lawson famously used to partake of whisky, but the current Chancellor sips only Scottish spring water.

On the evening of the Budget there is a traditional broadcast by the Chancellor to the nation, with Opposition parties given the opportunity to respond with their own broadcasts later in Budget week.


Controversies

Throughout the history of Parliament the Budget has been of prime importance as it cuts at the heart of political differences. Budgets determine how much money the government chooses to raise, and how it will raise it.

The state of the economy and the money raised determines what spending proposals can be acted on, or which taxes can be cut.

One of the most scrutinised areas is that of the Treasury's economic forecasts, in particular on income and spending, with opposition politicians frequently claiming that the sums do not add up.

Political opponents and economists spend significant time pouring over the details of the FSBR to uncover figures that the Chancellor has not mentioned in his speech.

In an election year the Budget takes on added importance. Chancellors are keen to avoid the stain of 'pre-election give aways' that may have to be paid for later, but equally are keen to launch policies that will see the party re-elected. Approaching general elections also requires the party in power to push the finance legislation through the Commons before the election is announced.

Once an election is called, business in the House of Commons ceases almost immediately. If the Finance Bill is not passed by then, its provisions lapse and would have to be re-introduced in the next Parliament.


Statistics

The record for the longest Budget speech is believed to be held by William Gladstone in 1853, which lasted for four hours and forty five minutes.

By contrast, Benjamin Disraeli is believed to have made the shortest speech in 1867 at forty-five minutes.

John Major delivered the first televised Budget in 1994, during his year-long tenure as chancellor.

Source: HM Treasury website 2005


Quotes

"Whenever a Chancellor of the Exchequer does something which is popular, he has probably done something which is unwise." Winston Churchill, 1940

"All money nowadays seems to be produced with a natural homing instinct for the Treasury." Prince Philip, 1963

"Rather like a school speech day - a bit of a bore, but there it is." Harold Macmillan on the Budget day ritual

Source: KPMG Budget website, 2005