What is the Pre-Budget Report?
The Pre-Budget Report (PBR) was one of the economic policy innovations of Gordon Brown when he was Chancellor. From November 1997 he delivered an autumn PBR speech to the House of Commons, whilst simultaneously publishing the report.
The PBR was designed to complement the spring Budget by setting out the Government's economic thinking and predictions as well as trailing any major changes to the taxation, benefits, spending or borrowing policy.
Launching the first PBR in November 1997, Mr Brown said that its aim was to "help build the foundations of shared understanding and sense of national economic purpose between government, business, and individuals." Key among these aims was the expectation that advance notice of major changes would help reduce business and market uncertainty and encourage stability and predictability.
The Coalition government elected in May 2010 announced that it would replace the PBR with a new Autumn Statement which would include economic growth forecasts from the newly-established Office for Budget Responsibility.
The idea of an autumn financial statement is not a new one. By law, the government must present a review on the state of the economy twice a year. Prior to 1993, Chancellors traditionally delivered an Autumn Statement, in which they would present their spending plans for the following year and review previous economic predictions. These statements were normally accompanied by the publication of the 'Red Book' - the government's financial report.
In 1993 the then Chancellor Ken Clarke decided to abandon this procedure and merge the Budget and the Autumn Statement. For the next four years, he then made a Summer Statement and delivered his full Budget in November.
After Labour's 1997 general election victory, Mr Brown decided to revert to the traditional cycle of an autumn and spring statement. But, the old purpose of the Autumn Statement to set out the government's spending plans was superseded by the introduction of the Comprehensive Spending Review (CSR). Beginning in July 1998, and taking place every two years, the CSR consists of departmental aims and objectives and the funding allocated.
The autumn speech instead became the PBR, in which the Chancellor reviewed economic forecasts, launched new policies and gave advance notice of regulatory or taxation changes likely in the Budget.
But, although a number of new policies were trailed in the PBRs, including a minimum income guarantee for pensioners, a freeze in the rate of fuel duty and a change to the Bank of England's inflation target measure, many of the major announcements were still reserved for the Budget proper.
In May 2010 the Office for Budget Responsibility (OBR) was established by the new Coalition government, the aim being to improve fiscal policy-making by giving responsibility for forecasting to an independent body.
The interim OBR produced a Pre-budget report and a Budget report in quick succession prior to the Chancellor's first (emergency) Budget in June 2010. In September 2010 the Government announced that the Pre-budget report would be replaced with an Autumn Statement in which the Chancellor would provide updates on the OBR's growth forecasts for the UK economy and the public finances.
Though the PBR was presented as an aid for fiscal stability, it was used increasingly used to trail future policy developments - which may not be introduced for up to two years. It was also used to give political concessions when thought expedient and as such, opponents questioned whether it was really an economic statement or a party political one.
The PBR report was also scrutinised for any sign of division between stated policies and the chancellor's priorities. The PBR was often seen as a mini-manifesto, setting out policy commitments between elections or trailing long-term plans.
The newly-elected Coalition government announced that it intended to "enhance fiscal credibility" and suggested that Budget forecasts over the previous decade had "consistently underestimated borrowing, compared to both outturn and independent forecasts made at the time."
In future, the forecasts would not be determined by the Chancellor’s judgements; instead the Chancellor would accept the forecasts from the newly-established Office for Budget Responsibility to inform his Budget and Autumn statements. The Government said the OBR's independent assessment of the economy and public finances would ensure that policy was made "on an unbiased view of future prospects" and thereby "improve confidence in the fiscal forecasts."
Autumn Statement 2011
As result of the ongoing impact of the financial crisis, the euro area crisis, and commodity shock, the OBR expect slower growth and higher borrowing in each year of their forecast.
In order to ensure it continues to meet its fiscal targets, the Government will:
• set plans for public spending in 2015-16 and 2016-17 in line with spending reductions over the Spending Review 2010 period
• set public sector pay awards at an average of 1 per cent for each of the two years after the current pay freeze comes to an end - Departmental budgets will be adjusted in line with the policy, with the exception of the Health and schools budgets, where savings will be recycled
• adjust the allocation of Official Development Assistance in line with the OBR’s revised growth forecast, meeting the 0.7% of GNI target in 2013
• raise the State Pension age to 67 between April 2026 and April 2028
• not increase the child element of the Child Tax Credit by more than inflation, and not up-rate the couple and lone parent elements of the Working Tax Credit by inflation next year
To complement the Bank of England’s active monetary policy, the Government will launch a package of up to £21 billion to ease the flow of credit to smaller and mid-sized businesses, including:
• up to £20 billion through the National Loan Guarantee Scheme to lower the cost of bank loans for smaller businesses
• an initial £1 billion Business Finance Partnership, which will lend to mid-sized businesses and SMEs in the UK through non-bank channels
Source: HM Treasury – November 2011
"Much of Europe now appears to be heading into a recession caused by a chronic lack of confidence in the ability of countries to deal with their debts.
"We will do whatever it takes to protect Britain from this debt storm, while doing all we can to build the foundations of future growth.
"Today we set out how we will do that:
"By demonstrating that this country has the will to live within its means and keep interest rates low;
"By acting to stimulate the supply of money and credit, to make sure those low interest rates are passed on to families and businesses;
"By matching our determination on the deficit with an active enterprise policy for business and with lasting investment in our infrastructure and education, so that Britain can pay its way in the future.
"And at every opportunity helping families with the cost of living."
Chancellor George Osborne, introduction to his Autumn Statement – November 2011