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1997 United Kingdom budget

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1997 (1997) United Kingdom budget
Royal Coat of Arms of the United Kingdom (HM Government).svg
Presented2 July 1997
Parliament52nd
PartyLabour Party
ChancellorGordon Brown
‹ 1996
1998 ›

The 1997 United Kingdom budget (sometimes referred to as the People's budget and officially titled Equipping Britain for our Long-Term Future)[1][2] was delivered by Gordon Brown, the Chancellor of the Exchequer, to the House of Commons on 2 July 1997. It was the first budget to be presented by Brown during his tenure as Chancellor, and the first Labour budget to be presented since April 1979. The 1997 budget marked a significant change of direction in economic policy following Labour's election win in May 1997. Among the measures announced were a five year plan to reduce the budget deficit, a £5.2bn[a] windfall tax on recently privatised utilities which was to fund Labour's planned Welfare to Work scheme, and a reduction in VAT on fuel. The budget was welcomed by business, which viewed it as fiscally responsible, but it was greeted less warmly by the UK's utility providers.

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Gordon Brown

Gordon Brown

James Gordon Brown is a British former politician who served as Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 to 2010. He previously served as Chancellor of the Exchequer in Tony Blair's government from 1997 to 2007, and was a Member of Parliament (MP) from 1983 to 2015, first for Dunfermline East and later for Kirkcaldy and Cowdenbeath. He is the most recent Labour politician as well as the most recent Scottish politician to hold the office of prime minister.

Chancellor of the Exchequer

Chancellor of the Exchequer

The chancellor of the Exchequer, often abbreviated to chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and head of His Majesty's Treasury. As one of the four Great Offices of State, the Chancellor is a high-ranking member of the British Cabinet and is third in the ministerial ranking, behind the prime minister and the deputy prime minister.

House of Commons of the United Kingdom

House of Commons of the United Kingdom

The House of Commons is the lower house of the Parliament of the United Kingdom. Like the upper house, the House of Lords, it meets in the Palace of Westminster in London, England.

Labour Party (UK)

Labour Party (UK)

The Labour Party is a political party in the United Kingdom that has been described as an alliance of social democrats, democratic socialists and trade unionists. It is the current opposition party, having lost the 2019 general election. The Labour Party sits on the centre-left of the political spectrum. In all general elections since 1922, Labour has been either the governing party or the Official Opposition. There have been six Labour prime ministers and thirteen Labour ministries. The party holds the annual Labour Party Conference, at which party policy is formulated.

April 1979 United Kingdom budget

April 1979 United Kingdom budget

The April 1979 United Kingdom budget was delivered by Denis Healey, the Chancellor of the Exchequer, to the House of Commons on 3 April 1979. It was the first of two budgets to be presented to Parliament in 1979, and the last to be presented by Healey and the Labour Government of James Callaghan. It was also the last Labour budget to be presented until 1997.

1997 United Kingdom general election

1997 United Kingdom general election

The 1997 United Kingdom general election was held on 1 May 1997. The governing Conservative Party led by Prime Minister John Major was defeated in a landslide by the Labour Party led by Tony Blair, achieving a 179 seat majority.

Workfare in the United Kingdom

Workfare in the United Kingdom

Workfare in the United Kingdom is a system of welfare regulations put into effect by UK governments at various times. Individuals subject to workfare must undertake work in return for their welfare benefit payments or risk losing them. Workfare policies are politically controversial. Supporters claim that such policies help people move off welfare and into employment whereas critics argue that they are analogous to slavery or indentured servitude and counterproductive in decreasing unemployment.

Value-added tax in the United Kingdom

Value-added tax in the United Kingdom

In the United Kingdom, the value added tax (VAT) was introduced in 1973, replacing Purchase Tax, and is the third-largest source of government revenue, after income tax and National Insurance. It is administered and collected by HM Revenue and Customs, primarily through the Value Added Tax Act 1994.

Background

The budget was to be the first presented by a Labour Government since April 1979.[3] Gordon Brown announced plans to hold a budget on 10 June 1997 following Labour's victory in that year's general election, but was forced to revise that date after British Telecom threatened legal action over his plans to announce a windfall tax on privatised utility companies.[4] The budget was eventually held on 2 July.[5][6] Before then and following consultation with the National Audit Office, on 18 June, Brown announced a change in the assumption the Treasury used to calculate its economic forecasts, creating a more negatuve outlook for the UK economy than had been forecast by his predecessor, Kenneth Clarke in his final budget of November 1996. Chiefly, under the new calculation, the public sector borrowing requirement appeared to be £0.5bn higher for 1997[b], and £3.25bn[c] higher for 1998, than Clarke had estimated.[7]

One of Brown's first acts as Chancellor was to grant the Bank of England the freedom to set the UK's interest rate, a decision that had previously been the responsibility of the Chancellor.[8] Breaking with tradition, Brown also commissioned a new budget box which was made by four young apprentices from his Dunfermline constituency, who he then invited to join him on Budget Day at 11 Downing Street.[9] Another break with tradition saw the budget held on a Wednesday, a day that had started to become an important one for Parliamentary business, with Prime Minister's Questions having also moved to a Wednesday following Labour's election.[4]

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National Audit Office

National Audit Office

National Audit Office may refer to audit authorities of various national governments:Australian National Audit Office, an agency of the federal Commonwealth government, established 1901 Bundesrechnungshof, the Germany body, re-established in West Germany in 1948 Court of Audit (France), the Court of Audit in France, established in 1807 National Audit Office (China), the supreme audit institution of the People's Republic, established in 1983 National Audit Office of Estonia, established by the provisional government in 1918; reestablished in 1990 National Audit Office of Lithuania, the supreme audit institution in Lithuania, established 1919 National Audit Office, parliamentary body, established in its current form in 1983 Swedish National Audit Office, established in its current form in 2003

HM Treasury

HM Treasury

His Majesty's Treasury, occasionally referred to as the Exchequer, or more informally the Treasury, is a department of His Majesty's Government responsible for developing and executing the government's public finance policy and economic policy. The Treasury maintains the Online System for Central Accounting and Reporting (OSCAR), the replacement for the Combined Online Information System (COINS), which itemises departmental spending under thousands of category headings, and from which the Whole of Government Accounts (WGA) annual financial statements are produced.

Economy of the United Kingdom

Economy of the United Kingdom

The economy of the United Kingdom is a highly developed social market and market-orientated economy. It is the sixth-largest national economy in the world measured by nominal gross domestic product (GDP), ninth-largest by purchasing power parity (PPP), and twenty second-highest by GDP per capita, constituting 3.3% of nominal world GDP. By PPP terms, UK constitutes 2.34% of world GDP.

Kenneth Clarke

Kenneth Clarke

Kenneth Harry Clarke, Baron Clarke of Nottingham,, often known as Ken Clarke, is a British politician who served as Home Secretary from 1992 to 1993 and Chancellor of the Exchequer from 1993 to 1997 as well as serving as deputy chair of British American Tobacco from 1998 to 2007. A member of the Conservative Party, he was Member of Parliament (MP) for Rushcliffe from 1970 to 2019 and was Father of the House of Commons between 2017 and 2019. The President of the Tory Reform Group since 1997, he is a one-nation conservative who identifies with economically and socially liberal views.

Public sector borrowing requirement

Public sector borrowing requirement

Public sector borrowing requirement (PSBR) is the old name for the budget deficit in the United Kingdom. The budget deficit has been renamed the public sector net cash requirement (PSNCR) to avoid confusion with net borrowing.

Bank of England

Bank of England

The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of the United Kingdom, it is the world's eighth-oldest bank. It was privately owned by stockholders from its foundation in 1694 until it was nationalised in 1946 by the Attlee ministry.

Dunfermline (UK Parliament constituency)

Dunfermline (UK Parliament constituency)

Dunfermline was a county constituency of the House of Commons of the Parliament of the United Kingdom from 1974 until 1983.

Budget Day

Budget Day

Budget Day is the day that a government presents its budget to a legislature for approval, in a ceremonial fashion. It only exists in some countries of the world.

11 Downing Street

11 Downing Street

11 Downing Street is the official residence of Britain's Chancellor of the Exchequer. The residence, in Downing Street in London, was built alongside the official residence of the Prime Minister at Number 10 in 1682.

Prime Minister's Questions

Prime Minister's Questions

Prime Minister's Questions is a constitutional convention in the United Kingdom, currently held as a single session every Wednesday at noon when the House of Commons is sitting, during which the prime minister answers questions from members of Parliament (MPs).

Overview

In his budget speech, which he described as a "people's budget",[1] Brown told the House of Commons the government was spending more on debt than education, and set a five year target to reduce the public deficit, while also announcing that the government would only borrow to invest and public debt would be held at a "prudent and stable level over the economic cycle".[10] He set the underlying public sector borrowing requirement at £13.25bn for 1997–98, and £5.5bn for 1998–99. It was forecast that GDP would rise by 3.25% in 1997 and 2.5% in 1998, and consumer spending would increase by 4.5% in 1997 and 4% in 1998. Economic growth was forecast to be 2.5% for 1998, while inflation would rise by 2.5% in 1997, 2.75% in 1998, and 2.5% in 1999.[11]

Key points

  • Corporation tax cut by 2% to 31% (backdated to April 1997)[11]
  • Corporation tax for small and medium sized businesses cut by 2% to 21% (backdated to April 1997)[11]
  • Capital allowance on plant and machinery doubled for one year for small and medium sized businesses[11]
  • Tax credits scrapped for pension funds and companies, but payments will continue to holders of PEPs, non-taxpayers and charities until April 1999[11]
  • Foreign income dividends scheme scrapped from April 1999[11]
  • £5.2bn windfall tax to be levied on privatised utility companies, the bulk of it to fund welfare to work programme, with some to be spent on schools, particularly infrastructure and equipment; tax will be made up from £2.1bn[d] from electricity, £1.65bn[e] from water and £1.45[f] billion from others, and paid in two instalments[11]
  • Spending on health is expected to increase by 2.25% during 1998[11]
  • An additional £1.2bn[g] allocated from reserves for healthcare during 1998–99[11]
  • An additional £1bn[h] allocated for schools from reserves, with £1.3bn to be allocated over five years[11]
  • Abolition of tax relief on private health insurance for over-60s[11]
  • VAT on fuel cut from 8% to 5% from 1 September 1997, offset by end of over-60s private health insurance tax relief[11]
  • Gas levy scrapped, offset by £400m[i] from windfall tax[11]
  • An immediate rise in stamp duty from 0.5% to 1.5% on homes above £250,000, as well as a 2% rise on homes over £500,000[11]
  • Mortgage Interest Tax Relief cut to 10% from April 1998[11]
  • Phased release of capital receipts from council house sales[11]
  • £200m[j] from windfall tax allocated to childcare and training[11]
  • Help with childcare costs for single parents[11]
  • 50,000 young people to be trained as childcare assistants over five years[11]
  • Money from the National Lottery to be used for after-school clubs[11]
  • Creation of Individual savings accounts with tax relief from April 1999[11]
  • An increase of 4p per litre on petrol from the following day[11]
  • Road tax to increase to £150[11]
  • Duties on beer, wine and spirits to rise in line with inflation from January 1998[11]
  • A rise of 19p on a pack of 20 cigarettes from 1 December 1997[11]

On the subject of VAT on fuel, Brown expressed his wish to remove it altogether, but said he was prevented from doing so: "I would like to abolish VAT on fuel, but European rules prevent me from doing so. Therefore, VAT will be cut to the lowest level compatible with European law—5 per cent.—on 1 September, well in advance of winter fuel bills."[12] He also confirmed his next budget would take place in Spring 1998.[12]

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Public sector borrowing requirement

Public sector borrowing requirement

Public sector borrowing requirement (PSBR) is the old name for the budget deficit in the United Kingdom. The budget deficit has been renamed the public sector net cash requirement (PSNCR) to avoid confusion with net borrowing.

Personal equity plan

Personal equity plan

A personal equity plan (PEP) was a form of tax-privileged investment account in the United Kingdom, available between 1986 and 1999.

Gas Levy Act 1981

Gas Levy Act 1981

The Gas Levy Act 1981 is an Act of the Parliament of the United Kingdom which imposed on the British Gas Corporation a levy in respect of purchased natural gas.

Stamp duty in the United Kingdom

Stamp duty in the United Kingdom

Stamp duty in the United Kingdom is a form of tax charged on legal instruments, and historically required a physical stamp to be attached to or impressed upon the document in question. The more modern versions of the tax no longer require a physical stamp.

Mortgage interest relief at source

Mortgage interest relief at source

Mortgage interest relief at source, or MIRAS, was a scheme introduced in the United Kingdom from 1983 in a bid to encourage home ownership; it allowed borrowers tax relief for interest payments on their mortgage. Previously tax had to be reclaimed from HMRC

National Lottery (United Kingdom)

National Lottery (United Kingdom)

The National Lottery is the state-franchised national lottery established in 1994 in the United Kingdom. It is regulated by the Gambling Commission, and is currently operated by Camelot Group, to which the licence was granted in 1994, 2001 and again in 2007, but will be operated by Allwyn Entertainment Ltd from 2024.

Individual savings account

Individual savings account

An individual savings account is a class of retail investment arrangement available to residents of the United Kingdom. First introduced in 1999, the accounts have favourable tax status. Payments into the account are made from after-tax income, then the account is exempt from income tax and capital gains tax on the investment returns, and no tax is payable on money withdrawn from the scheme. Cash and a broad range of investments can be held within the arrangement, and there is no restriction on when or how much money can be withdrawn. Since 2017, there have been four types of account: cash ISA, stocks & shares ISA, innovative finance ISA (IFISA) and lifetime ISA (LISA). Each taxpayer has an annual investment limit which can be split among the four types as desired. Additionally, children under 18 may hold a junior ISA, with a different annual limit.

Vehicle Excise Duty

Vehicle Excise Duty

Vehicle Excise Duty (VED) is an annual tax that is levied as an excise duty and which must be paid for most types of powered vehicles which are to be used on public roads in the United Kingdom. Registered vehicles that are not being used or parked on public roads and which have been taxed since 31 January 1998, must be covered by a Statutory Off Road Notification (SORN) to avoid VED. In 2016, VED generated approximately £6 billion for the Exchequer.

Excise

Excise

An excise, or excise tax, is any duty on manufactured goods that is levied at the moment of manufacture rather than at sale. Excises are often associated with customs duties, which are levied on pre-existing goods when they cross a designated border in a specific direction; customs are levied on goods that become taxable items at the border, while excise is levied on goods that came into existence inland.

1998 United Kingdom budget

1998 United Kingdom budget

The 1998 United Kingdom budget was delivered by Gordon Brown, the Chancellor of the Exchequer, to the House of Commons on 17 March 1998. It was the second budget to be presented by Brown following Labour's 1997 general election win, and sought to maintain the broad public support given to Labour in 1997 by announcing measures that would appeal to those who had voted the party into office. One of the key features of the 1998 budget was the Working Families Tax Credit, a benefit that could be claimed by families on low income. Brown also announced tax cuts for businesses, the launch of a £50m rural transport fund, and committed to taxing child benefit at a future date.

Reaction

On 3 July, Pound sterling reached its highest level since 1991, reaching DM2.95, its old central parity in the European Exchange Rate Mechanism. In response, Brown said that he had taken tough decisions in order to help to control interest rates.[13] The Bank of England's Monetary Policy Committee raised the interest by 0125% at a meeting the following week.[14]

The 1997 budget was broadly welcomed by business, which viewed it as fiscally sensible, but some sectors, notably utility companies and pension funds, gave it a less positive reception.[15] In particular, pension funds operated by local authorities voiced concern about their shareholders losing tax relief on dividends.[14] The City of London also expressed its dismay that Brown had not done enough to curb the consumer spending boom, and argued for tax increases, something that Gavyn Davies, chief economist at Goldman Sachs suggested would cost around £9bn.[14] The Liberal Democrats suggested Brown's upwards revision of the inflation forecasts were a precursor to tighter limits on public spending.[14] Writing for The Independent on 10 July, Donald Macintyre observed: "Quite a few economic analysts have found it impossible to resist the temptation to utter that hoary old truism, that budgets which look good on the day usually turn sour a couple of weeks later", but concluded that Brown had succeeded in end the short-term economic view of his predecessors, and "still looks as tough and populist as he did on 2 July".[14]

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Pound sterling

Pound sterling

Sterling is the currency of the United Kingdom and nine of its associated territories. The pound is the main unit of sterling, and the word "pound" is also used to refer to the British currency generally, often qualified in international contexts as the British pound or the pound sterling.

European Exchange Rate Mechanism

European Exchange Rate Mechanism

The European Exchange Rate Mechanism (ERM II) is a system introduced by the European Economic Community on 1 January 1999 alongside the introduction of a single currency, the euro as part of the European Monetary System (EMS), to reduce exchange rate variability and achieve monetary stability in Europe.

Monetary Policy Committee (United Kingdom)

Monetary Policy Committee (United Kingdom)

The Monetary Policy Committee (MPC) is a committee of the Bank of England, which meets for three and a half days, eight times a year, to decide the official interest rate in the United Kingdom.

City of London

City of London

The City of London is a city, ceremonial county and local government district that contains the historic centre and constitutes, alongside Canary Wharf, the primary central business district (CBD) of London. It constituted most of London from its settlement by the Romans in the 1st century AD to the Middle Ages, but the modern area named London has since grown far beyond the City of London boundary. The City is now only a small part of the metropolis of Greater London, though it remains a notable part of central London. Administratively, the City of London is not one of the London boroughs, a status reserved for the other 32 districts. It is also a separate ceremonial county, being an enclave surrounded by Greater London, and is the smallest ceremonial county in the United Kingdom.

Gavyn Davies

Gavyn Davies

Gavyn Davies, OBE is a former Goldman Sachs partner who was the chairman of the BBC from 2001 until 2004. On 28 January 2004 he announced that he was resigning his BBC post following the publication of the Hutton Inquiry report which heavily criticised the organisation.

Goldman Sachs

Goldman Sachs

Goldman Sachs is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, Hong Kong, Tokyo, Dallas and Salt Lake City, and additional offices in other international financial centers. Goldman Sachs is the second largest investment bank in the world by revenue and is ranked 57th on the Fortune 500 list of the largest United States corporations by total revenue. It is considered a systemically important financial institution by the Financial Stability Board.

Liberal Democrats (UK)

Liberal Democrats (UK)

The Liberal Democrats are a liberal political party in the United Kingdom. Since the 1992 general election, with the exception of the 2015 general election, they have been the third-largest UK political party by the number of votes cast. They have 14 Members of Parliament in the House of Commons, 83 members of the House of Lords, four Members of the Scottish Parliament and one member in the Welsh Senedd. The party has over 2,500 local council seats. The party holds a twice-per-year Liberal Democrat Conference, at which party policy is formulated, with all party members eligible to vote, under a one member, one vote system. The party served as the junior party in a coalition government with the Conservative Party between 2010 and 2015; with Scottish Labour in the Scottish Executive from 1999 to 2007, and with Welsh Labour in the Welsh Government from 2000 to 2003 and from 2016 to 2021.

The Independent

The Independent

The Independent is a British online newspaper. It was established in 1986 as a national morning printed paper. Nicknamed the Indy, it began as a broadsheet and changed to tabloid format in 2003. The last printed edition was published on Saturday 26 March 2016, leaving only the online edition.

Donald Macintyre (journalist)

Donald Macintyre (journalist)

Donald Macintyre is a British freelance journalist and author, formerly a political editor and foreign correspondent on The Independent.

Source: "1997 United Kingdom budget", Wikipedia, Wikimedia Foundation, (2022, November 26th), https://en.wikipedia.org/wiki/1997_United_Kingdom_budget.

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Notes
  1. ^ about £10bn at 2021 prices
  2. ^ about £1bn at 2021 prices
  3. ^ about £6bn at 2021 prices
  4. ^ about £4bn at 2021 prices
  5. ^ about £3bn at 2021 prices
  6. ^ about £3bn at 2021 prices
  7. ^ about £2bn at 2021 prices
  8. ^ about £2bn at 2021 prices
  9. ^ about £774m at 2021 prices
  10. ^ about £387m at 2021 prices
References
  1. ^ a b "Bygone budgets: June 1997". the Guardian. 3 March 1999. Retrieved 24 November 2022.
  2. ^ "CHRONOLOGY-The budget 1997-2006: Brown's decade". 16 March 2007. Retrieved 25 November 2022 – via www.reuters.com.
  3. ^ "Bygone budgets: April 1979". The Guardian. 3 March 1999. Retrieved 19 November 2022.
  4. ^ a b "Brown is stalled by tax row". The Independent. 24 May 1997. Retrieved 24 November 2022.
  5. ^ Ibrahim, Youssef M. (3 July 1997). "Blair Gains Tax Cut for Business, But the Rest of Britain Must Wait". Retrieved 24 November 2022 – via NYTimes.com.
  6. ^ "Budget Statement (Hansard, 2 July 1997)". api.parliament.uk. Retrieved 24 November 2022.
  7. ^ "Revised figures pave way for tough Budget". The Independent. 19 June 1997. Retrieved 24 November 2022.
  8. ^ "Brown gives Bank independence to set interest rates". the Guardian. 7 May 1997. Retrieved 24 November 2022.
  9. ^ "History of 11 Downing Street – GOV.UK". www.gov.uk. Retrieved 24 November 2022.
  10. ^ "Plan to Reduce Budget Deficit". BBC News. Retrieved 24 November 2022.
  11. ^ a b c d e f g h i j k l m n o p q r s t u v w x y "1997 Budget – At A Glance". BBC News. Retrieved 24 November 2022.
  12. ^ a b "Budget Statement (Hansard, 2 July 1997)". api.parliament.uk. Retrieved 25 November 2022.
  13. ^ "Rate rise expected as pound soars further". The Independent. 3 July 1997. Retrieved 24 November 2022.
  14. ^ a b c d e Macintyre, Donald (10 July 1997). "Let the City moan – the people's Budget is still a winner". The Independent. Retrieved 24 November 2022.
  15. ^ "CHRONOLOGY-The budget 1997–2006: Brown's decade". 16 March 2007. Retrieved 24 November 2022 – via www.reuters.com.

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