Pre-Budget Report

Saturday, 22, Nov 2008 03:34

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 is 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.

Background

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 But, the old purpose of the Autumn Statement to set out the government's spending plans was superseded by the introduction of the Comprehensive Spending Review (CSR).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 reviews economic forecasts, launches new policies and gives advanced notice of regulatory or taxation changes likely in the Budget.

But, though a number of new policies have been 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 are still reserved for the Budget proper.

Controversies

Though the PBR was presented as an aid for fiscal stability, it has been increasingly used in recent years to trail future policy developments - which may not be introduced for up to two years. It has also been used to give political concessions when thought expedient and as such, opponents have questioned whether it is really an economic statement or a party political one.

Under the last prime minister, the PBR report was also scrutinised for any sign of division between stated policies and the chancellor's priorities. The PBR is often seen as a mini-manifesto, setting out policy commitments between elections or trailing long-term plans.

Statistics

The key announcements in the 2007 Pre-Budget Report and Comprehensive Spending Review announced by the Chancellor, Alistair Darling, on 9th October 2007 included:

Making inheritance tax allowances transferrable between married couples and civil partners - £600,000 threshold immediately, rising to £700,000 by 2010-11.

Spending in the NHS to increase by 4 per cent per year in real terms from £90 billion in 2007-08 to £110 billion by 2010-11

Spending on education to increase from £77.7 billion to £92 billion.

Further steps to tackle climate change including reforms to and increases in the taxation of air travel to better reflect environmental costs and a £1.2 billion Environmental Transformation Fund.

Reforming capital gains tax by introducing a single rate of 18 per cent from 2008-09 ensuring a more sustainable system that is straight-forward for tax payers and internationally competitive.

Confirming the Government's public service priorities and setting all departments' budgets for the next three years with total public spending set to grow at 2.1 per cent per year between 2007-08 and 2010-11.

Source: HM Treasury

Quotes

"The background to this year’s report and Spending Review is a time of increased international economic uncertainty and more fragile global environment, which has already seen turbulence in America, Asia and Europe.

"The theme of this year’s Pre-Budget Report is that, provided we maintain the course for economic stability we have set, we can respond to this global environment.

"We will do so by taking no risks with stability, no risks with unaffordable promises that put public finances at risk.

"And we can respond as well to the rising aspirations of the British people, and we can do that by taking the right long-term decisions for our country."

Chancellor Alistair Darling's Pre-Budget Report and CSR statement to the Commons - 9th October 2007