The 1997 United Kingdom budget (sometimes referred to as the People's budget and officially titled ''Equipping Britain for our Long-Term Future'')
was delivered by
Gordon Brown
James Gordon Brown (born 20 February 1951) is a British former politician who served as Prime Minister of the United Kingdom and Leader of the Labour Party (UK), Leader of the Labour Party from 2007 to 2010. He previously served as Chance ...
, the
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 ...
, to the
House of Commons
The House of Commons is the name for the elected lower house of the bicameral parliaments of the United Kingdom and Canada. In both of these countries, the Commons holds much more legislative power than the nominally upper house of parliament. ...
on 2 July 1997. It was the first budget to be presented by Brown during his tenure as Chancellor, and the first
Labour
Labour or labor may refer to:
* Childbirth, the delivery of a baby
* Labour (human activity), or work
** Manual labour, physical work
** Wage labour, a socioeconomic relationship between a worker and an employer
** Organized labour and the 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 windfall tax on recently privatised utilities which was to fund Labour's planned
Welfare to Work
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) is a United States federal law passed by the 104th United States Congress and signed into law by President Bill Clinton. The bill implemented major changes to ...
scheme, and a reduction in
VAT
A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the en ...
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.
Background
The budget was to be the first presented by a Labour Government since April 1979.
Gordon Brown
James Gordon Brown (born 20 February 1951) is a British former politician who served as Prime Minister of the United Kingdom and Leader of the Labour Party (UK), Leader of the Labour Party from 2007 to 2010. He previously served as Chance ...
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
BT Group plc (trade name, trading as BT and formerly British Telecom) is a British Multinational corporation, multinational telecommunications holding company headquartered in London, England. It has operations in around 180 countries and is th ...
threatened legal action over his plans to announce a windfall tax on privatised utility companies.
The budget was eventually held on 2 July. Before then and following consultation with the
National Audit Office, on 18 June, Brown announced a change in the assumption the
Treasury
A treasury is either
*A government department related to finance and taxation, a finance ministry.
*A place or location where treasure, such as currency or precious items are kept. These can be state or royal property, church treasure or in p ...
used to calculate its economic forecasts, creating a more negative outlook for the
UK economy
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 pa ...
than had been forecast by his predecessor,
Kenneth Clarke
Kenneth Harry Clarke, Baron Clarke of Nottingham, (born 2 July 1940), 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 de ...
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, and £3.25bn higher for 1998, than Clarke had estimated.
One of Brown's first acts as Chancellor was to grant the
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 freedom to set the UK's interest rate, a decision that had previously been the responsibility of the Chancellor. Breaking with tradition, Brown also commissioned a new
budget box which was made by four young apprentices from his
Dunfermline
Dunfermline (; sco, Dunfaurlin, gd, Dùn Phàrlain) is a city, parish and former Royal Burgh, in Fife, Scotland, on high ground from the northern shore of the Firth of Forth. The city currently has an estimated population of 58,508. Accord ...
constituency, who he then invited to join him on
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.
India
The Union Budget of India, referred to as the Annual Financial Statement i ...
at
11 Downing Street. 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
Prime Minister's Questions (PMQs, officially known as Questions to the Prime Minister, while colloquially known as Prime Minister's Question Time) is a constitutional convention in the United Kingdom, currently held as a single session every W ...
having also moved to a Wednesday following Labour's election.
Overview
In his budget speech, which he described as a "people's budget",
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". 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
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
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.
Key points
*
Corporation tax
A corporate tax, also called corporation tax or company tax, is a direct tax imposed on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at ...
cut by 2% to 31% (backdated to April 1997)
* Corporation tax for small and medium-sized businesses cut by 2% to 21% (backdated to April 1997)
* Capital allowance on plant and machinery doubled for one year for small and medium-sized businesses
* Tax credits scrapped for pension funds and companies, but payments will continue to holders of
PEPs
The ("Laval University Sports and Physical Education Complex"), usually called PEPS for short, is a sports complex located in Quebec City, Quebec, on the Université Laval campus. PEPS opened in 1970 and includes an outdoor stadium, an indoor st ...
, non-taxpayers and charities until April 1999
* Foreign income dividends scheme scrapped from April 1999
* £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 from electricity, £1.65bn from water and £1.45 billion from others, and paid in two instalments
* Spending on health is expected to increase by 2.25% during 1998
* An additional £1.2bn allocated from reserves for healthcare during 1998–99
* An additional £1bn allocated for schools from reserves, with £1.3bn to be allocated over five years
* Abolition of tax relief on private health insurance for over-60s
* VAT on fuel cut from 8% to 5% from 1 September 1997, offset by end of over-60s private health insurance tax relief
*
Gas levy scrapped, offset by £400m from windfall tax
* An immediate rise in
stamp duty
Stamp duty is a tax that is levied on single property purchases or documents (including, historically, the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions). A physical revenu ...
from 0.5% to 1.5% on homes above £250,000, as well as a 2% rise on homes over £500,000
*
Mortgage Interest Tax Relief cut to 10% from April 1998
* Phased release of capital receipts from council house sales
* £200m from windfall tax allocated to childcare and training
* Help with childcare costs for single parents
* 50,000 young people to be trained as childcare assistants over five years
* Money from the
National Lottery to be used for after-school clubs
* Creation of
Individual savings account
An individual savings account (ISA; ) 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 i ...
s with tax relief from April 1999
* An increase of 4p per litre on petrol from the following day
*
Road tax
Road tax, known by various names around the world, is a tax which has to be paid on, or included with, a motorised vehicle to use it on a public road.
National implementations Australia
All states and territories require an annual vehicle registra ...
to increase to £150
*
Duties
A duty (from "due" meaning "that which is owing"; fro, deu, did, past participle of ''devoir''; la, debere, debitum, whence "debt") is a commitment or expectation to perform some action in general or if certain circumstances arise. A duty may ...
on beer, wine and spirits to rise in line with inflation from January 1998
* A rise of 19p on a pack of 20 cigarettes from 1 December 1997
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."
He also confirmed his
next budget would take place in Spring 1998.
Reaction
On 3 July,
Pound sterling
Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and t ...
reached its highest level since 1991, reaching
DM2.95, its old central parity in the
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 (replacing ERM 1 and the euro's predecessor, the ECU) as p ...
. In response, Brown said that he had taken tough decisions in order to help to control interest rates. The Bank of England's
Monetary Policy Committee Monetary Policy Committee (MPC) may refer to:
* Monetary Policy Committee (India)
The Monetary Policy Committee is responsible for fixing the benchmark interest rate in India. The meetings of the Monetary Policy Committee are held at least fo ...
raised the interest by 0125% at a meeting the following week.
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.
In particular, pension funds operated by local authorities voiced concern about their shareholders losing tax relief on dividends.
The
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 fr ...
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
Gavyn Davies, OBE (born 27 November 1950) 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 Inqui ...
, chief economist at
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, H ...
suggested would cost around £9bn.
The
Liberal Democrats suggested Brown's upwards revision of the inflation forecasts were a precursor to tighter limits on public spending.
Writing for ''
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 publis ...
'' 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".
Notes
References
{{United Kingdom budget, state=collapsed
Budget
A budget is a calculation play, usually but not always financial, for a defined period, often one year or a month. A budget may include anticipated sales volumes and revenues, resource quantities including time, costs and expenses, environmenta ...
1997
File:1997 Events Collage.png, From left, clockwise: The movie set of ''Titanic'', the highest-grossing movie in history at the time; ''Harry Potter and the Philosopher's Stone'', is published; Comet Hale-Bopp passes by Earth and becomes one of t ...
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
July 1997 events in the United Kingdom
Gordon Brown