Wednesday, March 16, 2005
The United Kingdom Chancellor of the Exchequer, the Right Honourable Gordon Brown PC MP, in a speech to the British House of Commons today presented his ninth Budget, what is very likely to be his last Budget before the next UK General Election. This opened the parliamentary debate on the 2005 Finance Bill, and was followed by responses from the opposition parties.
In a 48 minute long speech, the Chancellor presented a Budget of "tax cuts that are reasonable, spending that is affordable, and [economic] stability that is paramount", that was "the prudent course for Britain". There were few surprises that had not already been indicated in his 2004 pre-Budget report. The increase in the threshold on stamp duty was greater than that forecast by commentators, as was the amount of the Council Tax rebate to households with pensioners.
== The Budget in detail ==
=== Duty ===
Before the speech, commentators had speculated that the Chancellor would increase the threshold for stamp duty on house purchases from £60,000 to £100,000 (the same increase that the Liberal Democrats had proposed in their Alternative Budget in February 2005), to reflect the increase in house prices over the past few years and to reduce the burden on first-time house buyers; and would not increase the duty on petrol. In his 2004 pre-Budget report, the Chancellor had committed to no increases in the duty on spirits, in advance of the duty stamps scheme scheduled to be introduced in 2006.
In his Budget report, the Chancellor announced that the threshold for stamp duty on house purchases would increase from £60,000 to £120,000, effective from 24:00 March 16, 2005.
In his Budget report, the Chancellor announced that the rates of duty on spirits, cider, and sparkling wine would remain frozen at their current levels.
Beer and wine
In his Budget report, the Chancellor announced a 1 penny increase in the duty on beer, and a 4 pence increase in the rate of duty on wine, effective from March 20, 2005.
In his Budget report, the Chancellor announced a 7 pence increase in the duty on cigarettes, effective from 18:00 on March 16, 2005.
In his Budget report, the Chancellor announced a refund of the VAT incurred by local councils in expenditure on childrens' services; and an extension of the refund, of 100% of the VAT incurred by church renovations, to 2008.
Petrol, Diesel, and LPG
In his Budget report, the Chancellor announced the deferral of the increases in the duty on most fuels, to September 1, 2005.
In his Budget report, the Chancellor announced that there would be no increase in the rate of vehicle excise duty.
=== Taxes ===
In his 2004 pre-Budget report, the Chancellor had announced a payment of £50 to households with someone aged 70 or over in 2005.
In his Budget report, the Chancellor announced a Council Tax credit of £200 for households with someone aged 65 or over in 2005.
In his Budget report, the Chancellor announced that Income Tax Allowance would increase from £4745 per annum to £4895 per annum.
In his Budget report, the Chancellor announced that the rate of capital gains tax was remain frozen at its current level; and a raise in the inheritance tax threshold from £260,000 to £275,000, from April 6, 2005.
In his Budget report, the Chancellor announced that the rates for Corporation Tax and Company Car Tax would remain frozen at their current levels.
=== Benefits ===
No further changes to the savings threshold for benefits elegibility had been expected. In the 2004 Budget, the Chancellor had already announced that the threshold would increase from £3,000 to £6,000 from April 4, 2005. In his 2004 pre-Budget report, the Chancellor had announced
simplifications of the Housing benefit and Council Tax benefit systems, effective from April 2005 and October 2005;
that the upper bound on annual income for elegibility for Working Tax credit would be increased to £5,220 per annum, from April 2005; and
that the child element of Child Tax Credit would increase by £65 to £1,690 per annum, from April 2005.Child benefit
In his Budget report, the Chancellor announced that child tax credit would rise by 13% over 3 years, to £63 for the first child and £111 for 2 children, and that child benefit would rise to £17 per week.
In his Budget report, the Chancellor announced a £200 winter fuel allowance in 2005 for pensioners.
=== Business ===
In his Budget report, the Chancellor announced
changes by the Inland Revenue and H.M. Customs & Excise allowing small businesses to maintain a single tax account, simplifying paperwork;
an enhanced tax credit for research & development companies;
new tax reliefs for independent and low-budget films.
=== Employment ===
In his 2004 pre-Budget report, the Chancellor had announced the extension of the length of maternity leave from 6 months to 9 months, beginning in April 2007.
Stating that he had augmented his Budgetary goal of "forg[ing] a British way to stability" with a goal of "forg[ing] a British way to success", in his Budget report, the Chancellor announced
a continuation of the New Deal policy, and an expansion of it to a New Deal for Jobs & Skills;
vocational centres for ethnic minorities.Maternity leave
In his Budget report, the Chancellor announced that paid maternity leave would be further extended to 1 year.
=== Savings ===
In his 2004 pre-Budget report, the Chancellor had
agreed to consultation on retaining the £7,000 higher subscription limit on ISAs beyond April 4, 2006 to April 2009;
announced that the basic state pension would rise to £82,05 for single people and £131.20 for couples, from April 2005.Tax-exempt savings accounts
In his Budget report, the Chancellor announced that the £7,000 higher subscription limit on ISAs would be extended to April 2010, one year further than that indicated in the pre-Budget report, increasing the maximum total tax-free saving over the lifetime of such accounts to £100,000.
In his Budget report, the Chancellor announced that Pension Credit would increase by 13% to £119 per week.
=== Spending ===
Police and Law & Order
In his Budget report, the Chancellor announced an increase in spending of £3.5 billions on police and law & order in 2007/2008 compared to 2004/2005.
In his Budget report, the Chancellor announced an increase in spending of £23 billions on health in 2007/2008 compared to 2004/2005.
In his Budget report, the Chancellor announced
a goal of universal education from age 3 to age 18;
a scheme to allow senior pupils to lease computers for home use;
an increase in the spending allocations given to head-teachers, to £31,000 (rising to £34,000 and £36,000 in subsequent years) for primary school head-teachers; and
a programme to spend £1.67 billions on IT in schools over the next 3 years.Armed forces
In his Budget report, the Chancellor announced new compensation payments to servicemen and servicewomen who are injured in the line of duty, and a scheme that would not penalize them for continuing to serve. He reported that defence spending related to the conflicts in Iraq and Afghanistan had amounted to £4.9 billions.
=== Memorials ===
In his Budget report, the Chancellor announced that the construction of a memorial to the Queen Mother would be funded by the issuance of a new coin, commemorating the Queen Mother's 80th birthday.
== Responses from opposition parties ==
=== Conservative ===
In a speech lasting 16 minutes the leader of the Conservative Party, the Right Honourable Michael Howard QC MP, repeatedly accused the Chancellor of presenting a "vote now, pay later" Budget. Mr Howard stated that he agreed with the Prime Minister that this would be "the last Budget that this Chancellor will ever deliver".
Mr Howard began by welcoming "the Chancellor back to the General Election campaign", and throughout his response made frequent references to the Chancellor of the Duchy of Lancaster. He stated that the Conservative Party's policy would be to give pensioners a £500 council tax rebate in 2005.
Expanding upon his "vote now, pay later" theme, Mr Howard stated that "this Chancellor has got form", describing Mr Brown's 2001 pre-election Budget as "a vote now Budget" and Mr Brown's 2002 post-election Budget as "a pay later Budget". Mr Howard also questioned the accuracy of the forecasts in the Budget report, accusing it of being a "dodgy Budget based upon dodgy numbers", and pointed to Mr Brown's Budget reports in previous years where the forecast in the Budget report had been for a surplus of £58 billions but where there had actually turned out to be a deficit of £41 billions. Mr Howard accused "the Chancellor's forecasts of surpluses" of being as unreliable as "the Prime Minister's forecasts of Weapons of Mass Destruction".
=== Liberal Democrat ===
In a speech lasting 15 minutes, the leader of the Liberal Democrat Party, the Right Honourable Charles Kennedy MP, emphasized themes of "social justice" and "fairness", and contrasted Liberal Democrat Budgetary policies with those of the Labour Party and of the Conservative Party.
Mr Kennedy began by pointing to the "favourable backdrop" against which Mr Brown was publishing his Budget, stating that one of the reasons for the favourable economic circumstances was the implementation by the Labour Party of the Liberal Democrat policy of an independent Bank of England.
Accusing Mr Howard and Mr Brown of engaging in a "Dutch auction" with respect to Council Tax rebates for pensioners, and of both ignoring the "ticking bomb" of Council Tax revaluation that would markedly affect people's Council Tax bills, Mr Kennedy stated the Liberal Democrat policy of scrapping the Council Tax entirely and of instead bringing in a system of local Income taxation. Mr Kennedy characterized the Council Tax rebates as a "quick fix for this year only", and contrasted this with local Income taxation which he characterized as being one that "pensioners benefit from every year". Mr Kennedy also questioned why the National Audit Office would not have "access to Mr Brown's books", for checking the assumptions made in the Budget report, until the end of the year.
Further outlining the Liberal Democrat aims for "social justice" and "fairness", Mr Kennedy accused the State Pension system of being one that is "iniquitous" for women, whom he said both lose National Insurance credit as the result of time taken off work for starting and raising families and who have to rely upon the State Pension more because of their greater life expectancy. Mr Kennedy also stated that the poorest 20% of people in Britain pay more, as a proportion of their income, than do the richest 20% of people.
Mr Kennedy concluded by pointing to the lack of any mention of the environment in Mr Brown's speech, which he termed a glaring "sin of omission", and by describing the Liberal Democrat presentation of its taxation and spending policies as being one of "That's who'll pay it. That's what it will cost. That's who'll benefit.", and accused the Labour Party of, by contrast, making pre-election promises in the past to not raise Income tax, only instead to raise National Insurance contributions after the election.
== Sources ==
Dr Vince Cable MP. "Financial discipline, fairer taxation and economic stability" — Liberal Democrats, February 28, 2005
HM Treasury. "Budget 2005" — HM Treasury, March 16, 2005
HM Treasury. "Pre-Budget Report 2004" — HM Treasury, December 2, 2004