THE TALE OF TWO BUDGETS (25/01/10)

With an election looming in 2010, Ken Jones examines why we’ll see at least two budgets this year

2010 is likely to see two Budgets from the Chancellor of the Exchequer, three if one includes the autumn/winter Pre Budget report. 

Why two Budgets? First, let us look at the usual timetable from when the Chancellor first stands up to make his Budget speech to the date when the provisions become law:

• The Chancellor stands up before Parliament to deliver his Budget proposals in the spring, usually towards the end of March.
• Press releases are issued by the Treasury and HM Revenue and Customs, setting out further background to the provisions immediately the Chancellor sits down.
• A week or so later, the first draft of the legislation in the form of the Finance Bill appears
• There is a lengthy process of consultation (the “Committee Stages”) while a small group of cross party MPs debate the detailed provisions impending. This process of consideration and debate frequently reduces some changes to the rules, often as a result of press comment, or lobbying from various external pressure groups.
• The whole process is completed around the end of July when the Finance Act is issued. 

However, the general election has to be held by the first week in June this year, with most commentators suggesting that early May will be the most likely date. There will therefore not be enough time to debate the Budget through the Committee Stages, and Parliament therefore “guillotines” the Finance Bill, bringing in only the most important provisions: everything else is abandoned until after the general election.

One of the most important provisions is for the government to re-impose Income Tax and Corporation Tax each year. Although other taxes, such as VAT, are “permanent taxes”, Income Tax and Corporation Tax are “annual taxes” and have to be renewed each year. It would be rather nice if the government forgot to renew these in the frenzy of the election, but very unlikely!

For those interested in history, Income Tax was originally introduced in 1798 as a short term tax to raise funds to fight the French and the Napoleonic Wars. The rate was 10% on incomes above the threshold of £200. It was reintroduced by Sir Robert Peel in 1842, but the threshold reduced to £150!

Reading a biography of Sir Robert Peel, there is an interesting quote which shows that today’s economic problems may have been seen some time before …..

“Peel came to office [in 1841] during an economic recession which had seen a slump in world trade and a budget deficit of £2.5 million run up by the Whigs** in an attempt to solve it. Confidence in Banks and Businesses was low and a trade deficit existed.”
[** forerunner of the Liberals, who were the opposition party to Peel’s Conservatives]

Returning to 2010, the spring Budget is likely to contain a mixture of non-contentious provisions, cracking down on various avoidance schemes and correcting anomalies in the tax system, and some more contentious tax raising, or relieving, provisions. The contentious provisions will give an indication of the current Government’s future taxation policies, should they be re-elected.

Virtually all of these provisions will be guillotined before the election, resulting in a very short, and not particularly contentious, Finance Act 2010. Sadly, Income Tax will definitely be re-imposed!

The incoming government, of whatever colour, will propose a new Budget within a couple of months of gaining power. This Budget will follow the usual process of Finance Bill and Committee Stages, and will end up as the Finance (No. 2) Act 2010 some time in the autumn. 

Later in the year we are likely to have the 2010 Pre Budget report, proposing yet further changes to the rules. Busy times for accountants, but whatever the changes in tax rules, we will be analysing them and working for the best interests of our clients. 


See   http://en.wikipedia.org/wiki/Robert_Peel