MSN Money, Updated: 19/02/2013 12:45

A history of the Budget

We look back at how the Budget came to be.

In 1870, the then chancellor, Robert Lowe, described his office in these terms: "The chancellor of the exchequer is a man whose duties make him more or less of a taxing machine. He is entrusted with a certain amount of misery which it is his duty to distribute as fairly as he can."

Even though the chancellor now presents two economic forecasts each year, it is the Budget which still grabs the news headlines, usually to announce that taxes and the price of fuel, alcohol and cigarettes have gone up yet again.

However, with the economy continuing to struggle, George Osborne has a bigger problem. There is much more misery to distribute and people are paying a lot more attention to who he gives it to.

The use of an annual announcement to parliament of fiscal policy dates back to Robert Walpole's time as both prime minister and chancellor in the 1720s. His Budgets were an attempt to restore public confidence, following the financial chaos caused by the collapse of the South Sea Bubble.

The South Sea Bubble

The South Sea Company was a British company granted a monopoly to trade with South America. Rampant speculation in the company's shares caused the share price to hit £1,000 in August 1720.

This triggered a wave of selling, and the price crash that followed (the "bursting bubble") caused bankruptcies and outcry around the country as investors who bought shares with borrowing found themselves suddenly ruined.

The People's Budget

The modern Budget as we would recognise it dates from 1860. Previously, finance bills were put to the House of Commons in a piecemeal fashion, and the House of Lords was able to reject draft legislation. The idea was that, by putting all the legislation together in one bill, it attempted to put a stop to Lords' interference.

The Lords did attempt to reject a Finance Bill though, in 1909. This was Lloyd George's famous "People's Budget", in which he set out to raise £16 million through taxation to pay for the establishment of the state pension.

The Conservatives threatened to use their overwhelming majority in the Lords to block the bill. After a long struggle, the bill finally passed.

This event was a direct cause of the 1911 Parliament Act, which prevented the Lords, among other things, from any interference with "money bills".

It took the help of King George V to get this act passed. The Conservative majority in the Lords threatened to derail the bill, until the King, at the request of prime minister Asquith, threatened to create 250 Liberal Peers and thus permanently destroy the Conservative majority in the Lords at a stroke.

Ups and downs of taxation

Entertainingly, because of a 1912 legal challenge to the government by a certain Mr Bowles, if the annual finance bill is not enacted by August 5 every year, the government loses its power to levy income tax. Mr Bowles' challenge revolved around the government's right to levy taxes without specific authority for the year in question.

Various peculiar taxes have been introduced and rescinded at times, including taxation on beer, land, salt and bachelors.

The results on one tax in particular are still visible around the country - the window tax. A tax was levied on each glass window in a building. Many old houses around the country still have bricked up windows so that the owner could reduce the amount of window tax due.

Conversely, the very wealthy in the country took the opportunity of showing off their riches by commissioning the building of large houses that had walls filled with windows.

The attempt to introduce excise duty in 1733 on wine and tobacco (instead of the existing customs duty) caused a public outcry, and Walpole was forced to cancel his plans.

Britain's continuing wars put increasing strain on the public purse and in 1789 Pitt the Younger introduced income tax for the first time to help pay for the military effort.

Purging purdah

The Budget is surrounded by tradition and ceremony. A significant change to Budget protocol that former chancellor Gordon Brown introduced was the ending of "Purdah".

Purdah comes from the Hindi word parda, which means a veil. Budget Purdah means that no details of the imminent Budget announcement are made public before the chancellor's speech to the Commons, to avoid financial speculation. It dates from Gladstone in his time as chancellor from 1852 to 1855, before he became prime minister.

One Labour chancellor, Hugh Dalton, actually had to resign in 1947 after he told a journalist about a major measure he had planned. Seemingly unaware of how quickly the press could operate, he told a reporter from The Star about his plans on the day of his speech. The news was printed before he had even finished it.

In a time when plans for new economic measures are often announced years in advance, it no longer makes much sense to try and keep such announcements secret in the run up to the Budget speech itself.

Indeed, Gordon Brown began to arrange press briefings at the time of his pre-Budget statement. Much of what is now mentioned during the Budget speech is now already in the public domain.

But the chancellor still has to stand up and make the speech though - or the government wouldn't be able to raise all that lovely income tax.

MSN Money, Updated: 19/02/2013 12:45

A history of the Budget

We look back at how the Budget came to be.

In 1870, the then chancellor, Robert Lowe, described his office in these terms: "The chancellor of the exchequer is a man whose duties make him more or less of a taxing machine. He is entrusted with a certain amount of misery which it is his duty to distribute as fairly as he can."

Even though the chancellor now presents two economic forecasts each year, it is the Budget which still grabs the news headlines, usually to announce that taxes and the price of fuel, alcohol and cigarettes have gone up yet again.

However, with the economy continuing to struggle, George Osborne has a bigger problem. There is much more misery to distribute and people are paying a lot more attention to who he gives it to.

The use of an annual announcement to parliament of fiscal policy dates back to Robert Walpole's time as both prime minister and chancellor in the 1720s. His Budgets were an attempt to restore public confidence, following the financial chaos caused by the collapse of the South Sea Bubble.

The South Sea Bubble

The South Sea Company was a British company granted a monopoly to trade with South America. Rampant speculation in the company's shares caused the share price to hit £1,000 in August 1720.

This triggered a wave of selling, and the price crash that followed (the "bursting bubble") caused bankruptcies and outcry around the country as investors who bought shares with borrowing found themselves suddenly ruined.

The People's Budget

The modern Budget as we would recognise it dates from 1860. Previously, finance bills were put to the House of Commons in a piecemeal fashion, and the House of Lords was able to reject draft legislation. The idea was that, by putting all the legislation together in one bill, it attempted to put a stop to Lords' interference.

The Lords did attempt to reject a Finance Bill though, in 1909. This was Lloyd George's famous "People's Budget", in which he set out to raise £16 million through taxation to pay for the establishment of the state pension.

The Conservatives threatened to use their overwhelming majority in the Lords to block the bill. After a long struggle, the bill finally passed.

This event was a direct cause of the 1911 Parliament Act, which prevented the Lords, among other things, from any interference with "money bills".

It took the help of King George V to get this act passed. The Conservative majority in the Lords threatened to derail the bill, until the King, at the request of prime minister Asquith, threatened to create 250 Liberal Peers and thus permanently destroy the Conservative majority in the Lords at a stroke.

Ups and downs of taxation

Entertainingly, because of a 1912 legal challenge to the government by a certain Mr Bowles, if the annual finance bill is not enacted by August 5 every year, the government loses its power to levy income tax. Mr Bowles' challenge revolved around the government's right to levy taxes without specific authority for the year in question.

Various peculiar taxes have been introduced and rescinded at times, including taxation on beer, land, salt and bachelors.

The results on one tax in particular are still visible around the country - the window tax. A tax was levied on each glass window in a building. Many old houses around the country still have bricked up windows so that the owner could reduce the amount of window tax due.

Conversely, the very wealthy in the country took the opportunity of showing off their riches by commissioning the building of large houses that had walls filled with windows.

The attempt to introduce excise duty in 1733 on wine and tobacco (instead of the existing customs duty) caused a public outcry, and Walpole was forced to cancel his plans.

Britain's continuing wars put increasing strain on the public purse and in 1789 Pitt the Younger introduced income tax for the first time to help pay for the military effort.

Purging purdah

The Budget is surrounded by tradition and ceremony. A significant change to Budget protocol that former chancellor Gordon Brown introduced was the ending of "Purdah".

Purdah comes from the Hindi word parda, which means a veil. Budget Purdah means that no details of the imminent Budget announcement are made public before the chancellor's speech to the Commons, to avoid financial speculation. It dates from Gladstone in his time as chancellor from 1852 to 1855, before he became prime minister.

One Labour chancellor, Hugh Dalton, actually had to resign in 1947 after he told a journalist about a major measure he had planned. Seemingly unaware of how quickly the press could operate, he told a reporter from The Star about his plans on the day of his speech. The news was printed before he had even finished it.

In a time when plans for new economic measures are often announced years in advance, it no longer makes much sense to try and keep such announcements secret in the run up to the Budget speech itself.

Indeed, Gordon Brown began to arrange press briefings at the time of his pre-Budget statement. Much of what is now mentioned during the Budget speech is now already in the public domain.

But the chancellor still has to stand up and make the speech though - or the government wouldn't be able to raise all that lovely income tax.

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