Budget History

• Why is the Budget called the Budget?
• What is Budget purdah?
• Tax from Ethelread to Roundhead
• The war against Napoleon and income tax
• Why does the tax year end 5th April?

Why is the Budget called the Budget?

In June 2004 Gordon Brown became the UK's longest continuously serving Chancellor of the Exchequer (finance minister) since Nicholas Vansittart who held the job between 1812 and 1823. William Gladstone was Chancellor for a longer period than Brown but in separate administrations in the Nineteenth Century. As Gordon Brown once more proudly displays his red case for the tenth time on Budget Day he may well be aware that the bag itself was originally the Budget. The etymology of the word takes us back to the Middle English bowgette, from Middle French bougette, diminutive of bouge leather bag, itself taken from Latin bulga.

The Chancellor stands in the House of Commons once a year (usually) to put forward a statement of the financial position of the administration for a definite period of time, usually the next 12 months, based on estimates of expenditures during the period and proposals for financing them. The longest Budget speech is thought to have been by Gladstone on 18 April 1853, lasting four hours and forty five minutes. The shortest speech is thought to have been Benjamin Disraeli on 4 April 1867, lasting forty five minutes.

An all-encompassing Budget bill was first introduced in 1860 to counter the House of Lords' attempts to reject draft legislation. It is a particular privilege of the House of Commons that it has exclusive rights to control taxes and spending. However, changes to national insurance are not included in the Finance Bill because national insurance is not, strictly speaking, a tax. Any changes to national insurance must come via a social security Bill. This leaves us with the odd situation that, while the House of Lords cannot amend a Finance Bill, it can amend primary legislation on national insurance.

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What is Budget purdah?

Independence for the Bank of England, a refusal to wear black tie for his Mansion House speech, a new red budget box made by apprentices and, unannounced but equally ground-breaking, an end to Budget purdah - Gordon Brown has been responsible for changes both large and small in protocol and economic management.

Purdah comes from the Hindi word "parda", meaning veil or screen. The tradition of Budget purdah dates back to the 19th Century and the days of Gladstone. It meant that no details of the Budget should be made public until the Chancellor had delivered them in his speech to the House of Commons, in order to prevent unwarranted financial speculation.

In the last century, one of Gordon Brown's predecessors as Labour Chancellor, Hugh Dalton actually resigned after he had inadvertently leaked a major Budget measure to a journalist in conversation prior to his speech.

Budget purdah makes less sense in a political arena where measures are announced often two-three years before they are actually brought into force. It has been the case with many of Gordon Brown's Budgets that much of their content has been in the public domain before the Chancellor stood up to speak at the Despatch Box in Parliament.

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Tax from Ethelred to Roundhead

The first regular tax levied in England was that introduced in 991 AD by Ethelred the Unready - the Dane geld, set at two shillings (10p) a year per man for the defence of the realm ('Unready' means 'without counsel', from the Anglo-Saxon 'unræd'). Fast forward nearly 700 years and you reach the oldest tax that we are still paying today.

First introduced in 1643, beer duty was originally intended to be a temporary measure to provide funds to carry on the Civil War. It later became a permanent excise tax. Other wheezes attempted by the Treasury include hearth taxes of two shillings introduced for a fire hearth in 1662. This provoked an epidemic of walled up chimneys as a tax avoidance tactic - and many cold houses. A window tax replaced the hearth tax in 1696 as it was much easier for tax collectors to count- As a result people walled up their windows to avoid payment.

Luxury commodities have long been a tax target. In the past popular items included pianos, saddle horses, carriages and billiard tables. Now the main tax object is the car with tax being paid on registration, road tax and petrol.

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The war against Napoleon and income tax

Income Tax began in 1798 as a temporary measure (are we seeing a pattern here?) to raise money to pay for war against Revolutionary France under then-First Consul Napoleon Bonaparte's rule. The short-lived Peace of Amiens treaty allowed Tory Prime Minister Addington to repeal the tax. However, renewed fighting led to Addington's 1803 Act which re-introduced income tax and set the pattern of tiered tax rates dependant on earnings.

Since 1913 the annual Finance Bill (broadly) has had to be enacted by 5 August (or 5 May when the Budget was in November, as it was from 1993 to 1996). If this deadline is not met, the Government would in theory lose its power to levy income tax.

Other "modern taxes" include Value Added Tax, introduced in 1973 to replace Purchase Tax. Air passenger duty was introduced in 1994 on all flights - it previously was the only form of transport not taxed. A climate change tax was launched in 2001 to promote energy efficiency. A levy is charged on industrial and commercial use of energy.

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Why does the tax year end 5th April?

The date was changed from 25th March due to the adoption of the Gregorian Calendar in 1752. In the 17th century the hearth tax was collected on Lady Day (25th March). When Britain forsook the Julian calendar for the Gregorian calendar Wednesday 2nd September 1752 was immediately followed by Thursday 14th September 1752. This 'correction' of 11 days caused dismay amongst the peasants, who thought that the authorities had literally stolen 11 days!

At the same time 1st January was adopted as the formal date for the start of each year. As a concession, the Government decided that the tax year 1752-53 should keep the length that it would have been without the change. This avoided accusations of collecting a whole year's tax for a year of only 354 days. To make sure that the tax year 1752-53 was the correct length it was extended by 12 days from 24 March 1753 to 5 April 1753.

In 1854 the Government decided that the end of the financial year should be changed to 31st March but that the end of each tax year would remain at 5th April. Since then the tax year has continued to run from 6th April to 5th April each year.

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