All budgets matter, but some matter more than most. In the 100 years since Sir Winston Churchill used his debut as chancellor in 1925 to put Britain back on the Gold Standard, the first budget of a parliament has often been one that lives in the memory.
It’s not a cast-iron rule. Sir Geoffrey Howe’s most controversial budget was in 1981 – midterm in Margaret Thatcher’s first administration – when he raised taxes even though the economy was deep in recession. That decision prompted 364 economists to write to the Times in protest – and still divides the profession today.
But if Rachel Reeves is good to her word and has a tough package of measures to announce when she reveals the contents of her red box on Wednesday, she will be following in the footsteps of many of her predecessors.
There are plenty of reasons why chancellors like to hit the ground running. It is a chance to set the direction for the parliament. It allows big structural reforms time to have an effect. And it allows an incoming government to blame its defeated opponents for any unpopular decisions they need to make.
Here are five first budgets (or to be more accurate five budgets and one fiscal event that was as good as a budget) that have made a difference over the past half century, along with a verdict out of five on how much they broke the mould and the legacy they left.
Sir Geoffrey Howe, June 1979
Howe wasted little time after the Conservative victory in the May 1979 election to signal a decisive break with the postwar economic consensus. His budget marked the beginning of the Tory party’s monetarist experiment, under which controlling inflation through the use of higher interest rates and tough fiscal control took precedence over full employment. Markets were liberalised and there was a shift away from taxes on income in favour of taxes on consumption.
The budget cut the top rate of tax on earned income from 83% to 60%, reduced the standard rate of income tax from 33% to 30%, doubled VAT from 8% to 15%, and announced an easing of foreign exchange controls. On the day, the most controversial aspect of the budget was the doubling of VAT, which Labour seized on as a betrayal of an election promise, but Howe’s package set the pattern for years to come.
Break with the past 5/5
Long-term impact 4/5
Nigel Lawson, March 1988
Lawson had been chancellor since 1983 but his most memorable budget came in the aftermath of the 1987 election, won comfortably by the Conservatives in part due to their pre-election tax cuts.
By the spring of 1988, the economy had recovered from the deep slump of the early 1980s and there were no lasting ill-effects from the stock market crash of October 1987. But Lawson did not stick to the usual post-election template. Instead of tightening policy, he took advantage of buoyant public finances to announce deep across-the-board tax cuts. The top rate of income tax was slashed from 60% to 40%, and the standard rate was cut from 27% to 25%.
By far the most tempestuous budget day of the recent past, the deputy speaker was twice forced to clear the Commons chamber as Labour MPs voiced their opposition to the tax cuts for the better off.
Lawson also announced that, from August, couples purchasing a home would no longer be able to qualify for double mortgage tax relief – a decision that set off a property frenzy as buyers raced to beat the deadline.
The summer of 1988 was the peak of the Lawson boom, which came crashing down after interest rates were doubled from 7.5% to 15% in a little more than a year to cool an overheating economy.
Break with the past 2/5
Long-term impact 2/5
Norman Lamont and Kenneth Clarke, March and November 1993
This was the year of two budgets, although they were essentially a single tough package to repair the damage to the public finances caused by the recession of the early 1990s.
In March 1993, the economy was in the early stages of a recovery made possible by the pound’s departure from the European exchange rate mechanism (ERM) six months earlier.
Growth was picking up as a result of cuts in interest rates and a fall in sterling, which made exports cheaper. However, with the recovery still fragile, Lamont announced tax increases that would come into force over time. The most controversial of these was the decision to phase in VAT on domestic gas and electricity.
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By November, the recovery was further advanced and Lamont had been replaced as chancellor by Clarke, who finished off the job started earlier in the year. In what is still the biggest tightening of fiscal policy since the second world war, Clarke froze personal tax allowances and introduced stealth taxes on insurance and airline passengers.
In economic terms, the two 1993 budgets were a success because the tax increases ensured that benefits of lower interest rates and a falling pound went to manufacturers and exporters rather than consumers. Politically, they were massively unpopular.
Break with the past 3/5
Long-term impact 3/5
Gordon Brown, April 2002
Brown had been chancellor for almost five years by the time of the carefully planned 2002 budget, which raised taxes to pay for higher spending on the NHS.
Labour had won a second landslide victory the previous year, but Brown was anxious about possible voter resistance to higher tax. He asked the banker Derek Wanless to conduct a year-long review into the NHS, which concluded the UK was lagging behind other developed economies in health outcomes because it was spending less than they were.
This was the finding Brown had wanted and it provided him with political cover to raise national insurance contributions by one percentage point, thus laying the foundations for the largest sustained rise in health spending since the NHS was created in 1948.
Louis XIV’s finance minister, Jean-Baptiste Colbert, once said: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” Brown’s 2002 budget was an example of skilful goose plucking.
Break with the past 3/5
Long-term impact 5/5
Kwasi Kwarteng, September 2022
Technically Kwarteng’s package of measures – announced less than a month after he became Liz Truss’s chancellor – was a fiscal statement, not a budget. But it was as meaty as a budget and had the drama of one.
Truss and Kwarteng were frustrated by the UK’s sluggish growth and were prepared to do battle with the forces of economic orthodoxy. On his first day in No 11, Kwarteng sacked the Treasury’s top mandarin – Sir Tom Scholar – and subsequently made it clear he would not be asking the independent Office for Budget Responsibility to provide an assessment of his plans.
The unravelling of the package was swift and brutal. Within hours of Kwarteng announcing a £45bn of tax cuts – including a drop in the basic rate of income tax from 20% to 19%, the abolition of the top 45% rate and the scrapping of a planned increase in NICs – the pound was in freefall as the financial markets took fright. The Bank of England was forced to intervene to halt a run on UK pension funds. Mortgage rates soared.
Kwarteng was called back from the annual meetings of the IMF in Washington to be sacked three weeks later. Truss didn’t last much longer.
Break with the past 5/5
Long-term impact 0/5