What is the Budget and how does it affect me?

  • 8 March 2017
The current Chancellor of the Exchequer, Philip Hammond
Image caption The current Chancellor of the Exchequer, Philip Hammond

The Budget is one of two major speeches that the government makes each year about how it's going to spend the nation's money.

The Budget is worked out by the person in charge of the country's money, called the Chancellor of the Exchequer, with help from their office, which is known as the Treasury.

The current Chancellor of the Exchequer is Philip Hammond.

The chancellor makes another speech, called the Autumn Statement, giving an update on the country's spending later in the year.

Image copyright PA
Image caption The Budget is an important speech made by the Chancellor of the Exchequer

It was Philip Hammond's first Spring Budget speech, as George Osborne was chancellor in March 2016, so he made it then.

Why do we have a Budget?

Just like you decide how to spend your pocket money, the government has to decide how to spend money on services like schools, hospitals, the police and housing.

The government needs to work out how much money it has in the bank, so it can work out how to spend it on the country.

It traditionally takes place in the Spring. However, the chancellor can decide to give an extra update on the country's money during the year if they want to.

George Osborne decided to give an extra Budget speech in July 2015, because an election had just happened so he wanted to give everyone an update.

Image copyright Getty Images
Image caption George Osborne and his Treasury team in July 2015, when he delivered an extra Budget speech

Traditionally, in the Budget speech the chancellor would talk about tax plans, while the Autumn Statement would be more about predictions for the economy and how much money different government departments could spend.

However, this is not always the case anymore, as some tax plans can be included in the Autumn Statement too.

What's the red briefcase about?

Usually on the day that the chancellor will make the Budget statement, you will see them waving around a red briefcase. It traditionally contains the Budget speech.

Image caption On Budget day, the Chancellor will be seen carrying a red briefcase. Here is the former Chancellor George Osborne holding the briefcase ahead of the March 2016 Budget

The original red briefcase was first used by politician William Gladstone in 1860.

But in 1997 the former Chancellor Gordon Brown had a new one made as the old one was looking a bit tatty!

Where does the money come from?

The government gets its money from different types of taxes:

Income tax: Everyone in the UK who earns money has to pay some of that money to the government. Most people have to pay about a fifth, but richer people pay more.

Image copyright Getty Images
Image caption The government gets its money from different types of taxes

VAT: You pay tax when you buy things. You may not realise it but 20% of the cost of many things goes to the government as VAT (Value Added Tax).

Duties: These are extra taxes charged on certain things like cigarettes, alcohol and petrol. Most of the money people pay for these goes to the government as 'duty'.

Does it affect me?

You might not think it, but the Budget does affect your life.

The chancellor may decide to spend more or less money on schools and they may also choose to spend money on youth schemes in your area.

Adults may find they have more or less money to spend - which could mean more or less pocket money for you!

What happens on Budget day?

On the day itself, the chancellor makes their speech to MPs about how they're spending the government's money.

People can also watch it on television to see what he or she says.

Image copyright UK Parliament/Mark Duffy
Image caption Here is Philip Hammond delivering this Spring's Budget speech

The chancellor will try to explain why they may be raising or lowering taxes, and speak about the country's economy.

At the end of the speech, MPs discuss the Budget, then vote on whether or not to accept it.