Header Header Header
Home Analysis Background Coverage IFS Interactive Live Politics 97

Budgets 1993 - 1995

March 1993 Budget (Norman Lamont)

The Chancellor and his PPS, William Hague
This Chancellor's last budget held back from introducing major changes for that year and was in fact broadly neutral. However the Chancellor announced big tax increases for succeeding yers including the phased introduction of VAT on domestic gas and electricity bills (8% for 1994 and 17.5% for 1995). There would be increases in income-related benefits to deal with the impact of the change in VAT on the less well-off.

The measures were described by the leader of the opposition, John Smith, as 'a shameful budget from a cynical government that has broken its election promises'.

Taxes on cigarettes, petrol and beer were all increased by more than the rate of inflation. Petrol duty was due to be raised by 3% per annum in real terms.

Help for the long term unemployed was announced. There were some special measures for the horse-racing industry and the duty on whisky was frozen.

The reason for the phased increases in taxation whilst retaining a neutral budget judgement for the coming year was explained by Mr Lamont as the need to protect the economy as it was coming out of recession whilst taking action to tackle the increase in public spending, which, he said, would threaten that recovery, as he predicted a deficit of £35 billion for 1993 and £50 billion for 1994, representing 8% of output.

The budget was the last spring budget. Despite John Major's praise for 'the right budget, at the right time, from the right Chancellor', Mr Lamont was replaced by Kenneth Clarke a few weeks later.

November 1993 Budget (Kenneth Clarke)

After a year in the Home Office Kenneth Clarke took over from his Cambridge friend Norman Lamont in May and delivered his first budget (and the first unified budget) the following winter.

The second 1993 budget was greeted by critics as representing the biggest tax increase and the biggest cut in public spending since the war. Many of the decisions had been foreshadowed by Ken Clarke's predecessor. Mr Clarke pledged to effectively eliminate the public deficit by the end of the 1990's and planned to raise £10.5 billion over three years from tax increases and spending cuts. The Chancellor gave more details about the extra help in social security benefits to help compensate for the planned raising of VAT on domestic heat and lighting. This was due to cost £1 billion.

Politically the Chanellor was hoping to please both wings of his party. For the right there was the reduction in public expenditure he was able to announce, helped by an undershoot in spending for 1993 itself. Kenneth Clarke also announced the abolition of unemployment benefit, to be replaced by the new 'Jobseeker's Allowance' and changes in eligibility for invalidity benefit.

His left-wing colleagues were cheered by a larger than expected compensation package for VAT on fuel. The 'One Nation' tradition might also have been pleased by Mr Clarke's increase in health spending of £1.5 billion or 1.5% in real terms and the first increase in the real value of pensions, ie over and above inflation, since the late 1970's. A new allowance for child care was also announced.

An insurance levy and a tax on airline passengers were two new taxes announced by Mr Clarke.

The Chancellor summed up his proposals as:

'...a no-nonsense budget, which deals directly with and firmly with the main challenges facing the country today. Above all it is a budget of a responsible government which is determined to bring lasting recovery to Britain'.

Mr Clarke went on to praise the budget's 'carefully chosen priorities' but John Smith, leader of the opposition, said that it was 'odious in the extreme' and warned that transferring sick pay costs to larger employers and other measures were a 'vicious attack on the welfare state'. Mr Smith added:

'To freeze personal allowances not just for one year but for two years in succession is a devious way of increasing income tax'.

However the budget received an especially warm reception in the City of London and shares recorded big rises.

1994 Budget (Kenneth Clarke)

The main focus of the 1994 budget was a reduction in public spending of some £24 billion planned to take place over the following three years. It was the biggest reduction of its kind since 1984. However there were no big tax cuts and Kenneth Clarke's statement was described as a 'jam tomorrow' budget by the City.

The Chancellor also stood by the commitment to raise the rate of VAT to be applied to domestic fuel and light.

The budget was delivered against a backdrop of some disharmony within the Conservative Party in Parlaiment. It was delivered shortly after eight backbenchers had had their party whip withdrawn (and a ninth resigned the whip in protest at the action). Thus the government faced the Commons with no overall majority. There was also much speculation about the future of the Conservative leadership.

The Chancellor acknowledged the continuing effect of the new Channel Tunnel had had on the British retail drinks industry and for the second year running there were no duty increases in beer, wines or spirits. Petrol and tobacco duty were raised.

The Leader of the Opposition, Tony Blair, told the Commons that the budget would be remembered as the 'VAT on fuel budget'. He stressed the 'other tax rises' that were not mentioned in the budget, referring to the planned reduction in mortage tax relief to 15% and the reduction in the married couple's allowance from April 1995. Mr Clarke insisted that the government and the country would be able to 'enjoy the full fruits of improved economic performance. We must not change our minds now for the sake of short-term popularity'.

December 1994 Financial Statement (Kenneth Clarke)

The planned increase in the rate of VAT on fuel and power that had been set out in the 1993 Finance Act was due to come into force in April 1995. However the government lost the vote on the necessary legislation in December 1994 when a number of Conservative MPs rebelled against the measure.

The Chancellor was thus left with a revenue shortfall for succeeding years and was forced to introduce a package of measures to plug the gap. He cancelled some of the planned social security measures that were due to put in place and designed to help soften the impact of the planned increase in VAT and also raised duties on tobacco (6p on a packet of 20 cigarettes and alcohol (by a further 4%).

1995 Budget (Kenneth Clarke)

Income Tax comes down by 1p
Chancellor Kenneth Clarke said in 1995 that he had delivered a "sensible" Budget aimed at sustaining Britain's long term economic recovery.

There was ill-disguised disappointment - particularly on the Tory right - with his plans for a 1p cut in the basic rate of income tax, coupled with increased spending on the health service, education and the police. He said that while he had cut overall spending the previous year by more than £3 billion,there were priority areas where it had been right to increase expenditure:

"I think people wanted me to spend more money on hospitals, more money on schools, more money on the police service."

Mr Clarke told the Commons that he could do this and cut income tax.

The Chancellor also said that he would not "do a Budget just for the next day's headlines" although he indicated that there may be scope for further tax cuts in the future.

The Labour Leader dismissed the Budget as a "flop". Tony Blair said that despite the cuts, people were worse off under the Conservatives:

"One of the reasons that it flopped is that people realise that they are still £67-a-year worse off and they realise also that the Budget has done nothing to address the long term needs of the economy."

Return to the top of this page

Budget History Index

Budgets 1733-1885, 1907-45, 1945-79, 1979-92, 1996

Home | Analysis | Background | Coverage | IFS | Interactive | Live

BBC   Politics

BBC Politics 97