Budget
22 June 2010
An Act of Parliament creates a new law or changes an existing law.
An increase in the value of an asset. Is also used for currency to describe the value of one currency rising in relation to another.
Anything of positive economic value that can be owned or controlled.
The main interest rate at which the Bank of England lends money to financial institutions. This interest rate in turn affects the rates that commercial financial institutions offer their customers for loans and deposits. It is set each month by the Bank of England’s Monetary Policy Committee (MPC). (N.B. Also referred to as the ‘base rate’. The term ‘Bank Rate’ refers solely to the rate set by the Bank of England. In other countries, central banks use different terminology for their main interest rate).
The Bank of England is the central bank of the United Kingdom. It is independent of the Government and has two core purposes: monetary stability and financial stability. Since 1997 the Bank has had statutory responsibility for setting the UK's official interest rate.
A Bill is a draft law. To become an Act of Parliament (in other words, a law) a Bill must be approved by a majority in the House of Commons and House of Lords, and formally agreed to by the reigning monarch (known as Royal Assent).
A certificate of debt issued by a government or corporation in order to raise money - a bond is essentially an IOU. A bond states when a loan must be repaid and what interest the borrower (issuer) must pay to the holder. In the UK, government bonds are called ‘gilts’. In the US they are called ‘Treasury securities’.
The Budget is an economic report presented by the Treasury to Parliament. In this report the Chancellor can review taxes and spending plans. Many of the measures announced in the Budget are implemented in a Finance Bill.
The BRC leads the work of the Office for Budget Responsibility. They are supported by a small team of economists and public finance experts in HM Treasury.
Financial institutions that are privately owned and where customers have a right to vote on decisions made by the society (a system called mutual ownership). Building societies typically offer a range of services but specialise in providing mortgages.
Assets that can be invested, saved, or used as funding. Capital may be financial (e.g. money), physical (e.g. machinery) or intangible (e.g. intellectual property).
Money spent on building, purchasing or upgrading physical assets (i.e. infrastructure, buildings, machinery etc).
Amount by which an asset's selling price exceeds its initial purchase price.
A tax on profits gained from selling or disposing of an asset. Individuals are entitled to an annual tax-free allowance called the Annual Exempt Amount. This means that they will only pay CGT on profits that exceed the allowance for the tax year. In addition, entrepreneurs are entitled to a reduced CGT rate of 10% up to a lifetime limit of £5 million of entrepreneurial gains.
A banking institution that regulates all of the currency supplies in an economy. A central bank acts as banker to the government and lender of last resort to commercial banks. In the UK the central bank is the Bank of England.
The number of people claiming unemployment-related benefits. Since October 1996 this has been defined in the UK as the number of people claiming JobSeeker’s Allowance.
A measure of inflation. The CPI measures the average changes month-to-month in prices of consumer goods and services purchased in the UK. The CPI is the main UK measure of inflation for macroeconomic purposes and forms the basis for the Government's inflation target.
A tax on the profits made by companies.
Situation where banks across the economy significantly reduce lending to each other due to falling confidence that loans will be repaid. This restricts the flow of money around the economy. It can result in less credit being available for consumers and businesses, resulting in an increase in the cost of obtaining credit.
The amount by which government spending exceeds government income during a specified period of time (usually a year). The budget deficit can be split into two key elements:
Deflation
A persistent fall in the general price level of goods and services.
The need/desire for a product or service, backed by the ability to purchase.
A decrease in the value of an asset. Is also used for currency: when the value of one currency falls in relation to another.
A term generally used to describe countries that have a low national income.
A Council composed of the Economics and Finance Ministers of all 27 European Union member states. ECOFIN discuss and reach agreement on how to take forward a number of economic and financial issues that affect the whole of the European Union.
Typically refers to an increase in a nation's capacity to produce goods and services.
Another term for shares. An equity is a document entitling the holder to be one of the owners of a company.
The rate at which one currency can be exchanged for another.
A payment or the promise of a future payment. Also one of the ways to measure a country’s GDP.
Goods and services sold to other countries.
The annual Finance Bill encompasses changes to be made to tax law for the year. Its formal description is ‘a Bill to grant certain duties, to alter other duties, and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance.’ The Finance Bill puts into law the measures announced in the Budget.
The use of government spending and tax policy to affect changes in the economy.
A group of seven major industrialized countries: Canada, France, Germany, Italy, Japan, the UK and the U.S. The Finance Ministers of each of these countries attend regular G7 meetings to discuss economic policy issues.
A group of finance ministers and central bank governors from 20 economies. The G20 is a forum for cooperation on key issues in the global economy.
GDP is a measure of economic activity. It is the sum of all goods and services produced by a country over a given time period (usually a year). A rise in GDP shows the economy is growing, whilst falling GDP means the economy is contracting. GDP can be measured in three ways:
Imports
Goods and services bought from other countries.
A tax on personal income, i.e. wages or salary. The level of Income Tax an individual pays depends on their level of income – higher earners pay higher rates of Income Tax. However, nearly everyone who lives in the UK is entitled to an Income Tax Personal Allowance. This sets the amount of income you can receive each tax year without having to pay tax on it.
A rise in the general price level of goods and services. Often measured over a 12 month period.
A cost that is charged by a person or organisation that lends money to another. Usually expressed as a percentage.
The International Monetary Fund (IMF) is an organisation of 186 countries. It promotes global monetary cooperation, financial stability, international trade, employment and sustainable economic growth.
Liquidity refers to the ease with which something can be converted to cash with little or no loss of value.
The study of overall economic headlines e.g. inflation, trade, output and the level of employment.
The study of how economic resources are allocated in and between parts of the economy, including individuals and households.
The regulation of money supply and interest rates by a central bank, such as the Bank of England, to achieve economic objectives.
A committee of nine experts which meets each month to set the official Bank of England interest rate (known as Bank Rate). The MPC is independent of Government.
The total amount of debt owed by a government, raised through borrowing from individuals and institutions. It is the sum total of all previously incurred deficits that have not been paid.
The sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received within a given period of time. One of the ways to measure GDP.
National Insurance is a government-operated social security scheme. It is funded by compulsory contributions by employers, employees and the self-employed. Contributions increase according to the level of earnings (or profit, in the case of the self-employed).
NICs pay for contributory benefits, including the State Pension. A proportion of NICs are also used to help fund the National Health Service. Individuals stop paying NICs when they reach State Pension age or are no longer working. Various National Insurance credits are available to maintain entitlements where an individual is not able to work and there is also an option to pay voluntary contributions where credits are not available.
The act of bringing a privately owned asset such as a company or property under state control.
A newly created office that produces an independent assessment of the public finances and the economy for each Budget.
The OECD provides a forum where governments compare policy experiences, cooperate on common issues, identify good practice and coordinate domestic and international policies.
The goods and services produced as a result of economic activity. One of the ways to measure GDP.
Parliament examines what the Government is doing, makes new laws and debates the issues of the day. The business of Parliament takes place in two Houses: the House of Commons and the House of Lords. Both Houses hold debates in which Members discuss government policy, current issues, and debate and pass legislation.
The Government provides tax relief on individual and employer contributions to registered pension schemes, up to specified limits. Investment growth within registered pension schemes is exempt from income and capital gains tax.
The part of a nation's economy which is not owned by the government.
The process of transferring a government-owned asset such as a company or property to the private sector.
A committee of senior Cabinet Ministers appointed to advise the Cabinet on high-level decisions that need to be taken in the Spending Review this autumn.
The government’s accounts, including tax receipts, expenditure, borrowing and debt.
The part of the nation’s economy that is owned by the government.
A process whereby the central bank injects money directly into the economy in order to stimulate bank lending and control inflation.
The commonly accepted definition of a recession in the UK is two or more consecutive quarters (a period of three months) of contraction in national GDP.
The RPI is a measure of inflation. The RPI measures the average changes month-to-month in prices of consumer goods and services purchased in the UK. The RPI is similar in nature to the Consumer Price Index (CPI) however there are differences in calculation and in the basket of goods covered. In particular the RPI includes mortgage interest payments and housing depreciation whereas CPI does not.
Another term for equities. A share is a document entitling the holder to be one of the owners of a company.
People and institutions that own shares.
A lower rate of Corporation Tax paid by companies, which have profits below £300,000.
(Formerly known as the Small Companies' Rate. HMRC's Tax Rewrite Project changed the name in the Corporation Tax Act 2010 to better describe the target of the tax rate, i.e. those companies with small profits, regardless of company size. The name change came into effect from 1 April 2010).
Spending Reviews set firm and fixed multi-year budgets for government departments. They outline the improvements that the public can expect from government spending.
Economic growth that can continue over the long-term without damage to the environment or the exhaustion of non-renewable resources.
The Treasury is the United Kingdom's economics and finance ministry. It is the Governement department responsible for formulating and implementing the Government's financial and economic policy. Its aim is to raise the rate of sustainable growth, and achieve rising prosperity and a better quality of life with economic and employment opportunities for all.
The number of individuals actively seeking work who are currently without a job. Unemployment is expressed as a percentage of the total available work force.
VAT is a tax that is charged on goods or services. It is levied at each stage in the chain of production and distribution. However, smaller businesses do not have to register for VAT and when VAT-registered businesses buy goods or services they can generally reclaim the VAT that they have paid on them. Therefore VAT principally affects consumers. This is with the exception of certain goods that are taxed at 0%, including food, books, newspapers and children’s shoes and clothes. Domestic fuel and power is taxed at 5%.
The World Bank is a source of financial and technical assistance to developing countries. It can provide loans and grants for a wide array of purposes that include investments in education, health, public administration, infrastructure, financial and private sector development, agriculture and environmental and natural resource management. The World Bank is owned by 186 member countries.
The annual income provided by an investment as a percentage of its price.