What is a pre-budget report?

Gordon Brown's ambition is a consensus on economic policy

The pre-budget report is a new innovation in the UK economic calendar, introduced by Chancellor Gordon Brown last year.

It is the government's attempt to explain its thinking on the economy in advance of the formal announcements in the budget next April.

Last year, the first pre-budget report included three elements:

• Statements of general principles

• Some pre-announced specific budget measures

• A new economic forecast

It was part of the attempt by the incoming Labour government to convince the public and business of its seriousness of purpose and economic competence.

Mr Brown said the aim was to "help build the foundations of shared understanding and sense of national economic purpose between government, business, and individuals."

This time there may be a more limited aim - of convincing the public that the government can reconcile its economic and budget pledges in the face of a global slowdown.

There will be intense interest in the government's growth forecast for next year, with private forecasters suggesting that the economy will grow by less than 1% next year - half the rate that was predicted in last year's budget.

Last year's principles

In last year's statement, the chancellor managed both to cement his image as the Iron Chancellor and hand out pre-budget concessions to pensioners and small businesses.

That was made easier by the strength of the economy, which made him look prudent and generous at the same time.

The government's finances were also moving sharply into surplus, helped by Labour's adoption of the spending plans of the previous Tory government, which amounted to a virtual freeze.

The key pledges made last November - most notably the introduction of a Code of Fiscal Stability - could now prove millstones around the chancellor's neck.

The code promised that the government would not borrow to fund current spending "over the economic cycle as a whole".

And it pledged to limit public spending to 40% of GDP.

Some economists believe that if the slowdown next year turns into a deep recession, these will become increasingly difficult to meet.

Environmental and welfare reform

The reason the government introduced a pre-budget report was ostensibly to stimulate debate and to build consensus about its economic policies.

But it is also an opportunity to announce some of the measures planned for the budget that might prove controversial.

Last time the government announced the phased abolition of Advance Corporation Tax which will hurt large companies.

This year there is speculation that other kinds of energy taxes might be discussed.

The government also foreshadowed some of its welfare-to-work reforms such as the working family tax credit and more support for childcare.

This year there will be even more pressure on the social security budget - which makes up a third of total government spending.

There may be more plans to encourage people to move off welfare, but any increase in unemployment next year could make that harder to achieve.

In principle, the pre-budget report will not discuss the overall spending plans of individual departments.

These were supposedly determined for the next three years by the Comprehensive Spending Review which was announced in July.

However, comments about the future size of the budget deficit could lead to speculation about constraints on spending in the next financial year.

Abolished by the Tories

The current government has been determined to avoid the rows over public spending that damaged previous administrations.

Several years ago, the Conservatives abolished the Autumn Statement which gave details of the government's spending plans.

They said decisions on taxes and spending should be announced at the same time.

Now this government has moved back to a two-stage budget process, with the traditional April statement preceded by a trickle of announcements in the autumn.

That looked politically astute when most of the announcements were good news, but this time, squaring politics and principles could be a good deal more difficult.