Quick Guide: The Budget

The Treasury's role

Setting the government's budget - its tax and spending plans - is a central part of the Treasury's role.

The Budget can affect the economy, either stimulating economic growth or holding it back.

And specific measures in the budget can hurt or help individuals or businesses.

Under Gordon Brown, an increasing number of tax and benefit changes have been introduced to help meet government objectives, such as reducing poverty or stimulating productivity in industry.

The Pre-Budget Report

Since Gordon Brown became Chancellor, the government has published a pre-Budget report each autumn.

It is a chance to warn individuals and businesses about future tax changes, and to provide time for consultation.

It has also been used to float major policy initiatives or deal with political problems, and offers a chance to flag up unpopular measures.

And it includes one of the two economic forecasts the Treasury has to produce, warning of possible budget deficits.

The Budget statement

The Budget normally takes place in March, ahead of the end of the tax year on 5 April.

The Chancellor starts with his economic forecast, predicting how much money the government might get in tax revenue.

Then he announces changes - if any - in personal tax rates, excise duties, VAT and corporate taxation.

He may also announce increases in benefits and allowances, and often mentions some extra cash going to key government programmes.

Budget deficits and the golden rule

Gordon Brown introduced the "golden rule" to try to assure money markets that governments would not spend more than they could afford.

The rule requires that current spending does not exceed tax revenue over the course of a complete economic cycle.

This allows the government to borrow in bad times and pay it off in good times.

But the rule does not apply to capital investments, such as hospitals and schools. Critics fear some spending can be reclassified to circumvent the rules.

The Spending Review

Every two years, the government carries out a spending review, outlining how it plans to spend its tax revenue.

Reviews normally take place every second summer, although they allocate money for the next three years.

Spending departments bid for money from the Treasury, which sets performance targets in return.

However, about half the government's budget cannot be fixed in advance - only annually. This includes benefit payments and national debt interest.