Para el secundario del transformador (lado 480 V)

Chancellor: Nigel Lawson; Prime Minister: Margaret Thatcher (Conservative)

Context

The Conservative Party won the June 1983 General Election and Lawson replaced Howe as Chancellor. The 1982 and 1983 Budgets had provided some sizable remissions in taxation, as Britton (1991) notes “the fiscal contraction of 1981 had been substantially reversed”.649 1983 saw real GDP growth grow by over 3.5 per cent and real consumption growth of over 4 per cent. Inflation also remained relatively low, although there had been some inching upwards towards the end of 1983. However, unemployment was higher than the previous March but only by around 100,000 – a smaller increase than in previous years. The second term of the Thatcher Government saw the famous miners’ strikes. In October 1983 the Government published the Trade Union Bill aimed at the expansion of union democracy. In March 1984 the miners’ strike began.

Overall Budget Objectives

The objectives in 1983 were “first, the further reduction of inflation; and, second, a series of tax reforms designed to enable the economy to work better, reforms to stimulate enterprise and set British business on the road to profitable expansion, reforms that will help to bring new jobs”.650 Again there was a rejection of “a self-defeating stimulus to monetary demand”.651 Borrowing had been above forecast and so “We now need a further substantial reduction in borrowing in order to help bring interest rates down further as monetary growth slows down”.652 However the Chancellor noted that there should be room for tax cuts

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HC Deb 15 March 1983 vol 39 c149 647

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HC Deb 15 March 1983 vol 39 c150 649

Britton (1991), page 65. Some still regarded the Budgets as deflationary as the PSBR was reduced, although Cairncross (1992) argues that looking at the public sector financial deficit implies that there was a reversal of the 1981 deflationary stance in 1982 and 1983 (page 250).

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HC Deb 13 March 1984 vol 56 c286 651

Ibid. 652

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provided firm control over public spending was maintained.653 1984 was a hugely tax-reforming Budget and almost all the changes were for exogenous, long-run or ideological goals.

Major Budget Tax Measures

Reforms to personal taxation

Personal income tax cuts made up nearly 40 per cent of the nominal remissions in 1984. The Chancellor argued that, since 1979, good progress had been made: “we have cut the basic rate of income tax from 33 per cent. to 30 per cent. and sharply reduced the confiscatory higher rates inherited from the last Labour Government... It is a good record, but it is not enough. The burden of income tax is still too heavy… During the lifetime of this Parliament, I intend to carry forward the progress we have already made”.654 Consequently, the main, additional and age allowances all increased by more than indexation, the basic rate limit and the further higher rate limit were raised. In line with the previous Budgets I classify these reforms as exogenous, long-run. These changes took effect from 6th April 1984.

This package of income tax reductions was again closely linked to the increases in indirect consumption taxes. The Chancellor argued “The broad principle was clearly set out in the manifesto on which we were first elected in 1979. This emphasised the need for a switch from taxes on earnings to taxes on spending… To reduce direct taxation by this means is important in two ways. It improves incentives and makes it more worthwhile to work, and it increases the freedom of choice of the individual”.655 To this effect the zero rating of various goods with respect to V.A.T. was removed from 1st May 1984 and 1st June 1984. Without a good way of splitting this yield I assign the ‘full year’ gain to the 1st May 1984. Additionally fuel, alcohol, tobacco and vehicle excise duties rose from 13th March, 15th March and 14th March 1984 respectively. In conclusion: “The extra revenue raised in this way will enable me, within the overall framework of a neutral Budget, to lighten the burden of income tax”.656 As part of the overall income tax reform package, their motivation is exogenous, long-run.

Whilst on income taxes, life assurance premium relief was abolished from 14th March 1984 “the main effect of life assurance premium relief today is unduly to favour institutional rather than direct investment. It has also spawned a multiplicity of well-advertised tax management schemes and no fewer than 50 pages of legislation attempting to deal with its abuse”.657 I classify this as exogenous, ideological.

Capital tax reforms

There were some sizable remissions in the taxation of savings and investment: “The proposals I am about to make should improve the direction and quality of both. And they will contribute further to the creation of a property-owning and share-owning democracy, in which more decisions are made by individuals rather than by institutions”.658 Of the large remissions, firstly there were reductions in the rate and the increases in thresholds of Stamp Duty from 13th March 1984. This was in part to help and encourage home buyers but also to reduce the rate of duty on share transfers. It “will remove an important disincentive to investment in equities and increase the international competitiveness of our stock market”.659 I classify this as exogenous, long-run. Secondly, the Investment Income Surcharge was abolished from 6th April 1984. It “is an unfair and anomalous tax on savings and on the rewards of successful enterprise. It hits the small business man who reaches retirement without the cushion of a company pension scheme and impedes the creation of farm tenancies”.660 I therefore also classify this change as exogenous, long-run.

Reforms to Business Taxation

The 1984 Budget contained considerable reforms to Corporation Tax. The Chancellor explained “the Government have two responsibilities towards British business and industry. The first is to ensure that they do not have to bear an excessive burden of taxation. The second is to ensure that, given a particular burden, it is structured in the way that does least damage to the nation’s economic performance… My purpose,

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HC Deb 13 March 1984 vol 56 c303 655

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HC Deb 13 March 1984 vol 56 c303 657

HC Deb 13 March 1984 vol 56 c293 658

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HC Deb 13 March 1984 vol 56 c293 660

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therefore, is to phase out some unnecessary reliefs in order to bring about, over time, a markedly lower rate of tax on company profits”.661

The reforms involved: the abolition of stock relief from 13th March 1983, which was designed to help firms in times of high inflation and was no longer needed; a reduction in the rate of first year allowances for plant and machinery; the rate of initial allowance for certain buildings and other further reductions in the first year and initial allowances as “there is little evidence that these incentives have strengthened the economy or improved the quality of investment”.662 These were implemented on several dates beginning 14th March 1984 but I assign the full year cost to this date. The changes allowed the Chancellor to lower the rates of Corporation Tax both this year from 1st April 1983 and from 1st April 1984, 1985 and 1986. The small companies’ rate was also reduced from 1st April 1983. Taken together the overall changes “hold out an exciting opportunity for British industry as a whole: an opportunity further to improve its profitability and to expand, building on the recovery that is already well under way. Higher profits after tax will encourage and reward enterprise, stimulate start innovation in all its forms, and create more jobs”.663 I classify all these changes as exogenous, long-run being part of the reform package. While the stock relief was unnecessary as inflation had fallen, I deem its abolition exogenous in that the prior motivation for abolishing unnecessary reliefs was to reform business taxation.

The N.I.S. was abolished from 1st October 1984. The Chancellor argued that “given the impact that this tax has, not only on industrial costs but also — at a time of high unemployment — on jobs, I have decided to take the opportunity of this my first Budget to fulfil that pledge”.664 This may appear endogenous but it had been a Government aim to abolish the N.I.S. for a long time and the Chancellor noted that “we are pledged to abolish it during the lifetime of this Parliament”.665 In previous years various long-term reasons why it should be abolished were deployed. On balance I classify this exogenous, long-run.

These changes accounted for nearly 90 per cent of the tax rises and 97 per cent of the cuts.