A look into the past

James Callaghan: Labour Chancellor in 1964

Does a look into the past offer any clues as to the direction of Gordon Brown's first Budget? We look at what happened when Labour gained an overall majority in parliament in 1964 and 1974.

The best precedent is the mini-Budget presented by James Callaghan on 11th November 1964, following the general election of the previous month. Similar to today, inflation at the time was relatively low at 3%, but Britain had plunged into a balance of payments crisis as imports were sucked in from abroad.

The Chancellor increased social insurance benefits, with this being predominantly funded by a rise in the standard rate of income tax. When Conservative MPs naturally protested, Callaghan stated that the tax changes imposed were "a direct consequence of the situation we inherited".

Nevertheless, sterling continued to plunge and the Chancellor was forced to increase interest rates soon after the Budget in an attempt to support the currency and despite the tax increases, the public sector deficit slipped further into the red.

Denis Healy: two Budgets in 1974

In the election of February 1974, Labour failed to gain an overall majority in parliament but gained the most seats. The Chancellor, Denis Healey, presented two Budgets before the October election allowed Labour to gain an overall majority. In some ways, the circumstances were similar to 1964, with the currency falling and the government deficit deteriorating, but this time inflation was pushing ahead at 16%.

The Chancellor increased petrol duties and lifted price controls on state owned industries, allowing them to raise prices in order in an attempt to achieve profitability. Both these measures added to inflation, which soured higher to 24% in 1975.

The economic circumstances facing the Chancellor this time around are vastly different, with inflation low, government borrowing on a downward trend and the currency having been surging higher over the past year. Given the manifesto commitments to sound public finances and the Chancellor's resolve to keep inflation low (by giving control of interest rates to the Bank of England), then a look back into the past serves more to show how economic circumstances have changed, rather than offer any strong precedent for Gordon Brown's presentation on July 02.