The 1994 United Kingdom budget (officially titled A Budget for Jobs) was delivered by Kenneth Clarke, the Chancellor of the Exchequer, to the House of Commons on 29 November 1994. It was the second budget to be presented by Clarke since his appointment as chancellor the previous year, and its central focus was a planned £24bn worth of tax cuts. Clarke also renewed his commitment to increasing Value Added Tax (VAT) on fuel, but pledged to soften the impact this would have on pensioners. The statement took place shortly after the Party Whip had been withdrawn from eight Conservative backbenchers, leaving the government without a working majority, and amid questions about the future of John Major's leadership of the party. In response to the budget, Tony Blair, leader of the Labour Party, said it would be remembered as the "VAT on fuel budget".
VAT on fuel was due to be raised from 8% to 17.5% in April 1995, but after the government subsequently lost a vote on the legislation to implement the increase, the 1994 budget was followed in December of that year by an emergency financial statement in which Clarke was forced to announce measures to plug the shortfall this would create. He cancelled the majority of the social security help for pensioners that had been outlined in his budget, and raised excise duty on tobacco and alcohol. Clarke's successor as Chancellor, Gordon Brown, reduced VAT on domestic fuel to 5% after Labour won the 1997 general election.
Background
The 1994 budget took place at a difficult time for the Conservative Party, which had removed the Party Whip from eight of its backbench MPs who, during the previous week, had voted against legislation to increase subsidies to the European Union. This meant the party had no overall majority in the House of Commons at the time of the budget. The Conservative Government had also introduced Value Added Tax (VAT) on domestic fuel the previous year, which was unpopular with the public. VAT on fuel of 8% had come into force in April 1994, and was scheduled to increase to 17.5% from April 1995.
Overview
Titled A Budget for Jobs, Clarke described his 1994 statement as having three main priorities: To keep the economy on track to sustain growth, to use the recovery to create more jobs, and to strengthen the economy in the longer term. At its centre was a £24bn programme of tax cuts which was to be achieved over three years, and would be the biggest programme of tax cuts since 1984.
Following the recession of the early 1990s, economic recovery had been under way "at a modest pace" for two and a half years, and was providing the UK with the strongest recovery in Europe. Clarke expected economic growth to be at 4% for 1994–95, and 3% for 1995–96. Inflation was described as being well below the European average, and at its lowest since the 1960s. It was expected to be 2% in 1995. Government plans were announced to set interest rates to keep inflation between 1% and 4%. UK exports were expected to grow by 8% during 1994–95, while investment in plant and machinery would grow by 12%. Consumer demand was much lower, and was forecast to grow by 2–3% over the year. Clarke reported that UK unemployment had fallen by 450,000 since December 1992, with the UK the only country in Europe where unemployment had fallen.
During 1993–94 the government had reduced its planned public expenditure by more than had been forecast, and it was now predicted to be £15bn lower over a three-year period than originally estimated. Expenditure would be reduced by £28bn over 1994–95. The Balance of Payment was expected to be reduced by £6bn for 1994–95, while the public sector borrowing requirement (PSBR) had fallen from £45bn in 1993–94 to £34bn in 1994–95. Going forward, Clarke had reduced previously forecast amounts the government had expected to borrow from £30bn to £21bn in 1995–96, from £21bn to £13bn in 1996–97, and from £12bn to £5bn in 1997–98. Borrowing was also forecast to be equal to government net capital expenditure by 1996–97, with plans to eliminate government borrowing by the end of the decade.