Jill Rutter: Why we need a fresh approach to tax policymaking

Having cut the calendar of major fiscal events from two a year to just one, chancellor Philip Hammond must now use his extra time and energy to add some grit to the tax policymaking process


Philip Hammond will deliver two Budgets in 2017. Not just the usual spring Budget and look-a-like Autumn Statement, but two full scale Budgets. 
But from then on, he has promised us things will be different. There will be one big fiscal event a year – a November Budget, followed by a low key “spring statement” (hopefully staying lower case), where he will avoid making changes for change-sake. 

This may seem a rather dull announcement, of interest only to a few Whitehall-watchers and those who sell advertising space in the FT. But if the chancellor proves he can pass the Treasury version of the marshmallow test, and avoid the temptation to start to fill his spring statement up with new announcements, then we could see a step change in the quality of tax policymaking. 

That is why the Institute for Government’s new report, Better Budgets: Making Tax Policy Better, published today in partnership with the tax professionals from the Chartered Institute of Taxation and the fiscal experts at the Institute for Fiscal Studies, makes sticking to the commitment of a single principal fiscal event a year the first step to better tax policymaking.


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Less opens up the way for better. If we can take Treasury and HMRC officials off the hamster wheel of two fiscal events a year they should have time to consult better, earlier and reach a wider group of those both interested and affected by any new measures. Too often consultation (of which there has been much more in recent years) starts with key decisions already made and options closed off. 

“It is currently too easy to introduce new measures which are poor value for money, undercut other policies and which add to business burdens”

Once liberated from the perceived need to feed the beast, the chancellor can turn his mind to setting out a long-term strategic direction for tax policy, to ward against the serial ad hocery we see in Budgets. 

George Osborne, the last chancellor, introduced the concept of reform roadmaps: setting out plans for reform of corporate taxes over the course of a parliament. But those can be used much more widely in key areas such as savings and pensions, where previous chancellors have grabbed for new announcements at each fiscal event – at a cost of taxpayer confusion and ill-prepared implementation. 

Philip Hammond can also prepare the ground for future reform. The UK has a poor standard of public debate on tax. That is not just the fault of the Treasury and HMRC – nor is it unique to the UK. But it has not been helped by the desire to develop policy behind closed doors. 

There are already straws in the wind that may be changing. The Office for Tax Simplification – an Osborne innovation – has been floating options for the “alignment” of tax and national insurance (to instant and predictable howls from the press about the potential losers).

Hammond announced a consultation to come on the challenge for the tax system of the rise of self-employment and incorporation, both of which are reducing the tax base. More systematic – and honest – engagement of the public and media is needed if governments are going to be able to solve the problem of paying for public services in the future. 

Our report says there is a need to “normalise” tax policymaking. There are disciplines on policymaking in other departments: the need for collective discussion and agreement on both policy and legislation; potential Treasury challenge on value for money and the need to observe cash limits; the threat a permanent secretary may use his or her accounting officer powers; external challenge on business impacts and follow-up scrutiny by the National Audit Office. But for tax – and many non-tax announcements in Budgets – these disciplines are absent. 

That makes it too easy to introduce new measures which are poor value for money, undercut other policies and which add to business burdens. The NAO has in recent years started to look at the cost and management of tax reliefs – and repeatedly taken the Treasury and HMRC to task for their lax approach. The chair of the Social Security Advisory Committee drew attention to the weak evidence base behind many Budget social security measures. So ways need to be found to add internal grit to the tax policymaking process.  

Parliament can help too – better scrutiny of the Finance Bill and of the impact of past measures will increase the incentives to make policy better. Our report makes proposals there too. 
Tax policy is a bizarre mix of high politics (big decisions on the distribution of the tax burden), low politics (the desire to lay political traps for the opposition), and the highly technical.

The chancellor has already signalled a preparedness to give up one of his two annual opportunities to make the political weather. He now needs to use the time and effort he has liberated to take the next steps to better tax policymaking. 

Read the full Better Budgets: Making tax policy better report below

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