Chancellor Philip Hammond’s scrapping of National Insurance changes for the self-employed just seven days after they were announced underscores the need for a radical change in the way UK budgets are made, the Institute for Government has said.
The think tank said the policy change, introduced in March 8’s Spring Budget to the surprise of backbench MPs of all parties, was a classic example of policy made on the hoof and not subjected to pre-introduction consultation.
IfG programme director Jill Rutter said Hammond’s forced retreat on the policy, quickly identified by commentators as breaking the Conservative Party’s 2015 General Election tax-lock pledge, underlined the need for a “rethink” on the way the nation’s budgets were put together.
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“The chancellor has fallen victim to the failure to prepare the ground for reform, too much secrecy and the cavalier treatment of tax policy in the last Conservative manifesto,” she said.
Rutter, who is a former senior staffer at HM Treasury and the Department for Environment, Food and Rural Affairs, said the think tank’s recent Better Budget report stressed the importance of publishing clear guiding principles and priorities for tax policy, conducting proper consultation, and encouraging proper public debate on the tax system.
“The chancellor should adopt these principles now if we are not to be stuck with an irreformable tax system,” she said.
Hammond’s proposals to increase National Insurance contributions from the self-employed divided opinion among the Conservative ranks, although the party sought to justify breaking its election manifesto commitment not to raise tax or National Insurance over the course of the parliament.
It said that the legislation it had introduced to enact the pledge had specifically excluded the categories of National Insurance affected by Hammond’s announcement.
However announcing his U-turn on Wednesday, Hammond conceded that the “debate” the measures provoked made it clear that compliance with the “legislative test” of the tax-lock proposals was not enough.
Back in January, when the IfG budgets report was published, Rutter said there was a clear need to “normalise” tax policymaking and add “internal grit” to the process.
In an article for CSW, she wrote: “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."
She concluded that the environment made it “too easy” to introduce new measures that were poor value for money, undercut other policies or added to business burdens.