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Make Budgets mean Budgets again: We need far better tax policy-making

Jill Rutter
Chancellor Philip Hammond
There has been too much ad-hoc policy, the proverbial rabbits pulled out of hats (Source: Getty)

At lunchtime today, Philip Hammond will stand up in Birmingham and make his first major speech as chancellor. He will be aiming to reassure audiences that the government will manage the economic consequences of Brexit – and will give the first indications of his approach.

The Institute for Government, the Institute for Fiscal Studies and the Chartered Institute of Taxation believe he should use that opportunity to break with the approach of his long-serving predecessors – George Osborne and Gordon Brown – and signal a new approach to Budget making.

We have written to the chancellor, urging him to make five changes which we think will lead to better Budgets and more effective tax policy-making.

Establish clear guiding principles and priorities

The first need is to set a clear direction for his approach to tax policy-making, outlining the priorities and guiding principles which he will use over the remaining years of this Parliament. There has been too much ad-hoc policy in Budgets – with measures (the proverbial rabbits) being pulled out of hats, like the big pension changes in 2014.

Extend the roadmap approach

We are also keen for the chancellor to extend the use of the sort of tax roadmaps Osborne introduced for corporate taxes in 2010. In the area of savings and pensions, for example, changes every year have created a system which is confusing for individual taxpayers and causes problems for those in business who have to respond.

Start the consultation process for tax changes earlier

Early consultation should be the rule not the exception. Debates on tax in the UK are too closed. The chancellor guards his Budget prerogatives jealously – with minimal consultation with even his Cabinet colleagues (and Number 10 often left in the dark on key measures). Again Osborne promised a “new approach to tax policy-making” in 2010, with longer timescales and earlier consultation. That had improved things – where it was observed. But in too many cases, consultations still started too late – and were on the technicalities not on the best way of achieving the government’s objectives.

Prepare the ground for future policy changes

But even earlier consultation will not help solve the big future tax dilemmas. As a country we don’t like to talk about tax. Politicians try to avoid discussing it in elections (the recent Scottish elections were a notable exception) or box themselves in with commitments on what they won’t do. The result is that we have a tax base that is increasingly fragile, dependent on a narrow tranche of high earners and volatile taxes like stamp duty.

When she launched her leadership campaign, Theresa May said, “We need to talk about tax”. We agree. Other countries commission reviews of their tax systems to develop new options and promote much better public discussion around them. The UK did that 10 years ago about pensions with Adair Turner’s commission (even he was not allowed to look at the giant slug of taxpayer cash tied up in pensions tax relief). But we keep our tax conversations behind the Treasury’s closed doors.

We would like to see Hammond announce today that he is preparing the ground for the Budgets of the next Parliament by establishing external reviews of the tax system.

Return to a single annual fiscal event

Finally, recent years have seen not just a proliferation of measures but a proliferation of Budgets. Between March 2015 and March 2016, we had four major fiscal events. That volume of activity stretches resources both within the Treasury and HMRC and outside. In March 2016, Osborne had to recoup some of the money he had given away just four months earlier as the OBR forecast changed – the sort of fancy footwork better reserved for appearances on Strictly Come Dancing.

So our final message to the chancellor: make Budgets mean Budgets again.

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