Making tax policy better

The Office of Tax Simplification (OTS) has always been the poor relation of the Office of Budget Responsibility (OBR). The OBR has a profile – it is a pledge of reassurance to both voters and markets of the government’s commitment to fiscal discipline. When it was created, it was rapidly put on a statutory basis and the Treasury guaranteed its budget. The Treasury Select Committee was also given unprecedented powers to veto the appointment (or, if it arose, dismissal) of both the Chair and the members of the Budget Responsibility Council. All of this was designed to underline the message that this organisation is genuinely independent of the Treasury. The OTS is not only smaller (a maximum strength of 6 full-time equivalent posts and usually much less), but it is also an ‘independent office of the Treasury’. The staff is a mix of civil servants and private sector people, and its page on .gov.uk (onto which the OBR refused to migrate) makes clear that the “OTS is part of HM Treasury”. It has no independent budget and no separate, formal relationship with Parliament. Its mission is also interestingly restricted: “To give independent advice on simplifying the tax system, notably to providing the government with independent advice on where there are areas of complexity in the UK tax system that could be simplified; conducting inquiries into complex areas of the tax system, to collect evidence and advise the government on options for reform.” That means its remit is backward-looking, dealing with the (enormous) stock of past tax law but having no role on the torrent of tax changes that pour forth in every budget. That seems perverse – the first law of simplification should be to stop introducing changes that make the system more complicated. So while the OTS has produced useful reports suggesting reform, on tax reliefs and employment status for example, and is currently looking at the alignment between tax and national insurance, it is not asked to comment on new policies before they go on the statute book. The manifesto commitment (and budget follow-up to put the OTS onto a statutory basis) provides an opportunity to create an institution that could improve the quality of tax policy making in the UK, which – as we have argued before – would be very much in the public interest. To do that it would need:

• To be as independent and permanent as government can make it. As we have seen in successive bonfires of quangos, being based in legislation is no cast-iron guarantee of permanence – or indeed independence. But the safeguards around the OBR (legislation, protected budget and a TSC veto on appointments) provide a blueprint the Treasury can follow.
• To increase in size, budget and remit. This means being consulted on future – not just past – proposals, and to look at tax effectiveness, not just simplification.
• A requirement to complete a “simplification and effectiveness” assessment of every Budget. This is not much different in scope from the role that the Regulatory Policy Committee (RPC) now performs for any regulatory proposal, but from which tax is exempt, despite usually heading business lists of burdens government imposes.
• To be able to present reports directly to Parliament and for these to be considered by a dedicated subcommittee of the Treasury Select Committee. This is the model that has evolved between DfID’s Independent Commission on Aid Impact (another 2010 innovation) and the International Development Select Committee.

Our tax system has grown into a morass of competing laws and complexity – what the IFS call “tax without design” – in part because there has been no counterweight to the Chancellor’s monopoly of tax policy. There is no challenge inside government as there is on spending, no requirement for collective agreement, no RPC, and scant scrutiny by Parliament. A beefed-up and genuinely independent OTS, focussing on simplicity, effectiveness, and the new as well as the back catalogue, could start to redress the balance. The Chancellor earned many plaudits for creating the OBR. He can now start to put some mechanisms in place to make tax policy better under this – and subsequent – administrations.