Time to end Budgets’ special treatment

18 November 2015
On 16 November, at an event organised by the Institute for Fiscal Studies and the Chartered Institute of Taxation, George Osborne’s former adviser Rupert Harrison, Gordon Brown’s former adviser Stewart Wood and the Institute for Government’s Jill Rutter debated the politics of tax change. Jill asks whether the Treasury should continue to be allowed to exempt itself from the normal disciplines of policy making.

What is most interesting is why the politics – and policy making – around Budgets are treated so differently from other important government decisions. As George Osborne contemplates how to extricate himself from his tax credits problem next week, maybe it’s time for him to think about whether he – and the country – would be better served by a less exceptional Budget process.

As my old boss Ken Clarke said at a speech given at the Resolution Foundation last week, chancellors past didn’t expect their Budgets to be popular. Indeed, part of the case for the Treasury hegemony over tax policy was to preserve its virtue from the pressure of irresponsible ministers trying to weaken their commitment to fiscal rectitude or constituency MPs pleading for a slice of local pork. The Budget was thought to be a potentially market-moving event, with key announcements only to be made after London closed for trading.

Even in the more innocent old days, Chancellors searched for a bit of good news to leaven the gloom and elicit the odd positive comment from a beneficiary. In Geoffrey Howe’s budgets we searched for “lollipops” – small measures that didn’t cost much but would raise a few cheers. The temptation to have a story in every Budget meant Chancellors repeatedly gave away their fiscal margins – undermining their own strategic objective. This was summed up in a memorandum for the annual Chevening budget summit for ministers and top officials, which contained the memorable phrase “if this is a tax strategy, I am a seagull”.

After 13 years of frenetic fiscal events, George Osborne appeared to get the message and committed himself to a new, more considered approach to Budget-making – and to some extent he has observed those principles, with road maps on corporate taxation and consultation on what Rupert Harrison has called “below the radar” tax changes.

But he too has succumbed, not just to the lure of the ‘Budget rabbit’ for blockbuster announcements but to littering his Budget with smaller hand-outs or what come to look like out-and-out electoral bribes. And all without his long-serving permanent secretary raising a public eyebrow. In recent Budgets the Chancellor has given away at least a cool £330m to well-off pensioners over five years, through the unsurprisingly popular pensioner bond and will give away £ 835m in 2019/20 alone, through topping up ISAs for first-time buyers to further inflate house prices.

So since the Treasury now seem to have lost their capacity for self-discipline, the time looks right to stop exempting the Treasury from the disciplines they expect and impose on other departments.

That special treatment consists of:

  • Absence of collective discussion – most government policies have to be cleared through Cabinet Committees: not the Budget. The first most Cabinet ministers know about what is in the Budget is on the morning the Chancellor delivers it, when the documents are printed and there is no chance to change it.
  • Absence of Treasury scrutiny – many Budget measures would be laughed out of court by even the most junior Treasury official if they were put forward by a “spending” department. There is no case for applying a different standard just because the Chancellor is announcing them.
  • Exemption from scrutiny by the Regulatory Policy Committee (RPC) – despite tax being a major burden on business. Departments wanting to regulate have to observe a one in / two out rule and submit their impact assessments to RPC scrutiny. Meanwhile the Chancellor’s own Office for Tax Simplification only looks at the back catalogue, not new measures.
  • Absence of any sort of cash limit – as participants pointed out, it is hard to forecast take-up of tax reliefs. But the Treasury would not put up with the appalling record of forecasting cost from any other department – for instance the National Audit Office (NAO) pointing out a 500% increase in the cost of “entrepreneur’s relief” introduced in 2008/09. The sums involved are not peanuts – the cost in 2013/14 was £ 2.9 bn.
  • The Treasury’s self-denying ordinance against exercising accounting officer responsibilities – The Treasury even warned the NAO off their patch when it started showing interest in expenditure like tax reliefs, under the general exemption that “all tax reliefs reflect policy decisions …and are therefore outside the NAO’s remit”. It’s hard to see why a chancellor’s decision on £100m is less open to challenge than the provision of discounted shares to Royal Mail employees, where the Department for Business, Innovation and Skills (BIS) permanent secretary sought a direction.
  • Lack of interest in “what works” – The Treasury was late to the game in being interested in evidence on other departments’ spending programmes. But as the NAO has pointed out, “we found some examples where HMRC and HM Treasury proactively monitored and evaluated tax reliefs, but in general the Departments do not test whether their aims for the reliefs are being achieved”.

The discussion made clear that it is politics, not good government, that make chancellors keep Budgets special. But, as Gordon Brown did on Bank of England independence, and George Osborne did with the establishment of the Office for Budget Responsibility, Treasury norms are not immutable when the political imperative switches.

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One Response

  1. David Peretz on 14 December 2015 at 3:02 pm

    Hope this goes somewhere Jill. Market sensitivity. Is a real issue of course, but so is it with many other government decisions where ways are found to deal with it.

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