Working to make government more effective


How can we make tax policy (and budgets) better?

In the past few years, the Institute for Government and others have drawn repeated attention to problems in tax policy-making and budgets. Now the Institute is launching a new project in partnership with the Chartered Institute of Taxation and the Institute for Fiscal Studies to come up with proposals to improve the tax policy making process. The Institute for Government's Jill Rutter sets out her view of some of the key issues.

In the past few years, the Institute for Government and others have repeatedly drawn attention to problems in tax policy-making and budgets. Just over a month since the March 2016 Budget, memories of the messy aftermath have dimmed as the EU referendum debate and concerns on tax transparency have moved centre stage. But at the time it was dubbed an “ultrashambles”, overtaking even the so-called “omnishambles” budget of 2012.

In the immediate fallout from 2016, the Chancellor had to abandon one of his big revenue-raising measures as Iain Duncan Smith resigned, crying foul over being forced to make benefit cuts to pay for reductions for higher-rate taxpayers. In 2012, the Treasury was forced into reverse on some quite minor (and in tax terms quite sensible) changes to VAT and tax relief for charities. These aren’t the only problems the Chancellor has had with Budgets. In Autumn 2015 he had to back down on proposals to save £ 4bn from tax credit changes announced just that summer.

It might be logical to expect that sort of track record to provoke a rethink – not least because the Chancellor’s political standing has taken a much deeper hit even than the public finances. Anyone eyeing up a move to No.11 in the future might want to think about whether there is a way of better navigating the political minefield the twice-yearly “fiscal event” has become.

Indeed, the recent past suggests that process innovation has tended to come from outside rather than inside government. Gordon Brown surprised Treasury officials on day one of the new Labour Government with his plan to give operational control over interest rates to the Bank of England; George Osborne himself set up the Office for Budget Responsibility on taking office in 2010.

At that time George Osborne also thought we could make tax policy better. He set up the Office of Tax Simplification (OTS) – though with a constrained remit to review only existing measures, not new ones. The OTS has produced some useful reports – and has now been put on a statutory basis. And Osborne set out plans for on a new approach to tax policymaking, promising in particular more consultation and “a longer tax policymaking cycle”. Practitioners found the corporate tax roadmap in the last Parliament a useful innovation. Tax experts and those they advise are frustrated at the quality and quantity of legislation that they have to make sense of every year.

The UK has a looming tax problem. In the 2015 election campaign the Chancellor opted to voluntarily fetter his discretion on the major taxes – income tax, national insurance contributions and VAT and has shown no appetite for increasing fuel excise duty. Meanwhile the National Audit Office has recently drawn attention to the Treasury’s lack of control over tax reliefs.

Moreover, many reforms are poorly evidenced and rarely evaluated. For example, the 2016 budget’s Help to Save measure mirrored an earlier Labour “savings gateway”, which had been found to be very poor value for money. The quality of the general public debate on taxation remains very poor – leading to a growing gap between expectations of public services and willingness to pay for them. Expert reports, like the comprehensive Mirrlees report published by the Institute for Fiscal Studies (IFS) in 2010, have surprisingly little traction with decision makers. And, despite promises to the contrary, major reforms (such as on pensions) set off with little consultation, or clarity on ultimate destination.

This is why the IfG, the Chartered Institute of Taxation (CIOT) and the IFS have launched a project to explore whether we can have better budgets and make tax policy better. It’s a huge agenda: we hope to make a start by producing ideas for change later this year. In this initial phase, we are inviting views on how to improve the process behind the budget and tax policy-making. If you would like to contribute, please email by the end of May. Taxpayers and future Chancellors (as well as the IfG and its partners) will thank you.

Related content