24 November 2016

In yesterday's Autumn Statement, the Chancellor announced a return to a single annual budget. The move should be welcomed - as multiple fiscal events are a recipe for bad UK policy, says Jill Rutter.

Twenty years ago, almost to the day, Ken Clarke stood up and delivered his autumn Budget.

But the Conservative chancellor’s “Unified Budget” — an innovation that brought tax and spending together in one annual fiscal event — turned out to be an early casualty of the regime of Gordon Brown, who succeeded Mr Clarke in May 1997.

Mr Brown made two changes: one good, one much less so. The first was to introduce multiyear spending reviews, a sensible change that has endured. The second was to go back to March Budgets and build up the autumn “pre-Budget report” as a vehicle to announce an increasing number of new policies. Under both Mr Brown and his successor George Osborne, the autumn fiscal event became a second Budget in all but name. In election years, things grew even more hectic — between March 2015 and March 2016, Treasury and HM Revenue & Customs officials had to fill four fiscal events.

Such hyperactivity is a recipe for poor policymaking. There is too little time to prepare and consult to make sure policies that look OK on paper will work in politics and practice. The people being consulted face overload. Finance bills grow longer and parliamentary scrutiny more desultory. Taxpayers have to navigate through the confusion of change after change — even in areas that need stability like savings and pensions.

That is why the Institute for Government, the Chartered Institute of Taxation and the Institute for Fiscal Studies in September called for a return to a single-principal fiscal event. John Kingman, the former Treasury second permanent secretary, last month provided an inside look as to why this move matters.

He acknowledged: “There have been some gimmicks over the years, including some that have been expensive and wasteful. It is also true that the nature of the Budget and the Autumn Statement/pre-Budget report processes creates pressure for these.” He then went on to take the blame for Treasury officials failing to come up with better ideas for chancellors to announce: the idea that chancellors could simply say and do less did not seem to occur to him.

Budgets abhor vacuums. So switching the Budget to the autumn from 2017, as Chancellor Philip Hammond announced today, should allow a more considered and well-planned Budget process by officials who are no longer on the treadmill of producing eye-catching announcements twice a year. It should also make life easier for the devolved administrations that have to set their budgets using their limited tax powers. But it is important that the move does not compress the time for consultation. Indeed, if it can extend the timetables for serious reform, that would be another gain.

A tricksier chancellor than Mr Hammond might have avoided the laughter that met his announcement that there would be a “spring statement” — when the Office for Budget Responsibility (OBR) updates its forecast. As he said, the OBR is obliged to produce a forecast twice a year. But the chancellor will need to stick to his commitment only to tweak if necessary and to avoid “measures for their own sake” if we are not to backslide into a second big fiscal event. Fewer fiscal events must mean fewer changes, done better.

There were further good signals of intent, including a request for the National Infrastructure Commission to develop long-term proposals. Mr Hammond also committed to shoring up the tax base. The OBR drew attention to the problems for tax and national insurance revenues posed by different ways of working and increasing incorporation levels — something that will only become more tempting as corporation tax is cut. The Chancellor promised a review and then consultation. We don’t yet know the details, but he might learn from other countries and departments and conduct that review in the open to start a public debate to prepare the ground for what may be unpopular changes.

Do that, and he will be on his way to being a real reforming chancellor.

Further information

This article first appeared in the Financial Times.