Will Philip Hammond deliver a better Budget?

The news today is full of reports about Philip Hammond’s tax judgement – will he raise them or not on Wednesday? – and Jeremy Corbyn’s prowess in filling out his tax return. But at the IfG, we’re more interested in the more fundamental question of how tax policy is made.

In our Better Budgets report, published in January with the Chartered Institute of Taxation and the Institute for Fiscal Studies, we set out 10 steps towards better Budgets. In the Autumn Statement the Chancellor had already taken up one of recommendations: the announcement that he would revert to a single fiscal event.

But here are some tests of whether he is willing to take further steps towards better Budgets.

1. Is the Budget more strategic?

The previous Chancellor set out forward plans for corporate taxes but in other areas, notably pensions and savings or the tax treatment of property, he introduced measure after measure in succession, but without a clear sense of direction or a roadmap. So the first question is whether, when Philip Hammond sits down on Wednesday, he has left us clearer on where he wants to take the tax system over the coming years; and whether he is applying any clear principles for reform.

2. Is the Budget genuinely consultative?

As our report noted, there has been a step change in the willingness of the Treasury to consult on tax measures in recent years. But too often the consultation is on the detail of the ‘how’ rather than the ‘what’ of measures – whether on changes to the tax treatment of property, the introduction of new savings products, or “making tax digital”.

There is already expectation of moves on the tax treatment of the self-employed and incentives to incorporate – with big money at stake. Will there be genuine inclusive consultation – or will the key decisions have already been made when consultation begins? And how will this link to the separate Taylor review on workers’ rights?

3. Is the Budget based on good evidence?

Our evidence benchmarking of government policy with Sense about Science showed that it was harder to find the evidence supporting Budget decisions than any other category of policy. Budget measures are independently costed by the Office for Budget Responsibility (OBR) – but are not subject to other external challenge. The Office of Tax Simplification (OTS) has a remit only to look at the back catalogue of measures. Tax is excluded from Regulatory Policy Committee scrutiny. But this lack of an evidence-based approach doesn’t just apply to tax measures – the Social Security Advisory Committee noted in its annual report that Budget welfare measures were often poorly though through and based on weak evidence.

So is Philip Hammond upping the Treasury’s game on this – and will this Budget show he is leading by example?

4. Has the Chancellor subjected both existing tax reliefs and new measures to any sort of value for money test?

Last week the Treasury launched an efficiency review, with departments being asked to look for 6% reductions in spending. But the normal spending disciplines do not apply to tax reliefs, which can have much the same effect as spending, but are delivered through the tax system. These are not routinely or systematically evaluated – although other countries have instituted reviews to weed out reliefs that offer poor value.

As Philip Hammond asks other departments to undertake cuts, he should look too at the value of the reliefs and other giveaways that have featured in successive Budgets. Some of these have very large price tags attached and very flaky justifications. Two tests – is there clear value for money in new measures, and any sign of looking at the cost-effectiveness of existing ones?

5. Has implementation been thought through, especially in the light of Brexit?

The Treasury and HMRC have run into problems with their flagship Making Tax Digital project – with small businesses complaining of lack of consultation and too little time to prepare. Over the next few years, businesses will have to upgrade their systems to make sure they can comply with any new post-Brexit customs and migration requirements. At the same time, HMRC is at the front line of implementing new customs arrangements to cope with a massive increase in the number of transactions at the UK border.  These changes have to be ready to go in March 2019 – and the Chancellor needs to avoid adding unnecessary additional burdens that might prejudice that timetable.

6. Will the Budget stick?

Last year’s Budget was notable for the speed of its unravelling – by teatime on the day of delivery, Conservative rebels were massing for an attack on the moves to curtail Personal Independence Payments. Two days later, the Works and Pensions Secretary resigned over the juxtaposition of that measure with tax reductions for higher rate taxpayers. That was a dramatic illustration of the problem with the way Chancellors develop Budgets – with colleagues kept in the dark until the morning of delivery.

We argued in Better Budgets that one way of making Budgets stick was more advance collective discussion of the Budget. All Out War, Tim Shipman’s book on the EU Referendum and its aftermath, shows that this could have been Iain Duncan Smith’s legacy if he had been prepared to stay. Shipman reports: “Cameron was so desperate to keep Duncan Smith on board that he criticised George Osborne, his closest ally. ‘He just threw George under a bus’, says a source close to Duncan Smith. ‘George has completely f***ed up. I’ll make sure he sorts this out. I won’t let him do anything like this ever again.’ He even offered to change the way Osborne prepared for budgets in the future, so as to avoid last minute surprises for other Cabinet Ministers.”

This is Philip Hammond’s first – and last – March Budget. He has already made one big change with the move to a single Autumn event. Now is his chance to signal his intent to use that change to reform the way he make Budgets.