Working to make government more effective

Analysis paper

How is evidence used in tax policy making?

A key tenet of good policy making, including on tax, is use of the best available evidence.

The budget case
Chancellors often use budget day to announce changes to the tax system. But how do they decide on what to change?

Taxes are likely to be a key battleground in the next election. Weak growth, struggling public services and the cost-of-living crisis are creating pressure for more public spending. But in opposition the Labour Party is keen to avoid creating the impression that a vote for it would be a vote for higher taxes, while the governing Conservative Party has repeatedly floated the suggestion of imminent tax cuts. In this environment, it will be more important than ever that taxes are well designed – bringing in as much revenue as possible, as reliably as possible, for the lowest economic cost.

A key tenet of good policy making is use of the best available evidence. Tax is an important policy area, and one where a wealth of evidence – quantitative and qualitative analysis, and broader intelligence and insights – is generated by researchers, practitioners and officials. But the closed nature of the budget process means it is often not clear how different types of evidence inform the Treasury’s decisions and means sometimes policy makers do not use evidence to best effect.

This report documents how different types of evidence feed into tax policy making. By highlighting the role evidence plays, and which types of evidence have an impact at different stages of the process, we aim to help external stakeholders to understand how the evidence they produce is used and how they could better feed into policy making. We also provide recommendations for how government can further shift its approach, already improved in recent years, to enhance the quality of the evidence base and to use this more effectively.

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