As 20 March approaches, is it time to rethink the whole Budget-making process? Past and current confusion over tax and spend policies suggest reform is long overdue
Last week both the Labour leader and the Conservative chancellor were reportedly learning the lessons from past Budget mistakes – Ed Miliband with his proposal to reverse the mistaken abolition of the 10p reduced rate band and George Osborne reportedly summoning his advisers to what the Independent called an 'omnishambles' summit.
But neither promise an improvement in the process which we will be exploring tomorrow at our better budgets event.
The Budget itself is a bizarre anachronism. A major political event, for which the TV schedules are cleared. Special supplements in the FT. Still shrouded in secrecy and mystique, despite the fact that the Chancellor claimed in his first days that all major announcements would have been trailed the previous autumn – and that last year the coalition dispute over the reduction in the top rate/rise in thresholds was conducted through the press as well as within the Treasury.
The norms of Cabinet discussion do not apply – the 'quad' discuss the Budget (progress over times when the chancellor was reluctant even to tell the prime minister what was in it). But the Cabinet are still presented with a fait accompli for which they are collectively responsible.
This Chancellor has made some useful innovations: there is more pre-legislative scrutiny than there was and the new Office for Budget Responsibility not only provides the overall fiscal forecasts but also a degree of assurance around costing estimates of individual measures – behind closed doors.
But because the Treasury retains its monopoly of Budget making, there is much less challenge to the value for money of Budget measures than there is to minor spending measures. Tax instruments designed to achieve policy objectives are rarely considered alongside other options in the round – and departments are told that tax is off limits for discussion.
The Treasury Select Committee looks at the Budget judgement – but not at individual measures. And while the National Audit Office hounds 'spending' departments over poor VFM, it never looks at the costs of so-called 'tax expenditures'.
And too often it can all go horribly wrong. Budgets can unravel quickly. Last year the Chancellor was forced to back off from changes on tax relief on charitable donations – and on the tax treatment of pasties. Embarrassing, but much less expensive, than the need to buy-out the consequences of abolishing the 10p tax rate in Gordon Brown’s swansong Budget.
Or there can be much slower implementation problems, such as the introduction of tax credits with far too little involvement by the Department for Work and Pensions of those who know about the poor people the policy was designed to help. When we interviewed civil servants for our policy making project in summer 2010, tax policy featured repeatedly as an area where policy was badly made.
In the longer run, it may be worth questioning whether it is time to bin Budget Day itself – where the need to fill an hour and a Red Book drives chancellors to search for measures to fill the space available and buy some good headlines. No other policy areas – which may have much more direct impact on people’s lives – are given this special treatment.
But in the shorter run, there could be real gains from applying the norms of better policy making to Budgets. The Civil Service Reform Plan says that 'open policy making should be the default'. It is time to question why the Treasury exempts the Budget from that presumption.
The plan also makes the permanent secretary responsible for ensuring that policies are both based on high quality evidence and are implementable. If he doesn’t want to do this, he could ask the Office for Budget Responsibility to do the first by publishing both its view on costings but also its assessment of the strength of the evidence base.
At the very least, it would be worth running every Budget measure through the IfG's checklist of 'policy fundamentals' designed to ensure that policies meet some minimum standards before they are inflicted on the public.
The most relevant ones are: clarity on goals; open idea generation and robust use of evidence - to show why a measure has been chosen; rigorous policy design – to make sure the policy works in practice; responsive external engagement – to take account of likely reaction and unintended consequences; thorough appraisal of options; mechanisms for feedback and evaluation – which should be made publicly available.
The Treasury Select Committee could set up a sub-committee to subject every one of the Budget measures to these tests.
And if the two Eds really want to learn from Labour’s past failures, maybe they could commit to making tax policy better.
This post first appeared on the Institute for Government blog. Jill Rutter is a Whitehall Fellow at the IfG
