Tax and Fiscal Policy

George Osborne should abolish the Budget


Government and Institutions
It’s a well-known saying that “turkeys don’t vote for Christmas”. So calling for George Osborne to take to the despatch box tomorrow and announce that he’s abolishing future Budgets – in turn, greatly diminishing the Treasury’s power – might seem a fanciful plea. In truth, it’s about as likely as Ed Miliband offering journalists the chance to watch him eat a bacon sandwich in his second kitchen on election morning.

Yet the chancellor’s last few Budgets and Autumn Statements have shown that, on some issues, he is willing to think the previously unthinkable. The significant liberalisation of pension pots is a good example, and tomorrow he will also abolish the punitive tax charges that currently apply to selling annuities. This has been genuinely radical stuff, and a huge shift away from the paternalistic instincts which shape too much government policy. Provided the government is not tempted to tamper with the pensions tax relief system too much (perhaps just abolishing the “tax free lump sum” at the point of retirement but committing to maintain the income tax reliefs), the overall package will have been very welcome indeed.

The abolition of the “slab” structure of stamp duty is another area where Osborne has shifted policy significantly in a welcome direction. The old system led to big cliff-edges in the market when property values exceeded certain thresholds. Stamp duty remains a highly damaging tax on mobility, however, and is forecast to be an even more significant revenue-raiser for future governments. The next stage of reforming property taxation should therefore entail gradually cutting stamp duty and instead taxing the imputed rent of housing (perhaps as a long-term replacement for council tax).

Similar clean-up operations on the tax base for VAT, the marginal rate structure of income taxes and the structure of inheritance tax are desirable. We may even get some in the Budget, on top of a range of announcements on infrastructure spending, benefit changes, and the like. But it’s worth asking if tax, welfare or regional policy really should be what the Budget is about.

The problem with the Budget becoming an orgy of announcements is that it creates a great deal of uncertainty for businesses and households, deterring much-needed investment. While we may be in favour of some announcements, the act of overhauling policy quickly – via heavily-whipped Finance Acts with time-constrained debates in the House of Commons – has in general led to very bad tax policymaking and a hugely complex tax code.

The Budget has, in effect, become a one-stop-shop for major tax announcements and many spending announcements too. This leads to the whole process becoming a lobbyist’s dream – with power concentrated in the Treasury, and the political nature of the day leading to obfuscation of “bad” things while strengthening the idea that a “good” Budget is one that creates a range of giveaways for various groups.

It would be much better in terms of improving transparency, reducing uncertainty, and allowing proper debate and scrutiny of policy if the current Budget was effectively abolished. It could be replaced with a simple statement announcing any tax rate, allowance or borrowing changes necessary to finance the spending outlined in the previous Autumn Statement. Any tax, welfare or spending policies beyond that would instead have to be brought to the House by the relevant department at other times, and be debated, amended and voted on in the usual way.

This would take out much of the politics of the day, which from a policy perspective would surely be a good thing. Unfortunately, it is also why a highly political operator like Osborne won’t be adopting this specific recommendation any time soon.

This article first appeared in City AM.

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.