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Tax policy system is not fit for purpose, experts say

The government’s current tax policy system must be changed in order to reduce taxpayer confusion and cut down on errors, experts have said.

‘Better budgets: making tax policy better’, a joint report published today by the Institute for Government (IfG), the Chartered Institute of Taxation and the Institute for Fiscal Studies (IFS), examined the current system and concluded that it is not fit for purpose.

The report welcomed Phillip Hammond’s decision to abandon the Autumn Statement but urged the government to stick to the arrangement, proposing an end vision in which Budgets contain fewer measures and are better thought out.

“We have heard that the exceptional processes around tax policy making – in particular, secrecy, more limited scrutiny and challenge, and the power of the Treasury – have led to an ever-lengthening tax code, beset by a series of problems: confusion for taxpayers, poor implementation, political reversals and constrained options,” the authors said.

They made 10 suggestions to improve tax policymaking, including sticking to the single annual fiscal event, establishing clearer directions for tax policy for new Parliaments, engaging in earlier, more detailed consultation and enhancing public and parliamentary scrutiny.

The report said that having twice-annual budget statements led to a “proliferation of measures”, in turn causing “instability and confusion” among businesses and taxpayers, and should be abandoned to make way for better consulted and scrutinised proposals.

“Tax policy is too important to leave to the chancellor alone,” said director of the IFS, Paul Johnson, one of the report’s authors. “We need a more open policymaking process as a route to a better tax system.”

Johnson added the lack of a clearly defined strategy “allows policy to be made on the hoof”, making it harder to engage the public in debate about tax.

The report recommended starting consultation at an earlier stage with a wider range of sources in order for governments to gain the “widest possible understanding” of an issue before it becomes law.

Jill Rutter, programme director at the IfG and fellow report author, cast doubt on the current way in which tax policy is thought to be the “sole province” of the chancellor or the Treasury.

“In particular, we need to overhaul the internal Budget processes, to ensure there is more challenge from within and Parliament needs to improve the way it scrutinises tax proposals before they are implemented – and their effectiveness once they are,” she said.

To provide this internal challenge, the report authors suggested the creation of a small Budget Cabinet committee to allow expert challenge to be made earlier in the policy process, along with extra encouragement for the Treasury permanent secretary to exercise his ‘accounting officer’ function subject to scrutiny by the National Audit Office.

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