Stumbling and Mumbling: Abolish Budgets

April 15, 2012

Abolish Budgets

The continued criticism George Osborne is getting for his proposal to limit tax relief on charitable donations highlights something many economists have thought for years - that we should abolish annual Budgets.

Osborne is, of course, not the first Chancellor to have gotten into a pickle such as this; remember Brown’s 75p rise in old age pensions and his abolition of the 10p tax band?

The problem is that the tax and benefit system is so complex, and Budgets contain so many different proposals - kaleidoscopes of trivia - that individual chancellors, surrounded by tiny groups of like-minded people, cannot fully anticipate their effects. Bounded rationality plus groupthink equals bad policy-making.

The solution is simple. Budgets should be first words, not last ones. Tax policy should be a matter for consultation, review and deliberations, not for individual statements from on high. The Budget statement should be the introduction of a green paper.

This is, of course, not a new idea. The IFS’s Green Budgets are intended to be a model for such policy-making. And we had hoped that when Brown introduced Pre-Budget Reports in 1998 that they would become the start of consultation exercises - though they swiftly became mere mini-Budgets.

Now, I suspect that most of you will regard all this as trivial common sense. However, what’s at issue here is two very different conceptions of politics. We have a conflict between politics as rational, deliberative policy-making versus a politics of theatre in which “great men” determine the nation’s economic destiny. It says something about our political system that rationality should be such a radical idea.

April 15, 2012 | Permalink

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Comments

I wonder if this isn't exactly what GO's up to. Suppose he had announced that animal welfare would no longer be a charitable purpose for tax purposes. Wouldn't he have copped it! But now, when he concedes that health and education charities may continue to claim tax relief, he achieves the same goal.

Posted by: Mike Killingworth | April 15, 2012 at 03:53 PM

Some years I was told by - well, let's just call him a very high-ranking public servant - that the only reason for the budget system is that as changes to tax policy mostly work to the disadvantage of one group or another (real or perceived), prior "consultation, review and deliberation" merely transfers individual questions of tax policy into the hands of influential lobby groups who are prepared to use all available means to deter any measures which they deem inimical to their own interests. And many of these groups, he stressed, can wield very considerable political power indeed.

In short, his claim was that the present budget system is in fact an attempt to safeguard rationality in economic policy-making from being buffeted by the demands of short term populism on the one hand and by the entranched interests of the powerful on the other.

Posted by: Churm Rincewind | April 16, 2012 at 03:34 PM