IFG - Large majority means the chancellor can make wide tax reforms
The Institute for Government has published a report setting out how Boris Johnson’s government can reform the tax system. Although his party’s manifesto did not promise such action, the tax system is in desperate need of reform. The new government’s majority gives it an opportunity that none has had for the last decade and a half.
However, major reform will be controversial and not easy to legislate. To help make structural changes, the chancellor should set out a clear vision, seek advice from many sides and go out of his way to win support for reform. These are among the recommendations of a new IfG report – How to be a tax-reforming chancellor, which draws on interviews with former chancellors, other former Treasury ministers and former senior civil servants.
The Institute recommends that the chancellor should:
- Set out a clear vision for the tax system to give taxpayers more clarity, help explain to the public why sometimes contentious changes are needed and help resist the pressure to tinker.
- Seek advice, look at the evidence and take implementation concerns seriously. The tax system is complicated and few people – even experienced professional advisers – have a good sense of how the whole system works in practice.
- Communicate more with the public and media to tackle myths and promote discussion of the problems and the need for reform.
- Involve other Cabinet ministers in the development of tax policy – particularly where it interacts with other policies – to avoid unintended consequences and ensure that tax is the right tool to use.
- Build support for contentious changes by making a persuasive case to the public for change, and packaging reforms together to show the benefits that are made possible by unpopular changes.
- Carefully consider whether the benefits of acting early might be outweighed by other costs. Previous chancellors have announced major tax changes early on in the life of a new Parliament to take advantage of the government’s political capital, to give time for resentment to fade and benefits to be appreciated. But acting quickly may allow too little time for consultation or explanation.
Gemma Tetlow, chief economist at the Institute for Government and lead author of the report, said:
“The government’s first priority will be to enact Brexit. But the election result gives the chancellor the opportunity over the next five years to enact much-needed reform of the tax system to address its weaknesses and ensure that it can keep pace with economic trends. Many residents of No.11 Downing Street have endeavoured to be ‘tax-reforming chancellors’, but it has proved difficult in practice. To give himself the best chance of success, he should set out a clear vision for the tax system, seek a broad range of advice, and actively make the case for his proposed reforms.”
Notes to editors
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