The Autumn Budget: Haven’t we been here before?
Philip Hammond’s move towards having a single major fiscal event each year could improve tax policy making at UK and devolved levels, explains Donald Drysdale.
The last Autumn Statement
On 23 November, the assembled MPs in the House of Commons were astonished when Chancellor of the Exchequer Philip Hammond announced: ‘This is my first Autumn Statement as Chancellor. After careful consideration, and detailed discussion with the Prime Minister, I have decided that it will also be my last.’
No-one had expected his early resignation, and it quickly became apparent that this was not his plan when he continued: ‘Mr Speaker, I am abolishing the Autumn Statement.’
Hammond was met with laughter when he announced that the Autumn Statement would be replaced by an autumn Budget, accompanied by a statement each spring. To make matters worse, during the transition we’ll have two Budgets in 2017 – spring and autumn. However, the key point is that the government is moving towards having a single major fiscal event each year.
At ICAS this announcement was welcomed. In March 2016, in an article entitled Time to scrap this Budget system, ICAS Chief Executive Anton Colella criticised the number of big fiscal events and asked: ‘Is this really the best way to run corporate Britain?’
Colella continued: ‘I suggest a new approach. Restrict any Government to two major budget statements across a five year term. This would reduce the uncertainty for British business.’
While Hammond’s decision to reintroduce an Autumn Budget goes only part of the way towards this end, it is certainly a move in the right direction.
Precedent for an Autumn Budget
From 1945 to 1992, the annual Budget was presented each spring. Then from 1993 to 1996 Chancellor Kenneth Clarke presented the Budget in November, merging tax and spending announcements – so we have had autumn Budgets before. To meet his obligation to make two annual statements to parliament, Clarke made a summer statement each July focusing on economic matters.
In 1997 Chancellor Gordon Brown reverted to an annual spring Budget. Each autumn he presented a Pre-Budget Report (PBR), which was an update on the state of the economy and the government's finances and announcements of proposed new tax measures and consultation papers.
Chancellor George Osborne continued the tradition of a spring Budget but replaced the PBR with a new Autumn Statement focusing on economic growth and government finances as projected by the Office of Budget Responsibility (OBR).
Reverting to autumn Budgets may be just what we need now to improve the current unsatisfactory processes for making tax policy.
Why will this help?
If the government announces major tax changes only once each year, this will provide better opportunities for scrutiny of proposed new measures – not only by external bodies such as ICAS, but also by MPs.
In recent years, many complex tax provisions have been introduced and enacted with limited external consultation, and with severe restrictions on the parliamentary time allowed for debate. This can result in unsatisfactory or even unworkable tax law.
As an example, in an earlier article I explained how, when Finance Act 2015 made significant changes to the rules for entrepreneurs’ relief, these had not been properly considered and had to be largely reversed by Finance Act 2016.
So long as Hammond can keep his word and maintain the autumn Budget as the only major fiscal event each year, tax policy making should be greatly improved. The government has said that it will retain the option to make changes to fiscal policy at the spring statement if economic circumstances require it, and the advantages of the new approach will be lost if that option is over-used.
Impact on devolved administrations
Let’s take Scotland as an example. The draft Scottish Budget for each financial year used to be published in the preceding September or October, but is now being held back until after the UK Autumn Statement so that the repercussions of UK tax proposals can be taken into account. This restricts proper scrutiny of the Scottish Budget at Holyrood.
Even if the contents of the UK Autumn Statement are considered in drawing up the draft Scottish Budget, changes to UK tax may be announced in the spring UK Budget, very possibly after the Budget (Scotland) Bill has been passed at Holyrood. The complex inter-relationship between the fiscal decisions of the UK government and those of its devolved administrations is especially difficult to manage when significant changes to UK tax may be made in a spring Budget and brought swiftly into effect.
If, instead, all major UK tax changes are to be announced in an autumn Budget at Westminster, more time will be available for the devolved administrations to prepare, review and finalise their respective budgets.
Article supplied by Taxing Words Ltd