Budget 2012: Government Response to the Committee's Thirtieth Report of Session 2010-12 - Treasury Contents


Appendix 1: Government Response


Introduction

1. The timings of the Second Reading of the Finance (No. 4) Bill and the Committee of the Whole House stage are highly unsatisfactory. While we recognise that there are exceptional circumstances this year, the new pattern of Prorogation and State Opening risks making the timing of the stages of future Finance Bills tighter than in the recent past. We therefore recommend that the Treasury and the Business Managers work together to plan the timings of future Budgets and Finance Bills so that the House has longer between publication of the Bill and Second Reading and, particularly, between Second Reading and Committee of the Whole House. This may require the Budget to be somewhat earlier in future. (Paragraph 2)

The Government is committed to ensuring there is adequate time for Parliament to scrutinise the finance bill. And as well as allowing sufficient time for the finance bill to be discussed in Parliament, the Government assists in more extensive scrutiny of measures by publishing draft legislation at least three months before the bill and producing Tax Information & Impact Notes (TIINs) on each measure. This is part of the Government's commitment to the new policy making process, which has resulted in significantly greater transparency about the impact of policies and a greater understanding of their consequences.

Macroeconomy

2. We welcome the OBR's use of scenario analysis to further its understanding of the major risks to the UK economy. The Treasury Committee recommends that the OBR consider a wider range of risks and associated scenarios in subsequent forecasts. Such examination might include ranking the risks by both likelihood and significance to the UK economy. The examination should also include an explanation of the extent to which the fan charts provided by the OBR reflect this information. (Paragraph 16)

The Office of Budget Responsibility (OBR) will write to the Committee.

3. The OBR now forecasts that the growth in business investment will be slower than it thought in November 2011. One of the OBR's explanations for this weakening was the results of further research undertaken by the OBR into the official ONS figures on the availability of cash for investment by firms which suggested that ONS figures over-estimated the amount of cash held by companies that are likely to invest in capital. We have heard conflicting evidence on this argument. In view of the importance of business investment in the GDP forecast, we therefore recommend that the OBR, in conjunction with the ONS, examine its work in this area with particular care. (Paragraph 22)

The OBR will write to the Committee.

4. We welcome the Chancellor's commitment to increase the capacity of the National Loans Guarantee Scheme if it proves to be successful. We note that oversight of the Scheme through monitoring and reporting by participating banks, and also an independent audit, has been put in place to ensure that banks will pass on the full benefit of lower funding costs to SMEs. We expect there to be full transparency about the monitoring of the Scheme and the results of the audit. We will require detailed evidence from the Treasury to show that these guarantees have had the effect intended, and that the scheme is operating in such a way that banks do not retain any benefit, as the Treasury intended. (Paragraph 34)

HM Treasury has designed a monitoring system to be put in place by the participating banks, which ensures that banks are able to demonstrate that they are not retaining any of the benefit of the guarantees. In addition, an auditor will be appointed in order to give assurance that the data submitted is accurate and that the systems and compliance checks in place in each participating bank are functioning and fit-for-purpose. The amount of benefit accruing to banks from the guarantees can be calculated by HM Treasury, and can therefore be easily compared to the data submitted in the course of monitoring.

The Government has already committed to updating on the progress of the scheme at the Autumn Statement. This update will be based on data collected in the course of the monitoring of the scheme as well as on the data collected in the course of guaranteed issuance and any audits which have, at that point, been completed. Since the scheme is expected to be open for new issuance for a period of 2 years, further updates will be published in due course.

5. We remain concerned that while the Scheme should reduce the price of loans to some SMEs, and at the margin may increase the quantity of loans available to them, it was not designed to solve the problem that many SMEs who may be reasonable credit risks are unable to access bank funding at all in the current unusual market conditions. Access to finance for SMEs remains a significant problem. Whilst these exceptional market conditions continue, the Government should regularly publish its own estimate of the degree of dysfunctionality of the market, with proposals for remedy. (Paragraph 36)

Access to finance for SMEs is affected by a number of factors, including supply side factors such as bank funding costs, regulatory changes, the pace of deleveraging and wider economic trends such as the current Eurozone disturbance. A range of data is already published in this area including the Bank of England's lending data, information on market conditions and bank wholesale funding costs and data on wider economic trends. In addition, the banks also publish a cross-industry lending data set and the SME Finance Monitor. The Government's view is that these sources already provide a good picture of the market and that it is unnecessary to publish further data.

The Government is already acting in a number of ways to address the issue of financing for SMEs, including through the National Loan Guarantee Scheme which reduces the cost of borrowing for smaller businesses, the Business Finance Partnership (BFP), which is designed to stimulate non-bank lending channels, and as stated in the response to the Breedon review, will continue to examine other routes to improve the conditions faced by British businesses.

6. We urge the Government to give greater consideration to the promotion of competition in banking. (Paragraph 37)

The Government is committed to promoting competition in banking and, earlier this year, accepted the recommendations of the Independent Commission on Banking (ICB). The recommendations included ensuring that banks will no longer receive a competitive advantage by being "too big to fail" and delivering a strong and effective challenger bank from the Lloyds divestiture to exert real, competitive pressure on the big banks. The Government also strongly supports the ICB recommendation that a new redirection service should be set up to make the process of switching current accounts easier. The Government is holding the industry to account against their commitment to deliver this service by the deadline of September 2013. The Government also welcomed the ICB recommendations on transparency. The Financial Services Authority (and the future Financial Conduct Authority (FCA)) and the Office of Fair Trading should continue to build on their work to improve transparency in the banking market. Finally, the Government agrees that the FCA has a key role to play in promoting effective competition in financial services markets. This is reflected in the FCA's objectives which now include an operational objective to promote effective competition in the interests of consumers.

7. SMEs face serious and often insurmountable problems in obtaining bank lending at reasonable rates. Non-bank lending could be a solution for some SMEs, although the market for such loans seems relatively unresponsive to apparent demand. The Breedon review suggests that there are problems both with supply and demand for non-bank financing, including a lack of knowledge amongst SMEs about available sources of such financing. The Government's efforts to examine non-bank channels for funding businesses are very welcome, but we note there is much work still to be done to establish large scale alternatives to bank lending for most SMEs. . We recommend that the Government continues to pursue creative solutions, including those suggested by the Breedon review, to increase the level and availability of nonbank funding, and set out the results in detail in the Autumn Statement. (Paragraph 41)

In its response to the Breedon Review, the Government committed to explore the potential for developing new sources of lending to SMEs. For example, the Government welcomes and is supporting the feasibility study into how aggregation models could help SMEs access more institutional investment. The Government recognises it may have a role to play in supporting the initial development of such markets, for example through the BFP, though it will be important to ensure that BFP investments are commercially sustainable and require private investors to share in the risks that taxpayers would potentially be exposed to. The Government is also keen to examine the role of innovative solutions to help SMEs raise working capital, such as supply chain finance. It is exploring how to speed up payments to SMEs in its own supply chains and whether the Government can use its purchasing power to encourage greater use of supply chain finance for businesses.

8. While a nominal export target may be of some use in concentrating minds within Government, GDP growth will only benefit if the UK's net trade position improves as well, and that will require imports to grow less quickly than exports. We are therefore sceptical about the value of an export target without examining the overall current balance and will further examine this issue in our inquiry into global imbalances. (Paragraph 43)

As emphasised in Budget 2012, the Government is committed to rebalancing the economy with increasing exports and investment. The export ambition, to more than double annual UK exports to £1 trillion by 2020, supports this objective.

Other things equal an increase in exports will improve the net trade position and boost growth in GDP. An export ambition can also help to slow growth in imports, which would also improve the net trade position. A more competitive export sector will not only increase exports, but will also increase its ability to supply to the domestic market and hence reduce imports. So import substitution would also improve net trade and support the necessary rebalancing of the economy.

The export ambition is consistent with the objective to improve net trade and strong export growth is typically associated with a positive net trade contribution. For example, in 2011 the value of exports increased by over 10 per cent. At the same time, net trade contributed 1 percentage point of the total increase in GDP of 0.7 per cent over the same period.

9. The powers of direction to be granted to the statutory Financial Policy Committee of the Bank of England are likely to have a significant impact on the economy when used, and the possibility of their use will have to be taken into account in the forecasts of the Office for Budget Responsibility. We recommend that the FPC and the OBR work together as the macroprudential tools are developed to ensure that they are adequately reflected in the OBR's forecasts. We will inquire into the new macroprudential tools. Among issues we will examine is whether they will be as effective in ameliorating downturns, as well as limiting upswings, in credit cycles. (Paragraph 46)

The Government welcomes the Committee's continued interest in the Financial Policy Committee (FPC) and the macro-prudential policy tools. As is currently the case with the Monetary Policy Committee, the FPC's policy decisions will be transparently communicated through appropriate channels, including through publication of a record of its formal meetings and bi-annual Financial Stability Reports. The Government understands that the OBR will consult with the Bank of England on the appropriate way in which to include the macro-prudential policy stance set by the FPC in the OBR's forecasts. The OBR will also write to the Committee.

10. While the Government maintains the current tight fiscal profile, monetary policy will remain the main tool for stimulating demand in the economy. The Bank of England appears confident of the efficacy of continued quantitative easing, and the Governor urged patience. We note from the OBR forecasts that despite its current extremely accommodative stance, monetary policy alone will be unable to close the output gap over the forecast horizon, with long term consequences for the recovery. Bearing in mind the risks of unwinding, we will continue to monitor the impact of loose monetary policy and the effectiveness of quantitative easing in our hearings with the Monetary Policy Committee and the Financial Policy Committee. We will also continue to explore the effectiveness of loose monetary policy on the economic recovery. (Paragraph 51)

Monetary policy has a critical role in supporting the economy as the Government delivers on its commitment to necessary fiscal consolidation. The first £200 billion of quantitative easing is estimated to have increased real GDP by around 1½-2%, equivalent to the impact of around a 150-300bps reduction in Bank Rate (BoE 2011 Q3 Quarterly Bulletin). Monetary Policy Committee members expect the second round of asset purchases to work broadly in the same way as the first round.

11. Loose monetary policy, achieved through quantitative easing and low interest rates, has redistributional effects, particularly penalising savers, those with 'drawdown pensions' and those retiring now. The Bank of England has argued that some of those effects may be mitigated by the increase in asset prices stimulated by quantitative easing. While the aggregate of savers and pensioners may have received some benefit from higher asset prices, there will be many individuals who will not have benefited. The Bank of England, after, where appropriate, consultation with the Treasury, should provide its estimate of the overall benefit and loss to pensioners and savers from quantitative easing. It should, in addition, estimate how that balance changes depending on when an annuity was purchased, using the following three dates: immediately before the start of the crisis five years ago; immediately after the introduction of quantitative easing; and now. We further recommend that the Bank of England, and particularly MPC members, improve upon their efforts to explain the benefits of the current position of monetary policy to those affected by the redistributive effects of quantitative easing. (Paragraph 54)

The Government welcomes the response of the Committee. The Bank has consulted with the Government about its plan to publish a paper which discusses the range of distributional effects of quantitative easing, and attempts to quantify the costs and benefits for savers and pensioners.

12. We recommend that the Government consider whether there are any measures that should be taken to mitigate the redistributional effects of quantitative easing, and if appropriate consult on them at the time of the Autumn Statement. (Paragraph 55)

The impact of quantitative easing on pensioners and savers is complex, and is one of a number of potential factors currently affecting the value of pensions and savings. The Bank of England plans to publish analysis on the distributive impact of quantitative easing on pensioners and savers. The Government keeps policy under review, and will consider the Bank of England's findings.

13. Witnesses have expressed reasonable differences about the current mix of fiscal and monetary policy. There is also some concern that monetary policy is reaching the end of its effectiveness in accommodating the present tightness of fiscal policy. We will continue to monitor the Government's and the Bank of England's approach in this area. (Paragraph 59)

Fiscal consolidation is necessary to reduce risks in the short-term, restore private-sector confidence and underpin sustainable economic growth. The ongoing global economic uncertainty in the wake of the financial crisis, including from ongoing sovereign debt concerns, reinforces the case for ensuring that the public sector finances are set on a sustainable path. The credibility of the Government's fiscal plan allows the independent Monetary Policy Committee (MPC) to keep Bank Rate lower than it would otherwise have been and to deliver additional monetary stimulus through quantitative easing.

14. The OBR relies heavily on the output gap in order to assess whether the Government is on course to meet its fiscal mandate. However, as an unobservable measure, the output gap is prone to great uncertainty and frequent revision. There is therefore a risk that there will be unwarranted changes in fiscal policy as a result of reliance on it. We recommend that the Treasury ask the OBR to evaluate other, supplementary, approaches. (Paragraph 65)

The public finances

15. In the next spending review period the Government will need, on current forecasts, to find significant further reductions in expenditure. We look forward to the Chancellor's update in the Autumn Statement. (Paragraph 74)

16. The OBR suggests that the Government is on course to meet its fiscal mandate and supplementary target. There is little margin for error. The achievement of the fiscal mandate is dependent on measurement of the output gap. We have already expressed our concerns about the output gap as a measure (See para 65). (Paragraph 78)

The Government created the independent OBR to produce an objective, transparent and impartial assessment of the public finances. Consistent with this, the OBR is responsible for determining the appropriate methodology for assessing the size of the output gap. The fact that this important judgement is made by the OBR, rather than the Government, is central to the independence and credibility of the forecast.

The Government's fiscal strategy is underpinned by clear targets that ensure the public finances are set on a sustainable path. The Government has set a forward-looking fiscal mandate to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period, supported by a supplementary target for debt that requires public sector net debt as a percentage of GDP to be falling at a fixed date of 2015-16.

The fiscal mandate is based on a cyclically-adjusted aggregate, to allow some flexibility at times of economic uncertainty. As a result, it requires an estimation of the level of the output gap. The Government recognises that estimating the output gap, the difference between the actual level and the potential level of output, is difficult. The level of potential output cannot be directly observed, even retrospectively, and moreover estimates of actual output are subject to revision. Accepting that there is a degree of uncertainty around the size of the output gap, it still remains important for policy decisions to be informed by an estimate of the structural position. The OBR will also write to the Committee.

Principles of tax policy

17. We note the welcome given by the Director of the Office of Tax Simplification. Personal tax statements have the potential to provide some additional transparency for taxpayers. They should explain what they pay in tax and how it is spent. They will need fairly to describe Government spending. We recommend that the Treasury consult the OBR on their design. (Paragraph 84)

The Government welcomes the response from the Director of the Office of Tax Simplification on the introduction of personal tax statements. The Government is committed to improving the transparency of the personal tax system so that individual taxpayers know how much tax they are paying and how Government spends it.

The tax statements will be designed to ensure that it is clear, accessible and transparent. As part of this process, the Government is keen to get views from all stakeholders ahead of their introduction in the 2014-15 tax year.

The statement will illustrate how a taxpayer's income tax and National Insurance contributions help fund public spending and will be based on information already in the public domain. The latest comprehensive information on public spending by function can be found at http://www.hm-treasury.gov.uk/d/pesa_2011_tables_chapter5.xlsx

18. We recommend that the Government clarify what retrospection is proposed with regard to stamp duty. (Paragraph 86)

The Chancellor made it clear at the Budget that the Government will not tolerate any further attempted Stamp Duty Land Tax (SDLT) abuse stating that "... If you buy a property in Britain that is used for residential purposes, then we will expect stamp duty to be paid."

The announcement to take retrospective action where appropriate re-enforced this message. Decisions on when retrospective action will be taken will be made on a case by case basis.

The specific measures announced at Budget to address SDLT avoidance (i.e. the introduction of a 15% rate and to address a subsales avoidance scheme), were not introduced retrospectively and applied from Budget day.

19. We recommend that the Government restrict its use of retrospective legislation to wholly exceptional circumstances, which should be narrow and clearly-defined. The Treasury should set these out as soon as possible for consultation, along with an explanation of how gradual further extension of retrospection can be prevented. Any future retrospective tax measure must be justified against the agreed criteria: such justification must include clear explanatory statements to Parliament by the responsible Minister and should invite views from relevant professional bodies. (Paragraph 89)

The Government agrees that changes to tax legislation where the change is to have effect from a date earlier than the date of announcement should be restricted to wholly exceptional circumstances. The Government has made a commitment to this effect in the Protocol on unscheduled announcements, published in Tackling tax avoidance at Budget 2011.

By observing the Protocol, the Government aims to strike the right balance between the rights of taxpayers affected by the change and the interests of the generality of taxpayers. In doing so we ensure that our response to avoidance risk is proportionate and limited to what is necessary to address that risk. The Forum of Tax Professionals review announcements as a standing agenda item at its regular meetings and provide Ministers with a view on how the Protocol is being observed in practice.

The Government's announcement of retrospective legislation on 27 February 2012 was an appropriate and proportionate response to an aggressive tax avoidance scheme. Previous ministerial announcements made it clear that the Government's policy and intention in introducing the legislation was that the profits in question were intended to be taxed; and the bank had signed up to the Code of Practice on Taxation for Banks, under which it agrees not to involve itself in this sort of aggressive avoidance.

Taxation

20. The cost and benefits of reducing the additional tax rate to 45p are both highly uncertain, and could be significantly more or less than the cost included in the Budget. We recommend that HMRC publish in due course a comprehensive assessment of the effect on the Exchequer of the new 45p rate. (Paragraph 97)

HMRC's document published alongside the Budget set out in some detail the modelling behind the conclusions reached. It measured the forestalling impacts, which were factored into costings in the Budget. It also gave a full explanation of the modelling underpinning the tax income elasticity and considered the dynamic second round effects. As set out alongside Budget 2012 in the TIIN and Costing note, HMRC and HM Treasury will continue to monitor the evidence around the yield from additional rate of income tax in line with other relevant tax and benefit changes.

21. The introduction of dynamic scoring could have a significant impact on tax policy decisions and we will monitor its progress. (Paragraph 98)

As the Chancellor stated in his evidence, the Treasury continues to develop the sophistication of its costings to better capture behavioural responses. Working with the OBR, who are responsible for making judgements about the impact of policy changes on the forecast , we will be looking to ensure that wider economic impacts of large fiscal policy changes are actively considered.

22. The Red Book conflates the revenue impact of the increased personal allowance and the reduction in the higher rate threshold. We recommend that, as a matter of principle, the Government set out separately in future Red Books the revenue effect of each tax decision. (Paragraph 108)

The Government is committed to transparency on policy costings, and since the June Budget 2010 has provided detailed information on each policy costing in documents published alongside the Budget, including most recently Budget 2012 policy costings. Where more than one tax change is part of the same policy decision, as is the case with the changes to both the personal allowance and higher rate threshold, they are shown as a single policy costing, in line with the methodology set out in Budget 2011 policy costings. HMRC also publish Ready Reckoners[1] to give an indication of the revenue impact of individual tax changes.

23. We recognise that the Government needs to take difficult decisions to tackle the budget deficit. Nonetheless, the Government's latest proposals for reform of Child Benefit solve only one of the two main problems identified with its original policy. They add further complexity. We will review the effect of the changes on HMRC, where further staff reductions are being implemented, in our regular hearings with it. (Paragraph 115)

The Government aims to withdraw Child Benefit from those on high incomes, whilst leaving the majority of claimants unaffected. This will be done by applying a tax charge to taxpayers who are in a household receiving Child Benefit and have an income of over £50,000. Alternatively, if the charge was based on household income, a new means test would need to be introduced to assess the incomes of everyone in each of the 8 million households receiving Child Benefit.

The Government believes that the proposed policy is not more complicated than that alternative. A much smaller number of people will have to go into the Self Assessment process as a result of the Budget announcement than would be subject to any new household income assessment. 85% of families will be completely unaffected by the changes and those with a high income can choose not to receive Child Benefit payments, which means that they do not have to pay the tax charge at all.

24. We recommend that, where changes to complex areas of taxation are proposed, the greatest possible supporting material be published to allow for greater scrutiny of the possibility of unintended consequences. (Paragraph 116)

The Government is committed to improving the way that all tax policy is developed, communicated and legislated.

As set out in the June 2010 document Tax policy making: a new approach, the Government undertakes a five-stage process in developing tax policy. This includes allowing time for consideration of a policy as well as draft legislation being published at least three months before the finance bill. This provides for greater consultation with and understanding by taxpayers and representative bodies. For Finance Bill 2012, 75 per cent of measures were announced at Budget 2011, 17 formal consultations were held over summer 2011 on policy design, 400 pages of draft legislation were published in December 2011 for technical consultation and the Government received over 450 responses.

In addition, the Government produces TIINs, which set out the aims and impact of each tax measure. TIINs are published when a policy is finalised, with the vast majority included as part of either the Overview to Legislation in Draft document, published alongside the draft legislation, or the Overview of Tax Legislation and Rates document published alongside the Budget.

Improvements to the development of tax policy making have been welcomed by all the main representative bodies, and by the independent Tax Professionals Forum, which is tasked with assessing how well the Government complies with the new process. The new approach has meant significantly greater transparency about the impact of policies, with greater understanding of their consequences. The Government remains committed to improving tax policy further and will consult with interested parties where appropriate.

25. We recommend that the Treasury soon ask HMRC to make an assessment and publish the impact of the cap on income tax reliefs, both on business investment and charities. A more detailed explanation of the problem the cap seeks to address is needed, along with consideration of other possible means of dealing with it as the Red Book proposes. (Paragraph 120)

Budget 2012 announced the introduction of a limit on all uncapped income tax reliefs of either 25% of an individual's income, or £50,000, whichever is higher. Everyone should pay their fair share.

When he announced a cap on unlimited income tax reliefs at the Budget, the Chancellor said the Government would consult on this and was very clear that he did not want this to impact significantly on charities. Since that announcement the Government has been engaging with charities and philanthropists to better understand the likely impact of the policy, and how best to mitigate this. These discussions have shown that there is real anxiety in the sector that there will be an impact on large donations and large donors. The Government has therefore decided to implement the cap on income tax reliefs without including charitable reliefs.

Legislation will be published for consultation in the autumn as part of the draft Finance Bill. At this point the Government will publish a full tax impact assessment, in line with the tax policy-making process.

26. The reduction in the headline rate of corporation tax is intended to send a positive signal about the United Kingdom as a place to do business and is forecast somewhat to encourage investment. We note, however, that other measures, such as the reduction in the capital allowance rate, may mean that the immediate benefit of the corporation tax cut is only felt by a subset of businesses in the United Kingdom. We recommend that the Government monitor, and report on, the impact of the reduction in corporation tax on businesses of all sizes. (Paragraph 124)

The Government welcomes the Committee's comments. The reduction in the headline rate announced in the Budget will benefit all companies with profits above £300,000. Companies with profits below this level already pay corporation tax at the rate of 20% and the Government has introduced a number of wider reforms to simplify the tax system, improve tax reliefs and incentives for growth, provide better access to finance and reduce the burden of regulation which will benefit small business.

The changes to capital allowances announced at Budget 2010, formed part of a wider package of reforms to the corporate tax system, and contributed to financing the reductions in the main rate of corporation tax and small profits rate announced at the same time. Over 95% of businesses are expected to be unaffected by the changes to the capital allowances as their qualifying capital expenditure will be fully covered by the new annual investment allowance level of £25,000. Qualifying expenditure over this limit will continue to receive tax relief through writing-down allowances, which remain broadly aligned with rates of economic depreciation.

Reductions in corporation tax will reduce the cost of capital faced by business, which will help encourage investment. The OBR assess that the additional 1 % reduction announced in the Budget will increase the level of business investment by around 1% by the end of the forecast period. This is equivalent to an increase in the total amount of business investment of £3.4 billion over the next five years.

The Government will monitor and assess the main rate reduction alongside other measures in the Government's package of corporation tax changes.

The supply side

27. The Committee welcomes the Government's inclusion of supply-side measures in the Budget and recommends a greater focus on supply-side reform. As a priority the Government should set out in the Autumn Statement areas of progress in implementing its agenda and more detailed benchmarks for further reform than we have hitherto seen. (Paragraph 138)

The Government welcomes the Committee's positive response to the continued focus on supply-side reform. Alongside sustained deficit reduction and monetary activism, these reforms are a key part of the Government's aims of achieving strong, sustainable and balanced growth that is more evenly shared across the country and between industries, as set out in the Plan for Growth, Autumn Statement 2011, National Infrastructure Plan and Budget 2012. Implementation of these reforms is a priority across Government, and progress will continue to be monitored through departmental business plans and implementation updates, the most recent of which was published alongside Budget 2012.

Leaks and advance briefing

28. Appropriate pre-Budget consultation on specific measures, especially in the tax field, is to be welcomed. It is possible that there may also be cases where the Treasury judges it necessary to canvass views about a measure intended for the Budget which has not been out put out for consultation. Information about such measures should be publicly released by the Treasury in the normal way and, as appropriate, accompanied by a written or oral parliamentary Statement. (Paragraph 149)

29. Coalition government is not a justification for Budget leaks. We recommend that the Government review its practices, based on the experience of this Budget, for preserving Budget confidentiality in a coalition context. (Paragraph 151)

No Treasury officials, Treasury Ministers or Treasury special advisers briefed the media before Budget day about any of the most important policy announcements: which in this case means policy information regarding tax rates or tax allowances.

The considerable media speculation in the week before the Budget can be explained by two factors. First, the need to agree major Budget measures over a week in advance in order to allow the OBR to certify policy costings. Second, the fact that the Budget policy package needs to be agreed by ministers from both political parties forming the coalition. These factors mean that, compared to previous governments, there are many more people who know the content of the Budget some time in advance. Additionally, the publication of the Coalition's Programme for Government also means that priorities are spelt out more clearly and therefore media speculation can always be better informed. It is difficult to changes Budget confidentiality practices without altering these two fundamental features of the Coalition Government's policy framework. HMT will keep all procedures under review in order to minimise the risk of leaks.




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