MPs are calling on the new Chancellor, Philip Hammond, to reinstate distributional analysis of the effects of Budget and Autumn Statement measures in order to increase the transparency about the impact of tax changes, describing the move a year ago to drop these reports as a mistake and branding the replacement reports as ‘inadequate’
The distributional analysis showed the impact of changes to tax and welfare spending on household incomes at different points in the income distribution. However, since the summer Budget of July 2015, this analysis has been discontinued.
In a letter Andrew Tyrie, chair of the Treasury select committee, described the decision to provide this analysis, taken in 2010, as ‘great step forward’, and ‘a step change in the transparency of policy making.’
Tyrie writes to Hammond that ‘a poor substitute has been published in its place’. This shows the share of public expenditure received and taxes paid by households, broken down by income quintile. Tyrie says that this subsequent assessment is ‘inadequate in a number of respects’, as unlike the previous analysis, it cannot be used to determine the effect of government policies on household incomes.
Secondly, it compares the expected distribution of public spending and taxes in 2019-20 with a baseline of 2010-11, which means it is not possible to determine the impact of the policies of the present government on the distribution of tax and spending. In addition, the assumptions underpinning the analysis have already changed since the Summer Budget in 2015, meaning that the analysis of distributional impacts within the 2016 Budget cannot be compared to those of previous budgets.
Tyrie also argues that apportioning public spending on items such as health, police, justice, defence and the environment to different parts of the income distribution clearly requires judgements to be made, and there is no detail provided on what these are, or how they are reached.
In the letter, Tyrie goes on to call the new arrangement ‘manifestly deficient’, saying it should be published alongside the income-based analysis, not instead of it, with any guidance on interpretation and methodological assumptions be set out in the accompanying text.
Tyrie asks Hammond to provide an assurance that he will re-instate the original form of distributional analysis as part of the standard Budget documentation. The letter concludes by citing Theresa May’s pledge when elected prime minister to govern in the interests of the whole country, and not just the privileged few, and says a high level of transparency about the effects of tax and welfare policy on households across the income is therefore essential.
Tyrie’s letter to Philip Hammond is here.
