Why not scrap the annual Budget?

by Stephen Tall on March 19, 2014

Budget 2010 photocallOne of my top 3 suggestions for this year’s budget was: “Scrap the absurd twice-yearly cycle of Budgets and Autumn Statements.” It wasn’t an original idea – the economist Tim Harford suggested it a couple of years ago, arguing “It may be an enjoyable political platform but there is no economic justification for the annual kaleidoscope of trivia.”

Tory peer and Times commentator Danny Finkelstein has tooted the same horn today:

I think one of the most useful reforms the Chancellor could make is to scrap the annual Budget. … There are two big fiscal events now every year — the Autumn Statement and the Budget. As they approach, they are invested by observers with magical powers, the ability to make people rich, to transform the political scene, to make the country grow faster. Experience does not appear to alter this faith, or diminish the capacity for disappointment. …

There is a huge amount of pressure to respond to whatever demand is fashionable (the plight of upper-rate taxpayers, the need for more road building, whatever) and little strategic consistency about these demands. For good policy-making, then, these events are a nuisance. They pull politicians away from working on underlying long-term reform and toward short-term news management.

The best budgetary policy is one with a high degree of stability and a clear sense of direction. The Chancellor’s aim should be to create a framework that allows businesses and individuals to plan. The feeling that tax rates and structures are liable to change every few months creates uncertainty that inhibits investment and economic activity. It is a boon only for tax accountants and financial advisers.

In this way, frequent Budgets work against those who believe that the prosperity of the country and of families depends upon real activity rather than upon government schemes and announcements. … So all in all, it would be better if there were fewer of these fiscal events. A single Budget every two years, perhaps.

Sensible, rational stuff – which probably guarantees it won’t happen. Such a change would, of course, deny the Chancellor his two days of glory a year, moments when George takes centre stage rather than David or Nick.

Yet budgets are not vote-winners, as Anthony Wells points out on UK Polling Report here. As can be seen from his graph, government popularity is either unaffected by budgets or often falls immediately after a budget (2007-10, 2012). The one exception in the table below was 2003, but that coincided with the invasion of Iraq, which initially boosted Labour’s poll ratings.

budget effects in polling

The media often talk about budgets being an opportunity for fancy giveaways, a vote winning opportunity. The past data suggests that’s rarely the case. More generally they seem to be bullets to be dodged. In theory I’m sure it’s possible for a government to win support from a good news budget with popular policies, but in practice the general theme seems to be that a successful budget is one the government gets through without damaging their support.

Still, the photo of the Treasury team round the red box always looks good.

* Stephen Tall is Co-Editor of Liberal Democrat Voice, and editor of the 2013 publication, The Coalition and Beyond: Liberal Reforms for the Decade Ahead. He is also a Research Associate for the liberal think-tank CentreForum and writes at his own site, The Collected Stephen Tall.