Thursday, March 24, 2011

Why publish an annual budget?

Yesterday, we learned the latest details from the coalition government concerning their budget plans for the next year. But why publish an annual budget?

My suggestion is not that there should lack a budget. Clearly, budgets are hugely important. Additionally, it is easy to see the attraction of an annual budget. Often households assess their expenses and holiday plans based around expected annual income as the expected income would be set for about a year -- there would be no need to make any major reassessments provided employment remained steady.

However, governments are unlike households. The amount of income (via taxes, etc.) does not arrive all at once, but often spread out and it varies month to month. Expenditures are also in flux. While some prediction can and should be made about the year ahead (as well as the longer term), there may be good reason to recommend government budgets every six months. This would better account for the realities and fluctuations in income and expenditures. If banking and finance groups meet more regularly to reassess priorities and interest rates, then why should government claim just one budget for the year? A day is a long time in politics; a year is almost an eternity.

Government should publish a new budget every six months. Whether or not it will is another story...


Anonymous said...

With all due respect, that's lame.
Lack of planning is flooding politics, so let's make shorter the term of the instrument that forces a govenment to plan ahead.
It sounds wrong to me.

The Brooks Blog said...

Why? Yes, policy decisions are too often ill conceived. I agree that short-term planning is also too often foremost in ministers' minds. My proposal is not to have one year or longer plans *as well* but that budgets should perhape become more flexible given the many significant changes that may arise over 12 months. This is not a call to end long term planning, but to make planning *also* more responsive to markets and events during an annual period. This strikes me as good sense, not nonsense.

Richard Baron said...

I guess it rather depends on what you would want the extra Budget(s) to cover, and what immediate policy changes, or immediate announcements of future policy changes, you would envisage.

One could vary public spending more often, although that would go against the policy of setting departmental expenditure limits (DELs) for three years at a time, which is a useful discipline. We do have supplementary estimates mid-year, but the last batch, in November 2010, did not involve breaching DELs because money was saved elsewhere. (At least, that's what they said.)

One could change tax rates mid-year to affect expected revenues for the year. That is possible, although it is quite a palaver for the big money-spinners, income tax, national insurance and VAT. (VAT is not tied to years ending on any particular date, but changing the rate at short notice is a pain at any time.) Or one could give advance warning of tax rates to apply from the following April, in the way that we now get advance warning of income tax allowances and national insurance rates.

One could publish repeatedly updated official forecasts. We are some way towards having that already, with what was the November Pre-Budget Report and is now the Autumn Forecast from the Office of Budget Responsibility.

So my feeling is that rather than launch into extra full-scale Budgets, we should ask what we might reasonably want to do that we could not do under the current system, and see whether small tweaks would do the job. Apart from anything else, if you ask stressed Treasury officials whether they would like to run an extra Budget or two each year, you will be answered rather bluntly.

(Declaration of past interest: I used to work there, until I found a way to spend more time on philosophy than on tax.)