Tax Reform
In the latest publication on reforming the UK tax system, the Institute for Government (IfG) sets out its advice to a chancellor seeking to implement major changes. The IfG argues that “serious reform is sorely needed”, but also that “the commitment in the Conservative Party’s manifesto not to raise the rates of the three main taxes will severely restrict the scope for doing this”. The IfG suggests that a reforming chancellor’s first step should be to set out a clear vision of what the Government wants the tax system to achieve. It cautions against exploiting the political capital of the election victory by “tinkering” with individual taxes before this is in place. The vision should then be supported by a strategy for delivery over a period of years, recognising that events may mean the strategy needs to be altered. The IfG also argues that the chancellor should consult widely, not only within HM Treasury and HM Revenue and Customs, but across and outside government. It suggests this could counteract the influence of special-interest lobby groups. In addition, the IfG proposes the use of independent reviews and thinktank reports to promote consensus on problems and possible solutions. It also recommends judicious use of “well-qualified” special advisers. Turning to specific changes, the IfG argues that how tax (and spending) reforms are packaged and presented can affect their acceptability. For example, it suggests linking tax increases with specific spending pledges or with particular objectives, such as tackling climate change.
Incentivising Public Servants
Summarising their article from the November 2019 Economic Journal, the authors describe their findings that disability employment in the UK increased following a change to the incentives of caseworkers in the UK employment service. Felix Koenig et al state that the initiative, JobCentre Plus, was rolled out between 2001 and 2008, and that it offered workers in job centres “more career rewards if they successfully placed disability benefit recipients into work”. They found that the reform was successful, in that outflows from disability benefit into work increased by around 10% in the longer run. The authors report “significant organisational disruption” from the introduction of the reforms, and estimated that this led to a 5% fall in the job finding rate of those on unemployment benefits in the months immediately after its introduction. However, they suggest that in the longer term this effect disappeared, while the beneficial effect for those claiming disability benefits remained. The authors conclude that “better government job search support can reduce the rise in the number of disabled benefit claimants”. They also assert that the reform was cost-effective, as the higher tax revenues and lower benefit payments outweighed the costs of the reorganisation. However, they argue that the initial costs might introduce political obstacles to similar reforms, stating that “policymakers with a short-run horizon of a year or two will be reluctant to embark on such radical changes”.