At half-time in last night’s Arsenal game, I was talking to a pal about the Budget and – in the context of explaining where I thought George Osborne had gone wrong – I described how the Budget process works. He suggested I write a blog about it, so here goes.
Starters and Scorecards
Bear with me while I explain some basics.
Anyone can come up with an idea for the Budget: members of the public who write in; NGOs and Business groups; other government departments; officials in HMRC; Treasury staff, special advisers and ministers; and of course the Chancellor himself.
It would be nice to say they are all given equal weight and consideration, but the order I’ve put them in usually corresponds to the amount of effort the Treasury will put into developing their ideas.
Each viable idea - called a ‘Starter’ - is given a snappy 4-5 word description – a useful discipline to check whether it can be explained in one sentence – and a lead official and lead minister is assigned to it.
It’s also given a number, so if Chapter 6 of the Budget is on the environment, each relevant idea is numbered Starter 601, 602, etc. With fuel duties, etc., where there are lots of different options, they are listed out as 601a, 601b, etc.
All the starters – about 150-200 in total – are placed in an Excel file called the Budget Scorecard. Each line contains the name and number of the starter, and the amount in revenue that it will raise or cost in each of the next 5 years, before and after inflation.
Sheet 1 of the Scorecard contains the Starters which are almost certain to proceed, Sheet 2 very likelies, Sheet 3 probables, Sheet 4 not likelies, and so on. Starters are gradually promoted to Sheet 1 over a 3-4 month process, and at the bottom of Sheet 1 – constantly evolving – is the Budget arithmetic, which says how much the entire package costs or raises.
No Starter ever disappears from the Scorecard. Even if it is firmly rejected early in the process, it still lurks on a distant Sheet waiting to be recalled in case the distributional analysis of Sheet 1 calls for a measure targeted at a particular income group or segment of society.
On Budget Day, Sheet 1 is literally copied and pasted as a table into the chapter of the Red Book entitled ‘The Budget Decisions’, which is what politicians and journalists generally turn to first to see what the Chancellor’s actually announced after he’s announced it.
The Two Eds and Gordon
So what happens during those 3-4 months when Starters are being considered for elevation to Sheet 1? I can only speak for Gordon Brown’s Treasury, in particular the two years when I was the official in charge of the Scorecard.
Each week, with Ed Balls and Ed Miliband, we would go through the Scorecard, line by line, sheet by sheet. James Bowler, until recently David Cameron’s trusted PPS, would be there; as would Michael Ellam, the Treasury’s then Head of Communications.
A dozen times or more, we would go over the same Starter, and the two Eds would ask a dozen questions about each one: why would we want to do this?; who’s proposing it? how robust is this costing?; what’s the distributional impact?; what does the Minister think about it?
Occasionally, the lead officials for particular Starters would file in for an interrogation, or the entire group would decamp to one of the Minister’s offices to go through all the Starters for which they were responsible.
In a separate weekly meeting, the two Eds and the Ministers would then sit down with Gordon and repeat the process, officials would be summoned for detailed discussion, additional analysis would be commissioned and digested, and from those intense sessions, emails would emerge stating: “The Chancellor has taken the following decisions…”
By that process, Sheet 1 would be finalised, and there is no doubt that – with a few painful exceptions – on each of the 11 occasions Gordon Brown stood up to announce his Budgets (20 if counting PBRs), he did so confident that every decision had been comprehensively analysed and thought through.
As importantly, this allowed Gordon to dodge hundreds of bullets over the years – saying ‘No’ to Starters which officials and Ministers had recommended to him, but which rightly failed to survive the intense scrutiny of the Scorecard process.
Alistair and George
I don’t know whether, how or why the process changed when Alistair Darling became Chancellor, but one thing was clear: Starters which Gordon and the Eds had blocked on previous occasions began to appear in the final list of Budget decisions; officials had given them another whirl and succeeded.
One example springs to mind. There was a perennial Starter in each of Gordon’s last 5 Budgets to raise the road tax rate for older, high-emission cars to the much higher rate charged on their brand new equivalents.
The DVLA proposed it every year for sound administrative reasons; DEFRA backed them up for sound environmental reasons. Gordon rejected it every year for the equally sound reasons that it was unfair and political madness to impose a retrospective tax hike on millions of family cars.
Alistair put the measure through in his first Budget, and promptly had to reverse it in the face of a media and public outcry, led by the Telegraph. What was telling was the reaction from Alistair’s ‘people’: “the officials didn’t tell us”, “we didn’t realise”. Clearly, the Scorecard process was no longer working.
By contrast, in George Osborne’s first two Budgets, despite some unravelling of the North Sea windfall tax and the time bomb of the Child Benefit cuts, it was clear to me that the traditional Scorecard process was working on overdrive.
I looked through the 2010 and 2011 Budget Decisions tables, eager to see what fast ones my old civil service friends had managed to pull on the new Chancellor, and I was gravely disappointed.
These were highly-disciplined Budgets where all but the most significant and carefully-considered measures seemed to have been stripped out. I imagined George Osborne going even further than the two Eds in his Scorecard meetings, rejecting without question any measure which did not fit within his big picture. I confess I was very impressed.
But now we come to yesterday. Even before the Budget documents had been published; even before I’d seen the Budget Decisions table, I knew something was wrong when George Osborne said the dread words: “We will also address some of the loopholes and anomalies in our VAT system.”
“For example, at present, soft drinks and sports drinks are charged VAT; sports nutrition drinks are not.” Blimey, I thought, that’s Starter 328 from 2003 – Dawn Primarolo rejected that one before it even got to Ed Balls.
He continued with hot takeaway food. You’re joking, I thought, not that old chestnut. I personally blocked that one back in 2005. “Some companies”, he went on, “are using the VAT rules that exempt the rental of land to avoid tax.” That’s Hairdressers, I thought! Starter 318 every year. Gordon would never touch it.
Suddenly, I became worried for George Osborne. Where had the ruthless discipline of the previous two Budgets gone? If he’d let these kind of measures through the net, what else had he let through?
And what were his next words: “We should also simplify the age related allowances…many pensioners don’t understand them.”
I may be totally wrong. George and his team may have thought through every individual measure, and their cumulative impact on different groups, just as carefully before this Budget as they did before Budgets 2010 and 2011.
But for me, it felt as though they were so focused yesterday on the big ticket tax cuts – 50p and the raising of the personal allowance – and what they thought were the most high-profile tax rises – fuel duty and stamp duty, that they took their eye off a number of other balls.
And it wasn’t just pensioners. I’d be surprised if there were many Budgets from 1997-2007 when Gordon hiked duty on each of the 6 main excise duties: beer, wine, spirits, cigarettes, fuel and cars, because when he and the Eds looked at a Scorecard with all those tax rises side by side, you can bet they would have frozen at least one to sweeten the overall pill.
The days after a Gordon Budget were often difficult as individual measures came under scrutiny, but it was rarely something he wasn’t prepared for (the 75p pension being the obvious exception), and it rarely overshadowed the Budget package as a whole. The Scorecard process had a lot to do with that, as well as ensuring there were a few (happy) surprises left to be announced on the day.
George and his team didn’t seem prepared for the pensions row, and it certainly has overshadowed the overall package. Yes, that’s because of problems with the policy. Yes, it’s because the presentation was badly flawed. But also, and not to be underestimated, it looks as though something went very badly wrong in the Scorecard process.
Someone didn’t ask the basic questions the Eds used to ask, or they didn’t ask them often enough. If they had, yesterday’s Sheet 1 would have been much shorter, and with fewer unpleasant shocks.
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