Inside the Treasury: how did the granny tax come to be?

It is often assumed that any measure to come out of the Treasury that is in any way slightly controversial must signal a malfunctioning process. This simply isn't true

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Are controversial measures necessarily a sign of a malfunctioning process?
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James Dowling
On 16 April 2012 16:14

In the wake of the Budget, I had meant to set out some thoughts on the presentation of the so-called ‘granny tax’ in the Budget. However, I have since read Damian McBride’s excellent post about the behind-the-scenes formulation of a Budget, and Sue Cameron’s piece on ‘the Sir Humphrey bounce’, of which, I have a rather less elevated view.

I don’t know Damian McBride - I joined the Treasury in 2006, and he, of course, left with Brown in 2007. We met once, very briefly - I very much doubt he would remember it. However, I do know a lot of people who have worked with him very closely. For all the popular media view of him as ‘McPoison’, some HMT officials certainly remember him well. And his view of the Budget/scorecard process - although dated - is a very good insight into how a Budget is pulled together.

I attended scorecard meetings for three years - in between 2007 and 2010. The terminology in McBride’s article is slightly dated (‘starters’ are now called ‘measures’, for example) - but is still broadly correct, subject as below. The burden of McBride’s song appears to be that the scorecard process is vital for stopping unintended problems slipping into the Budget, and that the coalition have let go the slick, well-run machine that serviced Brown so well, allowing the civil servants to take control of the process, and Ministers unable to push back.

The scorecard is one of the key vehicles through which those at the centre of HMT can keep track. The proper functioning of that and a few similar processes is vital. To that end, McBride is absolutely correct in asserting the importance of it as a vehicle for ensuring coherence and rigorous scrutiny. If it breaks down, the risk of something going wrong is hugely magnified.

Although I am prepared to believe McBride when he says the scorecard process functioned very well in his day, something singularly failed when it came to the 10p rate, which nearly brought down Brown’s Government. Gordon Brown was a deeply weird minister who preferred to deal with the department through a small coterie of officials and special advisers. The risks in this approach - ignored by McBride - are that you only get the advice you want to hear, regardless of how effectively things are otherwise run. On the 10p rate, Brown decided on abolition regardless of the advice on its adverse impacts that would certainly have been sent to him as an integral part of the process.

When challenged about the impacts of its abolition, Brown initially denied there were any losers. Either he was ignoring the HMT advice to the contrary, or he did not believe it - on the basis of no alternative evidence. It occurs to me now that another possibility might be that the process he created around himself simply excluded any advice which did not accord with his world view. I do not know which of these occurred, but I’m not sure either speaks well of Brown’s fitness for high office, or of the process he created and people like McBride helped run.

Alistair Darling’s 2007 Pre-Budget Report was run along the lines of the process left by Brown. After this, Darling enforced considerable changes which, overall, made the process much more open and, consequently, more robust.

By and large, the coalition continued with the process left to them by Darling. Which brings us to the recent Budget. Curiously, despite the fact that McBride is a former Labour spin doctor with an interest in perpetuating this angle, Sue Cameron uncritically adopts his line, padding it out with quotes from Sir Antony Jay, who says that civil servants like to  ‘decide what to do and … don’t want interference from people who don’t know the facts and figures or understand the skills required in government ... such as voters, MPs, ministers.’

With the greatest of respect to the creator of Yes, Minister, I’m not entirely convinced that an (albeit excellent) script writer with no recent or inside experience of the civil service and Treasury in particular is the best basis for a contention that the Treasury has taken their Ministers hostage. In over ten years in Government, I rarely - if ever - encountered an official who didn’t find an engaged, interested Minister rather more satisfying to work with than one who just rubber stamps whatever you put in front of them.

Both McBride and Cameron implicitly assume that any measure that is in any way slightly controversial must signal a malfunctioning process. McBride then shamelessly pins the blame for this on coalition Ministers, for transparently political reasons. However, it is entirely conceivable that a political decision was taken in full knowledge of the facts - something that arguably did not happen under Gordon Brown when it really counted.

The age-related allowances are an historic anomaly - an extra increment on top of the existing personal allowance, from which only those aged 65 or over can benefit. Perhaps there was a case for it at a point when the personal allowance was at a relatively low level. However, the coalition has increased the personal allowance to historic highs, at significant cost to the public purse. There is no real reason why, in these straightened times, the elderly should benefit over and above this.

Some of the media commentary on the so-called ‘granny tax’ would give the impression that the Government has dreamt up an entirely new tax purely aimed at poor pensioners. In reality, unlike the 10p rate, no one is actually going to hand over any more money to the state than they already do. The personal allowance for someone aged 75 and over will, in 2013, be £10,660. This is fully £660 higher than the current target for those aged 64 and less, which is only likely to be achieved by the end of the Parliament.

The Government is simply proposing to freeze the age-related allowance until the personal allowance catches up with it. Against the particularly punishing public finance backdrop, this is not an unreasonable ask - arguably, indeed, an example of the Budget process actually working well.

A narrative to that end could have been effectively deployed by the Government. The only question is why the Chancellor decided instead to present this as a simplification rather than a measure aimed at removing something which the largess of this Government had rendered unnecessary as well as unaffordable. But perhaps that is a question that Damian McBride’s experience of the way it was done in his time might helpfully illuminate.   

James Dowling is a former Treasury official. He is now a public affairs consultant working for Fleishman-Hillardspecialising in financial services, and is a member of the Conservative Party. He writes for The Commentator in a personal capacity

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