The Institute for Fiscal Studies’ Green Budget, 2015

The Institute for Fiscal Studies’ annual Green Budget sets out in as objective a way as possible the options facing the Chancellor of the Exchequer as he approaches his budget announcement, and both the publication’s overall message and its detail are always worthy of careful study.

However, there are parts of this year’s Green Budget that we would like to question. On p.213 we read that ‘one high-profile change has been the introduction of a means test for child benefit’. This is not strictly true. What has been introduced is an additional tax charge on higher rate tax payers living in households that receive Child Benefit. Child Benefit remains a universal and unconditional benefit. Clarity over this is important, particularly because the Green Budget goes on to argue that as Child Benefit is already means-tested it should be combined with Universal Credit. But Child Benefit is not means-tested, and it should not be. To means-test it, or to combine it with Universal Credit, would add to the employment disincentives that the Green Budget quite rightly suggests that we should avoid (p.197).

We are pleased to be able to agree with the Green Budget‘s detailed argument and conclusions in relation to the Winter Fuel Allowance, and with the authors’ verdict that ‘the debate around winter fuel payments seems to have become totemic rather than a serious discussion about whether less can be spent on supporting the elderly through the benefits system’ (p.223).

A welcome new chapter in this year’s Green Budget is chapter 6 on the changes in the public accounts that bring them more into line with current business practice. This change is welcome because it enables government assets to be properly accounted for, and it also creates more clarity as to the boundary between government expenditure and expenditure provided by government for non-governmental organisations ( – though the chapter recognises that it will not always be easy to decide where this boundary will be). However, one boundary that the new structure has not questioned is that between income tax and spending on social security benefits. A tax allowance results in revenue foregone. If the personal tax allowance were to be abolished, and cash payments of the same value were to be paid instead, then the Government’s fiscal position would not alter and individuals’ disposable incomes would not change. Therefore revenue foregone should be counted as social security expenditure – or, alternatively, spending on income maintenance should be separated from income tax receipts before they are reported. To maintain the current boundary between tax receipts and social security spending prevents rational decisions being made about the best approach to income maintenance. Perhaps a future edition of the Green Budget will contain a single chapter on the combined effects of Income Tax, National Insurance Contributions, and social security expenditure on income maintenance, rather than the separate chapters that we have always seen until now.