June 27, 1997

Huw Richards talks to Andrew Dilnot about next Wednesday's Budget - Labour's first since 1979.

It wasn't until the 1970s that serious political attention started to focus on tax and public finance. "For most of the previous 100 years both tax and public spending had risen pretty consistently without anyone giving them very much much thought," says Andrew Dilnot, director of the Institute of Fiscal Studies, the independent tax and public finance research body.

But in recent years debates about how to cut the public sector borrowing requirement without overly raising taxes have tended to dominate speculation about the chancellor's calculations.

Dilnot is exasperated by the political obsession with income tax: "I find the fixation with the standard rate of income tax very frustrating. Income tax provides only around 25 per cent of overall tax revenue."

The politicians, he argues, have consistently ducked the relationship between tax and public spending. "There are numerous options. You could have lower taxes and a smaller public sector. It would be equally possible to have higher tax levels and more generous public provision. What you can't do is pretend that you can provide services without paying for them."

Dilnot is sceptical of the current vogue for an integrated tax and benefits system: "I wrote an early paper on this in 1984. But it has come to mean so many different things. You have to define what you mean by it. And wheezes that are supposed to solve all of our problems very rarely do."

One problem with the benefits system, he says, is that it focuses on employment status, dealing differently with the employed and unemployed, rather than dealing with low incomes. "And this has become even harder to address since 1990, when we moved from a family to an individually-based tax system."

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