Thirty years ago the Institute for Fiscal Studies published a seminal review of the UK tax system, the fruits of a commission chaired by the Nobel Laureate Professor James Meade. Explaining the motivation for the Review, Dick Taverne, then Director of the IFS, lamented: 'For too long, tax reforms have been approached ad hoc, without regard to their effects on the evolution of the tax structure as a whole. As a result many parts of the system seem to lack a rational base. Conflicting objectives are pursued at random; and even particular objectives are pursued in contradictory ways.'
Unfortunately, this critique still holds true today. In some important respects the tax system has evolved in the way that the Meade Report recommended, but it remains the product of often incoherent piecemeal changes rather than strategic design. The tax system has also struggled to adapt to profound changes in the economic, social, and institutional environment in which it operates. And tax design has not benefited as much as it could from advances in theoretical and empirical understanding of the way features of the system influence people's behaviour.
For all of these reasons, we felt that the time was ripe once again to ask an expert commission to take a hard look at the tax system: to try to identify the characteristics that would make for a good tax system in an open economy in the twenty-first century; and to suggest how the British tax system in particular might be reformed to move closer to that ideal. Two volumes, Dimensions of Tax Design with contributed chapters on different aspects of taxation, and Tax by Design which lays out the Review's final conclusions, are the result.
In thinking of a worthy successor to James Meade as chair of the Review, there was one obvious choice: the Nobel Laureate and founder of the modern theory of optimal taxation, Professor Sir James Mirrlees, of Cambridge University and the Chinese University of Hong Kong. He has been joined in editing Dimensions of Tax Design and writing Tax By Design by Stuart Adam of the IFS; Professor Tim Besley of the Bank of England and the London School of Economics; Professor Richard Blundell of the IFS and University College London; Professor Stephen Bond of Oxford University; Robert Chote, former Director of the IFS; Malcolm Gammie QC of One Essex Court and the IFS Tax Law Review Committee; Paul Johnson Director of the IFS; Professor Gareth Myles of Exeter University; and Professor James Poterba, President of the National Bureau of Economic Research and the National Tax Association in the US.
The Meade Report confined its attention largely to direct taxes in the UK, whereas we wanted the Mirrlees Review to examine the tax system more broadly and from a global perspective as well as a British one. To provide a foundation upon which our final conclusions could be built, we therefore began by asking small teams of experts from the IFS and around the world to address a number of key themes in tax design, with equally distinguished experts to comment on their work. These authors and commentators were not constrained by the views of the editorial team, and neither was the editorial team constrained to agree with all or any of their conclusions. We are enormously grateful to them all for their analyses, which are of considerable interest and value in their own right, above and beyond any inspiration they have provided for the final report. They are published in full in Dimensions of Tax Design.
The Review's conclusions are to be found in Tax by Design. From the outset, the intention of the Review was to take a 'big picture' view of tax design, asking what society wants the tax system to achieve and how best it might be structured to accomplish that. Tax by Design sets out an overarching vision for the tax system and suggests some desirable incremental reforms. The starting point has been to look at the economics of the tax system, although we have received a great deal of useful input from tax lawyers, advisers, and practitioners, as well as those currently and in the past involved with the practicalities of tax design and implementation. Inevitably, some of those who spend most of their time thinking about tax design and implementation from these perspectives might have identified different priorities and have taken different approaches if they were to have undertaken this Review themselves. Economists cannot claim to have all the answers to good tax design - and some of our answers will pose new questions. But thinking hard about the economics of the tax system is essential if it is to work effectively.
In addition to administrative practicality and the difficulty of turning economic intentions into robust legislative language, proposals for tax reform are of course constrained by politics - not least the unfortunate observation that those who lose from tax reforms tend be vengeful while those who gain from them tend to be ungrateful. But there is no point in a Review of this sort confining itself only to recommendations that we could confidently expect to receive immediate and enthusiastic support across the political spectrum - it would be a very short report if it did. The final report takes explicit account of the political economy of tax reform in setting out a possible path to a better system, but there will always be a tension to some extent between what is economically desirable and what is politically practical.
One of the most important and well-known lessons from economics is that there is no such thing as a free lunch. We must therefore express our heartfelt thanks to those who have paid for this one: the Nuffield Foundation and the Economic and Social Research Council. Both have long been much valued supporters of IFS and their support is gratfully acknowledged. To echo Dick Taverne's words on the launch of the Meade Report: 'We hope and believe that this Report will be a rich quarry for tax reformers and a valuable reference point for students of taxation for decades to come.'