Hung parliament to change the face of tax policy

With the election result looking ever more likely to produce a hung parliament the papers have been speculating as to how it could change the face of politicis forever. Their reasoning is that the Lib Dems could force reform of the voting system as the price for support in a coalition government results in a coalition government forever more.
That’s interesting but more interesting, from a professional point of view, is the effect such an outcome will have on tax and economic policy development.
In settling the make-up of a coalition the parties are almost honour bound to go through some pretty intensive horse trading to finalise what key policies will be on the agenda.
Imagine then Budget time. What if the chancellor, say Vince Cable for example, is working on a Budget for a coalition with Labour. How will they decide what is in or out? What protocols will govern decision making? How will they balance competing political agendas?
Take for example the Lib Dems working with the Tories. Could a Conservative Prime Minister stomach a mansion tax, or increasing the rate for capital gains? Both designed to hit the better off – the natural Tory constituency.
We would also potentially learn more about in-fighting over policy. Given the way Westminster works, politicians won’t be able to resist briefing their favourite journalists about the stupidity of policies coming from their partners in government.
All of this means if we do have a coalition government, Budget days, and taxation, may never be the same again. They may be much more contentious, with many more compromises.
There is also another fascinating implication. Labour has imbued much more power in the Treasury than any other previous government. Read Simon Bell’s book Boom and Bust and you see how the then chancellor, Gordon Brown, used the Treasury to exert control over other government departments.
The extent to which this still persists may have been watered down by Alistair Darling’s arrival at Number 11, but the question is would a Labour PM want a Treasury controlled by another party and exerting influence over spending and policy in other government departments. Such an arrangement could provoke a complete re-evaluation of the relationship between Treasury and the rest of Whitehall. Where they would finish is anybody’s guess.
Decision making would undoubtedly be difficult. The upside is that coalition might just filter out all the one-sided ideologically driven policy and taxation objectives in favour of fairness and balance.
At this stage however, it is impossible to tell. We will just have to suck it and see.

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