James Callaghan (Labour Chancellor at the time) had made a speech announcing his intentions to make far-reaching changes to the tax system in his next Budget, including a capital gains tax and a corporation tax. Nils Taube commissioned John Chown to prepare a professional analysis of this speech. Despite his warnings about the dire consequences of implementation of the government’s proposals they stood, John Chown was dismayed to find that “the same half-baked proposals were rehashed in the Budget Speech, and the Finance Bill, when published, read as if the draftsman had simply been given the Callaghan speech and been told to turn it into legislation.”
Bob Buist remembers what happened next: “Nils suggested we meet with John Chown and Will Hopper, at that time a member of the Bow Group, and this we did shortly thereafter. There followed a series of informal meetings and discussions.
“The 1965 Finance Bill confirmed our worst fears but our busy professional lives left us little time to do more than make ourselves aware of the range and scale of Britain’s fiscal problems. We gradually broadeened our range of contacts and found others who felt as we did, in particular Jeremy Skinner and Halmer Hudson who became active members of the group.”
They discovered that they were united in a determination, as John Chown puts it, “that never again should a government, regardless of its political colour and intentions, introduce far-reaching tax legislation without the benefit of deep and thorough analysis of its second- and third-order effects.”
An early attempt at this kind of analysis was attempted at “a bachelor brainstorming weekend at the Bell, Aston Clinton. Each of us took primary responsibility for one article on various aspects of tax reform, and these we offered to the editor of The Times, expecting them to be published one by one over four days or even four weeks. Instead, we were given a whole page, with all four articles published the same day under the banner headline, A Charter for the Taxpayer.
Will Hopper recalls that the idea of a research institute did not take shape until some time later at “a dinner which was attended by Bob Buist, John Chown, Nils Taube and me on 30 July 1968 at the Stella Alpina restaurant, 32 North Audley Street, London W1 at which a decision was made to found our Institute. The actual date of birth was 21 May 1969 when it was incorporated — appropriately enough just over nine months later.
“The minutes which I wrote at that dinner meeting were brief but explicit. The Institute’s principal objective was ‘to study the economic impact of existing taxes and propose changes in the fiscal system.’ The Institute was to be an independent ‘research society’ and not a ‘propaganda society’. In the early stages the modus operandi would be to ‘farm out’ research. (By implication at a later stage it would be conducted as we now say ‘in-house’.)
“I had proposed the name which was accepted without debate. I am therefore responsible for the fact that an entire generation of researchers has looked for an Institute of Fiscal Studies in the telephone directory and concluded it was ex-directory. Fiscal was selected in place of the more obvious Tax because we wished to include the other side of the fisc. You cannot discuss the economic impact of taxation without looking at expenditure and the balance between the two.”
Will Hopper became the founder Chairman of the Institute, which had, as he puts it, “a ‘chicken and egg’ problem. It could not attract staff because it had no money and no track record; and it was difficult to find patronage or establish a track record without staff. The solution that the committee adopted was to invite one of its own members to establish at least the beginnings of a track record by writing a proposal for the reform of the new corporation tax. John Chown’s substantial pamphlet on this subject was brought out as the Institute’s first publication. It made an immediate impact and influenced subsequent legislation.”
As Will Hopper explains, as well as research, the Institute had “wider, unspoken objectives. We, the founders, did not just want to start an Institute; we wanted to change the world or, at least, to change the world of the British fisc. In particular, we wanted
- to alter the climate of opinion within which changes to the British tax system were considered;
- to improve the procedures by which changes in the tax system were effected;
- to help create a more rational tax system.
These objectives could only be achieved by an Institute with a certain political clout. John Chown takes up the story: “The breakthrough came following the surprise defeat of the Labour Government in the 1970 General Election. The morning after election day, Nils rang me with a brilliant idea. Dick Taverne, who had been Financial Secretary, was now out of a job. Could we persuade him to take on the running of the Institute and to make this his primary responsibility outside Parliament? Dick liked the idea, but naturally wanted to know who was going to pay his salary. The four founders decided that it was worth giving personal guarantees for the first year.”
It was under Dick Taverne’s lead that the modern IFS began to take shape. The Council was formed, funding was secured and a research programme could be launched.
This information is taken from an article by Bill Robinson, first published in Fiscal Studies, Volume 11, Number 3 (August 1990) to mark the 21st anniversary of IFS.