How UK tax laws are made – an explainer

With the 2024 general election set for 4 July,  the UK’s political parties are in full campaign mode – issuing manifestos and touring the country to promote them.

Much of the media coverage relating to the political campaigns has focused so far on the tax policies and pledges being made by the major political parties. But how might those policies become a reality, and how long would any changes take to affect us, the public?

The following is a brief overview of the normal legislative process in the UK which creates our tax rules – this applies equally outside of election periods, but the timing may be of particular relevance given the current flurry of tax proposals. 

It starts with a bill…

Changing existing laws and creating new taxes normally requires a ‘bill’ to be introduced in either the House of Commons or the House of Lords. Bills are most commonly introduced by the Government, but can also be presented by an individual Member of Parliament, or by a member of the House of Lords.

Most bills can go to either the House of Commons or to the House of Lords first, but here our focus is on tax related bills such as Finance Bills, which have to start their parliamentary journey in the Commons.

Changes introduced as part of the normal fiscal cycle, for instance following a Budget, are introduced to Parliament as Finance Bills. The Chancellor can call a Budget at any time but in recent years, there has been an expectation that the Chancellor will wait until they have received forecasts about the economy from the Office for Budget Responsibility. This can take up to 10 weeks, which is why we may not see a Budget or a Finance Bill appear immediately following the election.

The introduction of a bill begins the process of making or changing tax laws, but there may be earlier steps in the process, which are worth looking at first.

… but before the bill

In some instances, there may be consultation of proposed tax changes before a bill reaches the Houses of Parliament. These steps are not a legal requirement, but are often used to allow wider input on potential tax changes and to gain expert insight before a bill is considered in Parliament.

Government proposals may be outlined in consultations, which are issued to allow anyone with an interest in that area to comment and provide feedback. Professional bodies, including the ATT, often respond to such consultations to share their members’ experience and expertise in order to help inform and shape proposed tax changes. The submissions page of our website contains some of our previous responses to consultations.

As a second consultative step before a bill reaches Parliament, a draft bill containing suggested wording to create a law or amend an existing one may be published for public and expert commentary. Again, this step is optional, but sharing the draft legislative wording can help identify any flaws or unintended consequences with the proposed changes.

As well as allowing public and professional comments on the proposed changes to legislation, a draft bill can undergo ‘pre-legislative scrutiny’ by committees made up of members of the House of Commons and/or the House of Lords. This allows an opportunity for them to shape legal changes before they are discussed more widely in Parliament, but is not commonly used in practice.

Back to the bill

Whether or not public consultation has been carried out in advance, the first parliamentary step to changing tax legislation happens with the introduction of a bill into the House of Commons.

Passage through Parliament

A bill goes through two readings. The first simply announces it to Parliament so that it can be printed. At the second reading, the reason for introducing the bill is discussed along with its key points, followed by a debate and a vote on whether it should go further in the parliamentary process.

Assuming the bill clears that vote, it proceeds to Committee stage where it’s scutinised in more detail. That may be done by a Public Bill Committee made up of a select number of MPs with an interest in the bill, whose composition broadly reflects the political make-up of the wider House of Commons. At this stage, MPs debate each clause of the bill, considering changes or additions suggested by MPs alongside input from external stakeholders, including professional bodies such as the ATT.

Alternatively, the Committee Stage might be carried out by the full House of Commons as Committee of the Whole House, but this is generally reserved for very important areas of law, rather than finer points of tax legislation. Scrutiny of Finance Bills is commonly split between the Public Bill Committee and the Committee of the Whole House based on the perceived importance of particular aspects.

The bill then goes on to Report stage, followed by its Third reading. Only amendments to the bill, or suggested additions are discussed at Report stage. No further changes are allowed at the third reading, which is purely a general discussion of the amended bill.

Once the bill has passed through these stages in the House of Commons, most have to be agreed by the House of Lords in a similar process.

The Monarch decides (in theory at least)

Having passed through both Houses of Parliament, the bill’s final hurdle is to attain Royal assent. In practice, the Monarch tends to accept the advice of the Government regarding the bill, so this step is normally a formality. A Monarch has not exercised their right to withhold Royal Assent since 1708.

Having attained Royal Assent, the bill becomes an Act of Parliament, but may not necessarily become law until a later date, depending on the wording in the Act. Some Acts specify a date from which their requirements take effect, whilst others might specify a delay from the time of Royal assent. This delay before an Act becomes law is designed to give those affected time to take any action needed to avoid breaking the new laws.

What this means for the general election

As can be seen, the normal process of introducing or changing tax rules is neither simple, nor speedy.

Whilst there can be routes to circumvent the standard processes where new laws or changes to laws are needed urgently, an election does not necessarily result in immediate changes to taxation. Most of the pledges made by political parties would need to go through the parliamentary procedure outlined above before they can take effect.

It’s also worth remembering that Scotland and Wales have devolved powers to set their own taxes in certain areas, such as the devolved equivalents of Stamp Duty Land Tax, so policies announced during the general election campaign which relate to devolved taxes may only impact England and Northern Ireland.