The New Statesman Profile - Institute for Fiscal Studies

All the parties sought its approval during the election, but it sees itself as unravelling the decei

The search goes on for the real winners of the recent election. Politics itself was a loser, beaten into a poor second place by apathy. For punditry, the results were mixed: a raspberry to MORI for consistently overstating Labour's lead; a coconut to Matthew Taylor of the IPPR, for the largest number of television appearances, and to the American spin-doctor Frank Lutz, for his offbeat view. But a special prize for being clear, sensible and impervious to candidates' double-speak goes to a body of economists and tax accountants toiling in the salt mines of manifesto minutiae under one of the most yawn-inducing names in the London phone book: the Institute for Fiscal Studies.

The IFS, personified by its director, Andrew Dilnot, occupies a uniquely authoritative niche in modern British political debate. When the institute said, at the beginning of the election campaign, that the tax burden had gone up under Labour, there was no point in anyone claiming that it had not. Every party was eager to say that its proposals had been given the once-over by the institute. Members on the House of Commons Treasury select committee listen like schoolboys when Dilnot takes them through the implications of legislative small print.

The erstwhile Department of Social Security habitually sent its statistics to the institute's Bloomsbury headquarters for audit before publication - and did so ever since, in the late 1980s, the IFS spotted an accidental double counting of housing benefit in DSS figures that made low-income households look better off than they really were.

The key to the institute's rise to judicial eminence is what John Kay, a former director of research at the IFS, calls "the objectivity thing". All the other think-tanks - whether the bow-tied free-marketeers of the Institute of Economic Affairs and the Adam Smith Institute, or the no-tie new-leftists exemplified by Matthew Taylor - look at the issues of the day through the prism of their own preconceptions and mission statements. The IFS, by contrast, sternly avoids any attempt to "plug a line or do good", says Kay.

"It's our absolute intention never to come at something from a particular standpoint," echoes Dilnot. "We are quite deliberately independent, and we're our own regulatory mechanism."

Is it possible to be genuinely objective in the institute's subject area? And is the success of the IFS really based on the in-depth quality of its output on riveting topics such as Surplus ACT: a solution in sight? and A Recursive Algorithm to Generate Piecewise Linear Budget Constraints? Or does it boil down to a brilliant marketing job by the television-friendly Dilnot?

In his decade as director, Dilnot - who is still only 40 - has certainly upped the institute's profile. But its reputation in the cloistered world of serious thinkers about tax policy goes back 20 years before that. The institute was first mooted in 1965 by four City executives who were appalled by the then chancellor James Callaghan's introduction of capital gains tax, in what they regarded as a half-baked piece of legislation. One of them, the tax consultant John Chown, described the founding group as united in a determination 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".

If the civil service was not up to the job, a shadow organisation was needed to do it instead. A brainstorming weekend at The Bell hotel at Aston Clinton in Oxfordshire led to the founding of the Institute for Fiscal Studies, which was incorporated on 21 May 1969. The first director was Dick (now Lord) Taverne QC, who had been financial secretary to the Treasury under the chancellorship of Roy Jenkins.

One of his contributions to the IFS was to commission the 1978 Meade report on the structure and reform of direct taxation in the UK, under the Nobel laureate economist James Meade, assisted by three bright young men: John Flemming and Mervyn King, who went on to be successive chief economists at the Bank of England, and John Kay. It was Kay who took the institute forward in the early 1980s, and who recruited Dilnot. Kay had taught at St John's College, Oxford, where he spotted Dilnot as a philosophy, politics and economics undergraduate with a flair for empirical data and an enthusiasm for computer modelling. Chatting in the quad one day in 1980, Kay offered him a summer job at the IFS. Dilnot has, in effect, been there ever since. After ten years of churning out learned papers on everything from the scale of the black economy to the future funding of the BBC, he emerged into the limelight as director of the institute in 1991.

Small, neat, classless and personable, he has established himself as the nation's best explainer of fiscal change on Budget Day, and as a top-class soundbite artist at any other time. Neither bow-tie nor no-tie, Dilnot is a well-turned-out television natural, with a trustworthy face and a voice made more interesting by hints of his formative years at Maidstone Grammar and Olchfa Comprehensive in Swansea.

He has the added advantage of being obviously happy in his work. "We have tremendous fun," he says, denying any urge to advance from analysing and explaining to real policy-making as a government adviser or "people's peer".

Applying rigorous cost-benefit analysis to his own working life, he negotiated a salary cut at the institute in exchange for longer holidays, which he mostly spends at home in Oxford with his wife (an accountancy teacher) and two children. And he prefers to play down his own prominence as the public face of the IFS: in a team photograph in its 30th anniversary brochure, he appears in the back row.

But what are his own politics, we might ask. His recent contribution to Channel 4's Politics Isn't Working series seemed to provide a clue. Subtitled More Unequal Than Ever, the programme was an artful exposition of the wealth gap in Britain - illustrated by Dilnot cycling up a Leeds hillside populated by families of varying economic altitude, from a single mother on benefits at the bottom to a millionaire entrepreneur at the top.

Drawing graphs with his finger on a steamed-up cafe window, Dilnot went on to prove that the rich had got richer faster than the poor had got less poor, even under Gordon Brown's chancellorship. To narrow the gap, he concluded, would require more radical policies on tax, health and education. But was he actually recommending such a course? Close analysis of an accompanying Guardian leader-page article suggests he did not actually go that far: his message was simply that "we cannot have European levels of public service with British levels of tax, or American levels of tax with British levels of service", and that none of the three major parties in the last election "seems prepared to address the scale of the real choices we face".

His mission is to explain rather than preach, but, by choosing income inequality as the subject for this personal essay, Dilnot has perhaps given us a hint of where he stands. His mentor, John Kay - talking about the IFS in general, rather than Dilnot in particular - says that it is almost impossible to be "100 per cent neutral" in economic analysis; there is a danger that if you claim you have no point of view at all, people will assume you mean "you're somewhere in the SDP-Lib Dem middle".

Kay has become associated with ideas about corporate responsibility and stakeholding, placing him in the centre left of the business-school world. The tacit ideology in the work of the institute, he says, is that "there's always been a market orientation". But not enough of one, say right-wing critics of the institute. "There's always some degree of value judgement involved. In the IFS's case, they're basically happy with the general levels of current taxation. They reinforce the consensus view of the size of the state. They're just not radical enough."

Such criticism deliberately ignores the limits of the institute's self-defined role, which is to unravel the deceits of politicians and civil servants so that the rest of us can judge for ourselves whether we are being cheated. With a chancellor who wants to tax us more without us noticing, and an opposition that wants to tax us less without us noticing what that means for spending, there has never been a greater need for Dilnot and his team.

This article first appeared in the 06 August 2001 issue of the New Statesman, The Murdochs: a family saga