A policy baseline is the set of values we include in our forecast covering all policy aspects of the tax
and social security systems. This includes factors such as tax and social security rates, thresholds,
payment amounts, eligibility criteria and implementation timings.
Policy baselines are a critical part of our forecasting process. They allow us to both produce
forecasts and provide costings for government policy decisions. Since we are required to forecast
tax and spending five years ahead, our forecasts depend on how the tax and social security
systems evolve over this period. In particular it matters how thresholds and rates will change in
response to our forecast of inflation. In the absence of an explicit policy determining how this will be
done, our baseline sets out our counterfactual set of values about the evolution of these main
factors. The policy baseline can have a big effect on not just the forecast levels of tax and spending
but also, to the extent that the government does something different from what is in the baseline, on
what will count as a policy change.