Budget Resolutions

Debate between Chris Grayling and David Davis

Wednesday 6th March 2024 Commons Chamber

[Sir David Davis]

I might return to that shortly.

The truth is, as my right hon. Friend the Member for Epsom and Ewell (Chris Grayling) said, the Chancellor has done a skilful job in dealing with an extraordinarily difficult backdrop. I think there are more things he could do—I will talk about that in a second—although much of that is down to the structure of Government decision making, rather than his fault. For example, as the Leader of the Opposition said, we are dealing with a world in which Putin has weaponised supply chains and destroyed the economic basis of our anti-inflation policy that has worked for the previous 10 years.

I understand the Chancellor’s caution and his desire to retain the confidence of the markets. Against that, it is remarkable that he has taken £20 billion out of national insurance, at about £900 a head for 27 million people and for another 2 million self-employed people. Frankly, people are underestimating the success the Government have had with inflation reduction and employment. For most of my time in this House, the idea of 800 new jobs a day, every day, for an entire Government’s tenure, would be extraordinary—that certainly did not happen under the previous Labour Government—so we have quite a lot to be happy about.

That said, if I had my way, I would not have gone for national insurance; I would have reduced income tax. Why? A lot of assertions have been made in the public domain, probably in relation to the Treasury, that national insurance is less inflationary than income tax. That is bogus nonsense. The only argument to support that is that cutting national insurance will pull tens of thousands more people into the employment pool, but so will cutting income tax. Because income tax applies to people above the age of 65, cutting it would also keep highly skilled and capable people, who we do not want to retire, in the workforce. I would have preferred an income tax cut rather than a national insurance cut, but that is what we have got and it is probably much better than we would have got from the Opposition.

While I am talking about income tax, I want to make one point en passant. At every Budget, I have raised the question of IR35, which is oppressive on small businesses and the self-employed. It drives people out of the country; the Public Accounts Committee is looking into that issue and I hope it will come up with a conclusion some time soon. I will keep at the Government to deal with IR35 and the related issue of the loan charge. Frankly, His Majesty’s Revenue and Customs is behaving in a barbaric manner, reminiscent of the Post Office, so I will continue to raise that issue.

I want to raise a number of structural matters. My right hon. Friend the Member for Wokingham (John Redwood) made the point I was going to make about the Bank of England. The current structure of the Bank of England, its guidelines and its rules, are flawed in a big way. They handicap the way Government can operate on fiscal policy and on inflation. We need to address that and my right hon. Friend made a good point about that.

There is also the issue of the OBR. George Osborne created the circumstance under which the OBR almost sets the guidelines and the fiscal rules for the Government. The Government are then terrified of what the markets will do if they do not follow the OBR’s attitude. I understand the Prime Minister has a picture of Nigel Lawson in his study. He ought to read Lawson, because Lawson’s view on economic forecasts of any sort was that they are pseudo-technical nonsense. He did not believe in forecasts and we would do well to learn from him. The whole British establishment is suffering from a collective delusion about the amount of authority that rests with OBR forecasts—in fact, with all Government forecasts.

Let me give the House an example. The Bank of England’s forecasts failed to predict the worst inflation crisis in modern times. In 2022, the OBR’s UK borrowing forecast was more than £100 billion—I repeat £100 billion—off the mark. Last year, the Office for National Statistics—not in forecasting, but just in measuring—announced revisions that added £50 billion to the size of the British economy. Panmure Gordon turned round and said that it had completely rewritten the story of post-covid Britain, which it had. A new report on the OBR has suggested that, since 2010, the combined total of the OBR’s errors in growth forecasts aggregates to over £500 billion, and its errors in forecasting public sector debt accumulate to more than £600 billion: this is the mechanism that Chancellors are using to decide how much tax they can afford to cut. To remind people, the fiscal rule is that there should be a reduction in the percentage in 2029—that is the difference between two guesses. It is not a rational way to run an economy.

[Chris Grayling]

I was particularly struck by the change to capital gains tax and the reference to the Laffer curve. Does my right hon. Friend agree that it is disappointing that the OBR in particular still does not appear to look at dynamic impacts of tax changes in a way that is essential for the future?