Budget Resolutions

Jacob Rees-Mogg Excerpts

Wednesday 6th March 2024 Commons Chamber

[Sir David Davis (Haltemprice and Howden) (Con)]

It is rather sad to follow that speech from the hon. Gentleman. I remind him that a one-in-75-year financial crisis, a one-in-a-century health crisis and a one-in-75-year international crisis in Europe, all contributed dramatically to the problems he outlined. Although I may be on the same side as him when dealing with the public school tendency in my party, I do not blame them.

[Sir Jacob Rees-Mogg (North East Somerset) (Con)]

On that point, will my right hon. Friend give way?

[Sir David Davis]

Of course, absolutely. Every opposition has its day.

[Sir Jacob Rees-Mogg]

I would just like to say that we are not all that bad.

[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.

--- Later in debate ---

[Sir Jacob Rees-Mogg (North East Somerset) (Con)]

It is a pleasure to follow the right hon. Member for East Antrim (Sammy Wilson), and particularly my right hon. Friend the Member for Haltemprice and Howden (Sir David Davis), who made an important speech, particularly as regards the OBR. It was telling that the Chancellor started his speech by pointing out, at least inadvertently—it was not a deliberate attack—how many things the OBR has got wrong. That is a real problem for policymaking, because we treat the forecasts as if they were holy writ, authoritative and right. We make decisions on comparatively small amounts, assuming that the forecasts are fundamentally right, and that everything will add up—but of course it does not.

Let us look at the increase from £85,000 to £90,000 in the VAT threshold. That is an absolutely splendid and fundamentally good policy. It makes life easier for small businesses, is thoroughly welcome, and costs £150 million, or 0.01% of a Budget of £1.216 trillion. The cost is utterly trivial, yet the Government do not go further, saying that they cannot afford to. Of course they can. That amount is a rounding error, when we consider the total of what the Government do.

Unfortunately, that is the problem with the whole approach. As far as it goes, it is perfectly good. The economic circumstances have been tricky, and we spent £400 billion on support during covid, which was the right thing to do; but rather than nickel and diming, as is happening, we need to look at the fundamentals of our tax and spend policy. That £1.216 trillion is 44.5% of GDP that we are spending. That is too much. It is more than the country can afford; that is the starting point. It means that we are taxing too much.

A report in The Daily Telegraph states that we will not quite reach the figure for tax as a percentage of GDP that we did in 1948. We will just swerve having our highest level of tax in the post-war period, but that figure shows that we are spending too much. We need to get spending under control, so it was a pity that the Chancellor stuck with the 1% real-terms increase in public expenditure. We should be making public expenditure flat in real terms, and we need to recognise that the best way to afford public expenditure is through economic growth.

A matter for rejoicing—I know that the people in North East Somerset will be delighted, and the Chancellor mentioned this—is that at least the OBR and the Treasury have been willing to look at a particular tax to see if cutting it makes things better: the tax cut from 28% to 24% on property. I own property—I refer to my entry in the Register of Members’ Financial Interests—so the change may be beneficial to me, but moreover it shows that Laffer works when even the Treasury and the OBR come round to thinking about it.

Where else could that be done? The hon. Member for Solihull (Julian Knight) mentioned the tourist tax. It is the easiest tax for the Government to have got rid of. We know—all the evidence is there—that it costs the economy and the Treasury money, yet the Treasury ploughs ahead with the obstinate view that a tax rate produces a set amount of tax, which we know to be false. Go back to 1979, when 98% tax rates raised much less money than 40% tax rates ultimately did. That is why I am not at all keen on the attack on non-doms.

The OBR forecast expects 350,000 immigrants, net, to come to this country every year up to 2028-29. That is built into its forecasts. We need to get control of that. On the one hand, we need to get control of people coming in and undercutting the British workforce, lowering wages in areas such as social care. On the other hand, we want as many billionaires as are willing to come, because they are small in number yet contribute very largely to the economy. Attacking them, and making things harder for them, might be a means of stealing the Labour party’s clothes, but it is not good economic policy.

[Sir David Davis]

Doubly so, because post Brexit, other countries—France in particular—have actively set out to drag those billionaires into their country.

[Sir Jacob Rees-Mogg]

France, Italy and Portugal, our oldest ally. Yes, absolutely, other countries are competing for the very rich, who will go to those countries, rather than coming here.

I am also not in favour of the extra tax on oil companies. We need more oil and gas. One of the reasons why our productivity has been low and our economy stagnant, compared with the United States, is our much higher energy prices. We need to wean ourselves from the green ideology, which is making us cold and poor, and is one of the biggest factors to undermine economic growth in the past 15 years. We should not be attacking the oil companies; we should be welcoming and encouraging them.

The time limit is very tight, but there is good news that Members will like: time on the Finance Bill is unlimited, so I look forward to resuming my comments on Second Reading.