Budget Resolutions and Economic Situation

Jacob Rees-Mogg Excerpts

Wednesday 15th March 2023 Commons Chamber

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

It is a pleasure to follow the hon. Member for Brent Central (Dawn Butler), and I agree with her and my hon. Friend the Member for Cities of London and Westminster (Nickie Aiken) that it would be very good to sort out the VAT issue for goods that are going to be exported.

Listening to the debate and looking at the documents, I have been struck that I have made a mistake. I used to think that a phantasmagoria was a forerunner of a moving picture—the sort of machine that I might go home and watch on a quiet Wednesday evening—but it turns out that it is, in fact, our current approach to economic policy making.

I refer right hon. and hon. Members to page 131 of the OBR’s report, which says:

“Since the OBR was established in 2010, the Government has had six different fiscal mandates.”

That means that the OBR comes up with forecasts that are wrong to meet a Government mandate that will change, so the value of the exercise on which we are basing our economic policy is not right. It does not serve the purpose of what we are trying to do, which is to achieve economic growth and to increase the standard of living of our constituents generation by generation. Instead, we are taking a theoretical approach that does not work in practice, which is why we have not been achieving growth, because we have not been willing to make the necessary decisions.

Today, we have heard some things that are welcome, but they have been picked out of a jar of sweeties. For example, we have picked out the sweetie on pension reform, which is great, as it happens—the Toblerone with a Swiss marker on it of sweeties—because it could really encourage investment. It could make people think that pension investing is a long-term opportunity, which it has not been in recent years, as long as the reform remains and we do not find that next year, a new limit is brought in or the £60,000 annual investment limit is tweaked. In recent years, we have had such confusion in pension investing that one wonders why anyone has bothered. It was brought into the sharp light of day only by the fact that people were retiring from the public sector because the pension system had become so lunatically punitive in the high marginal rates it charged. This is a welcome aspect of the Budget as long as it is stuck to.

The deregulation of childcare, again, is a good thing. I have pointed out that if somebody such as me is allowed to be left in charge of six children, which is perfectly legal, even without any Government intervention or Ofsted inquiry, it seemed surprising that people much more capable and better trained could look after only four. I am glad that the number is being increased. I am also delighted that the fuel duty is being frozen. As the Mayor of London wishes to savage the motorist and put them into penury, I am reassured that the Conservatives continue to be on the side of the motorist.

Those are some of the sweeties that we have been able to pick out, but it is not all sweeties, because a number of things that were not mentioned in the Budget will continue. For example, everybody will have a real-terms increase in their tax because of the failure to uprate thresholds. That will mean that people will come into the higher rate of tax who, particularly if they live in London, are not actually that well off.

We are therefore getting a big tax rise, which is where I return to the phantasmagoria. By failing to think through economic policy in a way that will actually work, and by thinking of it on a theoretical basis, we have seen the tax rate rise. Let us look on page 80 of the OBR report at what happened in the Thatcher era. For the record, I think the OBR is a useless body that gives bad forecasts that are consistently wrong, but some of the historical data in the document are perfectly respectable.

Importantly, the OBR says that between 1981 and 1995, which we might call the Thatcher era, the tax burden fell from 33.9% of GDP to 27.4%. Once the socialists got in, it started rising, but I would have thought that since the Conservatives got in again in 2010, it might have come down a bit. Not a bit of it—it has gone on rising, which seems to be the problem that we are facing. We have a rise in corporation tax now, but we salami-slice it with some capital allowances to pretend that it is not much of a rise, which is not a good approach to tax policy. The best approach to tax policy is low tax rates with few exclusions.

The Budget sets up a tax avoidance scheme—the other side makes powerful arguments against tax avoidance—that companies are asked to carry out because the Government think businesses might spend money in a way that the Government approve of. But who actually knows best how to spend their money—businesses or the Government? Businesses. What we want is low rates, rather than investment being distorted to go in the way that the Government currently think is fashionable.

That is why I think we should be cutting corporation tax and looking at what has happened in the Republic of Ireland. This has been mentioned before, but the figures are stark. I wonder if those on the Treasury Bench are aware that, in the Republic of Ireland, corporation tax raises more money than value added tax, and it has a very similar VAT base to the one in the UK: €22.6 billion in corporation tax and €18.6 billion in VAT. In comparison, the UK raises £82 billion in corporation tax and £162 billion in VAT.

Lower taxes raise more money. Let us for once move away from the old-fashioned—from the phantasmagoria —and update ourselves to a modern age with tax cuts and economic growth.