My Intervention on the Charter for Budget Responsibility Debate

John Redwood
(Wokingham) (Con)

My right hon. Friend the Member for North West Hampshire (Kit Malthouse) makes some powerful points. He is right that if we cut certain tax rates, we collect more revenue, not less. The historical evidence is very clear on that, but OBR and Treasury models do not capture that. He is right that if we try to guide our economy by a debt-to-GDP ratio and we go into recession, the ratio gets worse. We are then advised to take exactly the wrong action, and intensify the downturn by trying to chase the ratio with tax rises that will push the economy lower; it is an extremely foolish thing to do.

My right hon. Friend is right that the Treasury needs its own independent forecasting, and needs to be able to say sometimes that the independent OBR forecast may be wrong. If it is genuinely independent, why should the Chancellor have to defend it? When it is as wrong as it has been at points in the last three years—for example, as wrong as it was on the deficit—it would be extremely helpful if the Chancellor was encouraged to disagree with it, because it is sending him exactly the wrong signals. For two years running, it grossly exaggerated the deficit and debt at a time when we could have done more to promote growth. This year, predictably—indeed, I did again predict it—it got it wrong; it understated what would happen, because it did not understand that its other policies would slow the economy so much. My right hon. Friend is right about the longer-term issues, but time does not permit me to go into that, as people apparently want to go home this evening.

On the control framework, I will be the one person who says that I do not think that this control framework is good. It clearly has not worked in the past, and it is fairly unlikely to work in the future. We have one extremely important control, which is not mentioned in this document: the 2% inflation target. That should be even stronger and better enforced. It is very worrying that the Bank of England, which seems to have the main responsibility for it, allowed inflation to reach over 10% when it had a clear target of 2%. It would not listen to those of us who said that if it carries on printing too much money and buying too many bonds at ever higher prices, it is very likely to have inflation. I hope that it does not cause the reverse problem, and put everything into reverse, giving us a bigger recession than we need. We do not want any recession at all, but clearly a slowdown was needed to correct the extra inflation as the Bank tried to correct its past mistakes.

It would be good to complement the 2% inflation target, which should apply to the Government as well as to the Bank of England, with a 2% growth target. We would then have the balanced model that the Federal Reserve is wisely given by our American friends and colleagues. The Fed is told both that it must keep inflation to around 2% as a priority, and that it must maximise employment in doing so. A balanced mandate of 2% inflation—it would be nice if we could do 2% growth, but the current official forecasts are way below that—would provide the right kind of signals, and give us more chance of a sensible economic policy.

This is our one chance to remind ourselves of the big issue of how we manage this enormous debt, bearing in mind that about a third of state debt is owned in accounts by the Bank of England, which means that it is owned by the taxpayers and by the Government. When I last looked, the Bank of England was 100% owned by taxpayers and the Government. Every pound of that debt that was bought up, was bought up on the signature of Labour, coalition and Conservative Chancellors, with this House agreeing that we would indemnify the Bank against all losses. Indeed, the Bank of England understandably put on its website that the whole of the bond portfolio is held with it acting as an agent for the state. These are joint control decisions, and the Government are clearly the senior partner, because they have to pay the bills.

It is quite wrong that we should have this uniquely difficult treatment when it comes to handling the rundown and the losses, when the European Central Bank and the Fed made exactly the same mistake of buying too many expensive bonds . There is a lot to be said for the ECB idea that the rundown should take place as the bonds naturally repay. One does not go charging into the market to undermine one’s own bond prices by selling even more of them at a loss. If we want to be ultra-tough on money, like the Fed—it probably has more of an inflation problem than we did—then if we sell the bonds into the market, why send the bill to the taxpayer? Why does the bill not rest with the central bank, which can actually stand that kind of thing? As the Fed constantly points out, the fact that it is sitting on a lot of losses does not matter, because it can always print dollars to pay its bills—it is not like a normal company. We should look again at this particularly hairshirt treatment, whereby the Bank of England expects taxpayers to send it money every time it sells a bond at a loss—and it wants to sell a lot of bonds at a loss, when there is probably no need to do so for the sake of the conduct of monetary policy.

I hope that the Government look again at those issues, because we have a very difficult nexus between decisions taken jointly, decisions taken by the Government, and decisions taken by the Bank of England. The treatment of this debt is having a big impact on the Budget judgments that the Chancellor comes to.

My final point is on the strange treatment of debt interest. As the Minister pointed out, the debt interest programme has shot through the roof to extremely high levels, but the bulk of that is, of course, the indexation provisions on the index debt, which in the UK is a rather high proportion of the total debt. None of that requires cash payments, so it is not a bill that we have to pay today. In practice, it will wash through by our simply rolling over the debt when the bonds fall due. We will re-borrow the real amount rather than the nominal amount, so we will not actually feel it. It is very odd that we put that as a cost against the accounts. The great news, however, is that as a result of that strange accounting treatment, we will have a great bonanza, apparently, because I think the forecasts are right, and that inflation will come down quite sharply over the next two years—indeed, the Bank of England thinks it will go well below 2%. The debt interest programme will absolutely disappear through the floor, given all this so-called debt interest throwing out the figures. I hope some of the proceeds will be used for a sensible policy to promote growth.

John Glen

It is a privilege to close this debate on behalf of the Government. I thank those who contributed to the debate, including the distinguished Chair of the Select Committee, who highlighted some of the issues and presumptions of Government policy. I cannot comment on what will happen with fuel duty, as that will be the Chancellor’s decision. I thank the right hon. Member for Dundee East (Stewart Hosie) for his contribution, in which he seemed to suggest more targets and a poverty of ambition on behalf of the Government, and I can assure him that that is not the case.

I would like to respond to my right hon. Friend the Member for North West Hampshire (Kit Malthouse), who made a number of observations about the independence of the OBR; its certification and validation role; and the iterative process and whether that compromised the apparent independence of the Treasury. He described economics as not just an art or a science but even psychology. I can confirm that the OBR’s remit is unchanged: it is the Government’s official forecaster. But—as he notes and I am pleased to confirm—the Treasury maintains considerable analytical capability to support the policy advice to Ministers, and it does a very good job of it too. There is a clear separation between the OBR and policymaking, but it is a matter of securing credibility for those policies, and I think he would agree with me that that is a very important point.


  1. Nigl
    February 7, 2023

    ‘Securing credibility’ in reality means that you have to agree with them (because in their/the markets/opponents etc eyes) they are always right so the converse is true. Disagreeing equals no credibility.

    So there is no separation. When the OBR says jump, the Government jumps.

    Do ministers even read the tosh they are given to spout?

    1. Ashley
      February 7, 2023


      Truss makes the sensible point that their tax models are “insufficiently dynamic” a polite word for completely useless. She is right, a model that does not adjust for how one thing changing affects all the other is rather pointless. It gives totally inaccurate results. Climate model that try to predict the climate in 100 years (without even having most of the inputs) are even more idiotic.

      A sensible dynamic model would be excellent for Starmer & Labour as it would show them that abolishing non dom status and putting VAT on private school fees (their two daft tax grab plans) would raise far less tax not more overall. Also it would cost the government a fortune in extra state school places, rich people leaving the country and/or educating people overseas and loss of very many jobs at private schools.

    2. MFD
      February 7, 2023

      The OBR needs closed down, they always get the answer wrong so they have no value. Time to save a load of cash, sack the lot!

    3. rose
      February 7, 2023

      As Miss Truss pointed out in her article in the Sunday Telegraph, the OBR isn’t always on board and wasn’t for the Furlough package.

  2. Lynn Atkinson
    February 7, 2023

    Mr Glen was right not to attempt to respond to your contribution. There is no response possible without concluding that the Treasury and BOE are not up to the task. Indeed they are not even in the starting stalls.
    I’m afraid there is now no aspect of politics in which the Torys are competent. They have laid mines all over the political pitch and find it impossible to even play much less score goals – well they score a few own goals. For example responding to your sensible and humane tweet about using our Overseas Aid to help Turkey and Syria deal with their earthquake disaster – were we to do so we would be joined in USA sanctions because the act of aiding Syria means you are included in their Syrian sanctions.
    Time for the neo-Cons to put their ‘sanctions’ toys away.

  3. Ian B
    February 7, 2023

    @Nigl +1

    The Government has forgotten it is the OBR’s management, they invented the OBR because of their own failings elsewhere. Other than more taxpayer spending for nothing, what has this Government and their OBR achieved for the UK

  4. Derek
    February 7, 2023

    A long piece containing many facts and figures. However they are all valid so why does the Chancellor not follow them?
    Is it too influenced by the Mandarins in the Treasury or the OBR?
    It’s time the elected Minister gave strict orders to these self-centred people that they ‘shape up or ship out’. No longer should they even attempt to over ride Ministers decisions, the economic future of the country is at stake as well as the survival of us as a true democracy.

  5. Ed
    February 7, 2023

    Minister for Energy Security and Net Zero
    Day 1: Minister if we don’t invest urgently in new fossil fuel power stations the lights WILL go out
    Day 2: Minister to meet our net zero targets we need to blow up our fossil fuel power stations

  6. Lindsay McDougall
    February 7, 2023

    If the Treasury and the OBR use the same type of economy model, why do we need the OBR? A genuinely independent forecaster would incorporate within its modelling and forecasting things like Laffer curve effects, confidence factors, and the effects of policies. The last Labour Party manifesto under Corbyn was accompanied by a document about funding their spending programme, written or approved by John McDonald, his Shadow Chancellor. The trouble is that it didn’t go into Laffer curve effects for individual taxes, merely contenting itself with an overall (fairly small) allowance for change of behaviour.

    What do we know about Laffer curve – revenue maximising – effects?
    – there is an optimum level for the top rate of income tax (ref experience in the 1980s)
    – there may be an optimum level for the 40% tax threshold (the upper middle classes must be extremely pissed off at it kicking in at a mere 50% above the median salary, and set to be unchanged until 2028)
    – there is an optimum level for CGT (ref experience since 2010)
    – there must be an optimum level for corporation tax (if only because the next door Republic of Ireland has a low rate of corporation tax)
    – there is a revenue maximising toll for each toll road (ref M6 toll vs M6)
    – alcohol duty is probably already set to maximise revenue; possibly tobacco too but tobacco tax might be set high as a deterrent

    There may be revenue to be gained by two tax increases
    – removing the ceiling imposed on Council Tax by the banding system (currently band H stretches to infinity)
    – changing the non-dom status rules to make them more restrictive

    Any more?

    1. Mark B
      February 9, 2023

      It is interesting that you mention both alcohol and tobacco taxes. As governments, certainly in the latter case, have sought to dissuade people from these particular items they have not fully taken into affect the losses in revenue they bring. Either they accept the losses and reduce spending or, tax more elsewhere. It seems to me they have decided on the latter of these two.

  7. formula57
    February 7, 2023

    So “time does not permit me to go into that, as people apparently want to go home this evening”! Send them home permanently is the only proper solution. Shameful dereliction by some of your fellow parliamentarians.

    No-one ever explains why a two per cent. inflation target is a good idea. Why two per cent.? What exactly is the problem with mild deflation?

    Despite “When I last looked, the Bank of England was 100% owned by taxpayers and the Government.” for too many that does not of course mean that the owners should have any say: preserve the Bank’s independence to make grotesque, predictable errors at all costs.

    John Glen must be under considerable strain. What else accounts for him saying “…the Treasury maintains considerable analytical capability to support the policy advice to Ministers, and it does a very good job of it too”? Was he reading from a script drafted by officials perhaps?

    1. Mickey Taking
      February 8, 2023

      If it is not important to them, let them go home and those that think it matters can talk on….

  8. James1
    February 7, 2023

    It shouldn’t just be all about maximising employment. It’s more important to maximise production. Employment could easily be increased by paying people to dig holes and fill them in again. What counts much more is the level of production, i.e. the goods and services that are available to a population. Concentration should be on ways to increase production.

    1. Mark B
      February 9, 2023

      The problem with maximum employment is that it increases wage inflation.

      1. Lindsay McDougall
        February 9, 2023

        No. Both wage and price inflation have a single cause, the supply of money increasing faster than the growth in goods and services. The inflation of the mid to late 70s was initially triggered by the Heath/Barber budget of 1972 and Wilson/Healey poured petrol on the flames. Unemployment increased. In the 1980s, Thatcher/Howe set about reducing the fiscal deficit and inflation. The resulting recession in GDP was over by 1982 but the unemployment rate went on increasing until 1986.

  9. RDM
    February 7, 2023

    It’s not about Tax cuts for Tax cuts sake?

    It’s not about being Right or Wrong, it’s about Balance!

    Balance between stable Interest rates, and Cuts;

    Cuts in Spending (Green Subsidies, Inter Aid, Costs of Netzero).

    and Cuts in Taxes (VAT, Corp, and cost of fuel).

    You are promoting an increase in activity rate?

    1. Mark B
      February 9, 2023

      This is it. We are spending our money on crisps and fizzy drinks, so to speak, rather than good wholesome food which will power our engine (economy).


  10. mancunius
    February 7, 2023

    “the Treasury needs its own independent forecasting, and needs to be able to say sometimes that the independent OBR forecast may be wrong.” The OBR bigwigs are recruited from the Treasury, and vice versa…Naturally the Treasury will never question OBR ‘figures’.

    “One does not go charging into the market to undermine one’s own bond prices by selling even more of them at a loss.” One does if one wants to scupper Truss and Kwarteng by undermining their economic policies, the day after they were announced in the House of Commons. Oh yes, one does, and indeed, one did. And we all know who it was.

  11. Sakara Gold
    February 7, 2023

    What is responsible about growing the National Debt to 104% of GDP in 13 years? In 2010 an ounce of gold cost ~ÂŁ900. Today, thanks to inexorable inflation and the collapse in the value of sterling it stands at ÂŁ1562 – a 74% increase. We still run tremendous twin deficits and with the BOE bank rate at 4%, servicing our national debt of ÂŁ2.24 TRILLION is costing us more than we spend on defence. Public sector borrowing approached ÂŁ30billion last month in a dramatic overshoot of the Government’s fiscal watchdog’s predictions. Driven by energy bill support measures and inflation-linked debt, the Treasury printed the second-highest amount in interest payments to its creditors on record.

    Sunak, who when in charge of the Treasury printed more money than any Chancellor in the history of this country, needs to get a grip on the national debt problem. If he does not, defaulting on our debts and hyperinflation will be the inexorable result. Those holding hard assets will survive – and even prosper. The rest will starve, particularly when the new deputy chairman Lee Anderson shuts down the food banks

    1. a-tracy
      February 8, 2023

      Sakara, were you one of the people NOT wanting any lockdowns, any covid testing of nurses, teachers and everyone else for free, did you think we should all work on throughout keeping all businesses open and carrying on as normal, I can‘t remember?

      1. Mark B
        February 9, 2023

        I believed that we should have made our own ‘risk assessment’, something I might add our kind host agreed with. So some, like my elderly neighbours, should have remained indoors and jabbed, whilst people like me, taxpayers, continued to work and pay taxes. After all, the supermarket workers were allowed to work so why not the rest of us ?

        1. a-tracy
          February 10, 2023

          I agree Mark. I worked throughout as did my husband; it was quite alarming at first as he was just turned 60 and all the reports were men over 60 would nearly all end up in the hospital with it on a ventilator. Two of my children worked throughout but from home. I did furlough a couple of my eldest workers over 65 for a couple of weeks but they couldn’t wait to come back.

          However, if I remember correctly SG was one of those on here wanting longer, harder lockdowns, to close schools early and keep schools closed, more free testing faster, I may be wrong, hopefully they will correct me if I am. But it ironic that some people that banged the drum for harsher lockdown, more testing, more tracing to lock people down who may have been within 2m of someone are those same people now saying it was wrong.

  12. Gabe
    February 7, 2023

    So Grant Shapps has yet another roll in government about his 7th I think. Amazing what one can achieve with 5 ‘O’ Levels, and a business and finance HND from Manchester Poly. Now Shapps is to organise “energy security” it seems. As opposed to energy insecurity he and others created with their Net Zero rip off energy lunacy one assumes. He once asked Mike Graham “Do you not want to be world leaders in offshore wind?” No was the sensible reply. If I can help Grant? We just want cheap, affordable & reliable energy please, not energy driven by a deluded religion!

    Greg Hands another strong remainer with little understanding of science or the economy, friend of May and Cameron as Party Chairman is not encouraging either certainly not for winning elections.

    1. Mark B
      February 9, 2023

      Have you noticed that it is pretty much the same old faces, again and again.

  13. Bloke
    February 7, 2023

    John Glen would do better if he repeatedly read the SJR intervention, fully digested it and acted upon the truth and wisdom within it.

  14. Lifelogic
    February 9, 2023

    Exactly right in your analysis JR. I too hope some of the proceeds will be used for a sensible policy to promote growth. But a sensible growth policy from Sunak and Hunt looks very unlikely indeed – quite the reverse, a doom loop that kills growth and tax receipts is their plan it seems.

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