Treasury Committee

Oral evidence: Budget 2024, HC 625

Wednesday 13 March 2024

Ordered by the House of Commons to be published on 13 March 2024.

Watch the meeting

Members present: Harriett Baldwin (Chair); Mr John Baron; Dr Thérèse Coffey; Samantha Dixon; Dame Angela Eagle; Stephen Hammond; Danny Kruger; Keir Mather; Dame Siobhain McDonagh; Anne Marie Morris.

Questions 214-303

Witnesses

I: Rt Hon Jeremy Hunt MP, Chancellor of the Exchequer; William Macfarlane CBE, Director of Strategy, Planning and Budget, HM Treasury.

Examination of witnesses

Witnesses: Rt Hon Jeremy Hunt MP and William Macfarlane.

Q214       Chair: Welcome to our session with the Chancellor to scrutinise last week’s Budget. May I invite the witnesses to introduce themselves?

Jeremy Hunt: I am Jeremy Hunt, Chancellor of the Exchequer.

William Macfarlane: I am Will Macfarlane, director of strategy, planning and budget at the Treasury.

Q215       Chair: We heard from the Office for Budget Responsibility yesterday morning, and we heard from a great panel of economists in the afternoon. It is great to have this opportunity to ask you directly, Chancellor, about a few of the things that we have been talking about.

I would like to start by acknowledging the three economic priorities that you have been working with: reducing inflation, growing the economy and ensuring that debt is falling. However, I want to step back from that and welcome the fact that markets have stabilised and that inflation is significantly lower: it is on track to get to 2%, according to these forecasts. May I ask you to articulate how you would frame your economic strategy?

Jeremy Hunt: I think the most important thing is to put in place a plan for long-term growth for the economy. If you look around the world, you can see that the countries that are growing the fastest tend to be ones with lower taxes, in North America and Asia in particular. I do think that that means having a path to lower tax, but that is a means, not an end. The end is more investment in the economy. That means more growth, more productivity and ultimately more money for the public services that we all depend on. At the core of what I am trying to do is more investment, more jobs and prosperity that is not just concentrated in the south-east of the country, but spread to every corner.

Q216       Chair: You have had a number of fiscal events now, and we can see a theme coming through about trying to unlock the challenges that we heard about from the economists yesterday on productivity, creating longer-term growth capacity in an economy in which employment is relatively high and so on. We have heard you introduce quite a few measures that are aimed at non-inflationary sustainable growth.

You could also say that last week’s Budget had a lot of fiscal measures that were quite small in terms of their impact on the finances—smaller tax hikes that, in aggregate, seem to be driven by the fiscal headroom itself, almost as if you were being driven by your fiscal target as opposed to being able to take a strategic approach to fiscal decisions. Do you recognise that characterisation?

Jeremy Hunt: I recognise the first part but, if I may say so, not the second. Yes, indeed: the fiscal rules are guardrails. It is right that we have those guardrails and it is important that everyone can see that we are following rules that mean that by the end of the period we are beginning to bring down debt. That is absolutely right.

On your suggestion that the measures were a bit higgledy-piggledy, for want of a better word, I would not agree. On tax, there is a very clear plan. We want to bring down the tax on work and the unfairness of double taxation on work, because that brings more people into the labour market. The national insurance cuts bring about 100,000 people in and another 100,000 from the national insurance cuts announced in the autumn. That is filling about one in five vacancies across the economy. They are some of the most destructive taxes in terms of economic growth, so it was my strategy to arrange our tax affairs to reduce, wherever possible, the disincentives to work. I think that that was a consistent pattern.

Q217       Chair: I am sure that we will have more specific questions about national insurance in this session.

It was in the newspapers on the morning of your Budget that you were going to make that change to national insurance. You can’t have been happy about that. It must have been an unintentional leak. Where did it come from?

Jeremy Hunt: I wasn’t happy. It wasn’t an intentional leak. I think all Chancellors would prefer the contents of their Budgets to remain secret until the final decisions are made and until they have been announced to Parliament. It is very disappointing that, not just for this fiscal event but for the last few fiscal events, that has become very difficult. That is partly because journalists call up people in the Treasury and say, “I’m going to run this story unless you give me a flat denial that this is going to be in the Budget,” and we do not want to say anything to journalists that is not true, so they make a gamble on that. It is incredibly frustrating for all concerned, not least because some of the stories that went out about the contents of the Budget did so before the final decisions had been made, so they were purely speculative.

Q218       Chair: Can you outline for the Committee which of the parts of the Budget that were released over the week before were deliberate news stories planted by the Treasury or No. 10, and which were just educated and informed guesswork by journalists?

Jeremy Hunt: I don’t know the details of these conversations because I am not part of them, but what I can assure you is that the principal measures—what you would consider to be the main points in the Budget—were not leaked in advance, and we would not have wanted them to be.

Q219       Chair: So you would agree with my hunch that the national insurance was inadvertently in the newspapers that morning.

Jeremy Hunt: Correct.

Q220       Chair: What about this claim from Martin Lewis that he was told about the change to the high-income child benefit charge before Parliament was?

Jeremy Hunt: No.

Chair: No, he wasn’t told?

Jeremy Hunt: Correct.

Chair: So Martin Lewis is not telling us the truth?

Jeremy Hunt: Well, I haven’t seen his comments, but he was not told about the increase in the threshold for high-income child benefit charge, no.

Q221       Chair: All right. Thank you very much.

You have acknowledged in your documents that the Government has yet again missed the welfare target. That is something that Parliament has enacted, and we keep on missing it. Are you going to ask Parliament to change that, or are you going to try to get back under the welfare target?

Jeremy Hunt: The way in which that particular element of scrutiny is set up is that Ministers have to report to Parliament at the start of every Parliament whether they are on track and, if not, what they are going to do to get back on track. That remains the case, but, to answer your question very directly, I am concerned that we are breaching that cap.

We have announced a number of very significant measures that bring down welfare spending, but in a way that is compassionate and in the interests of disadvantaged people, because we think that the vast majority of the time it is in people’s interest to be in work and not dependent on welfare. The Back to Work programme that was announced at the autumn statement by me and Mel Stride will, for example, see a reduction by two thirds in the number of people being signed off as long-term sick and disabled and not having to look for work. That is verified by the OBR. So there are some very significant welfare changes, and we continue to look very carefully at what more we can do.

Q222       Chair: Are you saying that we can expect a plan to get back under the welfare cap?

Jeremy Hunt: Specifically with respect to the welfare cap, we need to see where we are at the start of the next Parliament. But if you are saying, “Will we keep looking for reforms that can bring people off welfare and into work?”, absolutely yes.

Q223       Chair: One thing we heard yesterday from economists was about the stated objective of debt falling. We know that you have made your fiscal headroom, with £8.9 billion to spare, but can we ever expect to see a sustained reduction in the country’s outstanding debt as a percentage of the economy, back to the same sort of levels that we had before the pandemic?

Jeremy Hunt: I think it is going to be a long and difficult journey, but I think it is right that we try. I read the transcripts of your interviews yesterday with the IFS and the Resolution Foundation, and with the OBR. It is interesting that they commented that the fiscal rules are some of the loosest, and then you have other respected economists, like Andy Haldane, who say that they are too tight. I think we are broadly in the middle ground.

We were encouraged to hear the January growth figures this morning, but the economy is not growing particularly fast at the moment. Indeed, with the last published numbers, we are in a technical recession, because we are in a high interest rate environment as a result of the need to bring down inflation. But in that context, it is right to try, within sensible fiscal rules, to do everything you can to get the economy back growing again, and that is what I have been trying to do.

Q224       Chair: So your hope is that growth will be the thing that means we actually start to see outperformance, in terms of that percentage of debt in the economy.

Jeremy Hunt: Well, growth is the elixir that Chancellors and shadow Chancellors of all political parties say they are aiming for. Perhaps the best way of putting it is that if you deliver growth—I believe we have a very strong plan to deliver much higher levels of growth than we are currently seeing—you have choices. You can use that growth to bring down taxes, to increase public spending or to bring down debt, so I think the smart thing to do is to give yourself those choices.

Q225       Chair: I think the Office for Budget Responsibility says that the measures that you have brought in in all your fiscal events so far do increase the sustainable growth potential of the UK economy by about 0.7%.

Jeremy Hunt: Correct.

Chair: You do recognise that number?

Jeremy Hunt: Correct.

Chair: Thank you.

Q226       Dame Angela Eagle: First, Chancellor, “you see Diane Abbott on the TV and…you just want to hate all black women because she’s there…I think she should be shot”. Was Mr Hester’s comment rude or racist?

Jeremy Hunt: It was both. It was a despicable comment that should not have been made.

Q227       Dame Angela Eagle: He hasn’t apologised for being racist; he has only apologised for being rude. Do you think he should apologise for the racist comment?

Jeremy Hunt: He has apologised for his comments, which I believe were racist, and rightly so.

Q228       Dame Angela Eagle: You are Chancellor of the entire country. If you were the treasurer of the Conservative Party, would you return the £10 million that this man has donated to the Conservative party?

Jeremy Hunt: I am not the treasurer of the Conservative party, but I do not believe that someone should be cancelled for a comment that they made in the past and for which they have apologised. However, that does not make the comments any less despicable, and I do not defend them.

Q229       Dame Angela Eagle: You’re happy to accept the money, but you do not defend the comments.

Jeremy Hunt: I think the comments are despicable, and I also think that the Conservative party’s record on these issues speaks for itself, with the first ethnic minority Prime Minister and an incredibly diverse Cabinet. I am incredibly proud of what my party has done to increase diversity, and we stand on that record.

Q230       Dame Angela Eagle: Do you think that Frank Hester is a fit and proper person to be in receipt of hundreds of millions of pounds of taxpayer money and public contracts, given his private attitudes? There are rather a lot of black and ethnic minority workers in the health service, after all.

Jeremy Hunt: I was Health Secretary when a number of those contracts were given to him. First, no contracts are ever decided by Ministers; they are always done at arm’s length. But I believe that the vast majority of the contracts that he won were with individual GP surgeries, because what he does is a piece of GP software, so they weren’t even—

Dame Angela Eagle: Yes, I think he has all our data.

Jeremy Hunt: Well, that data sits with the NHS. That is a decision that GP surgeries have made in order to modernise their systems.

Q231       Dame Angela Eagle: The financial services sector has regulations about fit and proper persons. Do you think that this man is a fit and proper person to be in receipt of so many hundreds of millions of pounds of taxpayers’ money?

Jeremy Hunt: I am not going to defend his comments. As I said, I think they were despicable and wrong. He has apologised for them. My understanding is that the contracts that you are talking about were mostly granted long before those comments were made, but that is really irrelevant. The point is that those comments were wrong. They were racist. He has apologised for them, and I think we should accept that apology. I think that is really all I have to say.

Q232       Dame Angela Eagle: So there should be no consequences for having that kind of view or behaving in that manner. If you are rich or you are a company owner, there should be no consequences.

Jeremy Hunt: I think you will know that the consequences of what he has done in terms of public shaming have been pretty significant, actually, and he has apologised.

Chair: I think it has been referred to the police as well. Do you want to talk about some economic issues, Angela?

Q233       Dame Angela Eagle: I am going to. Chancellor, analysis shows that for every 10p that taxes have gone up in this Parliament, you have only given back 5p. At the end of this Parliament, taxes are going to be higher than they have been as a percentage of GDP since world war two. That is not much of a record, is it?

Jeremy Hunt: I think—with great respect, Angela—that you should listen to the people you had in front of the Committee yesterday. Torsten Bell, who is not known for his Conservative sympathies, said that taxes have gone up because of the pandemic and higher debt interest costs. The Office for Budget Responsibility and David Miles pointed to the war in Ukraine. I think it was right that we gave £370 billion of support to businesses during the pandemic, as it stopped thousands of businesses going bust. I think the Labour party supported that support wholeheartedly. We then gave a further £94 billion of support during the cost of living crisis following the Ukraine war, paying about half of people’s energy bills. Again, your party—and, I am sure, you—supported that.

But we have to be honest with people: when you have those extremely unusual global emergencies, there are financial consequences. That is why I have never hidden from the fact—it is more painful for me than I expect it is for you as a Labour politician—that, yes, I had to put up taxes. But now I want to bring them down. We are not going to bring them down all in one go. It is going to take time, but in the autumn statement and in the spring Budget, we made a start. The tax cuts that I chose are the ones that are going to help most the growth of the economy and deliver the 0.7% increase in GDP that the Chair was referring to.

Q234       Dame Angela Eagle: Analysis shows that two thirds of the cost of the tax reductions that you have announced, albeit within an envelope that is rising, are actually financed by borrowing. Why did you decide that you could cut taxes and finance two thirds of those cuts by borrowing, rather than raising other revenue elsewhere?

Jeremy Hunt: That is not how I would describe what I did at all. The only way you get that number is by taking five years; I took the six years, including the current year, that I was talking about at the autumn statement. The Office for Budget Responsibility confirmed that if you take the full six years, borrowing has not gone up. In fact, it has gone down very slightly.

Q235       Dame Angela Eagle: That is because your rule says that it has to in the rolling fifth year of the programme, but borrowing goes up to pay for the front-loaded tax cuts, which are conveniently ahead of the general election. But it does not actually come down until the very, very end of that period, does it? It is rather a convenient fiscal rule from that point of view.

Jeremy Hunt: The reason why it is important is that those cuts to national insurance are going to add 1% to people’s living standards after a cost of living crisis. That really matters. Partly because of that decision, the OBR upgraded its forecasts for growth next year by 0.5%. I think it is a pretty good thing for the country, when we are emerging from a technical recession, to see additional growth. I think it is very good for families who are struggling in a cost of living crisis. But over the period, borrowing is broadly the same; in fact, it comes down slightly.

Q236       Dame Angela Eagle: Analysis from the experts we saw yesterday shows that you would fail to meet three out of the four of your Tory predecessors’ fiscal rules, which have been in operation since 2010. This is in fact a rule that is very loose and that implies—because it does not distinguish between capital investment spending and spending on current issues—that it keeps making it easy for capital expenditure to be cut, which our experts were very critical of, as you will know if you read the transcript of yesterday’s sessions. Why have you failed to meet three out of four of your Conservative predecessors’ fiscal rules and put into place a fiscal rule that actually discourages capital investment, when we need to retool the entire country in preparation for net zero?

Jeremy Hunt: Well, your own party did not object when I changed the fiscal rules. The reason that they rightly did not object is that, unlike the vast majority of my predecessor Chancellors, I have had to deal with the aftermath of a once-in-a-century pandemic and a 1970s-style energy shock, which is an utterly exceptional situation, as the distinguished economists that you heard from yesterday recognised.

If I had stuck with tighter fiscal rules in that context, I would have had to do an even bigger consolidation than I had to in the autumn statement of 2022. It would have choked even more growth out of the economy, whether it was through spending cuts or tax rises. I do not believe that we would have the healthy growth prospects that I was able to announce last week, which basically say that by the end of next year, we are getting back to 2% growth a year—a world apart from where we have been for the last couple of years. That is why I think it was the right thing to change the fiscal rules in the way that I did. In terms of capital spending—

Dame Angela Eagle: I wanted to come on to that.

Jeremy Hunt: Shall I answer your question on that? The Prime Minister, when he was in my job, increased capital spending by 20% in real terms in the spending review of 2020—the biggest ever increase in capital spending—and I have preserved that. I think it is very important.

I agree with the argument that investment, both public investment and private investment, is very important for growth, and that was why I did not do what previous Chancellors have done when faced with a financial crunch, which is cut capital spending in cash terms. I was not able to protect it in real terms. I would like to continue to support capital spending going forward—in fact, the £3.4 billion NHS investment is additional capital spending—but I think in the circumstances that was a proportionate thing to do.

Q237       Dame Angela Eagle: In evidence to the Lords Economic Affairs Committee, Richard Hughes, who as we all know heads the OBR, said it was “generous” to call your spending plans a “work of fiction”. Why have you been unable to provide more certainty on your future spending plans, given that you have chosen to use a lot of the money forgone in future for departmental spending to cut taxes?

              Jeremy Hunt: Well, he did not say that yesterday; the earlier comments that he made were ahead of the Budget. The Budget had a very lengthy section that explained what our approach to the spending assumption will be, in a way that is designed to avoid austerity-style cuts in public services that are valued by the public.

What are we going to do? We are going to launch the biggest ever public sector productivity programme, starting with the NHS, which is about 40% of public expenditure. The NHS itself independently assesses that that means it will be able to increase its productivity by 1.9% a year over the five years ahead. Our intention is to replicate that across all public services. The OBR says that if you deliver that and turn it into a cashable saving—and that is an “if”, because it is a challenge to do—you can make £20 billion of savings. That way, I think we will be able to make those very tight real-terms increases in public spending sustainable.

Q238       Dame Angela Eagle: Finally, the OBR has stated that meeting existing commitments on health, defence, schools, childcare and overseas aid spending would imply a real-terms cut in all other Departments’ budgets of 2.3%. That also includes local authorities, one in 10 of which is quite close to bankruptcy at the moment. In reality, how are the kinds of cuts implied by these figures ever going to be realised?

Jeremy Hunt: If you modernise the way public services are delivered, as we are—we have announced very detailed plans to do that for the NHS—you can get a 2%-a-year increase in productivity, which addresses the majority of those mooted cuts in spending in unprotected Departments.

Q239       Chair: I think your own Red Book says that output from public services is still 5.9% lower than before the pandemic.

Jeremy Hunt: That is correct.

Dame Siobhain McDonagh: Uncharacteristically, can I say something nice to you?

Jeremy Hunt: I shall enjoy it while it lasts.

Q240       Dame Siobhain McDonagh: Thank you for abolishing the fee on debt management orders. We on the Committee have spoken about the appropriateness of IVAs and debt management orders for people on low incomes who are in debt. That is going to be a good move for some people in a really hard space.

In November 2022, shortly before becoming Chancellor, you were asked about the non-dom tax loophole. You said: “I’m not going to do anything that’s going to damage the long-term attractiveness of the UK, even though it gives easy shots to opposition parties. I think it would be the wrong thing to do in terms of creating jobs in the UK.” What made you do your big 180° U-turn?

Jeremy Hunt: Well, I actually have not changed my position on that. I do not want to do anything that is damaging to the competitiveness of the UK. My view—

Dame Siobhain McDonagh: On the non-dom tax loophole.

Jeremy Hunt: Exactly. I resisted doing anything at that stage. I think I had been Chancellor for just a few weeks when I made that comment, and I was very concerned about the potential risks to investment in the UK, which is the single biggest thing we need to sort out if we are going to grow the economy.

But I looked into the issue, because I do not think there is any justification for anyone paying a cheque and not paying the same tax as everyone else. So I looked into it and had detailed discussions with experts in the field. I think I have come up with a programme that will not be damaging to UK competitiveness and investment in the economy, and that is why I announced our plans.

Q241       Dame Siobhain McDonagh: Were you wrong in November 2022?

              Jeremy Hunt: I wasn’t wrong, because I said then, as you quoted at me, that I was not prepared to do anything that was damaging to competitiveness—

Dame Siobhain McDonagh: Which was about closing the non-dom tax loophole.

Jeremy Hunt: Well, I was not going to rush into a policy until I had properly got to the bottom of how one could—

Dame Siobhain McDonagh: You did say that closing that loophole would mean losing jobs in the UK, and that is really not the case, is it?

Jeremy Hunt: That was my concern, but it is a very complex area of tax policy and I needed to take some time. I have taken that time and have come up with a plan that—

Q242       Dame Siobhain McDonagh: Was it the same reason you decided to extend the windfall tax on North sea oil producers? Only a year ago, you said that extending it would “stop investment, increase dependence on Putin and increase energy prices.”

Jeremy Hunt: I do think that that is what would happen if we followed the Labour party policies with respect to North sea oil and gas, yes, because getting rid of the allowances for investors in the North sea means, I think, that investment would dry up completely. That would increase our energy dependence, when we should be trying to be energy independent, and it would increase prices for consumers. But that is not what I have done. What I have done is recognise that something has changed since we originally introduced the energy profits levy.

Q243       Dame Siobhain McDonagh: What’s next: VAT on private student fees?

Jeremy Hunt: No, that is not next.

Dame Siobhain McDonagh: Rachel Reeves clearly seems to be your guru.

Jeremy Hunt: Can I answer your question, Dame Siobhain? What has changed compared with 2022 is an understanding that the war in Ukraine is likely to last much longer than people originally thought at the time. Therefore, some of the higher prices that are creating unexpected profits for some energy companies are also likely to last longer. In that context, given that taxpayers have had to spend £94 billion in cost of living support for families to help people with higher energy prices, among other increases, I thought it was reasonable to increase the energy profits levy tax by £1.5 billion.

Q244       Dame Siobhain McDonagh: My worry is that you are going to start looking to Liz Truss and Kwasi Kwarteng to meet your desire to abolish national insurance and give us £46 billion worth of unfunded tax cuts. Or are you just planning to scrap the state retirement pension altogether to meet that target?

Jeremy Hunt: It cannot be the case that I am both following Labour policy and following Liz Truss’s policy at the same time; it has got to be one or the other.

Dame Siobhain McDonagh: Somebody else’s ideas.

Jeremy Hunt: Let us talk about the announcement that we want to abolish the double tax on work. First of all, the amount of money raised by national insurance does not determine the amount of money going into the state pension or the NHS. It has not done for very many decades. The evidence for that is the Budget because in the Budget we announced a £6 billion increase in funding for the NHS and a £900 increase in the state pension, which is going up by 8.5%—around three times the rate of inflation.

Can I say this, though? If I believed that cutting national insurance would mean cutting funding for the NHS, I would vote against it. What is interesting to me is that Labour have been putting out this story today, but they are supporting the cuts in national insurance. I am wondering how it is that Labour MPs can square with their consciences voting in favour of a cut in national insurance at the same time as trying to scare everyone that it will mean cuts in funding for the NHS.

Q245       Dame Siobhain McDonagh: A really serious issue—the one most important to me in terms of my constituents—that you had so little to say about in the Budget is housing. We have 104,510 families, including 142,490 children, living in temporary accommodation at a cost of £1.6 billion. But worse than the money that we are throwing away in that direction is the fact that we have discovered that 55 children died between 2019 and ’23 as a result of living in temporary accommodation. Forty-two of them were under the age of one.

The coroners’ reports ruled that their accommodation had a very significant impact on their deaths; for children under one, it was probably almost entirely because they did not have access to a cot. Would you agree that that gives this country a sense of shame? What can you do to build more social housing units?

Jeremy Hunt: First of all, I recognise that we need to build more houses—I very much agree with you on that. Without trading party politics, as you have been more reasonable this afternoon than perhaps I was expecting—very unfairly so—I will just point out that the number of houses built in the last year for which we have records is higher than the number built in any year of the previous Labour Government. We need to do even better than that; that is why we have introduced planning reforms and we have big plans to develop housing in Cambridge, London and Leeds—

Dame Siobhain McDonagh: Well, you have cut housing targets—

Jeremy Hunt: Hang on—can I just finish? The outcome is what matters, and the outcome is that we have built houses at a greater rate. We are on track to build a million additional houses this Parliament. That is a substantial uplift on what happened under previous Governments, but I fully accept that we need to do more.

In this Budget I would have liked to have some measures to help people to get on the housing ladder, but it is difficult to do that unless you are absolutely confident that property prices are back on the up. Otherwise, you are encouraging people to get on to the housing ladder with the prospect of house prices falling and therefore their falling into negative equity. I did not judge that it was the right time for those kinds of measure. Is that something I would like to return to at future fiscal events? Absolutely.

Q246       Stephen Hammond: Chancellor, good afternoon. You have said many times that this is a tax-cutting Budget and a Budget that will lead to growth. You have already answered some questions on the national insurance. Could you just lay out the other measures in the Budget that you think support those claims?

Jeremy Hunt: Yes. There are a lot of things that support growth in the Budget, so let me try to be succinct. First, there was a big focus on our fastest-growing industries, which are the ones that I think provide the biggest opportunity for us as a country going forward, particularly technology-linked industries. The creative industries had £1 billion of tax relief for film and TV production, where we have become the biggest centre in Europe.

For technology start-ups, where we have more than anywhere else in Europe, we made some very big steps in unlocking pension fund capital. That will mean that, with more liquidity, they are able not just to get capital in the UK, but ultimately to list in the UK—at the moment, many of them are inclined not to. For life sciences, we were able to announce a £650 million investment by AstraZeneca in a new vaccines manufacturing hub in Speke in Liverpool.

There was lots of focus on the most rapidly growing industries, but the other thing—apart from the tax cuts, which themselves were targeted at growth—was the measures to help companies to get the labour they need. In particular, publishing the childcare rates for the next two years will encourage investment by the childcare sector. We will need about 170,000 extra childcare places, because of the childcare reforms I announced a year ago.

Q247       Stephen Hammond: One of the micro-measures that I think may well prove to be one of the most significant was the move in VAT thresholds, certainly for many of my constituents who are sole traders. Can you say what benefit you have calculated that to be for the overall growth level?

Jeremy Hunt: I think it will mean that tens of thousands of small companies are taken out of paying VAT altogether. Other companies that were hovering just below the £85,000 threshold will feel less constrained about growing higher. It is a difficult thing to move that threshold, because there will be a cliff edge wherever you put the threshold, but where it is possible to do something, I think you should.

Q248       Stephen Hammond: A widely quoted statement has been quoted again today: that at the end of this Parliament the tax burden will be significantly higher, and the highest it has been since world war two. May I ask you four questions about that?

First, clearly the element of fiscal drag is significant, in that in 2021-22 there were 4.3 million higher-rate taxpayers; eight years later, 7.3 million. The OBR forecasts that a number of the measures that have happened in the Budget fall into a similar vein in terms of the result of higher VAT returns.

Can you comment on how much of the ambition is for the Government to look at those measures that are not policy changes that are affecting the tax burden? In terms of that statement, is it also not true that the percentage tax burden actually only started to rise significantly from 2020 and that if you look at the 10 years before that, the tax burden, as a percentage of tax take, was actually pretty flat, if not falling, in the year before 2020?

Jeremy Hunt: I think that that is right, and that is obviously because we had the costs of the pandemic, the energy shock and the high inflation. Let us talk about fiscal drag for a moment. It is true that that is one of the principal ways in which taxes have gone up to pay down that covid debt. The reason why it has increased the tax take is because of inflation, which pushes up salaries, pushes up prices and brings more people into higher tax bands.

But since the autumn statement the inflation projections have actually come down, and that means that the tax take was actually about £12 billion less than predicted at the autumn statement, so that goes both ways. But for someone on the average salary of about £35,000, the freezing of the thresholds means that next year they will pay just over £230 more than they would have if we had uprated the thresholds with inflation. The national insurance cuts mean that they will pay £900 less.

So it is a significant cut in the tax burden and overall, if you take the four fiscal events I have been responsible for—two Budgets and two autumn statements—even including the tax rises that I announced in my first autumn statement, those measures reduced the tax burden by 0.6% of GDP.

Q249       Stephen Hammond: One of the other statements you have made quite often, I think during your speech last week and subsequently, is that you want to see a simplification of the tax system. On balance, do you think that this Budget has simplified the tax system or made it more complex?

Jeremy Hunt: I think it has made it simpler, but I know it is a particular passion of the Chair’s—

Chair: All of us!

Jeremy Hunt: It is a passion I share, so I made a commitment to this Committee that I would make sure there was always one tax simplification measure. The biggest one probably is what I was discussing with Dame Siobhain, which is the change on non-doms, which is an incredibly outdated, complex system. We are getting rid of the concept of domicile in the tax system and moving to a residence-based system, which is much simpler and much fairer.

Q250       Stephen Hammond: I was about to ask you where you were on that consultation; I think you have answered that question. When do you think these measures on non-doms will be enacted?

Jeremy Hunt: From April 2025.

Q251       Stephen Hammond: Given the Chairman’s liking for tax simplification—I suspect we all share it—shouldn’t we have an office of tax simplification?

Jeremy Hunt: The proof of the pudding is in the eating, and I think I have simplified taxes in every fiscal event that I have done.

Q252       Stephen Hammond: You might not be there forever, Chancellor, so we would like a permanent simplification of the tax code.

Jeremy Hunt: I don’t know what you are suggesting; I am hoping to be here for a very long time indeed.

Q253       Stephen Hammond: We hope so as well, but that is a different—

Jeremy Hunt: Thank you. Even if the office of tax simplification were beavering away coming up with suggestions, in the end it would need a political decision by a Chancellor to accept those decisions. Ultimately, if we abolish the double tax on work, as the Conservative party wants to do over time—it won’t happen in one Parliament; it is a long-term ambition—it will be the biggest tax simplification in our lifetimes.

Q254       Stephen Hammond: You stated in the Budget last week your ambition to remove the double taxation on work as a simplification. Do you regard that as a long-term policy ambition or as a policy commitment for the next Parliament?

              Jeremy Hunt: The former.

Q255       Stephen Hammond: Some of the discussion about the £46 billion therefore becomes somewhat irrelevant, because the number may change. As you said earlier, that would not affect the funding of the state pension, the welfare state or the national health service.

Jeremy Hunt: Correct. In fact, when I announced that long-term ambition I was very explicit that it would not be funded by cuts to public services or by borrowing, but that it would be a long-term commitment, just like our long-term commitment to increase the personal tax threshold, which was first announced in 2010, when the threshold was about £6,500. It got to £12,500, 12 years later, in 2022. That was a long-term commitment.

It is perfectly possible to deliver these commitments over time, if they are things that you really want to do. In this case, the impact on growth would be very positive, which is why Torsten Bell said yesterday, I think, that it would be a better world if you could do that. In fairness, he was sceptical that we would get there, but he said it was the right direction of travel.

Q256       Mr Baron: Good afternoon, Chancellor. First of all, can I commend you for continuing to oversee an economy that has record employment and an unemployment rate around a third less than the EU average? I would ask you to continue not to be afraid to remind people that, although taxation is a little higher than we would like, that is for good reason: we left nobody behind during covid or, indeed, during this cost of living crisis. I think that sometimes that is forgotten by some.

As someone who has always believed that national insurance is a tax on jobs, and has voted accordingly when there have been proposals to increase national insurance, I put it to you—I would be interested in the extent to which you think this is true—that your Budget was quite radical. Together with the autumn statement, it is looking to move the tax burden from workers and on to most other forms, if not all other forms, of income, whether they be pensions or savings. That has to be good if we are to ensure that we retain an economy that has strong employment prospects, and it bodes well for growth over the longer term. Would you agree?

Jeremy Hunt: Broadly, yes, but I would say to pensioners, for example, that we have taken a great deal of care with our support for the triple lock, so that we look after pensioners. I think that Torsten Bell confirmed yesterday that, when you take into account policy changes on the size of pension and tax cuts, they are £1,000 a year better off than they were in 2010.

The way I would put it is this. We want to look after pensioners; they are incredibly important, and they have built the society that we now benefit from, but if they want us to continue to give record increases in the state pension, we need to grow the economy and we need to focus our tax cuts on the things that will most grow the economy. That means getting more people into work.

Q257       Mr Baron: But you would accept that in the past we have used national insurance contribution increases to fund public services. This signals a reversal in that approach, but what I am suggesting is that that is not necessarily the wrong decision.

Jeremy Hunt: It has been many decades since there was a link between the funding for the NHS or pensions and the money that goes into national insurance. I think now it is effectively treated as just another tax pot. All these different tax pots have an impact on behaviour. If you have one that disincentivises work, it is holding back economic growth, and that is the wrong thing.

Q258       Mr Baron: Okay. May I turn to a subject that you, the Economic Secretary and I have been discussing? I refer to my entry in the Register of Members’ Financial Interests with regard to investment trusts, otherwise known as investment companies.

You will be aware that we have a cost disclosure problem here. Investment trusts make up something like nearly 40% of the FTSE 250 companies, and a number of them are FTSE 100 companies. I know you understand this, but a quirk of EU retained law, which the EU itself has since legislated away, requires British investment trusts to combine their corporate and investment management costs on the EMT feeds used by investors. That is important, because that double counting uniquely makes British investment trusts look unduly expensive, so investors are shunning these British companies, discounts have widened and investment in sectors such as renewable energy and infrastructure has completely dried up. Previously, investment trusts were a conduit bringing of tens of billions of pounds into these sectors that are good for the economy. In fact, British companies are now buying up their own shares to close the discounts and that is withdrawing money from the sector.

My question is this. The autumn statement produced one draft SI relating to PRIIPs, with a promise of another to follow. More than 300 members of the London stock exchange, including many investment houses, responded to the consultation on the SI, which closed in January. When will the legislation come before Parliament and when can we expect the accompanying MiFID SI?

              Jeremy Hunt: I will write to you with more detailed answers on those, if I may, Mr Baron, but let me put it this way: we are having discussions at the moment on the best way forward. We are completely committed to removing PRIIPs and replacing them with something better. We understand fully the concerns of the investment trust community about the current situation and we are working out the best way forward. However, because it is market sensitive and because these are quoted companies, it would not be appropriate for me to go into detail about precisely what our thinking is. I hope you understand that.

Q259       Mr Baron: I do understand that. What I ask in return is for you to understand the urgency of the situation. I think you do. I would suggest to you that more immediate action is required because British companies are now, at this very moment, toying with listing abroad courtesy of this issue. Important sectors to this economy are seeing no investment or future.

May I suggest to you that in your deliberations and discussions more generally, the Government fast-track legislation that reflects the consultation response of the 300-plus members of the London stock exchange, which called for investment companies to be removed from the consumer composite investment regime? That, at a stroke, would end the double counting issue on the EMT feeds, and then they would be back on a level playing field with many foreign companies. Given the FCA believes that legislation is required and, in its forbearance, it has gone as far as it believes it can, will the Government now legislate accordingly?

Jeremy Hunt: For the reasons that I have just stated, I am not going to answer that question, I am afraid, because we are in the middle of making those decisions. However, your concerns are very well noted.

Q260       Mr Baron: Okay. Finally on this issue, the consultation on the PRIIPs SI closed in January. We are now waiting for it to come before Parliament. There is not yet a draft MiFID SI, which was also promised in the autumn statement and which will probably also require a consultation. Then, once those SIs go through Parliament, the FCA will have to internalise what the legislation says, run its own consultation for several months and consider the responses before producing its solution. All that takes time and we are looking at probably the end of the year for anything meaningful to come out of this process. I just want to leave you with a sense of urgency. I am not expecting any more of an answer but can I impress this on you? That timetable does not match the urgency.

Investment companies are alarmed that unless action is taken quickly, there will soon not be much of the sector left. In line with your Budget speech last week, I would prefer—I am sure you would as well—British investors to invest in these Great British companies, but they may not yet be around for too much longer. Solving this problem, I put to you, should not cost the Treasury a penny. It is simply a question of the cost disclosure regime. May I leave that with you?

Jeremy Hunt: You certainly may. If I may, I will just gently say that I think the pace of the reforms that we have introduced to make the City more competitive, with the Edinburgh reforms, the Mansion House reforms, what I announced at the autumn statement and what I announced in the Budget, is unprecedented. We are absolutely determined to proceed at pace with all those reforms and we are absolutely committed to making our financial services sector globally competitive.

Mr Baron: I share that sentiment and I agree in very large part with what you say, but when it comes to investment trusts, there is a specific issue that the system has failed to acknowledge with regard to the cost disclosure regime, which you could put right very quickly. That is all I will say about that.

Jeremy Hunt: I hear what you say.

Chair: The Committee will continue to try to encourage that sense of urgency and give power to your elbow on that with the people we scrutinise.

Jeremy Hunt: Thank you.

Q261       Keir Mather: Thank you very much for coming, Chancellor. You have obviously been around this place a lot longer than I have, and you have served in multiple Conservative Governments since 2010. Do you feel that you have a good story to tell after 14 years in power?

Jeremy Hunt: Yes, I do.

Q262       Keir Mather: You said in the Budget that you had turned a corner when it came to growth, but I do wonder why it has taken you 14 years to turn that corner. Analysis from the Resolution Foundation has shown that since 2010 we have had GDP per capita growth of just 0.8% a year, and average wages have risen by just 0.2%. That is the slowest growth during any party’s period in office since world war two. Is that really a record on growth to be proud of?

Jeremy Hunt: It is when you look at the context that we have come through. First, let me say that when I said we had turned a corner, I was talking about the recent reduction in growth caused by the high interest rates to tackle the high inflation caused by the invasion of Ukraine.

If you look at the record on growth since 2010, we have grown faster than the largest three European economies and countries like Japan. The IMF says we will grow faster than France, Germany and Italy over the next five years as well. Of course, growth in that period has been more subdued than it was before the financial crisis. The financial crisis was a shock that has suppressed growth rates all over the world. Without wanting to be party political, public finances were shot to pieces when the Government came to power in 2010, so we had to do a huge job in repairing public finances and took some very, very difficult decisions.

GDP per head has risen faster here than in countries like Norway, the Netherlands, France, Finland, Canada. I think that is a very respectable performance. If we want it to grow faster—this was the theme of the Budget—we have to tackle our long-standing productivity issues. That means boosting investment, and that was why we introduced the capital allowances regime—the most generous in the world—in the autumn statement.

Q263       Keir Mather: Not to be party political in return, but if wage growth had continued at the same rate as in 2008, we would all be about 14 grand better off. It seems an interesting strain in Conservative thinking that when you weather economic events, you take credit for it—when inflation returns to target later this year, you will say that that is definitely one of the Prime Minister’s achievements that should be chalked up—but all these other headwinds that have prevented you from making progress seem to be swept aside. Is there not any way in which decision making by the successive Conservative Governments you have served in over the last decade and a half has contributed to some of the mess that we find ourselves in at present?

Jeremy Hunt: You cannot magic away a global financial crisis. It was an absolutely huge moment and had a profound economic impact on all developed countries, and in some ways we are still seeing the consequences. In its wake, we had to take some very, very difficult decisions to get the economy back on its feet.

Look, I don’t pretend that we have got every single decision right. I was on the Back Benches for nearly three years before I became Chancellor, so I have made many comments, and even written books, about some of the things that we have learned from that period and some of the things we didn’t get right. None the less, overall, we have grown faster than other, similar economies in Europe, we are predicted to grow faster going forward, and we have a good plan to close the productivity gap with countries like Germany and America, which will lead to an increase in living standards, GDP per head, which is what we all want.

Keir Mather: I would like to explore a bit more what you think the drivers of growth are, because you don’t strike me as a dogmatic Tory, overly wedded to ideology.

Dame Siobhain McDonagh: Not in the amount that he listens to Rachel Reeves, anyway.

Jeremy Hunt: I thought I was in the shadow of Liz Truss a moment ago, Dame Siobhain!

Dame Siobhain McDonagh: Maybe you’re a bit catholic in your views.

Q264       Keir Mather: I just wonder what your view is, Chancellor. Do you think that efficient, yes, but fundamentally well-resourced public services set a foundation upon which the UK achieves economic growth?

Jeremy Hunt: Yes.

Q265       Keir Mather: I wonder how that squares with your replies to some of the questions Dame Angela asked you earlier. We are set to endure a 13% reduction in real per-capita day-to-day spending from protected Departments. Does that not erode those Departments’ ability to provide the well-funded and resourced public services to deliver the sort of growth we need?

Jeremy Hunt: It would if they delivered services in the same way that they deliver them now. It won’t if they transform the way they deliver those service. [Interruption.] I promise I will give you a chance to ask me fully. By the way, I very much respect the tone in which you are asking these questions. If I may say so without sounding like too much of a grandfather, that is exactly the right way Select Committees should—

Dame Siobhain McDonagh: “Patronising” is the word you are looking for.

Jeremy Hunt: Okay: without sounding patronising, that is the way Select Committees should work.

If you look at the NHS, for example, where we will need to give continued increases because of the ageing population and increasing demands on the NHS, we need to transform the way the NHS delivers its services. Even its strongest supporters, of whom I consider myself one, would say that there are parts of the NHS that are woefully inefficient, and we need to transform those.

The £3.4 billion that we committed to digitise the way the NHS operates—for example, digitising operating theatres means we will be able to do about 200,000 more operations a year with the same number of consultants—is a transformation in the way the NHS runs, and it will make it among the most efficient healthcare services in the world. That is the same transformation that I want to see in the police, the courts and local government. We announced some funding for that, but I would like to get more plans from those Departments; we would be willing to give more funding going forward.

Q266       Keir Mather: I see your logic, Chancellor, but it does strike me as wishful thinking. I get the argument that if you increase efficiencies in public service delivery, the bill you are asked to pay is not as great and the reductions do not have to be as severe. But you called for a paperless NHS in—what was it, 2013? Close to a decade later, it has not been delivered, and I would say many people do not have faith in your ability to deliver those efficiencies. In that context, those public services will have to find spending cuts, and that could be devastating to the UK’s ability to get back on the growth trajectory that we need.

Jeremy Hunt: I totally understand that politicians have been promising efficiency and productivity improvements for years and years, but I don’t think you have to believe me. The head of the NHS, who is completely independent, says that on the back of the investment we committed to in the Budget, the NHS will be able to deliver productivity improvements of 1.9% a year.

If I may speak about my own record on the NHS, it is absolutely true that I did not get the NHS completely paperless. I made the promise in 2012 and said that I hoped it would be by 2018. However, we did make enormous progress, including putting the funding in place for the NHS app, which was launched just a few months after I stopped being Health Secretary. That has been transformative and it played an important role in the pandemic. The NHS has made good progress. They think they can do it.

I think Richard Hughes of the OBR said yesterday that we have had productivity plans in the past and they have succeeded. I suppose the real proof of the pudding is that between 2010 and 2019, before the pandemic started, we were getting average public sector productivity improvements of 0.7% a year. We want to be more ambitious than that. It is not impossible to get good productivity improvements, and that is what we are determined to do.

Q267       Keir Mather: Turning to a separate part of the growth puzzle, do you believe that market confidence in the Government’s fiscal policy is fundamental to setting the stability upon which UK economic growth is achieved?

Jeremy Hunt: It is important, because we need to attract investment, both public and private sector. Public sector investment we have control over; private sector investment is decisions made by independent investors. However, market confidence is also important for public sector investment, because if the markets do not have confidence, your debt interest will be more expensive.

Q268       Keir Mather: I presume, based on the tone of those comments, that you would not follow the example of your predecessor, defy the OBR’s assessment of fiscal policy, go ahead heedlessly and reap negative economic consequences for the economy?

Jeremy Hunt: In fact, I reversed nearly all the policies of my predecessor in my first few weeks as Chancellor.

Q269       Keir Mather: Do you not think it could be said, though, that in a sense you have done one worse with the mooted abolition of NICs altogether? You did not tell the OBR that that was something you were interested in doing, so it could not even forecast what the potential impact of that economic choice could be.

It strikes me that in this entire debate on scrapping contributions, either it is a passion project of yours that is to be set aside on the back burner, or it is a serious policy that you told Conservative members in an email a couple of days ago you would make progress on in the next Parliament. If that is the case, should the OBR not be able to forecast the impact of the policy to give the markets the confidence they need that you are a sure hand at the tiller of the UK economy?

Jeremy Hunt: No, and I do not think you have to take my word on it. You should listen to Torsten Bell when he said that there is absolutely no comparison with what happened in the mini-Budget.

The reason is straightforward. We are not putting a timeline on it. We have been clear that it is a long-term ambition to make work pay in the British economy. It is the right thing for economic growth. It will be the work of many Parliaments and we will make progress, but only when it is affordable to do so and when we can do so because the economy is growing. We will not do so at the expense of public services or by borrowing. The evidence that we are committed to doing this is the fact that we managed to take 2p off national insurance in the Budget and 2p in the autumn statement.

William Macfarlane: If I might just come in, in addition to what the Chancellor has had to say, I think that Mr Mather is referring to what the chairman of the OBR had to say in response to Dame Angela yesterday. The commitment was not given to the OBR as a measure to cost in the EFO, and that is right. The NICs policy given to the OBR to cost for the economic and fiscal outlook is the further 2p reduction in employee and self-employed national insurance. That is a certified costing in the OBR document, because that is the policy that the Government have set out.

Chair: I think we also have the opportunity to vote on it later today, if we disagree with it. I will be supporting it.

Q270       Danny Kruger: Chancellor, you will have read in yesterday’s transcript that Paul Johnson, Torsten Bell and our other witnesses all expressed concern about how precise the debt target is and about the forecasting obligations on the OBR. Relevant to that are all sorts of slightly pernicious consequences, not least for our debates and for your work. They felt both that the rule is too loose and that it invites these very precise predictions. They were suggesting that a better system would be a more qualitative target, whereby you set out an intention on debt and the OBR is invited to see how the Government are doing. Would you welcome a slightly less prescriptive target that still sets a direction of travel, but does not mean that you are having to conform exactly to a number?

Jeremy Hunt: I read that suggestion with great interest and will reflect on it, but as much as I respect the individuals who said that, I have to say that I am struggling to see how it could actually work in practice.

The reality with fiscal rules is that you are trying to balance two objectives and you want to make progress on both of them, but they can also conflict with each other. One of them is that you want to have a credible path to reducing debt, and the other is that you do not want to constrain investment that is important for the long-term growth of the economy. No fiscal rule is perfect, but the structures that we have at the moment mean that there is a guardrail. It means that I have to show discipline on debt reduction, but they also give me the latitude to take decisions that will increase growth in the five years running up to that fifth year, where you have that debt reduction rule.

Q271       Danny Kruger: So you do not accept Torsten Bell’s suggestion that a commitment to have debt falling in five years is a commitment to never have debt falling at all, because you can always push it out?

Jeremy Hunt: In the end, if you were to constantly do that, the markets would find you out. The markets themselves also want to see that you are investing sensibly. What they would also say—I don’t know if they actually said this yesterday, but certainly it is what my officials at the Treasury would say—is that a lot of the credibility of your fiscal rules is about the policies that you pursue within the five-year cycle. If markets sense that you have sensible policies that will enhance growth, like the national insurance cuts that bring more people into the workforce, and if they can see that you have a sensible plan to boost investment in the economy, they recognise that you are more likely to be a country that is good for your debt in the future.

Q272       Danny Kruger: One measure that I really welcomed in the Budget was the lifting of the VAT threshold—only £5,000, but the direction of travel is welcome. Is it the case that that was only raised by £5,000 because of concerns around Northern Ireland and our obligations to maintain a single VAT regime for the whole of the UK? Are you content with that constraint imposed by our agreement with the EU? Would you have liked to go further if it were not for that?

              Jeremy Hunt: That was the most that we could afford. It was a very, very tight settlement. I wanted to do something because you and many other people had argued for it. Lots of people would have liked a much bigger increase, but that was the most we could afford.

Danny Kruger: It wasn’t Northern Ireland-related at all?

Jeremy Hunt: It is true that there are no issues with the Windsor framework at the level that we made the increase, but the reason that we chose that number was that it was the most we could afford.

Q273       Danny Kruger: I have a quick question on the high-income child benefit charge. Again, I very much welcome the raising of the threshold. You have eliminated a really pernicious cliff edge there for a lot of families. Would you have liked to go further and scrap the charge altogether? Do you think that that would be the right thing to do in the long term, or do you think that it is necessary to have a means test of some sort?

I also welcome the commitment to have a household basis for assessment. Do you think that that model could be applied more generally in tax policy, or does it only apply in the case of the child benefit charge?

Jeremy Hunt: I think that when you have constrained resources, it is right that there is a clawback of benefits like child benefit for people at higher income levels, but I do not think that the way it works at the moment is at all satisfactory. It is very unfair to single-earner households, and it creates a big work disincentive. We have been able to make some improvement, but I want to see whether there is a much fairer system that can reflect household income in the way that the benefits system does.

If we can find a solution that works, that could be a solution to problems that we have with other things like childcare, which are also based on one person in the household earning more than £100,000. But the first thing I want to do is see whether we can do this at all. There are people who have profound objections to HMRC collecting data on a household level, so I want to test parliamentary opinion on that and see if there is a way we can solve it for child benefit before we consider other steps.

Danny Kruger: That is very welcome. In further pursuit of your hero Nigel Lawson, I encourage you to fulfil the original intention of individual taxation, which was to allow for household assessment.

Jeremy Hunt: Alongside abolishing non-doms, which was another of Nigel Lawson’s policies, which I think maybe the Labour party copied.

Q274       Danny Kruger: Hooray for Nigel.

Lastly, Chancellor, it is very important that the Government has a commitment to fund defence at a level of 2.5%. We are a NATO leader in that regard. I wish we could hear from the Labour party that it would also match that commitment. But I think we need to go further, and I wonder whether you agree.

We have heard the aspiration to scrap national insurance, when funding allows. I would like to hear your personal view on the long-term future of defence funding in this country. When I say “long-term”, I actually mean the immediate term, given the challenges that our country and our world face at the moment. I would like to understand whether the decision not to fund defence further—I know that there was a small uplift, but it was less than 1% in the Budget—was because you could not afford it or because you thought it was not necessary at this time. Perhaps defence cannot take the money because there is this argument that it cannot receive too much money at once.

Jeremy Hunt: I wouldn’t use any of those explanations, actually. I do believe that we will need to spend more on defence. I think the world is becoming more dangerous. It is patently evident that Russia and China want to up-end the international order that has brought more peace and prosperity to the world than any other in the existence of humanity. This is a period in history at which we cannot take for granted our democratic freedoms, very sadly. That is why we made our commitment to move to 2.5% of GDP as soon as we can afford to do so.

We have already done a lot. In the Budget last year, I increased defence spending by £11 billion; I think in the autumn statement it was just under half a billion. Before that, when the Prime Minister was Chancellor, he made a £24 billion increase. There have been some significant increases going on, and it is increasing by about 0.5% a year in real terms.

Before we go further, we need to fully understand whether we have made sufficient reforms to defence procurement. That is something that I know the Defence Secretary is very involved with and has been very active on. We also need to fully understand the implications of the war in Ukraine on the type of thing that we would need to invest in for the wars of the future. Those are important pieces of work. Alongside that, of course, there is the question of affordability when it comes to national finances, but the broad case for more investment in defence is something that I accept.

Q275       Samantha Dixon: You will have to forgive me, but this is my first Treasury Committee meeting; I was not in attendance yesterday, so if I cross over with anything that was answered or covered yesterday, I apologise.

I was struck by your observation about different pots of tax not being linked to particular spending. I come from a local government background, and it strikes me that we do actually have a tax: it is an adult social care precept of 2%, which continues to be demanded of citizens across the country along with council tax.

I want to ask you a few questions about living standards. In response to your Budget, Paul Johnson at the IFS said that we are still “heading for a Parliament in which people will on average be worse off at the end than at the start”. I wonder how much responsibility you take for that.

              Jeremy Hunt: As Paul Johnson and Torsten Bell said at yesterday’s meeting, that is because we have had a once-in-a-century pandemic and a war in Ukraine. What I have to take responsibility for is our response to those very big economic shocks.

I believe that the forecasts on living standards are massively better than they were when I became Chancellor. When I became Chancellor, the OBR was predicting that living standards would contract by 2% this financial year. It now thinks that they will go up by 0.8%. It thinks that we will get back to pre-pandemic living standards next year, which is two years earlier than it was predicting a year ago. I think the British economy has shown itself to be much more resilient than many people thought, but of course in the face of those kinds of shocks, there is a big impact.

Q276       Samantha Dixon: Why were there no policy measures in this Budget to help pensioner households to cope with the persistent reductions in living standards?

              Jeremy Hunt: There were a lot of policies for pensioners. For example, from April the state pension will go up by 8.5%. That is £900 next year, which is about three times the rate of inflation. I announced that at the autumn statement. This time, I announced a huge package of funding for the NHS. Pensioners are the biggest users of the NHS; it is a very important public service as far as they are concerned.

If you look at the combined support that we have given to pensioners, I think the Resolution Foundation calculates that they are £1,000 better off in real terms compared with 2010. For the first time, pensioners are less likely to be in poverty than the rest of the population. We always prioritise pensioners, and we always will.

Q277       Samantha Dixon: The Treasury’s distributional analysis suggests that the biggest winners from your tax and welfare policies have been the fifth to ninth highest income groups. Why have you provided most financial support to better-off households?

              Jeremy Hunt: You can take an individual measure and look at the consequences, but a fairer way of doing it is to look at a package of measures. If you look at all the measures that I have taken in the four fiscal events that I have done, they are progressive.

In every fiscal event, I have taken steps to help people at the bottom of the income scale or people coming into difficulty. So in my first autumn statement in 2022, we announced cost of living support, which has turned out to be just over £3,000 for the average household. We uprated the local housing allowance in the autumn statement in November; that is going to be about £800 for 1.6 million households, which is a very significant help.

This time, I had the measures on debt relief orders; we are also extending the payback period for people on universal credit who take out loans from 12 months to 24 months. I try very hard to make sure that we are supporting people in particular difficulty.

Q278       Samantha Dixon: Do you accept that the wealthier households have done better from this Budget?

              Jeremy Hunt: Well, why did I choose national insurance? Actually, I could have chosen lots of tax cuts that would have helped much wealthier people, but the reason I chose it was that it is the most beneficial for growth.

That 4p cut in national insurance brings about 200,000 people back into the workforce and fills about one in five vacancies across the economy. That creates jobs for lots of people on low pay because I have increased the national living wage to £11.44. Their after-tax real income is now 35% higher for someone working full time than it would have been in 2010. But once you grow the economy, which those cuts help to do, that means that you can have more money for helping people in difficulty and more money for public services on which they depend.

Q279       Samantha Dixon: This year’s Budget happened around the time of International Women’s Day. Which policies in the Budget would you point to that specifically benefit women?

Jeremy Hunt: Probably the biggest is increasing the threshold at which you have to pay the high-income child benefit charge from £50,000 to £60,000. That takes 170,000 families out of paying the charge and means that about half a million families with young children or children entitled to receive child benefit will get about £1,300 a year.

Q280       Samantha Dixon: I understand that, as in the case of every fiscal event in recent years, you have not published an impact assessment for this Budget and its individual policy measures in terms of their impact on gender. What progress are you making on measuring this in future?

Jeremy Hunt: I have to do an equalities impact assessment of all the measures in the Budget, and I do that before any policies are put to Parliament.

William Macfarlane: Can I add something on the distributional analysis, which you have asked about?

The modelling that the Treasury does and that underpins that distribution analysis aims to illustrate the cumulative impact of measures, as the Chancellor said, on income levels. It is extremely challenging to produce analysis of a high quality based around other characteristics, including gender. That is because the assumptions that you have to make about a household’s make-up actually drive the outcomes of the analysis, as opposed to the actual policies themselves.

It is an area that the Treasury looks at with interest, in terms of others who are undertaking work in this area, including groups that have been before the Committee previously. But as Paul Johnson himself recognised, because most people live in households and we do not know how incomes are shared within the household, it is very hard to look at the effects between men and women. Nevertheless, it is an area of analysis that we remain extremely interested in.

As the Chancellor says, we advise him on the equalities impact in producing the Budget and there are areas of impact assessment of the Budget, such as the HMRC TIINs publications, which go beyond our legal responsibilities in terms of equalities impacts and where we are trying to do more.

Q281       Anne Marie Morris: If I may, Chancellor, I will ask first about transport and then about property.

My point about transport is not one that you addressed specifically in this fiscal event. However, I am pleased to say that over previous fiscal events you have set up the Network North fund, and the idea behind that was to use the savings from the cancelled part of HS2 to fund other infrastructure projects. Dear to my heart is the south-west rail resilience programme. Thank you—we have already got the funding for four out of the five phases, but the fifth phase depends very much on some money coming out of the Network North fund. I understand from Network Rail that it needs the cash, as opposed to a promise from a saving, and that it needs that in fairly short order—by June, to my last understanding. Are you able to share with the Committee how you are converting a saving into cash for these projects to make sure that they can be delivered on time? I would much value any reference to Dawlish.

Jeremy Hunt: Indeed. I have been on that railway route many times, and it is absolutely stunning—one of the most beautiful in the country. But if you go on it, you understand why you need to invest money into resilience, because you are really very close to the sea there. You are right that we have allocated, I think, £165 million to the first four phases. The fifth phase is very important. I know that the proposal is with the Transport Secretary now. All I can say is that I know he hopes to make a decision very soon.

Q282       Anne Marie Morris: Perhaps the pair of you have got your wires a bit crossed, because I spoke to the Secretary of State a week ago, and he said that it was in your court and he was going to talk to you. I expressed to him my concern about the deadline. What can I do to get resolution? Is it you? Is it the Secretary of State for Transport? In a way, I am less bothered about “who”; I am more concerned about commitment for June. Are you able to commit that the money will be available when it is needed, which is in June, as I understand it?

Jeremy Hunt: Rather than passing you from pillar to post, why don’t I commit to you that I will talk to Mark Harper and try to resolve this quickly, and we will get back to you as soon as we can?

Q283       Anne Marie Morris: That would be a great help. Thank you, Chancellor.

Moving on to property tax, there were three parts in the Budget: the reduction in the capital gains tax higher rate by 2%, the holiday letting relief removal and the multiple dwellings relief removal. Taken together, from the evidence we have had and from what you have said, you were trying to achieve two things: clearly, tax to do the things we want to be done for our public services, but also to maximise the use of property for residential purposes, as opposed to anything else. Might I suggest that that was therefore really a nudge to try to encourage those who have been thinking about disposing of their second homes to do so? This would be the most tax-effective time to do it.

Those who were letting out their properties on Airbnb, often in the summer and at Easter, might be discouraged by your words “level the playing field”. They effectively lost relief that gave them a benefit compared with those who let out on full-time residential tenancies. That inevitably had a consequence for properties that were used as part of the tourism industry. While I understand the objective, given what we have talked about—the shortage of housing; the need to ensure that as many people as possible have homes—inevitably there is a trade-off, because for many coastal and rural communities, that tourism piece is quite important for the local economy. Did you do an impact assessment to look at the trade-offs, to see whether you got the balance about right?

Jeremy Hunt: Let me clarify what we were trying to do, and perhaps that will answer your question. I was not saying that I want more properties to be used in this way as opposed to that way. I listened to a lot of colleagues from the west country, who said to me that they had real concerns that it was difficult for police officers, nurses and public servants to find properties for long-term rental.

The decision I took was to remove a tax advantage in the system for short-term holiday lets, which I felt was distorting the market. I was really trying to remove a distortion. But I fully recognise that there is a very important role in the tourism industry for short-term lets. I am very happy for landlords who continue to want to let their houses through Airbnb and there is a very important role for long-term lets and long-term residents, but I just didn’t think it was appropriate that the tax system should be nudging landlords in one direction or another.

Q284       Anne Marie Morris: When the Office of Tax Simplification looked at this—I think it originally put forward the suggestion that the holiday letting relief should go—it recognised that this chunk of properties is used in a diverse number of ways. You have a large number with a very significant business coming off it, and then you have a tail of individuals who are probably doing a bit of, “Well, wouldn’t it be nice to get a bit of extra income?” That tail was unlikely to benefit from the relief because those individuals were unlikely to want to offer their up property for 210 days, so in a way, by removing the relief, it is not the Airbnb “nice little bit of extra cash” second home owners who are going to be losing out, because they never had the advantage in the first place; it is those who are genuinely in business.

I look at the rural community that I have the pleasure of representing. I think something like 27% of these are in the south-west. I hear what you say about the other concern, but if I may put the flipside, which is the concern of these businesses, many of them cannot get planning permission. If you are a farmer and you want to diversify, you cannot turn some of your farm buildings into property that has residential use because the district council will not permit it because these are often cottages in the middle of absolutely nowhere. There is not a bus. I will be honest: in terms of it being appropriate for a first-time buyer, it would be very expensive and so remote as to be not terribly practical.

The suggestion that the Office of Tax Simplification came up with was what it called the bright line test. What it said was: if an individual is letting out a minimum number of properties—I think it suggested something like five to 10—or more; if the lets were short term and there was no personal use, which would get rid of the Airbnb “nice to be able to make a little money in the summer”; and if there was a level of personal time involved in the letting, it should be set out in law that that was a trade and that it should therefore benefit from the existing tax benefit.

My ask, Chancellor, given that there are these two distinct groups, is that you might consider, not least to avoid confusion, what the Office of Tax Simplification suggested, with a view either to making it very clear that “these are the criteria that mean you are trading, and this is not just investment income” so that we do not have litigation, which I think at the moment the accounting bodies have raised as a concern, and/or allowing them to retain this existing relief because this is a relatively small part that could be quite clearly defined.

Jeremy Hunt: I hear the case you make. My puzzle about what you said, if I may say so, is that what the Office of Tax Simplification proposed seems to me to be rather more complicated than what I actually announced. For the businesses that you talked about, there is absolutely nothing that I have announced that would stop a farmer getting permission to have short-term holiday lets in an outhouse or a part of their house. There is nothing whatever to stop them carrying on doing that. What I wanted to remove was an incentive in the tax system that would make people who could choose the use of their properties choose holiday lets over long-term rentals. I think that is what I have done. Please do write to me with your thoughts on that particular sector, because I fully accept that the tourism industry is a very important one.

Anne Marie Morris: That is very helpful, because clearly the group I am talking about does not have the option of offering residential tenancies. You are right: technically, they can still rent on the basis of a holiday let. However, the business model falls apart and for them there is not an alternative. I think the group of people that you are trying to influence, as I understand it, are the ones that have an alternative. But I will write to you, and I appreciate your listening.

Jeremy Hunt: Thank you.

Q285       Dr Coffey: Slightly building on what Anne Marie has just said, rural businesses have also contacted me about these issues. At the same time, terraced homes are now going for over £1 million in Southwold, so prices have significantly risen in the last decade. I understand that the attractiveness of investment has perhaps been helped by the generous regime you are trying to balance so that it does not favour one kind of let over another.

Thinking about growth, there are a number of factors, and you have particularly mentioned investment today. We decided not to go ahead with the super-deduction and to move to full expensing of investment. Recognising that we have quite a services-intensive part of our economy, what makes you confident that businesses will take advantage of full expensing?

Jeremy Hunt: The super-deduction is a sort of precursor to full expensing. It is, effectively, the same policy, but it was introduced on a temporary basis; full expensing has made those benefits permanent. The first thing to say is that, since the super-deduction, we have had the second highest growth in business investment in the G7 after Italy, but ahead of America, France, Germany and Japan. So I think there is some evidence that the policy is working.

We have a fantastic services economy. It is a great strength of the UK’s, and we want to do everything we can to support it, which is why there were a lot of measures to support financial services in my Budget speech. But we have a long-term issue with productivity, which is about 15% less than in the United States or Germany. That is not because Brits don’t work as hard as Americans or Germans—actually, Americans probably work longer hours than all of us, but it is certainly not the case compared to Europeans. What happens is that, in those countries, businesses invest in more machinery, more IT and more automation around individual workers, which means that their output is greater.

The reason we changed our model from one that goes for the lowest possible headline rate of corporation tax to one that has a slightly higher headline rate, but still the lowest in the G7, and more capital allowances, is to incentivise that investment in plant and machinery, which has historically been behind that in those other countries. Combined with the other measures I announced to boost investment, which boost investment by around £20 billion a year over a period of time, that closes about half the gap, we believe, with countries like Germany. There is still more work to do, but that is the reason for focusing on investment.

Q286       Dr Coffey: One of the other elements that came out was that you are quite keen for pension schemes to get more involved in investment, and particularly investment domestically. When I was at DWP, I saw what impact lower risk and lower returns can have for future pensioners, but there is also the issue of how you balance that with the fiduciary duty. Can you tell me more about what is triggering this? We get foreign pension schemes investing in infrastructure in this country, so what substantial change do you hope to achieve?

Jeremy Hunt: The first thing is that the most important duty of a pension fund is to get the best possible returns for pensioners, and we are not changing that at all—that is how it should be. But they have, to date, been assessed by their regulators on the costs of their investments—the annual management charges and so on—not the overall returns.

What we have seen in other countries, particularly Australia, is a different model, where they have consolidated their pension funds, and Canada has done the same. The result is that they are managing larger pools of money, and they are able to get more professional investment teams. When they have those, they are able to allocate a proportion—it is only a small proportion, maybe 10%—to higher-risk but higher-return growth stocks, which the majority of our pension funds tend to avoid. We have 30,000, so our reforms are designed to provoke a consolidation, which will not happen overnight—it will take a decade or more for it to happen—and to follow the journey they have been on in Australia.

As part of that, as we start to get more professionally managed funds, we think they will start to notice the brilliant growth stocks that we have in this country. At the moment we have the great irony that if you are a brilliant UK tech entrepreneur, you are more likely to get investment from a Canadian pension fund than a British pension fund, even though British pension funds collectively have got more money to invest than Canadian pension funds. We would like to put that right.

Q287       Dr Coffey: Going further on that, traditionally the Prudential Regulation Authority has been very negative about the consolidation of superfunds and similar. What has changed?

Jeremy Hunt: We have had very good discussions with them. I cannot say what they were like when you were DWP Secretary, but I have had meetings with the Pensions Regulator, the FCA and the PRA. I think they are very supportive of the direction of travel we are going in. Because we believe—and I think they believe—that this will mean higher returns for pensioners.

Q288       Dr Coffey: There are some things on which you seem to be in strong agreement with the OBR—some of the dynamic effects of what you are doing by reducing NI and similar, in terms of the equivalent of nearly 100,000 employees coming into the market.

There are other barriers to people working to their full extent. On childcare, there has been some questioning about how far along we are in liberating that to help working people. What is one of the key changes that you want to ensure happens, not just by next month, but in the next two to three years?

Jeremy Hunt: I think the childcare reforms that I announced in the Budget a year ago are genuinely transformative, because they remove that hiatus between when a baby is nine months old and when it is three. They mean that childcare support is available right from the moment that a mother might want to go back to work. That will mean that the economy loses a lot less of the talent than it currently loses. It is a huge increase in childcare provision, probably around 40,000 more staff and around 170,000 more childcare places across the country. That means a big investment by the sector.

I have been working with the Education Secretary to give the sector the certainty to make that investment. In the Budget, we announced the rates that we will pay for that childcare over the next two years, so that they’ve got the certainty. We think that will unlock about £500 million of additional investment in the sector. The first stage will be this April; then we roll it out. The next stage is this September, and finally next September.

Q289       Dr Coffey: Going further than that, I think we had already been spending about £6 billion on childcare. How do you see that evolving in terms of public spending? Does it need to go higher?

Jeremy Hunt: I think although these reforms notionally mean a significant extra expenditure by the state because we are extending the 30 hours offered to children over nine months, when you factor in the additional number of parents in the workforce who would not have otherwise been in the workforce, you get the majority of the extra cost back. So it increases the productive capacity of the economy.

That is an example of the OBR doing something that they had not done previously, which is dynamically scoring the impact of Government policies, as they have done with national insurance cuts as well, and it is welcome for that.

Q290       Dr Coffey: To be fair to the OBR, yesterday they talked about how they had looked at some of their previous modelling, because they did not really give much credit a few years ago when the Government reduced the taper rate on universal credit.

Other welcome elements include the fuel duty freeze—again, a significant amount of money forgone on the escalator. When I asked members of the MPC about interest rates, they said, “We had to go with the formal policy of the Government. We predict that fuel duty will go up and that will be inflationary, and therefore we cannot do it”—when everybody knows that you were not going to put up fuel duty. So why don’t we just scrap that as a future policy, and stop the dance that happens? Then, hopefully, the MPC can get on with some interest rate cuts.

Jeremy Hunt: Because to do so would cost £5 billion a year, which we don’t have. That is the reason I and previous Chancellors have to take this policy on a Budget-by-Budget basis. Of course I would like, for any future Budgets that I do, to continue with this freeze, but I have to take the decision on a Budget-by-Budget basis as to whether I can afford to do so.

Q291       Dr Coffey: In terms of productivity, the OBR suggested to us that if we went just to pre-pandemic levels within the public sector, that would release tens of billions of pounds. From what I think I heard you say earlier, if we achieved those levels, that would certainly compensate for what others are suggesting could lead to cuts. In fact, we could continue to see increases in public spending, as we have throughout the lifetime of the Government since 2010.

Tell me more about how we are getting that productivity done. I asked James Bowler—I think it was a couple of months ago, when he gave evidence—what benefit the IPA had had in speeding up some of this work. In written response, because he could not come up with an answer at the time, he pointed to basically one project, and that was only to not build accommodation. Is there a risk that we have overcomplicated delivery within the public sector? It sounds good on paper, but it has fallen flat.

Jeremy Hunt: I think that there are two different questions buried in there. The first thing is that we definitely need to speed up infrastructure delivery. We have done a lot, but we need to do a lot more. In the autumn statement, for example, I announced plans that would halve the time it would take to get a connection to the national grid for clean energy projects. Some people had been told that it would take 14 years to get a connection. We are completely overhauling that. We have big reforms to business planning applications. We have a fast-tracking process so that people can get their answer back much more quickly, alongside more investment in local authorities’ planning departments. We definitely need to make more progress on that.

What you say about productivity is true, and it is why it is so important that I laid out the argument in the Budget. The OBR says that if we increase productivity by 5%, that is a £20 billion saving. Our plans, if we deliver them, will increase productivity by more than 5%, and we can make sure, with the 1% spending assumption, that we do not have to have damaging cuts to services valued by the public, but delivery is everything, and it is very challenging.

I want to give you an example of how we will ensure that happens in the NHS. As part of the agreement with the NHS, which you know well as a former Health Secretary, the head of the NHS has agreed that we will measure productivity with independent verification not just for the whole NHS, but for every NHS organisation—every trust, every ICB—on a quarterly basis. There will be carrot and stick incentives for the people leading those organisations to deliver on productivity. We are not just talking about big bang electronic hospital record systems, but the chief executive of a hospital having an objective every quarter and every year to deliver small-scale improvements to productivity in every area of their operations that mean they are on track to help the NHS deliver its overall 2% productivity gains. Having, like you, run the NHS myself, I think that will change the way the NHS works and make it transformatively more efficient.

That is the NHS, but the next question is: how do we do something similar for the police, the Prison Service, the courts and other parts of the public sector? It is a very big job, but that is the journey we started at the Budget.

Q292       Dr Coffey: I have one final question, if that is okay. Procurement is a big issue. I know that James Cartlidge brought out a plan recently that will be transformational, if it succeeds. Can I just go back to what Samantha said about local government, adult social care and similar? Quite a lot of local government pension schemes are significantly overfunded. I know that some councils are keen either to have a pension holiday or to reduce their contributions. I think some are 140% funded or similar. At the moment, the Scheme Advisory Board has gone against any changes, but surely that would be sensible. What is there is almost taking the fiduciary duty too far, when at the same time council tax could be used to do some of the services in the shorter term.

Jeremy Hunt: I will take that one away, if I may. We did not announce big changes to reform what happens with DB pension schemes in the Budget. The thrust of what we announced was DC schemes, but if I may, I will take that one away and get back to you.

Chair: We will have a few further quickfire questions, Chancellor, starting with Keir.

Q293       Keir Mather: Chancellor, I wanted to pick up a further point about the NIC abolition ambition. We have had quite a lot of fluffy language in this session about your aspiration for when it could be achieved. Could you provide any sort of explanation of what you mean by “when economic circumstances allow”. What do those economic conditions look like? Maybe you could provide a timescale. A comparative figure of 12 years was used earlier. Can you give us any further detail?

Jeremy Hunt: I cannot give you a timescale, because this is going to be the work of many Parliaments. The reason I cannot give you a timescale is because I have said that there are two very clear conditions upon which the delivery of this ambition depends: one is that it will not be funded by borrowing; and the other is that it will not be funded by cuts to public services. That means that ultimately it depends on the growth of the economy now. I cannot predict the rate at which it will grow. What I can say is that I have very big confidence that the measures I announced in the Budget and the autumn statement will put us on the path to substantially higher levels of growth over the short and medium term.

Keir Mather: So there are economic conditions in which you would implement this policy, but you cannot tell us what they are.

Jeremy Hunt: I can’t tell you, because I can’t tell you what the growth rate of the economy is going forward, unfortunately.

Q294       Keir Mather: I see.

Secondly, the House of Commons Library has said that merging NICs and income tax would require an 8% increase in the basic and higher rates of income tax. Would you like to use this an opportunity to say categorically that you would not raise income tax in order to bring this policy to fruition?

Jeremy Hunt: We want to deliver this policy by reducing national insurance. That is our stated plan and that is the way we have done it in the last two fiscal events.

Keir Mather: So not through raising income tax.

Jeremy Hunt: I have explained how we want to do it. Our objective is to end the unfairness, and reducing national insurance is the way we intend to go about it.

Q295       Keir Mather: Finally, on the comms point around this decision, you have said that this is some sort of far-sighted aim: “It would just be fantastic if we could do this.” At the same time, post Budget a lot of Conservative Front Benchers have been fronting up this policy proposal in the media as if it is something coming down the track. Would you like to use this an opportunity to assuage people’s hopes that you have a plan to do this any time soon?

Jeremy Hunt: Well, we have a plan to do it. It is very important. I think in a general election year, this is very distinct to the Labour party, who have said that they do not want to do this. We think that this will mean that we grow more, and it will make work pay in the economy. It is a long-term goal, just like some of the other long-term goals that previous Conservative Administrations have announced, but we cannot tell you when we’re going to deliver it because that depends on economic growth. It is something that we think will be transformative for the economy and we are committed to.

Keir Mather: So you can’t tell us the economic conditions in which you would do it or whether you would do it through raising income tax. I suppose they might be questions for a future session.

Q296       Mr Baron: Chancellor, can I take us to the dark art of forecasting? We have the Bank of England and the OBR at almost opposite ends of the spectrum with regards inflation and growth. On inflation, the Bank of England is expecting a tick-up to 3%, whereas the OBR has halved its forecast from 2.8% roughly to 1.4% by the end of the year. On growth, the OBR is a full 3% ahead of the Bank next year—a big number. Does it worry you that monetary policy in one respect is being guided by the Bank of England forecasts, and that fiscal policy is being certainly not guided but steered to a certain extent, by the OBR forecasts, because there is such disparity between those forecasts?

Jeremy Hunt: It is a very reasonable question to ask. My experience is that those forecasts tend to be published at different points, and actually they feed off each other. The Bank of England looks at what the OBR forecasts, tries to understand what they have done and see what they can learn from it—and vice versa. In practice, I do think that that difference is probably not as stark as it looks right now.

Q297       Mr Baron: Is there anything more that could be done to bring more of a co-ordinated response? When I raised this with the OBR economists in the OBR session yesterday afternoon, they said that there should be better co-ordination and liaison. I take your point about points in time—that is valid—but those disparities are quite large. We should have an overall economic policy, where monetary and fiscal policy are at least connected in some form, but this risks that not being the case.

Jeremy Hunt: It is a very fair point. I do not disagree at all. I would just say that I think our system depends on both those sets of forecasters being independent. I would not want to get involved in that process in a way that undermined that independence.

Q298       Mr Baron: Finally, let me turn to the NatWest share sale. We have had a brief discussion about this, but can I please ask you to continue to consider Lord John Lee’s suggestion in the other place? A certain number of hundreds of pounds of shares—£250 to £500-worth—is miniscule in the big scheme of things, even when it is distributed to every single secondary school in the land. Those students would be empowered to take control of that shareholding, given the decent yield, and determine—I don’t know— policies at the margin: how to spend the dividends and so forth. It could be an education in finance and help to further that objective.

Jeremy Hunt: We will absolutely keep it under consideration, yes.

Q299       Chair: I don’t think any other colleagues have questions, but I have a few quick ones. Does the UK ISA need to be established before the NatWest share sale?

Jeremy Hunt: That is a very good question. We are actually calling it the British ISA. I will look into those timings, because it is an interesting point.

Q300       Chair: Okay. The Treasury is consulting currently with the FCA on changing the advice guidance boundary to make access to financial advice more accessible for a wider range of people. Does that need to have been implemented before the NatWest share sale?

Jeremy Hunt: Again, at the risk of repeating myself: rather than giving you an ill-informed answer, I would like to take that away and look into it, if I may.

Q301       Chair: Okay. The Office for Budget Responsibility was asked to look into the tax-free shopping issue, and they published extensively on it in their report that was issued last Wednesday. Is that the matter closed as far as you are concerned?

Jeremy Hunt:  We will continue to keep it under review. All things being equal, I would rather that foreign tourists were spending their money in the UK than in other countries. If I could find a way to make that policy affordable, I would love to do it. So far, I have not been able to, but I will continue to keep it under review.

Q302       Chair: Okay. You have told us previously that you do not like temporary tax cuts. You have extended the 5p off the price of fuel on a temporary basis for another year. Faced with the choice between extending that further and cutting national insurance by another 1%, which would you prefer?

Jeremy Hunt: That is a difficult question for me to answer, because that would potentially be one of the trade-offs that I would face in future Budgets. To date, I have been able to do both, and I am very sympathetic to continuing the freeze, but I just do not know. I don’t think I could really predict now which one I would choose if I was forced to, because I think it would depend on the economic circumstances at the time.

Q303       Chair: That leads me to my final question. You mentioned future Budgets. It has only been just over 100 days between this one and the autumn statement, so can we expect that we will have you back here talking about your next one in July or September?

Jeremy Hunt: Well, if a Budget happens in July or September, it would be with great pleasure that I would return in front of you—but that is not a decision that has been made.

Chair: If there are no further questions from colleagues, we will draw this session to a close. Thank you very much for your time, Chancellor.