Conservative Diary

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The next OBR Chief should publish forecasts that recognise that some tax rises reduce revenue

Screen shot 2010-07-11 at 18.32.54 In choosing a successor for Alan Budd there is much concern at the need for someone who will be independent of George Osborne and quite right too. The Office for Budget Responsibility has not enjoyed a perfect start and this important innovation needs careful nurturing if its fiscal forecasts are to command widespread confidence. Peter Hoskin and Douglas Carswell are encouraged by the idea that Andrew Tyrie and his Treasury Select Committee could vet OBR appointments. I hope we'll have an additional quality from the OBR; an openness to the dynamic impact of tax changes.

The IFS' Robert Chote has been endorsed by The Times (£) as a successor to Mr Budd but the IFS is not agenda-free. Its recent work on marriage was highly questionable and it has been slow to accept that certain tax changes can have important supply-side implications. High taxes often depress growth and revenues while low taxes often boost growth and revenues - because of the effects analysed by Arthur Laffer. At the heart of the OBR should be a recognition that the impact of tax changes is unpredictable. The OBR should publish ranges of forecasts that both include and exclude dynamic effects. Commentators can choose to ignore dynamic effects if they are Laffer-sceptics but by also publishing a dynamic analysis the OBR would be contributing to an understanding of the negative effects that tax increases can have on job and wealth creation.

Ruth Lea has already been nominated by Iain Martin. Two other brilliant economists deserve consideration. Graeme Leach, Chief Economist of the Institute of Directors and Andrew Lilico, Chief Economist of Policy Exchange and a long-time member of the Shadow Monetary Policy Committee, both have impeccable credentials as independent minds and believers in supply-side economics.

Tim Montgomerie

> Related link: The Budget should announce an investigation of the dynamic effects of tax cuts


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