Recommendation 7

The OBR forecast states that the policy mix chosen by the Chancellor at this Budget will act as a boost to inflation, and it identified in particular the increase 44 Autumn Budget and Spending Review 2021 in employer National Insurance Contributions, and the large fiscal loosening that took place in the Spending Review. The Prime Minister has advocated high wage growth. As the OBR has shown, there may be some fiscal benefits from inflation if the source of inflation is higher domestic wages rather than from imported and domestic inflation in the price of goods. However, setting out an economic policy of promoting high wage growth that is not accompanied by increases in productivity will be inflationary, and risks contributing to a wage price spiral. The Chancellor showed in his speech that he is alert to the fiscal risks of higher inflation and higher interest rates becoming entrenched. The Treasury should keep these risks at the forefront of their thinking when designing policies at future fiscal events. (Paragraph 39) Spending Review and the overall tax burden