Economic and Taxation Policies: Jobs, Growth and Prosperity

Thursday 13th November 2025 Lords Chamber

Motion to Take Note

12:45

Moved by

[Lord Elliott of Mickle Fell]

That this House takes note of the impact of the Government’s economic and taxation policies on jobs, growth and prosperity.

[Lord Elliott of Mickle Fell (Con)]

My Lords, it is a privilege to lead today’s debate on the impact of the Government’s economic and taxation policies on jobs, growth and prosperity.

I begin by noting an absent friend. I am saddened that the coming Budget will be the first in 35 years that will take place without the thoughtful and perceptive comments of the late Lord Desai. Like the Minister, I studied at the London School of Economics in the 1990s and was taught by Lord Desai. I am sure he would have spoken in this debate, and I know the whole House will greatly miss his contribution.

At the heart of today’s debate is the quest for economic growth. Today’s growth figures are not encouraging, suggesting that the economy shrank by 0.1% in September and GDP per capita is flatlining—or possibly falling, since the figures are calculated using population estimates from three years ago, in 2022. In 2000, when the Minister was working as a special adviser in the Treasury and I was a humble researcher working for the noble Lord, Lord Kirkhope of Harrogate, economic growth was 3%, taxation was 33% of GDP, public spending was in surplus and we were paying down the national debt. Earlier this year, I asked Sir Tony Blair what he ascribed that economic miracle to. He was clear that it was down to the economic foundations laid down in the 1980s and his decision not to tinker with the fiscal plans laid out by the noble Lord, Lord Clarke of Nottingham.

The story since 2007 has not been so rosy. Our average real GDP growth has been 1.3% per annum, with average population growth of 0.7% a year. That equates to a measly rise in GDP per capita each year of just 0.6%, meaning that living standards have stagnated for many, with millions of personal recessions where people have become worse off year by year. In contrast, over the same period, the average American has gone from being 10% richer than the average Brit in 2007 to now being 40% richer.

Is there hope around the corner? I fear there is not. Recent world economic league table projections of GDP per capita by the Centre for Economics and Business Research paint a stark picture of where the UK is headed. In 2030 we will be poorer per capita than Lithuania, in 2034 we will be worse off than Poland, and in 2043 we will be poorer than Turkey. That is the path we are on, which is why today’s debate is so important.

Fundamentally, we agree on all sides of the House on the need for economic growth and boosting living standards and prosperity. Kick-starting economic growth is one of this Government’s five missions. The Prime Minister put wealth creation at the heart of his manifesto, and the Chancellor says that economic growth is the Government’s number one mission. However, it is clear that the Government lack a comprehensive plan. I agreed with what a senior Labour figure said in a podcast recently when they suggested that the Chancellor needs to use the Budget to present

“a growth plan for the long term, turning public services round and making them better … It’s got to be a plan which sticks, which lasts, which doesn’t unravel with the markets or in Parliament or with the public in 48 hours”.

Those are the words of a previous colleague of the Minister, Labour’s former shadow Chancellor, Ed Balls, speaking on his “Political Currency” podcast on 30 October. I agree with him, and I hope the Government address his challenge in the forthcoming Budget.

There is much I could say about a long-term plan for economic growth. Noble Lords interested in reading more about this might like to take a look at a new book I have written called Prosperity Through Growth, and I have placed a copy in the Library. The economic brains behind the book were my co-authors, Dr Arthur B Laffer and Doug McWilliams, and the geopolitical content came from my noble friend Lord Hintze, who sadly has a long-standing speaking engagement in Australia so has asked me to pass on his apologies.

For this debate, I will limit myself to three key elements of a growth plan where I believe there is mainstream agreement. These are abundant energy, abundant employment and abundant enterprise. I will take these in turn. Abundant energy is a prerequisite of economic growth, so we need the cost of energy to come down. The World Bank summarises the literature by saying:

“Affordable, accessible energy is at the heart of development, driving job creation, growth, and shared prosperity”.


Our energy is immensely expensive compared to our competitors. Wholesale energy costs in the UK are double costs in most European countries, and almost half of each bill is down to policy costs. The Government know that mainstream opinion is shifting on this issue. The Prime Minister acknowledged at the COP 30 summit that “consensus is gone” on climate change policy. Sir Tony Blair told us for Prosperity Through Growth that net zero should be delayed, as other countries are not following our lead. Even previous major advocates from outside politics seem to be responding to changed circumstances. Bill Gates remarked in October that for the “vast majority” of people, climate change

“will not be the only or even the biggest threat to their lives and welfare. The biggest problems are poverty and disease, just as they always have been”.

Other senior figures in the Labour movement have also expressed scepticism about pursuing net zero by 2050. The noble Lord, Lord Glasman, will be giving a lecture the week after next on “Why it’s good to be warm: energy as a common good”. Sharon Graham, general secretary of Unite, has suggested that the Energy Secretary has been “completely irresponsible” in his approach to energy security and jobs in the oil and gas sector. I agree with her, and believe the Prime Minister also agrees, as he tried to move Ed Miliband in September’s reshuffle. I wish him better luck next time, because it is essential for economic growth that we focus on lower energy bills rather than net zero alone.

A second essential element for accelerated growth is abundant employment. The importance of jobs and work is something I speak about regularly in your Lordships’ House. I continue to commend the Government for their ambition to bring the employment rate up from 75% to 80%. Since they have been elected, they have succeeded in increasing the employment rate by 0.3%, putting them on track to hit their target in 2048. At the same time, unemployment is up from 4.2% to 5%. The number of universal credit claimants who have no requirement to work is up from 2.9 million in October 2024 to 4 million in October 2025, a 39% rise in the space of a year. The number of job vacancies is down from 870,000 to 723,000. The number of new jobs which need to be created by the private sector to achieve 80% employment is now 1.4 million rather than 1.2 million. Crucially, the Employment Rights Bill reduces job creation, which is why the Treasury is rightly trying to water it down.

A Tony Blair Institute report last week said that day-one rights risk

“eroding business confidence to hire”.

The Resolution Foundation argues that day-one rights offer

“little obvious gain to workers”

and have

“the potential to inhibit hiring”.

Even the Prime Minister’s chief economic adviser, the noble Baroness, Lady Shafik, expressed significant concerns about the Bill, saying,

“if you’ve got a lot of people on benefits who you are hoping to get into the labour market … then you need to give employers some flexibility to take risks on those people”.

It is time to make employing people more flexible and affordable for businesses and bring about abundant employment. This is not solely about economic growth, it is about giving people their first step on the employment ladder; no jobs, no ladders of opportunity.

The final factor we need for economic growth is abundant enterprise, and taxation is a crucial driver of that. In 1998, Gordon Brown introduced taper relief for capital gains tax. This scheme incentivised long-term investment and had no lifetime limit on holding assets, with a long-term CGT rate of just 10%. Today the picture is very different. From next April, the rate will be 18% up to £1 million and 24% beyond that. We need to acknowledge the impact that these and other changes to incentives have on our economy. As we see the rise of remote working, the mobility of people must be a key consideration when making any tax changes. This is already happening, with 16,500 high net worth individuals, many of them entrepreneurs and investors, expected to leave the UK in this year alone. It includes former Members of your Lordships’ House: the Minister’s former colleague in Downing Street, Lord Carter of Barnes, recently left the UK to go to Dubai.

On another podcast recently, a senior Labour figure suggested that the Chancellor undid the damage done by the changes to the non-dom rules and moved to an Italian-style system for taxing wealthy individuals.

“What they should think about doing is a kind of flat tax deal, because that’s what the Italians have done. They’re basically saying, ‘Look, you come here, you pay €300,000 a year and you keep the rest of it because we want you to be here’. I think Labour could get away with that, saying half a million and that’s all you pay”.


I do not often agree with what I hear on “The Rest is Politics”, but on this issue I think Alastair Campbell is spot on. We need to change the incentives to attract more entrepreneurs to the UK rather than drive them away. We need to ensure that young entrepreneurs set up their businesses here rather than go overseas.

Many other people within the Labour Party also agree with this sentiment. Sir Tony Blair acknowledged when speaking to us for our book that taxes are immensely high by historic standards and even suggested that a 40% top rate of income tax was probably too high in today’s highly mobile world. The noble Lord, Lord Mendelsohn, expressed it perfectly in a recent report for Onward:

“A small group of wealthy individuals pay a significant proportion of the tax we rely upon. I do not agree with some colleagues that we should wave goodbye to the wealthy; we should be doing whatever we can to welcome them back, and new investors, entrepreneurs, and high spenders to our shores”.


He is right. If we are to have abundant enterprise, a key element of any serious growth plan, the Treasury needs to start attracting people back to the UK.

Last week we heard the Chancellor, Rachel Reeves, say that she is willing to take “tough but necessary” choices and do the right thing. This is welcome. But raising income tax, chasing limited liability partnerships away from the UK and letting the welfare bill continue to escalate are not the right tough choices. Instead, the Chancellor should look at the policy options I have highlighted today, which are supported by mainstream opinion, including respected voices in the Labour Party.

In his closing statement, will the Minister respond to Ed Balls and outline what the Government’s long-term economic plan is? On energy, does the Minister agree with Bill Gates, Unite and the noble Lord, Lord Glasman, that we should focus more on jobs and poverty and less on net zero by 2050? On employment, does the Minister agree with the Resolution Foundation, the Tony Blair Institute and the noble Baroness, Lady Shafik, that the Employment Rights Bill will make it less likely that businesses take on riskier hires? On enterprise, does the Minister agree with Alastair Campbell, Sir Tony Blair and the noble Lord, Lord Mendelsohn—and Lord Carter of Barnes, for that matter—that that we need to do more to attract entrepreneurs and investors to come to the UK, rather than chase them away?

This month’s Budget will have a critical impact on our economic standing in 20 years’ time. Will we maintain our position, will we perhaps even improve it, or will we fall behind Turkey? Britain’s decline is not inevitable. The path to prosperity is open to us. It is time to take it. It is time to make Britain rich again. I beg to move.

13:00

[Lord Eatwell (Lab)]

My Lords, we are all grateful to the noble Lord, Lord Elliott, for having secured this debate. As noble Lords will know, the noble Lord is one of the most brilliant political campaigners of his generation, evidenced in the speech we have just heard and, most notably, in his leadership of Vote Leave, the successful Brexit campaign. Hence, according to estimates by the Institute for Fiscal Studies—confirmed recently by the United States’s National Bureau for Economic Research—he is, at least in part, personally responsible for a permanent reduction in UK GDP of between 4% and 6% per annum, with estimated tax revenue being lower by more than £50 billion per year. This makes his negative assessment of the Government’s economic policies seem rather small beer. The common conclusion of serious economic studies is that Brexit, unsurprisingly, has damaged trade. Even more seriously, it is having a long-term negative impact on investment in the UK. The American study I cited estimated that there was a reduction in investment of between 12% and 18%. That is where the long-term damage is being done. Investment is the foundation of productivity growth, embedding innovation in the production of goods and services.

In recent years, Britain has had a dreadful record, with the share of business investment in GDP consistently lower, year after year, than in other G7 economies. If we do not invest more in productive capacity, R&D and skills, the growth prospects for the UK are very poor indeed. We must look to investment for the enduring impact of the Government’s economic policies. At the core of these policies are Rachel Reeves’s fiscal rules, notably the commitment to balance the current budget: day-to-day spending must be funded by revenues. However, this does not apply to investment. Borrowing is allowed for investment: indeed, the rule is designed to protect long-term projects from short-term exigencies. Hence, in the 2024 Budget, the Chancellor funded public investment growth of 2.5% per year, year on year, to 2029, replacing the Conservative plan to cut investment growth to a miserable 1.7% per annum: a difference of £20 billion-worth of investment per year.

Government investment in transport, housing, research and development and energy is the much-needed long-term commitment to the British economy, protected by the fiscal rules. Given that the fiscal rules are central to government policy, it is odd that they were not mentioned by the noble Lord in his introduction. It is surely incumbent on the party opposite, particularly the Conservative Front Bench, to state clearly whether they support the fiscal rules or not. The rules protect long-term public investment, but what is their impact on business investment? The OBR estimates that a 1% increase in public investment leads to an up-to- 1% increase in business investment as well. The Bank of England noted recently that public investment in R&D and infrastructure tends to have a stronger, longer-lasting, “crowd-in” effect than short-term spending. Growing public investment causes growing private investment. The fiscal rules are not just supporting public investment, they are supporting business investment too. Surely that is an impact of the Government’s fiscal policy that all sides of this House should celebrate.

13:04

[Lord Skidelsky (CB)]

My Lords, I would also like to thank the noble Lord, Lord Elliott, for giving us a chance to discuss this important question, and it is always a pleasure to follow the noble Lord, Lord Eatwell.

Economic commentary has been dominated by the fiscal hole—said to be £30 billion—facing the Chancellor. To stick to her fiscal rules, Rachel Reeves will have to raise taxes, or cut spending, or do both, but she has promised not to raise taxes and has promised to increase public spending. She is, therefore, in a bind. However, this fiscal straitjacket depends on two assumptions: first, that there will be little or no economic growth in the next four years; and secondly, that the British economy is already at or near full employment. These are reasonable forecasts based on recent trends. However, since 2008, average economic growth has been about 1.5% a year, a full percentage point lower than before, and much of that has been down to the increase in population. Living standards for the majority have hardly risen and productivity has been flat, and the OBR expects this to continue. The noble Lord, Lord Elliott, emphasised the need for abundant employment, but I would suggest a different path from the one he has outlined.

With headline unemployment at 1.8 million, we are tolerably close to what we think of as full employment, though it has gone up a little to 5% recently. Is this a true measure, though, of spare capacity? Apart from the headline count, we have four million, or 10% of, working-age people claiming either disability or incapacity benefits, plus 1 million NEETs: that is, those between 16 and 24 who are not in education or in employment. In addition, 7.7 million are employed part-time. Then there are those who have left the labour market altogether. Some of these categories overlap, but if one were to add up the full-time unemployed, part-time workers who want to work more, those on disability benefits who could do some work, and the discouraged, one could get a better measure of spare capacity than the headline count alone. Estimates suggest the figure would be about 10% to 15% of the labour force. This, if true, would justify greater fiscal loosening than the OBR considers prudent. That is the first point.

How do we get the underemployed back into work? It is not simply a question of increasing demand—the old Keynesian formula. One has to rebuild supply. To give one example, the Government have unveiled a youth job guarantee scheme covering ages 18 to 21. Every young person who has been on universal credit for 18 months without earning or learning will be offered a guaranteed work placement, with the aim of helping them to transition into full employment. I welcome that initiative; it is very important. I like to think that it was influenced by a paper entitled Job Creation is the New Game in Town, which I co-authored with Gordon Brown five years ago. We wrote:

“Regional and local government job and training schemes”


for young people

“are essential to the task of reallocating work and skills into the labour market”.

We went quite a lot further, but I do not have the time to go into that. The basic idea was that there should be a public sector job guarantee, with a buffer stock of state-supported jobs and training schemes that expands and contracts with the business cycle. A job guarantee of this kind could take up a large part of the slack in the labour market. By raising the rate of economic growth, it would help reduce the deficit, and the guaranteed training and apprenticeship part of the scheme would directly address the productivity problem. So I urge the Government to fight the bond vigilantes and the tax cutters with a positive programme of economic renewal.

13:08

[Lord Howard of Lympne (Con)]

My Lords, I draw attention to my entry in the register, and in particular to my chairmanship of Direct Special Metals, a company whose recent experience I shall refer to in my brief contribution. It is always a pleasure to follow the noble Lord, Lord Skidelsky, and I join others in thanking my noble friend Lord Elliott for securing this debate, and also for the work of the Jobs Foundation over which he presides.

Much of the debate—in fact all of it, so far—has understandably been taken up with macroeconomic policy, which is vitally important. I want to talk about the micro: about ways in which apparently small improvements can have a dramatic effect on the economy and on people’s lives. I will talk in particular about the recent experience of Direct Special Metals when we wanted to offer people jobs.

Direct Special Metals is a recycling company based in Sheffield. We were expanding and we wanted to recruit, so we went to the local jobcentre. The story of what happened is recounted by Ian Crewe, the company’s co-founder, in Ladders of Opportunity, a recent publication by the Jobs Foundation:

“First of all, they got the volume of people wrong … Then, they got the job description wrong”.


But DSM persisted, and eventually we were offered 25 people. Ten of them could not hold a conversation. Of the 15 who were offered an interview, only five turned up. Of the five who turned up, four were not a fit at all, so we ended up employing just one person from the jobcentre. Ian Crewe was stunned. He said they were

“local jobs … Well paid, and we do pay well. Solid hours. Not flexy hours. None of that. You thought they’d be queuing at the door. But we got just the one person. I just couldn’t believe it”.

Ian did not, as so many would have done, give up. He contacted Sheffield City Council, which got involved. Soon, he was dealing with a side of the jobcentre that had previously been invisible. Two people from the jobcentre visited the company. Ian told them what the company wanted, and after that conversation things improved dramatically. The quality of the candidates got better and soon we were getting most of our staff from the jobcentre. But how many people would have persisted as Ian did? How many employers would have got in touch with the council? Indeed, why was it necessary for Ian to get in touch with the council at all?

The moral of this little story is that jobcentres need to be proactive. They need to make more of an effort to understand the needs of local employers to match the vacancies with the people on their books. If they do, we might see just a little more progress in reducing the number of jobless people in our country—as we have heard this week, that number is now higher than at any time since the pandemic—and make a contribution to the growth and prosperity that we all want so very much.

13:12

[Baroness Foster of Aghadrumsee (Non-Afl)]

My Lords, it is a great privilege and pleasure to follow the noble Lord, Lord Howard. I thank the noble Lord, Lord Elliott of Mickle Fell, for bringing this Motion before the House and allowing us time to debate the various issues that have become clearer since the general election last July. The Government have told us that growth is their number one priority. However, the policies and taxes that have been introduced, or are about to be introduced, have made this aspiration harder and harder to achieve.

Many in this debate have spoken to the macroeconomic indicators and prospects, but I want to use the short time available to focus on the plight of rural dwellers. We rural dwellers are known for our laid-back ways, but being sanguine about the current economic prospects is not where we are at present. Sir Keir Starmer told farmers before the election in July that he would not raise taxes, then the Budget of last year revealed the biggest change for farming families for over half a century. The cap on agricultural property relief and business property relief for inheritance tax set at £1 million will have huge consequences for rural communities in terms of investment, succession planning and the continuity of family-owned enterprises. Indeed, the Taxing Futures research conducted by CBI Economics shows that these changes will, instead of growing the economy, put 208,500 jobs at risk, result in a GVA reduction of £14.8 billion and produce a net fiscal loss to the Government of £1.9 billion.

I received an email at the beginning of this week from someone who farms in the north-west of Northern Ireland. This woman, who lives with her family and her farmer husband, was in total despair. She told me that the proposed tax

“will have a devastating impact for each generation as it will stifle any future innovation and investment on farms. The reality for many farms is they will have to sell off fields each generation due to low profits and returns on farms as there will not be the money to pay it. This will result in ever smaller farms”—

farms in Northern Ireland are already small, as we know. She went on:

“There is no point in saying there will be 10 years or pay off the IHT tax—as with low returns from farming there will be nothing left for farm improvements/or future development”.


She continued to say that this proposed tax

“will ultimately change rural farms in NI—as many farms may become unviable and unsustainable—consequently many young families may leave and go to Canada, Australia. As it is at present—we have many part time farmers but their vital off farm income sustains their farms and multi-generations of their family—in addition to supporting many other off-farm employment throughout NI—all contribute to the NI economy”.

She also made a very important point about succession. I know that sometimes we have been told that this will help with farm succession. But she told me she believed that older farming parents are becoming increasingly vulnerable and are often pressurised by their younger family members to sign over their land to their sons and daughters. This can result in elder abuse, something I am very concerned about.

The reality is that the policy change on inheritance tax poses a direct threat to the continuity of family farming across the UK, and in particular in Northern Ireland. The Ulster Farmers Union has said that the absence of a credible evidence base and meaningful consultation or any impact assessment has led this Government, unfortunately, to implement this tax increase—which is effectively what it is—and has meant that many farm families are in a state of uncertainty and panic. I urge the Government to think again.

13:16

[Lord Saatchi (Con)]

My Lords, if you want a bigger slice of cake, the best thing to do is bake a bigger cake, then everyone gets a bigger slice. That, as my noble friend Lord Elliott knows very well, is how Mrs Thatcher tried to give a whole generation of young people, including me, the hope of a better life. Her famous bigger cake was economic growth—the only way you could have confidence in the country’s future and your own. Instead, we now have the exact opposite: a general feeling of disillusionment.

Recognising the national mood, the Prime Minister recently asked his officials for an uplifting plan to stimulate economic growth. It has yet to see the light of day. The reason for postponement is said to be “lack of content”. I went to the fount of economic wisdom, the London School of Economics, and very bravely asked a roomful of economics professors whether any of them had a brilliant idea for how to get economic growth in Britain. Their response? They laughed; it would take a complete change in the entire culture of the society—inconceivable, unimaginable, impossible.

Well, whisper it, but maybe the professors are wrong about what is possible and what is not, because there is one proven way to change the culture of a society; it is called the law. Smoking bans, seat belts, abortion, capital punishment, slavery, homosexuality, contraception—I can go on. We all remember, with warm approval, Lord Denning, Britain’s most senior judge, who said:

“Be you never so high, the law is above you”.


We all like that idea; it means a lot to us.

I will take a moment to describe, just for the sake of the argument, what it would be like if one was to file a lawsuit against the Government—the people v the UK Government. That has a good ring to it, does it not? The Government would be the defendant. We would of course be very humble about such a lawsuit and concentrate only on tax, because current tax law is an ungainly camel, designed by a committee that has been in standing session for 200 years.

This is how such an indictment of the UK Government might look. There are five counts here. Count one is conspiracy to enslave United Kingdom citizens and make them unnecessarily dependent on the state. Count two is conspiracy to force United Kingdom nationals to claim benefits to pay higher taxes. Count three is solicitation of multiple tax revenues by stealth. Count four is the attempt to obstruct, interfere with, impair, impede and defeat the right of United Kingdom nationals to independence. Count five is conspiracy to provide material support and resources to mesmerise and anaesthetise United Kingdom citizens.

How would such a case end? I suggest, just for the sake of the story, that on the morning of the trial the Attorney-General of the United Kingdom would come out on to the top of the steps of the Royal Courts of Justice and say something like this: “Without any admission of liability or wrongdoing on the Government’s part, today the British Government have withdrawn their objection to this case. We have reached an out-of-court settlement with the claimant. This will avoid the expenditure of court time and taxpayer money in prolonged litigation”.

In front of the astonished crowd, the Attorney-General would then continue: “The Government agree to bring forward legislation at the earliest opportunity to ensure the following: millions of British people living below the official poverty line no longer pay income tax; a massive saving in the administrative cost of collecting tax or distributing benefits; a huge change in the attitude of millions of British citizens who thought it was pointless to go out to work because benefits produce more after-tax income than working; a dramatic fall in immigration as the army of young unemployed British people is motivated to get a job; total clarity about tax; the share of people’s income tax used only to pay interest on Government debt, now 30%, is to published every year; and the effect of a frozen tax threshold will be subject to full disclosure”. Finally, the Attorney-General would say, “Economics will become a compulsory subject in the national curriculum”.

Is such dramatic action necessary? Surely we can keep muddling through, can we not? Well, maybe not, because maybe this time democracy is not working. Yes, we can and do change the Government every few years from one political party to another. That is true, but nothing much seems to change, does it? It is same old story over and again. The King himself recently showed firm, decisive leadership—

[Lord in Waiting/Government Whip (Lord Lemos) (Lab)]

Can I ask the noble Lord to bring things to a close?

[Lord Saatchi (Con)]

Perhaps we need something similar to end our economic problem—someone to take away the stale pudding now on our plate and bring us a lovely, big, freshly baked cake.

13:22

[Lord Howell of Guildford (Con)]

My Lords, it is always a pleasure to follow my noble friend Lord Saatchi, who has considerable wisdom in these affairs. The Government’s multiple dilemmas over their economic and budgetary policies are well known; they have been widely aired in the press, and many media experts and economists have declared them to be completely insoluble. One way, they say, is blocked politically, and other ways are blocked by the simple facts of arithmetic and life. There are limits to the amount of tax you can squeeze out of an economy, especially one that is not growing much, and if you borrow more, bondholders will want to be paid more interest. Incidentally, that never happened in the distant past. More recently, monetary policy and fiscal policy have become inextricably intertwined, so there appears no way out.

However, looking at Germany, for example, which has been in roughly the same situation as us, I wonder whether this whole messy scene may not be based on some false assumptions. Germany faces the same sorts of dilemmas as we do, having inevitably planned too much spending at the Covid time and when the price of gas suddenly erupted four years ago, as well as on welfare, meeting the immigration wave and now defence. So what did Germany do? It arranged to borrow another €1 trillion—that is about £900 billion—to pay for the endless and extra spending demands upon the country. Germany is doing this without blowing up its fiscal rules, which are just as tight as ours—in fact, unlike ours, in Germany they are constitutionally embedded. How on earth is Germany doing what is causing us so much difficulty?

The answer is: by building on a reputation of past iron fiscal prudence and the lessons of the 20th century, which, of course, destroyed Germany; by having a reasonably clear forward strategy and national direction on how it is going to use the extra money, which is mostly for defence and infrastructure, although there is an argument going on in Berlin about exactly how it is to be allocated; by having a political system of machinery capable of driving Germany’s plans through, all with the right mix of private enterprise resources within a government framework of determination and initiatives to meet public needs and purposes with both public and private resources; and by methods that do not swell what we used to call the PSBR, which is now called the public sector net cash requirement.

Here at home, we know that considerably greater funds could be raised through smart new ways of public and private co-operation in building and financing capital projects in areas such as health and the NHS, military projects, new development aid through World Bank bonds, and building new nuclear power stations, which can be done without a huge burden on government finances. All these would deliver what is needed in a modern society. I have heard of NHS chiefs who are seeking permission to raise billions from combining with private finance but who are being blocked by Treasury rules. It is the old story.

All in all, a picture builds up of a potentially greatly reduced burden on the public purse, borrowing, interest rates and taxpayers. That is not ideology; it is a matter of proven experience all over the world, even in the giant autocracies. Here, the intention of fiscal balance is okay, but the root trouble is the absence of smart thinking about how to combine public needs with private co-operation and resources.

Indeed, the Government have relied on their own propaganda by blaming the consequences of everything—Covid, Russia’s illegal assault on Ukraine, the lot—on their predecessors. That is political fun, but it is based on a completely false proposition and the assumption that everything would come right when Labour was elected, which, of course, has not happened. When Labour swept in, we were promised stability, but since then we have had endless instability.

Now the Prime Minister has spoken to the Health Secretary, so I am sure that everything is going to be all right, and the bond market will no doubt be very pleased to hear the news. All we can do is wish for a more honest stance before a hurricane of wishful thinking and wrong-headed policy brings our non-growth economy to a complete halt.

[Lord Lemos (Lab)]

I remind noble Lords of the advisory speaking limit of four minutes.

13:27

[Baroness O’Grady of Upper Holloway (Lab)]

My Lords, we all agree that faster economic growth is the priority, but only Labour has a plan to rebuild our productive base and make sure that the benefits of growth are shared fairly. Just today, we have heard about a magnificent win for the Rolls-Royce workforce with the decision to deliver Britain’s first small nuclear reactor at Wylfa in north Wales. That will create thousands of local jobs and cut energy bills, which, in turn, will attract more investment and more jobs.

Let us think about the support for JLR when a cyberattack cut car production by over a quarter. This Government provided loan guarantees of £1.5 billion that were critical to confidence in supply chains. Had car production not been hit, economic growth would have been doubled. But even so, it was our Government’s readiness to step up and back industry, workers and jobs that saved the day.

The party opposite tries to draw a false trade-off between workers’ rights and jobs. It opposes Labour’s plan for day-one rights to make work pay and to call time on exploitative zero-hours contracts. But under the last Government, insecurity at work soared and living standards slumped to a historic low. That sucked demand out of local economies and was bad for growth. Let us not forget the damage caused by Conservative austerity policies. It is far too soon to try to gloss over the findings of the Covid public inquiry. Our services were left scrambling to meet the challenge, relying on the dedication of shamefully underpaid and overstretched staff.

As recently as 5 June, in a speech to the RSA, shadow Chancellor Mel Stride admitted that the previous Government had failed. He said:

“Many have lost trust in us and many are right to be angry”.


The previous Government’s trickle-down approach to the economy simply did not work for the vast majority of people in this country. Getting into work—getting a job—was no longer a guarantee of freedom from poverty. Many saw their pay packets shrink, while profiteers racked up rents and prices. According to the New Economics Foundation, those on the lowest incomes have faced an effective tax rate of 44% on their income and wealth increases—double that of the richest.

Finally, our economy faces an increasingly volatile world, with Brexit, Covid, conflict, climate change and a global financial sector that can be impulsive, destructive and dedicated to self-interest at the expense of society. As the economist Larry Elliott noted:

“During the global financial crisis of 2008 and the Covid pandemic of 2020, the markets were only bailed out thanks to the willingness of governments to print money and run big budget deficits. There was no talk of the need for the bond market vigilantes to impose financial discipline back then”.


We must defend Labour’s programme to invest and rebuild for the people of this country against future risk. Perhaps my noble friend the Minister can comment on whether, if necessary, consideration should be given to the case for targeted and transparent capital controls to prevent short-term capital movements blowing the economy off course. The Conservative prescription is to shrink the state, slash employment and welfare protection, and let the markets rip. Labour’s remedy must be to rebuild and renew the public realm, raise living standards and make the markets our servant, not our master.

13:32

[Baroness Noakes (Con)]

It is always a pleasure to follow the noble Baroness, Lady O’Grady of Upper Holloway, but she will not be surprised to find that I agreed with very little of what she said—indeed, I was horrified by some of it.

Four minutes is not long enough to cover the very many ways in which the Government are damaging our economy, so I will concentrate on just one area: how their tax policies impact business investment in the UK. This morning’s dismal GDP figures, which are the result of this Government’s policies, underscore the growth problem. If the UK is going to escape from that, we need businesses—both existing ones and new investors from abroad—to invest.

Tax really matters when it comes to investment decision-making. This year’s tax competitiveness index ranked the UK 32nd out of 38 countries, with a corporate element only marginally better, at number 28. These are terrible figures. The key drivers of this are the headline rate of corporation tax, the complexity of the tax system and low levels of tax allowances.

First, I turn to the headline rate. We used to have a rate of 19%, and then it was raised to 25%. The current Government have said that they will keep it at 25%, which is a mistake. When CFOs run the numbers on investment decisions, a key determinant of the outcome is corporation tax, because it is such a big drag on net investment returns. Low corporate tax rates both encourage investment and increase tax yields. Ireland, with its 12.5% corporate tax rate, is the living proof of this.

Secondly, on complexity, we notoriously have the longest tax code in the world, at over 22,000 pages. Size is not synonymous with complexity, but it is a pretty good proxy. Businesses want to be able to understand the tax rules that affect them and to be able to interact efficiently with the tax authorities. We fail on both counts.

Thirdly, although we have a competitive system of tax allowances for plant and machinery, we are not competitive for structures and buildings, which are important for some kinds of business investment. Research by the Tax Foundation suggests a significant GDP boost if tax expensing were widened.

In last year’s budget, the Chancellor made the terrible decision to raise employers’ national insurance on top of the minimum wage hike. This has already led to higher prices and lower employment, and it is now a big negative factor in investment decisions that create jobs. Similarly, business rates are now weighing heavily on business investment that needs a large physical footprint. On top of all this, as my noble friend Lord Elliott explained, the non-dom tax regime actively deters entrepreneurs from making the UK their investment base. Wealthy businesspeople are already relocating; soon they will not come at all.

The Government did not create all these problems, but they certainly made them a lot worse. A decent rate of growth is a pipe dream if the Government continue with policies that actively deter business investment.

13:36

[Lord Young of Cookham (Con)]

My Lords, this debate got off to a fine start with an excellent speech from my noble friend. It is always a pleasure to follow my noble friend Lady Noakes, and I agree with what she said about the complexity of the tax system.

There has been a consensus that we should stick to the fiscal rules. One-third of government debt is held overseas, and more and more of it is held by hedge funds, which owe no loyalty to this country. So we should stick to the fiscal rules, which means that the Government have either to increase taxes or to cut expenditure. This time, it is absolutely clear that they have made their choice: they will increase taxes, which will make the mantra of last year—“Growth, growth, growth”—even more difficult to achieve. Looking ahead, the point I want to make is that they should revisit that decision and look again at expenditure, particularly the ballooning welfare bill, with 1 million more people than a year ago claiming the main out-of-work benefit, without any requirement to look for a job—a point made by the noble Lord, Lord Skidelsky.

Working-age sickness rates in advanced economies have fallen since the pandemic, but here they continue to rise and are forecast to be 4.1 million by the end of this Parliament. What is the view of Ministers—not mine but Ministers’—on this? Last week, Pat McFadden said that the growing costs of welfare are unsustainable, with a city “the size of Leicester” being added to the benefit population each year. The Chancellor has warned Labour MPs that there was “nothing progressive” about a benefit system that left one in eight young people neither in education nor employment. The Prime Minister has said that the current welfare system is “unsustainable, indefensible and unfair”. Our Economic Affairs Committee, which reported on this earlier this year,

“concluded that people without work have incentives to claim health-related benefits; and once in receipt of them they have neither the incentive nor support to … accept a job – work doesn’t pay”.

But the Government refuse to act on their own pronouncements. The terms of reference of the Timms review, which came out last week, say that the review would not

“generate proposals for further savings”.

But why will they not act? They will not act because 123 Labour MPs tabled an amendment to the welfare Bill, which had proposed a modest £5 billion reduction in welfare costs, and that has simply stopped the Government in their tracks.

The only point I want to make today is that there is an overwhelming majority in the other place for welfare reform. My party shares the view of the Prime Minister: the current system is unsustainable, indefensible and unfair. So, rather than continue to stunt growth with proposals for a high welfare bill funded by high taxation, the Government should reach across to find a consensus on welfare reform, as they are planning to do on social care, but hopefully on a faster timescale. At a time when public opinion is polarising at the extremes of the political spectrum, should not the mainstream parties come together to find a solution on welfare reform?

13:39

[Lord Harper (Con)]

My Lords, it is a great pleasure to speak in this debate. I congratulate my noble friend Lord Elliott on securing it—and it is genuinely a great pleasure to follow my noble friend Lord Young, with whose speech I wholeheartedly agreed.

I start by congratulating the Minister on his personal contribution to productivity and the economy. For those noble Lords who do not know, as well as being the Financial Secretary to the Treasury and the Minister for Growth, he has also recently become Labour’s campaign co-ordinator. In such a way, he has taken another job that presumably comes with no pay, so he has increased the productivity of the economy at least a little bit—so I congratulate him. I also congratulate him on his courage because, given that the Chancellor seems to be leaning into the unpopularity of her forthcoming Budget, he must be contemplating the consequences for his other job next year as he tries to raise Labour’s fortunes in Wales, Scotland and across England. I wish him the very best of luck.

I wish to set out for noble Lords the list of excuses that we have heard from the Minister and the Chancellor ahead of the Budget for why she is going to break her manifesto commitments, or so it sounds. She said that it was because the OBR had changed its view about productivity—not actual productivity, but its view, coming into line with, I think, most other forecasters. She has blamed Brexit, Donald Trump and the pandemic. We can look at what the public think and whether those excuses are going to wash—and I think probably not. In a recent poll taken by Ipsos MORI and published in the Sunday Times, only 10% of the public think that the productivity of British workers is the problem with the poor state of the economy. Only 29% think that it is Donald Trump’s fault. The outright winner, 59%, think that it is the fault of the Prime Minister and the Chancellor, so they have their work cut out for them in trying to land those arguments.

With regard to the key economic statistics, several noble Lords have already mentioned today’s growth figures. We see growth slowing, and many economic forecasts see it getting slower still. At the time of the general election, inflation was at 2%, bang on the Bank of England’s target; it is now 3.8%, almost double. That has a real impact on family finances. Unemployment has risen from 4.4% at the time of the election to 5%, which is the highest since lockdown. That reminds us that every Labour Government has left office with unemployment higher than when they came in. That is a fact that I remember, when I was in the other place, Labour MPs hated being reminded of, and I suspect that Labour Peers do not like being reminded of it, but it none the less remains true.

Why might that be? I think that it is because of taxes. At the previous Budget, Labour came up with the fiction—I say that it was a fiction because it was not stood up; the OBR refused to stand it up in interviews or in documents—of a £22 billion black hole. The Chancellor raised taxes by £40 billion but increased spending by £70 billion, so it is not really surprising that it is a problem. She then said that she was not going to raise taxes or borrowing for the rest of the Parliament. She was interviewed by Trevor Phillips and confirmed that for the rest of the Parliament she would keep income tax rates, national insurance rates and VAT rates unchanged. When he challenged her on this, she said that the responsibility for the economy was “on us”.

I say to the Chancellor and to the Minister in closing that if he thinks that raising income tax in the Budget—particularly to raise welfare benefits, as the Chancellor indicated in her interview earlier this week—is going to be a winning formula, he will be sorely disappointed. It will be at the cost of the livelihoods and growth opportunities of everyone in the United Kingdom.

13:44

[Viscount Chandos (Lab)]

My Lords, I am grateful to the noble Lord, Lord Elliott of Mickle Fell, for securing and introducing this debate, even if its timing in peak Budget purdah means that its scope is necessarily either backward-looking or about broad principles. In responding to the Question from the noble Baroness, Lady Neville-Rolfe, on Monday, my noble friend the Minister displayed the mastery of Stonewall Jackson or Geoffrey Boycott in avoiding breaching that purdah. I suspect that he may need to draw on those skills again this afternoon.

In looking back briefly, I do not propose to get into a battle of statistics. Sixteen months into the Labour Government’s period of office, of course we would all like to see stronger growth already coming through, but 16 months is but a twinkling of an eye in relation to the long-term investment that will drive the achievement of those growth targets, as my noble friend Lord Eatwell set out.

I was fortunate to attend, in a non-parliamentary capacity, last month’s regional investment summit in Birmingham, attended by, among others, my noble friend the Minister and superbly hosted by the West Midlands mayor and his team at the combined authority. The summit was a powerful showcase for the underlying talent and potential in the UK, the confidence of companies’ investors, domestic and international—despite the impact of Brexit, referred to by my noble friend Lord Eatwell—and the Government’s consistent and vital work in creating the environment for this to deliver growth, jobs and prosperity. This was the first investment summit to be held outside London, and it vividly demonstrated the depth and breadth of opportunities throughout the country. Can my noble friend the Minister confirm that future investment summits will follow that important precedent?

My right honourable friend the Chancellor and the whole of the Government have set out to balance fiscal discipline, a necessary condition for achieving all other objectives, growth and fairness. In considering the challenge of restoring financial discipline, it is impossible to ignore the legacy of the last Government. I will not explain the significance of the number of £22 billion. The Minister is now more expert on the subject of black holes than the Astronomer Royal. I will, however, again quote the evidence given to the Economic Affairs Committee by Richard Hughes, chair of the OBR, about the last Government’s submission to the OBR:

“Some people have referred to that as a work of fiction. That is probably generous, given that someone has bothered to write a work of fiction, whereas the”


Conservative

“Government have not even bothered to write down their departmental spending plans”.

It is because this Government, in contrast, have brought rigour and responsibility to budget planning that commentators have had so much data about which to speculate. I do not envy my right honourable friend in having to strike the balance between fiscal discipline and growth measures, though I have great confidence in her ability to do so.

I will end with a few words about fairness. Janan Ganesh of the FT, the biographer of the architect of austerity, George Osborne, wrote in 2015:

“A country’s tax code is not just a mesh of rules and rates—it is a secular bible of moral signals”.


There is clear evidence that people’s attitude to their own tax payments is significantly influenced by their perception of fairness. When the Chancellor announces budget measures in two weeks’ time, if there are any adjustments to taxes on higher earners or asset owners, they should not be seen as vindictive or anti-entrepreneur or anti-business. They will represent a considered judgment to rebuild public trust in the fairness of the tax system and, indeed, in our democratic society.

13:48

[Lord Bridges of Headley (Con)]

My Lords, I start by congratulating my noble friend Lord Elliott on securing this debate, his excellent book and all the work he has been doing on jobs. I also congratulate a number of noble Lords who have spoken, especially my noble friend Lady Noakes for her remarks—which I entirely agree with—and my noble friends Lord Young and Lord Harper, who I will return to in a moment.

When thinking about this debate, I happened to read again the lecture that the then shadow Chancellor, now Chancellor, gave at the Mais lecture last year, in which she promised a “fundamental course correction” for the British economy. As the noble Viscount, Lord Chandos, has just said, it is now 379 days since the Chancellor gave her first Budget. So how is this fundamental course correction going? There is, as I am sure we have all read and seen, a growing sense of instability fuelled by speculation, a lack of confidence in the future, and more people worrying about keeping their jobs—and that is just among members of the Cabinet. Out in the country, it is far worse. The Chancellor herself has said that the UK economy feels “stuck”, and today’s growth figures confirm that.

So why are we in this sorry predicament? My noble friends Lord Elliott and Lady Noakes made a number of points as to why this might be, and I will not repeat them in the time I have. At the top of my list is a point that my noble friend Lord Young made: the Chancellor has lost control of spending. Rather than take the right, but tough, decisions to slow down the spiralling cost of welfare—not even to stop its rise—the Chancellor backed down when Labour MPs said no. She did so despite the fact that, as my noble friend Lord Young said, the Prime Minister says the current system is unsustainable. Spending overall has overshot forecasts by over 4% since the spring of 2024. Adding to the pain is the impact of the misguided £25 billion tax rise on employers—referred to by my noble friend Lady Noakes—that is stoking unemployment and making inflation stickier.

The reason the Chancellor may have to raise income tax for the first time in 50 years—50 years—breaking Labour’s promises, is her “fundamental course correction”. But, as my noble friend Lord Harper just said, the Government refuse to accept any blame or any fault for the situation we are in. As he said, they are blaming everyone but themselves. Everyone knows this is nonsense. Last autumn, the Economic Affairs Committee, of which I was then chair, published a report warning that the Government must rebuild the nation’s fiscal buffer, given the global volatility and risks we face. The Chancellor’s reply assured the committee:

“The Budget took the necessary difficult decisions to put the public finances on a sustainable path—setting realistic plans”—


realistic plans—

“for public spending while raising revenue—to create the conditions for growth”.

She clearly thought she had done enough to rebuild our fiscal defences. She said she had built a fiscal buffer, but, in reality, it has turned out to be a wafer.

A tragedy is therefore unfolding in front of us. With an enormous majority, this Government have the ability to take tough decisions to reform our public services and cut welfare, but they have ducked those tough decisions. The Prime Minister and the Chancellor mouth the right sentiments about growth, stability and security, but their actions undermine those aspirations. What do we see 379 days after their cataclysmic Budget? The fundamental course correction the Chancellor has given us is taking us deeper into the mire. There is insecurity, instability and stagnation—the reverse of everything they promised. The fear is that it will require things to get even worse for the Prime Minister, the Chancellor and the noble Lord to do what they promised last year and give us the fundamental course correction this country really badly needs.

13:53

[Lord Leigh of Hurley (Con)]

It is a pleasure to follow my noble friend Lord Bridges, and I congratulate the noble Lord, Lord Elliott, on securing this important debate. I would like to start with a discussion about measuring productivity, which is, at the end of the day, crucial to growth, and which, despite the rose-tinted view of the country’s growth held by the noble Baroness, Lady O’Grady, is at a desperate level, mainly because of government decisions which have turned a fictitious £22 billion black hole into a hard £40 billion black hole.

However, I am going to be as helpful as I possibly can to the Government, which may come as a surprise to the Minister—we will see. Specifically, I have great concerns about the measurement of productivity used by the ONS. The ONS measures labour productivity primarily as output per unit of labour, which is usually measured by gross value added per hour worked. In this country, certainly in the private sector, we have a long-hours culture, unlike, say, France, so our output per hour is bound to be lower. Unusually, in the UK, we include public sector productivity in our calculations. This is extremely difficult to measure, and of course it is extremely hard to detect any improvement. Heroic assumptions have to be made about the output, which are probably wrong. In the private sector, the gross value added is the key determinator, and that, believe it or not, is determined by monthly or even annual business surveys. So let us bear in mind that the UK economy is now 80% services, not trade, and a large proportion of that is in digital and intangible services, which are one of the fastest-growing parts of the UK private sector and are extremely difficult to measure. Surveys are very unreliable. Hard stats, such as the data on unemployment—which, as the noble Lord, Lord Harper, has reminded us, is rocketing under Labour—are much more reliable but harder to find.

I will not say much more on this issue other than to remind the Minister that I have long argued that I do not think our productivity measures are reliable—I have argued it under the previous Governments—and we may be more productive than the ONS figures indicate. I hope he will confirm that the Cabinet Office is working to improve them.

I also want to comment on the terrible damage to the economy being inflicted by the current Government in a particular area. I have many concerns—national insurance and so on—but particularly the dire effect of the Employment Rights Bill, which is going to hinder both productivity and growth. The suggestion that the Government make that, as a result of the ERB, we will have happier workers who will be more productive is frankly worthy of derision, and the refusal to exempt SMEs is going to do great damage.

The Minister will assume my remarks are politically driven, so for the benefit of him and the noble Baroness, Lady O’Grady, I shall quote from an unsolicited letter I received from a Mr Jerry Dunham. He says:

“We are a third-generation, family-run manufacturer based in Norfolk since 1968. Our factory in Neatishead employs many local people, most of whom live within our community. The Bill in its current form would impose unsustainable costs and compliance measures that SMEs cannot absorb. It would reduce flexibility, make day-to-day operations harder, and force us to reconsider employment numbers and future job creation. For businesses like ours, which operate in the education sector, which is of course very seasonal, these proposals will make it harder to manage staffing and maintain employment during quieter periods … These changes will discourage hiring, particularly for young people and those without prior experience”.


That is from the coalface. I attended a GREAT GB seminar organised by the Cabinet Office this morning about inward investment into the UK. People representing American investors came to me and said that American investors are very nervous about investing in the UK because of the potential effects of the ERB, so I urge the Minister to assure Mr Dunham and all SME owners that this Bill will be put on hold.

13:57

[Baroness Stedman-Scott (Con)]

My Lords, the forthcoming Budget due on 26 November is perhaps the most anticipated that I can remember. We have had a summer of speculation, an autumn of uncertainty, and now, as winter approaches, we know what is coming—tax rises—and we know this is not an inevitability; it is a political choice. It is the choice of a Chancellor who has deliberately decided not to tackle the soaring welfare bill and in doing so has failed to confront the deeper question of how we restore the value of work in our society. Once again, rather than make the structural reforms our economy so desperately needs, this Government reach for the taxpayer’s wallet, but we cannot tax our way to prosperity. We cannot grow an economy by burdening those who work, create and invest, while allowing the welfare budget to expand unchecked. The cost of economic activity through ill health is now estimated at £212 billion a year, and around 235,000 people aged 25 and under are claiming long-term sickness benefits, many citing mental health. Some 5,000 people a day are moving on to sickness benefits, and this represents not only a fiscal challenge but a moral one—the loss of potential, of dignity, of contribution. If we are serious about jobs, growth and prosperity, this is where our focus must lie.

A welfare system that traps people rather than supports them is not compassionate; it is corrosive. Yet, too often, welfare policy has become morally untouchable. Just because a policy is founded on noble intentions, compassion, equity and justice does not mean it should be immune from scrutiny. In fact, the more morally appealing a policy appears, the more resistant it becomes to critique, creating a dangerous blind spot.

The welfare bill is now one of the greatest barriers to economic renewal, not simply because of its size but because of what it represents: a failure to match compassion with accountability and support with expectation. Until we confront that reality, we will continue to balance the books not through reform but through ever higher taxes on those already doing their bit. The Government should be clear why value for money considerations and reducing inefficiency are not explicit objectives.

My noble friend Lord Young of Cookham has already referred to the Timms review’s terms of reference, but it is important PIP is fair and fit for the future, and something that we as a country can afford. It is a deliberate exclusion that raises serious questions about priorities. The Government should also confirm that improving outcomes and securing better value for the taxpayer remain central to the design and delivery of disability benefits, and commit to publishing an implementation plan with clear, measurable efficiency gains.

This debate matters. I congratulate my noble friend Lord Elliott of Mickle Fell on securing it. His book is a good one and I can recommend it—in fact, because I am feeling a little bit generous, I am very happy to buy a copy for the noble Lord, Lord Livermore. I am sure he will enjoy every page.

Can the Minister explain why value for money considerations and reducing inefficiency are not explicit objectives, and will the Government confirm that improving outcomes and securing better value for the taxpayer remain central to the design and administration of disability benefits, and commit to publish an implementation plan with measurable efficiency gains?

I spent 34 years helping unemployed people with every problem in the book get back to work. It can be done, but it needs to be against a backdrop of the country’s good economic performance. I leave you with this: you cannot make a poor man rich by making a rich man poor, and you cannot help the wage-earner by punishing the wage-payer.

14:02

[Lord Bilimoria (CB)]

My Lords, the Government have spoken about growth as their priority from day one and, to be fair, they are doing a few good things. They have carried on the Help to Grow: Management programme, which was started by the previous Government. Some 10,000 businesses have already gone through the programme; 12,000 are enrolled on it and it is delivered by 60 business schools around the country, and I am proud to be patron of the Small Business Charter, which I took over from my late friend, Lord David Young. It is a 12-week mini-MBA—just the right thing to be doing.

The noble Baroness, Lady O’Grady, spoke about small modular nuclear reactors. When I was president of the CBI in 2020-22, I was like a stuck record saying, “Let’s build these, let’s build these”. Finally, now, five years later, we are starting to build them. In entrepreneurship, it is problem, solution, action—but quickly. I am glad the Government are finally doing that.

On the priority of research and development and innovation, we spend 1.7% of GDP; America spends over 3%. We need to increase expenditure on R&D and innovation. I am chair of the International Chamber of Commerce UK; the ICC is the largest business organisation in the world, with 45 million members. We have promoted digital trade, which I am glad to see the Government have taken as part of their industrial strategy. The UK now stands at a crossroads. Outdated paper-based systems are stifling growth. The UK can be a leader; our trade represents £1 trillion of the UK economy. Does the Minister agree that implementing digital trade would see benefits such as £25 billion in trade growth, £224 billion in efficiency savings, 35% efficiency gains for SMEs, £22 billion in SME working capital unlocked, trade transaction times cut from two months to one hour, an 80% reduction in trade transaction costs, shipping costs reduced by 18% and workforce productivity increased by 60%? I thank the noble Lord, Lord Elliott, for initiating this debate.

The Government talk about growth, yet so many of the measures they have implemented are anything but helping growth. They are hampering growth, whether this is through the rise in employers’ NI, inheritance tax on farmers and family businesses, VAT on private schools and removing business rates exemptions for private schools, or VAT reclaim for tourists, which was taken away by the previous Government. Should the Government not bring back that relief? Then we would have more tourists spending money on goods as well as on staying here and on restaurants.

Due to the non-dom regime change, over 10,000 people already have left, including many people I know. They pay £8 billion of taxes, employ people, invest, and conduct philanthropy in this country. We will lose all of that, because money walks. Now there is talk of the £30 billion hole to be filled and of more taxes going up in the Budget—which, sadly, is on my birthday.

We have 1 million NEETs in this country—young people who do not work—and we have 9 million people of working age who do not work. We need to get these people back to work.

I co-chair the All-Party Parliamentary Group for International Students. Will the Minister confirm the talk that a levy on international students is going to be introduced in the Budget and that the two-year post-graduation work visa is going to be reduced to 18 months? These international students bring in £42 billion to the economy. We treat them as immigrants. Should they not be taken out of the net migration figures?

There is a fear of immigration. Bad immigration is bad for this country, but good immigration is great for this country. Without the 16% of ethnic minorities, this country would not be the sixth-largest economy in the world.

I was part of the PM’s delegation to India last month—it was fantastic. I spoke in the Finance Minister of India’s conference, the annual Kautilya Economic Conclave, the title of which was “Seeking Prosperity in Turbulent Times”. India is growing at 6.5% a year, with a target of 8%. In our latest figures, released today, we have grown at 0.1%—a flatlining economy. We have a debt to GDP of 100%; high debt servicing costs; the highest tax burden in over 70 years; high government expenditure; unemployment of 5%; inflation almost double the target at 3.8%; and defence expenditure that needs to go up to 3%. We need a plan—we need to be bold.

I conclude with this. In June, I visited Argentina and met President Milei and his whole team. He has a very clear plan of bringing down expenditure and inflation. Every single Minister we met sang from the same hymn sheet. This Government need a plan; they need to be bold. Then we can get growth.

14:06

[Lord Petitgas (Con)]

My Lords, I thank my noble friend Lord Elliott for securing this timely debate. I also admire the speed of speech of the noble Lord, Lord Bilimoria.

The economic path of our country is alarming. We are living beyond our means, taxing more and getting less, and stifling any incentive to work or invest. I will set out five compounding and depressing facts.

First, growth is weak, while the tax burden is the highest in peacetime. When taxes rise and growth stalls, the message to investors is clear: something is structurally wrong.

Secondly, core spending—welfare, pensions and health, mainly—consumes more than half of all tax revenue. It is growing way more quickly than the economy. This must be brought under control; otherwise, taxes will just keep on rising, as the noble Lord, Lord Young, rightly said.

Thirdly, labour participation has fallen. Around one in four working-age adults is not working and not seeking work. No modern economy can seriously prosper if participation falls while welfare spending rises. Compassion matters but work must pay, and those who can work, must work.

Fourthly, public debt is nearly 100% of GDP. That is two-thirds more than Germany’s. That interest alone consumes around 10% of tax revenues. Global markets have noticed: Britain now pays the highest borrowing costs in the G7, a third higher than France or Italy and two-thirds higher than Germany. Our higher cost of capital bears down on everything in this nation.

Fifthly, confidence, as we discussed, matters greatly. It is the engine of an economy and society, and it is at an all-time low. Business sentiment has been negative for most of the year. Surveys also show that many young Britons are considering working abroad. That is not just wealth leaving, it is talent. The next generation wants to go.

So there you have it. We are stuck. We are caught in the loop of higher spending, which leads to higher taxes, which lead to weaker incentives, which lead to lower growth, higher debt, higher borrowing costs and pressure for further tax rises.

We cannot break this loop by taxing a shrinking base more heavily; nor can we escape it in a single Budget. Britain has all it takes for a dynamic economy, and yet we behave like a high-intervention, high-friction and inefficient state, so enterprise slows and talent goes elsewhere. Indeed, we need a course correction, one that rewards people who work and invest here.

I suggest three ideas, and there are many others. First, like the noble Baroness, Lady Noakes, I think that we need to start a path toward lowering corporation tax. Even a modest step would show that Britain means business and wants investment, not capital flight.

Secondly, we should reward both enterprise and reinvestment in the UK. We should reduce capital gains for entrepreneurs—it was a measure that Gordon Brown had put in—and allow deferral when those gains are reinvested into UK companies. If you build here, you should benefit here. There, we would not need the capital controls that this mooted 20% exit tax would suggest, which would be a disaster for this country.

Thirdly, we should make work pay and expect work. Support must remain, but the system should encourage contribution, not dependency.

In summary, we have three crucial levers to make it very simple: the debt, the spending and the tax. It is correct to keep a lid on the debt. The noble Lord, Lord Young of Cookham, was eloquent on the tug of war between spending and tax, both of which are at an all-time high. If we want growth, we must reduce costs—this is like a company—free our productive forces and reward work and enterprise. Taxes cannot be the residual variable.

14:10

[Lord Swire (Con)]

My Lords, I too join in the congratulations to my noble friend Lord Elliott of Mickle Fell on obtaining this debate just 13 days before the Budget. Incidentally, I expect, as we all can, this to be a highly political Budget. I rather fear that common sense will be sacrificed for short-term political gain. We can all expect, from what has been a well-trailed Budget, that the Chancellor’s red meat to the left—not necessarily enough for the noble Baroness, Lady O’Grady—will be to change the two-child benefit cap, which has the distinction of being both unaffordable and undesirable.

We will hear over the next few days and, no doubt, from the Minister today about the black hole—one of his favourite subjects. Of course, there will be no mention of the fact that within a matter of months, the Government have doubled that black hole. We will hear from the Chancellor the old, hackneyed phrase that those with the broadest shoulders must bear the brunt of the pain.

I do not know about anyone else, but my shoulders are pretty sloping at this moment. Let us just examine others whose shoulders have more right to slope. I am grateful to Fraser Nelson, who, with a freedom of information request, discovered that the top 0.1% of earners pay more in income tax than the entire bottom 50% put together. The top 4,000 taxpayers, at 0.01%, pay more than the entire bottom quarter, that is 8 million people, of taxpayers. The top 100 taxpayers pay almost as much money as is generated from North Sea oil revenues. As my noble friend Lord Elliott of Mickle Fell said, more ultrarich people are set to leave the United Kingdom than any other developed country. Those are not his words; they come from a study recently undertaken by UBS.

It was Denis Healey who said—to slightly misquote him—that he wanted to tax the rich until the pips squeak. Unfortunately, that squeaking is now an ever-increasingly distant noise, coming from Milan, Dubai, Lisbon and other places to which our wealth creators have already relocated. This may give a frisson of pleasure to the left, but it is the economics of the madhouse.

Like the Chancellor, I am no economist, but how can it make sense to drive away the wealth creators while rewarding the wealth consumers? It is a one-way ticket to an economic crisis. The introduction of an exit tax would achieve the twin, amazing achievements of not relocating people back to the country and, equally, others not coming for the first time to this country if they feel in some way that they cannot leave with the money they create here. When she has succeeded in doing all this, she will have to come after middle England—the doctors, the nurses and so forth—to fit and fill her fiscal hole.

I spent a good part of my ministerial career talking up the United Kingdom around the world and trying to attract inward investment, and it pains me to be so negative. But, like my noble friend Lord Petitgas, I think this is a matter of confidence and I would like to hear from the Government how we can instil some confidence in overseas investors to bring them here. ONS data shows that our jobless rate increased to 5% against a projection of 4.9%. Wage growth has slowed. The unemployment payroll has fallen by 180,000 since the Chancellor announced higher taxes on employers in last year’s Budget.

In conclusion, I understand the Government’s failure to tackle the welfare issue from their ideological point of view and from their political constraints, given where they are in the other place. But I think they need to rediscover moral fibre and a moral backbone to reform the welfare state, as it is not in the interests of those who are on it and trapped in it nor of those who have to pay for it.

14:15

[Baroness Fall (Con)]

My Lords, it is always a pleasure to follow my noble friend Lord Swire. I also congratulate my noble friend Lord Elliott on securing the debate today.

We meet at an unsettling moment between the Chancellor’s furious pitch rolling of last week and the Budget itself, which looms somewhat ominously. We must all “do our bit”, she said last week, and she is not wrong to call the nation together in a common endeavour. Were it truly aimed to deliver growth and create jobs, she would certainly have my support, but her record so far has suggested otherwise.

The fundamental challenge is that we seek growth at home against rising debt and welfare dependency, as we navigate an uncertain global outlook. In practice, this means that we have to deal with the complexity of an often-changing global trade climate, with its tariffs, export controls and import controls. Interventionist industrial strategies are the name of the game and the only certainty in geoeconomics is uncertainty.

So the question for the Chancellor is this: what is our response to these economic and social challenges? So far, we have heard little strategic coherence and nothing that looks, to me, like a growth plan. Right from the start, we saw the Government settling pay disputes without any conditions to drive productivity and reform. Then, instead of confidence-building measures for business to create new jobs, we saw hikes to NICs and an extensive programme of workers’ rights to be rolled out from day one—making it very expensive to hire, impossible to reassess and then difficult to fire. The stats released this week speak for themselves: fewer jobs, fewer hires and more unemployment. It is one of the worst graduate job markets for a generation. How is this helping working people?

In this age of economic nationalism, a key strategic question for the Chancellor should be what our competitive advantage is and how we are thinking about nurturing and protecting it. We are not a nation rich in raw materials; we are a nation of entrepreneurs and inventors. In other words, we live by our wits, not by our wealth. Just look at our record on start-ups: London ranks second-best place on start-ups tied with New York, yet we are seemingly not able to scale up. We incubate brilliant businesses only to have them picked off by foreign investors.

The solution is not one simple fix but a set of policies and cultural changes that require political will, whether nurturing our first-class universities, commercialising their research or backing risk. Backing a tech winner would be a game-changer. We can use public money, but at a critical moment. Backing talent must mean global talent, and it certainly does not mean implementing a raft of policies designed to show entrepreneurs the door.

I turn briefly to welfare in echoing the remarks of my noble friends Lord Bridges, Lady Stedman-Scott and Lord Petitgas. The rise of the cost of our welfare bill is alarming, but not half as alarming as the tally of wasted lives. Let us remember what welfare is for: it is there to support those who cannot support themselves and encourage those who can into work. Welfare is also about fairness—to those who need support and to the taxpayers who pay for it. Designing a system that encourages people, especially the young, to a life on benefits with no checks or redress is a tragedy for each person. It is a national disaster that we simply cannot afford. As Conservatives, we must support welfare reform at every opportunity, even if it means voting with the Government.

Taken together, the burdens on business, the policies which discourage entrepreneurs, the lack of strategic thinking for growth and the inability to tackle welfare mean we face the Labour solution to our fiscal woes, which is more tax. I cannot see where the growth plan is in this. I urge that we return to the simple but important principle of living within our means, not because we have the mind of an accountant but because we understand that the happiness and safety of our nation come from economic security.

14:20

[Lord Davies of Brixton (Lab)]

My Lords, we must thank the noble Lord, Lord Elliott of Mickle Fell, for introducing this debate. I welcome the opportunity to have a debate on these important issues; my main question is on what has been missing from it, which is any reference to 14 years of Conservative government.

The economy is heavily path dependent. The economy we have now is the result of that 14 years of Conservative government. My Government have done much that is good in the 16 months that they have been in power, but it is wrong to suggest that there is some magic solution that can overcome the problems that were created, starting with the ill-judged move to austerity, for which the Liberal Democrats should accept their share of the blame. I could run through the whole litany, ending with the last Conservative Chancellor’s ill-judged decision to make the unfunded cut in national insurance contributions, leading to the black hole that I am sure my noble friend the Minister will mention in his reply.

Various issues have been raised that are worth addressing during this debate. The noble Lord, Lord Swire, made a particular point of how much tax was paid by the highly paid. There is a very simple reason why highly paid people pay so much tax: it is because they are so rich. The level of economic inequality in our society is and remains substantial. It is absolutely right that those with the broadest shoulders—whether that includes the noble Lord or not, I do not know—should pay their fair share, and that means they pay considerably more.

The noble Lord, Lord Skidelsky, is not in his place, but I was interested in the issue he raised of the bond vigilantes, saying they should be ignored. I agree with that. In truth, the restriction on what our economy can do is the economy’s productive capacity—not the attitude of the bond vigilantes, as he termed them.

Reference has been made a number of times to the so-called welfare burden. I suggest that everyone reads the recent column by Chris Giles in the Financial Times, in which he stated that there was no need to panic and the costs of welfare are not spiralling; in fact, they have been remarkably consistent over time. Many of the statistics that people quote about increasing numbers in one particular type of benefit are explained by the fact that other forms of benefits are reducing. The overall welfare spend—you can read the article from Chris Giles, not from me—remains constant, and it is actually less than it was when David Cameron was Prime Minister. This idea that we are facing some existential crisis because of the burden of welfare is nonsense. I invite my noble friend’s reply.

14:24

[Viscount Trenchard (Con)]

My Lords, I, too, am grateful to my noble friend Lord Elliott for securing this very timely debate today. For inspiration as to what to say, I referred to the TaxPayers’ Alliance, a highly respected body founded by my noble friend. I agree wholeheartedly with the view expressed by John O’Connell, the chief executive, who said:

“It’s still not too late for the chancellor to abandon plans to increase taxes and instead focus her fiscal policy on bringing down the spiralling cost of government”.


The Institute of Director’s chief economist, Anna Leach, has accurately stated:

“Business leaders are worn out from the past year’s rollercoaster of uncertainty and tax increases”.


Data provided by the IoD suggests that the Employment Rights Bill could lead to the loss of 326,000 jobs, which would mean an increase in welfare payments of £521 million, 108,000 years of lost output and an £8.3 billion hit to the economy. The British Retail Consortium has supported the view of the Resolution Foundation that the Government’s continuing persistence in granting day-one rights will inhibit hiring, and is rightly concerned that guaranteed hours will make it harder for retailers to offer local, flexible and part-time jobs.

I welcome the Government’s commitment to spend more on defence, although the target of 3% during the next Parliament is too little, too late. If we were to increase defence spending to 3%, by 2029-30 we would be spending some £90 billion on defence, and it is deeply depressing that OBR forecasts now suggest that our annual debt bill will be 45% higher than that, at £130 billion, in that fiscal year.

The previous Government were not successful in cutting the size of the state and abolishing unnecessary quangos, but the new Government have made the position worse. I urge the Government to stop trying to blame the economic downturn on Brexit and instead belatedly to start to take more of the potential upside from us taking back control over our trade policy and regulatory regime. The chief executive of Eisai, the Japanese pharmaceutical manufacturer, whom I have known for 40 years, has told me that he was not happy at having to duplicate his licences, be supervised by both the MHRA and the EMA, and increase capital investment in Europe and the UK following Brexit, but that if we can now reduce the emphasis that we place on the precautionary principle, adopt a less cumbersome regulatory regime based on common-law principles and revert to behaving more like the rest of the anglosphere, then this country will secure and retain its place as the best country in the world for a life sciences company such as his to research and develop, trial, manufacture and distribute new treatments. I wish the noble Lord, Lord Eatwell, for whom I have the highest respect, could at least acknowledge the upside of Brexit.

Our incredibly high energy costs are an existential threat to our remaining industrial base. Can the Minister confirm that the Government will persuade the Secretary of State for Energy Security that it is essential to remove renewable subsidies from electricity bills now, make plans urgently to bring forward and commercialise more small nuclear technologies, and provide funding to GB Nuclear on the same basis as to GB Energy? Can he also confirm that he will seriously consider a belated attempt to retain some non-doms, such as the sensible proposal in The Prosperity Package by the Adam Smith Institute, which has been endorsed by his noble friend Lord Mendelsohn? So many of those who have been creating wealth and jobs have left or are actively considering leaving the country. They are leaving in droves, as this country is becoming an increasingly unattractive place for them to live and invest in.

14:28

[Lord Risby (Con)]

My Lords, it is a great pleasure to follow my noble friend Lord Trenchard’s excellent speech. My reported understanding is that there is effectively nobody in the Cabinet who has emerged out of the private business sector. One sector that feels this strongly is small business. For many years, I have been deputy chairman of the Small Business Bureau, and I happily declare my interest. Surveys by the British Chambers of Commerce have indicated that 44% of UK SMEs correctly expected to be negatively impacted by combined tax and wage changes. As has become obvious, the hospitality, retail and social care sectors face especially high cost increases.

For the purposes of this debate, I asked for and got extensive feedback from SMEs. Nearly a third of responding small businesses have had to pull back operations due to funding shortages. One in 10 cannot access finance at all, with high borrowing costs squeezing growth and confidence. Family businesses struggle with inheritance tax changes and some now have staff who decline to work full-time so that they can top up with universal credit. Between June and August 2025, UK businesses shed jobs at the fastest pace in four years, and this continues remorselessly. I say to the Minister, especially as many of your Lordships will know this to be true, that the SME sector—the seed corn of future growth—is in trouble in every corner of the country.

This Government have a specific role to play. After nearly 10 years as the government-appointed director of the Horserace Betting Levy Board—I declare my interest—my role is drawing to an end. It has just 16 employees and distributes about £100 million for racing, prize money, research, and welfare. During these 10 years, I have seen an immense increase in the demand from government for more and more detailed information. As it is defined as public money flowing from betting, this is in principle entirely justifiable, but in practice, in my personal view, it can be wholly disproportionate. Some months ago, I went to see the Comptroller and Auditor-General of the National Audit Office. We had a frank and productive conversation. He has now written to some government departments advocating greater oversight proportionality. Recently, the Government announced the next stage of their regulation action plan. The objectives are clear, but the arms of government need to apply control over excessive control by Whitehall. I hope the Minister can give clear and active assurances about this.

There is one European country which has long experienced fast growth, and not by massive borrowing or a welfare state that reduces the need to work. That country is Poland. In a spirit of free enterprise, it has low corporate taxation, a clear and simplified tax code, tax relief for investing in research and development, and special focused economic zones—policies which are producing real growth and prosperity for working people, much of it derived from a thriving and prosperous SME sector, which is so regrettably absent here.

14:32

[Lord Frost (Non-Afl)]

My Lords, I declare an interest as the incoming director-general of the Institute of Economic Affairs. My proposition today is that we are living through a great refusal when what we need, as this morning’s growth figures show, is a great reversal. In Dante’s “Divine Comedy”, the shade of Pope Celestine V stands on the threshold of hell, judged for his great refusal: his rejection of the burden of the office of Pope. This country stands in a similarly precarious position, because this current Government—indeed, successive Governments—have refused to face up to their burdens and their duties: the difficult but necessary actions to get the economy back on the right track. They have refused to use the regulatory freedom that came with Brexit to deregulate and get markets going again, and now we are paying the price for all this.

We know what brings prosperity to a country: low taxation, property rights, no confiscation of wealth, rewarding of effort, welfare that supports the needy but only the needy, and well-functioning markets with minimum regulation. Sadly, since the 2008 crash, the direction of travel has been in quite the opposite direction. Changing this will not be easy. Indeed, I fear that we are instead seeing something that is very common in human nature: when confronted with something you do not want to change, you find intellectual justifications for why it does not need to change.

A new conventional wisdom has therefore emerged: the belief that those fundamental nostrums that I have just set out are somehow outdated and that the modern way to run the economy is different. Its believers, who are heavily represented in the current Government and in the public sector economic establishment—but not only there—think that high tax and spending are not in themselves bad; that growth can come from more public sector so-called investment, financed by tax or borrowing and a state-run industrial policy; and that these things never squeeze out private sector activity in any way. They think that distributional questions are the most important ones, and that dynamism in an economy is a bad thing because it increases inequality. They think that prices and markets do not have a signalling function but are essentially arbitrary and can be safely manipulated for wider social goals, and much more of the same sort of thing.

Of course. this is how the economy has actually been run—or, rather, run into the ground—for most of this century. That is why GDP per head has gone up by a miserable 0.5% a year over most of this period. It is why taxes are up eight percentage points from the early years of the Blair Government, now at 37% of GDP. It is why spending has gone up 12 to 13 percentage points, now at 45% of GDP—and no doubt later this month all those figures are going to be a couple of percentage points higher still.

We have reached the end of the road for this economic programme. We do not need more of it. What we now need is a great reversal, the renunciation of big-state economics, the undoing and the unwinding of most economic policy measures that have been taken this century: labour market controls, price controls, wage setting by government and judicial fiat, the disastrous net-zero policy, the pensions triple lock, heedless welfare spending and, of course, tax. We need a 10-year programme to get tax, spending and regulation safely back down to those early Blair-era numbers. If we do not do that, we will face another great refusal: the refusal of the markets to finance us and the refusal of our people to stay in the country and be taxed to deliver them.

There is no point in doing things that are popular but do not solve the country’s problems. I would like to hear from the Government that they understand that, and that they need to face up to this as a country and change our ways soon.

14:36

[Lord Goodman of Wycombe (Con)]

My Lords, I congratulate my noble friend Lord Elliott of Mickle Fell on securing this important debate, on his penetrating criticism of the Government’s economic policy, echoed by so many of the speeches of my noble friends, and, not least, on having a positive alternative to put forward in this debate—namely, his book Prosperity Through Growth, which I am looking forward to reading. I gather that it promises 24 policies that would raise growth by 7% above current forecasts within five years and are fully costed.

I shall make three points in responding to him. First, my noble friend is right to argue that our economic culture since the age of Gordon Brown has been so fixated on wealth distribution as to forget the primacy of wealth creation, as I put it in my own rather more modest publication for Policy Exchange, The Right Way. Small and medium-sized firms are the forgotten heroes of the British economy—a point just made in his speech by my noble friend Lord Risby—but I am afraid I suspect there will be nothing much for them in the Budget.

Secondly, tax cuts are the easy bit. The heart of it, as the noble Lord, Lord Frost, referred to a moment ago in his speech, is public spending control. The medium-term financial strategy of the 1980s, the foundation of British economic recovery in the Thatcher era, was built on reducing borrowing. It is to the credit of my noble friend that his book apparently—as I say, I am looking forward to reading it—proposes some economies.

Finally, pamphlets like mine, books like my noble friend’s, OBR forecasts and Treasury Red Books are all important and have their place, but they must operate amid all the roughness and unpredictability of the real world, where there are known unknowns, unknown unknowns and known knowns, and it is to one of these that I want to turn in closing.

Our urban areas are at the risk of balkanising. Our streets are seeing open support for terrorist groups. Palestinian flags and St George’s crosses are becoming territorial markers. Jews have been murdered simply for being Jews. Mosques as well as synagogues are targeted for violence. The driver of this unrest has been Islamist extremism and the reaction is white nationalism, and in between is the mass of the population, of all religions and none. Countering this extremism requires a cross-government programme, run from Downing Street, that runs from monitoring out-of-school settings to providing more prison places, through prosecuting incitement in mosques and curbing violent protests—in other words, taking the action that successive Governments have failed to for probably over 25 years. This challenge cannot be met by public money alone, but it will cost public money if we are to meet it. That money is going to have to come from somewhere, and, if I hear the voices of my noble friends correctly, at least some of it should come from welfare reform.

There is no such animal as economics without politics; indeed, it is politics that shapes economics. If the political challenge of the coming decade is strengthening our internal security, as I fear it is shaping up to be, the economic challenge of the coming decade will be strengthening our security. I urge the Minister and the Government to rise to it.

14:40

[Lord Horam (Con)]

My Lords, we recently celebrated the centenary of the birth of Margaret Thatcher. I think we all realise that we could do—as many people say today—with another Margaret Thatcher to deal with the mess confronting us. We certainly need her ability to centre on the economic problems of the country and follow that up with a single-minded determination that is all too often lacking in the present Government.

My good friends, the noble Lords, Lord Goodman and Lord Frost, have just emphasised the centrality in her thinking of controlling public spending. They may not realise it, but during the Labour Government period when she became the leader of the Conservative Party, public spending became 47% of GDP, the highest proportion in post-war economic history. The result, as noble Lords may remember, was a trip to the IMF to bail out the then Labour Government. Margaret Thatcher then became Prime Minister of this country and in 11 years brought down that 47% to 35% in 1988-89. As a consequence, we had a cumulative 21% growth over five years—the best five years of post-war economic growth. Today, public spending is 44% of GDP and it is certainly a central task to bring that down rather than mask the problem by raising taxation to 44% or thereabouts.

Recently, we have all been instructed, quite rightly, to read my noble friend Lord Elliott’s book and also read the recent pamphlet from Policy Exchange, which lists at least 10 of the things we need to do, including, in addition and importantly, welfare reform. The noble Lord opposite quoted Chris Giles in the Financial Times, but could I recommend to him a much more thorough analysis by Sir Charlie Mayfield, the former head of John Lewis, of the real, fundamental difficulties and dangers of having welfare reform of the kind we have at the moment?

So will the Labour Government do something of the kind we need on public spending? No, because it is not in their DNA. It is asking them to do the opposite of what they came into politics to do, which was to put up public spending. They are the party of the public sector, for the public sector, by the public sector. As the noble Lord, Lord Risby, pointed out, no Member of the Cabinet has extensive private sector experience. It is a tragedy of our country at the moment that we have a Government who are peculiarly unable to tackle the real problems. It will therefore fall to a Conservative Government to do that: to bring down public spending with proper control and release the animal spirits of the private sector. I hope we will be able to do that in reasonable time and, when we do it, we will do it with the determination and practical skill that Margaret Thatcher showed all those years ago.

14:44

[Lord Sikka (Lab)]

My Lords, I thank the noble Lord, Lord Elliott of Mickle Fell, for securing this debate. In an often-told story, Albert Einstein set an exam paper for his graduate class. One of his colleagues noticed that the questions were the same as on the previous year’s exam paper. He asked how the great man could set the same exam again. Einstein smiled and said:

“But the answers have changed”.


This parable captures the problem of the UK economy. For the last 20 to 30 years, we have faced the problem of low economic growth, investment and productivity, rising poverty, and crumbling infrastructure. But Governments provide the same old answers: privatisation, outsourcing, unchecked profiteering, real-wage and spending cuts, regressive taxation—and the ideology that direct state investment in new industries and infrastructure must be neutered. Inevitably, the economy struggles. We now have a rentier economy, where the state guarantees profits for water, energy, care homes, private healthcare, internet companies, prison services and much more.

Despite low rates of inflation, interest and corporation tax, and generous incentives, investment in productive assets remains disappointing. In the age of deindustrial- isation, the UK has been at the bottom of the G7 league for investment in 24 out of 30 years to 2022. It is ranked 28th for business investment out of 31 OECD countries. It is currently investing 18.2% of GDP in productive assets, compared with 26% for France and 25% for Germany. The OECD average is 23%. China spends 40.4% and India spends 30.5%. One lesson is that economies flourish with direct state investment in infrastructure and new industries; this also benefits the private sector.

The City of London never had an appetite for long-term risks. The stock market functions as a cash-extraction machine. In 2024, listed companies raised £25.3 billion in new shares and paid out £91.2 billion in dividends and another £57.1 billion in share buybacks. Companies sweat assets. No Government have tackled short-termism, or the power of shareholders to extract returns. Good purchasing power for the masses is essential for economic growth, but that has been eroded. The average real wage has hardly changed since 2008. Some 16 million people live in poverty, and 24 million live below socially acceptable living standards. The bottom 50% of the population owns less than 5% of wealth, and the bottom 20% has less than 0.5%. The bottom 20% pays a higher proportion of income in tax than the richest 20%.

You cannot squeeze 50% of the population and expect economic growth: that does not happen anywhere, so why on earth did the last Government pursue that strategy? Somebody ought to explain. The UK has the wrong model for economic growth. Equitable distribution of income and wealth, progressive taxation, and bigger public investment are necessary prerequisites to building a sustainable economy. I urge the Government to follow that course.

14:48

[Lord Wharton of Yarm (Con)]

My Lords, I congratulate the noble Lord, Lord Elliott of Mickle Fell, on securing this debate. The number of noble Lords who are here to contribute is testament to his keen insight into what is interesting in politics right now. Sadly, it is also testament to how much worry there is out there about the direction in which our economy is headed, and about the coming Budget, which is often widely speculated on in the media. Little of that speculation is uplifting or positive in its nature. We all take an interest in this area and, unfortunately, many people have quite a degree of concern—I fear, rightly—about what may be just around the corner. In terms of the Government’s balancing of the rate of tax against the amount that they are going to be able to collect—and the uses to which they can put that money—we are certainly about to reach the wrong end of the Laffer curve. Perhaps we reached it long ago.

We tax things to raise revenue and do good things, but the Government generally tax things to signal that they are bad things. They tax cigarettes and alcohol, which are not very good for people. They tax fuel because, the more people drive, the worse it is seen to be for the environment. Yet we are currently seeing taxes going up on a wide range of things that ought to be good things and of which we need more. We see higher taxes on capital gains, on creating jobs and on businesses that are trying to drive forward our economy and doing the sorts of things the Government ought to and need to encourage if we are to be a success.

I spend a fair amount of time in Gibraltar, which is an interesting place. With its approach to regulation and with much lower taxes than we have in the UK, it seems to be doing really rather well. We should be pleased and proud that British Gibraltar is doing particularly well and is a success, with growth last year at around 3.45%, but we should also learn from that approach. I fear that some of the investment I see when I go there may be being driven there because of the decisions that Governments in the UK are taking here, and the decisions people are taking about their own personal circumstances. We have heard many noble Lords talk of the flight of capital, people and talent that is being caused, in no small part, by the tax system and the direction of travel in which our taxes are headed.

We also have to be aware that the decisions we make in this country will affect what happens in Gibraltar. Only this week, His Majesty’s Government of Gibraltar’s Minister for Justice, Trade and Industry, the honourable Nigel Feetham MP, was in the UK, spelling out to all those who would listen to him the potential impact on Gibraltar of changes to gambling taxation in the UK—standing up for the success of his low-tax, low-regulation territory because of the impact the direction in which this Government are headed could have on its national finances.

There are also rumours, as people have observed the flight of capital, individuals and entrepreneurs, of an exit tax. I take this opportunity to warn in the strongest terms against such an idea because an exit tax is not only immoral and unjust—for people to pay tax yet again on income on which they have already paid their due taxes—but, in effect, discourages people from coming as well. We may—although I suspect it is unlikely if we are to implement a leaving tax—dissuade some people from leaving, but I fear we would certainly dissuade many more people from coming. At a time when we need capital investment, entrepreneurs and to grow our economy, that would be very bad indeed for the UK.

14:52

[Lord Marks of Hale (Con)]

My Lords, it is always a pleasure to follow my noble friend Lord Wharton. I congratulate my noble friend Lord Elliott on bringing this most relevant of debates to the House.

I ask the Minister: how do higher business taxes, increased regulatory burdens and policy uncertainty encourage the very entrepreneurs and small firms we rely on for jobs, growth and innovation? Britain does not need more bureaucracy and taxes; it needs belief in enterprise and to allow our wealth creators—the very people who see a gap in the market and take a risk—to have confidence to invest in Britain. Our small business owners, entrepreneurs and innovators, who employ more than 16 million people in this country, are at the whim of government policy. When confidence is negative, investment stalls, jobs are lost and not replaced, and growth slows to a trickle.

Some of Britain’s largest companies are suffering too. Dominic Paul, the CEO of Whitbread, which owns the Premier Inn chain, said recently:

“You cannot just keep taxing businesses. We have got to be the beating heart of a growing economy. If taxes go up, responsible businesses will cut costs, staff and investment and you won’t get growth”.


Never before has global competition been so intense. Nations are racing to attract investment, talent and capital in technology, energy, advanced manufacturing and AI. We ought to be at the forefront of that race and we are not. Instead, businesses have been met with uncertainty, mixed signals and a tax environment that risks dulling enterprise rather than accelerating it.

Let us examine some of the evidence. The Autumn Budget in 2024 hiked national insurance contributions to 15%, coupled with a slashed secondary threshold which has had the effect of piling billions of extra costs on to businesses already grappling with slim margins. In short, rising NI is not just a tax on jobs; it is a tax on opportunity. We simply cannot expect a job-led recovery if we make job creation more expensive. Every time the cost of hiring increases, a door closes for someone who wants to work, train or make a start in life. This is not theoretical; it is happening on high streets, factory floors, building sites and across the tech sector.

In the north-west, where I live and am involved in a number of businesses in the UK and beyond, I have heard from tech entrepreneurs delaying hires or automating roles because they simply cannot afford the added burden. This means preventing one less apprentice and one less parent from re-entering the workforce. The national cumulative effect is causing job losses in the thousands as businesses rush to cut payrolls. The double whammy of a rise in capital gains tax is deterring investors and founders, hitting tech exits and prompting an exodus of skilled talent to more welcoming shores such as the United States and the UAE. Even carried interest taxation jumping to 32% risks starving venture capital that fuels our start-ups.

On these Benches, we advocate for lower taxes to ignite ambition, deregulation for innovation and targeted support for digital skills. How many more unicorns must we lose and how many more innovators need to emigrate before this Government pay attention? These policies are not economically sound, and they are an assault on aspiration.

Wealth is not created by the state, and entrepreneurs are not asking for subsidies; they are asking for stability, clarity and trust. They want to know that their success will be celebrated, not penalised, and that the Government will provide an environment to support those with the courage to build, hire and create. That is the only path for lasting jobs, growth and national prosperity. As Dom Hallas, the executive director of the Startup Coalition lobby group, said:

“Any action at the budget should be focused on motivating entrepreneurs to stay here, not holding them for ransom”.


I urge the Minister to restore trust in our innovators and entrepreneurs, to be their ally and not their obstacle and to secure this country’s future by giving enterprise back its freedom.

14:57

[Lord St John of Bletso (CB)]

My Lords, I also thank the noble Lord, Lord Elliott, for moving this incredibly important and topical debate ahead of the forthcoming Budget. This is a time to take stock, and to scrutinise and challenge the direction of travel. As we have heard, the central paradox of the Government’s position has been to make growth the top priority, yet their actions, and the uncertainty they are generating, are in danger of throttling that very growth before it takes root.

In June, I welcomed the Government’s new industrial strategy, which aimed to provide the certainty and stability for long-term investment in eight particular sectors. But what certainty is there for a business today? What stability can it plan on? The reality is that the positive signal sent by the industrial strategy has been completely drowned out by the noise and speculation surrounding the upcoming Budget.

The prospect of looming tax rises has shattered business confidence, and business leaders have said that they are expecting the worst. That means shortening their planning horizons, cancelling hiring and putting investment on hold. The labour market is already showing signs of strain. As we all know, unemployment is at a four-year high of 4.8%. For young people, this is a deeply concerning dilemma. Prosperity is not built on a foundation of ever-increasing tax burdens; it is built on a dynamic economy where businesses are confident to invest and to create high-quality jobs.

Nowhere is the contradiction more starkly illustrated than in the Government’s treatment of the North Sea oil and gas industry. Here we have a sector that should be generating billions in tax revenue, supporting 200,000 jobs and strengthening our energy security. Instead, the Energy Secretary has imposed a ban on new licences and extended the so-called windfall tax until March 2030, even though oil prices have fallen and there is no windfall left to tax. The consequences are devastating: almost a thousand jobs are being lost every day, and Britain’s biggest oil producer has just announced that it is slashing its North Sea investment by half, citing the Government’s punitive tax measures. Industry experts tell us that ending the windfall tax sooner could unlock £40 billion of investment. That means jobs, tax revenue and energy security, all of which we desperately need.

The narrative that tax rises are the only solution to the UK fiscal challenge is a false assertion. It ignores the vast potential for savings—savings within the Government’s own spending—and it ignores the revenues that could be unlocked by sensible policy changes. Of the £1.2 trillion budget, £434 billion is spent on the procurement of goods and services. Properly implemented AI and automation could—not shall but could—reduce much of the procurement costs by anywhere between 10% and 20%. With a 10% reduction, we could theoretically be looking at savings in the range of £40 billion or more.

With government spending locked at 45% of GDP, we need a smaller state and lower taxes. There is no evidence that you can sustain debt reduction with ever-increasing taxes. The Government should demonstrate that they have exhausted every possible efficiency saving, starting with procurement, before they consider tax rises. They must show that the commitment to growth is not just a slogan.

15:01

[Baroness Meyer (Con)]

My Lords, being 30th in the list is a problem, as I am bound to repeat what many noble Lords sitting on my Benches have said. But sometimes things need to be repeated time and time again for them to sink in, and this is particularly so when you are facing an audience that does not want to hear the chorus of voices expressing their concern.

I am not talking just to people sitting on my Benches but to allies and friends of the Labour Party. Take Sir Tony Blair, who has warned that the workers’ rights Bill will erode business confidence and ultimately undermine growth. Labour backer John Caudwell recently said that it will make Britain “less investable”. Sir Martin Sorrell and an array of major business leaders, SMEs, entrepreneurs and start-ups all echoed this view and urged the Government to reconsider.

The Government speak of delivering growth, but the facts are there. After only one year, growth has fallen to nearly 0%, the budget deficit is up, public debt is the second highest on record, unemployment is up, productivity is down and inflation is up. What is the Government’s answer? It is more taxes. No wonder confidence has collapsed. Apart from trade unions and their supporters, no one seems to support the workers’ rights Bill. Why? Anyone who understands economics realises that, once you tax jobs, you end up with fewer jobs. If you tax success, you kill aspiration. Tax wealth and the wealth leaves. We should reward entrepreneurs and encourage them to invest, not punish them and drive them into the welcoming arms of Italy and the Middle East.

Non-doms are not freeloaders; they have paid billions in taxes, invested in British businesses, created jobs and supported philanthropy—yet they are being driven away. Redistribution of wealth may sound very virtuous, but it is ideology, not economics. The Laffer curve is not a theory but a warning; beyond a certain point, higher taxes reduce revenue because people simply stop working and investing or they move elsewhere. We are there—Labour is draining the lifeblood of our economy, taking more from a shrinking number of taxpayers to fund an ever-growing number of dependants. This is not fairness but folly. You cannot redistribute prosperity if you are destroying it in the first place.

Will the Minister consider a flat tax model on the Italian system, as laid out so clearly by the noble Lord, Lord Elliott, to attract investment and drive growth? Does the Minister accept that constant tax rises are driving away the very entrepreneurs and investors on whom the economy grows? I conclude by congratulating the noble Lord on tabling this important debate and giving us an excellent opening speech. I am surprised to see how few on the opposite Benches are speaking—maybe because they cannot actually defend their policy.

15:06

[Lord Liddle (Lab)]

I open by congratulating the noble Lord, Lord Elliott, on an extremely well-argued speech—even politically balanced, at times. It was a complete contrast to the barrage of criticism that we have had from the Opposition Benches throughout this debate. It was not quite clear to me who the barrage of criticism was directed against. Is it against the 17 months of Labour Government or against, in the 17 years since the financial crisis, the 14 years in which all these people here were in power and had the opportunity to do something about the problems that they now complain about?

We know where we ended up in 2024, with public debt that had soared, a share of investment in the economy at one of the lowest in the OECD, a broken state—just look at the health service and the criminal justice system—and a social problem of huge magnitude. Some 7.1 million families were going without essentials, 5.3 million skipping meals and 4.1 million going hungry. I believe in welfare reform, as many people on the other side have argued for, but it has to be coupled with a policy of tackling child poverty. The two things went together in the Governments I worked for in the Brown and Blair years. We need welfare reform and labour market action to get more people back into work. That is what the Mayfield review is about and what the Alan Milburn review on NEETs is about.

We should provide in this Budget incentives, such as a national insurance holiday for people who take on unemployed people on welfare. We also have to look—although this is something that a lot of people on my own side will worry about—at minimum wages for young people, and whether they are not too high. I think we should get the Low Pay Commission to look at that. I support the Employment Rights Bill, but day-one rights have to be coupled with a genuine probationary period in which employers are not discouraged from taking on people with a problematic work record.

I believe that the Government’s economic strategy is on the whole right: borrowing to invest and making sure that the public investment happens, which it did not under the previous Government, but also balancing the books on current spending. If we have a deficit, which we have, in my view the best way to tackle that is through broad-based taxes, a rise in income tax and reform of property taxation, which will help economic efficiency. The truth is that income tax in this country is low by international comparisons, and tax is the price we pay for a civilised society—we must always remember that. At the same time, we must have much stronger incentives for entrepreneurship and research and development, and an ability to translate our intellectual excellence into commercial success in companies that are growing greatly.

To conclude, I commend to your Lordships the recent report of the Lords Science and Technology Committee, which has looked at the reasons why we are failing in this regard. But I am an optimist, and I am looking forward to the Budget.

15:11

[Lord Massey of Hampstead (Con)]

My Lords, I thank the noble Lord, Lord Elliott of Mickle Fell, for initiating this important debate, and I congratulate him on his speech and his book. This is, of course, a very problematic time for the UK economy; we recognise this from all sides. We urgently need more growth and job creation. Yet while the Government have these objectives in mind, some of the measures taken in the last year actively undermine the stated ambition, as mentioned by the noble Baroness, Lady Foster.

The first problem has been the decision, as mentioned by many colleagues, to raise NI and the minimum wage, which creates disincentives to employ and has led to a creeping up of unemployment now to 5%, which is a four-year high. The Employment Rights Bill, which has been much debated and amended in this House, would exacerbate the situation further by reducing the flexibility of the labour market and imposing more regulation on business. This matters because it is businesses that will drive our economy forward, not transfer payments and debt-fuelled capital spending by government. We have now hit the 45% level of public spending as a proportion of GDP, and historically that is a peak which has proved unsustainable. I believe the Government recognise this, but in branding spending cuts as a return to austerity, they have boxed themselves in. They are now choosing to raise income tax, under pressure—some might say—from the left wing of their parliamentary party.

The Prime Minister has made it clear that the impact of these tax increases should fall on those with “the broadest shoulders”. He should take note that these broad-shouldered citizens are the same people who already pay 30% of income taxes, create the real jobs we so desperately need and run the businesses that can compete internationally. Rather than penalising this highly productive cohort, why do the Government not look at the benefit bill and take the political risk of tackling benefits, which now account for 15% of GDP and rising? As the noble Baroness, Lady Fall, and the noble Lord, Lord Young, have both mentioned, this could be a cross-party effort to reform this whole structure.

High levels of benefits are a double whammy—they impact the borrowing requirement, but they also lead to more immigration. The jobs that the local population cannot or will not take on still need to be filled, be they in the NHS, the care sector or hospitality. The result is increased net migration with all the negative side-effects on public services, rent levels and—some would argue—social cohesion, to which the noble Lord, Lord Goodman, also alluded.

The Government’s number one priority must be to get the economically inactive back to work; I do not think that is controversial in this House. For the upcoming Budget, I urge the Government to avoid two measures that would seriously undermine wealth creation and growth. Raising capital gains taxes or, even worse, equalising them with marginal rates of income tax will reduce risk-taking and produce no revenues for the Exchequer. Investors will simply hold on to assets and invest new money into bonds. It will reduce equity investing, which we urgently need, especially in small and mid-sized UK companies. Another tax to avoid at all costs—this has been mentioned by several Peers—is an exit tax, which would be a disaster for the UK’s reputation as a business-friendly country. However tempting it might be from a redistribution point of view, the idea of financially trapping people in this country will serve only to demotivate not only those who are running businesses here but those who would come here to build the businesses of the future.

We are at a crossroads for the economy, and I recognise that the political choices are very difficult for the Government. In a sense, there is a conflict between their ambitions for growth and their political ideology, but the opportunities for growth are there for the UK to seize. We can be a leader in the AI revolution and benefit from the productivity gains which can flow from its evolving capabilities but, for the UK to benefit from this, businesses need to be incentivised to take up these opportunities, not burdened by increasing regulation, rising taxes and higher interest rates, which result from excessive spending.

15:16

[Lord Kempsell (Con)]

My Lords, I declare my interest as the director of a number of small businesses, and I join in thanking my noble friend Lord Elliott for convening today’s debate. It has been extremely wide-ranging in its scope on the matter in front of your Lordships’ House, and there have been many interesting and insightful contributions from all sides.

What can I add, as the final speaker on the list? Well, I might just pick up on a point mentioned in passing by my noble friends Lord Risby and Lord Horam. They touched on the astonishing fact that not a single member of the Cabinet today has any real meaningful experience of running a business. I think this is a factor in the current predicament that the UK finds itself in under this Government: not a single decision-maker around the most powerful table in the land really understands what it feels like to be worried about making payroll at the end of a month, because their financial security has always been somebody else’s responsibility.

This is a Cabinet that has next to no commercial experience, even of the most basic business activities; that has never worried about paying a supplier, like so many small and medium-sized enterprises now across the country; that has never chased a late invoice, filed a company return or dealt with the burdens of red tape, such as that contained in the Employment Rights Bill; and that has never, in a business setting, hired, fired or managed a team—even though the Prime Minister is now getting used to having to fire people in a different context. Crucially, and stunningly, this is a Cabinet that has never created a job—not one single job—through entrepreneurialism.

I have no doubt that the cadre running the country at the moment were the very best think tank researchers, charity workers, academics, trade union officials and professional politicians, but I am afraid they seem ignorant of the pressures that those running businesses in the UK today currently faced. We have 0.1% growth, the highest inflation in the G7, soaring debt, rising unemployment and record high taxes. I must warn Ministers opposite that, as we go into the next fortnight, for many millions of business people across the UK this will be the Budget of sleepless nights, genuine fear and anxiety for those running companies large and small, terrified of the Chancellor’s next move by a Government who are pushing job creators and employers to the very edge.

The Government have blithely shredded their key election pledge not to raise taxes on working people. That is a total and unforgivable breach of trust on the Government’s core fiscal commitments. As with every Labour Government, it is now the case that the Treasury is racking up debts, including £100 billion in annual debt interest costs.

What has been the result of these fiscal policy choices a year into the Labour Government? What do we have to show for the increases in employers’ NI contributions, business rates and capital gains tax? What do we have to show for hiking the cost of employing the average worker by £900, abolishing the key elements of agriculture and business property reliefs, and countless other measures? I contend that the Government’s headline economic achievement so far has been taking 80% of workers out of income tax altogether in Mauritius, with their disastrous Chagos Bill, a deal that will cost tens of billions of pounds. This Labour Government are delivering seismic tax cuts; it is just that they are doing it in a country more than 6,000 miles away, while here at home, in just two weeks, they no doubt plan to hike income tax on millions of workers in Britain. Even in the long litany of the Labour Party’s history of economic failure, the Starmer and Reeves project will surely go down as one of the most flabbergasting chapters of all.

15:20

[Baroness Kramer (LD)]

My Lords, the Budget is only days away. I believe that the noble Lord, Lord Liddle, may be the only person who can say that he is looking forward to it. Last week, the Chancellor made a paving speech which made it clear that huge tax rises are coming. Most of us expect to see higher income tax—that would be no surprise. However, we have none of the details, and that is where the devil lies, so this debate is in some ways only part of a prologue.

Although I congratulate the noble Lord, Lord Elliott, on obtaining this debate, it was rather curious that, in his litany of causes of the current economic condition in which we find ourselves, he overlooked mentioning Brexit, which was, in fact, the deepest blow by far. The Government finally have the guts to say that out loud, but they have not turned towards pushing for a customs union, which is the obvious cure. Using figures from Frontier Economics on the GDP uptick that would come, and from the Commons Library on tax yield, rejoining the customs union could be expected to provide an additional £25 billion a year in tax revenue to the UK Treasury. The economic benefit that arises from that change completely exceeds the impact of any proposal we have heard from any Bench today. That is important and we need to recognise it.

Meanwhile, I do not doubt the £22 billion legacy black hole that the Minister often talks about; it was echoed by the noble Viscount, Lord Chandos, the noble Lord, Lord Davies, and others. Public services are on their knees and the need to invest in infrastructure after years of neglect is surely a given. Perhaps most dangerously of all, people are feeling the cost of living pain, many to the point of breaking. Living standards matter.

Clearly, we need growth and productivity, and I was glad that the noble Baroness, Lady Fall, focused on scale-up in part of her discussion. However, I am expecting a horrible forecast from the OBR because although some monthly figures show productivity growth, it is off such a low base that the benefit is marginal. In that vein, I warn the Government against looking to small businesses to fill the Budget hole. This is exactly the sector that needs to be investing to get productivity going. We heard concerns about that from quite a number of speakers, including the noble Lords, Lord Leigh and Lord Kempsell.

The self-employed should not be targeted either. That includes small LLPs, which are often just two people and simply a variant on self-employment, with similarly precarious income, limited benefits and no employment protection.

It is important to recognise, particularly in this discussion on levels of economic inactivity—referred to by the noble Baroness, Lady Stedman-Scott, and the noble Lords, Lord Petitgas and Lord Skidelsky, most extensively—that, in today’s economy, this sector, the self-employed and small business sector, has the most promise to get disengaged people of working age either back into work or into work for the first time. We have to look to that and support that group.

Whatever the Government choose to do, they also need to calm the gilts markets. We are paying a significant premium, even over France with all of its woes. According to CBRE Investment Management, a 1% reduction in gilt yields reduces the UK’s borrowing levels by a cumulative £21 billion over five years. Part of that calming is achieved by creating credible fiscal headroom, which has not happened in previous Budgets. I say to the Minister that it will have to be a really important feature of the Budget.

In this situation, where are the greatest emergencies? My party has identified two. The first is the fragile state of the hospitality industry, mentioned by the noble Lord, Lord Risby. It is the backbone of so many high streets and communities. We call on the Government to slash VAT by 5% for pubs, restaurants and entertainment and accommodation venues with immediate effect and until April 2027. Ordinary folk looking for small pleasures will benefit too.

The other and perhaps even more urgent need is to provide relief to ordinary people by removing the main renewable levy from people’s energy bills, not discarding the funding for tackling climate change but replacing it with Treasury funding until April 2027, by which time a new renewables obligation scheme should have been developed and should be in place. This would slash a typical energy bill by £90 a year, bringing it to its lowest level since the energy crisis began in 2022. The two measures would cost through to April 2027 a total of £12 billion and save a typical family £270 over the next 18 months.

However, we in my party are responsible. The Government have scoffed in the past when we have argued for a windfall tax on the banks, which are still benefiting from high interest rates. The IPPR has proposed a scheme that targets the windfall interest payments received by commercial banks as a result of the QE-related reserves they hold at the Bank of England. The tax would expire when the base rate returns to 2% or when quantitative tightening concludes, anticipated to be after 2030. It could raise £30 billion in total between now and 2030. That is less than half of what is needed for the two proposals I have just outlined, which would cost £7.5 billion and £4.5 billion respectively.

In the past, I have proposed taxes that could raise significant money for the Exchequer in a way that is fair, increasing from 2% to 10% the digital services tax on global tech companies—who are, frankly, absolute masters at tax avoidance—and doubling the remote gaming duty on online gambling. Those two together would raise almost £3 billion a year.

I will return to my opening comments. Because of the scale of the issues we face, the biggest increase in tax revenue could come from renegotiating and rejoining a customs union with the EU. Frankly, the only pain that would be experienced would be a pain to the pride of the Brexiteers. We would all be benefiting in our pockets.

15:28

[Baroness Neville-Rolfe (Con)]

My Lords, I also start by thanking my noble friend Lord Elliott of Mickle Fell for initiating this debate so compellingly and I echo his tribute to Lord Desai.

I agree with so much of what he said about the importance of growth—dismal again today—the disastrous effect of high energy prices, the need to remove regulatory obstacles to employment and the devastating effect of high taxation on enterprise culture and competitiveness. As the noble Lord, Lord Liddle, said, it was a balanced speech. It was good to hear the latter’s support for welfare reform and for sorting out the nonsense of the day-one rights in the Employment Rights Bill. Let us hope that happens.

It is helpful to look at the broad picture first. Sometimes implicitly, the debate has touched on two linked economic hypotheses, both of them relevant to how we run the economy and the level of tax. The first, touched on by my noble friend Lord Massey of Hampstead and reflected in the request from my noble friend Lord Frost for reversal, is that there is a level of overall taxation, in terms of a percentage of GDP, beyond which extra tax becomes ever more injurious and disincentivising, hence economically undesirable. Economists note that the current level of taxation in the UK is very high by historic standards. Many conclude that the UK has reached the stage where this hypothesis is becoming increasingly true.

The second hypothesis, touched on by my noble friends Lord Petitgas and Lady Meyer, states that high levels of national debt, judged as a percentage of GDP, is a bad thing. Unfortunately, UK debt now stands at around 100% of GDP—a very high level for peacetime. It holds that the responsible thing for the Government to do, when faced with high levels of debt, is to reduce it, not least since high levels of debt reduce the effectiveness of responses to outside shocks such as Covid.

Under this Government, we have a very high level of national debt and taxation, both of which ought to be decreased, but on present plans will increase. The only way to square this circle is to reduce national expenditure. Yet, as my noble friends Lady Stedman-Scott and Lord Young of Cookham have said, the Government’s own review of PIP is looking at no savings at all. We need welfare reform and, indeed, a single-minded determination to get expenditure down, in the words of my noble friend Lord Horam, who recalled a former Conservative Prime Minister. My noble friend Lord Harper said raising income tax to pay for welfare was not a wise way forward.

If they were responsible, the Government would be planning to reduce expenditure to improve the fiscal position. But, alas, all the signs are that this is as likely as finding a man on the moon. Britain is living beyond its means, locked in a doom loop of high spend, high debt and high taxes.

There were some interesting new thoughts in the debate. My noble friend Lord Howard of Lympne emphasised the importance of microeconomics and the the fascinating lessons of his firm Direct Special Measures in improving our jobcentres. My noble friend Lord Howell of Guildford talked about how Germany has been dealing with the fiscal challenges. It was also a pleasure to hear again the creative thinking of my noble friend Lord Saatchi and to hear from my noble friend Lord Kempsell, who noted that no one in the Cabinet has run a business, as of course many people in this House have done.

I turn to taxation, so eloquently addressed by one such person, the noble Baroness, Lady Noakes. According to the international index published last month by the Tax Foundation, the UK now ranks 32nd out of 38 OECD countries for tax competitiveness. In the G7 it is ahead of only Italy and France. This is not a good place to be. As another former businesswoman, I can confirm from experience that high rates of corporation tax affect investment decisions and that investors go where such taxes are low—just look at Ireland’s success.

The Government are keen to paint a picture in which the state of the economy is everyone else’s fault, but business leaders and the public know that the situation we are in is substantially a consequence of the Government’s own decisions. They started by claiming that growth was their overriding priority, which I supported, but quickly lost credibility with last year’s Budget decisions, notably on NICs, IHT—we heard from the noble Baroness, Lady Foster, about its devasting effect on rural communities—and, of course, the Employment Rights Bill.

It is obvious that, if professionals and innovators see a large share of each additional pound going to the tax man, their incentive to expand businesses or move to Britain diminishes. We can look at international examples as a cautionary tale. France’s experiment with a tax on top earners a decade ago led to an exodus of talent and embarrassment for the Government. We have ourselves seen a huge exit of the wealthy since the election. As the noble Lord, Lord Petitgas, said, some of those leaving are younger people, including members of my own family.

We need to find a way to reverse the incentives to move to Dubai, Singapore, the US or Gibraltar—which we heard about from the noble Lord, Lord Wharton. However, these Benches all agree that taxes on exit would be a disaster and lead to further problems.

In addition to the fiscal damage done to our economy, it is clear from the debate that the regulatory changes being introduced in the form of legislation, such as the Employment Rights Bill, are set to harm working people even further and discourage hiring. The Government themselves estimate that the Bill alone would add almost £5billion a year in costs to businesses, killing growth in the SME sector, which bears the highest burden, as my noble friend Lord Leigh said. The noble Baroness, Lady Kramer, is also very sound on this point about SMEs and we very much agree that it is a vital consideration. Many, including my noble friend Lady Fall, spoke about the problems in the labour market and the recent rise in the unemployment rate to 5%. His Majesty’s Opposition are clear that the Employment Rights Bill should be rewritten.

Unfortunately, this comes on top of other increases such as in business rates and in NICs—£25 billion— new environmental charges of various kinds, large increases in the national living wage at the same time, and energy costs, as my noble friend Lord Elliott emphasised, which are four times as high as they are in US and seven times as high as China’s. My noble friend Lord Trenchard talked of the impact of this growing pattern of regulation on investors such as Japan, and my noble friend Lord Risby made a compelling case for the devastating effect on SMEs, on which I have already touched.

We on this side of the House are clear that economic prosperity comes from productivity and growth, not from ever-higher taxes. Increased productivity is the foundation of raising wages and living standards. My noble friend Lord Elliott’s excellent book is worth reading for the number of policies that he sets out.

Another problem we have with productivity is the sheer size of the Civil Service, which is less productive than the private sector, employing 384,000 before the pandemic and 516,000 today.

The shadow Chancellor set out a menu of £47 billion in savings last month, without hitting most of the capital investment that the Minister so often cites, That includes the SMRs in north Wales that were announced today, which I also welcome. Mel Stride’s menu is the path to faster growth and higher productivity.

My noble friend Lord Bridges rightly registered our disappointment that the promise in the Chancellor’s Mais Lecture of a “fundamental course correction” for the British economy has not been delivered and said that the Chancellor has lost control of spending. To respond to the noble Lord, Lord Eatwell, we are clear that fiscal responsibility means honesty, consistency and transparency, but we have had none of this from the Chancellor.

I look forward to the Minister’s answers to some of these challenging questions, but the evidence is clear: since the election of July 2024, the trajectory of economic policy has tilted towards higher taxes and greater regulatory burdens, and it is clear that we are going to have more of both. This path is fraught with dangers for jobs, growth and prosperity in Britain. The record-high tax burden is squeezing businesses and households and risking a downturn in economic activity. A Budget that prioritises growth and productivity and reduces regulation would set Britain back on the path to rising incomes and expanding opportunity. That is what is needed.

15:38

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I congratulate the noble Lord, Lord Elliott of Mickle Fell, on securing this debate and on his thoughtful, interesting and wide-ranging opening speech. I very much look forward to reading his book, once I receive the free copy that I was promised. I also join the noble Lord in his heartfelt tribute to the late noble Lord, Lord Desai.

It has been most enjoyable today to listen to the contributions from so many distinguished noble Lords, and it is a pleasure to respond to this debate. It has been a particular pleasure to hear from noble Lords from the party opposite about how to grow the economy; it is perhaps a pity they did not take their own advice over the past 14 years.

We have heard in this debate from members of the previous Government about how to grow the economy and increase prosperity, despite growth in living standards being one of their greatest failures; we have heard from some of the most prominent supporters of Brexit about how to grow the economy, despite their own disastrous Brexit deal permanently reducing GDP by four percentage points, as mentioned by my noble friend Lord Eatwell; and we have heard from some of the most enthusiastic acolytes of Liz Truss about how to grow the economy—

[Lord Lamont of Lerwick (Con)]

If the Minister will allow me, he spoke about GDP being reduced by four percentage points. I assume he is referring to the OBR’s original projection, which was over the next 15 years. So far, we have not had the 15 years, and he is thoroughly misrepresenting the situation if he is implying that this has already happened.

[Lord Livermore (Lab)]

I do not think I have misrepresented the situation in any way, shape or form. The OBR forecast that around two-fifths of the 4% impact had already occurred by the time the EU-UK Trade and Cooperation Agreement came into force and that GDP will be 2.7% lower by 2025, with the remaining reduction occurring by 2030, meaning the economy will be over £100 billion smaller than it otherwise would have been.

As I was saying, we have also heard from some of the most enthusiastic acolytes of Liz Truss about how to grow the economy, despite the Liz Truss mini-Budget crashing the economy and sending mortgage rates spiralling. I think we have long since abandoned any hope of an apology to the British people from the party opposite for its record on the economy over 14 years, but what is still shocking is its inability to show even the slightest hint of self-awareness for the damage it did to the British economy over the past 14 years or any awareness that that damage continues to scar our economy today, as my noble friend Lord Davies of Brixton clearly set out.

The reality of that record over 14 years is stark, as my noble friend Lord Liddle said. First, there was austerity, mentioned by my noble friend Lady O’Grady of Upper Holloway, which took demand out of the economy at exactly the wrong moment and cut investment, undermining the economy’s ability to grow, and left us ill-prepared for the future. Then a disastrous and tragically misjudged Brexit deal—interestingly, not mentioned by the noble Lord, Lord Elliott, in his opening speech—imposed new trade barriers equivalent to a 13% increase in tariffs for manufacturing and a 20% increase in tariffs for services, reducing total trade intensity by 15%. As a result, as I have said, the economy will be over £100 billion smaller by 2030.

The combined effect of these costly mistakes was devastating. Had the UK economy grown by the average of other OECD countries over those 14 years, it would be more than £150 billion larger today. The previous Parliament was the worst ever for living standards. Inflation hit 11.1% and was above target for 33 months in a row. The noble Baroness, Lady Noakes, mentioned business investment. She may recall that, under her Government, the UK had the lowest private investment levels in the whole of the G7, productivity growth entirely stalled and output per worker grew more slowly than in nearly every other G7 country.

These policy errors, chronic instability and low levels of investment have left deep scars on the British economy, as my noble friend Lord Eatwell set out. As mentioned by the noble Lord, Lord Harper, alongside the forthcoming Budget, the Office for Budget Responsibility will set out the conclusions of its review into the supply side of the UK economy. I will not pre-empt those conclusions today, but the OBR may downgrade the historic assessment of the UK’s productivity and may conclude that the productivity performance we inherited from the previous Government was even weaker than previously thought.

[Lord Bridges of Headley (Con)]

Can the Minister clarify that his argument is that the Government have made no policy errors regarding their economic management over the last year?

[Lord Livermore (Lab)]

I am only five minutes into my speech; let us hear my whole speech before we conclude on that.

The OBR’s productivity assessment will be a look in the rear-view mirror, but the past mistakes of the previous Government do not need to determine our country’s future. While the record of the past 14 years may be even worse than previously realised, it underlines the importance of delivering higher and more sustainable economic growth, which has been the defining mission of this Government since we entered office. The noble Lords, Lord Elliott, Lord Harper and Lord Bridges, and the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, mentioned today’s growth figures. While they are, of course, lower than any of us would want to see, they confirm that the UK was the fastest growing economy in the G7 in the first half of this year and show just how much more there is to do.

We will move further and faster with our growth strategy, set out clearly many times and built on the three pillars of ensuring economic and fiscal stability, reforming the economy and increasing investment. It is welcome that the IMF has said that this strategy focuses on the right areas to increase productivity. This strategy recognises that growth comes not from government but from businesses and investors and that there is a role for a strategic state, not to step back and let businesses fend for themselves, but to act in partnership with business by systematically removing the barriers to growth that it faces.

The first pillar, stability, is the foundation all else is built on. That began with the Government’s first Budget last October. The noble Lords, Lord Harper, Lord Swire and Lord Leigh of Hurley, could not help but mention the £22 billion black hole in the public finances we inherited, which the previous Government sought to conceal from the OBR, but once again—

[Lord Harper (Con)]

Will the Minister confirm that at no point would the OBR, either in interviews or in its documents, confirm the existence of a £22 billion black hole because it absolutely did not?

[Lord Livermore (Lab)]

The report that it produced stopped before the conclusion of the previous Government. It stopped at that Government’s last Budget and of course they had several months left to run. The OBR reported on the period it was asked to report on, yet the previous Government still had several more months to run. The OBR has absolutely concluded that that information was concealed from it, and I think that is a very serious thing for us to know. Once again, noble Lords who mentioned it in their speeches today sought to deny and downplay that black hole—exactly the behaviour that got the country into the mess the previous Government left behind.

Faced with that inheritance, any responsible Government would need to act. One of the decisions we took was to increase the level of employers’ national insurance contributions to help repair the public finances, rebuild public services and restore economic stability, as mentioned by so many noble Lords in today’s debate. Contrary to what the noble Lord, Lord Bridges, said, I acknowledge, as we have always acknowledged, that there are consequences to responsibility and that the increase in employers’ national insurance would have costs to businesses and beyond, but the consequences of irresponsibility for the economy and working people would have been far greater, as we saw in the Liz Truss mini-Budget. Many noble Lords opposite mentioned the importance of small businesses, and I completely agree with them. The Government protected the smallest businesses from these changes by increasing the employment allowance from £5,000 to £10,500. This means that 865,000 employers will pay no national insurance contributions at all, and more than half of all employers will either gain or see no change.

Another area highlighted in this debate by the noble Lords, Lord Elliott and Lord Bilimoria, the noble Viscount, Lord Trenchard, and the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, was the non-dom regime. It is right that everyone who makes their home in the UK pays their taxes here. The Government have therefore removed the outdated concept of domicile status from the tax system and introduced a new residence-based regime. The OBR has certified that the non-dom reforms the Government have implemented will raise £33.8 billion in total revenue, and that figure accounts for some non-doms who are ineligible for the new regime choosing to leave the UK in response to these reforms. The Government will of course continue to work with stakeholders to ensure that the new regime is internationally competitive and focused on attracting the best talent and investment into the UK.

The noble Baroness, Lady Foster, and the noble Lord, Lord Bilimoria, among others, mentioned changes to agricultural property relief and business property relief. The Government made these changes better to target APR and BPR and to make them fairer. The reforms mean that, despite the tough fiscal context, we are maintaining very significant levels of relief from inheritance tax beyond what is available to others. These reforms mean that almost three-quarters of estates claiming APR, including those that also claim BPR, will not pay more inheritance tax.

The economic stability provided in our first Budget is underpinned by our fiscal rules, mentioned by my noble friend Lord Eatwell and the noble Lord, Lord Young of Cookham. Those rules allow us to invest more in capital, alongside a credible plan to grow our economy and bring debt down within this Parliament. We met these fiscal rules in the Budget last year and at the Spring Statement in March, and we will meet them again at the forthcoming Budget.

The second pillar of our growth strategy is to deliver whatever reforms are necessary to remove the barriers to growth faced by businesses and investors. These include planning reforms, which the OBR estimates will add 0.4% to GDP—the biggest policy-driven booster growth with no fiscal cost that it has ever scored. Our pension reforms will unlock £50 billion of investment for businesses and major infrastructure. Our skills reforms will equip firms with the skilled workforce they need to grow. We have begun a reset with the European Union, which I hope the noble Baroness, Lady Kramer, will support, despite not going as far as she argued for in her speech today. We have also reached a trade agreement with the US and signed a new trade deal with India. We have set out a new modern industrial strategy to target high-growth sectors. As mentioned by the noble Lord, Lord Risby, we are cutting the administrative costs of regulation on business by 25%, and we are delivering the Leeds reforms, the widest-ranging reforms to financial services regulation in over a decade.

The final pillar of our growth strategy is investment, which stability and reform are designed to increase. The Government have an important role to play here. The IMF has long warned that a lack of public investment was a significant barrier to growth. That is why we have committed an additional £120 billion of public investment over the next five years, made possible by reform of the fiscal rules. Our fiscal rules ensure that we do not need to cut capital spending, unlike the previous Government which planned to cut it even further, as my noble friend Lord Eatwell observed, which got us into this productivity hole in the first place. We are directing our additional capital investment into growth-driving projects, including new homes, improved transport connectivity and new nuclear projects such as Wylfa, as mentioned by my noble friend Lady O’Grady of Upper Holloway and the noble Lord, Lord Bilimoria, and we are catalysing private investment through the new National Wealth Fund and British Business Bank.

As so many noble Lords opposite have said today, the real prize is increased private sector investment in our economy. Whereas under the previous Government the UK had the lowest level of private investment in the G7, since the election private sector companies have committed over £325 billion-worth of investment into the UK, including during the US state visit in September and, as mentioned by my noble friend Lord Chandos, at the regional investment summit last month—the first, we hope, of many.

Real progress takes time and, as my noble friend Lord Chandos said, we cannot reverse 14 years of underinvestment overnight. But real wages grew more in the first 10 months of this Government than in the first 10 years of the previous Government. Under the previous Government, we saw the worst pay growth in a century, with barely 0.3% growth between 2010 and 2024. The noble Lord, Lord Elliott, spoke about living standards in his opening speech. Living standards are up 2.1% since the election, compared to the 1.8% fall over the last Parliament. That was the only Parliament on record where living standards were worse at the end of the Parliament than at the beginning, as referred to by the noble Lord, Lord Skidelsky.

Whereas the UK was ranked seventh out of seven for projected 2025 growth in the G7 under the previous Government, our growth was the fastest in the G7 in the first half of this year. But we do not expect anyone to be satisfied with growth of 1%. Today’s growth figures reinforce the fact we need to go further and faster, not repeating the previous Government’s mistakes of cutting investment but continuing to create the right conditions for growth.

The first part of our planning reforms will add an additional £6.8 billion to the size of our economy in the next five years, but the next part, our planning Bill, must complete its passage through Parliament before it can make a difference. Interest rates, which rose consistently in the last Parliament, have now been cut five times since the election, but at 4% they are still a constraint on business borrowing and a burden on family finances. Inflation is clearly much lower than the double digits seen under the previous Government, but the choices we make must be focused on getting inflation falling and creating the conditions for interest-rate cuts to support economic growth and improve the cost of living.

As mentioned by the noble Lord, Lord Elliott, in his opening speech, while we have taken action in the industrial strategy to reduce business energy costs by up to £420 million a year, they are still too high and we must go further.

Noble Lords, including the noble Lords, Lord Elliott, Lord Harper and Lord Bilimoria, mentioned the importance of employment. The latest figures show that 138,000 jobs have been created since the election. The OBR forecasts that over this Parliament employment will rise and unemployment will fall, but the figures published this week show exactly why we must go further to get Britain working and get our economy growing. I am grateful for the support for the youth guarantee from the noble Lord, Lord Skidelsky; and the noble Lord, Lord Howard, mentioned the importance of jobcentre reform.

Noble Lords, including the noble Lords, Lord Elliott, Lord Leigh of Hurley and Lord Massey of Hampstead, the noble Viscount, Lord Trenchard, my noble friend Lord Liddle and the noble Baroness, Lady Neville-Rolfe, mentioned the Employment Rights Bill. As noble Lords know, the Bill is still going through its final parliamentary stages. The Government are also supporting businesses to create jobs, innovate and grow, including by reforming our regulatory framework to reduce barriers to growth and investing in our economy.

Many noble Lords, including the noble Lords, Lord Young of Cookham, Lord Petitgas, Lord Horam and Lord Bridges of Headley, and the noble Baroness, Lady Stedman-Scott, mentioned welfare. The Government are committed to reforming our welfare state. We are shifting the focus from welfare to work, skills and opportunities. We have backed that up with £1 billion a year for employment support by the end of the decade. As my noble friend Lord Liddle said, the Government have also announced an independent report into young people and work, to be led by Alan Milburn, which will examine why increasing numbers of young people are falling out of work or education. He will publish his final report by next summer.

Many noble Lords, including the noble Lords, Lord Elliott, Lord Harper, Lord Petitgas, Lord Swire, Lord Wharton of Yarm, Lord Massey of Hampstead and Lord Kempsell, the noble Baronesses, Lady Stedman-Scott, Lady Fall and Lady Kramer, and my noble friend Lord Liddle, spoke about the forthcoming Budget in just under two weeks’ time. There has been much speculation about the forthcoming Budget, as mentioned by the noble Lord, Lord St John of Bletso, but, as my noble friend Lord Chandos rightly suggested, I am not going to comment on individual tax measures today. The Chancellor has asked the OBR to produce a new forecast. She will take decisions based on that forecast, and we will set out our fiscal plans at the Budget in the usual way. The Chancellor will, though, make those decisions mindful of the importance of growth and investment to businesses and to the economy, and it is vital that the tax system supports our growth mission.

The noble Lord, Lord Elliott, spoke of the importance of innovation and enterprise, mentioned also by the noble Lord, Lord Marks of Hale, while the noble Baroness, Lady Fall, rightly spoke about the importance of supporting scale-up businesses. The current rate of corporation tax is the lowest in the G7, and that is supplemented by generous business investment reliefs that directly support investment, including full expensing, R&D tax reliefs and the patent box regime.

The noble Lord, Lord Bridges, mentioned headroom. As the Chancellor said earlier this week, we will continue to

“build more resilient public finances—with the headroom to withstand global turbulence … giving business the confidence to invest and leaving government freer to act when the situation calls for it”.

We have been clear about the principles that will guide the forthcoming Budget. It will protect the NHS and public services from a return to austerity, because it was austerity that choked off investment that would have put our country on a path to recovery after the financial crisis. Instead, we will protect investment in our economy and build on the progress already made to repair the public services. The Budget will support growth, enabling businesses to create jobs and innovate. It will improve the cost of living by doing what is necessary to protect families from high inflation and high interest rates, and it will keep debt under control because the less we spend on debt interest, the more we can spend on the priorities for working people, as the noble Baroness, Lady Kramer, rightly said,

I am grateful to all noble Lords who have spoken in today’s debate, but we will take no lectures from the party opposite, which presided over 14 years of instability, low productivity and economic decline. Where it delivered the slowest projected growth in the G7, growth in the first half of this year was the fastest in the G7. Where it presided over the worst Parliament ever for living standards, living standards have increased by 2.1% since the election. Where it oversaw the worst pay growth in a century, real wages grew more in the first 10 months of this Government than in the first 10 years of the previous one. Where it continually cut capital spending and deterred investment, we are investing for the long term, with £120 billion over the next five years, alongside £325 billion committed by the private sector since the election.

The OBR may conclude shortly that the productivity record of the previous Government was even worse than previously thought, but we will not let those past mistakes determine our country’s future. This Government will invest in the NHS, support growth and improve the cost of living. We will continue to build strong foundations for our economy because that is the only route to securing Britain’s long-term future.

16:00

[Lord Elliott of Mickle Fell (Con)]

My Lords, I will be brief. I thank the Library for its excellent briefing note, and all noble Lords for their thoughtful contributions. It has been a superb and stimulating debate; we should consider making it an annual fixture in the Lords calendar.

There are lots of points I would love to pick up on, not least on welfare, the notion of an exit tax, even capital controls, but I get the sense from the House that the thing noble Lords would like to hear from me most on is perhaps Brexit. It was mentioned by the Minister, the noble Lord, Lord Eatwell, and the noble Baroness, Lady Kramer.

There was a lot of talk about the OBR report. I have read that report and it is based on projections brought together before the referendum, before we knew what sort of deal it would be from the EU. It is actually a very old report. Since 2016, it is worth noting that UK economic growth, although less than expected, has been higher than most western European countries. UK trade—

[Lord Livermore (Lab)]

It is just worth noting that the OBR updated those forecasts in 2024 and 2025 and maintained its view that it will reduce GDP by four percentage points.

[Lord Elliott of Mickle Fell (Con)]

It is also worth noting that UK trade with the EU is now higher than it was in 2019, as is UK trade with the rest of the world. The referendum was over nine and a half years ago and we left the EU five and a half years ago. I think it is time to take responsibility for what is going on now with economic growth. The Government should be commended for some measures which have increased economic growth, such as the post-Brexit trade deals—not possible without Brexit—with the US, the Gulf states and India.

I liked the intellectual honesty of saying that we should rejoin the customs union and think the Government should be more intellectually honest if they talk about Brexit. It is worth noting, though, that were we to rejoin the EU, what would the annual membership fee now be? Perhaps £22 billion a year—that would be another £22 billion to think about. I hope the Government consider some of the proposals put forward in the Budget and I beg to move.

Motion agreed.