Economic and Taxation Policies: Jobs, Growth and Prosperity

Baroness Kramer Excerpts

Thursday 13th November 2025 Lords Chamber

[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.