National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Moyo Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Baroness Moyo (Non-Afl)]

My Lords, on a number of occasions in your Lordships’ House I have stressed that investors, be they domestic, foreign, international, private or institutional, are willing to tolerate high taxes or regulation, but not both. It is the Government’s job to calibrate and recalibrate this delicate balance in the pursuit of investment and growth.

On the rise in employer national insurance contributions, there are at least four reasons indicating that a rethink of this policy is urgently required. First, as has already been mentioned, there is the tangible impact that this tax rise will have on the economy through actual and forecast employment. The Confederation of British Industry, the CBI, expects higher employment costs to reduce jobs in the private sector by 176,000 at the end of 2026, and business investment to be down by £6 billion. Job creation in Britain is already falling, with data showing that in the three months to November 2024, job vacancies reached their lowest number since May 2021 at approximately 818,000, indicating low job creation in the United Kingdom’s economy. Clearly, a tax increase on employers will only worsen the prospects for job creation.

Secondly, this national insurance rise adds inflationary pressure. The Office for Budget Responsibility, the OBR, expects that in the near term, higher NI will add 0.2% to the consumer prices index as a result of firms passing on part of the cost to consumers. That is of particular concern as inflation, at 2.6% last November, remains above the 2% Bank of England target. Noble Lords will have seen today that Germany has already seen a rise in its inflation, which is very worrying for us. These factors make the prospects for economic growth worse, not better, particularly after the last two consecutive months of flatlining growth under this Labour Government.

Thirdly, over time and all being equal, this tax-induced low economic growth will reduce the Government’s tax take and bring real vulnerabilities around fiscal stability and the funding of public services—the very reason, we have been told, for this tax rise in the first place.

Fourthly, perhaps most damaging is the message that this tax rise sends to private sector investors and business. This tax adds to an already expanding list of reasons for investors not to see the UK as a serious destination for the levels of investment and business that could drive economic growth. Already, according to a June 2024 report by the IPPR, Britain has the lowest investment rate of any G7 country at 17% of GDP while the rest are above 20%. Worse still, this economy has trailed other G7 countries in investment for 30 years, since the 1990s. This is not making that situation better. It is worth stressing that, if the United Kingdom had maintained an average G7 investment level over the past 30 years, it could have added £1.9 trillion of investment or 80% of the country’s annual GDP.

The story gets worse. Recent reports state that the London Stock Exchange is on course for its worst year for departures since the 2008 global financial crisis. This tax does not help reverse that situation. According to the London Stock Exchange Group, in 2024 a net total of 70 companies delisted or transferred their primary listing from London’s main market. The number of new listings is on course to be the lowest in 15 years, as initial public offerings remain scarce. It is impossible to see a path to long-term sustainable economic growth without a vibrant capital market. Therefore, it is essential to make the UK more attractive to companies, employers and broader capital market formation, but this tax does not do that.

Meanwhile, as has already been intimated, small and medium-sized enterprises are the centrepiece of any country’s economic success and clearly of this economy too, yet more than 80% of Britain’s 5.5 million SMEs will be impacted by this tax. These trends underscore a more fundamental and structural point that the UK is in danger of being seen as a place where investment and risk-taking are inadvertently discouraged and where risk-takers face unlimited downsides but their upside is constrained by taxes and curtailed by what is seen as an unwelcoming business and investment environment. Furthermore, this tax will undermine efforts by the Government to boost the UK’s attractiveness through their proposed market reforms. If this Bill ultimately progresses it adds to the UK’s growing reputation as a place where you can certainly lose but not easily win.

I began my remarks today by stating that business can accommodate high taxes or high regulation but not both. The Government have spoken about reducing regulatory burdens, and this is to the point about what we should be doing instead. Reducing regulatory burdens is an obvious one. This is where the Government should focus their efforts and accelerate this process. The Government must reconsider this increase in employer’s NI, specifically looking at, for example, raising the threshold above £5,000. This alone will go some way to reducing the negative impacts that are clearly already being felt across this economy.

Autumn Budget 2024

Baroness Moyo Excerpts

Monday 11th November 2024 Lords Chamber

[Baroness Moyo (Non-Afl)]

My Lords, no one in the Chamber should be in any doubt over how much of a challenge setting the Budget must be, given the signs of structural decline that regrettably seem evident in this economy today. It is, for example, worth reminding ourselves that, today, if Britain were ranked against each of the 50 US states in terms of wealth, it would be last, with Britain’s GDP per capita performing below America’s poorest state, Mississippi.

Moreover, Britain’s per capita income has flatlined over the last 10 years, going from £31,000 in 2014 to around £33,000 in 2023. While only 25 years ago, Britain’s economy was larger than China’s, it is now just 20% of its size. This is not simply about China’s exceptional growth trajectory over 30 years; it is also about Britain’s multi-decade policy choices, which have inadvertently created an economic environment that is largely not attractive to investment. Of course, statistics that compare countries against each other over time have their limitations, but these data show trends that have deleterious consequences for the real economic life of citizens and the Government’s ability to fund public goods such as health, education and infrastructure.

These facts also support a damaging narrative of Britain not being a top destination for investment. To this end, as we scrutinise this Budget, a key question is whether private investors, both domestic and international, are now more likely to allocate investment capital to the United Kingdom. The answer is that the future flow of investment into Britain on the back of this Budget will be limited.

On the positive side, there is some investment, as has been mentioned already. Just before the Budget, investment pledges of £60 billion were made at the International Investment Summit. In the Budget, the Government commit to investment in the key industries of the future through the national wealth fund—aerospace, life sciences, green hydrogen, carbon capture, ports and gigafactories. The Budget also earmarks investment for public services, in line with the recommendations of the IMF, to bring the UK’s public spending in line with her peers. All of this sounds promising.

However, this Budget has not adequately addressed the considerable barriers to private investment that remain. First, in spite of the Budget, Britain’s economic growth outlook remains tragically low—below 2% over the next five years. Secondly, the lack of breadth and depth of UK capital markets is a deterrent for new and important start-ups. The FTSE 100 remains dominated by traditional industries such as mining and banking. This could partly explain why, this year, Britain traded at a 40% discount to developed markets. Related to this, Britain’s reputation for burdensome regulation risks it substantially missing out on dividends from the emerging AI and energy transition growth-enhancing supercycles. Regulatory logjams gum up capital markets, meaning scarce opportunities for innovation and technology start-ups to list in London.

We know that global investors have compelling investment opportunities. The magnificent seven technology stocks last year returned 76%. Fast-growing Middle Eastern economies, including those in the GCC, are forecast to be larger than the UK economy by 2026. There is even the ability to generate 5% per annum returns simply by allocating cash to US treasuries—the risk-free rate.

As a director on corporate boards and a member of an endowment’s investment committee, I am aware that many investors will not yet allocate capital to Britain based on this Budget. This is because they interpret it, as it has been described in the Chamber, as a stabilisation Budget; it is largely seeking to reduce political and economic uncertainty and not to spur growth. It is an opportunity to demonstrate credibility and competence in managing the government fiscus, but not to spur growth. While investors see public investment as necessary, they do not see it as sufficient in the pursuit of economic growth.

Crucially, investors see this Budget as only an interim step to pave the way for future growth policies. As such, they will need to see much more aggressive policy, regulatory and fiscal reforms that go for growth, such as overdue reform of the capital markets and especially the easing of regulation. More generally, investors will tolerate either high taxes or heavy regulation, but not both. Over time, remembering this principle will put the UK in a position credibly to compete for investment once more.