King’s Speech

Baroness Noakes Excerpts

Monday 13th November 2023 Lords Chamber

[Baroness Noakes (Con)]

My Lords, there is predictably little in the gracious Speech on the Government’s economic policies, other than a reference to the Government’s focus on increasing economic growth. I know the Government believe in growth, but sadly I have often struggled to reconcile this with their actual policies. I am, however, an optimist and I am looking forward to next week’s Autumn Statement. I hope it will set out some clear policies to support a healthy and growing economy. I will be looking for three things: lower taxes, less regulation and a smaller state.

First, a high-tax economy is not a healthy economy. The current tax burden is around 37% of GDP. This Parliament is on track to be the biggest tax-raising one since the Second World War, higher even than that of the first term of the Blair Government. Thirty years ago, the UK was several percentage points below G7 and EU levels of tax, and we are now broadly on a par with them. If we look at the economies that are growing rapidly, we rarely find them carrying that level of taxation.

Our corporation tax headline rate of 25% is quite simply anti-growth. No amount of relief for R&D or investment will change this, because headline rates are often a deciding factor in major investment decisions. The 25% rate is the key driver of the UK plummeting down the international tax competitive league tables. This year, we are 30th out of 48 OECD countries. For corporation taxes alone, we have fallen 17 places in the last year. This is shocking. We certainly cannot tax our way to economic growth, but the depressing thing is that our current corporation tax policies are doing the exact opposite. Our personal taxes are no better. In the last three years, frozen tax rates and thresholds have pulled around 4 million more people into the tax net and 1.6 million have moved into higher tax brackets.

The Government’s addiction to fiscal drag means that as many as one in five taxpayers will be paying the higher income tax rates. Very high marginal rates around the thresholds exacerbate this and create perverse incentives. Lower tax rates do not have to result in lower tax yields, as my late noble friend Lord Lawson of Blaby demonstrated when he was Chancellor. Low rates liberate the economy and higher activity, and that drives higher tax yields.

My second area is less regulation. We may have taken back control from the EU, but we have done little to relieve regulatory burdens, especially on SMEs. Big businesses love regulation, because it acts as a barrier to entry. We need to smash those barriers down to unleash the growth potential in our smaller businesses. The Government and their quangos need to get serious about deregulation, especially in the SME space.

Thirdly, we need a smaller state. The size of the Civil Service is shocking. Having wrestled the numbers down to around 385,000 in 2016, the numbers have gone back up again to around half a million. Quangos employed nearly 320,000 people in 2020, up nearly threefold since 2008. What on earth is going on? The public sector needs to stop doing things. Cancelling the white elephant of HS2 was a good start, but there is much more that needs to be done.

At some point, the Government, whichever party is in power, will have to face the fact that the NHS monolith needs serious reform. It eats up around 40% of day-to-day government spending and it has an insatiable appetite for taxpayers’ money, but it does not deliver a world-class health system. Even the British public are starting to realise that their precious NHS is letting them down.

I conclude with energy. I have been much encouraged by the Government’s new pragmatism on vehicles and on gas boilers, as well as by the announcement in the King’s Speech that there will be more licensing of oil and gas fields. Energy policies need to be affordable today or they will undermine our economic growth ambitions. It is time to get real and take net zero off its pedestal.