Finance Bill

Lord Eatwell Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 19th March 2025 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, it is an honour and a pleasure to follow the excellent maiden speech of my noble friend Lady Caine. It must have been a special delight for her to highlight the importance of the creative industries on the day that the Government announced the creation of a national centre for music and dance as part of their plan for change. The changes will ensure that young people across the country will have greater access to high-quality arts education, and wider creative and sporting activities, as well as access to skills in technology and artificial intelligence. My noble friend has been one of the foremost advocates of the importance of creative education, not just for its own sake but for its impact on success in science, technology, engineering and mathematics. It is due in no small degree to her persistence that, today, Britain is enjoying such success in global markets from film and television to computer games and artificial intelligence. My noble friend brings a valuable new ingredient to the proceedings of this House and we look forward to hearing more from her.

The Finance Bill is an important Bill by means of which the Chancellor tackles two essential tasks. The first is clearing up the financial mess left by the irresponsible fiscal policies of the Conservative Government, and the second is laying the foundations for economic growth. The most powerful impact of the Bill on growth is not to be found in individual tax measures, as the noble Baroness, Lady Neville-Rolfe, erroneously argued. Instead, the most important impact on growth derives from the overall fiscal balance. That is because the level of business investment for domestic markets is predominantly affected by the level of total effective demand. It does not matter nearly so much if interest rates or taxation are high or low; if the product cannot be sold due to a lack of prospective demand, there will be no investment, no matter how low taxes might be.

Moreover, it is the Government’s commitment to maintain effective demand that fuels the upbeat sentiment that stimulates those all-important animal spirits—the positive sentiments that drive commitment to the future. Hence, although it is important that current spending is kept within the Chancellor’s fiscal rules, any cuts in current spending should at least be balanced by increases in investment spending on infrastructure, support for housebuilding, industrial investment policies and defence.

There has been a persistent view in policy circles that investment is somehow an inefficient means of stimulating demand, since investment takes time whereas stimulating consumption has immediate impact. This typically short-termist view could not be further from the truth. The Government’s commitment to public investment is at one and the same time a commitment to long-term demand and commercial profitability, and businesses know that—hence the Chancellor should be congratulated on the fact that, in the face of the dreadful economic inheritance from the Conservative Government, in the Budget she provides a stimulus to effective demand that the OBR estimated at £26 billion. That is the fuel to power the engine of growth.

There is one important area of investment in which tax rates really do matter: namely, where the international allocation of investment is concerned. A fine example of that is the television and film industry. As my noble friend Lady Caine noted in her excellent maiden speech, the Finance Bill enhances the audiovisual expenditure credit for the UK. This seemingly small measure builds on the work begun by Chris Smith—now my noble friend Lord Smith—and Gordon Brown, using fiscal incentives to stimulate investment in film and TV production. Today, as a result of those measures, the UK film and TV production industry is thriving as never before. It is worth around £7 billion a year and it produces a range of highly skilled, well-paid jobs.

The success of that industry is an example of what can be achieved by a carefully targeted industrial policy linked with the necessary investments in education and training. But this successful example of the use of fiscal incentives in the context of a global industry must be used with care and with an awareness of the dangers of increasing the complexity of the tax system. Complexity generates tax avoidance and undermines any sense of fairness in taxation. It diminishes the economic efficiency of the tax system. In the immortal words of 1066 and All That, tax complexity is “A Bad Thing”. Yet attempts to reduce complexity have repeatedly failed. Consider the history of the Office of Tax Simplification—remember that?—established by George Osborne in 2010 and eliminated in the disastrous mini-Budget of 2022. It is gone without trace.

So what are we to do, given the undoubted damage that tax complexity is doing to the growth objective? I propose that we establish a royal commission on taxation, charged with examining the efficiency of our tax system, applying Adam Smith’s principles of taxation and proposing reform. Establishing the commission now will produce the non-partisan proposals that will provide the framework for the radical tax reform that Britain desperately needs and avoid the dangerous trap of piecemeal changes. The major loser would be the thriving tax-avoidance industry.

This Finance Bill is but one step on the long road to rebuilding the British economy while facing severe international headwinds. It clears the fiscal decks for the fundamental reforms to come. It should be welcomed.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Eatwell Excerpts

3rd reading
Tuesday 4th March 2025 Lords Chamber

[Lord Wallace of Tankerness (LD)]

My Lords, I beg to move the amendment standing in my name and those of the noble Baroness, Lady Fraser of Craigmaddie, and the noble and learned Lord, Lord Hope of Craighead.

In my speech on Report on an amendment moved by my noble friend Lady Barker, I expressed support for the amendment but flagged up that I had only recently been alerted to the possible glitch in it as it related to Scotland. Specifically, the difficulty stems from the fact that the term “domiciliary support service” is not defined in Scottish legislation, and therefore the provisions of the amendment would not apply to parallel services in Scotland. I flagged that up and that I might seek to address this at Third Reading.

I must confess that it was not easy to find wording that met the tidying-up criteria stipulated for Third Reading amendments. Some possible wording could well have extended the services in Scotland beyond those in the other parts of the United Kingdom. I am very grateful to Rachel Cackett and Chris Small from the Coalition for Care and Support Providers in Scotland for their help in trying to address this issue and to the Public Bill Office, especially Donna Davidson, for assistance in framing an amendment which satisfied the tidying-up rule.

This is a modest amendment. It is intended to achieve consistency of treatment for certain care providers right across the United Kingdom. I hope my comments will commend themselves to my noble friend Lady Kramer, whose name is on the first amendment, and I hope the Minister can accept this tidying-up provision. I acknowledge that it would be without prejudice to how the Government intend to proceed in the other place with this clause as amended, but at least it would mean that it went to the other place with a degree of consistency across these islands.

Before I sit down, I apologise that, in my contribution on Report, I inadvertently said that CrossReach, the social care arm of the Church of Scotland, employed 16,000 people whereas it is 1,600. When I got my handwritten notes back from Hansard, I noted that I had actually written down the correct figure, so my error was either due to my handwriting or my eyesight. I have corrected that in the Official Report. I beg to move.

[Lord Eatwell (Lab)]

My Lords, I am afraid that I regard this amendment, although obviously achieving consistency with treatment in Scotland as well as in the rest of the United Kingdom, as just another of the irresponsible measures we have seen from Opposition Benches. One will have noticed very clearly that there are no proposals whatever on how the expenditure should be funded. As a way of managing public expenditure, this is not the way to do it.

Public expenditure should be taken seriously as a means of deciding the structure, composition and scale of expenditure. Simply scattering money by proposing amendments such as this to the national insurance Bill is not a responsible way of going about this fiscal process.

[Baroness Fraser of Craigmaddie (Con)]

My Lords, it seems to have fallen to me to again follow the noble Lord, Lord Eatwell, and it falls to me to again disagree with his comments. I am delighted to support this amendment from the noble and learned Lord, Lord Wallace, which I see as just being a fair and administrative tidying up to ensure that, in whatever state the Bill ends up as it goes through our House and the other place, it treats all services across the United Kingdom as fairly as possible.

I cannot believe that noble Lords opposite would wish there to be a gaping hole in what applies to Scotland compared with what might apply to the rest of the United Kingdom. Given that the amendment from the noble Baronesses, Lady Kramer and Lady Barker, was passed by your Lordships’ House with a majority of 130, the sentiment of this place is clear.

The noble and learned Lord, Lord Wallace, has done a lot of background work to try to get the wording within the specifics of a Third Reading amendment. The Public Services Reform (Scotland) Act 2010 is not a simple and clear definition, but we are trying to ensure that support services are included in Scotland as well as England. Therefore, it is my great pleasure to support this amendment and I hope that the Government will ensure there is parity across the UK for the Bill.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Eatwell Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Lord Forsyth of Drumlean (Con)]

I would agree, but it would not provide for the costs of private patients, who are already paying over and above the odds because of the local authorities. I am not criticising the local authorities—in fairness to them, they simply do not have the money. More than three-quarters of councils’ budgets are going on social care, and the costs are going up. This is extending the cost, and therefore it will mean a greater burden on those people paying out of their own pockets.

[Lord Eatwell (Lab)]

When the noble Lord, Lord Forsyth, raised the issue of our meeting in Grand Committee—when the proposal was being discussed—and argued that votes could not be taken, I intervened and said that he was incorrect because I had won a vote in a Grand Committee many years ago. After a little research, I discovered that the noble Lord, Lord Forsyth, was right and I was wrong. The reason is that the Committee in which I won a vote was a Special Public Bill Committee. For those of your Lordships who have not encountered such a thing, a Special Public Bill Committee is exactly the same as a Grand Committee, except you have votes. It is designed to deal with Law Commission Bills. I apologise to the Committee for that error, and especially to the noble Lord, Lord Forsyth.

[Lord Forsyth of Drumlean (Con)]

The noble Lord was kind enough to write to me and apologise, and we always very much respect the courteous way in which he handles debates in our House.

[Lord Eatwell (Lab)]

That is very kind.

I turn to the amendment. One of the major failings of the UK tax system is its complexity. That complexity is a major source of tax avoidance—that is, the use of legal loopholes, often in ways totally unintended by the policymaker—to avoid tax. The real problem is the large number of exemptions—exemptions which riddle our taxation system and make it so susceptible to tax avoidance.

Increasing exemptions to a particular tax is the wrong way to deal with the perhaps real problems described by the noble Lords, Lord Scriven and Lord Forsyth. The right way is for the Government to target direct subsidy to those services that they wish to have funded. These proposals increase the number of exemptions in the tax system. I can assure the proposers that they will be gamed and will result in tax avoidance, which is totally outwith the intention of the proposers of the amendments. Several other amendments would also add exemptions to the tax system. We should not do it. It makes our tax system worse and more complex and it increases avoidance. The approach embodied in the amendments is a very bad idea.

[Lord Forsyth of Drumlean (Con)]

Before the noble Lord sits down, does not the Bill itself extend extensions, by changing the secondary threshold for class 1 contributions?

[Lord Eatwell (Lab)]

I agree, but adding more exemptions is adding to the pile. What we desperately need is a reform of our tax system that removes exemptions and forces Governments to make policy by deciding which goods and services they are going to subsidise.

[Baroness Noakes (Con)]

My Lords, I agree with the noble Lord, Lord Eatwell, on simplification of the tax system; indeed, I have made many speeches on that subject in the past. I also agree that as a matter of principle it is not good to layer exemptions on to any taxes, but we have to see here that the Government have chosen to use a very blunt instrument to raise taxes, so we are faced with a problem. Do we just accept this blunt instrument bludgeoning whole sectors of our community or do we try to make it a bit better? I think that, on grounds of public policy, it is reasonable to make exceptions in order to ameliorate the effect of a dangerously wide imposition of these additional taxes on employment.

--- Later in debate ---

[Lord Davies of Brixton (Lab)]

My Lords, this is such a contrast to previous years’ versions of this debate, when there would be myself and the noble Baroness, Lady Kramer, sat over there, and a handful on this side. It is really quite enjoyable to have a debate like this, but whether it is actually productive in any way I am not sure.

The problem we have is that veterans are like motherhood and apple pie. How can anyone oppose measures to assist veterans? Well, I can. There is a strange sense of déjà vu, because we had this debate in this Room two or three years ago when the last Government put forward proposals to exempt veterans. I cannot remember the details—you cannot remember everything we talk about here. However, we had the debate and discussion, and I expressed reservations about special measures for veterans. Do we have any information about what impact this has? I suspect it is a bit of tokenism.

[Lord Eatwell (Lab)]

My Lords, I wonder whether noble Lords who have been referring to national insurance growth as a jobs tax have actually read the OBR assessment of the impact of the Budget on employment. If they have not, I will quote it here. It states:

“The … boost to output from this Budget reduces the unemployment rate by 0.3 percentage points, equivalent to around 90,000 people, on average in 2025 and 2026. Compared to our March forecast, the unemployment rate is lower across most of the forecast, but is in line with its unchanged estimated structural rate by the forecast horizon”.


Why is it that the OBR, having considered carefully the impact of the increase in national insurance, has told us that the level of unemployment is going to fall, in its estimation?

The reason was spelled out beautifully by the noble Lord, Lord Layard, at Second Reading. Perhaps nobody listened carefully to a distinguished professor of economics setting out why the characterisation of the national insurance rise as a jobs tax is seriously misleading in economic terms.

I hope the Committee will forgive me if I repeat the argument of the noble Lord, Lord Layard. The cost to an employer of the increase in national insurance determines the choices that the employer will make with respect to the input of labour in the output that he or she can sell. The increase in national insurance will indeed tend to encourage employers to lower the labour input per unit of output: that is, it will increase productivity. The level of employment then depends on the amount of output.

The amount of output—the overall level of employment—is determined, as the OBR points out clearly in the piece I quoted, is determined by the overall fiscal balance, and this Budget injects £26 billion of extra spending into the economy. Therefore, the economies in employment made by individual employers are significantly offset by the overall level of demand in the economy, because it is that overall level that determines employment, not the individual decisions.

That is what Keynes taught us in 1936, which is why this characterisation of the national insurance charge as a jobs tax that will cause unemployment actually misses out the vital issue of what the revenues from the tax are used for. If they are used, as they are in this Budget, to increase expenditure, as my noble friend Lord Livermore pointed out in his scene-setting discussion, then employment may rise or fall depending on the fiscal balance—and the fiscal balance of this Budget, as the OBR points out, will reduce unemployment.

[Lord Forsyth of Drumlean (Con)]

That is a very ingenious argument, and I hesitate to argue with such a distinguished economist, but just think of what the noble Lord said. He said that the increase in the labour cost as a result of this tax being imposed will force employers to improve productivity, and the way you improve productivity is by sacking the worker and replacing them with a machine, or AI or some other system. It is a bit of sophistry to suggest that it is not a jobs tax because it will only mean that some people will lose their jobs and that the improved productivity may have an effect. As for basing his argument on the predictions of the OBR, I think unemployment went up today.

[Lord Eatwell (Lab)]

It did not. The level of employment went down, but unemployment is not measured by that.

[Lord Forsyth of Drumlean (Con)]

Indeed, but let us not get into that argument. What is the biggest problem facing the country? It is that more than 9 million people who are of working age and capable of working are not working. An argument that suggests that by making it more expensive to take people on, and then add to that—I am not making a Second Reading speech —employment protection, that this will not result in job losses and therefore is not a tax on employment is, even by the standards of great economists, stretching the argument too far. The consequence of this will be, as the noble Lord acknowledged, that some people will surely lose their jobs because employing them will become too expensive.

--- Later in debate ---

[Lord Forsyth of Drumlean (Con)]

My Lords, it is a great pleasure to follow the noble Viscount, Lord Chandos, who is very wise and diligent. For many years, we were together on the Economic Affairs Committee. I agree with him about the simplification of the tax system. Indeed, the Office of Tax Simplification was a recommendation from the tax commission that I chaired back in 2006 to George Osborne and David Cameron. It was implemented and, somehow, the Treasury managed to bog it down in a way that prevented it doing an effective job.

I agree entirely with the noble Lord, Lord Eatwell, that we need a simpler, fairer tax system. The simplest way of dealing with that would be not to have this increase at all because then there would not be the need to have these exemptions. This is a problem that has been created by the Chancellor and the Government. I must say, in speaking to these amendments, that Amendments 4, 5 and 8—

[Lord Eatwell (Lab)]

Okay, let us say that we do not have this measure at all. Is the noble Lord going to cover the expenditure by borrowing or is he not going to spend on the health service, care services and the areas set out by the Minister in his scene-setting remarks?

Sterling: Rise in Yields on 30-year Gilts

Lord Eatwell Excerpts

Tuesday 14th January 2025 Lords Chamber

[Lord Livermore (Lab)]

We absolutely will. I completely agree with the noble Baroness. I met Shevaun Haviland last Thursday and we had a very constructive conversation about the measures that the British Chambers of Commerce wants to see to grow the UK economy, which are exactly the same measures that we want to see. The noble Baroness is absolutely right that growth was one of the biggest failures of the previous Government. We are determined to turn that around, which is why we are going further and faster. We are reforming planning, pensions and skills, all of which will significantly boost growth in the UK economy.

[Lord Eatwell (Lab)]

My Lords, the House will be aware that this country has an outstanding Chancellor of the Exchequer at the moment. However, will the Minister enlighten me as to what influence she really has on the US treasury bill market, which has shown the same spike as in the UK, or on the market for the euro, which has fallen against the dollar to the same extent as has the pound? Is it not the case that questions from the Opposition Front Bench might have more economic relevance if they reflected some understanding of how global markets actually work?

[Lord Livermore (Lab)]

My noble friend is absolutely right and I echo his comments about the Chancellor of the Exchequer. There are limits to what she can do, but she is absolutely able to focus on the priorities of this Government. As noble Lords will know, this Government inherited a £22 billion black hole in the public finances left by the previous Government. She has taken very difficult decisions to deal with it, every single one of which has been opposed by the party opposite. However, they were the right decisions because we had to repair the public finances and ensure fiscal responsibility. She has set extremely tough fiscal rules—tougher than those of previous Governments—again, opposed by the party opposite. Meeting those fiscal rules is non-negotiable because we will not compromise on economic stability.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Eatwell Excerpts

Wednesday 8th January 2025 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, forgive me for pointing out that on the Liberal Democrat Benches, the turnout in support of their regret amendment on Monday was less than half their complement. They moved a moved a regret amendment; they made fine speeches about how damaging this Bill will be to charities, hospices and other organisations; and then they also, at the end of the debate, made it clear that they would not give the whole House an opportunity to consider this on the Floor of the House. I do not know what is going on between the Liberal Benches and the Labour Party, but what is clearly going on is some kind of deal—a deal that is against the interests of the people of this country, including many charities, hospices and other organisations.

It is completely wrong to argue that in the Grand Committee this Bill can be subject to similar scrutiny. If it is on the Floor of the House, we can vote on some of the measures that we agreed with the Liberal Democrats need to be considered. We can have proper scrutiny. This is simply an attempt by the Government to hide their embarrassment at the atrocious consequences of this unprecedented national insurance Bill.

[Lord Eatwell (Lab)]

The noble Lord, Lord Forsyth, suggested just now that it would not be possible to vote in Grand Committee. He is in error. I know that because I led for the Opposition on an insurance Bill about 12 years ago and there was a vote in the Committee, which the Opposition won. So it is entirely possible for the same process, the same level of scrutiny and the same seriousness to take place in Grand Committee as on the Floor of the House.

[Lord Geddes (Con)]

Perhaps I might comment on the remarks of the noble Lord opposite just now. I have for 25 years had the privilege of being a Deputy Speaker—I forget what the earlier term was—and I can assure him that it is quite clear that Divisions in Grand Committee are not permitted.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Eatwell Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, consideration of the Bill poses two serious economic questions. Regrettably, as one might have anticipated, neither was addressed by the noble Baroness speaking from the Front Bench for the Opposition. The first serious question is: should taxes be raised at all? She told us nothing either way. Secondly, if overall taxes are to be raised, should the increase take the form of the changes to employers’ national insurance outlined in the Bill, or should there be increases in other taxes? She said there should be others but told us not what they should be. How might the impact of differing tax strategies be compared? We heard nothing about these two fundamental questions that the House should address with respect to the Bill.

The issue of whether taxation should have been raised in the Budget by £40 billion, of which the national insurance increases contribute a little over half, is a question of overall fiscal balance and of the composition of the expenditure that the taxes are designed to finance. Those who argue that taxes should not have been raised must tell us whether, instead, borrowing should be increased on this scale or whether the expenditure outlined in the Budget should be cut. We can call the increased borrowing option the Liz Truss option and we can call the option of cutting the budget the austerity option. I am sure noble Lords will agree that we have heard enough, and had enough, of both those policies from the previous Government.

As everyone in this House must be aware, the increased expenditure outlined in the Budget is needed to begin the necessary repair of national infrastructure, debilitated after 14 years of persistent Tory neglect. I am aware that the party opposite has some difficulty with the arithmetic required to identify the £22 billion of unfunded commitments that are the result of its recent fiscal incontinence. It displays a strange form of intellectual or psychological denial—perhaps they should take counselling from the OBR.

The black chasm of economic failure is undeniable and obvious to all. The failure is inherent in the ever-longer NHS waiting lists and a GP service that is virtually non-existent in many parts of the country. The neglect of hospital buildings means that many are now so dilapidated as to constitute a danger to the occupants. The Budget allocates £25 billion over the next two years to start repairing those years of neglect, with £13.6 billion to invest in new buildings, equipment and technology—the largest capital investment in the NHS for over 15 years. Noble Lords of the party opposite should tell us whether they support that investment or not.

To take another example of the result of Tory neglect, consider the report of the Defence Committee in another place. What it describes as the “hollowing out” of Britain’s Armed Forces since 2010 has undermined UK war-fighting resilience. The British Army’s Regular Forces—currently about 75,000 troops—would, we are told, struggle to field even one war-ready division. That is the result of Conservative neglect of our military. The Budget increased defence spending in real terms by £2.9 billion for next year. Of course that is not enough, but it is a start, to begin repairing the damage.

I could go on. There are school buildings that are dangerous, prisoners released early because of insufficient investment in the prisons estate, court buildings in serious disrepair, our roads defined by the number of potholes, and local council budgets cut through and beyond the bone. Underinvestment and neglect of the public sector have been bywords of economic policy for the last 14 years, with capital budgets raided to fund current needs—and there, sitting opposite, is the guilty party. As all serious commentators appreciate, there is no quick fix for these problems, but the Labour Government have made a positive start in the Budget by increasing capital budgets for 2025-26 and onwards. Which of these investments would noble Lords opposite oppose?

We have heard all the standard excuses—the pandemic, Ukraine—but that will not wash when we recognise that, over the 14 Tory years, the UK suffered not only persistent public sector neglect but the lowest rate of private sector business investment in the UK. That is no accident. The cheerleaders of austerity depressed business confidence and their persistent neglect of the public sector—and public sector investment—confirmed those depressed expectations. Living standards stagnated and, without investment, growth in productivity—the fundamental key to improving living standards—was negligible. The only Conservative growth strategy was uncontrolled immigration.

So the first question is: was the budgeted increase in taxation necessary to start the long task of repair? The answer is undoubtedly “Yes, it was”. But now to the second question: was employers’ national insurance the right tax to choose? There is the obvious issue of Labour’s manifesto commitment not to increase the taxation of workers’ income. But, given both the necessity of raising taxation and the Government’s overriding objective of economic growth, let us leave the manifesto commitments aside and focus on the merits of choosing employers’ national insurance.

The key variables to secure increased growth are: efficient use of national resources, a boost to public and private investment and sustained growth of productivity. No one likes tax increases, even essential ones, but the key to investment is the confident expansion of growth of demand in a stable financial environment. The overall fiscal balance in this Budget will increase overall demand with a public sector injection of £24 billion in the next financial year and will ensure financial stability. But what of the impact of employers’ national insurance on the efficient use of resources, business costs and productivity? Here, the detailed economic analysis of the OBR provides us with a firm starting point for debate.

As all noble Lords are aware, the Conservative Government pursued a cheap labour policy, neglecting investment in skills—look what has happened to further education colleges—and relying on mass immigration to meet labour needs. This cheap labour policy de-incentivised labour-saving investment, hitting productivity growth hard. If we examine the impact of the employers’ national insurance rise, we see that the effect is quite the opposite. The OBR, in estimating the impact, assesses that firms will pass on most, but not all, of their higher tax costs to employees. Once the labour market settles down, the OBR estimates that 76% of the total cost is passed on through lower wages—that is called lower costs to business, by the way—leaving 24% of the cost to be borne by employers. Overall, the OBR expects firms to reduce the demand for labour, as we have heard.

These results will have two major advantages. First, as noble Lords are aware, there is a significant labour shortage in the UK at the moment, due in no small part to the large post-Covid withdrawals from the labour force. More efficient use of labour is highly desirable, while the overall fiscal balance will sustain aggregate employment levels. Secondly, an increased cost of labour will encourage firms to look for ways to reduce overall labour costs, economising on a scarce resource and increasing productivity. Combined with new employment rights and a higher minimum wage, the increase in employers’ national insurance will encourage investment in training and equipment, boosting productivity, especially in labour-intensive services where higher productivity is most needed.

Let us compare these outcomes with an alternative, such as increasing employees’ national insurance, or increasing income tax. That would have a direct impact on demand, reducing profitability, and there would be a reduction—probably quite a small one—in the supply of labour. There would be no incentive to increase productivity.

When noble Lords opposite actually come clean and tell us what their alternative proposals might be, they should compare them with the measures in this Bill, which will result in a relatively small increase in business costs, as the OBR points out, a more efficient use of labour and an increase in productivity.

In the face of 14 years of serious underinvestment in the foundations of economic growth—the health of the workforce, education and skills, transport, criminal justice and defence—increased taxation is a regrettable necessity. That the Chancellor has managed both to provide a fiscal boost and to stabilise government finances is to be applauded. That she has, by the measures outlined in this Bill, chosen a taxation strategy that will enhance the efficient use of labour and produce vital increases in productivity deserves not just high praise but the total support of this House.

Autumn Budget 2024

Lord Eatwell Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, the challenge faced by the Chancellor was to change the economy and to achieve a decent rate of equitable growth after 14 years of economic neglect and rising inequality. The black hole of Conservative economics is there for all to see: crumbling schools, the largest ever waiting list in the NHS, a wrecked criminal justice system, pothole-strewn roads, struggling local authorities and the lowest investment in the G7, with an economy on its knees from the neglect of the public sector and a Conservative Government with no clue as to how to nurture the private sector either.

To face up to this challenge, the Chancellor had to first begin to repair the damage, creating the foundations for the change necessary to achieve the growth that Britain needs—hence the expenditure to repair the health service, refund our education system and sustain public services, and the replacement of the Tory Spring Budget cuts in public sector investment with growth in public sector investment and increased research and development spending. It is noticeable that, in the criticism from the other side, there has not as yet been a single positive proposal as to what they would do instead.

The question then raised is: why the apparently limited impact on growth? After all, the OBR forecasts that growth will tail-off after a couple of years. There are two reasons for that. First, it must be remembered that it is far easier to follow the Conservative Party strategy of providing a short-term sugar rush by boosting consumption while neglecting investment. Secondly, investment is a relatively smaller proportion of GDP, hence it has a lesser impact, and the benefits of investment take time to realise. However, the really important point is that a successful growth strategy will involve major changes that would never be picked up by the OBR’s focus on tax and spend.

As the Chancellor argued in her Mais lecture, the dismal economic performance of the past 14 years derives from

“a failure to deliver the supply side reform needed to equip Britain to compete in a fast changing world”—

hence economic policy must

“begin with getting the institutional framework right”.

Getting the institutional framework right means ensuring that capital flows into new investment, whether in productive capacity, research and development or skills.

Is there anything more dispiriting than the strategies of Britain’s major banks, from which capital flows predominantly into mortgages, bidding up the prices of assets that already exist rather than creating new productive assets? Is there anything more dispiriting than the conclusion earlier this year of the Treasury Select Committee in another place that:

“Confidence amongst small and medium-sized enterprises … in accessing finance has fallen … This is accompanied by increasing de-banking … Unfair banking practices … may have further limited access and suppressed demand”?


This difficult small business environment is disincentivising risk-taking and innovation, and reducing growth. That is why the national wealth fund, incorporating a reinvigorated, proactive British Business Bank, is so important. Financial flows in Britain need to be redirected towards investment in new productive assets in the new industries of the future and in updating the everyday industries that shape our lives. Britain’s financial services industry must follow the wealth fund’s lead.

I offer one example of what can be done. Despite current financial difficulties, it is widely acknowledged that our universities are first-class centres of research. Some have created institutional mechanisms for translating that research into globally successful companies, but every one of our more than 160 universities should have a dynamic business advice and incubation unit, and should have access to the dedicated finance necessary to translate new ideas into new businesses. Those new businesses, like the universities, would then be spread throughout the country.

That is a job for the British Business Bank right now, but we cannot just rely on the public sector to take all the risks. The Chancellor has already indicated that reform of pension funds’ investment strategies is an immediate priority. Further reform of financial services is necessary. Funds must flow to new, real investment, not just to secondary markets. This Budget, by having the courage to identify honestly the true state of affairs and fix the foundations, indicates that the Government’s strategy of reform is on track to succeed.

Budget: Taxes and Borrowing

Lord Eatwell Excerpts

Monday 4th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I do not agree with that.

[Lord Eatwell (Lab)]

My Lords, the noble Lords opposite have some difficulty in understanding the arithmetic of coming through the black hole of £22 billion. Even if they cannot do the arithmetic, they can see that the prisons are full, waiting lists in the NHS are the highest they have ever been, schools are crumbling and there is a lack of police on the streets. It is their failure. Would the Minister agree that that is the core of the failure that this Budget is designed to correct? Is there not one important word missing in statements from the party opposite? That word is “sorry”.

[Lord Livermore (Lab)]

I 100% agree with my noble friend. It is incredibly striking that, in everything we have heard from the party opposite, not once has it apologised for the record we inherited. One of the reasons this is a once in a generation Budget is that we have had to simultaneously repair public finances and rebuild public services. That is why it is such a historic Budget. My noble friend is absolutely right that what we have not heard from those in the party opposite is an alternative. Would they not have repaired the public finances? Would they not have prioritised working people? Would they now cut funding to the NHS and schools?

Bank Resolution (Recapitalisation) Bill [HL]

Lord Eatwell Excerpts

Report stage
Monday 4th November 2024 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I concur with what other noble Lords have said about this amendment: that is why I have added my name. It cannot be left as a possibility for any size of bank; if it needs to apply to a larger bank, perhaps the MREL level should have been set higher. We have this rather unusual situation in the UK where we set MREL at a much lower level; it is set at about a quarter of the level of other countries. If there is a nervousness about needing to use it for a bank that is a little bit larger, perhaps some other fundamentals about where MREL is being set are wrong.

The premise of this Bill is based on it being an alternative to insolvency, where that would have been the normal end result. Maybe the compensation scheme would have had to pay out on deposit guarantees and so there is the happy thought that the money could be perhaps put to different use this way round. But the assumption should still be insolvency and we need a public interest test before we go looking at the Financial Services Compensation Scheme. It is already an extraordinary event—so how extraordinary are extraordinary events? I do not think one can layer extra extraordinariness on top of it: there has to be a line somewhere.

We do not know how many dips into the Financial Services Compensation Scheme there are going to be. In insolvency, there is one dip for the deposits that are guaranteed. It does not say that there cannot be multiple dips. There is already the notion that there is this enormous pot of money. Maybe it looks like a bank tax—and everybody hates banks and it is a pot to raid—but it is a very good way to cause more issues within the wider banking sector. Frankly, it is unfair if there are not some bounds somewhere. So I think this is the right one and, if the Minister is not going to incorporate the amendment, which I think would be a jolly good idea, we on these Benches will be supporting the noble Baroness, Lady Vere.

[Lord Eatwell (Lab)]

My Lords, my colleagues from the Financial Services Regulation Committee are rather confused on two issues; that is very unusual, but they do seem to be. First, there is the idea that somehow, if MREL were exceeded in a financial crisis, that would be a regulatory failure. The only way to prevent such a regulatory failure is to have MREL at 100%; that is to avoid the total failure of the financial system. That would be a disaster for lending in this country. At the moment, MREL is set at levels that are deemed to be a reasonable buffer under circumstances that might reasonably, even in extremis, be expected to occur. As we saw in 2008-09, even events that are deemed to be events that would occur only once in a millennium can occur several times in a week in a severe financial crisis. An MREL which can never be exceeded is 100% and if my colleagues are seeking to impose that on the British financial system, I would be very surprised.

The other point that seems to be neglected—it is why I deem this amendment to be irrelevant—is that my colleagues should recall that, in one of the letters from the Financial Secretary, he pointed out there was a cap on the amount that would be raised from the financial compensation scheme for these purposes. That cap, as I recall, was £2.5 billion. In those circumstances, £2.5 billion would never be sufficient to deal with the collapse of one of the big banks. So the cap itself defines these regulations as fitting only relatively small banks.

[Baroness Kramer (LD)]

My Lords, perhaps I could be helpful at this point. That £2.5 billion is certainly not in the Bill. If that is the argument being made by the noble Lord, Lord Eatwell, is it an interesting one but not one that the Government have grasped.

Perhaps I should clarify the issue of the threshold at which MREL kicks in, because that was the point to which my noble friend Lady Bowles referred. The UK demands MREL or bail-in bonds as the mechanism for resolution in the case of the failure of a much smaller bank than in any other country across the globe. The differential between us and everybody else is very large. That, we assume, is why the Government want to keep this mechanism available for banks that have been required to have MREL: they are trying to deal with that small to medium-sized group that, quite frankly, should probably never be in the MREL group in the first place.

Fiscal Rules

Lord Eatwell Excerpts

Tuesday 29th October 2024 Lords Chamber

[Lord Livermore (Lab)]

Once again, I address a noble Lord who has far more experience in these matters than I do. I agree with a huge amount of what he says. I think that stability in fiscal rules is incredibly important and that they should not change particularly frequently—perhaps at the point when Governments change. I am tempted to agree with a lot of what he said, but unfortunately the Chancellor will set out the Government’s full fiscal plan, including the precise details about fiscal rules that he asks for, in tomorrow’s Budget, alongside an economic and fiscal forecast produced by the OBR.

[Lord Eatwell (Lab)]

My Lords, does the noble Lord agree that the noble Baroness, Lady Vere, is quite wrong when she suggests that the Chancellor has just announced her change in fiscal rules? They were proposed in her Mais Lecture in February, if one keeps up. Does he also agree that the fiscal rules implemented by Mr Hunt were yet another component of the irresponsible economic policies pursued by the Conservative Government?

[Lord Livermore (Lab)]

I wholeheartedly agree with both points made by my noble friend. Our fiscal rules, as he says, were set out by the Chancellor in her Mais Lecture and set out again in our manifesto. Everything that we have said subsequently is consistent with what we said in our manifesto, and I think that the policy of the Opposition is the reason our country is in the state it is in. It is why growth has been held back and why our critical infrastructure is basically on its knees.