Autumn Budget 2024

Lord Gadhia Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Gadhia (Non-Afl)]

My Lords, I note my interests as a board member of the Bank of England and Taylor Wimpey, but speak in a personal capacity.

The inaugural Budget of any new Government is always a defining moment. I therefore joined a number of your Lordships, including the Minister, in listening to the Chancellor’s Statement live from the Gallery of the House of Commons.

As the Budget Statement unfolded, gilt yields started to widen, which brought a sense of foreboding. But, fortunately, bond markets have since settled down—or likely been distracted by more consequential events on the other side of the Atlantic. The immediate impression of the Budget was mild relief —not as bad as feared—but that was before reading the OBR report, which painted a different picture.

This disconnect between the Budget rhetoric of promoting business, investment and growth and the projected economic outcomes is stark and has been a recurring theme throughout today’s debate. Yes, our economy is set to experience a sugar rush next year, but the expansionary fiscal effects will fade rapidly and come at the expense of higher than expected inflation and, potentially, interest rates.

The increase in employers’ national insurance has multiple consequences, proving that the incidence of any tax is different from where it is originally levied. Businesses will mitigate the impact and we should therefore expect lower wage settlements, higher prices, less flexible working opportunities and reduced business investment. Hence, setting restrictive manifesto commitments on taxation which seek to protect certain groups is a red herring and unhelpful to the sound management of an economy.

A more straightforward and less distortionary method of raising £25 billion from businesses might have been to increase headline corporation tax—more so as the full expensing regime now helps to shield any impact on business investment.

For those of us keen on an economic course correction, the Budget almost felt like everything had changed, but nothing has changed. That is not to question the new Government’s intent—which is genuine—but reflects the herculean task of turning round the supertanker. If nothing else, this episode provides an early reality check for the new Administration, spanning both the handling of the pre-Budget hiatus period, when economic confidence was unnecessarily dampened, and the post-Budget mismatch between reality and expectations.

But enough of the post-mortem. Looking forward, the Chancellor has certainly grasped the crucial role of supply-side reforms in spurring economic growth, especially given the fiscal constraints and record size of the state and tax burden. The early announcements on planning reform are a positive first step and, importantly, not yet reflected in the OBR forecasts. The Prime Minister’s remarks at the International Investment Summit about ripping up bureaucracy that blocks investment and upgrading the regulatory regime to take account of the impact on economic growth were refreshing. We now need concrete follow-through on both counts.

More so as the world is not standing still, and doubly so following last week’s US presidential election. Elon Musk may not be the current Government’s favourite business leader, but his role and influence within the new Trump Administration will clearly be significant, including leading on a new US Department of Government Efficiency. That might sound like an oxymoron, but the intent is clear: to torch waste and bureaucracy and sharpen incentives for delivery and innovation. Our competition was already stiff but just got harder.

Finally, I will touch on investment allocation within the UK economy, a theme which the Chancellor is expected to address in her first Mansion House speech later this week. Many of us hope that she will accelerate and amplify the reforms already announced by the previous Government to address the under-allocation to UK assets. Introducing so-called “mandation”, requiring pension funds to allocate a specific percentage of their investments to UK assets to retain tax advantages, appears seductive but may be a step too far. However, there are other ways of pooling local authority pension funds and crowding in flows. Ultimately, however, there is a structural nexus around accounting treatment, pension regulation and risk incentives that needs to be broken. I hope the Chancellor will be bold.

In conclusion, we have been reminded in recent months that politicians campaign in poetry but govern in prose. Unfortunately, it has almost felt like the opposite since the election in July. I hope the Budget marks a turning point and the Government will now pivot to the hard yards of implementing the fundamental reform that our economy desperately needs and our fiscal straitjacket dictates.