National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Londesborough Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, I rise to move Amendment 6 in my name and to speak to my Amendments 23 and 48, all on small business—a subject dear to my heart, as noble Lords will recall from our debates on the Procurement Act in the last Parliament, mostly in this very Room.

Small business is at the entrepreneurial heart of the economy. We need a constant stream of start-ups for an economy that is dynamic. The amount of regulation on such businesses is already discouraging. My own findings are that the imposition of additional employer NICs is leading some businesses towards despair, with more closed shops on the high street and busy insolvency practitioners. Others are not setting up. Their customers are affected by the chill created by the Budget and the enormous NICs hit in particular, which has a multiplier effect on confidence.

I acknowledge that the increase in the employment allowance is helpful and I congratulate the Federation of Small Businesses on its work on this with the Treasury and DBT. However, more needs to be done to drive growth. I believe that easing the strain of NICs on SMEs could play an important part.

My Amendment 6 would exempt micro-businesses with an annual turnover of less than £1 million from this jobs tax. I have tabled this amendment because I want to understand whether the Government would consider an exemption that would have a relatively low impact on the revenue that the Treasury receives from this policy. To exempt such small businesses would not come at a great cost to the Treasury, yet it would have a big impact on the businesses that it would protect and on attitudes to the Government’s plans. The Financial Conduct Authority defines “small businesses” as companies with an annual turnover of less than £1 million—hence my choice for the threshold. I add that even many of these businesses may not survive recent tax rates. The Government will be failing in their promise, I fear, to be the most pro-business Government ever.

My proposal would be a modest step in the right direction and would reduce the negative knock-on effect of the NICs changes, in terms of jobs, shop and business closures and the higher prices that follow reduced competition. You see that effect, when a couple of coffee shops close, on the price of your latte.

I was interested to hear the Chancellor this morning saying that

“growth isn’t simply about lines on a graph. It’s about the pounds in people’s pockets. The vibrancy of our high streets”.

Chance would be a fine thing for the hard-working domestic SMEs that I am talking about.

Amendment 23 in my name seeks to increase the per-employer threshold at which employers begin paying national insurance on employees’ earnings, from £5,000 to £7,500—sort of halfway. We know that Clause 2 is the most punitive part of the Bill, hitting small businesses and social enterprises hardest. As the OBR acknowledges, this jobs tax will have the indirect effect of stifling wages, as employers look to offset these increased costs.

Amendment 48 would increase the employment allowance for small businesses to £20,000. The increase in the allowance is very welcome, as I have said, as is the lifting of the EU-based limit on eligibility—ironically, a new Brexit freedom, on which I congratulate the Minister. However, many small businesses have more than three or four people, or so, which means that the increase in the allowance will be less than the additional NICs charge. We should debate in Grand Committee, as we did on procurement, how to improve matters.

I would be delighted to be able to congratulate the Minister on an entrepreneurial step by increasing the allowance and removing the threat and hassle of NICs for more employers. I know that he shares my passion for easing barriers to growth and I see this as a new barrier that he could mitigate.

I very much look forward to hearing my noble friends Lady Noakes and Lord Londesborough and I am sorry that my noble friend Lord Ahmad of Wimbledon cannot be here this afternoon. We all feel the same way about the importance of cherishing the enterprise spirit and will welcome a constructive discussion on what more can be done to ease the pressure on small businesses. The Chancellor’s speech today and the long-term nature of most of her growth drivers strengthen the case for a concession on this now. I beg to move.

[Lord Londesborough (CB)]

My Lords, I shall speak to Amendments 22, 39 and 53 in my name in this group, to which the noble Baroness, Lady Kramer, and my noble friend Lady Neville-Rolfe have added their names. I shall also speak to Amendments 6 and 33, tabled by my noble friends Lady Neville-Rolfe and Lady Noakes respectively.

Rather than taking a sectoral approach, about which others spoke passionately last week, my three amendments focus on the size of businesses and organisations impacted by the measures in the Bill, specifically those categorised as small businesses, which means that they employ between 10 and 50 full-time staff. I should again declare my interests as set out in the register, as I advise and invest in a number of businesses of this size, predominantly start-ups and scale-ups. These are the companies that grow and create jobs at the fastest rate and, through their size and agility, seize the nettle of productivity. If I may mix my metaphors for a moment, these are the acorns that seek to become unicorns or, at the very least, sturdy oaks.

The Department for Business and Trade reports that there are some 220,000 businesses across the UK that employ between 10 and 50 staff—that is 4.3 million of the 28 million jobs in the private sector and they generate £780 billion in annual turnover. However, this group involves not just fast-growing early-stage start-ups but a huge swathe of family and local businesses spread across the country and, indeed, businesses that have been struggling to keep their heads above water in what have been five very difficult trading years.

While the Government have sought to protect the majority of our micro-businesses, those employing between one and nine staff, from rising NICs, they have left all other small businesses exposed to these sudden and dramatic increases. In terms of impact, the Government tell us that 250,000 employers will see their NICs decrease, 940,000 will see theirs increase, while about 800,000 employers will see no change. This has allowed the Government to claim that the majority of employers will see no increase. With respect, that is deeply misleading. The question that matters is what proportion of jobs will attract increased national insurance contributions. I ask the Minister that question. Can he confirm, if he does not have the numbers at hand, that in fact the number is close to 80%?

I turn to the financial impact of Clauses 1, 2 and 3 to small businesses. For businesses of 25 staff paying the national full-time median salary, which is put at £37,000 by the ONS, their NICs bill will rise from £90,000 to £110,000. That is an increase of more than 20%.

However, most small businesses, given their nature and stage of development, pay less than the median national average. For them, the increases get even steeper. For those employing 25 staff and paying an average salary of £25,000, as is common out in the regions, their NICs bill will rise by no less than 30%. For those employing 50 staff at that salary, they face an eye-watering 33% increase. As we know, the main culprit for those outsized increases is Clause 2: the brutal and, in my view, economically illiterate drop in the per-employee threshold from £9,100 to £5,000. Ironically, this hits the lowest-paid jobs the hardest. In short, it is a regressive tax.

Then we come to retail and hospitality, with thousands of outfits that rely on part-time shift workers. For those employing 20 part-timers, typically earning £300 per week, their NICs bill goes up by an extraordinary 70%. I will stop there with the examples but noble Lords, including the Minister, will be delighted to know that I have here all the spreadsheets to prove it; I will happily share them out later. In the interest of transparency, on the impact for 5 April, I strongly suggest that the Government have the honesty to publish these figures.

These increases are of course bad news for the working person, especially the 4 million of them who work in small businesses. They rather grate against Rachel Reeves’s statement this morning about kick-starting the economy. Let me turn to my Amendment 22, which seeks to address this in what I hope noble Lords will agree is a measured, proportionate way to help protect our small businesses. In short, the per-employee threshold would remain at £9,100 for those employing fewer than 25 staff, while those employing fewer than 50 but more than 25 staff would see their threshold reduced to £7,500. Somewhat reluctantly, I have left the £9,000 threshold for all businesses employing more than 50 staff.

By my calculations, the nominal cost to the Treasury of this key amendment would be less than £2 billion—that is, to support and sustain 4 million jobs and almost £800 billion in turnover. I humbly suggest that this amendment would more than pay for itself in economic growth and increased revenues to the Exchequer. Commencing Clause 2 without undertaking a full impact assessment on small businesses—addressed by Amendment 33 in the name of the noble Baroness, Lady Noakes, which I fully support—strikes me as reckless.

I turn now, much more briefly, to my Amendment 53, which addresses the increase in the employment allowance. Clause 3 is designed to soften the increase in NICs from Clauses 1 and 2. It offsets the costs but, having crunched the numbers, it does so only for those employing seven staff or fewer. My Amendment 53 would raise the employment allowance from £10,500 to £15,000 for all small businesses employing fewer than 25 staff. This would help around 200,000 businesses across the country. I estimate that the cost to the Treasury would be less than £1 billion. Again, I argue that such an amendment would more than pay for itself in the medium term.

I hope that the Minister will carefully consider the amendments in this group, given the severity of these increases to SMEs and the potential damage to both jobs and economic growth. I have spoken to Amendments 22, 39 and 53.

[Baroness Noakes (Con)]

My Lords, I have Amendment 33 in this group; I thank my noble friends Lady Neville-Rolfe, Lord Ahmad of Wimbledon and Lord Howard of Rising for adding their names to it. As my noble friend Lady Neville-Rolfe said, my noble friend Lord Ahmad of Wimbledon is unfortunately unable to join us for the early part of this Committee. He very much regrets that he is not able to take part because he cares a lot about the fate of small and medium-sized businesses.

My amendment would delay the commencement of the Bill, and therefore the extra national insurance contributions, until the tax year after an impact assessment focusing on the impact of the Bill on smaller businesses has been published. My amendment is similar to Amendment 59, tabled by the noble Baroness, Lady Kramer, which was debated on our first day in Committee. Amendment 59 required an ex-post impact assessment, while mine is on an ex-ante basis. Amendment 59 also used a rather broad definition of SMEs, including those with employees of up to 250; my amendment is more granular and focuses on the smaller end of the SME spectrum, which is where most SMEs are.

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[Lord Livermore (Lab)]

We have not changed the policy; we have made the policy easier to use. The policy is absolutely as it was at the Budget, as is the amount of revenue that we are scoring from it. An impact assessment was put out alongside that. My point is that what we are doing on impact assessments, on all the taxes that the noble Lord mentioned, is absolutely in line with what all previous Governments have done on impact assessments. We are content that that is a sufficient amount of information, and we do not intend to put out any further impact assessments.

Finally, I turn to the amendments tabled by the noble Lords, Lord Londesborough and Lord Altrincham, and the noble Baroness, Lady Neville-Rolfe, which seek to increase the employment allowance for small businesses. Again, the proposals in these amendments would create additional costs, necessitating either higher borrowing, lower spending or alternative revenue-raising measures.

The Bill already seeks to protect the smallest businesses and is significantly increasing the employment allowance from £5,000 to £10,500. This means that, next year, 865,000 employers will pay no national insurance at all, and more than half of employers will see no change, or gain overall, from this package. For the reasons I have set out, I respectfully ask noble Lords not to press their amendments.

[Lord Londesborough (CB)]

I thank the Minister for his comments, but I am disappointed and, frankly, baffled that the Treasury can tell us specifically—he repeated these figures—how many employers are impacted by the national insurance increase, yet there is a curious resistance to answering my specific and fair question: what percentage of jobs will attract an increase in national insurance contributions?

In October, the Department for Business and Trade helpfully provided a sectoral breakdown, by company size and number of jobs, under each category. It is fairly simple maths to come out with a reasonable estimate. This is in the interests of transparency; I am not trying to nail the Government here. Everyone should be able to understand across our economy, as we all share an interest in trying to generate economic growth, how many jobs are impacted. “Working people” is a favourite phrase that we keep hearing; how many of their jobs will be impacted?

If the Minister cannot produce the figures today, which I would respect, I request just a few minutes of research between the Treasury and the Department for Business and Trade. I believe that these figures could be produced very simply and that they would be very helpful in looking at the impact of this Bill. I cannot understand the resistance to it.

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his follow-up points. As I have said, we are not able to provide him with those figures and that remains the position.

--- Later in debate ---

To conclude, part-time workers and entry-level juniors will lose their jobs because of the lower threshold, and new jobs that might have been created will not be. Entrepreneurs have talked about stopping and stalling new outlets that they were proposing; there are many stories about and accounts of this. All this suggests that the reduction in productivity output will be less than the 0.1% estimated by the Government. In short, if the Bill as it stands becomes law, working people, their families, jobseekers and entrepreneurs—indeed, the whole economy—will suffer. With a more revealing and detailed economic analysis before and after it takes effect, it is my hope that the Government will think again about this disastrous move on tax rates, which will put so many jobs at risk.

[Lord Londesborough (CB)]

My Lords, I will speak briefly as I put my name down in support of Amendment 62 in the name of the noble Baroness, Lady Neville-Rolfe. I could have—indeed, I should have—done so for Amendments 61, 63 and 64 as well.

I continue to use the word “baffled” about the Government’s apparent resistance to impact assessments, which are so crucial if you are to have joined-up thinking on the Government’s economic growth strategy. As we know, rather worryingly, we lost 47,000 people off the payroll last month. I just raise this point in relation to the Government’s White Paper, Get Britain Working, which has some ambitious and laudable aims. Specifically, the headline bullet is that the aim is to take 2 million people out of welfare and into work. Put another way, the aim is to reduce the economic inactivity rate of our working-age population from the current 25% to 20%. Of course, the question is: where will those 2 million jobs come from? Who will create them? The answer is the private sector; that is the assumption.

When you come back to impact assessments, you have to ask how private sector employment will be impacted by not just the rise in national insurance contributions but the increase in the national minimum wage and the upcoming anticipated restrictions being brought in by the new Employment Rights Bill. All these factors boil down to the importance of assessment. If we have a lack of assessment, we greatly reduce the chances of the Government achieving their aims. So, again, I ask the Government to embrace accountability through Amendments 61, 62, 63 and 64.

[Lord Blackwell (Con)]

My Lords, I will make a brief comment on these amendments. In the Committee’s discussions so far, the noble Lord, Lord Eatwell, has made great play of the fact that the OBR suggested that the overall Budget measures would increase employment. The noble Lord is not in his place but, if he were, I am sure that, as an economist, he would agree that it is important to have the right counterfactual. Of course, what the OBR was not looking at in the Budget was the exact impact of taking the £20-odd billion from the national insurance rise and spending that money. It was looking at spending a lot more money; the Government are raising expenditure by £142 billion over the next five years, in excess of what they are raising in additional taxation.

UK Entrepreneurs

Lord Londesborough Excerpts

Wednesday 4th December 2024 Lords Chamber

Asked by

[Lord Londesborough]

To ask His Majesty’s Government what steps they are taking to encourage entrepreneurs to start up businesses in the United Kingdom.

[Lord Londesborough (CB)]

My Lords, in begging leave to ask the Question standing in my name on the Order Paper, I declare my interests as set out in the register.

[Lord Leong (Lab)]

My Lords, the Government continue to provide support for entrepreneurs, including through start-up loans via the British Business Bank and programmes such as growth hubs across England and the Help to Grow: Management course across the UK. The Government will also publish a small business strategy next year, which will outline our vision for boosting scale-ups and helping all types of small businesses to thrive and grow, empowering entrepreneurs to innovate, export and create jobs across their regions.

[Lord Londesborough (CB)]

I thank the Minister for his response and I am delighted to see a fellow entrepreneur on the Front Bench—unlike in the other place. Fundraising for start-ups, in the quarter to September, dropped by almost 50% to a six-year low. Both start-ups and scale-ups have been hit by the toxic trio of measures: hikes in capital gains tax, hikes in employers’ national insurance, and hikes in the minimum wage running at three times the rate of inflation. First, on behalf of entrepreneurs, I ask: when will we see meaningful measures to encourage, rather than punish, job creation and risk-taking? Secondly, whatever happened to the Chancellor’s pledge to run

“the most pro-growth Treasury in our country’s history”?

[Lord Leong (Lab)]

I thank the noble Lord for his kind words. We have something in common in that we both founded our respective publishing companies in the 1980s, in the tail-end of the recession and through very challenging economic times. The difference is that he went on to build a huge business empire, compared with mine.

There were definitely fewer funding rounds for start- ups in the last quarter. The age of FOMO—the fear of missing out—on investment, which caused a spike in the last couple of years, has to a certain extent come and gone. However, angel investment, such as EIS with tax rebates of 30% to 50%, remains robust and I am pleased that the Chancellor has now given certainty that this will stay in place until 2035.

The Government’s new modern industrial strategy—

Public Sector Productivity

Lord Londesborough Excerpts

Wednesday 9th October 2024 Lords Chamber

[Lord Londesborough (CB)]

My Lords, I salute the noble Baroness, Lady Neville-Rolfe, for securing this debate. It is a huge and complex subject to cover in five minutes but, in the spirit of productivity, I will do my best. As we have heard, measuring public sector productivity is challenging—it has a range of qualitative aspects, not simply outputs or revenues. That said, UK public sector productivity has barely moved since 1997, while our private sector productivity, which lags many other countries, has advanced by 30%. That is some gap.

I will focus on the workforce and management. For 30 years, I ran a publishing business with numerous teams across the world, with similar targets, pay scales and incentives. They shared the same technology and infrastructure, yet team productivity varied wildly. There turned out to be two key factors: first, rigorous and smart recruitment and, secondly, effective management. Middle and senior management was absolutely key— the difference between being 20% over target and 20% under.

However, here in the UK, we struggle with management. Across our 32 million workforce, 8 million have a managerial role. Of those, 6 million are deemed to be “accidental managers”, with little or no formal training, learning as they go. As the Policy Exchange points out in its excellent report on NHS productivity, it is not about the volume of managers but about their competencies, how their roles are defined and where they are placed.

Rigidity in our public sector means that promotion to management is too often correlated to the number of years worked rather than aptitude or, indeed, attitude, and management itself is often resistant to change. We struggle to incentivise public sector workers on productivity. It is not in the culture, but it should be. Productive organisations set ambitious targets, engage their workforce and reward performance. But Governments, when they talk about productivity, tend to focus on cost savings, efficiency and value for money—not very inspiring.

Chancellor Rachel Reeves says that she has “fired the starting gun” to drive greater productivity in the public sector. She said:

“I expect all levels of government to be run effectively and efficiently … a civil service delivering good value for the British taxpayer and reform of our political institutions, including the House of Lords, to keep costs as low as possible”.—[Official Report, Commons, 29/7/24; col. 1039.]


Yes, we in Parliament should set a better example, but it turns out that House of Lords reform means removing one of the most productive groups in this House: the 90 elected hereditary peers—I declare an interest—and leaving in place well over 100 life Peers who barely ever attend, vote or contribute in any way. I am looking at some rather deserted Benches. That is politics, not productivity.

There is a wider problem. If we do not recognise and reward performance, productivity suffers. The latest round of public sector pay increases for doctors, teachers and train drivers did not just add £9 billion to that infernal black hole, they were rewarded without any commitment to a plan to improve productivity.

We need a fundamental reset: setting up a non-partisan productivity council on a statutory footing would be a start. I have suggested this three times before and never got any response. This body would inform, co-ordinate and evaluate policies that impact productivity across all departments, including the excellent idea of the noble Baroness, Lady Neville-Rolfe, of productivity assessments, which I wholeheartedly endorse. I look forward to hearing the Minister’s thoughts.

UK Population Growth

Lord Londesborough Excerpts

Monday 4th March 2024 Lords Chamber

[Baroness Neville-Rolfe (Con)]

The figures are broken down in some of the analysis that has been done by the ONS. Of course, the ONS is independent and impartial, which is an important strength. On students, it is important that the number of dependants coming into the UK should be limited, although we do understand that those who are going to stay in the UK to do PhDs and so on need to have dependants contributing to our country and our economy.

[Lord Londesborough (CB)]

My Lords, the uncomfortable truth is that our economy appears to be incapable of growing without onboarding some 300,000 migrant workers each year. Even then, we are talking about miserly growth and, worse still, zero GDP growth per capita. Does the Minister agree that, until we tackle our abysmal productivity rates, such population growth is here to stay?

[Baroness Neville-Rolfe (Con)]

I agree that we must tackle our abysmal productivity rates. It is something I have focused on, I have to say, since long before I came to this House. There are things that we can do with skills. I look forward to the Budget on Wednesday and hope that the word “productivity” will feature in the speech by the Chancellor.

Economy: The Growth Plan 2022

Lord Londesborough Excerpts

Monday 10th October 2022 Lords Chamber

[Lord Londesborough (CB)]

My Lords, first, I congratulate my noble friend Lady Gohir on her passionate and eloquent maiden speech. We look forward to hearing much more from her from the Cross Benches.

As we have heard, the Prime Minister’s economic strategy is, “Growth, growth, growth”. This has unfortunate echoes of her predecessor who, just five months ago, trumpeted the slogan, “Jobs, jobs, jobs”, at a time of record unfilled vacancies. Single repetitive word slogans often suggest oversimplified approaches, with wilful disregard for the consequences. Indeed, the Chancellor appears to have grabbed the helm of a vessel without consulting the crew on the weather or sea conditions and slammed down the throttle with the fuel tank on reserve and oil lights flashing. I will not prolong the nautical metaphor, but you get my drift.

Sustained economic growth requires a qualitative, not quantitative, approach, especially in a period of high inflation and supply side shortages—not least our shrinking workforce. We have economic inactivity levels not seen anywhere else in Europe, while our productivity remains in the doldrums. These are the issues that need to be addressed, and they will not be solved by tax cuts and escalating debt. If you think you can buy growth this way, the markets will find you out—indeed, they already have. Growth needs to be sustainable, balanced and, I suggest, broadly distributed. Achieving 2.5% is far from ideal if only 10% of the population benefit.

Let us reflect for a moment on the impacts of the proposed tax cuts, especially amid a cost of living crisis. Do we give a £20,000 tax break to one person—let us say a mid-ranking City lawyer earning £500,000 a year—or a £1,000 tax break to 20 people earning the median average salary of £26,000? The cost to the Treasury is the same but I argue, as an entrepreneur and business investor, that the impact on growth will be much more significant if you reward at the margins. I do not have time to preach the theory of marginal utility but I urge the Ministers to brief both No. 10 and No. 11 on its relevance in relation to taxation and growth.

So how do we engineer real economic growth? I have two suggestions. First, we now have a very competitive exchange rate, close to record lows against the US dollar. Remember what happened back in 1992 when we exited the ERM: sterling lost 20% of its value —a gift from the markets—and our economy grew by 3% per annum over the rest of the decade, fuelled by a boom in exports. I ask the Minister: what are the new Government’s plans to seize this opportunity?

Secondly, we must address the UK’s anaemic productivity, which in terms of output per hour still lags both France and the US by some 15%. This is where our political system serves us very poorly. We need to stick to targeted, long-term measures to spur productivity, addressing education and skills, and the chronic underinvestment in both the public and private sectors. Would the Government consider setting up a productivity task force, or at least an advisory board, that includes those at the cutting edge of the private sector, who build businesses, create jobs, balance the books, count the beans and have first-hand experience of what drives productivity, and indeed growth?

Budget Statement

Lord Londesborough Excerpts

Wednesday 3rd November 2021 Grand Committee

[Lord Londesborough (CB)]

My Lords, I should like briefly to focus on four key areas of the economy, all of which are connected: wage inflation, labour shortages, productivity and, finally, education. By way of quick introduction, since I am relatively new to this place, I should say that I am drawing chiefly on my own experience in the private sector—30 years as an entrepreneur and employer and the last seven years as an adviser and investor in start-ups. It is a particular pleasure to follow the former Chancellor of the Exchequer, the noble Lord, Lord Lamont of Lerwick, and, in her heartfelt valedictory speech, the right reverend Prelate the Bishop of Newcastle, whose comments I found myself endorsing.

The Government’s aim to build back better and create a higher-wage economy sounds good in theory but, as many employers will tell you, wage inflation without genuine increases in productivity is something of a fool’s paradise and certainly not sustainable in the long term. Wage increases ultimately need to be earned rather than given, and that applies to the private and public sectors. There really is no magic money tree, to quote one of our former Prime Ministers. The CBI director-general, Tony Danker, put it very well last week:

“Ambition on wages without action on investment and productivity is ultimately just a pathway for higher prices”.


Taking the Treasury’s own forecast alongside those of the OBR, higher wages, as we have heard, will contribute to inflation rising to 4.4% next year, although in the statement the OBR admits to the risk that it might exceed 5%, while some independent economists are now talking about 6% or 7%. Given that GDP is expected to grow by 6% next year, still with very high levels of borrowing, there is a real danger of interest rate rises coming along just at the time when many will be facing an economic squeeze.

Added to that, we have serious supply shortages, not least in the labour market itself. Businesses across the country are struggling to recruit and retain staff, not just in care homes, hospitality and retail, or HGV drivers, but in many areas of skilled labour, including middle and senior management. One leading executive search consultant in the tech sector told me only yesterday that they had never seen such an imbalance between job vacancies and the pool of available talent. This tight labour market has been made worse by the absence of a comprehensive immigration policy post Brexit. Such shortages of both skilled and unskilled labour are resulting in employers having to pay higher wages to both attract and retain staff.

To boost living standards in real terms we need sustained growth and productivity, something that we have not seen in more than 10 years. Since 2010 the UK’s productivity, as measured by GDP output per hour, has grown by just 4%, according to the OECD. That seems extraordinarily low when you consider the huge advances in technology and communication over that period. Let us put it in context: France had an 8% gain in productivity in the same period, Germany almost 10% and the US more than 10%. This spells trouble for global Britain’s place in the world marketplace, and indeed for building back better.

Why we are lagging behind is a complicated question. I shall focus on the key area of education, to follow up the comments of the right reverend Prelate the Bishop of Newcastle. Yes, innovation and productive investment are crucial too, but there is no escaping the fact that if you do not educate and train your workforce sufficiently then productivity will suffer. It is here that, to me, the Budget Statement makes particularly disturbing reading. The Chancellor states, as the noble Lord, Lord Davies, mentioned, that per-pupil funding will return to 2010 levels in real terms by 2024-25. This follows more than a decade of austerity during which schools have suffered an 8% fall in real spending per pupil, so we are talking about 15 years to return to where we were in 2009. Yes, the Chancellor announced £1.8 billion extra for education recovery post pandemic, in addition to the £1.4 billion announced in June, but the total education recovery spend falls well short of the £15 billion that Boris Johnson’s own catch-up tsar, Kevan Collins, said was necessary before resigning from his post.

Perhaps the most striking contrast lies in the different paths for health and education spending. Since 2010, health spending has increased by more than 40%, while education overall will have seen a feeble rise of just 2%. I appreciate the huge health demands brought by an ageing population, the pandemic and the historic underfunding of the NHS, but this is not a balanced approach.

Education is not a short-term fix for productivity, but the longer we fail to invest in and develop the education and training of our workforce for the future, the longer it will take to achieve these badly needed productivity gains that ultimately underpin a higher wage economy. Without real economic growth, we run the risk of fuelling inflation and interest rates, inflicting further damage on living standards.

To give the Government credit where due, they have made some welcome announcements, notably the 7.5% real-term annual increase for business, energy and industry, with the aim of encouraging innovation and boosting investment in R&D. However, the economy faces a period of labour shortages, restricted immigration, very modest growth from 2023 onwards and rising inflation. I suggest that this is not a good environment for business. Add to that stagnant spending on education and the long-term prospects for productivity do not look bright. We need a spending strategy for education, productivity and sustainable real economic growth. Finally, I suggest that levelling up makes little sense without catching up.