Public Finances: Borrowing Costs

Lord Londesborough Excerpts

Thursday 9th January 2025 Lords Chamber

[Lord Livermore (Lab)]

Clearly, ensuring that UK businesses have access to finance is crucial to this Government’s economic policy.

[Lord Londesborough (CB)]

My Lords, further to the point from the noble Lord, Lord Fox, about investor sentiment, the pound has suffered its biggest three-day slide in two years, and this morning’s yield on 30-year government bonds has risen to 5.385%. That is the highest level seen since 1998. Does the Minister accept that the pound’s weakness and the bond sell-off signal that investors are sceptical about the Government’s growth ambitions and particularly the impact of the October Budget?

[Lord Livermore (Lab)]

I repeat to the noble Lord what I said in my opening remarks. Financial markets are always evolving, so it is a long-standing convention that the Government do not comment on specific financial market movements. I will not break that convention today. Financial market movements, including changes in government bond or gilt yields, which represent the Government’s borrowing costs, are determined by a wide range of international and domestic factors.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Londesborough Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Londesborough (CB)]

My Lords, it is an interesting optic that I am following the contributions of 15 noble Lords from the Conservative Benches and, curiously, just three from the Government Benches. I am not sure how we should interpret that but, as an objective Cross-Bencher, I could not possibly comment.

Two months ago, many of us here today took part in the debate on the October Budget, and many of us warned of the consequences for a stuttering economy. Two months on and I am afraid that those concerns are growing, from employers, business owners, entrepreneurs and investors—in fact, from those who drive 70% of our nation’s GDP. That is what I will focus on today, and in so doing I declare my interests as an investor in SMEs, as set out in the register.

Momentum is critical for sustained economic growth. We did not have much of it in the first half of last year, but what little we had appears to have evaporated. As we have heard, GDP flatlined in Q3; worse still, GDP per capita fell by 0.2%. Q4 has brought a string of disturbing indicators, raising the prospect of a second consecutive quarter of zero, or even negative, growth.

As we have heard, the British Chambers of Commerce reports that business sentiment among its members has fallen to its lowest level for two years. The number of job vacancies in November fell at the fastest rate since the start of the pandemic and the spread between UK and German 10-year bonds has now eclipsed the peak triggered by Liz Truss’s mini-Budget two years ago. The spectre of stagflation is spooking the markets, meaning that interest rates may well remain higher than expected for much of 2025.

That is the macro. I turn to the micro, in particular the impact on our SMEs. I find it extraordinary that the Government devised an NIC regime that hits the vast majority of SMEs, which employ between five and 250 staff, particularly by dropping the threshold from £9,000 to £5,000. As we have heard, particularly from the noble Baroness, Lady Kramer, it is indiscriminate, falling as it does on all sorts of undeserving organisations, including charities, hospices, care homes and GP practices. Taking together the impact of NICs and the 6.7% increase in the minimum wage, will the Minister explain how raising the cost of employment by an average of £2,390 per employee this April is consistent with boosting economic growth?

For start-ups and our all-important scale-ups, it is a punitive tax on job creation and much-needed risk taking. While I accept the argument made by my noble friend Lord Macpherson and others that tax revenues had to be increased, there were plenty of fiscal alternatives that would have caused less damage to our economy—for instance, reversing the pre-election 2% cut in employees’ NICs brought in by Jeremy Hunt, indexing fuel duty, raising VAT selectively, and, last but not least, making modest adjustments to the bands and higher rates of income tax. But the Government could not do any of that, for they had tied themselves into knots with the tax pledges in their manifesto. Once again, politics trumps economics.

I was an entrepreneur for 30 years and in the last 10 years I have backed, chaired and advised a wide range of start-ups and scale-ups. I will finish by sharing how they are reacting to the increase in NI contributions. This comes from business owners, investors and management teams working at the coalface. In summary, some say they will reduce pay increases and bonuses; some will also reduce working hours, particularly for part-time staff in hard-hit sectors such as hospitality and retail; and some will slow the rate of job creation. Those that can will pass on the increased costs of employment to consumers and their clients, as their suppliers are already doing to them. Finally, and perhaps most worryingly for productivity, investment in new projects will be reduced or delayed in many cases. This is bad news for the worker and the employer, bad news for growth and inflation, and very bad news for our future competitiveness.

National Insurance: GDP

Lord Londesborough Excerpts

Thursday 19th December 2024 Lords Chamber

[Lord Livermore (Lab)]

I have the greatest respect for the noble Baroness’s consistent focus on the importance of social care. The answer to her last question is no, but the Government are providing at least £600 million of new grant funding for social care in 2025-26, as part of the broader estimated real-terms uplift to core local government spending power of approximately 3.2%.

[Lord Londesborough (CB)]

My Lords, does the Minister agree that the drop in job vacancies in November at the steepest rate since the pandemic is not only bad news for economic growth but reflects very poorly on both the run-up to the Budget and the Budget itself—in particular, raising employers’ national insurance contributions while increasing the minimum wage at three times the rate of inflation? Is this not a recipe for job destruction rather than job creation?

[Lord Livermore (Lab)]

Well, no. The OBR has been very clear that the number of people in employment will increase by 1.2 million over the course of this Parliament. As I said before, we had to take some very difficult decisions to clear up the mess that we inherited. I would simply ask the noble Lord and other noble Lords what their alternative is to the course of action that we took? Are they seriously saying that we should not have repaired the public finances? Are they seriously saying that we should not have restored economic stability? Quite frankly, that is the path that the Liz Truss mini-Budget took. We saw what happened then: she crashed the economy and working people are still paying the price today.

Small Farms and Family Businesses

Lord Londesborough Excerpts

Thursday 12th December 2024 Lords Chamber

[Lord Londesborough (CB)]

My Lords, I too salute the noble Earl for securing this topical debate. Like others here today, he is an excellent example of this place’s vintage intake of hereditaries in 2021—but I am in danger of straying into yesterday’s debate.

I will focus on family businesses and inheritance tax overall. Given the dire state of our public finances, I acknowledge that this Government had no choice but to raise taxes in the Budget, but it is the way that it was done that troubles me. I have been an outspoken critic and raised a number of questions in this place on the impact of employer national insurance and capital gains tax increases and the minimum wage hike. We now have the troubling issue of inheritance tax and how to levy it in a way that is proportionate and does not unduly damage the economy.

Why should family businesses, and indeed farmers, not share in the burden of inheritance tax like the rest of us, particularly those sitting on valuable assets? It is a perfectly reasonable question. In my own case, I set up and built a business over 30 years, which I sold back in 2014. The sales proceeds first incurred capital gains tax—which, interestingly, thanks to Gordon Brown, had dropped to a much lower rate than under previous Conservative Governments—and, on my death, whenever that will be, a 40% inheritance tax will be applied to virtually all those proceeds, bar £325,000.

This was not a family business; I had no intention of burdening my son or daughter with succession, but that would have been far more tax efficient, as the noble Earl, Lord Devon, already noted. It would not have been in the interest of the company, the staff or the shareholders, let alone my children or indeed the wider economy. My point is that family succession can be far from optimal—just look at the Trumps and the Murdochs, for instance. Economies thrive from the trading of assets and changes of ownership.

I accept that, for small family businesses and farms, the situation is more complex, as we have already heard. In my attempt to be a constructive Cross-Bencher, I will propose to the Government three changes. First, they should cap BPR and APR at £2.5 million per person, rather than at £1 million. Secondly, they should apply the 20% inheritance tax rate above that figure up to £5 million. Thirdly, above that figure, they should apply the full 40% rate—the rate that most of us pay from a much lower level. That, in my view, is more measured and proportionate, and would still generate the budgeted tax revenues. It means that the very asset-rich will contribute more—as I think they should. Yes, some may have to sell their businesses or some of their assets, but that is life and how a modern economy should work.

Economic Productivity

Lord Londesborough Excerpts

Thursday 5th December 2024 Lords Chamber

[Lord Livermore (Lab)]

The noble Lord is correct to say that both parties are absolutely aligned on the importance of skills reform, which is why we have announced Skills England. We will be increasing the number of people in training and they will enter the workforce as soon as they graduate.

[Lord Londesborough (CB)]

My Lords, the Office for National Statistics may have inadvertently thrown some light on our so-called productivity puzzle. The slide in the quality of its workforce data appears to have coincided with the increasing practice of its staff working from home—in many cases five days a week. Indeed, ONS staff have recently threatened industrial action—to go on strike—if forced to work from the office for two days a week. Do the Government have plans to commission a study across the public sector of the impact that working from home has on productivity? It is a crucial issue.

[Lord Livermore (Lab)]

I know that the noble Lord cares deeply about this issue. He has spoken in debates on this topic before and has made some very important points about productivity. I have also answered a Question in this House on working from home and its impact on public sector productivity. As I said then, the current evidence is mixed. There are clear advantages to working from home for some and there are also clear disadvantages to working from home. Most studies seem to suggest that there are significant benefits to a hybrid model. But there are no such plans to commission the kind of study he mentioned.

Exports to the European Union

Lord Londesborough Excerpts

Wednesday 20th November 2024 Lords Chamber

Asked by

[Lord Londesborough]

To ask His Majesty’s Government, following the speech of the Governor of the Bank of England at Mansion House, what measures they are taking to increase the export of goods to the European Union.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, in his Mansion House speech, the Governor of the Bank of England observed that Brexit has weighed on the UK economy, particularly in goods trade. The previous Government’s Brexit deal imposed new trade barriers on business and, according to the Office for Budget Responsibility, permanently reduced GDP by 4%. That is why the Government are committed to resetting our relationship with the European Union, to strengthen ties and to tackle barriers to trade.

[Lord Londesborough (CB)]

My Lords, I thank the Minister for his response, and indeed for not mentioning that black hole—which is perhaps surprising, since the latest figures from the ONS show that our goods exports to the EU have fallen from £175 billion in 2018 to £153 billion last year, which is a drop of £22 billion. Not only that, our goods exports to the rest of the world over those same five years have fallen from £184 billion to £162 billion—yes, another £22 billion black hole. Does he therefore agree that these figures demonstrate a deeper-rooted weakness in our goods trading performance rather than simply Brexit being to blame?

[Lord Livermore (Lab)]

I thank the noble Lord for his Question and for mentioning the £22 billion black hole. He is absolutely right to point to the consequences of the previous Government’s ill-conceived Brexit deal. It imposed new trade barriers on business equivalent to a 13% increase in tariffs for manufacturing and a 20% increase in tariffs for services. As a result, the Office for Budget Responsibility has found that the overall trade intensity will be 15% lower than if the UK had remained in the EU. Specifically, goods exports to the EU have fallen significantly, down 19%—or £42 billion—compared with 2018. Of course, he also raises the correct point that we must increase our trade right around the world, because increasing trade is good for increasing growth.

Autumn Budget 2024

Lord Londesborough Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Londesborough (CB)]

My Lords, as speaker number 22 of 75, can I open with a quick observation? Over eight long hours, we each wait to speak for five minutes, raising scores of questions that the Minister will struggle or fail to answer. Is this a great advert for public sector productivity; then again, is the Budget?

I will avoid the bipartisan ping-pong match over that black hole, and, instead, I will start with macro and move on to micro; specifically, the impact on our SMEs, which is my background. The Chancellor was right on a number of big calls: the tax burden had to go up; spending has to increase, especially in health, defence and education; and there is a strong case to increase borrowing for investment, whatever definition of debt you choose. For the UK has an ageing, increasingly sick and economically inactive population, resulting in a shrinking workforce and a surge in dependency ratios. Spend on health and social care, welfare and net zero will significantly outpace the OBR’s trend forecast of just 1.5% growth.

As we know, the tax burden climbed under the Conservatives from 33% of GDP to more than 36%, and it is now heading for 38%; and unless we tackle our low-growth, low-productivity malaise, it is set to reach 40% very quickly. So, yes, Jeremy Hunt’s 2% cut in National Insurance was a reckless fiscal act; the new Chancellor could and should have reversed those cuts to send out a message that it is economy first, politics second—opportunity missed. Instead, she and the Prime Minister tied themselves in knots by pledging not to increase taxes for the “working people”. As a result, business and wealth creators are being saddled with almost the entire £40 billion tax rise, making a mockery of Labour’s core mission to deliver

“the highest sustained growth in the G7”.

To hit employers, especially SMEs, with a £25 billion national insurance tax hike, while raising the minimum wage by more than three times the rate of inflation, is an act of self-harm. Ultimately, of course, it will hit the workers where it matters most, which is in their gross pay.

My Lords, I was an entrepreneur for 30 years and, for the last 10 years, I have backed, chaired and advised over 20 start-ups. I declare my interests as set out in the register. I will briefly share the feedback on the Budget that I have received over the last two weeks from founders and CEOs at the coalface. In short, they will cut pay increases and staff bonuses. They will cut back on new job creation and trim headcount. They will scale back on plans for expansion in both 2025 and 2026. Those who can will pass on the increased costs of employment and their supplies to the consumer.

We are not only taxing jobs and growth, but doing it in a grossly disproportionate way, hitting the small to medium-sized businesses that employ between five and 200 staff. They make up a crucial component of GDP growth.

One of the businesses I support is a rural community pub—the only employer and social hub within a five-mile radius. It tells me that this Budget, combined with the minimum wage hikes which account for a 16% increase over two years, will entirely wipe out their modest profit margins.

I will finish with three quick questions for the Minister. First, why target entrepreneurs, who create jobs and take great risks, while income tax and national insurance for the highly paid is untouched? Secondly, one of the biggest growth blockers in our tax system is stamp duty; why raise it? Thirdly, if you are claiming to be fiscally responsible and committed to net zero, why continue to freeze fuel duty? This Budget may be bold, but it is unbalanced. It is tough on growth and tough on the causes of growth.

Working From Home: Public Sector Productivity

Lord Londesborough Excerpts

Wednesday 23rd October 2024 Lords Chamber

Asked by

[Lord Londesborough]

To ask His Majesty’s Government what assessment they have made of the impact of working from home on productivity in the public sector.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the Government inherited a situation where public sector productivity remained 6.4% below pre-pandemic levels. This is clearly unacceptable. Our focus is on fundamental reform of our public services, to drive greater efficiency and productivity. Further details on this agenda will be set out in the Budget and spending review.

Assessments of the impact of working from home on productivity seem—so far—to be inconclusive. The Government are very clear on the benefits of collaborative face-to-face working, in the Civil Service in particular. Studies by the IMF, the University of Manchester, the CBI, Google and Amazon have set out clear advantages to a hybrid working model.

[Lord Londesborough (CB)]

My Lords, my Question was prompted by an interesting claim made by the Minister’s colleague the Business Secretary. He said that

“allowing working from home creates a more productive, loyal workforce”.

I suggest that that is a sweeping statement, lacking in hard evidence. This is clearly an area where one size does not fit all. When will we see some credible, data-driven research, across all areas of the public sector, to measure the real impact of working from home on productivity?

[Lord Livermore (Lab)]

I agree 100% with the noble Lord that one size does not fit all. So far, studies have been reasonably inconclusive. Some have shown significant drawbacks to working from home, including a lack of social interaction and the associated mental health impacts that that brings, less progression—especially in the early stages of a career—and less creativity and innovation. But there are also some clear advantages to a degree of hybrid working, including more focused working, the ability to work on confidential issues and some interesting labour-supply impacts, particularly for those with disabilities or childcare responsibilities. So I think the jury is out, but more studies are being undertaken all the time.

Start-up Companies: Tax Incentives

Lord Londesborough Excerpts

Monday 29th April 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

The Government have actually monitored the benefits of the tax reliefs and indeed published independent reports at the 2023 Autumn Statement into EIS and SEIS. We have also published annual reports into R&D on whether the schemes are appropriately designed. However, the noble Lord raises a really important point. He is right that there has been an enormous amount of error and fraud, so HMRC has taken action and has boosted the number of people working in fraud from 100 to 500 people who are very much focused on those things. It was also the case that much of the fraud or error was happening using nominated bank accounts. HMRC has now closed the ability for companies to use nominated bank accounts, which will have an impact.

[Lord Londesborough (CB)]

My Lords, further to the previous question, I ask the Minister: when will the Government conduct an impact assessment on both the EIS and SEIS investment schemes, specifically on the sustainability of businesses funded through these tax incentives? I ask because start-ups have a failure rate of around 90% and we should be clear about the costs/benefits when some £30 billion—so far—of taxpayers’ money has been involved.

[Baroness Vere of Norbiton (Con)]

As I said in answer to the previous question, an independent report has been published fairly recently on the design of the two schemes. It is the case that start-up companies sometimes fail and we need to make sure that we get the best value for money for the taxpayer. The Treasury is very focused on that.

Financial Stability: Private Equity Firms

Lord Londesborough Excerpts

Wednesday 13th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My Lords, there are £250 billion of private equity assets under management in the UK, versus £10.3 trillion of total assets under management. It is a smaller part of the financial system. The noble Lord is not right to say that it is unregulated: UK private equity managers are regulated under the alternative investment fund managers regime. They must also comply with the senior managers and certification regime.

[Lord Londesborough (CB)]

My Lords, I declare my interests as set out in the register. It is hardly surprising that private equity is struggling to do deals and sell its portfolio companies in a climate of high interest rates and low growth. In fact, it is zero growth, as October’s dismal GDP figures show that we have seen no growth at all in the last quarter. In view of capital’s recent flight to quality, does the Minister agree that our lack of an economic growth strategy is the biggest drag on private equity in this country?

[Baroness Vere of Norbiton (Con)]

I do not agree with the noble Lord. As he will have seen in the Autumn Statement, the Chancellor set out significant tax cuts to encourage growth. That is where we are focusing our firepower at the moment.