Economic and Taxation Policies: Jobs, Growth and Prosperity
Lord Petitgas Excerpts(1 day, 14 hours ago)
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Lord Petitgas (Con)
My Lords, I thank my noble friend Lord Elliott for securing this timely debate. I also admire the speed of speech of the noble Lord, Lord Bilimoria.
The economic path of our country is alarming. We are living beyond our means, taxing more and getting less, and stifling any incentive to work or invest. I will set out five compounding and depressing facts.
First, growth is weak, while the tax burden is the highest in peacetime. When taxes rise and growth stalls, the message to investors is clear: something is structurally wrong.
Secondly, core spending—welfare, pensions and health, mainly—consumes more than half of all tax revenue. It is growing way more quickly than the economy. This must be brought under control; otherwise, taxes will just keep on rising, as the noble Lord, Lord Young, rightly said.
Thirdly, labour participation has fallen. Around one in four working-age adults is not working and not seeking work. No modern economy can seriously prosper if participation falls while welfare spending rises. Compassion matters but work must pay, and those who can work, must work.
Fourthly, public debt is nearly 100% of GDP. That is two-thirds more than Germany’s. That interest alone consumes around 10% of tax revenues. Global markets have noticed: Britain now pays the highest borrowing costs in the G7, a third higher than France or Italy and two-thirds higher than Germany. Our higher cost of capital bears down on everything in this nation.
Fifthly, confidence, as we discussed, matters greatly. It is the engine of an economy and society, and it is at an all-time low. Business sentiment has been negative for most of the year. Surveys also show that many young Britons are considering working abroad. That is not just wealth leaving, it is talent. The next generation wants to go.
So there you have it. We are stuck. We are caught in the loop of higher spending, which leads to higher taxes, which lead to weaker incentives, which lead to lower growth, higher debt, higher borrowing costs and pressure for further tax rises.
We cannot break this loop by taxing a shrinking base more heavily; nor can we escape it in a single Budget. Britain has all it takes for a dynamic economy, and yet we behave like a high-intervention, high-friction and inefficient state, so enterprise slows and talent goes elsewhere. Indeed, we need a course correction, one that rewards people who work and invest here.
I suggest three ideas, and there are many others. First, like the noble Baroness, Lady Noakes, I think that we need to start a path toward lowering corporation tax. Even a modest step would show that Britain means business and wants investment, not capital flight.
Secondly, we should reward both enterprise and reinvestment in the UK. We should reduce capital gains for entrepreneurs—it was a measure that Gordon Brown had put in—and allow deferral when those gains are reinvested into UK companies. If you build here, you should benefit here. There, we would not need the capital controls that this mooted 20% exit tax would suggest, which would be a disaster for this country.
Thirdly, we should make work pay and expect work. Support must remain, but the system should encourage contribution, not dependency.
In summary, we have three crucial levers to make it very simple: the debt, the spending and the tax. It is correct to keep a lid on the debt. The noble Lord, Lord Young of Cookham, was eloquent on the tug of war between spending and tax, both of which are at an all-time high. If we want growth, we must reduce costs—this is like a company—free our productive forces and reward work and enterprise. Taxes cannot be the residual variable.
Non-domicile Status
Lord Petitgas Excerpts(9 months, 2 weeks ago)
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Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
There is plenty of time for both noble Lords to ask a question. We will have the noble Lord, Lord Petitgas, first, and then my noble friend.
Lord Petitgas (Con)
My Lords, do the Minister and the Government have any hard evidence, perhaps through a recalculation of the effects of the Bill on non-doms, that this news that was announced in Davos will have a tangible effect on the emigration of a lot of these non-doms? This does not look like a U-turn at all—for which the Government should be commended— but rather more like an L shape. The reason why I am asking this question is because the key criticism from the non-doms, and the reason why they are leaving, is that if someone lives here as a non-dom for four years they will have a 10-year tail on the inheritance on all their offshore assets. That is clearly something that is not acceptable to most of them. What I heard in Davos does not change that, and therefore I am not sure it really changes very much.
Lord Livermore (Lab)
I am very grateful to the noble Lord for passing on the feedback that he heard. I am assuming that he agrees with this Government’s policy on non-doms, since he was an adviser to the previous Government when they actually took our policy, implemented it, and scored £20 billion for it. So I am assuming that he approves of our policy and of the fact that we are raising that revenue. The changes that we are making to the system to make it simpler and more attractive to use are based on speaking to the relevant stakeholders and ensuring that they find it attractive to use. As I say, the system that we are implementing is actually more competitive than the system that it replaces.
Employment: Tax Policy
Lord Petitgas Excerpts(1 year ago)
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Lord Petitgas (Con)
My Lords, I thank my noble friend Lord Leigh of Hurley for this debate about the impact of tax policy on employment. I repeat the title, because I can see that the exam question has moved to the impact of the Budget on business. Unfortunately, I will probably fail as well.
I talked about a “boom in gloom” in the short debate on foreign investment in September. At that time, business had already grown fearful about slowing growth, with a foreboding that we were heading away from a market economy towards big state-led economic management. Confidence was waning. Employment is a barometer of business confidence and investment, so will this Budget shore up or further blunt such confidence? The answer boils down to whether business trusts the Government to spend their higher tax and new borrowings productively and deliver the future growth dividend ultimately to balance the books.
Many, if not most, are sceptical about this tax, borrow and spend Budget package. It seems doubtful that it can deliver the innovative entrepreneurial economy that the UK should aspire to. The OBR’s own revised forecasts on inflation, rates and growth made for poor reading overnight, while sovereign yields widened in the gilt market. That is not anecdotal; it was on the Financial Times website all day. Rates will stay higher for longer, increasing the cost of capital for the economy, the Treasury and mortgage holders.
The impact of these tax measures on employment is the key for growth. I shall frame this around three observations, first addressing the impact on business and employment. Business is facing a trifecta of a high minimum wage, increased NI and a new set of labour rights. Let us not pretend that, by taxing business, the impact will not fall on working people and consumers themselves. This is taxing employees through the backdoor. It will sap confidence, increase costs and hurt employment. An increase in income tax, although equally regrettable, would at least have been more transparent and given workers a clearer idea of the impact on them. It is rather complicated to get to the same money. The OBR report says:
“The rise in employer NICs in this Budget will further erode profits and we assume firms are only able to pass on around 60 per cent of the cost to employees in the short term”—
probably rising to more than 80%. Moreover, uncertainty about new labour rights represents a policy risk.
All this will feed into the real economy through high prices, low consumer spending and a slow labour market. This painful trifecta will raise costs for business, discourage expansion, and hurt staffing levels and hiring plans. Certain sectors, such as hospitality and retail, and SMEs, which cannot cushion from shocks easily, will have to pass on these higher costs if they can and, if they cannot, they may need to lay off. It is misleading to suggest that, by taxing business, you are not taxing employees—unless, of course, they are in the public sector. What analysis has been prepared, sector by sector and for SMEs, on the impact of these measures on employment?
My second point concerns inflation. We, along with the OBR, should worry about continued inflation. The “tax, borrow and spend” spree is happening at pace while the returns of large public investments, if any, will come through only in the long term. As the noble Lord, Lord Davies, said, a fundamental issue is the mismatch between borrowing the money now and spending it and the long-term returns; that is not to say we do not need more infrastructure. Confidence is therefore crucial to seeing us through the interim years. However, so far, the OBR, the markets and business are all showing grave misgivings. The costs of capital and of doing business in the UK have gone up. It is a difficult quandary and a real dilemma. Did the Government assess the impact of their new labour rights, raised minimum wage and public sector awards on inflation?
Let me end on the NHS. It is, as I see it, one of the case studies on investing in infrastructure for the long term. It binds two key aims: ensuring a healthy workforce, and the productive use of money. These are crucial, because the welfare bill is growing faster than GDP while too many working-age people are unfit to work. The Government have rightly said that they want greater emphasis on preventive care—I appreciate that this is not necessarily the Minister’s area of expertise—but preventive care is about telling people how to live their lives in healthier ways. Is money the obstacle, therefore, or is it more about finding the right language and legitimacy for the state to have these conversations? I say that not to belittle the huge issues facing the NHS, including its need for money, but to highlight the fact that it is not always about spending more money—and the same applies to education. It is also about setting productivity targets and changing the culture.