Economic and Taxation Policies: Jobs, Growth and Prosperity

Lord Sikka Excerpts

Thursday 13th November 2025 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank the noble Lord, Lord Elliott of Mickle Fell, for securing this debate. In an often-told story, Albert Einstein set an exam paper for his graduate class. One of his colleagues noticed that the questions were the same as on the previous year’s exam paper. He asked how the great man could set the same exam again. Einstein smiled and said:

“But the answers have changed”.


This parable captures the problem of the UK economy. For the last 20 to 30 years, we have faced the problem of low economic growth, investment and productivity, rising poverty, and crumbling infrastructure. But Governments provide the same old answers: privatisation, outsourcing, unchecked profiteering, real-wage and spending cuts, regressive taxation—and the ideology that direct state investment in new industries and infrastructure must be neutered. Inevitably, the economy struggles. We now have a rentier economy, where the state guarantees profits for water, energy, care homes, private healthcare, internet companies, prison services and much more.

Despite low rates of inflation, interest and corporation tax, and generous incentives, investment in productive assets remains disappointing. In the age of deindustrial- isation, the UK has been at the bottom of the G7 league for investment in 24 out of 30 years to 2022. It is ranked 28th for business investment out of 31 OECD countries. It is currently investing 18.2% of GDP in productive assets, compared with 26% for France and 25% for Germany. The OECD average is 23%. China spends 40.4% and India spends 30.5%. One lesson is that economies flourish with direct state investment in infrastructure and new industries; this also benefits the private sector.

The City of London never had an appetite for long-term risks. The stock market functions as a cash-extraction machine. In 2024, listed companies raised £25.3 billion in new shares and paid out £91.2 billion in dividends and another £57.1 billion in share buybacks. Companies sweat assets. No Government have tackled short-termism, or the power of shareholders to extract returns. Good purchasing power for the masses is essential for economic growth, but that has been eroded. The average real wage has hardly changed since 2008. Some 16 million people live in poverty, and 24 million live below socially acceptable living standards. The bottom 50% of the population owns less than 5% of wealth, and the bottom 20% has less than 0.5%. The bottom 20% pays a higher proportion of income in tax than the richest 20%.

You cannot squeeze 50% of the population and expect economic growth: that does not happen anywhere, so why on earth did the last Government pursue that strategy? Somebody ought to explain. The UK has the wrong model for economic growth. Equitable distribution of income and wealth, progressive taxation, and bigger public investment are necessary prerequisites to building a sustainable economy. I urge the Government to follow that course.