Economic and Taxation Policies: Jobs, Growth and Prosperity

Lord Skidelsky Excerpts

Thursday 13th November 2025 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, I would also like to thank the noble Lord, Lord Elliott, for giving us a chance to discuss this important question, and it is always a pleasure to follow the noble Lord, Lord Eatwell.

Economic commentary has been dominated by the fiscal hole—said to be £30 billion—facing the Chancellor. To stick to her fiscal rules, Rachel Reeves will have to raise taxes, or cut spending, or do both, but she has promised not to raise taxes and has promised to increase public spending. She is, therefore, in a bind. However, this fiscal straitjacket depends on two assumptions: first, that there will be little or no economic growth in the next four years; and secondly, that the British economy is already at or near full employment. These are reasonable forecasts based on recent trends. However, since 2008, average economic growth has been about 1.5% a year, a full percentage point lower than before, and much of that has been down to the increase in population. Living standards for the majority have hardly risen and productivity has been flat, and the OBR expects this to continue. The noble Lord, Lord Elliott, emphasised the need for abundant employment, but I would suggest a different path from the one he has outlined.

With headline unemployment at 1.8 million, we are tolerably close to what we think of as full employment, though it has gone up a little to 5% recently. Is this a true measure, though, of spare capacity? Apart from the headline count, we have four million, or 10% of, working-age people claiming either disability or incapacity benefits, plus 1 million NEETs: that is, those between 16 and 24 who are not in education or in employment. In addition, 7.7 million are employed part-time. Then there are those who have left the labour market altogether. Some of these categories overlap, but if one were to add up the full-time unemployed, part-time workers who want to work more, those on disability benefits who could do some work, and the discouraged, one could get a better measure of spare capacity than the headline count alone. Estimates suggest the figure would be about 10% to 15% of the labour force. This, if true, would justify greater fiscal loosening than the OBR considers prudent. That is the first point.

How do we get the underemployed back into work? It is not simply a question of increasing demand—the old Keynesian formula. One has to rebuild supply. To give one example, the Government have unveiled a youth job guarantee scheme covering ages 18 to 21. Every young person who has been on universal credit for 18 months without earning or learning will be offered a guaranteed work placement, with the aim of helping them to transition into full employment. I welcome that initiative; it is very important. I like to think that it was influenced by a paper entitled Job Creation is the New Game in Town, which I co-authored with Gordon Brown five years ago. We wrote:

“Regional and local government job and training schemes”


for young people

“are essential to the task of reallocating work and skills into the labour market”.

We went quite a lot further, but I do not have the time to go into that. The basic idea was that there should be a public sector job guarantee, with a buffer stock of state-supported jobs and training schemes that expands and contracts with the business cycle. A job guarantee of this kind could take up a large part of the slack in the labour market. By raising the rate of economic growth, it would help reduce the deficit, and the guaranteed training and apprenticeship part of the scheme would directly address the productivity problem. So I urge the Government to fight the bond vigilantes and the tax cutters with a positive programme of economic renewal.

Spring Statement

Lord Skidelsky Excerpts

Thursday 27th March 2025 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, do the Government believe that we have a shortage or a surplus of labour? The question arises because the OBR has calculated an output gap of 0.5%, closing by 2027, which suggests that we actually have full employment, yet that flies in the face of common sense. We have 1.5 million people, or 4%, unemployed; 8.4 million, or 20%, working part-time; 2.3 million, or 5%, on disability benefit; 3.3 million, or 8%, on incapacity benefit; and 4.2 million, or 10%, drawing sickness benefit. I am not suggesting that they are all available to work—of course that is not true—but some of them are. Can the Minister ask the OBR to make clearer the basis of its calculations of capacity and output gaps? On those depends the whole success of the Government’s economic strategy.

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question and his expertise on this matter. He rightly highlights one of the most important challenges facing this country, which is inactivity. We have far too many people who are economically inactive. We are the only country in which inactivity has not reduced to pre-pandemic levels at this point, and that clearly is not a sustainable situation. A lot of our policies are driven towards ensuring that people can re-enter the labour market, exactly as he says. On speaking to the OBR, I am more than happy to make that point to my colleagues.

International Banking: Payments

Lord Skidelsky Excerpts

Thursday 28th November 2024 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, the noble Lord, Lord Collins, stated in this House on 15 October:

“Sanctions … are a crucial tool to weaken Russia’s ability to attack Ukraine”.—[Official Report, 15/10/24; col. GC 21.]


After nearly three years of sanctions, do the Government still consider them to be an effective tool, especially in the light of the evasions which have been mentioned earlier in the debate? I call upon the Government yet again to give an undertaking to publish their assessment of the effectiveness of the sanctions regime, so we can have an evidence-based debate on the subject rather than being fobbed off with mere assertion.

[Lord Livermore (Lab)]

The answer to the noble Lord’s first question, in terms of whether we consider them effective, is yes. In the case of Russia’s invasion of Ukraine, these measures have dramatically reduced Russia’s access to global financial markets and weakened its ability to finance its illegal invasion of Ukraine. Russia’s increasing reliance on North Korean and Iranian weapons highlights the impact these sanctions have had. We will pursue any necessary steps with our allies to maintain and reduce opportunities for the circumvention or evasion of international sanctions.

Autumn Budget 2024

Lord Skidelsky Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, there are many things to welcome in this Budget, particularly on the spending side. I am less keen on some of the tax proposals, which seem to be mean-minded and counterproductive, such as the tax on knowledge.

The spending commitments are important because they reverse the disastrous policy of austerity, which has brought our public services and infrastructure close to collapse. Even the IMF, originally a champion of austerity, admitted that it had underestimated what it called austerity’s negative multipliers, which is simply code for it having been disastrously wrong in estimating the negative effects of austerity.

The cost of austerity has been severe. Median per capita income is lower than it was in 2010. The public debt to GDP ratio has gone up from 70% to 100%. By far the most important reason for this has been weak economic growth. This means that the Chancellor gets less help from the denominator in the debt to GDP ratio. Austerity has been a crucial cause of low economic growth. It is a vicious circle: cuts in public spending reduce the growth rate, which raises the debt to GDP ratio, which raises the interest rate on government debt, which requires austerity to counter it, and so on. We have to get out of this.

The Chancellor has tried heroically to escape this trap by tweaking the fiscal rules; for example, by reclassifying public sector debt as public sector net financial liabilities. I think that the Government hope to squeeze an extra £50 billion spending headroom from these and other measures. Perhaps one should welcome any sleight of hand which loosens the iron grip of the Treasury.

However, honesty compels me to say that current capital account distinctions in the public sector are full of holes. Are student loans to be counted as assets, even though most of them will never be repaid? There are other questions such as that. The Chancellor will also need to persuade sceptical businessmen that the publicly owned national wealth fund will produce, over the years, net assets rather than net debts. I understand all those things, but economic orthodoxy forces the Chancellor to tell an incomplete story. In her narrative, there is no mention of demand, only supply.

The sagacious Paul Johnson of the IFS warns that if you really want to spend more, you will have to tax more; that is right, but as any economist will tell you, how much more depends on how much spare capacity there is in the economy. Bringing idle plant and labour into use gives you a free lunch. How much spare capacity is there in the British economy? If we add up the inactivity rate and part-time working, it is at least double the headline unemployment rate of 4% or so that we read about, so there is scope to boost demand as well as to improve supply.

For those who want to increase public spending while maintaining fiscal probity, I recommend an ancient piece of fiscal machinery known as the balanced budget multiplier. The idea behind it is that an increase in government spending balanced by an equal increase in taxes yields a positive multiplier—I would be happy to explain why to any noble Lords who find this puzzling. But the last thing the Conservative Party wants to do is to balance the budget by raising taxes; its fiscal zeal is concentrated on austerity. The Labour Party is more open-minded and generous; that is why it is a good thing that Rachel Reeves, and not Jeremy Hunt, is in charge of the Treasury.