Spending Review 2020

Baroness Noakes Excerpts

Thursday 3rd December 2020 Grand Committee

[Baroness Noakes (Con)]

My Lords, I support what the Government are doing to support the economy. I wish that our Covid policies had not themselves been so harmful to the economy—but we are where we are. The resultant debt and deficit forecasts are scary and leave us exposed to interest rates that will inevitably rise at some point. The fiscal challenge is huge, but my simple plea to the Government is: do not turn to taxes as a way to solve this problem.

I have three points to make, and one parting shot. The first is a reminder that the Laffer curve is a real thing. Yield goes down when rates rise. For example, any short-term gain from raising the rate of capital gains tax, as the Office of Tax Simplification has misguidedly suggested, will be illusory, as behaviours will change and asset markets will be distorted. Secondly, raising income tax rates should be off the agenda until the economy is much stronger. All it will do is reduce disposable income and hence demand in the economy. We will need as much demand in the economy as we can get. Thirdly, the business sector must be encouraged to invest. The best way to do that is to reduce the rate of corporation tax and return to the aim of 17% or less.

My parting shot is that the Treasury must take time to understand what it takes for businesses, especially SMEs, to be profitable and to grow. Too many initiatives, such as making tax digital, ignored the real-life problems of SMEs trying to run successful businesses. We need SMEs more than ever now to rebuild our economy.