Spring Budget 2024

Baroness Noakes Excerpts

Monday 18th March 2024 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I will start by being positive about the Budget and talk about the things that I like. First, tax cuts are good, so I support the reductions in national insurance contributions. This will increase incentives to work.

Secondly, the longer-term ambition to eliminate employee national insurance contributions is excellent and will help to simplify the tax system. The contributory principle has been a fiction for a very long time, although I note that the Benches opposite have not yet caught up with that. I hope that the Chancellor will also look at employers’ national insurance, which is a tax on jobs and therefore a disincentive to job creation. I find it bizarre that we tax people-intensive businesses more highly than capital-intensive ones.

Thirdly, I support the focus on increasing public sector productivity. Too often, fingers are pointed at the private sector when discussing the UK’s poor productivity performance. The 20% or so of our GDP generated in the public sector has often been in negative territory and has been a significant drag on our overall performance. Because the NHS sucks up so much of our public sector resources each year, it was inevitable that the Chancellor would look there first, but my heart sank when I heard him talk about stuffing several billion pounds into NHS IT. The NHS’s history is littered with IT failures and, if the Government go ahead with this, they really must hold NHS England to account and not let it off the hook this time.

Fourthly, I was thrilled that the Laffer curve has been embraced. I have often extolled this in debates in your Lordships’ House. I agree with the noble Lord, Lord Eatwell, on many things, but on this I definitely do not. The reduction in the capital gains tax rate on residential property is pretty small beer in the overall Budget arithmetic, but it is a start, and I hope that the Chancellor will pursue tax rate reductions with more fervour in future. The OBR recognises the dynamic effects of tax changes only to a very limited extent, and the Chancellor must not let the OBR be a roadblock to more reductions in tax rates in the future.

I really wanted to find more things to praise in the Budget. I tried very hard, but I failed. This is yet another Budget which delivers very little to break out of the low-growth, low-productivity rut in which we find ourselves. We have a high-tax economy. Tax at 37% of GDP by 2028 is nothing to be proud of. We have fiscal drag, high marginal rates for individuals, a high rate of corporation tax and windfall taxes, all piled on top of a vastly complex tax system, and these are just some features of our current tax landscape. It is no wonder that, in last year’s tax competitiveness index, the UK was ranked 30th out of 38 countries, three places lower than the previous year.

We also spend too much. Public expenditure is way over 40% of GDP, and while it is on a downward trajectory, nobody really believes that this will last, absent detailed plans of how that is to be achieved. It is possible to get public expenditure down, but it will not be achieved by productivity gains alone. At the end of the day, we will have to stop doing some things. It will be very hard work, but I can see no evidence in the Budget papers of a commitment to doing it.

The Chancellor labelled his Budget

“a Budget for long-term growth”,—[Official Report, Commons, 6/3/24; col. 840.]

but the truth is that it lacks a single-minded focus on growth. The Chancellor’s speech was complacent on our recent dismal growth figures, and failed even to acknowledge that we seem to have slipped into a technical recession in the second half of last year. The Chancellor seems to think that bullying pension funds into investing in UK equities amounts to a pro-growth policy, but I think it amounts to a sub-optimal pensions policy. While I rarely agree with the chairman of the National Infrastructure Commission, he hit the nail on the head last week when he emphasised that pension funds need to invest for the benefit of current and future pensioners, and that means investing in the best investment opportunities wherever they are found.

The new UK-only ISA announced in the Budget is not much more than a gimmick. Apart from its being unlikely to have any significant impact on anything, the consultation shows that this is just another complicated scheme in an already complicated savings landscape. There are already five different types of ISA; we do not need a sixth, especially one which could well prohibit savers from making rational investment decisions. Growth will not come from this tinkering.

A key plank of supply-side reform is deregulation, especially for smaller businesses. It cannot be said too often that businesses just want to be left to get on with running their businesses. Every minute spent on the complex web of regulation which successive Governments have spun around the business world is a minute not spent on wealth creation. Large companies love regulation, because it squashes smaller competitors. A proper Conservative Government would smash through this, but there was not even a mention in this Budget.

I am used to being disappointed by Budgets produced by Conservative Chancellors. This one was no exception.