Autumn Budget 2024

Lord Bilimoria Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Bilimoria (CB)]

My Lords, the Government, the Chancellor and the Prime Minister keep talking about growth, but to do that the private sector has to be supported to grow. It is the private sector that creates the jobs that pay for the taxes that pay for the public services—no growth means no taxes, and if you put up taxes by £40 billion then you get no growth. That is the paradox.

Tax on employment generates £455 billion, which is 45% of total public sector receipts, but high employment taxes can discourage firms from hiring. On top of that, I am sorry to say that the previous Government are to be blamed for raising taxes to their highest level in 70 years. I implored Rishi Sunak, when he was Chancellor and I was president of the CBI, “Don’t put up taxes”. What did he do when he became Prime Minister? He put corporation tax up from 19% to 25%.

Higher taxation is associated with reduced labour supply. Studies show that a 1% rise in tax correlates to a 0.5% drop in hours worked, and studies indicate that higher labour taxes increase unemployment levels. The Labour Party has promised no increases in certain taxes. That is all very well, but, for example, removing the non-dom regime is going to have a hugely detrimental effect. Those 75,000 people pay £9 billion of tax a year; they invest and spend in this country; they are mobile, and that money will fly. What about IR35? There was no mention of that. Maybe the Minister could say why not.

GDP per person in the second quarter of 2024 was 0.6% lower than before the pandemic. Public sector net debt is now almost 100% of GDP. That is four percentage points higher than a year ago and at a level last seen in the early 1960s. According to the IFS, as a share of GDP, the rise in taxation by the end of the decade will be the second largest of any post-war fiscal event. The tax take is forecast to increase to a peacetime record of 38% of GDP.

The removal of inheritance tax relief in terms of a 20% tax for business and agricultural property, AIM shares and pensions is so harmful, particularly for farmers. I do not think that has been thought through. Some 70% of farmers will be hit by it. Will they be able to sell their land to be able to pay the tax? If they are tenants and do not own the land, they cannot even do that. How do you value businesses? How do you sell? This is going to be a disastrous move.

As for VAT on private schools, with £1.3 billion forecast to be raised, in the debates we have had previously we have demonstrated that it will probably cost the Government £1.6 billion, with a higher burden on the state sector and a drop in the number of international boarders. This is a penny-wise and pound-foolish move.

Total public spending is forecast to settle at 44.5% of GDP by the end of the decade. That is almost five percentage points higher than before the pandemic. This is not good news, although the Government are doing the right thing with the blood scandal and the Post Office Horizon scandal.

The OBR has forecast that real household disposable income per person will grow at just over 0.5% a year on average for the next five years. That is the joint lowest on record.

According to an article in the Telegraph today, for many businesses the biggest shock was not the rate increase but a near halving of the threshold at which they have to start paying national insurance, from £9,100 to £5,000. The hospitality industry has warned that this change will cost over £1 billion. Taken together, the changes mean that a company employing a part-time worker doing 15 hours a week will see its national insurance contribution bill increase by 73%. That is ridiculously high. Kate Nicholls, the chief executive of UKHospitality, describes this increase in costs as “eye-watering” and warns that it disproportionately hits companies in her sector given that many employ part-time staff in roles such as waiting and bartending.

Whenever you get a significant cost increase, what do you do as a business? You can put up your prices, reduce your costs or stop investing. The OBR has warned that all the measures in this Budget will lead to low growth. The highest forecast is 2%; most are just over 1%. Inflation is going to go up. Businesses are bearing the brunt of the £40 billion tax increase, and relief on business rates is going down from 75% to 40%. How are pubs and restaurants going to manage? How is the high street going to manage? On top of this, we have the £5 billion costs and the impact of employment regulation. We have one of the most flexible labour markets in the world. That is a huge advantage now being eroded.

After 16 years of financial crisis, austerity, Brexit, the pandemic, the Ukraine war, inflation at 11%, energy inflation, the cost of living crisis, 7 October, the tragedy after that and the uncertainty every way that you look, how much more can business deal with? How resilient can our businesses be? This is not a pro-business Budget or a pro-entrepreneurship Budget. It is government’s job to be a catalyst and create the environment for businesses and entrepreneurship to flourish and grow. I am sorry, but this Budget does exactly the opposite. I am afraid to say that I warn the Government that this Budget is going to come back like a boomerang and bite us.