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.

Employment: Tax Policy

Lord Bilimoria Excerpts

Thursday 31st October 2024 Grand Committee

[Lord Bilimoria (CB)]

My Lords, the Government, the Chancellor and the Prime Minister keep talking about growth. The investment summit at the Guildhall had a huge sign saying “Growth”. But, to do that, the private sector has to be supported to grow. It is private sector growth that creates the jobs that pay for the taxes that pay for public services—no growth; no taxes. If you put up taxes, you get no growth. That is the paradox.

I thank the noble Lord, Lord Leigh, for his excellent opening speech. Taxes on employment generate £454.8 billion. That accounts for 45% of total public sector receipts. It is huge. Employment tax revenues represent almost 17% of UK GDP. For a married worker with two children earning an average salary, the UK has a tax wedge of 27%, above the OECD average of 25.7%. Higher employment taxes can discourage firms from hiring, reduce wages and affect workers’ decisions to enter the workforce or seek higher-paid jobs. Corporate and consumption taxes also influence that. Employment corporate taxes can deter investments in jobs. I am sorry but the previous Government have to be blamed for raising taxes to their highest level in 70 years and, in particular, putting up corporation tax from 19% to 25%. That was a huge mistake and should not have been done.

Consumption taxes create a wedge affecting labour, demand and supply. Higher taxation is associated with reduced labour supply, and studies show that a 1% rise in tax correlates to a 0.5% drop in hours worked. Of the 17 OECD studies, only five found no significant negative impact of taxes on unemployment. The remaining studies indicate that higher labour taxes increase unemployment levels. A 10% reduction in the tax wedge could lower equilibrium unemployment by 2.8% and raise the employment rate by 3.7%. That is what we are talking about. The fiscal drag that the previous Government put in place until 2028 is also hugely damaging, affecting 7 million tax payers.

The Labour Party has promised to maintain corporation tax at 25% and not raise income tax, employees’ NI or VAT. That is all great, but the noble Lord, Lord Leigh, mentioned the hugely damaging effect of the taxes on non-doms and the removal of the non-dom regime. Inheritance tax reforms will drive investment away from this country. I know many people who have already left. Some 75,000 non-doms pay £9 billion of tax; they spend and invest in this country. Those people are mobile and that money will fly.

The increase of capital gains tax from 20% to 24% was not as bad as we thought, but the elephant in the room is the £40 billion of tax increases. The OBR warned that this could weaken long-term growth in the UK economy. Sure enough, the forecasts for growth do not even reach 2% in the years ahead, at about 1.5% or 1.6%. Increasing national insurance by 1.2% to 15%, raising approximately £25 billion, is a tax on jobs. I agree with the noble Lord, Lord Davies, that if you spend more and increase infrastructure then that should help productivity, but our public spending will reach 44% of GDP by the end of the decade, funded by tax and borrowing. Businesses are bearing the brunt of this £40 billion tax increase. The threshold of NI going down from £9,100 to £5,000 will bring many more people in as well. The business rates discount put in place by the previous Government of 75%, which has really helped, is going down to 40%. How many pubs and restaurants and how much of the high street will be able to take that?

On top of that, we have a £5 billion cost on the impact of employment regulation, and we have flexible employment, which is a huge advantage over a country such as France. If you make our workforce less flexible, it has a cost to it, and it makes us less attractive for investment. Inflation is now predicted to go up to 2.5% or 2.6%.

To conclude, since 2008, over those 16 years of financial crisis, austerity, the Covid pandemic, the Ukraine war, with inflation up to 11%, energy inflation, the cost of living crisis, 7 October and the tragedy of that day and the tragedy since, and with the uncertainty in every direction you look in the world, how much more can business put up with? How much can business deal with? How resilient can our businesses be? As the noble Lord, Lord Leigh, said, 80% of the jobs are provided by it, and then there are the 5 million SMEs and the jobs that they provide. How can we carry on and deal with just one challenge after another? Then we get this Halloween Budget, burdening business with higher taxes. This is a tax, borrow and spend Budget, not a growth Budget. It is not a pro-business Budget or a pro-entrepreneurship Budget. The Government’s job is to be a catalyst and create the environment for businesses and entrepreneurship to flourish and grow. The Budget does exactly the opposite.

Budget Responsibility Bill

Lord Bilimoria Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 9th September 2024 Lords Chamber

[Lord Bilimoria (CB)]

My Lords, Rachel Reeves said:

“This Government’s defining mission is to deliver economic growth. However, growth can only come through economic stability and a commitment to sound public money so never again can a government play fast and loose with the public finances. This new law is part of our plan to fix the foundation of our economy so we can rebuild Britain”.


The decision by Labour gives the OBR the most power it has ever had since the Chancellor at the time, George Osborne, set it up in 2010. Of course, we know that forecasts can be wrong. The noble Lord, Lord Macpherson, said that they are invariably wrong, but he made an interesting point: what about opposition forecasts? Will the Minister respond to that?

The noble Lord, Lord Macpherson, also said very clearly that forecasts are based on assumptions. I know that. We in business continually make assumptions on all our forecasts and they are not always correct. Laith Khalaf, head of investment analysis at AJ Bell, said:

“Ironically Liz Truss and Kwasi Kwarteng did more to burnish the credentials of the OBR than any politicians since its inception. As things stand, the OBR is now more commanding than ever”.


The Bill will mean that the OBR, which monitors and checks the UK Government’s financial plans, has the power to make an assessment on announcements over the course of a financial year that make permanent tax or spending commitments worth more than 1% of the UK economy. That 1% is just over £2 trillion—just over £20 billion. My noble friend Lady Wheatcroft spoke about the black hole of £22 billion. This number keeps getting bandied around: it is not even 1% of GDP, yet it is made out to be the only reason why taxes need to be put up. If taxes are put up in the Budget coming forward—taxes such as CGT equated to income tax—it will be so damaging to the country and its economy and to investment.

The OBR provides independent analysis. It is meant to be absolutely independent. The Chancellor must request the OBR to produce forecasts at least twice a year. The initial Cabinet Office briefing note stated that the Bill’s purpose was

“to capture and prevent those announcements that could resemble the disastrous Liz Truss ‘mini-budget’”.

The briefing was republished with the reference to Ms Truss removed. Will the Minister confirm that? The absence of public OBR analysis is considered to be a factor in the negative reaction of the financial markets that followed. After Kwasi Kwarteng’s Statement, as we know, market volatility led to increased government borrowing costs and the devaluation of the pound against other international currencies. My friend Sir Anthony Seldon has just released his new book, Truss at 10: How not to be Prime Minister.

The fiscal mandate is a Government’s guiding fiscal objective, so tax and spending policy decisions should be made with this in mind. It is to ensure that public sector net borrowing does not exceed 3% of GDP by the fifth year of the rolling forecast period. The noble Lord, Lord Eatwell, made a very good point that I ask the Minister to respond to: what is the effect of this on automatic stabilisers? According to the Treasury, the effect of Kwasi Kwarteng’s and Liz Truss’s mini-Budget, which would have reduced income tax by around £45 billion, would have been to reach a trend rate of growth of 2.5%—that was a noble objective. It was reported that the OBR had provided the Chancellor with a draft forecast, but this was not made public. Opposition parties and the Conservative chair of the House of Commons Treasury Committee urged the Chancellor to publish the forecast, and the lack of that OBR analysis has been cited as the major factor that contributed to the negative reaction to the mini-Budget in the financial markets.

We can go into the analysis—by the BBC, for example—of key aspects and consequences of the mini-Budget: unfunded tax cuts, a funding shortfall, market reaction, an impact on interest rates and pension funds, Bank of England intervention, loss of market confidence, political and economic repercussions, reform and an emphasis on credibility. The noble Baroness, Lady Noakes, made a very important point: why is this a money Bill? This means we have a limited influence on the Bill; I do not think that this should have been a money Bill.

To conclude, the Bill has received support from many quarters, including from the CBI, of which I was president for two years, from June 2020 to June 2022. Louise Hellem, chief economist at the CBI, said:

“Market stability is a key foundation to enabling economic growth and business investment. Ensuring large changes in tax and spending policy are always subject to an independent assessment by the Office for Budget Responsibility will give businesses and investors additional confidence in the stability of the public finances”.