King’s Speech

Lord Burns Excerpts

Thursday 14th May 2026 Lords Chamber

[Lord Burns (CB)]

My Lords, most of us agree that economic growth is critical. I am very pleased to see that it is on the board, as it is one of the best topics that we are discussing in this response to the gracious Speech. Growth widens the choices that are available for Governments. It increases the scope for making those choices and the trade-offs that Governments are forced to make. As we know, higher output and greater productivity lead to high disposable incomes, generate the taxes that we need to fund public services, and, when you have a decent rate of growth, provide much more room for spending, adjustments and allocations between different areas.

The tough challenge for any Government is that underlying growth rates change only slowly and are difficult to predict. Since 2007, the growth rates of the major countries have been significantly slower than they were in the years before. In this respect, the UK’s performance is similar to that of other major European countries. The reality is that it is difficult to increase the underlying growth rate in the UK if we have slow growth around the world. That has been the pattern and, for the moment, it looks as though that pattern will continue.

We must be much more careful about putting too much emphasis on month-to-month changes, which tend to be erratic. There has been a pattern in recent years of stronger figures in the early months of the year and weaker figures later—possibly a seasonal adjustment problem. This morning’s GDP might show a quarterly increase of 0.6% but the reality is that this is still only 1.1% higher than the first quarter of last year. This compares with the years when we became accustomed to growth rates of 2.5%.

One criticism of the Government’s approach has been the failure to acknowledge at an earlier point that much of the previous Government’s woes were due to this global slowdown and that simply changing Governments has not changed this. Ahead of the election, the Economic Affairs Committee highlighted major spending challenges ahead—the cost of net zero, increased defence spending and an aging population—all of which will put pressure upon financial stabilisation. Given these challenges, my view was that taxes would have to increase across the board or significant public spending savings would be necessary, and probably both. Instead, we have seen increased public spending and attempts to raise taxes either on employers or on a very narrow part of the tax system. This has sparked anger and has not succeeded in raising sufficient revenue. Further, the other measures to protect jobs have done little to improve the economy’s supply side.

However, my biggest concern now is that some groups involved in the current leadership debate are convinced that faster growth can be achieved through increased public expenditure and larger fiscal deficits. My experience is that this is a confusion of cause and effect, and a very serious one. Over time, the scope for higher public spending is a result of faster growth; it is not the cause of faster growth. We start with a debt ratio close to 100% of GDP. Debt interest costs consume 10% of our tax revenue. We have not been able to pay for the huge borrowing at the time of Covid or the cost of supporting energy bills. Proposals to increase this further, either openly or through disguised off-balance-sheet borrowing, which we have heard some chatter about, are high-risk policies.

We all desire a world where spending eventually pays for itself. With some aspects of spending this is the case, although the benefits take time to emerge. However, more often, they do not pay for themselves. The Chancellor deserves credit for recognising and emphasising this. For faster growth, we need an environment with effective incentives for work and investment. We urgently need an overhaul of the tax system to iron out inconsistent and bizarre marginal rates of tax for some people. We need to eliminate the wide range of unnecessary exemptions and allowances and ensure the right incentives for business taxation. However, these are all issues for future Budgets, rather than for the gracious Speech.

There are reforms in the gracious Speech that I welcome and which could make a difference, and we have heard about some of them this morning. I welcome the emphasis given to growth when judging the approach to financial services regulation. It has been a view of mine since the crisis that there has been a significant regulatory overreaction to the 2008 crisis. There is a natural desire to prevent it happening again and it is very important that prudential risks should be managed. However, in the process, increased regulation damaged bank lending to the private sector and the productivity of the banking industry. The focus was on changes that were the easiest to make, rather than on addressing the weaknesses that posed the greatest risk. This was also the action taken by the other major countries. My view is that the growth reduction which we have seen all those countries suffer is, in part, a result of that response to the crisis.

I support efforts to minimise friction in trade and flows of investment within Europe, although reaching agreement will be difficult and contentious, and, as many have pointed out in the course of the debate already, the growth performance of the major European countries has been one of the slowest in the world over this period. It is not exactly a vibrant market at this point.

Also welcome to me are the proposals for Northern Powerhouse Rail. In a predominantly service-based economy, cities have become increasingly important centres of wealth creation. However, they can realise their potential only if they have a functioning public transport system that allows as many people as possible to access them. With the growth of the economic potential of cities, commuting by car into those cities becomes increasingly difficult. This is not just a London issue; we can see the pressure around many cities. I was involved in transport services in Wales, where road systems are struggling to cope with these pressures. I remain hopeful that the proposals for a commuter service in south Wales, which I was involved in putting forward, will be in place soon, despite some of the devolution issues.