Economic and Taxation Policies: Jobs, Growth and Prosperity

Lord Eatwell Excerpts

Thursday 13th November 2025 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, we are all grateful to the noble Lord, Lord Elliott, for having secured this debate. As noble Lords will know, the noble Lord is one of the most brilliant political campaigners of his generation, evidenced in the speech we have just heard and, most notably, in his leadership of Vote Leave, the successful Brexit campaign. Hence, according to estimates by the Institute for Fiscal Studies—confirmed recently by the United States’s National Bureau for Economic Research—he is, at least in part, personally responsible for a permanent reduction in UK GDP of between 4% and 6% per annum, with estimated tax revenue being lower by more than £50 billion per year. This makes his negative assessment of the Government’s economic policies seem rather small beer. The common conclusion of serious economic studies is that Brexit, unsurprisingly, has damaged trade. Even more seriously, it is having a long-term negative impact on investment in the UK. The American study I cited estimated that there was a reduction in investment of between 12% and 18%. That is where the long-term damage is being done. Investment is the foundation of productivity growth, embedding innovation in the production of goods and services.

In recent years, Britain has had a dreadful record, with the share of business investment in GDP consistently lower, year after year, than in other G7 economies. If we do not invest more in productive capacity, R&D and skills, the growth prospects for the UK are very poor indeed. We must look to investment for the enduring impact of the Government’s economic policies. At the core of these policies are Rachel Reeves’s fiscal rules, notably the commitment to balance the current budget: day-to-day spending must be funded by revenues. However, this does not apply to investment. Borrowing is allowed for investment: indeed, the rule is designed to protect long-term projects from short-term exigencies. Hence, in the 2024 Budget, the Chancellor funded public investment growth of 2.5% per year, year on year, to 2029, replacing the Conservative plan to cut investment growth to a miserable 1.7% per annum: a difference of £20 billion-worth of investment per year.

Government investment in transport, housing, research and development and energy is the much-needed long-term commitment to the British economy, protected by the fiscal rules. Given that the fiscal rules are central to government policy, it is odd that they were not mentioned by the noble Lord in his introduction. It is surely incumbent on the party opposite, particularly the Conservative Front Bench, to state clearly whether they support the fiscal rules or not. The rules protect long-term public investment, but what is their impact on business investment? The OBR estimates that a 1% increase in public investment leads to an up-to- 1% increase in business investment as well. The Bank of England noted recently that public investment in R&D and infrastructure tends to have a stronger, longer-lasting, “crowd-in” effect than short-term spending. Growing public investment causes growing private investment. The fiscal rules are not just supporting public investment, they are supporting business investment too. Surely that is an impact of the Government’s fiscal policy that all sides of this House should celebrate.