Autumn Budget 2025

Lord Eatwell Excerpts

Thursday 4th December 2025 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, the Budget contains a set of measures that reinforce the three pillars which support investment and growth: financial stability, growing demand and institutional reform. Financial instability, as many have commented, is the enemy of investment, as painfully illustrated in the years since the global financial crisis. That is why the £21 billion headroom is important, securing confidence in our financial future.

Given that stable financial framework, growing aggregate demand is the fundamental stimulus to investment. Happily, the Budget’s commitment to fairness, in the removal of the two-child cap, the commitment to an increased minimum wage, and the mansion tax, in itself stimulates demand by transferring income to those with lesser means. Those in the most challenging economic circumstances necessarily spend every pound that they receive, hence boosting demand, while those who are better off do not. The Budget also boosts demand by protecting the growth in public investment foreshadowed in the spending review. This is terribly important. Indeed, public investment is brought forward to accelerate delivery of major infrastructure projects in 2026-27.

The third component of the growth trilogy is the institutional reform that is needed to provide the resources for growth. We have heard a lot about planning reform, but the lack of equity investment for SMEs is one of the major inhibitions to growth in the UK. Britain lacks the creative venture capital sector that is enjoyed by the United States. The Budget addresses this issue. The National Wealth Fund now has £28 billion available to invest. The British Business Bank—essentially a venture fund—sees its funds boosted from £1.5 billion to £2.5 billion every year. It is not just financial reform that is needed but new sources of skills. In the Budget, £1.5 billion is made available for additional employment and skills support, including fully funded apprenticeships offered by SMEs.

These developments in the architecture of financial and labour markets are typically ignored in Budget commentary. They are seemingly too technical and perhaps too practical. Yet in the long run, they will be far more important than debates over the minutiae of taxes and allowances. However, the Budget does embody a characteristic that is unfavourable to growth, as a number of noble Lords have already mentioned; namely, it adds complexity to the tax system. As Adam Smith made clear, tax complexity is not only costly and damaging to enterprise but the cornerstone of tax avoidance and evasion. Various attempts have been made to simplify taxation over the years, but they have foundered on the pressing immediacies of political life.

The Government, in pursuit of the growth objective, should establish now a commission on the simplification of business taxation. The commission could build on the excellent work done by James Mirrlees in his IFS report, Tax by Design. For example, Mirrlees argued that the tax system should be designed as a whole, not as a patchwork of taxes and benefits. Is that recognised by noble Lords? Surely noble Lords will recognise how right Mirrlees was and how the patchwork needs to be turned into a coherent design.