Employment: Tax Policy

Lord Elliott of Mickle Fell Excerpts

Thursday 31st October 2024 Grand Committee

[Lord Elliott of Mickle Fell (Con)]

My Lords, I congratulate my noble friend Lord Leigh on securing this timely debate, which feels like a dress rehearsal for the actual Autumn Budget debate on 11 November.

I wish to contribute three points today. First, I want to share some views from business leaders outside London on employment taxes. Secondly, I want to highlight what appears to be an inconsistency in government policy. Thirdly, I want to focus on the need to encourage UK-born entrepreneurs to stay here and create jobs rather than going overseas.

On my first point, I draw the attention of noble Lords to a report launched by the Jobs Foundation this week. As my noble friend Lord Leigh kindly mentioned, I am president of the Jobs Foundation, as declared in the register of interests. The report is called: Two Million Jobs: How Businesses Play a Crucial Role in Helping People from Welfare into Work. It is a ground-breaking piece of research that tries to help the Government to deliver on their highly commendable ambition to increase the employment rate to 80% by helping 2 million people from welfare into work.

The author interviewed business leaders, employees and stakeholders in four locations—Sheffield, Loughborough, Hartlepool and Pembrokeshire. These locations were chosen to cover the length and breadth of Britain, and represent the individual needs of a city, a town, a coastal community and a rural community. Many policy areas were discussed, and I know from these conversations that some elements of the Budget will have been very much welcomed, including the measures to improve transport links. But a consistent theme from the interviews was a concern about increasing taxes on employment, so I know that many of the business leaders spoken to, who are all involved in helping people from welfare into work, will be concerned about the announcement on employers’ NI in yesterday’s Budget.

That brings me on to my second point. Listening to the Budget, I was struck by the apparent inconsistency in government tax policy. On the one hand, the Chancellor announced an increase in the soft drinks levy, presumably to discourage people from buying sugary drinks; a rise in alcohol duties to discourage drinking; and an increase in tobacco duty

“to maintain the incentive to give up smoking”.—[Official Report, Commons, 30/10/2024; col. 819.]

All these tax rises are premised on the correct assumption that increasing taxation reduces consumption. But, on the other hand, there seems to be little recognition that increasing taxes on jobs by increasing employers’ NI will similarly reduce demand for employees, and potentially reduce the number of people in work. If increasing taxes on tobacco is designed to reduce smoking, surely increasing taxes on employment reduces the number of jobs? I would be interested to know whether the Minister expects the number of jobs in the UK to fall with the increase in employers’ NI. If that is the case, will it not hinder the Government’s laudable efforts to get 2 million people from welfare into work?

My third and final point is that we need to focus on how taxation affects where entrepreneurs locate themselves and their businesses. Earlier this month, I attended the GITEX conference in Dubai, which gathered together over 6,500 entrepreneurs from over 180 countries. It was a wonderful window into the future and so inspiring to see innovators enacting their ideas and creating the world of tomorrow. However, something was painfully striking: the number of young UK-born entrepreneurs who had left the UK to pursue their dreams and ambitions. I asked them why they had chosen to do this, and a consistent theme was the UK’s business environment, including, but not solely, the level of taxation. One might ask: why is this a problem? It is a problem because start-ups create far more new jobs than established companies.

A report by the Ewing Marion Kauffman Foundation in 2022 looked at the United States and found that, in 2019, companies in their first year created 5.24 new jobs each, while companies older than that created, at most, 0.4 new jobs each. Therefore, it is essential that we incentivise start-ups to locate here in the UK to create some of the 2 million jobs required to increase the UK’s employment rate. Sadly, some entrepreneurs are already looking to vote with their feet. A recent survey by the Startup Coalition found that more than 80% of the start-up founders it represents were considering leaving the UK. We need the young entrepreneurs I met in Dubai to want to stay here in the UK to build their companies and create jobs, and that requires a tax system that encourages entrepreneurship and incentivises wealth creation.