Economic Growth

Lord Petitgas Excerpts

Thursday 23rd January 2025 Lords Chamber

[Lord Petitgas (Con)]

My Lords, I am grateful to my noble friend Lord Farmer for initiating this debate. It is a timely discussion given the challenges we face.

Broadly speaking, economic history offers us two models: a bottom-up, liberal approach that prioritises risk taking, innovation and wealth creation, and a top-down, state-driven model that typically comes with higher taxes and welfare spending. Today the UK is operating under model 2. That model has delivered growth in the past, but it seems very unlikely to do so now. As my friend, the noble Baroness, Lady Moyo, said, we do not lack the three canonical ingredients for growth—talent, innovation and capital. Indeed, we punch above our weight in financial services, life sciences, technology and the creative industries. We can certainly be proud of how we attract a lot of investor interest from around the world.

What we lack is confidence in our economic policies, both here and abroad. Since the Autumn Budget, pessimism has deepened. With near-zero GDP growth, long-term gilts over 5%, debt levels at 100% of GDP and wage growth outpacing productivity gains, we find ourselves in a bind. Whether that is because of a legacy or not, these are the facts. It does not matter who is responsible; that is what we are living with. The classic growth levers are therefore gripped: taxes have hit a ceiling, budget cuts are hard and borrowing costs are too high. Alarmingly, some experts warn of a potential debt trap, with both borrowing costs and public spending well exceeding economic growth and interest payments covered mainly through further borrowing. In fact, 85% of our annual borrowing covers our interest on existing debt. It is an untenable situation.

Allow me to outline five topics that might help reset investor sentiment. I had six with the non-doms, but I took the view that that had been dealt with at Davos today. First, we must address the size and cost of the public sector. When businesses face financial strain, they cut costs and innovate; the Government must also do so. The DOGE initiative in the US should not be underestimated: for better or worse, it will make the political weather in this policy area. By streamlining public services and improving efficiency, we can lower expenditure while keeping quality.

Secondly, our energy costs are too high—in fact, they are the second-highest in the G7, double those of the US. This burdens businesses and households alike, and will hamper our AI development. Our commitment to net zero remains important, but we must adopt a pragmatic approach balancing environmental goals with economic realities. The UK already leads the G7 in decarbonisation; now is the time to focus on affordability without compromising progress entirely.

Thirdly, we must strengthen and invest in our special relationship with the US. This is the largest economy in the world and the only one that seems to be working. As we move further into an American and AI-driven century, leveraging our unique ties with the US will be critical for trade, investment and innovation for this country. Few nations enjoy such a privileged connection; many would give their right arm for it. We must capitalise on it fully to secure our economic future.

Fourthly, on the supply side we must roll back regulation and planning restrictions. We can be the nation of common-sense regulation again—distinct from the EU’s regulatory complexity and the US’s unique model. We will attract investment and encourage innovation. Recent changes at the CMA are a welcome signal that the Government are more attentive to global business concerns, which I welcome.

Fifthly and finally, we need to rebuild trust with the private sector. The recent Budget trifecta of NIC increases, changes to workers’ rights and higher business rates has caused widespread concern and consternation among many business leaders. We should listen to their feedback and consider adjustments, such as maintaining our flexible labour market and lowering capital gains tax for entrepreneurs. We need a pro-growth tax measure to ensure that the UK remains competitive. There is no time to lose: in April the NIC increases kick in and business confidence, particularly that of SMEs, will suffer a further blow.

In my view, these ideas and many others discussed today represent more than just policy adjustments. They are part of a broader effort to shift perceptions of the UK economy from one characterised by high costs and low growth to one defined by innovation, connectivity and competitiveness on a global scale.

We face what I believe is nothing short of a national emergency—a situation that demands bold action and decisive leadership. Only by fostering confidence among businesses and investors can we create an environment conducive to sustained growth and, ultimately, prosperity for all.