Economy: The Growth Plan 2022

Lord Sikka Excerpts

Monday 10th October 2022 Lords Chamber

[Lord Sikka (Lab)]

My Lords, the growth plan is based on the “horse and sparrow” economic theory. Its basic idea is that, if you feed the already well-fed horses additional oats, something will pass to the roadside to feed the sparrows, which will then magically lay some golden eggs and solve all our problems. Such economics were thoroughly debunked by the writings of people such as JK Galbraith, and there is absolutely no empirical evidence to support the basis of the Government’s economic plan. Handing tax cuts to the richest might enable them to speculate on the stock market, buy a few yachts, Lamborghinis, artworks, foreign holidays and second homes, but it has never enabled any country to build a sustainable economy.

The promised cut in the basic rate of income tax is illusory; the tiny gain will be wiped out by the stealth taxes, as the Government have already frozen personal allowances and income tax thresholds. In any case, the cut in basic rate of income tax will do absolutely nothing for 21 million adults whose annual income is less than £12,570. They will benefit zero; they are at the bottom of the pile, and they cannot contribute to a sustained economic growth. The Government by default appear to be relying on 30% of the population to fuel the economic growth; that has not worked anywhere on this planet, not even in South America, so I do not know how the Government are going to do this.

Since 2010, the UK has had low interest rates, inflation, corporation tax rates and a whole variety of tax reliefs to persuade companies to increase their investment. Throughout the 2010s, the UK put 16.9% of its GDP into productive assets and was ranked third from bottom in the EU productive investment league; only Greece and Portugal were below it. Could the Minister explain why the low corporation tax rates did not secure greater investment before, and how on earth they are going to do it the next time? Previous corporation tax cuts actually fuelled dividends, most of which were paid untaxed to foreign investors. Major UK companies are currently paying up to 80% of their earnings in dividends and share buy-backs. The Government’s growth plan makes no mention of any reform of short-termism or corporate governance, or any other pressures on corporations.

Good purchasing power in the hands of the masses is a necessary condition for corporate investment but is utterly neglected by the Government. In 1976, workers’ share of GDP in the form of wages and salaries was 65.1%; it is now less than 50%, the biggest decline in any western economy. If people have not got the money, they cannot buy—why would any company want to invest in productive assets? The Government have done absolutely nothing about that. Regressive taxation has been continuously championed by the Government and has further depleted the purchasing power of the low and middle-income households. The poorest 10% of households pay 47.6% of their gross income in direct and indirect taxes, compared to the richest 10%, who pay only 33.5%. The mini-Budget could have reduced VAT, but it did not actually do that—it did not really want to improve the purchasing power of the people at the bottom.

To sum up, the mini-Budget hoovers wealth upwards. It does not increase the people’s purchasing power, pays no attention to corporate governance or to short-termism or reasons for low investment, and it does not really provide any basis whatever for building a sound economy.