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Baroness Crawley
That an humble Address be presented to His Majesty as follows:
“Most Gracious Sovereign—We, Your Majesty’s most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty addressed to both Houses of Parliament”.
The Parliamentary Secretary, Cabinet Office (Baroness Anderson of Stoke-on-Trent) (Lab)
My Lords, it is a great honour for me to open our five-day debate on the gracious Speech. These moments allow us to reflect on how much we have achieved after many constructive hours of debate, lots of votes and the occasional—or maybe not so occasional—late night. Noble Lords know quite how ambitious we have been in our legislative agenda. Over 60 Bills were passed in our first Session of Parliament, and yesterday His Majesty set out our ambitions for the forthcoming Session.
Those ambitions have one central mission: to build a more resilient country that spreads opportunity for all. The country in which we live is one in which talent is everywhere but opportunity is not, and the world in which we live has never felt more dangerous and volatile. Even in the last few months, global uncertainty has only increased, and the impact on our neighbours is real. They are struggling with the cost of living and worrying about the impact on their futures and their children’s futures of events outside their control. Our discussions today and in the rest of this Session must be real and tangible for them—they must be felt by people in their daily lives. Delivering on our promises are not just words but our contract with the nation.
That is why the gracious Speech set out new legislation focusing on outcomes, not outputs. It does not just address the problems of today but seeks to strengthen our national foundations, so that we can build a stronger and fairer economy that works for all of us in England, Wales, Scotland and Northern Ireland, bringing prosperity to every corner of the United Kingdom, building on our place in the world and strengthening our relations with key allies.
The Government’s economic plan is based on three pillars: to create a strong foundation for businesses to plan and invest, to deliver growth-driving infrastructure and to crowd in private investment, and to systematically remove the barriers to growth across the economy.
This year’s Spring Statement showed that our economic plan is the right one but, as we have set out, the war in Iran will come at a cost. That is why the measures set out in the gracious Speech will help build growth that is both secure and resilient in order to raise living standards for working people.
At the heart of this, as noble Lords will be aware, we are continuing our work to secure a closer and more stable relationship with our largest trading partner, the EU, valued at £860 billion last year. This is vital, because since Brexit too many businesses are burdened by unnecessary bureaucracy that dominates everyday imports and exports with the EU, compounding the costs that are passed on to British families, pushing up prices and increasing the cost of living. The common understanding agreed last May will remove those barriers, underpinned by sensible legislation that upholds British standards while cutting red tape.
This is a core part of a wider plan. The UK is taking a strategic and clear-eyed approach to major partners, deepening trade where it supports growth while balancing security and economic resilience. That includes securing a landmark deal with India, expected to boost UK GDP by £4.8 billion a year; making the most of our accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, expected to increase UK GDP by £2 billion a year; and a stronger focus on the UK’s global strengths, particularly in services exports.
To achieve growth in the current global economic environment, businesses need as much certainty as we can offer. They need support to take advantage of new trade opportunities, and of course they need assistance and guidance in light of new technological innovations. That is why we have published three landmark strategies setting out our collective vision for growth, seeking to make the UK the best place in the world to do business and the best-connected economy, and delivering targeted support for businesses as they seek to grow.
None of the issues we are discussing today can be considered separately from our national security and our place in the world. The ongoing war in Ukraine has highlighted the importance of European co-operation on security and defence. In an ever more uncertain world, it is right and necessary that we seek to deepen our strategic partnerships, including with our neighbours with whom we have common interests, face common threats and must build common solutions.
Your Lordships’ House will be aware that we have already taken concrete steps towards these objectives. Last year’s historic UK-EU summit announced a series of deals that are good for household bills, borders and jobs. We have also recently announced a significant agreement with France to reduce illegal channel crossings, and deeper co-operation has opened further opportunities for learners, educators and young people through our agreement with the EU on the UK’s association to Erasmus+ next year.
This is a sensible, measured approach that crucially also preserves our ability to strike deals with other countries. In this space we have had notable successes, including signing a trade agreement with India and concluding a deal with the Republic of Korea. We are also currently in the process of negotiating trade agreements with the United States, the Gulf Cooperation Council, Switzerland, Turkey and Greenland. The UK exported around £275 billion to these countries in 2025, and securing FTAs will strengthen our trading relationships.
As part of our mission to kick-start economic growth, we published three key strategies last year. The industrial strategy sets out the vision for the sectors that will help achieve the most growth for the UK, boosting long-term investment; the small business strategy outlines how we will support businesses in the UK to scale up; and the trade strategy details how DBT will make full use of a range of trade tools, from free trade agreements to agile or sector-specific mini deals that allow government to respond rapidly to the changing geopolitical context, maximising opportunities for UK businesses both at home and abroad.
Through the steel strategy, which we published in March, the Government set out our long-term plan to fight to revitalise the UK steel sector, restore domestic production to sustainable levels and secure the industry’s role in supporting sovereign critical sectors. We are now introducing primary legislation that will provide a route for government to nationalise steel companies or their operations, provided a public interest test is met.
Bringing British Steel Ltd under national ownership will allow government to explore future opportunities, including a transition to decarbonised steel-making, and to provide reassurance for its workers, suppliers and customers. This Government recognise that securing the long-term future relies on both public and private investment for modernisation.
We are also helping businesses to navigate Windsor Framework trading arrangements between GB and NI. We have announced £16.6 million for an enhanced “one-stop shop” regulatory support service designed to navigate the knowledge gap facing small and medium-sized enterprises. So too have we supported the work of InterTrade UK with over £2 million in funding. It is ably led by the noble Baroness, Lady Foster, to promote the economic bonds and strengths of all parts of the United Kingdom, and we will continue to back the east-west council in developing ties across it.
However, there is more to do. As set out in the gracious Speech, we will take action to further unlock the benefits of a deeper relationship with our closest neighbours. We are prioritising the conclusion of landmark deals on food and drink, emissions trading and youth experience announced at last year’s UK-EU summit—deals that we seek to conclude this year. As the Prime Minister said in his speech earlier this week, we must put Britain back at the heart of Europe. This year’s summit will provide an opportunity to build on our strategic partnership, including implementing joint commitments and making progress on where further co-operation can drive economic and security benefits for both sides.
Our collective goal is and must be to deliver real, tangible benefits for people and businesses in the UK. The food and drink deal will fulfil the manifesto commitment to deliver a veterinary agreement with the EU. Once in place, it will lower costs for UK business exports to the EU by removing certificate and route inspection requirements, in turn reducing the pressure on food prices. The deal will help support trade within the UK internal market, strengthening our union by further simplifying the movements of agri-foods between Great Britain and Northern Ireland. By aligning Great Britain with standards already established in Northern Ireland, we are further protecting the internal market. For the vast majority of agri-foods moving from Great Britain to Northern Ireland, traders will no longer need regulatory certificates, checks or paperwork, thereby reducing costs for businesses. The Windsor Framework will work alongside the SPS agreement, continuing to address Northern Ireland’s unique circumstances by upholding the Good Friday agreement and providing Northern Ireland’s unique dual market access to both the UK internal market and the EU single market.
Association to Erasmus+ will open up world-class opportunities for learners, educators, young people, youth workers, sport-sector professionals and communities of all ages across the UK. We will further strengthen our people-to-people ties with Europe by establishing an ambitious youth experience scheme with the EU. This scheme will create opportunities for young people to travel, to take up short-term work or to study, and to take part in valuable cultural exchange. As agreed at the UK-EU leaders’ summit in May last year, the overall number of participants in the scheme must be acceptable to both sides, and participation will be subject to a visa requirement and time-limited. We are negotiating the details of that scheme now, with an aim to agree it at the next UK-EU summit this year. Either through Erasmus+ or our new youth experience scheme, the EU is at the heart of our offer to young people.
The emissions trading agreement, which will link the UK and EU emissions trading schemes, will establish a larger and more stable carbon market. This will support industry confidence to invest in new technologies, leading to new jobs and enabling businesses to decarbonise more quickly and efficiently where possible. It will also create the conditions for mutual exemptions from our respective carbon border adjustment mechanisms, saving £7 billion of UK exports a year from being charged. Combined, the food and drink deal and the emissions trading agreement alone could deliver up to £9 billion to the UK economy a year by 2040, as well as easing pressure on consumer food price inflation. At the same time, they will reduce friction within the union.
We also look forward to starting formal negotiations on an electricity agreement with the EU. This agreement will make electricity trade with our European partners more efficient, driving down energy costs and protecting consumers against volatile fossil fuel markets. Delivering efficient electricity trading means that we can harness the clean energy potential of the North Sea, supporting clean energy jobs and resilient supply chains, and providing secure, affordable energy on the path to net zero. This will also remove trading frictions between GB and NI, and support energy security for the whole UK. Collectively, these actions will deliver for communities across our nations and regions for decades to come.
The European partnership Bill is the means by which we will facilitate the implementation of those deals agreed with the EU, now and in the future. The Bill will enable the Government to deliver their treaty obligations with the EU. On any future alignment, we are making a sovereign choice to align with EU law in specific areas, enabling us to cut red tape, to drive down costs and to boost growth. The cost of non-alignment is added bureaucracy and onerous paperwork for UK businesses. As set out in last year’s common understanding, this will come with an appropriate decision-shaping role for the UK. The Bill has been designed to ensure that Parliament will have its say on new EU legislation before it is applied in the UK. I look forward to discussing the detail with Members of your Lordships’ House in the coming months—for many hours, I suspect—as the Bill progresses.
The European partnership Bill demonstrates the strength of what this Government are seeking to achieve: a new relationship that looks forwards, not backwards, and reflects the realities of our economic and security interests in an uncertain world. Through this Bill, we will unlock tangible benefits for the people of our United Kingdom and provide a strong platform for future growth and co-operation. Putting the industrial, small business, trade and steel strategies into action is a priority, and pushing for more ambitious outcomes on global trade remains a crucial part of our agenda.
Finally, the gracious Speech reminds us that our security and prosperity are not guaranteed; they must be earned and delivered through our collective efforts and determination. The European partnership Bill is pivotal to that effort—a statement that we are moving beyond the politics of division and towards a more productive partnership with our European allies. I beg to move.
Baroness Finn (Con)
My Lords, when the Chancellor of the Exchequer made her first speech in that office on 8 July 2024, she said that, by growing the economy, the Government could
“rebuild Britain and make every part of the country better off”.
That was not a modest claim; it was the central economic wager of this Government. Ministers told the country that the hard arithmetic of our public finances could be overcome by sustained growth across the Parliament, and that higher productivity, higher investment, stronger real wages and the highest sustained growth in the G7 would produce abundance and avoid difficult choices. That ambition is not wrong: Britain needs growth, and we want the country to be more prosperous, more productive and more secure.
However, growth is not summoned by slogans; it is not delivered by a press release, a reset, a mission board, a pillar or another ministerial speech. Growth is earned by those who embrace risk and sustained effort to produce value. Government can, at best, help enable growth by making this country the best place in the developed world to invest, to hire, to build, to innovate and to make things. Two years on, the question before this House is not whether the Government’s ambition was the right one, but whether their policies have matched that ambition. The answer, I am afraid, is clear: the Government have borrowed too much, grown too little and regulated to excess.
The Office for Budget Responsibility tells us that successive plans to reduce borrowing and stabilise debt have “not yet materialised”. Public sector net borrowing was £152 billion in 2024-25 and is forecast at £132 billion this year. Underlying debt has continued to rise. Debt interest spending is forecast to rise from £110 billion in 2025-26 to £137 billion by 2030-31. While government debt is rising and borrowing costs are at a 30-year high, the Government are spending £333 billion annually on welfare. That is more than the Government receive in income tax. That is very the definition of unsustainable.
When the Government sought to cut the rate of the increase in that spending, they U-turned. On Tuesday, the Prime Minister showed us how determined he can be in the face of unsustainable and soaring pressure, but when it came to the essential battle on welfare—the real test of his ability to get those tough and big calls right—he capitulated. The Government’s plans would have merely slowed the rate of growth, not reduced the bill. If we are to deliver the brighter future that young people deserve, we need to be much more radical.
Can the Minister say what measures in the King’s Speech will bring our unsustainable welfare bill under control? Why was welfare, which is so great a challenge, not the subject of one of our debates this week? Those are not abstract numbers. Every pound spent servicing debt is a pound that cannot be spent on defence, roads, hospitals, skills or tax reductions. High debt interest is not a symbol of compassion but the price of policy failure.
At the same time, growth has disappointed. The IMF has cut its forecast for UK growth this year from 1.3% to 0.8%. The economy grew by just 0.1% in the final quarter of 2025. Youth unemployment is up. There are now more than 700,000 unemployed young people aged 16 to 24 and the youth unemployment rate has risen over the year. This is the reality behind the rhetoric. Ministers promised through their words a growth Government, but they have produced through their actions a high-borrowing, high-tax, high-regulation Government. As the outgoing Minister for Safeguarding and Violence Against Women and Girls said on Tuesday, it is deeds, not words, that count.
In the first Session of this Parliament, the Government’s preferences were clear. When in doubt, tax. When in doubt, regulate. When in doubt, create a new body, a new duty, a new levy or a new compliance burden. The rise in employer national insurance contributions was a direct tax on jobs. It was accompanied by a lower threshold at which employers became liable. At the same time, the Government pressed ahead with higher wage costs and an Employment Rights Act which, even after the important concession on day one unfair dismissal rights secured in this House, still makes it riskier and more expensive to take on staff. Employment rights matter but so, too, do employment opportunities. If the Government make it more expensive to hire, more uncertain to manage a probation period and more complex to comply with the law, they should not be surprised when firms hesitate before creating the next job. The people hit first are often the young, the inexperienced, the marginal applicant and the small business that cannot absorb another legal risk.
The same anti-growth instinct is visible in energy. The Government have set out plans not to issue new licences to explore new oil and gas fields in the North Sea. At a time of geopolitical instability and high energy prices, it is extraordinary to choose greater dependence on imports over the responsible use of our own resources. It means less domestic investment, fewer high-skilled jobs and more exposure to shocks beyond our control.
Therefore, when we turn to the Bills announced in the gracious Speech, the Official Opposition will apply a simple growth test to each of them. Does it make it cheaper to hire? Does it make energy cheaper? Does it make it faster to build? Does it increase productivity? Does it make investment more attractive? Does it reduce the burden of regulation rather than merely relabel it? Where the answer is yes, we will be constructive and support the Government. Where the answer is no, where a Bill creates another regulator, another levy, another licensing regime, another statutory duty, another offence, another code, another reporting requirement or another cost on business, we will challenge it firmly. On productivity, I would be grateful if the Minister could provide more detail on the proposals to strengthen the productivity of the Civil Service.
The country cannot afford another Session in which every problem is met with a new rule and every industry is treated as a revenue stream. An alternative King’s Speech would start with what the economy actually needs: lower business taxes, cheaper energy, faster planning, lighter regulation and a serious commitment to competitiveness. It would slash business rates for the high street and hospitality. It would remove the most damaging part of the Employment Rights Act. It would bring forward a serious deregulatory programme, not another request for regulators to write letters about growth. It would make energy policies serve industry and households, not ideology. It would use our freedoms outside the European Union to strike a more agile, more pro-innovation path where that is in the national interest. So I ask the Minister: which measure in the King’s Speech will make it cheaper for a small firm to employ its next worker? Which will bring down the energy bill of a manufacturer? Which will cut the number of forms, approvals and licences faced by a growing business? Which will tell investors that Britain is open, not merely in rhetoric but in law, tax and regulation?
Let us turn to Europe. Like many noble Lords, I listened to the Prime Minister’s speech on Monday, hoping that the Government might have learned from the public’s verdict in the local elections and changed course. I was disappointed. What we heard was not a reset but a retreat into the familiar instincts of the left: more state direction, more nationalisation, more guarantees announced from the centre, and closer alignment with the European Union. There is a place for government action but the Government cannot substitute themselves for enterprise. They cannot nationalise their way to productivity. They cannot guarantee their way to opportunity if the private sector is being taxed, regulated and second-guessed at every turn. They cannot align their way to competitiveness by binding Britain more closely to a European model whose own leaders now acknowledge is failing to deliver the growth Europe needs.
This is not an argument for hostility to Europe. Britain should trade with Europe, co-operate and stand with it on security and work constructively with our neighbours, wherever our interests coincide. But co-operation is not submission. Friendship is not rule-taking and a reset does not become re-entry by stealth. The British people voted in 2016 to leave the European Union. At the last election, the Prime Minister promised not to rejoin the single market, the customs union or free movement. Yet with every speech, summit and reset, the Government appear to edge closer to the EU’s regulatory orbit—closer to payments, mobility schemes and alignment for its own sake.
The irony is that Europe itself is now warning against the very model to which this Prime Minister seems so drawn. At Davos this year, the German Chancellor, Friedrich Merz, said that
“Germany and Europe have wasted incredible potential for growth”.
He said Europe had become
“the world champion of overregulation”.
A few weeks later, at the European Industry Summit, he went further, saying:
“Overregulation … hampers our economic growth”.
He called for a “regulatory clean slate” and said that Europe must “deregulate every sector”.
Those are not the words of a British Eurosceptic caricaturing Brussels. They are the words of the Chancellor of Germany, speaking from the heart of the European project, warning that regulation has damaged growth, investment and innovation. The Draghi report made the same diagnosis. It said that Europe
“largely missed out on the digital revolution”.
It observed that only four of the world’s top 50 technology companies are European. It warned that innovative companies are held back by “inconsistent and restrictive regulations”.
If the leaders of the European Union now know that their penchant for overregulation is a central cause of their economic weakness, why is Britain being drawn closer to that system? Why would we import the very burdens that Europe itself is trying to cut? Why would we trade the freedom to be faster, lighter and more agile for the comfort of alignment with a model that has underperformed? The Prime Minister owes the country a clear answer, not a slogan or another platitude about being at the heart of Europe. Will the Minister confirm that there will be no dynamic alignment with EU rules without explicit parliamentary approval? By explicit approval we do not mean a broadly drafted Henry VIII power. Will he confirm that Britain will not become an EU rule-taker? Will he confirm that there will be no new annual payments to EU programmes without a vote in Parliament? Will he confirm that any youth experience scheme will be capped, time-limited and not recreate free movement by another name? Brexit was a vote to govern ourselves. The Government should use that freedom to make Britain more competitive, not bargain it away in pursuit of applause in Brussels.
The Government’s problem is not that their ambition is too high, it is that their instincts are wrong. They want growth but tax jobs. They want investment but raise uncertainty. They want enterprise but regulate success. They want fiscal space but allow debt interest to crowd out the future. They want to be pro-business but treat business as something to be managed, charged and corrected. Britain does not need another reset. It needs a change of course. It needs lower burdens, cheaper energy, faster building, a tax system that rewards work and investment, and a regulatory culture that asks first whether intervention is necessary at all.
The Official Opposition will support measures that genuinely promote growth. But we will not be silent when the Government repeat the mistakes of the previous Session. The British people were promised growth. They have been given borrowing, tax rises and regulation. It is time for Ministers to stop talking about growth and start removing the obstacles to it.
Lord Fox (LD)
My Lords, nearly two years ago, the general election resulted in a brief outbreak of euphoria on the Benches opposite, and then, during the long parliamentary Session that followed, reality bit. During that campaign, as we heard, growth was declared as the number one priority of that Government, and yet, during that first Session of Parliament, many of the Government’s actions pushed in the opposite direction. The truly disastrous increase in employers’ NIC was a striking example, but it was by no means unique. It meant that the country exited the last legislative Session with greatly increased operational costs for businesses. This sent messages that discouraged investment and pushed thousands of high street businesses and hospitality businesses into oblivion. It was indeed the opposite of a growth-centred strategy, and the hangover from that Session will see yet more non-growth legislation that has yet to arrive.
Now we have a new set of Bills, and, as we have just heard, the prism through which we should look at them is: how does it affect the Government’s mission on growth? Let us look at some of those Bills. On the small business protections (late payments) Bill, yes, it is important that we deal with the scourge of late payments, but we will be looking to see how the legislative back-up will be delivered to support the small business strategy the noble Baroness, Lady Anderson, just spoke about.
Then we have the enhancing financial services Bill. We welcome reforms that may support growth, but we do not want to put pressure on people’s savings and undermine consumer protection, so we will be looking very hard at the details there.
The competition reform Bill seems like an attempt to water down the work of the Competition and Markets Authority in the way that each digital unit has been curtailed, so we will be looking very closely at that plans on that Bill.
The regulating for growth Bill looks like just the sort of technical Bill that your Lordships would like to get your teeth into—I look forward to many hours of that.
All four of these Bills make important points, and I am sure there will be lots of debate in your Lordships’ House, but it is hard to discern a pattern and to see the strategic drive for growth within them. There are no bold moves. In addition, although AI is set to affect every aspect of our economy, there is no AI Bill in this Session. How can that be sensible?
I will use my final minutes to talk about two other Bills—the ones the current Prime Minister chose to pre-announce in one of his fight-back speeches earlier this week—on steel and Europe. Perhaps summoning the ghosts of Clement Attlee and Harold Wilson, Labour proposes nationalising—or should I say renationalising—the steel industry for the third time with the Steel Industry (Nationalisation) Bill. I do not underestimate the importance of this measure to those working in the industry, and to the country’s manufacturing and defence sectors and its industrial strategy. However, the Government have of course effectively been funding this plant since the summer, and this move was one that I think most of us expected to be brought to your Lordships’ House sooner or later. We want to see the details, including the plans to help find private co-investors who can help modernise the sites and put money in to help create more jobs. We need to see a proper long-term plan for the future, with an emphasis on national security, and we need to know the costs.
By choosing to pre-announce this measure, the Prime Minister was clearly aiming to stir the blood of those to the left of his party, and it also followed the surprise appointment of Gordon Brown as some sort of global emissary. I assume that the PM was searching for reflected glory from the halcyon days of the Brown premiership. Perhaps the Minister can throw some light on what Gordon Brown will actually be up to. If he is the Prime Minister’s man, how will he relate to the Chancellor and the Treasury, and how will his activities be accountable to Parliament? Will he be summonable by Select Committees, for example?
Of course, steel nationalisation in sum will not meaningfully increase our GDP or move the needle on national productivity, nor will it address the cost of living. However, the second topic that Starmer pre-announced could indeed materially affect the fortunes of British people. We welcome all talk of moving closer to Europe—of course we do—but the European partnership Bill seems to be just the latest example of a total lack of ambition when it comes to rebuilding trade links with the EU. It offers very little that is new. What the PM announced in that speech seemed to be only a restatement of where we already are, with the UK at least six months into negotiating a reset in its relations with the EU.
Here I note that, at the same time as these negotiations are going on, the EU “Made in Europe” regime proposals pose an existential risk to the EU-UK automotive trading relationship, which is worth around €80 billion a year. The UK is the EU’s number one trading partner in automotive trade. Can the Minister tell your Lordships’ House what negotiations are under way? This is a really important issue, and we have to know that His Majesty’s Government are going all out to reach an agreement. That is vital for our automotive industry.
To return to the proposed legislation, clearly, as we have heard from the noble Baroness, Lady Anderson, some alignment is planned, and we of course look forward to the long discussions that will no doubt ensue when we interrogate the depth of that alignment. However, Prime Minister Starmer has equivocally ruled out crossing the red lines he cautiously drew during the general election. So, assuming that the EU reset is successful, agreement on border arrangements for food and animals would be positive, not least for our beleaguered farmers. Easier EU travel for bands, orchestras and theatrical productions—if we get it—would be really welcome, as would anything else of the like that the noble Baroness, Lady Anderson, set out.
However, so much more is possible. If the Government are bolder, there are huge wins. Business could trade with our largest market so much more easily, making jobs secure, and increasing pay and delivering growth; holidaymakers could use EU e-gates instead of queuing for hours in the “rest of the world” line; and our border police could once again properly use EU data to help them more easily identify and stop the evil people traffickers. Those are just three examples of what could be delivered. These and many more are possible, but they will not happen if the Prime Minister sticks to his red lines. The Government need to go further and faster to strengthen our relationship with the EU if they want to turn around our very low-performing economy and begin repairing the £90 billion Brexit black hole that the Conservatives’ botched deal delivered.
I understand that these red lines were in Labour’s manifesto, but since then the world has changed rather. Our close relationship with the USA has been under pressure, and Trump has indicated to all Britons where our real economic future lies. This hostility from the US President, added to the war in Gaza and the Arabian Gulf, an energy crisis and Putin’s continued pummelling of Ukraine, should set the scene for a revised world view.
In general, people out there also recognise that the whole balance of the world has changed. An awful lot has changed in the two years since that election and that manifesto. To robotically stick to an out-of-date manifesto as if it is a holy writ is a dereliction of leadership. Whoever turns out to be the Prime Minister should be bold and ambitious for our country, and they should work hard to take the country with them, hitting the road to explain why there is a need for a different approach, how people should benefit and what needs to change. That is leadership.
This is not one-sided: our European neighbours are feeling the need to move closer too. For example, last month I was in Berlin for a joint UK-German business meeting as part of the Kensington treaty. The Secretary of State Peter Kyle MP was there, as was his German counterpart, plus the key business organisations for both countries and about 300 businesses. The energy of that meeting demonstrated that we have enormous mutual opportunities, but with each day that passes, it feels as if the work gets harder and business morale gets lower.
This Government have already wasted two years. The country, our economy and our people cannot afford more years of timidity. We need a Government who are bold and who move decisively. The Liberal Democrats are clear that, as a start, Ministers must straight away prioritise negotiations for a new customs union with the EU. This would turbocharge our economy and unleash British business. That would be the start of a real growth policy.
Lord Burns (CB)
My Lords, most of us agree that economic growth is critical. I am very pleased to see that it is on the board, as it is one of the best topics that we are discussing in this response to the gracious Speech. Growth widens the choices that are available for Governments. It increases the scope for making those choices and the trade-offs that Governments are forced to make. As we know, higher output and greater productivity lead to high disposable incomes, generate the taxes that we need to fund public services, and, when you have a decent rate of growth, provide much more room for spending, adjustments and allocations between different areas.
The tough challenge for any Government is that underlying growth rates change only slowly and are difficult to predict. Since 2007, the growth rates of the major countries have been significantly slower than they were in the years before. In this respect, the UK’s performance is similar to that of other major European countries. The reality is that it is difficult to increase the underlying growth rate in the UK if we have slow growth around the world. That has been the pattern and, for the moment, it looks as though that pattern will continue.
We must be much more careful about putting too much emphasis on month-to-month changes, which tend to be erratic. There has been a pattern in recent years of stronger figures in the early months of the year and weaker figures later—possibly a seasonal adjustment problem. This morning’s GDP might show a quarterly increase of 0.6% but the reality is that this is still only 1.1% higher than the first quarter of last year. This compares with the years when we became accustomed to growth rates of 2.5%.
One criticism of the Government’s approach has been the failure to acknowledge at an earlier point that much of the previous Government’s woes were due to this global slowdown and that simply changing Governments has not changed this. Ahead of the election, the Economic Affairs Committee highlighted major spending challenges ahead—the cost of net zero, increased defence spending and an aging population—all of which will put pressure upon financial stabilisation. Given these challenges, my view was that taxes would have to increase across the board or significant public spending savings would be necessary, and probably both. Instead, we have seen increased public spending and attempts to raise taxes either on employers or on a very narrow part of the tax system. This has sparked anger and has not succeeded in raising sufficient revenue. Further, the other measures to protect jobs have done little to improve the economy’s supply side.
However, my biggest concern now is that some groups involved in the current leadership debate are convinced that faster growth can be achieved through increased public expenditure and larger fiscal deficits. My experience is that this is a confusion of cause and effect, and a very serious one. Over time, the scope for higher public spending is a result of faster growth; it is not the cause of faster growth. We start with a debt ratio close to 100% of GDP. Debt interest costs consume 10% of our tax revenue. We have not been able to pay for the huge borrowing at the time of Covid or the cost of supporting energy bills. Proposals to increase this further, either openly or through disguised off-balance-sheet borrowing, which we have heard some chatter about, are high-risk policies.
We all desire a world where spending eventually pays for itself. With some aspects of spending this is the case, although the benefits take time to emerge. However, more often, they do not pay for themselves. The Chancellor deserves credit for recognising and emphasising this. For faster growth, we need an environment with effective incentives for work and investment. We urgently need an overhaul of the tax system to iron out inconsistent and bizarre marginal rates of tax for some people. We need to eliminate the wide range of unnecessary exemptions and allowances and ensure the right incentives for business taxation. However, these are all issues for future Budgets, rather than for the gracious Speech.
There are reforms in the gracious Speech that I welcome and which could make a difference, and we have heard about some of them this morning. I welcome the emphasis given to growth when judging the approach to financial services regulation. It has been a view of mine since the crisis that there has been a significant regulatory overreaction to the 2008 crisis. There is a natural desire to prevent it happening again and it is very important that prudential risks should be managed. However, in the process, increased regulation damaged bank lending to the private sector and the productivity of the banking industry. The focus was on changes that were the easiest to make, rather than on addressing the weaknesses that posed the greatest risk. This was also the action taken by the other major countries. My view is that the growth reduction which we have seen all those countries suffer is, in part, a result of that response to the crisis.
I support efforts to minimise friction in trade and flows of investment within Europe, although reaching agreement will be difficult and contentious, and, as many have pointed out in the course of the debate already, the growth performance of the major European countries has been one of the slowest in the world over this period. It is not exactly a vibrant market at this point.
Also welcome to me are the proposals for Northern Powerhouse Rail. In a predominantly service-based economy, cities have become increasingly important centres of wealth creation. However, they can realise their potential only if they have a functioning public transport system that allows as many people as possible to access them. With the growth of the economic potential of cities, commuting by car into those cities becomes increasingly difficult. This is not just a London issue; we can see the pressure around many cities. I was involved in transport services in Wales, where road systems are struggling to cope with these pressures. I remain hopeful that the proposals for a commuter service in south Wales, which I was involved in putting forward, will be in place soon, despite some of the devolution issues.
The Lord Bishop of Newcastle
My Lords, I am pleased to speak in this debate on the gracious Speech and wish all noble Lords well in this new Session. I declare an interest as president of the Rural Coalition.
It is an honour to follow the noble Lord, Lord Burns, particularly with his north-east roots. I speak from the perspective of the region in which my diocese is located, the north-east. These are communities with deep resilience and enormous potential but which continue to live with the consequences of economic inequality, industrial transition and social fragmentation.
There is much that gives cause for confidence. We see innovation emerging from our universities and wider research communities, growing expertise in clean energy, digital technology and advanced manufacturing, and renewed confidence in sectors helping to shape the industries of the future. The North East Space Skills and Technology Centre, based at Northumbria University, is a notable example of combining public funding, university match funding and private sector aerospace investment—a model that is about long-term economic development.
However, optimism is accompanied by realism. The latest North East Chamber of Commerce quarterly economic survey points to a business community that remains resilient but cautious. Firms continue to report pressures linked to labour costs, energy prices, inflation and uncertainty around future demand. Businesses are still recruiting but many are delaying investment decisions and remain concerned about long-term productivity and skills shortages.
The rural economy is especially important within Northumberland, yet often insufficiently recognised in national economic debate. Farming, land management, tourism, food production and rural small businesses contribute enormously not only to economic activity but to environmental stewardship, cultural identity and the sustainability of rural communities. Yet many rural businesses continue to face challenges linked to transport connectivity, digital infrastructure, workforce shortages and access to services.
If growth is genuinely to reach every part of the country, rural economies must be treated not as peripheral to national prosperity but as integral to it. As my noble friend Lady Batters has often pointed out, food security is vital for economic prosperity and stable food systems reduce poverty.
In Newcastle, areas such as Ouseburn and Grainger Market reflect the imagination and determination of local enterprise. Businesses such as Greggs, founded in Newcastle and still strongly associated with the region, show how commercial success can remain connected to local identity and social responsibility, with a much wider reach. It can be argued that the humble cheese and onion bake is now an instrument of EU partnership, as there is a Greggs in Tenerife airport.
On a serious note, this connectivity is why economic policy cannot be judged solely by where the growth occurs but by the nature of that growth and who shares in its benefits. Do people experience greater dignity, security and opportunity through that growth? Do communities feel strengthened or left behind? Do younger generations believe that they have a meaningful future in the places where they grew up? Does work enhance human flourishing or does it leave people exhausted, insecure and excluded?
It is right that the Government’s proposed legislative programme seeks to support investment, industrial renewal and closer co-operation with our European neighbours. The proposed European partnership Bill is important for regions such as the north-east; our relationship with our neighbours is not an ideological abstraction but a matter of practical economic significance.
I hope the Minister might say more about how the Government intend the proposed Bill to strengthen opportunities for regional exporters, universities and smaller firms outside London and the south-east. How will the Government ensure that improved relationships with the EU lead to tangible economic benefits for places such as Newcastle and Northumberland, rather than reinforcing existing geographical inequalities?
I also welcome the emphasis placed on energy security and industrial renewal within the gracious Speech. Northumberland is well placed to contribute to the nation’s transition towards cleaner and more secure sources of energy, through offshore renewables and associated industries. Yet the transition to a low-carbon economy must also be rooted in justice and fairness. Communities that contributed so much to earlier generations of industrial and energy production should not feel excluded from the opportunities now emerging. Economic transition cannot simply happen to communities; it must happen with and for them.
Can the Minister say more about how the Government intend to ensure that smaller local businesses, local workers and younger people are able to participate fully in the opportunities created through energy transition and industrial investment? What role do the Government see for devolved leadership and community wealth-building in ensuring that prosperity is genuinely shared?
I also welcome the Government’s proposed regulating for growth Bill and its stated intention to create greater clarity and consistency for business. Along with the noble Baroness, Lady Finn, I ask the Minister how the Government intend to ensure that smaller businesses are properly supported within this agenda. How will they balance economic flexibility with the need to maintain fair employment standards, workforce well-being and responsible business practice?
Economic life is ultimately about human beings, relationships and moral responsibility. As we pursue growth and competitiveness, we must resist any tendency to treat human beings merely as economic instruments or units of productivity. Every person possesses inherent dignity and worth, which no labour market can define and no economic circumstance can erase. Modern slavery remains a painful reality in our country. It represents not only criminal exploitation but a profound moral failure—the denial of human dignity for economic gain. In that respect, I ask the Minister what further steps the Government intend to take to strengthen transparency and accountability within supply chains, particularly in sectors vulnerable to labour exploitation.
Good growth is not growth at any cost. Good growth strengthens communities, widens opportunity and enables people to live with dignity and hope. The success of this Session of Parliament will not be measured solely through national growth figures or investment totals; it will be measured by whether people truly experience greater dignity, stronger communities, wider opportunity and renewed hope in the places that they call home.
Lord Barber of Chittlehampton (Lab)
My Lords, it is an honour to follow the excellent contribution from the right reverend Prelate the Bishop of Newcastle. Her messages are directly relevant also to the area where I live, the south-west of England, and I congratulate her on her thoughts. It is also always daunting to follow the legendary noble Lord, Lord Burns, but that is the order in which the speakers turned out.
Yesterday’s gracious Speech emphasised “economic security”. Public expenditure is vital in achieving that. I strongly support the Chancellor’s spending reviews and Budgets. Her goals could not be more important: to create the conditions for growth, to maintain and improve public services, and to manage and reduce debt. I realise that the conflict in the Middle East poses significant challenges but, thanks to the progress already made, we face them with enhanced resilience.
The public debate and ours in this Chamber tend to focus on the amount government spends and the level of taxation. These are indeed fundamental questions, but I will focus on two related questions that perhaps get less attention. First, what matters most to the citizen and to economic growth is not just the amount we spend but how well we spend it. Every day, the Government spend £3.5 billion. How do we maximise the public value of every one of those tax pounds? Secondly, how might we innovate in the way that we raise and allocate funding for the social outcomes that we need?
I will start with the first question. Maximising public value surely demands that, at every level—from a teacher in a classroom or a nurse in a hospital ward to a civil servant or a Minister in Whitehall—there is a constant, daily focus on delivering real value. The noble Baroness, Lady Finn, made a similar point about Civil Service productivity. This is not a new insight; a previous Parliament concluded that “officials at every level will be ordered to make due, swift and good execution without tarrying or delaying”. The sentiment sounds contemporary, even if the language does not. It is from 1376. Parliaments have been urging more effective and rapid delivery for at least 750 years, and rightly so, because Governments spend other people’s money and should be firmly held to account for what they deliver in return.
To take an example, we are now seeing a welcome increase in defence expenditure, and we already know that there needs to be more still. In this dangerous world, the public will want to know both what capabilities that extra investment will provide and that there is urgent, evident progress towards their realisation. Similarly, there will surely be further growth in health expenditure and, again, in return, the public will expect to see measurably reduced waiting times and significantly improved care. We have made a start, but there is much more to do.
Willingness to continue paying taxes has always depended on the impact that results from those taxes. The world over, this pressure to deliver public value is sharper now than ever. But what exactly is public value? How do you know it when you see it and how do you monitor it? At times, the Treasury in this country has led the world in thinking through these questions—I am going back to the noble Lord, Lord Burns, to Gordon Brown’s time as Chancellor and to the work of the noble Lord, Lord Macpherson, who was in charge of public expenditure back then. Later, in 2017, and building on that earlier work, David Gauke, as Chief Secretary, commissioned a report on public value from me. It was strongly welcomed at the time but sadly got lost in an ever-changing world of Chief Secretaries and the pandemic. Now might be the time to revive and build on that agenda.
The report described four elements of managing public value. The first is inputs: is the allocated funding being efficiently managed? The second, which my noble friend Lady Anderson emphasised, is outcomes: are we making progress towards the intended outcomes that the money was allocated for, and how do we know? The third is engagement: are the intended beneficiaries willing to take their share of responsibility for delivering the outcomes? For example, health outcomes are improved by people who manage diet and exercise; getting into employment is enhanced by people actively seeking work rather than waiting for it to come to them; and, in schools and universities, we need people to study hard rather than just show up briefly. In each of these cases, the same amount of public expenditure will deliver greatly enhanced outcomes if the beneficiary engages. This is important to public value. Finally, there is stewardship: as the funding is spent, is it also enhancing the underlying quality of a service—its technology, buildings, resilience, workforce, skills, leadership and commitment—thus leaving the service better than it was found, all the time?
By tracking indicators relevant to these four elements in close-to-real time, we can measure the impact our public expenditure is having and adjust implementation as necessary. Some social outcomes partnerships are already well advanced in this respect, which leads me to my second point: innovation. The Treasury recently established, and allocated £500 million over 10 years for, the Better Futures Fund. It is boldly aimed at solving some of the most complex social problems affecting children and young people. The fund will add to Britain’s already world-leading experience in social outcomes partnerships, and the fund will become the largest of its kind globally. It builds on the Life Chances Fund, established by the previous Government in 2016, and the work over many years of the great Sir Ronald Cohen.
The characteristics of such social outcomes partnerships make them a major innovation. They attract philanthropic and private investors, which, in the case of the Better Futures Fund, could double the funding that the Government have made, making the total £1 billion. They engage local government charities and social enterprises as partners in prevention, not just cure. They work exceptionally well for those tough, cross-cutting challenges that bedevil public policy. Crucially, for each funded scheme, there are defined outcomes, and government outcomes payments are paid only once the defined outcomes have been delivered and independently verified. There is increased prevention, collaborative partnerships, devolved delivery, high-quality data analysis, measurement of public value, and evidence from ATQ Consultants that such social outcomes partnerships deliver up to £9 of public value for every £1 they spend.
To conclude, with such innovative approaches to delivery and a consistent focus on delivering public value throughout the public services, we can enhance public sector productivity, contribute to private sector productivity and create the conditions for growth. The downward spiral that followed the financial crisis of 2008, with its declining return on investment, is not inevitable. We can turn it into an upward spiral with a rising return on investment.
A year of delivery lies ahead. In time, we might even delight people, perhaps including our ancestors from 1376.
Lord Hunt of Wirral (Con)
My Lords, is a great pleasure to follow the noble Lord, Lord Barber of Chittlehampton, given his background as head of the Prime Minister’s policy unit under Tony Blair. Also, if I might, I will commend to colleagues his book, entitled Instruction to Deliver, which sets out very much the message he was giving about outcomes.
I refer back to the comment by the noble Lord, Lord Fox, about the steel industry, because the National Audit Office—he will know the importance of that institution—has produced a very detailed report. Rather like the noble Lord, I found the announcement that the Government now seek the power to nationalise British Steel to be fascinating—although perhaps not surprising, because it should be seen for what it is: not the emergence of a plan but the admission that a plan has already failed.
A year ago, Ministers came to Parliament—and we all arrived here on a Saturday, specially—to provide the emergency powers needed to prevent the imminent closure of the blast furnaces at Scunthorpe. We were told that this was a temporary intervention, that constructive discussions with Jingye were continuing, that the taxpayer’s support was recoverable, and that there was a route to a commercial solution. I do not know whether this features in the book, but I am reminded of Milton Friedman’s observation that there is nothing so permanent as a temporary government programme. Well, after all that, we are back precisely where the Government insisted on that day that we were not going: nationalisation anyway. The question for Ministers is simple: what has been bought for the money already spent?
The National Audit Office, releasing its investigation into the Government’s intervention in British Steel’s Scunthorpe site, revealed that, by 31 January this year, the department had spent £377 million on this and that costs were expected to exceed £642 million by June. That means £1.3 million to £1.4 million every single day. The NAO further observed that
“DBT intervened without a clear exit strategy”
and warned that the intervention has not stabilised the company’s finances, that there is no clear end date, and that spending could exceed £1.5 billion by 2028 before transformation costs, compensation to Jingye, or exit costs are even considered. This is not a rounding error, nor a bridging loan, nor a prudent investment patiently awaiting a return. It is a daily call on the taxpayer to keep alive a business that Ministers have still not shown can be made viable.
In paragraph 2.6 of its investigation, the NAO records:
“Advice provided by DBT officials to ministers on 28 March”
2025
“noted that there was ‘no affordable solution to maintain steel-making at Scunthorpe’ … the advice recommended that the government ‘not intervene to stop the company from making commercial decisions to close’. DBT told us that it had no budget or legal power to intervene at that time, and that there was no strong value for money case to do so, advising instead to focus on the impact on the local area and to support steelmaking elsewhere”.
Over the subsequent 14 months, apparent operating losses have doubled, while production levels have fallen further. What is the value-for-money justification today? Ministers will say, of course, that British Steel is strategically important, and no one disputes that steel matters—for defence, construction, rail, energy and manufacturing. The question is not whether steel matters but whether this Government have a credible plan to make steelmaking in Britain competitive, and at present I do not believe that they do.
Nor can this debate be separated from the Government’s new tariff regime. From July, the Government propose to cut tariff-free steel quotas by 60% and impose a 50% tariff above quota. Ministers describe that as protection for British steelmaking, but, for automotive, construction, aerospace and engineering businesses, it is a direct increase in input costs.
Think of the automotive manufacturer already under pressure from the Government’s EV mandate, the construction firm facing squeezed margins and higher material prices or the exporter using steel as an input. They are facing higher costs at home and fiercer competition abroad. All of them will inevitably pay the price, a high price, for a policy framed as saving jobs in one turn while quietly making jobs more expensive to sustain in many other places.
There is also a profound contradiction running through the Government’s position on energy and steel production more broadly. India, to cite one example, is driving a substantial share of the global rise in coal-based steel capacity, expanding output, expanding furnaces and expanding its competitive position in world markets. In contrast, this Government have banned domestic coking coal production, pushing domestic steel-makers towards more expensive alternatives, and then seemingly wonder why the taxpayer must step in to make the difference. The result is that we make domestic production more expensive, restrict cheaper imports and load the industry with additional regulatory costs, and then we present the bill to British industry.
When the noble Lord winds up this debate, can we please have a strategy for steel? The Government published one, but it does not have the long-term impact that we all want to see. Steel has been the backbone of this nation. It must be part of its future too, and it is about time that we had a clear strategy that takes us all further forward.
Lord Liddle (Lab)
My Lords, it is a great pleasure to follow the noble Lord, Lord Hunt, whose brand of Conservative politics I have always personally admired. He raises very important questions about the steel industry. However, I will make just two points. First, I agree that there is a case for a sovereign capability in steel, and we have to work out a strategy as to how best and most efficiently to do that. But, secondly, it has to be part of a European policy. We have to be there because we have integrated supply chains in the steel industry. A lot of our exports—something like two-thirds—go to the European Union, and there is a similar flow in the other direction, so we cannot have an effective policy without it also having a European dimension.
I want to focus my remarks on the gracious Speech’s commitment to building a much closer partnership with the European Union. I strongly support the Government’s proposed legislation but urge them to make fast progress. As the Prime Minister said, we need to be at the heart of Europe, and it seems to me that that is the only way forward to meet the frightening new geopolitical challenges that Britain now faces. It is also a necessary, but in my view not sufficient, precondition of restoring broad-based economic growth in our country, which has eluded us since the financial crisis, and more particularly since the 2016 referendum.
As we approach the 10th anniversary of the Brexit referendum, we need to ask ourselves what benefits positively have been realised. I am not aware of any respectable economic analysis that demonstrates positive benefits. How much have the so-called Brexit freedoms delivered? Some people here refer to the ability to make our own free trade agreements. My noble friend made an excellent speech this morning and referred to those Brexit freedoms. Let me just point out to the House that the benefits in economic growth to which she referred amount to about 0.5% of GDP per year, when the loss as a result of Brexit is something of the order of 4%, and some economists say far, far higher.
For some people on the other side, none of these questions of fact about the impact matters because what matters to them is that, with Brexit, Britain has regained its sovereignty. In a technical sense in constitutional law, that is correct, but what is worth while about technical, legalistic sovereignty if all that does is impose additional costs and burdens, as in the chemical industry and many other sectors, on whole swathes of our business? This is the challenge that the alignment Bill will address, and I think we should get it through this House as quickly as possible.
The noble Baroness, Lady Finn, made a very good speech, even if I did not agree with it. She asked why we should align ourselves with a stagnant European Union. I have two points about that. First, 40% of our trade is with Europe. Most people think that geography is what determines trade, particularly trade in services, which is our great strength. The reality is that Europe is going to be by far our biggest trading partner for decades ahead, and we have to have a better relationship simply in those terms. I agree with what Chancellor Merz says about the need for regulatory reform in Europe and think the Draghi report is excellent. I would like to see some of its lessons applied in the United Kingdom. One of the reasons why we may find support in key member states for our alignment Bill is that I think Chancellor Merz will see Britain as a potential ally in future on the need for pressing for that regulatory reform.
What we are trying to do is difficult. Nothing to do with the European Union is easy, as I have known for a long time, having worked on these issues. First, we have to face the issue of budget contributions. We have to find a formula that can be applied relating to our share of joint GDP and the economic significance of the particular sector we are talking about.
Secondly, we have to have flexibility on freedom of movement. I think the youth experience scheme is an excellent idea. This House has demanded freedom of movement for artists and performers in Europe, one of the key things that we have lost. The same applies to professional services. I would make these movements on freedom of movement in return for closer co-operation in tackling illegal migration. I find it odd, by the way, that people on the other side can criticise freedom of movement. As soon as they got Brexit, what did they do? They implemented the biggest wave of immigration that we have seen in the post-war era. One of the reasons for the rise of Reform today is that the Conservative Party did exactly the opposite of what it promised in the referendum as far as immigration was concerned.
Thirdly, we have to raise our game in Europe and all that means for rebuilding our Brussels capabilities, having strong co-ordination machinery domestically, having the political will to impose solutions from the centre—from No. 10—where departments disagree, and having a Cabinet that takes the Europe relationship seriously and spends time on it. We have a lot of common interests in joint EU-UK co-operation—in defence procurement, in a joint approach to the regulation of artificial intelligence, in trade and in technology, where we have so much to offer. Jean Monnet said Europe was born in crises; we are certainly living through a big crisis now. We have to think boldly, and I would like to see the possibility of a commitment to rejoin the European Union in the next Labour manifesto.
Lord Lilley (Con)
My Lords, it is always a great and nostalgic pleasure to follow the noble Lord, Lord Liddle, whose enthusiasm for rejoining the European Union reminds me of the remarks of Samuel Johnson about a friend of his who was contemplating a second marriage—that it was a triumph of hope over experience. No experience or facts will dint the hope and enthusiasm of the noble Lord, Lord Liddle.
But we all make mistakes—we predict things which do not happen and advocate policies which do not work—and there is no great shame in it. Indeed, I am sure the right reverend Prelate would accept that as long as we acknowledge our mistakes and repent of them, we will be forgiven. I certainly made mistakes. Indeed, I made the same mistake as this Government are making and which lies behind their policy on the reset. The Government actually believe that, in the words of the Business Secretary, the single market is “where the magic happens”, and that rejoining it or aligning with it will make our exports grow and our GDP likewise.
As the Trade and Industry Secretary responsible for preparing this country for participation in the single market and overseeing the process, I made similar speeches. I did not invoke magic, but I did say that membership of the single market would boost our exports to the EU and with it our growth. I said it would do so even more powerfully than the Uruguay round, which we were simultaneously negotiating and which halved tariffs worldwide and created the WTO.
For many years thereafter I assumed that that had happened, but eventually I was confronted with the facts and they showed that I was wrong. Throughout our more than a quarter of a century of membership of the single market, our exports of goods to our fellow founding partners of the single market had stagnated. They grew at less than 1% a year for 28 years. At the same time, our exports to countries worldwide with which we had no trade agreements had grown four times as much, by 87%. Our services exports within the single market grew more slowly than all but two other rather minor countries in the single market.
The single market magic, whatever it is, failed for Britain. Why do the Government not recognise that? Why do they still believe—I am sure they are sincere in their belief and are not just lying to us—that the single market will magically boost our exports? They are not alone. Most of the commentariat also assume that the single market was good for us. Indeed, how many noble Lords who are going to speak in favour of a reset today were aware that the single market was such a failure in terms of our goods exports to the EU? I think half a noble Lord was aware of it; the others were not.
There is a reason for that. I have been thinking about why this view is so prevalent. The reason why the facts are so little known is that the single market was the aspect of European membership which commanded near universal support. Free-market Conservatives like me hoped that it would unleash market forces and make us all richer. Eurosceptics put aside any reservations because Mrs Thatcher was a great advocate of it. On the other side of the political spectrum, Jacques Delors persuaded an initially very sceptical Trades Union Congress, and with that the Labour Party, much of which had been opposed to membership of the European community, that the single market would enable it to control and regulate markets in the public interest. What was more, it could do so from a European level without the need to win an election in Britain, which eluded it for 18 years. None of us ever doubted that it was a good thing and nobody queried it.
I googled to find out what studies had been made by academics and politicians of how much the single market had benefited British goods exports, or not, during our membership. There were almost none during that period. Eventually, some studies were made and the facts are incontrovertible. Our goods exports to the EU grew at a snail’s pace and our service exports did little better. We can respond to those effects by adjusting our predictions and policies accordingly—that is what we should do—or we can react like Hegel, who claimed he could derive all the theories of natural science from his first principles and his dialectic method. His disciples went out and came back and said, “But master, the facts contradict your theories”, to which he replied, “So much the worse for the facts”. That seems to be the Government’s attitude as far as the facts of our past experience in the single market are concerned.
There is a lesson from that experience: what drives trade is not trade deals. Trade deals can bring some benefits if they are not off-set by the greater burden of regulation which one imports with them, but it is only a second order benefit. The noble Lord, Lord Liddle, is right to say that trade deals with the rest of the world are not going to be an elixir. What drives trade is producing goods and services that other people want to buy, going out and selling them, preferably in fast-growing markets, and not allowing yourself to be encumbered by unnecessary burdens and protection from Europe, which have made Europe the slowest-growing continent in the world.
Sadly, that is not what we have been doing. We have stopped producing things. We have been introducing policies which make it more difficult to produce things, and you cannot export what you do not produce. The Government have a policy of stopping all new exploration and development in the North Sea, but our exports of oil and gas to Europe were considerable. As a result, we have closed down one-third of our refineries and our export of our important refined products. That has undermined our chemicals industry, and with that we have lost production of fertiliser and ammonia. It is not just in oil and gas related industries; anything dependent on energy has been undermined by the fact that we have the highest energy prices in the OECD. That has meant that we have lost much of our aluminium industry and processes. We saw that happen in the steel industry, as mentioned in the brilliant speech from noble Lord, Lord Hunt, and we are losing production in all energy-intensive industries: ceramics, bricks, cement and so on. It is a self-inflicted wound. We cannot export what we do not produce.
I urge noble Lords to read an excellent report by Catherine McBride and others called Premeditated Industrial Destruction? She is one of our leading trade analysts, and it paints a very grim picture of what is happening to our trade and why. It is nothing to do with trade deals—if you do not produce, you cannot export. The obsession with tweaking our trade arrangements with the EU is a displacement activity for those who will not face up to the damage that our domestic policies are inflicting on industry after industry.
Lord Alderdice (LD)
My Lords, when I am speaking about the gracious Speech, I normally speak in the debate day on foreign affairs. But in January of last year, I was appointed the UK trade envoy for Azerbaijan and central Asia, so perhaps it is more appropriate that I speak on the day when we are thinking about trade and the economy.
When I was appointed, I read the briefs sent by civil servants, of course, but I have always been interested in the history and culture of places that I try to engage with, so I started to read about the history and culture of central Asia. Reading books such as The Great Game by Peter Hopkirk, I came across some names that I knew: for example, that of Sir Henry Pottinger. He came from the Pottinger area of East Belfast, which I represented in the Northern Ireland Assembly, and if you go to the Foreign Office, there is still a more than life-sized portrait of that more than life-sized character. What was striking about him, however, and relevant to what I was doing, was the fact that not only was he an extraordinary colonial administrator—the first governor of Hong Kong and so on—but as a young man, when there was a great conflict and struggle going on between Britain and Russia over links to India, he went out and, like many other young men, acted with the most extraordinary venturesomeness and courage in trying to ensure the well-being of his country.
The reason I was struck by that was that as I engaged with people from Azerbaijan and central Asia, I was really struck by how venturesome many of the young people in those countries had become when they were freed from the yoke of the Soviet Union. But I was also struck by how, in our own country, we seem to have lost much of this. There is a degree of risk aversion which is not healthy for business. I also see that in government and if we do not venture out, we will not succeed. Risks have to be taken. You cannot be sure that everything will always be successful. It is a worrying world at the moment. It is a frightening place and there are lots of dangerous things happening. If we look at the questions of oil and gas, it is not just that the costs have gone up. There are all the uncertainties of managing a country and concern about other actors, including some of our allies or former allies who do not obey the rules any more. Many of our businesses and, as I say, our Government have often become risk averse. One thing surprised me, though.
The area in which I saw the most venturesomeness and success was one that I did not really think of as part of business and trade: the development of English language higher education. There is a huge appetite for this among young people in that region, and a preparedness on the part of our own universities to get out there, develop campuses and engage with universities there. I thought to myself, “Well, this is very interesting. I wonder why that happens”. Then I thought, “Maybe it’s the fact that if you’re going to be a serious academic and scientist now, you need to be prepared to go to conferences and meet others who are doing scientific work”. You would need to be prepared to engage in research across countries and borders, and, because that is part of the natural thing, you then meet with people who you start to work with. You develop a relationship with them, so some of our academics and universities are doing more and being more outgoing and courageous. They are prepared to take risks, rather than having the risk aversion that I see—not always, but often—in business and in government.
We have to face the realities, which have changed and are very difficult for us. There were things that we used to think. The noble Lord, Lord Lilley, talked about the way he had changed his perspective on things. It used to be thought that if countries could be brought to a liberal economic approach, liberal democracy in politics would ultimately follow. China is the great end to that notion. Then there was the notion that if you have military power, you will win wars. That used to be the case, but the United States did not do so well in Korea or Vietnam, or Afghanistan or Iraq, or Libya or Syria, or now in Iran. Military power can enable you to destroy things and kill people, but it does not create democracy. It can just lay waste and leave a shambles.
We thought of Europe as the centre of civilisation in the past, and that it would be for the future. But there are older civilisations, and increasingly impressive economic and scientific advancement, to the east, where we have tended not to look in the past. While we still have strengths, which are significant and recognised, we are not as rich, powerful or significant as we were, while other countries are becoming more wealthy and powerful.
Another illusion that is often around is that you can continue to cut the workforce and still have expansion. As I look at the cutting of the workforce in DBT and FCDO, I cannot see how there will be anything other than retrenchment and retraction. I ask the Government to think again about some of those cuts if we really are to achieve what they want to achieve.
We talk things up with endless superlatives. There is a danger of overplaying our hand when we talk about being world-beating and world-leading in everything we do, when we are not. Propaganda is particularly dangerous when you inhale; one of the problems is that we have started to believe some of these things that we tell. It is not that we have no world-beating things, but they are not in many of the places that we speak of. There is another problem: not only do we sometimes believe it, but our people believe it. If you tell your population that they are world-beating and leading in everything, they expect you to be able to pay for all the kinds of services that they want: for welfare services, for the National Health Service and for defence, which we need. That is playing a story to them which is not true, and you have to be very careful about that kind of thing.
I was talking to a nationalist friend from Northern Ireland and she said, “I’ve suddenly realised that I’ve made a big mistake. When I go down to Dublin, I tell them about how terrible things are in the north. I’ve suddenly realised that if I persuade them that it’s terrible, why on earth would they want to take it on? I need to go down and tell them that there are problems but that we’re able to do something about those, so please work with us on that”. We have to be careful about the kind of things we say, because people sometimes believe us, and then we are in real trouble because that is not really what we want them to do.
At the same time, we are neglecting our soft power by cutting back on the BBC, the British Council and our Diplomatic Service, as I already said, while neglecting not so much hard power as our capacity to defend ourselves. The noble Lord, Lord Robertson, will undoubtedly say something about this, because he has said a lot publicly, and quite rightly so. We are not now able to defend ourselves. We told ourselves and our people for years that the world would be more peaceful. We had a world-class military machine and, anyway, we could depend on the United States to defend us. None of these things is true any more. The world has changed, which means that we must change our way of approaching it.
Leaving the EU did not bring the benefits we were promised, but simply reversing Brexit without recognising that we have changed—and that Europe and the world have changed—will not solve the problems either. Prime Minister Mark Carney has made it clear that the world is a different place. We need to listen to his injunction that middle powers, of which we are now one, build a future based more on a variable geometry of workable relationships, rather than some of the institutional structures that are vulnerable to the vetoes of the mighty. We need to build relationships more than institutions and structures. That would be my appeal: that we address the risk aversion in business and government; that we face the realities of the world as it is now, not as it was in the past, or as we wish it was; and that we build relationships in this changing and challenging world, not just conduct transactions.
Lord Redwood (Con)
My Lords, the noble Lord, Lord Alderdice, is right to warn us all that our relative prosperity and power is waning.
I have always been happy to fully support this Government’s main aim, as set out in the general election and repeated in all the economic speeches that I have heard them make. They are right that this country can achieve so much more. It can grow much faster. It can unleash enterprise and develop more business. However, I fear that my noble friend Lady Finn set out in her brilliant speech just how, for almost two years now, this Government have done everything wrong if we wish to promote growth. They have clobbered entrepreneurs instead of praising them; they have taxed people instead of rewarding them; they have taken incentives out and made it more difficult to employ young people—they seem to have a grudge against young people. Now we are presented, in this gracious Speech, with what they think is one golden thread that I think will turn out to be leaden and depressing: the idea that an EU reset will somehow promote trade, which in turn will give us that missing growth.
Let me try to help the Government think this through. Quite often, Ministers here and elsewhere tell us that we have suffered a 4% GDP loss as a result of Brexit. But all the graphs and charts of what happened to GDP between 2016 and today, in the leading European countries and here, show that there is absolutely no sign of an extra 4% drop as a result of either our voting to leave or actually leaving. If you ask Government Ministers why they think there has been a 4% drop, they say that the OBR has said it. But the OBR report is a forecast, which says that between 2020 and 2035, the British economy might grow its productivity 0.25% per annum less than if we had not left the EU. It is not forecasting any drop in GDP at all; it is not even forecasting a drop in productivity—it says that it might grow a bit slower, and if you compound out 0.25% for 15 years, you get to roughly the 4% they all wrongly cite. Ministers must be honest with themselves and the public: there was no 4% drop, and their reset will not recover the 4% that they wrongly allege has disappeared.
Let us explore the idea that increasing trade would uniquely provide growth. I fear that Ministers are again mistaken, because our trade with the European Union results in a very large trade deficit, particularly in goods. It sells us a lot more than we sell it, so if we could agree a set of policies with the EU that might increase the exports of each side by, say, 10%, which is quite a sizeable number, the deficit would rise and our GDP would fall, because the EU would export much more to us than we export to it and we would have to close down things in Britain to receive the exports we decided were cheaper or better as a result of the changes. To have the same volume, we would need to grow our exports by 17% to match the 10% growth in the EU’s exports. If you wanted to get more GDP, you would have to grow our exports a lot faster than the European Union because—I repeat to the Government—exports add to our GDP, but imports do not. If we import more German cars and close a UK car factory, our GDP goes down; it does not miraculously go up because our trade figures with the EU have gone up.
That is exactly the Government’s strategy, thanks mainly to their net-zero policies. My noble friend Lord Lilley set it all out very well. They are literally going to ban us making any diesel or petrol cars from 2030, five years earlier than they would stupidly ban them on the continent. Do they not see that that means that we would close our factories first, and definitely lose all the jobs, while Europe was still thinking about making more of these cars that people want to buy? The Government will say, “Well, we’re going to buy battery cars”. Yes, some people will buy battery cars if they cannot buy diesel or petrol cars, but most of them will probably be imported from China, or they might be made in eastern Europe and imported via that route, so the Government will not get more jobs, growth or economic activity from that source.
Here is my friendly proposal. I really want this country to do well; I want this Government to do well. I know that they are not about to fall—Prime Ministers might come and go, but they will presumably carry on governing—so I say to them: please govern well. Instead of having the wrong idea that promoting more imports from Europe and perhaps a few more exports to Europe will miraculously transform the position, I want them to put in place in Britain a series of policies for import substitution.
It is much easier for small companies to sell to people, shops and businesses near them than to go through all the hassle of exporting, however much red tape the Government think they can reduce. That would give our small businesses more chance by creating more opportunity for British production. It should be much cheaper and easier to replace imports than to try to develop exports to markets with different languages and customs which may not like what you are doing or offering. I know this well from my experience running industrial businesses, when we found that by far and away the most difficult markets to export to were France and Germany, although they were geographically much nearer. We always hired staff who loved the countries and spoke the language, but it was still much more difficult to sell there than it was to the English-speaking world, including America, or to Asian countries where English was the common business language.
We need to lift the ban on making our own petrol and diesel cars, because they have always been one of our leading exports to the continent. We need to lift the ban on getting our own oil and gas out, because they too have been leading exports to the continent. We need to get energy prices down, as my noble friend Lord Lilley rightly said. We have in the past exported a lot of petrochemicals and refined oil product, and if we are shutting all our refineries, petrochemical works, ethylene plants and so on, we will not export anything like that volume in the future.
The Government need a dose of reality and common sense and an examination of the data. It is not good enough for Ministers to say, “We will get the British economy to grow as soon as we have signed away our powers to make our own business laws and given some more money to Brussels”. They cannot identify billions of pounds of extra exports we can make at a time when they, through their policies, are ensuring that we export fewer and fewer cars and chemicals and less and less oil, gas and refined product, and are in the process of closing 21 plastics recycling plants.
As my noble friend Lord Hunt set out in another brilliant speech, there is no plan to save steel. Indeed, I heard the Minister say in her opening remarks that it is still the Government’s policy to go over to electric arc furnaces. They need to be honest to the workers in Scunthorpe: the Government are not going to permanently save the Scunthorpe jobs. They still want to sack all those people, but just a bit later, after they have wasted billions of pounds of public money on keeping open a works that is struggling to compete, in the way that my noble friend set out. I ask the Government to please level with the workers in Scunthorpe about the fact that their plan is anti-blast furnace and anti-burning coal in any sense, and to come to a decent settlement with them. The workers should not think that the Government have a solution to steel, because they clearly do not.
Baroness O'Grady of Upper Holloway (Lab)
My Lords, it is a pleasure to follow the noble Lord, Lord Redwood, and to perhaps offer a slightly different perspective. I declare my interest as a member of the Great British Energy start-up board and my responsibilities around a just transition.
We live in times of global economic shocks, from the financial crash to Brexit, Covid and conflict in the Middle East, and there is no guarantee that the global picture will get any easier. On the contrary, such shocks could speed up and intensify, which makes it ever more important that we build our economic resilience. At times like this, it is even more important that the UK has an industrial policy that is both agile and long term. To succeed, it must certainly last longer than the life of a couple of Parliaments, and that means that we need a broad national consensus to sustain it.
This Government’s industrial strategy has won support across traditional lines, and that is reflected in the make-up of the Industrial Strategy Advisory Council. There is broad agreement that a long-running problem for the UK has been low investment in technology, capital equipment and skills, which leads to low productivity, and that this challenge must be met by not just the Treasury but the whole of the Government, at the local as well as the national level. There is widespread consensus too that the Government have made the right call in identifying eight strategic sectors, with the right balance between industry and the services sector.
Economic security and stability matter for families and communities as well as for the country. It should therefore be self-evident that a key objective of the industrial strategy must be to cut carbon and reduce energy costs and to deliver prosperity and good, skilled jobs in the parts of the country that need them most. We have to recognise that there is a growing public expectation on the state to step up and protect people against the volatilities and failures of the free market and to tackle structural inequalities. A mission for growth becomes meaningful in everyday life when it also delivers rising living standards and fair shares. Polls show that public support for a modern, mixed economy is strong. To put this plainly, I merely observe that the privatisation of Royal Mail, British Rail and the utilities is now seen as an almighty rip-off. I commend the Government for taking back public control of rail and of steel, which is a core foundation industry that is critical for the security of this country and indeed Europe. I am sure I do not need to remind noble Lords that polling shows strong popular appetite for more public ownership, not least of the water industry.
We need the private sector to play its part in delivering fair growth for the British people. According to the latest data from the Office for National Statistics, share ownership in Britain is dominated by overseas investors. It has now reached a record high of nearly 58% of UK quoted shares and, on average, shares change hands in a matter of months. That is why I believe that an intelligent industrial strategy must address the case for corporate governance reform, to encourage directors to focus on company long-term success and to ensure that the workers’ voice is included.
While there is growing consensus in favour of an active industrial policy here in the UK, others are not standing still; they are moving ahead too. I end by asking my noble friend the Minister about proposals for EU alignment and the EU’s draft Industrial Accelerator Act, published in March, which was touched on briefly by the noble Lord, Lord Fox. The draft Act sets a clear goal to bring EU manufacturing back up to 20% of GDP by 2035. It is said that this will be delivered by introducing “made in EU” and low-carbon preferences in public procurement. It will regulate foreign direct investment in emerging strategic sectors, streamline and digitise permission for new industrial projects, and launch acceleration areas to encourage the creation of clean manufacturing clusters. I have some questions. If the Minister understandably cannot provide answers now, I would be happy to receive them in the form of a letter. What is the Government’s assessment of the impact of this EU Act on the UK? Is it on the agenda for the reset and dynamic alignment discussions with the EU? Will the Government agree to open a public conversation, including with British-based manufacturers, alongside the TUC and unions, on how we can match the Act’s ambition here in the UK?
Baroness Penn (Con)
My Lords, following the noble Baroness, Lady O’Grady, I too want to focus on the theme from yesterday’s gracious Speech as being one of security—defence security, energy security and economic security. I will resist the temptation to make a joke about job security, particularly as I believe the Health Secretary has just resigned.
That theme was the right one. In today’s volatile world, we are too insecure as a nation and people feel too insecure in their day-to-day lives. However, as is becoming more apparent day by day, the Government’s rhetoric is not borne out in reality. To start with the cornerstone of our national security, defence, the Government commissioned the serious and widely welcomed strategic defence review. The review concluded nearly a year ago but remains largely unimplemented. I am sure we will hear shortly the views of the noble Lord, Lord Robertson, on that. We have no defence investment plan and in the gracious Speech there was no defence readiness Bill. It is no good talking of the largest sustained increase in defence spending since the Cold War if Ministers are not prepared to take the decisions needed on how it is spent. The claim rings even more hollow as defence spending is due to fall next year. That is the cornerstone of the Government’s agenda, and there is nothing to show for it.
If the national security implications of our changed world have been explored through the strategic defence review, the economic implications for the UK of a changing world economic order remain underexplored and underprovided for in government policy. There have been moments when the Chancellor has attempted to do this, such as securonomics and the two Mais Lectures, but it has come on and off the agenda as priorities change with each new focus group. As is too often the case with this Government, there remains a set of vague, often contradictory intentions, unwilling to make the serious trade-offs needed to meet the new reality. For example, on energy security, the measures to implement the results of the Fingleton review are welcome, but the pace of decision-making and implementation has been painfully slow.
More broadly, in a world in which we have had two energy shocks in under five years, and with projected energy demand for AI, quantum and other technologies due to soar, the Government have failed to look again at the trade-offs between security, cost and decarbonisation—because there are trade-offs. I strongly believe that renewables will be a big part of our domestic energy security and that investment in green technology has the ability to drive growth and jobs. However, it is also true that, when it comes to the Government’s clean power target, focusing on getting to 95% clean power, instead of the around 90% that we were already on track to deliver, over a five-year period, has significant additional marginal costs. Pursuing the last mile of decarbonisation may have the perverse effect of failing to incentivise people to power their homes and cars with electricity as we drive up its cost. At a time when people and businesses are struggling with their bills, the Government are not being straight with them about the decisions that they are taking that drive those bills up even further.
The Government have been equally unable to make the trade-offs needed on spending. Instead of investing in growing our economy and using the proceeds of higher growth and productivity to boost spending, as was outlined in the manifesto, the Government have raised taxes in the most damaging way to growth so as to increase welfare spending before any of that growth or productivity has materialised. Even this Government have realised that the public and the economy are unlikely to tolerate further tax rises. However, we have a set of commitments and demands that must be met, including increasing defence spending to 3% then 3.5% of GDP—the short-term trick of switching ODA to defence cannot be repeated—and meeting the growing demands of our health service and an ageing population. These pressures must, at least in part, be met from savings in spending elsewhere, but the gracious Speech contained not a single proposal for where such savings might come from. There was no sign of welfare reform measures, which the Government continue to claim are necessary but fail to take action on.
Given the demands placed on us in a more insecure world, and given that we are at record levels of taxation, tax reform must now come on to the agenda. If we want to avoid further damaging tax rises, we need to find a way to raise the same revenue, if not more, from a more efficient, more growth-friendly tax system. Instead, we have had a national insurance tax change designed in the worst possible way to discourage work, and the gap between the tax treatment of employment versus self-employment or other income continues to grow. We continue to have a tax system, as the noble Lord, Lord Burns, said, that discourages mobility and investment, and that creates perverse incentives and cliff edges along the way. Perhaps the Government will reflect on the gap between their election promise—and continued claim—that they will not raise taxes on working people and the reality of their decisions as something that may have contributed to the lack of trust in the Government displayed at the ballot box last week.
I turn last to growth and the Government’s regulating for growth Bill, which some might call a contradiction in terms, although I am inclined to be more generous. We will have to wait to see the detail, but, on first impressions, although well intentioned it looks like it will struggle to have an impact. Instead of fundamentally revisiting whether the regulatory architecture that we have built over the last 20 years makes sense in today’s economy, it makes a few tweaks here and a few there. Again, it refuses to engage in the trade-offs that might be involved in some of this decision-making. We need to take a step back and look not just at the individual merits of each piece of regulation but at their cumulative effect. The half-measures, the lack of pace and the lack of vision that this represents sum up the Government’s approach.
If growth is the number one priority, you have to go further and faster on planning and on artificial intelligence. If growth is the number one priority, you do not make the labour market more rigid at the exact time you need more flexibility. You need a Government who are willing to take decisions and change the process for implementing those decisions so that it does not take years to get anything done. To quote a different part of the former Home Office Minister’s resignation letter to that quoted by my noble friend Lady Finn, this Government are
“the definition of incremental change. Nothing bold about it”.
For the Government to deliver on our national security, our energy security and our economic security, they need a strategy that faces up to the new realities in which we live, and that recognises that the open and globalised rules-based order that was the foundation of our previous growth and productivity has fundamentally changed. That means we need to look fundamentally at how we support business at home and how we engage abroad. I do not intend to focus on our relationship with the EU—many others in this debate will cover that ground—and personally I am pragmatic about the opportunities and potential costs of a closer relationship with Europe. But in this new world, we need a new approach and—here I agree with the noble Lord, Lord Alderdice—an approach that engages with the world as it is, not as we wish it would be or as we once thought it was.
The Government speak the language of a new global economic order while governing in the paradigm of an old one. That is perhaps best summed up by the response to last week’s local elections being the appointment of Gordon Brown as the special reviewer on global finance. This country cannot afford a Government who are unwilling or unable to take the decisions needed to meet the challenge before us. Something has to give, and I expect that we will find out in the coming days and weeks just what that is.
Lord Frost (Non-Afl)
My Lords, I am delighted to speak in today’s debate on the humble Address. As noble Lords will probably expect, I plan to focus on European issues and, in particular, the sadly misnamed European partnership Bill, which would be better called the European subordination Bill, for in reality that is what it will achieve: it will deprive this Parliament of any say in areas where the Government have agreed to accept EU law and dynamic alignment. I look forward to debating the Bill at great length when it reaches your Lordships’ House.
The bigger question behind it, of course, is: why are the Government going down this road at all? Why are they embarking on this reset? There are three reasons. The first is slightly surprising, and we heard about it this week: the apparent belief of the current Prime Minister that we can get Britain to be at “the heart of Europe”—a retro phrase if ever I heard one. It takes me back to John Major in 1990, and a lot has happened since then. There has been a lot of back and forth, but at no point in that period has this country ever been at the heart of Europe, and I doubt very much that it ever will be, for we do not share the goals of those who run and manage the European Union.
Looking back over that period, we spent almost our entire period of EU membership under both parties resisting any kind of European defence agreement. Indeed, last year the Polish Foreign Minister celebrated the fact that we left because Europe could now get on with such an agreement. That is not being at the heart of Europe. Neither party wanted to be part of the justice and home affairs agreement, and neither wanted to join Schengen. Of course, the reason we are not in the euro is thanks to the many efforts of the man who is now apparently an adviser to the current Prime Minister, the former Chancellor Gordon Brown. The truth is that any policy based on trying to put this country at the heart of Europe will be based on an illusion and will lead the policymakers astray. I suggest that that is exactly what is happening. That is the first reason.
I turn to the second reason. Ministers ask us to believe that there has been significant economic damage from leaving the EU. Unfortunately for them, the truth is that our growth pattern has not changed compared with those of our European comparators. However you cut the figures, Brexit does not show up, and the noble Lord, Lord Redwood, has already embarked on this point. Look at the World Bank figures since the 2008 crash. If noble Lords think that 2016 was the inflection point, I note that before 2016 we grew at about the same speed as Germany and faster than France, and after 2016 it was the other way around. If noble Lords think that 2020 was the inflection point, I note that before 2020 we grew a bit slower than Germany and faster than France, and since 2020 we have grown faster than both. If noble Lords think that 2022-24 is the most important period, I note that then we grew faster than France, Germany and the eurozone. There is an alternative world where Ministers might be talking about this morning’s growth figures as reinforcing what the British economy could achieve outside the European Union, for none of the reset measures is actually in force yet. I do not expect to hear that argument from the Front Bench today.
What is going on, then? Why can you not see Brexit in the figures? My view is that there has been some small transitional effect from leaving the single market and the customs union—maybe 1% or 1.5% of GDP. It is hard to tell. I certainly would not put it anything like as high as the OBR does. But of course that is not the only thing that is going on. We have made reforms since 2020. We have, happily, stayed out of the worst of the EU’s legislation. In particular, EU laws on AI have helped make this country the third centre in the world for AI and brought in much investment, which is probably the major reason for the growth figures we have seen. We have reformed some financial services, and we have reduced tariffs to the rest of the world and made food cheaper. Indeed, the Government themselves have just done another wave of that, which makes one think that they must think there is some value in it. We have innovated in food and gene editing, with fewer obsessional bans of pesticides and so on.
Of course I wish we had done more—we should have done much more—but what we have done very plausibly makes up additional growth of perhaps 1% to 1.5%, which is why you cannot see Brexit in the figures. The costs of Brexit, such as they are, are paid, but the benefits are still to come, and there are many more to be had. But, sadly, this Government are doing the best they can to squander them. The real economic risks do not come from Brexit at all; they come from bad policy-making here and in the European Union. Perhaps that is why the latest Deloitte poll of CFOs shows that they are now more worried about
“economic weakness in the euro area, and the possibility of a renewed euro crisis”
than about the effects of Brexit. So, in summing up, instead of repeating the zombie figures of 4%, 6%, 8% or whatever, can the Minister perhaps comment on what the real-world data actually shows us, and therefore explain why it is so important for us to give away our legislative and economic power to deal with a problem that does not exist?
Finally, the third reason is that the Government have messed up the negotiations. They did not know what they were doing. It is clear to see what happened: in opposition, they believed that the EU would simply warm to them, and it would be easy to negotiate something better than the TCA while remaining within the so-called red lines. They believed that some of the outstanding problems from the TCA were outstanding because we had simply chosen not to deal with them for ideological reasons, rather than because the EU was not interested in negotiating collaborative solutions. They thought that a few token offers in the manifesto and lots of warm words would fix things. Well, they did not and they have not, and I imagine our negotiators are a bit more realistic now.
However, instead of drawing the correct conclusion that it would be better to try to make the TCA work and focus on economic reform in this country, they cannot admit the misdiagnosis. They have got sucked into the machine. They realise that what they promised cannot be delivered, so their only option to avoid looking like they got it all wrong is to take whatever the EU is prepared to offer. So now they are in the traditional position of British Governments: colluding with the EU about what is being agreed, with the EU saying, “If you accept our way of doing things, we will help you tell your own people there’s nothing to see here”. That really is the only explanation for why the Government have achieved so little while being dragged so far from its manifesto commitments; they are simply misleading the British people about what is going on.
Let us have a final look at what their manifesto actually said. It promised only four things, actually. On help for touring artists, they have got nothing. On mutual recognition of qualifications, they have got nothing. On the UK-EU security pact, they have got an agreement to attend meetings. On the veterinary agreement, the fourth, they have got that, but they have got a lot else besides: they have been sucked into the EU single market on food. Against that, they have agreed lots of things that were never in the manifesto. Where in the manifesto is the 12-year extension on fishing grounds? Where in the manifesto is the commitment to dynamic alignment and obeying EU laws with no say? Where is the product standards Act, which would allow Ministers to align with the EU by fiat? Where is the commitment to follow EU rules on cars? Where is joining EU carbon pricing? Where is joining the single market for electricity? Where is joining the EU’s customs union rules for carbon-intensive goods? Where is rejoining Erasmus for £1 billion a year? Where is the youth mobility scheme that is apparently going to be more ambitious than ever, according to the PM on Monday. The answer is: nowhere. The dams of the red lines are long since broken and the incoming tide of EU law is once again flowing up the estuaries and rivers of this country’s independence.
Only once we have ended this constant attempt to try to pretend the British people did not take a decision will we get back to a proper relationship, without passive aggressiveness on the EU side and a chip on the shoulder on ours. We know what needs to be done: we need to reverse the reset and we need to remove EU law and foreign courts, and we need to do that in the whole country, in Northern Ireland as well as in GB. Next time, I hope we will finish the job. It needs to be done and it cannot come soon enough.
Lord Sharpe of Epsom (Con)
My Lords, I shall start on an area that was largely ignored in the King’s Speech. Unfortunately for small businesses across the country, the King’s Speech offered very little.
Business groups had once again urged the Government to use the King’s Speech to address the long-standing iniquity of business rates, a reform the Government themselves promised in their manifesto but have not delivered. The shops, the pubs, the restaurants, the cafés, the leisure venues and the small firms that sustain our high streets are still waiting: what they see in the meantime is not relief but further layers of administrative obligation.
Of course, we acknowledge and tentatively welcome the late payments Bill, and we look forward to reading it closely, but the devil will be in the detail. To be factually accurate, that is counterbalanced by other things such as the overnight visitor levy Bill, which is more properly and commonly known as the holiday tax. That has already been rejected, publicly and forcefully, by hundreds of business leaders across the hospitality, tourism and leisure sectors, who understand that it would lead to fewer visitors, higher prices, lower margins and the gradual erosion of local economies that depend on domestic tourism for their vitality. How does that generate growth? We look forward to further scrutiny on it.
Under this Government, businesses have been taxed more heavily in their decisions to hire, regulated more extensively in how they operate, and treated less as partners in national recovery than as convenient sources of revenue and targets for political demonstration. Unemployment, including the particularly troubling matter of youth unemployment, as my noble friend Lady Finn pointed out very powerfully, has continued to rise during this Government’s tenure, and one might ask how it was ever supposed to be otherwise when the cost of taking on an additional employee was raised as a matter of deliberate policy. While the Prime Minister is occupied with fighting members of his own Cabinet for possession of his job, young people are finding that there are no jobs available to them.
The Government’s response to a weakening labour market has been to pass the Employment Rights Act, imposing billions of pounds of additional burdens on employers who were already navigating an exceptionally difficult environment. We were told, with some confidence, that this would empower workers, yet many of the new entitlements it creates cannot in practice be realised at all, because the tribunal system is so overwhelmed that claimants face delays of such length as to render their rights, in any functional sense, illusory. Workers do not win; businesses, who bear the cost and uncertainty regardless of outcome, do not win; the beneficiaries, if there are any, tend to be the trade unions, whose institutional strength is enhanced by precisely this kind of legislation, and whose leadership is at this very moment preparing to bring down the Prime Minister and bring further disruption to London through Tube strikes that will harm the small businesses and hospitality venues that have already endured more than enough.
I turn to the Government’s proposed competition reform Bill. Superficially, we should welcome this, but on close reading we see the Bill’s precis states:
“Market reviews can take over three years. The Bill will speed these up so that when markets are not working properly, such as when consumers face high prices or businesses face barriers to entry, competition problems are identified and addressed more quickly”.
Neither high prices nor barriers to entry necessarily signify that markets are not working properly; in fact they can signify precisely the opposite. So we should be concerned by the suggestion that market reviews should be accelerated whenever consumers face high prices or businesses face barriers to entry.
As we read it, the proposed removal of the independent CMA panel in phase 2 investigations risks reducing the independence of decision-making and increasing the potential for political influence over competition cases. So I ask the Minister a precise question: what safeguards will ensure that decisions remain independent of Ministers? Is it not the case that, in many sectors, high prices are caused not by a lack of competition but by the direct consequences of this Government’s policies? Businesses are facing higher employment costs, higher employer national insurance contributions, increased regulation, rising compliance burdens and, as my noble friend Lord Lilley mentioned in his brilliant speech, the highest energy costs in the OECD. In those circumstances, prices may rise because firms are trying to survive the costs imposed on them. The Government must be careful not to punish businesses in haste for pressures that Ministers themselves have helped to create.
The same applies to barriers to entry. Often, those barriers are the result not of private market abuse but of public policy: higher labour costs, tax burdens, licensing requirements, planning restrictions and regulations that make it harder for new firms to enter a market. If the Government genuinely want more competition, they should begin by examining the burdens they place on enterprise.
High prices can be a signal that supply is insufficient and that new entrants have an opportunity to compete. Over time, that increased supply can place downward pressure on prices. That is, incidentally, an experiment that the Government should try with oil and gas. If regulators rush to intervene before market forces have had the chance to work, they may distort the incentives, deter investment and produce unintended consequences. Faster reviews are not necessarily better reviews; the test should be whether they are fair, proportionate and properly grounded in an understanding of how markets actually operate.
I turn to the regulating for growth Bill. Like my noble friend Lady Penn, the first thing that I would recommend is that the Government change the name of this Bill, because you cannot regulate your way towards growth. We of course want to see further innovation in the UK, in particular with emerging technologies and AI. But, looking at the proposed AI sandboxes in this Bill, I shall ask a couple of questions. Will the Government tell us how they will maintain the UK’s high-standard IP and copyright protections, including within the AI sandboxes? Following on from my noble friend Lord Frost’s comments, how do the AI sandboxes square with the reset? As we have heard, the European Union is not as far advanced when it comes to AI as we are.
Yesterday, I read an economics brief that is widely respected in the City. It concluded by saying that
“the smaller structural reforms—on housing, employment, transport, pensions and minimum wages—have been unequivocally damaging to economic growth”.
That is what the markets think, which is why they are charging us the highest interest rates since 2008. I venture to suggest that nothing in the King’s Speech will change that. What a very sad indictment of this Government’s growth agenda.
Lord Robertson of Port Ellen (Lab)
My Lords, I declare an interest as a senior counsellor with the Cohen Group. The opening lines of the gracious Speech hit the nail on the head:
“An increasingly dangerous and volatile world threatens the United Kingdom, with the conflict in the Middle East only the most recent example. Every element of the nation’s energy, defence and economic security will be tested”.
And indeed, we are being tested.
I want to remind the House what we said in the strategic defence review last year, when I was the lead reviewer, which was adopted by the Prime Minister and the Government. The review said:
“The UK and its allies are once again directly threatened by other states with advanced military forces”.
It went on:
“The UK is already under daily attack”.
All that is true and troubling enough, but, as the Prime Minister himself said at the Munich Security Conference only a few weeks ago:
“Time and again, leaders have looked the other way, only re-arming when disaster is upon them. This time, it must be different. Because all … the signs are there”.
These are tough words and, if we had that promised national conversation about defence, I am sure the country would agree with the Prime Minister.
Why do I raise the subject of defence in this economic growth debate? It is a fair question. Although the Prime Minister has made these grave forecasts, we still have no clarity in this speech or in the Munich speech about the steps necessary to get to the agreed 3.5 % of GNP by 2035. I remind the House that that figure would add £36 billion to the present £70 billion that we already spend on defence. These are eye-watering figures, but 30 countries committed to them at the Hague summit, and President Trump is watching all the time.
In his introduction to the document accompanying the King’s Speech, the Prime Minister highlights the Iran conflict. He says:
“But in the light of that conflict, we … need to move with greater urgency”.
This builds on what he said in Munich:
“We must build our hard power, because that is the currency of the age”.
He went on:
“So together we must rise to this moment. We must spend more, deliver more, and co-ordinate more”.
I will make two points about the powerful Munich speech. First, there must have been a page missing from it: the one which logically went on to say what additional funds the British Government were committing to spend to acquire that necessary hard power. Without that commitment, it is simply rhetoric. Secondly, the Prime Minister needs to make that speech again, with its solemn and worrying warning about a potential Russian attack on NATO before the end of the decade, which is in three years’ time, and make that speech not just in Munich but in Manchester, Middlesbrough, Mallaig and many other places.
I repeat what I recently said, which caused a degree of controversy: we are underprepared, we are underinsured, we are under attack and we are not safe. It is a blunt message which the country needs to hear, and from the top of government. Only when people realise the dangers that we face and the threats to them, and to their children’s futures, will the Chancellor and her advisers be willing or forced to make the budgetary trade-offs to spend and deliver more. So I ask my noble friend the Treasury Minister: when will the Treasury set out the steps to get to the 3.5% plus 1.5% promised at the Hague NATO summit? The next summit is only eight weeks away and our country is now 10th in NATO’s league table for spending.
I appreciate that the Government have already pledged to increase expenditure to 2.5% by 2027, and this is welcome. But is this nearly enough, in light of the challenges and threats that face us at the moment? NATO and SACEUR are forecasting a possible Russian military attack on the alliance in just three years’ time. Why are we sleeping? Why are all of us not rearming at pace and rebuilding the hard power so necessary to deter current and future threats to our land, sovereignty and democratic way of life?
I have said it before, but it needs repeating: when the lights go out, the hospitals close, the data centres melt and the ATMs stop working, the public will rightly say to all of us, “Why did you not do something to sort this out before?” If, somehow, we are attacked with cruise and ballistic missiles when deterrence fails, will we stand in the ruins of our cities, homes and schools, and proudly say, “Well, yes, we protected the fiscal rules”?
Will the Minister consider this question: what if we do not increase defence expenditure and rebuild deterrence in the way the Government have agreed in the defence review? Will the Chancellor and the Treasury accept the blame for our continued weakness and the open door that it represents to our aggressive and fast-learning adversaries?
The gracious Speech is not strong on defence—our adversaries will note that and draw some conclusions—and the absence of the defence readiness Bill is a major failing in it, but it says something:
“My Government will also uphold the United Kingdom’s unbreakable commitment to NATO and our NATO allies, including through a sustained increase in defence spending”.
I welcome that promise, but what does it mean, how much does it mean and when will it mean? The threat is immediate. In Ukraine, we can see that it is very real and very nasty. It is no longer theoretical. Under the threshold, it is happening now. When will we see the steps and the commitment to the 3.5%? Only when we do will the British people feel safer than they are today.
I conclude with the words of Denis Healey, speaking in 1969. He said that
“once we cut defence expenditure to the extent where our security is imperilled, we have no houses, we have no hospitals, we have no schools. We have a heap of cinders”.—[Official Report, Commons, 5/3/1969; col. 551.]
It was wise then; it is a warning today.
Lord Bridges of Headley (Con)
My Lords, it is a very great pleasure to follow the noble Lord’s extremely powerful and searing critique of the Government. To help the Minister in his summing up, let me suggest some parts that he might like to cut. I know he likes always to refer in his speeches to the Liz Truss mini-Budget—I think he has mentioned it about 53 times. He can cut that out entirely. All of us on this side of the House would agree that it was a disaster.
We would agree that the last Government left office with taxes, spending and debt too high, largely—but not entirely—due to Covid and the energy shock. But, of course, the Minister’s Government now hold the record of long-term borrowing costs soaring to the highest level for 28 years, largely thanks to the Government’s self-inflicted chaos. Rather than talking about the previous Government’s faults, which I assume we on this side of the House all agree we are responsible for, I gently suggest that the Minister focuses on what he is responsible for, which is the current state of the economy and where we go from here.
That brings me to the gracious Speech. As a number of my noble friends have said, including my noble friend Lady Penn and, of course, the noble Lord, Lord Robertson, a recurrent theme is the Government’s wish to strengthen our security and resilience. It is an aim we can all agree on. However, the question as regards the economy is, how do we achieve it? The Chancellor has a special word for it: securonomics. In her view, state intervention, regulation and spending more on welfare and the NHS all build economic resilience, and with that resilience comes growth. But as a number of my noble friends have said, especially my noble friend Lady Finn in her excellent opening, evidence suggests that securonomics is delivering completely the reverse: lethargic growth, higher debt and an economy more vulnerable to shocks.
Just consider a few facts. Between 2024-25 and 2029-30, welfare spending will rise by £75 billion to £389 billion. Debt will rise, and with it debt interest spending: from £105 billion in 2024-25, it will hit £134 billion by 2029-30. As the Chancellor likes to remind us, £1 in every £10 the public sector now spends goes on debt interest. That is four times what we spend on nurses. As the noble Lord, Lord Robertson, just pointed out, at a time when war is raging in Europe and there is a stand-off in the Middle East, this makes it even more difficult to increase defence spending. The rise in welfare spending this year alone would be enough to pay for 15 Royal Navy frigates.
So what is securonomics doing? It is making us less secure, both in terms of our economy and our national security. I know the Minister will try to dispute all this when he sums up. He will, I am sure, point to the so-called regulating for growth Bill. I absolutely welcome any measures to ease regulatory burdens on business, and I particularly welcome the concept of strengthening the growth duty. We absolutely have to fundamentally rebalance our risk appetite in this country—we have to encourage more risk-taking, innovation and enterprise—but surely, if the Government were really on the side of businesses and helping get regulations off their back, they would not have implemented the Employment Rights Act, which will increase costs by £5 billion a year, not to mention hitting employers with national insurance. Maybe the Minister can square the circle when he sums up.
Then there is the so-called reset in relations with the EU, which the Chancellor views as
“a strategic imperative for deeper integration between the UK and the EU—in our shared need for greater economic resilience”.
This argument assumes that the EU economy is becoming more resilient and more competitive, and that closer alignment to the EU will, in turn, benefit Britain.
However, as my noble friend Lady Finn pointed out—I want to dwell on this—what is happening in Europe suggests otherwise. Some 18 months ago, in the landmark report that the noble Lord, Lord Liddle, referred to, Mario Draghi warned that Europe would need “to change radically” to meet the economic challenges it faces. But instead of radicalism, many in Europe are concerned that the EU is sinking ever deeper into the economic mire. Why? Its institutions, its culture and the very nature of being a rules-based system means that it is finding it very hard to find a regulatory reverse gear.
At the weekend, the CEO of one of the world’s biggest banks, UBS, pointed to the EU’s record of “no growth” and a “clear divergence” in productivity compared with rival economic powers. This is what he said:
“If it would be over-regulation only in banking, one could probably live with it. We have over-regulation across the board. That’s the real problem. The amount of bureaucracy, the lack of innovation that goes on is a fact”.
Now hear what the CEO of Germany’s BASF, the world’s largest chemical producer, said:
“Europe is losing industrial capacity at a speed we have never seen before. This is … a structural”
trend in “competitiveness”.
Noble Lords may think that this is big business whingeing, but hear this:
“We are on the brink of an existential crisis”.
That was the Prime Minister of Belgium speaking about European competitiveness in February. Then there is this:
“we lack appetite for risk … we are out of step with a shifting world … we are over-regulating”.
That is President Macron. Then there is this:
“The single market was once created to form the most competitive economic area in the world, but instead, we have become the world champion of over-regulation … we must now put a stick in the wheels of this machine in Brussels to put an end to this constant regulation from the European Union’s legislative machine”.
That was Chancellor Merz.
Despite the tough talk from Berlin and Paris, this has yet to yield any results in Brussels. Efforts to make Europe more competitive, productive and innovative are, to put it mildly, spluttering. Before we even get to the price the Government are willing to pay to forge closer relations with Europe, the Minister needs to answer this question: given that the EU’s leaders lament Europe’s lack of competitiveness and growth, and seem unable themselves to do anything about it, why would closer alignment of our economy with the EU benefit the UK, and why would it help build British economic resilience?
This gracious Speech is the latest scene in the tragedy of this Labour Government. When the Government came to office, the Economic Affairs Committee—which the noble Lord, Lord Burns, sat on and which I chaired at the time—warned that tough decisions needed to be taken in that Parliament to put the UK’s finances back on a sustainable path. The Government were given a massive majority to take those tough decisions. But they made the wrong tough decisions, because they believe that economic growth comes from regulation, the state and Whitehall. They are a Government who refuse to confront the brutal reality that we are spending and taxing too much. They believe that we can afford more welfare and less wealth creation. They think that more and more regulation will increase economic security, whereas it increases costs, crushes job creation and makes inflation stickier, which in turn keeps the cost of borrowing high. The Labour Party may change it leader, but it will not change any of these beliefs, so this tragedy will continue.
This gracious Speech will do little to stop our country becoming weaker, more vulnerable, less resilient and less secure—the very opposite of what the Government and all of us want.
Lord Strasburger (LD)
My Lords, I will address the impact of Brexit on one of our largest economic sectors—the creative arts sector—and reflect on what that impact tells us about the direction of our economy and the changing mood of the country. In the years since Brexit, not only has our cultural life been affected but our capacity to grow our economy has been damaged. Before Brexit, the creative industries contributed over £110 billion annually to UK GDP and were the largest sector of our economy after the financial services.
The creative industries were also among the fastest-growing parts of our economy, expanding at nearly twice the rate of the wider economic base. They were export-driven, innovation-led and deeply integrated with European markets. That matters because growth in a modern economy increasingly depends on precisely these kinds of sectors, which are mobile, knowledge-based and internationally connected. Yet Brexit has introduced friction at every stage of that model. The previous Conservative Government promised to protect the creative industries from the downsides of Brexit but then completely omitted them from the trade and co-operation agreement, of which the noble Lord, Lord Frost, has just told us he is so proud.
Touring, the backbone of income for many musicians and performers, now involves visas, work permits, cabotage limits and complex tax arrangements. The result is not simply inconvenience but lost activity. Tours are shortened, scaled back or cancelled altogether. These are lost earnings, lost exports and lost contributions to our GDP. A generation of talent has been lost. Young people who would have become our performers, designers and skilled support staff of the future are now scratching a living with Uber or Deliveroo and could be lost to our creative arts for ever.
Collaboration has also been hit. Coproductions, joint ventures and cross-border projects, once routine, are now more complex and costly to organise. That reduces not only output but innovation as the exchange of ideas becomes harder. Investment follows the same pattern. When access to European markets becomes less predictable, investment decisions shift. Productions relocate away from the UK, companies themselves relocate elsewhere and, over time, that weakens the UK’s position as a hub for creative enterprises. Taken together, these effects represent a drag on growth in a sector that should be helping to drive it. The consequences ripple outward. The creative industries support tourism, hospitality and regional economies across the United Kingdom. When creative activity declines, so too does the wider economic ecosystem that depends on it.
This is not a niche concern. It is part of a broader pattern that reduces trade intensity, lowers business investment and slows the growth that we might otherwise have achieved. If we are serious about restoring real, sustained, export-led growth, we must reduce those barriers. We must reconnect with our largest and closest market and rebuild the conditions in which sectors such as the creative industries can thrive.
So far, I have restricted my remarks to the economic benefits of the European Union. But perhaps more important and urgent than the obvious financial upsides is the need to face up to the rapid collapse of the international order that existed at the time of the referendum. Since then, in just 10 years, the world has become not merely more complicated but more dangerous and less predictable. We have seen war return to Europe, persistent threats from hostile states, cyber attacks, terrorism, energy shocks and growing pressure on the rules-based international order. The second Trump presidency has added a further layer of volatility by unsettling alliances, sharpening transatlantic uncertainty and encouraging a more transactional approach to international relations.
As we heard recently from the noble Lord, Lord Robertson, we have come to the painful realisation that our military capacity is not what it was and we cannot afford to do much about it in the foreseeable future. In these conditions, the case for Britain to work more closely with its neighbours is compelling. A country of our size cannot best protect its interests and citizens by standing apart from the institutions and partnerships that help anchor stability. That is precisely why the need to work with our European neighbours—and to do so from a position of influence, rather than isolation—has become even more pressing.
In a nutshell, the changes to the world since 2016 have vindicated co-operation, not detachment. The British people can sense that. They can see that our economy and national security are being threatened by the isolation brought by Brexit. That is reflected in the polls by an increasing majority in favour of abandoning the failed experiment of Brexit and rejoining the EU. This is a significant and sustained shift in public opinion. Democracy is not a one-time instruction; it is an ongoing conversation between the public and those who represent them. When the facts change and when the public sentiment evolves, it is our duty to respond.
To rejuvenate our creative industries, to boost growth in our economy more generally and to bolster the stability and security our people need, we must get started now on rejoining the European Union. There is no time to waste.
Lord Johnson of Lainston (Con)
My Lords, I will take a slightly different tack and praise the Government for some of the Bills put forward in the most gracious Speech. However, before I do, I want to admit to a slightly shady secret: I am a capitalist; I like making money, I am on the boards of companies, and I invest in businesses that will, I hope, be benefited if the Government actually get their act together and carry through on some of the wonderful things in this great Speech.
The first is the competition reform Bill, and we have had some extremely good interjections from my noble friends Lord Sharpe and Lord Hunt and other noble Lords, who have rightly pointed out the importance of making sure that the Competition and Markets Authority functions properly. However, my concern—I realise I am speaking on this subject with noble Lords surrounding me who probably created these legislative functions in the first place—is that we have it upside-down. Competition under the Thatcherite model used to be to try to break things up: to have as many smaller companies as possible in order to reduce prices and increase competition. But the reality is that now, in the AI age, we need super-companies. We need to go the other way, encouraging conglomeration and amalgamation to create companies that are big enough and which can become global super-champions, which will allow this country to stay at the centre of the AI arms race.
I say to the Government, and I hope they will take this into account, that competition reform is not simply about making the CMA work better—and, my goodness, it needs to—but about changing the very nature of how the competition process works, to enable us not to reduce competition through reducing the number of companies offering goods and services, but to make sure that we understand the nuances around creating the sorts of companies that will allow us to have power in what is now a winner-takes-all economy.
The second Bill I want to heap praise on is the regulating for growth Bill. I was the Minister for better regulation; rather like the title of the Bill, that is probably the greatest oxymoronic ministerial title in the western world. The idea that you can regulate for growth is slightly bizarre. The measures that the Government have outlined are good, and the last Conservative Government wholeheartedly supported this, and indeed introduced some of these principles in the regulatory reform White Paper: concepts such as sandbox powers; and, very importantly, strengthening the growth duty of regulators, holding them to account on that most important task, that their function is not to stop things from happening but to allow them to happen in an orderly fashion. However, one of the most serious issues I came across in government, which I think we still suffer from today, is around the layering of regulations and the conflict between different government bodies, departments and quangos that make it very difficult for businesses to navigate.
One good example was a company that came to me that was creating artificial dog food. I have a caramel-coloured, long-haired miniature dachshund called Daisy, and her health is of paramount importance to me, so I am the last person who would want her to consume anything that might be dangerous. But this innovative small company had to go to Defra. It was then sent to the Food Standards Agency, which then sent it back to the food administration, which sent it back to Defra. It went round and round, and no one Minister or agency would take responsibility for the universe in which it was operating. If we are going to design an economy for the future, and if these regulatory bodies are going to put growth and innovation at the centre, we have to have more rationalisation in terms of who takes responsibility for the areas that they govern or we will continue to have overlapping responsibilities.
The second part of the regulatory agenda that needs reforming is that around the environment. I am told by property developers and people who wish to build that the environmental controls are now a far more significant hindrance to their ability to do what we need—build infrastructure and houses—than the planning process itself. I declare another interest in that I am trying to build an outside study area. It is an old piggery. However, it is not that simple. Last November, I got planning permission, but I could not get full planning permission because I had to do a bat survey. I said, “Let’s send for the bat survey man”, but I could not send for him until May, as that is when the bats start to fall in love with each other. That is the romance season of the bats.
I waited until May, so we have already lost six months. The bat man comes. He is called Tristan. He wears a gilet. He turns up with an infrared camera. He sits night after night, for seven nights, trying to film my bats in an intimate embrace. This is not a joke but a true story. I almost imagine Sir David Attenborough, the great centenarian, crouched in a safari suit, talking about “Lord Johnson’s domestic bat environment” and then putting it in a nature film. That cost me thousands of pounds and took months. The outcome, the mitigation, was to put a bat box up outside my piggery.
We have lost the plot. The process has become the principle rather than the outcome. The bat box cost £60. I would have loved to put one up. I probably would have put one up anyway, so why not look at the outcomes rather than the process? If all that I had to do at the beginning was make a choice—put a bat box up or go through a torturous process—we would have had the same outcome. We have lost our way when understanding how we regulate and what we are regulating for—which, in this instance, is to protect bats.
The last Bill that I congratulate the Government on—and I am glad to see the noble Lord, Lord Livermore, back in his usual place—is the enhancing financial services Bill. A few months ago, I raised regulation in finance in a question. The Minister laughed. Well, he is not laughing now. He is taking it so seriously that he is pioneering a new Bill to help the financial services industry, which I am afraid our Government, as my noble friend Lord Bridges of Hedley pointed out, did nothing but denigrate from 2010.
Can the Minister take note of a few key points? The first is consumer duty. The bizarre idea that somehow we have to be responsible for so many parties down the chain makes it impossible for us to create proper financial products. All companies have a consumer duty. We all have a duty to the customer who uses our products. The idea that we have to regulate for that is just causing more problems and more complexity. It creates an ever more byzantine amount of paperwork. Consumers click “I accept” or “I agree”, thinking that they are protected when they are not.
The second thing that I would like the Government to look closely at is MiFID II. As a Minister, I used to offer a prize. I was not allowed to offer money for reasons of probity and integrity, so it was a bottle of wine. It was for any person who could name for me a benefit to humankind of MiFID II. One person put their hand up and said, “Lawyers”. I am sorry to say it to any noble Lords in this House who are lawyers, but I am afraid that they do not count. That prize still stands. It destroyed the research capabilities of small companies and with it the A market and the small company market.
I want to mention institution-to-institution sales. We are obsessed with compliance and regulation around how we sell to the retail market, as we should be. However, when it comes to institutions-to-institutions, we should allow 1,000 flowers to bloom. We should make it our ambition to ensure that if dealing inter-institution, where there is no risk for individuals to be mis-sold, we should be allowed to do almost whatever we like. That is how you create strong financial innovation.
My last comment on financial service regulation concerns a very worrying outcome from a report written by the Financial Services Regulation Committee in this House, which was presented a few months ago, about how the FCA had created a climate of fear in how it managed its affairs. I draw noble Lords’ attention to this because it is a very serious point. A regulator has created a culture of fear rather than one of innovation and growth. I wrote to the FCA asking for a response to this. It has not bothered to write back. I ask the Minister to impress upon the FCA that its job is not to create fear but to create a successful financial services sector that allows us all to have wealth.
Baroness Bi (Lab)
My Lords, in following that speech, I will cover many of the areas covered by the noble Lord, Lord Johnson, but I welcome the focus on economic growth, trade and our partnership with the EU contained in the gracious Speech.
It is imperative that we take measures to improve our rate of growth to offer hope to the many people who feel that society no longer works for them. I am particularly concerned about the impact on young people, not just those who are not in employment, education or training but the many others who do everything right and then find that they cannot find a job that reflects their training and aspirations, and that they cannot buy a home or start a family. History is full of examples of revolutions started by disaffected young people who do not have a stake in the society in which they are living, and I am concerned about the impact on the future of our democracy if we are not able to grow the economy to meet their legitimate expectations.
We are all now hearing a clamour for bold change from my colleagues in the other place, and I join it to this extent: the broader geopolitical situation means that we need to choose whether to seek growth primarily through deregulation, as the United States has done, or through closer dynamic alignment with the European Union—our largest and nearest market. I accept that both routes have the potential to offer us higher growth than we are experiencing. However, as a cake enthusiast, I know that we cannot have the benefits of both while accepting the discipline of neither. The choice we make—whether to follow a US model or to be more closely aligned with the EU—has to run through all our decision-making on tax, regulation, skills, capital markets and energy costs.
Like my noble friend Lord Liddle, I urge the Government to choose alignment with the EU and hope that the British public have an opportunity to reverse Brexit in due course. We ultimately belong in the European Union not just because it makes economic sense but because we share the same values as our neighbours. We need to work together with them to enhance our joint defence capability, the importance of which my noble friend Lord Robertson so eloquently explained. In a world of large economic blocs, we are exposed. Although I applaud the Government’s progress on free trade agreements, the increase in growth that these FTAs are able to achieve does not make up for the loss of access to the single market and customs union.
I also accept, not least because of the manner in which we left, that the EU is understandably hesitant in responding to our overtures, but the review of the TCA due this year and the upcoming EU-UK summit provide an opportunity to make meaningful progress within the current framework to achieve business mobility, youth mobility, mutual recognition of professional qualifications and civil judicial co-operation, all of which will help to boost growth. Increasing growth depends on strengthening those sectors in which Britain is genuinely world class. I agree with the noble Lord, Lord Johnson, that financial and professional services are some of our world-beating industries. The sector generates jobs, tax revenues and exports, but it is overregulated, with compliance costs for just financial services exceeding £30 billion each year. I accept that regulation is necessary for growth, but it must be targeted and proportionate.
In the past, our approach to EU regulation was often to overcomply and gold-plate requirements. As we consider dynamic alignment in the future, I urge the Government to adopt the method advocated by Marie Kondo and consider keeping those regulations that spark joy and discarding those that we no longer need. As a lawyer—I declare my interest as the chair of a law firm—I hesitate to suggest fewer laws and thereby deprive my colleagues of the prospect of advising clients at attractive hourly rates, but too often new laws and regulations are issued in response to a failure or scandal, when existing legislation should simply be enforced. Solicitors, from sole practitioners to those in larger firms, are now contemplating the prospect of being regulated by the Financial Conduct Authority, which has no experience of overseeing professional services to date. This is for anti-money laundering, a role that has been performed thus far by the Solicitors Regulation Authority—one of 15 regulators and bodies whose requirements and guidelines we are currently required to observe in the UK.
I am bemused by the fact that, in London, we are deemed to need ever more regulation, overseen by growing numbers of regulators, whereas colleagues in New York, Paris and Frankfurt seem to get by perfectly adequately with a local Bar Association and compliance with the laws which apply to the rest of society.
I note that many noble Lords have discussed concerns about overregulation, but I am afraid my experience in the legal sector is replicated in many other areas of the economy. We need to be much bolder in deciding what regulatory oversight is actually needed to protect consumers, preserve stability and sustain confidence—with significant input from those sectors themselves, as they have a primary interest in maintaining their good reputation—and to remove the rest. We need proportionate regulation, alignment with the EU and support for our great industries, especially financial and professional services, to drive the growth that is needed for the next generation.
Lord Jackson of Peterborough (Con)
My Lords, to begin, I strongly commend the noble Lord, Lord Robertson of Port Ellen, who is not in his place, for his coruscating criticism of the Government’s dilatory approach to defence and national security. It was a courageous contribution.
I intend to confine my remarks to the Government’s proposals for dynamic alignment, now rebadged euphemistically as a putative European partnership Bill, the details of which are as yet unclear. Your Lordships’ House may be aware that the European Affairs Committee is currently conducting an inquiry into the policy, and is still the only discrete body in Parliament interrogating this Government’s wider policies in respect to EU-UK relations.
Almost 10 years ago, the British people made a decision to leave the European Union, the single market and the customs union. They chose to return sovereignty to the United Kingdom. That was the democratic will of the British people, and it risks being overturned by politicians who never accepted the validity or the potential benefits of Brexit. The Government are pushing for closer alignment with the EU, but they have gone far beyond any mandate they can claim from their manifesto. They have decided to define themselves by a close relationship with the EU.
In his speech at the beginning of this week, the Prime Minister admitted that he felt it was necessary to go beyond what was stated in 2024 and that, at the next EU summit, he wants to put
“Britain at the heart of Europe”.
However, he refused to admit whether he would ditch the red lines in his manifesto, which ruled out membership of the EU single market or customs union, and instead committed to “take us closer”. This is an attempt to deflect from the failures of the Government—failures demonstrated by their devastating and unprecedented losses in the local elections last week. Rather than take responsibility for their unforced errors and U-turns, they blame the decision which has allowed this country to take back its sovereignty.
The Government are wilfully betraying the people of this country in staking out such an ideological position, and they know it. Reform UK’s gains in the local elections show this. Frankly, leave voters do not trust this Labour Party, and the Government’s announcements in the gracious Speech only validate this argument and the disrespect they have for those opinions. As it happens, YouGov polling for Queen Mary University of London has found that only 9% of Labour voters believe that UK tariff policy should be decided by a non-UK entity.
In our alternative summary to the European Affairs Committee report, Unfinished Business: Resetting the UK-EU Relationship, published last year, we showed how the Government’s EU reset objectives had expanded over time. By the end of the year, this Government intend to publish a Bill including mechanisms which would align the UK to EU law. However, in order to gain the privilege of losing our ability to make our own trade and energy policies, the UK will have to pay and be subject to the fiat of the European Court of Justice.
The EU’s objectives were leaked in a negotiating paper in 2024, in which it made clear the strong desire for the extension of the pre-existing arrangements on reciprocal fisheries access and the support among EU member states for a UK-EU youth experience scheme and a UK return to the Erasmus+ scheme—which, incidentally, comes at significant cost to British taxpayers, with little or no value-for-money analysis. The key EU objectives of the 2024 negotiation document have been agreed to by the UK. The EU has now made it clear that if the Government are determined to push for closer alignment with the single market then we will have to pay in the region of £1 billion a year into the European Union’s budget—something that we have not had to do since we were a member. This completely undermines the UK’s political and financial autonomy.
This would be understandable, were Ministers to have brought forward a comprehensive, robust cost-benefit analysis of how dynamic alignment may benefit British business, but they have not. Our committee has received substantial evidence that the true cost of this policy of dynamic alignment will be a hit of £15 billion to our economy, as it will destroy UK regulatory headroom by importing EU anti-competitive market distortions.
British exceptionalism in areas such as gene-editing, novel foods, AI and, of course, animal welfare standards will be stymied by such a foolhardy policy, and all for a minuscule gain in GDP over the long term, based on contested figures pulled together by lobby groups—according to the Centre for European Reform a gain of just 0.1% of GDP with a sector-specific SPS agreement, or just 0.04% of GDP with youth mobility and a touring artists’ regime in the near to medium term.
We already know that the estimates of the so-called damage to the UK economy of Brexit are based on dodgy figures and have been comprehensively rebutted. For instance, the NBER working paper, used recently by the Chancellor, which claims a hit
“by as much as 8%”
to the UK economy, was derived by comparing growth in UK GDP per capita with the averages of a wide range of other countries with many different characteristics. UK underperformance since 2016 was solely attributed to Brexit and ignored other key factors, such as Covid, the Ukraine war and the energy crisis, which impacted different economies in different ways. We know as a fact that UK growth in GDP per capita has been only a little below that of France and better than Italy, Canada and Germany. Of course, those Brexit-sceptic commentators invariably ignore our hugely successful improvement in services exported to the EU since 2016. That is why the City of London is now wary of linking regulations to a single European jurisdiction.
Dynamic alignment will require at least five years of complex primary legislation and runs the risk of severe retaliation by non-EU countries, as there will develop, for instance, a structural incompatibility with our obligations under the CPTPP. This is bad for our economy. For instance, UK exports of pharmaceuticals to the United States, worth £11 billion, are at risk of a 100% tariff in order for us to, let us face it, protect the EU agricultural sector.
Ministers have completely ignored the fact that mutual recognition and equivalence are tools used by most mature economies trading globally as a means to reduce regulatory friction while protecting parliamentary sovereignty. If the Government continue to yield to the EU’s demands, the UK will be committed to contributing to EU cohesion funding, and we will have to pay financial contributions to help reduce economic, social and territorial disparities within the EU. We will be paying the European Union for the privilege of undermining our global competitiveness. Dynamic alignment offers us nothing that we do not already have.
Finally, these proposals have significant ramifications for parliamentary sovereignty. Ministers intend to use statutory instruments to bypass parliamentary scrutiny every time the EU updates the rules that we are forcibly aligned with. To compound this, we will have no real influence over the EU regulation-making process, merely the opaque illusion of so-called decision-shaping, about which Ministers have not yet opined.
The Government have a choice to make: to change tack and uphold the commitments and democratic will of the British people, producing a Budget that cuts business taxes, reduces regulation and welfare spending, boosts jobs and skills, and secures new global trading opportunities, or to turn their back on the people they claim to serve and shackle our country to a declining, overregulated, dirigiste market that will hobble British enterprise and innovation in a vain attempt to prop up a discredited Administration and a struggling Prime Minister.
Lord McNicol of West Kilbride (Lab)
My Lords, it is a privilege to speak in response to His Majesty’s gracious Speech, and I am grateful to my noble friends who moved and seconded the Address with such witty eloquence. I want to use my time to speak about two issues I think are critical to the future of the country: social mobility and artificial intelligence—not as parallel tracks, but as a single challenge and a single opportunity.
The journey that brought me to this Chamber started a long way from Westminster. I grew up in West Kilbride on the west coast of Scotland. Many of those around me held a simple belief: work hard, keep learning, grasp the opportunities, and doors can open. My journey was the product of the architecture built into British society that had decided deliberately that all individuals should share equal opportunities to succeed and fulfil their potential, no matter their postcode or their parentage.
That architecture was built by the people of this Parliament, by previous Labour Governments. Attlee’s Government created the welfare state to declare that no talent across Britain should ever go to waste, and when Harold Wilson spoke of the “white heat of technology”, he was making a promise to working people that technology would lift people up, not leave them behind. The architecture of social mobility was built by Labour hands with Labour values, and it is those same values that must shape what comes next.
We must be honest: the architecture has weakened and the scaffold of social mobility has decayed, hollowed out after years of underfunding and neglect. The Institute for Fiscal Studies confirms that spending on classroom-based adult education stands at 40% below the figure for 2009 and 2010. Even those who break through face a class pay gap, with professionals from working-class backgrounds earning on average of £6,000 less per year than other colleagues. Look at the good work that KPMG did, analysing its own professional staff and the people working for it: its data shows this.
Yet, arriving alongside this decline is a technology of extraordinary potential—artificial intelligence. But AI is not neutral by design. Deployed without intention, structure or political will, AI will not heal divides in our society but could actually deepen them. As the McKinsey Global Institute has said, AI’s productivity gains will not be evenly distributed unless government actively intervenes to shape adoption. That is precisely the challenge, and our responsibility. The question before this House and for the Government is whether the arrival of AI becomes a moment we can use to rebuild that ladder of social mobility, or one where we see it continue to slip.
I welcome the Government’s approach to AI so far. After years of drift and missed opportunities, we finally have a Government with a vision and a courage to drive an AI agenda rooted in opportunity. The AI growth labs announced by DSIT are now operational in priority sectors including healthcare, professional services, transport and advanced manufacturing, representing a significant step forward by creating controlled, real-world sandboxes where regulations can be temporarily adjusted to test AI innovation responsibly. The labs are designed to cut unnecessary bureaucracy while maintaining safeguards.
The commitment to bring AI tutoring to 450,000 disadvantaged children is social mobility in action. Skills England will provide skills training with AI tools for millions of workers across the country. I welcome and commend this agenda, but we need to go further, and I want to put three direct asks for the Minister to respond to.
First, Britain must not be a passenger in the AI revolution. We must build sovereign capabilities right here, not import our future. The sovereign AI fund is a start, but this Government must go further. They must create the industrial conditions, the infrastructure, the investment and the strategy for Britain to develop and grow its own AI capabilities. This is not only an economic argument; AI infrastructure built in Britain means jobs created in Britain, in the towns and cities that have been overlooked for too long. An industrial mission must reach Motherwell, Merthyr and Middlesbrough.
Secondly, we must make further education one of the vehicles for this agenda. The practical and technical hands-on skills taught in our colleges and sixth forms are not secondary to this mission but central to it. It will be these skills that help to build our future infrastructure. Our AI skills agenda must reach every type of learner.
The third ask is perhaps a bit more personal to me. AI is coming to every workplace in the country. As a Labour Government, we must guarantee that this transformation is led jointly by businesses and the workforce. Workers who shape the technology will trust it, adopt it and ultimately benefit from it.
I close by returning to where I began. The Government’s own AI Skills for Life and Work report, published earlier this year, stated plainly that the concentration of AI capabilities
“among a small, highly educated, and well-compensated proportion of the workforce risks creating a divide in AI accessibility and adoption”.
That divide maps precisely on to the fault lines of class, region, education and opportunity that have defined our social mobility challenges for decades. There is nothing inevitable about that. Whether AI becomes the greatest equalising force of our age or the latest mechanism to enrich privilege is a political choice.
My journey to this Chamber was made possible because those who came before us made those right political choices. Do not let that opportunity pass: construct the architecture, restore Britain’s commitment to social mobility, and make it last.
Baroness Bennett of Manor Castle (GP)
My Lords, I thank everyone who has participated in this interesting debate, even if we know that the country’s attention is largely directed otherwise today. No, I am not talking about what is happening within the Labour Party but in many areas around the country, the politics that has the most immediate impact on the lives of people and communities is changing.
New councillors and new leaders of councils are settling into their roles: 587 of them are Green councillors, two of them our first Green elected mayors. In Hackney, Waltham Forest, Norwich, Hastings and Lewisham, Greens are settling into control of those councils. In news just in, the Green Party’s Matt Jenkins has just been elected leader of Worcestershire County Council, displacing a chaotic Reform Party leadership. He will no doubt be working closely in Worcester city with the wonderful 26 year-old musician Tor Pingree, who is taking over as mayor. As Greens, we are really showing that politics can be done differently, and Worcester woman, and many others, are taking note. I must also note the imbalance between the votes just cast and the number of Greens in your Lordships’ Chamber. It would be nice if that could change in the near future.
I turn to the specifics of today’s debate. I try to praise where I can, so I am pleased to see the desire to build a closer partnership with the EU. I hope that very soon we will restore, at least to our young people, some of the freedoms and opportunities they have lost since Brexit, as we need to see the country move closer to a customs union and the single market, and eventually return to membership. Unlike the noble Lord, Lord Jackson, I know that the people’s democratic will is not set in stone: it does not last for decades or centuries; it can change. I know that the public understand that if you are in a hole, you should not keep digging.
On our main subject, the economy, I thank the noble Lord, Lord Burns, who offered the Chamber a sombre, realistic view of the UK’s prospects as a middle-ranking power with an ageing population in a world of long-term “global slowdown”, in which
“it looks as though that pattern will continue”.
That showed a realism that we might expect from the Cross Benches but which we urgently need other corners of the House to grasp. The noble Lord also acknowledged—I thank him for recognising that there are alternative economic views to those that have put us in this mess—that not everyone in this Chamber regards growth as the holy grail.
We are not hearing from the Tory Benches or the Labour Front Bench any assessment of whose growth it is. Is it the few getting richer while the rest of us get poorer? Are we building up even further an unstable, insecure financial sector that concentrates wealth in a few hands in a few parts of the country? Are we ensuring that our economy can endure climate, geopolitical and health shocks, and that resilience, rather than spindly, fragile poles, props up the GDP figures? What costs are being borne by exploited human bodies, as the right reverend Prelate the Bishop of Newcastle said, or by the already parlous state of nature on these islands and around the world? What costs will future generations bear for any growth that we seek today?
The noble Baroness, Lady Anderson of Stoke-on-Trent, spoke about aiming to strengthen and reform our foundations and bring “prosperity to every corner” of the economy. That deserves to be contrasted with the Prime Minister’s introduction to the Speech, which talks about creating “more highly paid jobs”. If we want prosperity in every corner, surely we need to ensure that every job is at least decently paid—one that gives individuals and households security and stability, and the ability to live well now and plan for the future. With, after housing costs, 20% of the population living in poverty, the words we heard from the Chancellor this morning, summarised by the Guardian as,
“if it ain’t broke, don’t fix it”,
will ring very hollow indeed for many people, including those in poverty and those nearing and fearing it, who find themselves running faster and faster just to barely survive economically.
What would the Greens do instead? For starters, urgent action is needed to bring down people’s bills, and we need rent controls, nationalisation of water, freezing of energy prices and the taxing of wealth. People, particularly those living economically on the edge, are being subjected to an increasingly depleted, polluted environment, which, as we are understanding more and more every day, is terrible for their health.
Where is the environment in the Speech? We have plans that are awful and indefensible, both environmentally and economically—just look at the financial carbon bubble we face already—to expand airports, build roads and slash the regulation of nuclear power plants. Whose back gardens are those plants likely to end up in? Not those in Chelsea or the Cotswolds, we can be sure. My noble friend Lady Jones will cover more of this next week. Additionally, in the promised regulating for growth Bill, we have a vow to “strengthen the growth duty” for Natural England, the Environment Agency and the Health and Safety Executive. The Government are lining up with the Tory Benches with an ideological attachment to so-called slashing red tape, an approach that has left us with the unhealthy nation we have now.
Your Lordships’ House has heard me speak often on chemicals regulation, an issue raised this morning by Greenpeace, counting the more than 100 pesticides likely to have been sprayed on your Sunday roast, seven of which are banned in the EU. We might at least see some positive steps there, but I come back to the health of the population—our ageing population. Why is there nothing about this in the Speech and the Government’s presentations of it? Healthy life expectancy in the UK—the average number of years a person can expect to live in good health—fell by two years in the past decade. Healthy life expectancy has now fallen below the state pension age of 66 in more than 90% of areas. In more than one in 10 local areas, healthy life expectancy is below 55 years.
What else is missing? Those who advocate for animal welfare are rightly fuming at one gaping hole. As recently as December 2025, Defra published its Animal Welfare Strategy for England, a document that sets out a series of commitments intended to raise standards, strengthen protections and position the UK as a global leader in animal welfare. In its 2024 election manifesto, Labour promised to
“improve access to nature, promote biodiversity, and protect our landscapes and wildlife”.
Perhaps the noble Lord, Lord Livermore, can tell me more about the Government’s plans to deliver on this, given they are missing from the Speech.
I also have to mention a report out this week about the state of our universities from the Education Select Committee. It warns that the Government have no clear plans for universities facing insolvency or protections for students who could be caught in that trap. The committee says that 24 universities are at risk of insolvency and closure within 12 months. Many of them, of course, are economically crucial to the communities in which they are placed.
Finally, there are a couple of other missing things. I declare my vice-presidency of the National Association of Local Councils. The Government promised to act on remote and hybrid council meetings, but that is lacking, as are measures to strengthen the framework for standards.
I started with local government and I return to it as the levels of government that, with adequate resources and power, could strengthen many of the foundations of our society—the health of our people, the supply of healthy food, the support for vulnerable children and adults—and rebuild our society in a way that Whitehall, at least under successive legacy parties, has demonstrated it is unable to do, and which this Speech, whether the legislative programme is delivered or whether we have a whole new one in a few weeks, is certainly not going to do.
Lord Kirkhope of Harrogate (Con)
My Lords, it will probably come as no great surprise to the House that I have a slightly different view about Europe from my noble friend Lord Jackson, who spoke a little while ago. As the co-chair of the All-Party Parliamentary Group on Europe, I can think of few questions more central to the prospects for economic growth in this country than the state of our relationship with the European Union and how we choose to take it forward. I am therefore pleased that the King’s Speech includes legislation to ease the passage of future negotiations with European partners. The European partnership Bill deserves some support, but it will require very careful scrutiny to ensure that it delivers positive outcomes without engendering fresh divisions on this clearly still sensitive area.
The European Union remains, by a considerable distance, our largest trading partner. In 2024, exports of goods and services to the EU were worth some £358 billion. However, analysis suggests that, as a result of our leaving the union, by 2025 our GDP per head was between 6% and 8% lower than it otherwise would have been, with business investment lower by something in the order of 12% to 18%. In financial services alone, more than 440 firms have moved part of their operations from the United Kingdom to the European Union, taking with them assets of roughly £900 billion. That is shocking, as these are jobs and economic opportunities that we simply cannot afford to lose at a moment when national growth has recently been so anaemic.
In that context, I very much welcome the announcement on Monday that the Government intend to place Britain once more at the heart of Europe, and I assume that the proposed legislation will be designed to help that. But the admittedly positive rhetoric of this Government can be no substitute for tangible progress on so many of the opportunities that arose from last year’s UK-EU summit, following the welcome reset in those relations achieved by Rishi Sunak with the Windsor Framework. We are still waiting to see tangible results on a youth experience scheme, on a full sanitary and phytosanitary agreement for our farmers and food producers, on the mutual recognition of professional qualifications, and on a proper resolution to the challenges currently facing our touring artists and musicians. There are references to these matters in the proposed legislation, but time moves on and the Government must move further and faster if British businesses are to feel any meaningful relief from the costs and bureaucracy with which they have been saddled post Brexit.
This will of course require compromise on both sides. We must be honest with ourselves and with the public about the trade-offs required and what closer co-operation might entail in practice. The agreements being negotiated on sanitary and phytosanitary measures, on the linking of our emissions trading schemes, and on participation in the EU’s internal electricity market will all, by common agreement of both sides and as accepted by the Government in their proposals, require a measure of dynamic alignment with relevant EU rules. That is in principle a sensible course, provided it is undertaken with due regard to this country’s regulatory autonomy and the proper authority of our Parliament.
Of course, if we wish to benefit from a new partnership with our European neighbours and the considerable economic advantages attached to this, we also have to be prepared to make a fair contribution to the relevant EU budgets, as the Norwegians and the Swiss have done for many decades. We should be honest and up front with the electorate on that. But, equally, the Commission and the member states must also demonstrate a positive and pragmatic approach, and show willing to offer exceptions to dynamic alignment rules where it is sensible to do so. Importantly, as the noble Lord, Lord Bridges, alluded to, they must make changes at their end to effect the deregulation and reform that the EU itself patently requires at this time.
There remains, however, the question of how this should all be done. Any proposals to align ourselves with the European Union by way of Henry VIII powers, without this House having a full and ongoing say, are in my view simply wrong in principle. As the Supreme Court set out in the Miller litigation, leaving the European Union required the consent of Parliament. It is therefore only right that what are in my view welcome attempts to move closer to Europe should also be subjected to the fullest parliamentary scrutiny, with proper respect for our sovereignty. To be fair, the new proposals suggest parliamentary scrutiny at all stages, but the Minister must, even at this early stage, give clear assurances that this will include all proposals and both primary and secondary legislation.
However, even as we pursue these important opportunities, there are other and more immediate routes by which we can co-operate with our European partners for significant economic gain. We should now explore them without waiting for more legislation. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is one such route. The UK is already part of this expanding platform, representing some 15% of global GDP, and the prospect of the European Union itself acceding to that agreement could give considerable opportunities for us all. As Mark Carney, the Prime Minister of Canada, rightly observed at the World Economic Forum earlier this year, it is incumbent upon the middle powers to act together, and there could be no more obvious expression of that principle than for the EU and the CPTPP to draw closer. This would allow us to rebuild our relationship with our fellow European democracies while harnessing the dynamism of the Indo-Pacific, and it would signal a profound shift in the architecture of world trade towards the interests of the middle powers. The two blocs should be encouraged to streamline the unnecessarily cumbersome accession process, our own having taken some eight years, and to prioritise long-term prosperity.
We are now facing serious geopolitical challenges and, as recent events have made clear, the era in which we could rely completely on our closest partner across the Atlantic for support has patently been put in doubt. Our security and economic prosperity now lie more directly with Europe. It falls to this Government to make sure that the forthcoming UK-EU summit is more than simply another exercise in warm words and offers of legislation at some point in the future. We must deliver the substantive reset that British businesses, British workers and the UK’s national interests urgently require, and we must deliver it quickly.
Lord Stoneham of Droxford (LD)
My Lords, it is a pleasure to follow the noble Lord, Lord Kirkhope, whose views I have listened to over the last nine years with great care and whose views today I totally agree with. For the past nine years, I have been able to make speeches in the House only when somebody has not turned up or no one has wanted to do it at 7 pm on a Thursday. It is good to speak again, and to regain my freedom.
My overriding interest, particularly as I have been going around the doorsteps over the last couple of months, is to think through what we have to do to counter populism and Reform in this country. The sorry tale of static living standards, low growth and poor productivity in our national economy is one of the compounding factors that has contributed to the problems we now have in the national scene. It must be the objective of the Government to get more growth, and they must succeed.
The Government have to focus on growth. We heard from the noble Lord, Lord Robertson, in a very strong speech today, about how our national defence security needs to be funded. We need to pay for an ageing population and a proper system of social care. We need to recover and reverse the decline in services and infrastructure, which low growth has imposed on us, and we have to find a successful response to climate change.
A lot of policy areas have been covered today, but I would like to concentrate on just three that are important to the growth objective in the long term, medium term and short term. In the long term, the Government’s industrial strategy and the various other reports that they have done are key. It requires commitment, energy and determination to see these documents implemented. Above all, it needs, if possible, the continuity of Ministers completely committed to them to make our products and our services more competitive.
I would like to draw attention to one aspect that I think needs particular attention. We are a great nation of innovators and entrepreneurs. We have world-class innovation, but it too often fails to capture the economic returns from this work. Before scale is reached, our ideas are often traded on and taken overseas. I welcome last year’s report, Bleeding to Death: the Science and Technology Growth Emergency, by the Science and Technology Committee, and indeed the Government’s response to it. Our world-class universities have to be a major source of this potential, and our world-class capital markets need to be responsive to the needs of high-growth technical companies. Government also needs to be sensitive and supportive—and, frankly, we need cross-party support for these long-term policies to be enacted.
My own area of Hampshire, with its wonderful universities, its medical schools and its Farnborough air facilities and research, has the potential to repeat what it was in the 1930s, with its aeronautical industries, before the German bombers dissipated it. We have almost achieved our local government reorganisation, but now we need to get on with the appointment of the new councils and a mayoral election, which the Government have postponed to 2028 in their latest pronouncements. For goodness’ sake, let us get on and do it at the same time as the new council structures are introduced or voted on next year.
The medium-term objective I want to talk about is our re-engagement with Europe. I am not sure what the government legislation will achieve, but I am obviously supportive of it. Brexit was a tragedy as far I am concerned, and as far as the country is concerned. I have yet to hear today people talking about the benefits we have got from it. Some 30% of the country are still against it, so we should not underestimate the difficulties of re-engaging and taking public opinion with us. One of the results of our debate today, as we heard from noble Lords, Lord Lilley, Lord Redwood, Lord Jackson and Lord Frost, is that we need independent assessment of the advantages and disadvantages of these benefits. We are going to have constant going backwards and forwards. I know where I stand and Iu agree with what the noble Lord, Lord Kirkhope, said. My party, and others, advocate prioritising going into the customs union, because it is possibly the easiest thing to do politically. However, in my view, the benefits of the single market are greater and, if there is political pain, we might just as well go for that, rather than the customs union on its own. Setting that objective might also make it easier for us not to be seen by Europe as trying to cherry-pick.
Finally, I turn to the short term, and I declare my interests in land and housing. It has not yet been revealed, but the information that seems to be coming from the housing sector on housing starts in the first quarter of this year is pretty serious. The problem is going to get worse with the rise of interest rates, if the Iran war continues, and we will then be in an emergency situation for all those who have been trying to restore the housing sector and provide the houses that young people want. A number of housebuilders are already beginning to bail out of buying land. There is some indication that some could collapse, and we need the Government to look at this very carefully. Social housing could be used in downturns in the construction industry, and at the moment the housing sector is blaming construction costs and lack of viability, and it is cautious about development. The Government may have to intervene, and I hope they will use this opportunity to offer to buy private unsold stock to sustain the industry, which otherwise could be a major setback but will now provide an opportunity to expand the amount of social housing in this country.
I commend to the Government three areas of priority: turning innovation and entrepreneurship into scale, restoring our rightful role in Europe, and acting promptly in the housing sector to avoid calamity and job losses in construction. They cannot afford to delay or bluster; they must act decisively.
Baroness McIntosh of Pickering (Con)
My Lords, I am delighted to follow the noble Lord, Lord Stoneham of Droxford, who has so recently been released from his duties as what you might call the enforcer of policy on the Liberal Democrat Benches. It was a joy to hear his contribution. I welcome the opportunity to speak in the debate on the humble Address, and I congratulate the proposer and seconder on their opening contributions. I was honoured to have coincided with the noble Baroness, Lady Crawley, in our time together in the European Parliament, and pay tribute to her work both there and here. I was also hugely impressed by the contribution from the noble Lord, Lord Roe of West Wickham, who has served this country with great distinction both in a military capacity and, more recently, in the fire service. We look forward to many contributions from him.
I find myself in agreement with much of what was said in the last two speeches. I particularly want to build on the points raised by the right reverend Prelate the Bishop of Newcastle, in particular, the challenge of the rural economy and the contribution that farming and food production can make to economic growth in rural areas.
This presents both a challenge and an opportunity. Obviously, we have seen the challenges of energy supply and the challenges to farming from the ongoing hostilities in Ukraine and the Middle East, and, more recently, the clean energy proposals put forward by this Government, which are primed to take 10% of some of the best farmland out of production. I believe they should be looking at alternatives such as nuclear, and I welcome the contribution nuclear will make going forward.
I would like to pause for a moment and look at the European partnership Bill. Like many others, I have been following the SPS agreement and the negotiations. I hope that this approach will lead to something more along the lines of the frictionless trade we were promised at the time of the referendum. Other promises, noble Lords might recall, included to “take back control”. In areas such as immigration that certainly has not materialised, but a lot could be achieved on an ongoing basis through the SPS agreement, and by building on that in the new European partnership Bill.
I ask the Minister whether we could look in particular at BTOM—the border target operating model—which was introduced relatively recently. Are the Government going to review and refine that as part of this agreement? We were very late in putting checks in place on imports of food and drink, plants and horticulture from EU countries, whereas our producers have obviously experienced delays and barriers arising from the checks and balances imposed on imports of our goods. I would be very interested to know whether there is scope for further welcome refinement of what is a relatively new development.
I would also like to understand the thinking behind the Government proceeding on the basis of dynamic alignment in an agreement with Europe, and whether other farming competitor countries, such as New Zealand, have achieved an agreement with the EU of equivalence on SPS and imports and exports. Our farming community would have greatly favoured that, and I hope the Government will keep an open door in this regard. There is a coalition of agreement across the House that equivalence is a better way to proceed. Dynamic alignment would mean automatically having to follow EU rules, which could retain barriers that it is the will of the Government and this House to remove; we do not wish to see new barriers put in their place. Therefore, I voice a vote of confidence in the Government’s negotiating skills—that we can look more to equivalence than dynamic alignment. That would greatly help our farmers and food producers.
In noting Government’s clean energy proposals—we are going to have another clean energy Bill—I hope that they will seek to protect the countryside as we know it. It is unacceptable that those who live in the countryside are going to face massive installations, such as in the very village in which my noble friend Lord Kirkhope lives, and where my goddaughter and niece also live. The little village of Scotton, and adjoining Lingerfield, are facing all sorts of horrors: two solar farms and a huge battery installation, married to the pylons and overhead power lines that will have to transport this into the grid. I make a plea to the Government in looking to the grid not to obsess about our national grid. Why are we not looking at a local grid, making sure that the electricity and energy generated can be consumed as close to the point of production as possible? That would be a much better way forward.
I turn to the water Bill. I welcome the Cunliffe review, the subsequent water White Paper and the proposals that were outlined in the King’s Speech. However, I add a word of caution: there are challenges in merging the economic regulation of the water sector and environmental regulation into one body. What I think is clearly missing since we left the European Union is the role of the European Commission, backed up by the possible referral to the European Court of Justice, which had real teeth in relation to underlying infringements by any water company. That, together with privatisation, has dramatically changed the way the water sector cleaned up the act of both our rivers and our seas in the 1980s. I am delighted that that took place under a Conservative Government; it is an achievement of which I, for one, am personally very proud.
I hope that the Government will take the opportunity of the water Bill also to give water companies the tools they require to do the job. I welcome the reference to looking at pre-pipe solutions—that is where it is going woefully wrong at the moment. All the emphasis seems to be on saying, “Let’s deal with the water—let’s call it sewage—coming out of these four- or five-bedroom homes”, whereas we should look at pre-pipe solutions. Planning applications should be granted only if there is capacity for the waste and sewage to be disposed of safely.
Let us give water companies the power to do the job. Let us make them statutory consultees, particularly in major planning applications of all kinds, including for data centres and major housing developments. Let us look at more natural solutions to flooding and water resilience and to making sustainable drainage systems mandatory. Let us have more slow-the-flow water schemes, such as we currently enjoy in Pickering, which has prevented Pickering and the downward communities from flooding.
I look forward to scrutinising these Bills as they appear before the House. I lend my support to what the Government are trying to do, but I believe that we need to look at, for example, areas of equivalence, rather than dynamic alignment, to make sure that we have joined-up thinking on farming, food production and energy supply.
Lord Murphy of Torfaen (Lab)
My Lords, I noticed earlier that two of my predecessors as Secretary of State for Wales talked about steel. I will touch briefly on that, although it is not the thrust of what my remarks will be about.
It is almost 60 years to the day that I attended a great rally in Sophia Gardens in Cardiff, when Harold Wilson, the Prime Minister of the day, addressed us on steel nationalisation. He announced that it would be one of his first tasks—it happened in 1967—and a great roar went up from the very large Labour Party crowd in Sophia Gardens. Those were the days when we had those crowds there. That reminds me that steel was hugely important, not only for Wales but for our whole country—it was integral to it. I am not sure that I agree with everything that the noble Lord, Lord Hunt, said, but I agree with his emphasis on doing something about steel, and I very seriously agree with the Government on what they are going to do in their Bill.
I will now touch on the European Union Bill. We have had some very colourful and spirited contributions from the other side of the Chamber on this issue. Whatever side one took in the Brexit debate, the reality is that 20-odd miles away, 350 million people live and trade with us, and therefore it is the biggest trading partner we have. It simply does not make sense that we do not trade with it in the best way we could. It makes sense that we should ensure that the SPS arrangements for food and drink are in place for the industries and businesses that want those changes to come about. My successor as Member of Parliament for Torfaen, the right honourable Nick Thomas-Symonds, is doing a very good job in that regard.
The same is the case with Erasmus. Does it not make sense that we have Erasmus+ for our young people in all parts of the United Kingdom? Of course it does. Therefore, those proposals are hugely important.
My noble friend Lord Robertson made, as always, a spectacularly impressive speech about where we are with regard to defence and our global position. I hope that the Government listen to him and his wise words. He told us that the landscape in our world has changed dramatically over the last number of years, and so has the landscape with regard to the 11 million of us who live in devolved Administrations in the United Kingdom. When I was the Secretary for Wales and for Northern Ireland, there was a Labour Government in Cardiff, in London and in Edinburgh. There was no Labour Government in Northern Ireland. There was direct rule. So I negotiated with myself on those particular issues.
That was an important factor in those early days, but the world has changed. The world changed last Thursday in Wales, of course, as Plaid Cymru is now the governing party in Wales. In Scotland, after 19 years, the SNP still rules there. Northern Ireland, which I will come to in a second, is rather different. But in Scotland, which voted to remain in the European Union, the Scottish National Party is a pro-European party. Scotland, under a Labour Government and indeed under an SNP one, benefited enormously from its membership of the European Union. Wales benefited enormously. We had the Objective 1 money coming to us all those years ago, which brought billions of pounds for investment in Wales. Wales voted to leave. But the Plaid Cymru Government is a pro-European Government.
In Northern Ireland, 56% of the people voted to remain. But, as your Lordships know, there is deep division. Generally speaking—not exclusively—nationalists voted to remain and unionists wanted to leave the European Union. The problem we then had when Brexit came was: how can you reconcile the terms of the Good Friday agreement, which was firmly based on a common membership of the European Union? The Irish and British Governments were partners in the Union. It meant that we could negotiate that agreement on very different terms from what had happened many years before. Objective 1 money came to Northern Ireland—billions of pounds again. Social Fund money but particularly, of course, peace money came to Northern Ireland. That meant that the nationalist and the unionist communities had to negotiate at local level in order to acquire that money and it helped the peace process.
So, when Brexit came, what could you do? The problem then was that Ireland remains in the European Union and the United Kingdom has come out of it, so we had the protocol, which was not very good. It was a start but, in fact, had there been at that time, and there was not, the institutions in Northern Ireland, both the Executive and the Assembly, I believe they could have solved the issue of how to deal with it themselves. As it was, it was imposed and did not work. Then we had the Windsor Framework, which was better, certainly—although, in between, the institutions had collapsed, which brought the Windsor Framework about. But that has been proven to be very complex, with huge bureaucracy for business and there is a democratic deficit.
Last year the Government asked me to do a review of it, which I did, and I made 17 recommendations. The Government accepted them. It means that we are going to have a one-stop shop in Northern Ireland so that people can overcome the bureaucracy. In addition, steps have been taken to deal with the democratic deficit. When we look at this EU Bill to come and the issues surrounding the democratic deficit which people argue will occur if we adopt it, you need look only to Northern to see whether we can adopt some of the new proposals to ensure that we ameliorate those difficulties. I say to my noble friend the Minister from the Treasury—as always, the Treasury is very important—that although money has come to Northern Ireland as a result of my review, we also need more money to ensure that those recommendations are put into practice, and that all political parties in Northern Ireland are involved in it.
My other plea to the Government, on the negotiations that are to come with the European Union Bill, is the involvement of all the devolved Administrations in that issue. Even though there are an SNP Government in Edinburgh and a Plaid Cymru Government in Cardiff, it means we have to take the people along with us, and there are very different views—of course there are. All I know is that only benefits can come from this Bill. If industry wants it, if business wants it and if the academic community in our country wants it, surely it must be a good thing, and so it has my fullest support.
Lord Fuller (Con)
My Lords, since July 2024 the wheel has fallen off our economy. Tax revenues and growth have fallen, and as a result of choices that Labour has made. The consequences have blighted lives and made us more vulnerable to external shocks. Living standards have stopped improving, while we are less secure at home. While government spokesmen line up to blame Donald Trump, Brexit, the Tories, climate change, farmers, bankers, billionaires—everybody—last week the public pinned the tail on the donkey. They know who is to blame, and Labour must now grasp that it is nobody else’s fault but its own. Blaming everybody else for the way in which our neighbours are faring less worse than ourselves is not a strategy; it is a delusion.
The gracious Speech spoke about the cost of living, but renters’ rights have hiked rents to new highs and reduced supply so that the few with impaired credit or difficult circumstances will not get a roof over their head. The Government signal their intention to stop the scourge of a whole generation sitting idle, but the truth is that their Employment Rights Act prevents youngsters getting their first Saturday job or employers taking a chance on a graduate making a start on their career.
Everybody wants to do more for the high street, but Labour’s business rates reforms have driven high street clubs and restaurants to oblivion, and now new tourism taxes will reduce demand for hospitality for an industry that is already on its knees. No, Donald Trump or Brexit has not done this; at every step, well-meaning, honest intentions have made things worse. That is because, for all the worthy measures announced yesterday, Labour’s basic ignorance of economics is the golden thread that stitches together one policy disaster with another.
Working people who pay their taxes become disproportionately poorer. Unemployment is at a five-year high. Inflation is showing all the signs of running out of control. Gilts are at 20-year highs. Labour’s choices have caused this. Labour told us it would tread more lightly on our lives in pursuance of the economic growth that would make us richer. Now we look forward to more state intervention, market distortions and counterproductive interferences that chill investment, raise uncertainty and make Britain less attractive to do the business that pays for the state.
The Government should be supported in their desire to help people upskill but, like the worst sort of apprentice, Labour is not learning on the job. There is continued denialism around the Laffer curve and tax yields. Some 0.1% of taxpayers pay 10% of all the tax raised, while 10% of taxpayers contribute nearly a third of state revenues. It would be rational to tempt more of them to set up here so that working people bear less of the taxation burden. Instead, they are chased away. It is just crazy.
Worse, Labour has chosen a casual disregard for the deindustrialisation that flows from the highest energy taxes, a cost borne by our factories and chemical industries, all of which makes us more reliant on strangers and makes the promise of AI investment a pipe dream. We have seen a class war on private schools that costs more than it saves, attacks on the farmers who feed us, attacks on country sports followers who keep those country pubs going in the winter, and the cancellation of drivers of twin-cab trucks who get up in the morning to work for us all. Labour has not got the message on the cost of living, with new fertiliser taxes that will increase the prices of bread, beer, biscuits and the weekly shop, unleashing an inflation disaster, just at the moment the EU is stepping back from these fertiliser taxes.
All these simplistic ideas have been introduced without concerns for the second-order consequences of economic reality or fiscal responsibility. Everything in the gracious Speech is grounded in ignorance of how business and trade generate wealth for us. Now we get to the hub of the matter. Honestly held views do not trump economic realities. Wishful thinking is admirable. It is not a crime, but it is no substitute for proper economic understanding. The trouble is that the Labour Benches do not know the difference between the profit and loss and the balance sheet, between income and capital or between assets and revenue. To them, “It’s just money, and we’ll have that”. This financial ignorance—especially in the other place—and the economic illiteracy of the Front Bench are tragic.
Quite simply, they do not understand the economics. They may not like it, but not believing in the bond market that channels the kindness of strangers to our shores and enables us to pay for our pensions, defence and education—denial of that simple truth—is ignorance. I only wish that His Majesty had announced a measure that would enforce mandatory economic lessons for the Front-Benchers. I live in hope. Then we would not see ourselves being hog-tied to the EU, which wants to erect a high tariff wall to keep everybody else out, one in which we do not even have a say ourselves. Protectionism will not make us richer or grow our economy in a month of Sundays.
Who knew that if you made it more expensive to hire youngsters, youth unemployment would rise? Who knew that if you taxed family businesses that employ millions and whose assets have been grown in trust for the next generation, fresh investment will collapse? What about the effect of new, unadvertised changes to charitable legacies? They will decimate gifts in wills to good causes—a direct harm to those who Labour professes to represent.
I turn to the gracious Speech. The idea of shaping markets sounds attractive to the untrained ear, but the state has a poor record of picking winners. An active state sounds like introducing more risks and distortions that harm investment and damage growth. When the Government talk to business about partnerships, it is time to reach for your pocketbook. Governing is much more than the pursuit of petty grievances, pet projects and sixth-form obsessions. At some point, the penny needs to drop that the people who pay their taxes are tired of being milked. Creating 300 Civil Service jobs at the GB Energy quango in Aberdeen is less important than protecting the 1,000 jobs a month in the granite city that are disappearing. Placing a carpet of solar panels on our best and most versatile land makes our grid structurally unstable and damages our food security. The callous hounding of former soldiers in their twilight years harms our defences. All the breakfast clubs in the world are not going to repair the problems that Labour has created for itself.
The gracious Speech was an opportunity to weave an economic golden thread through a Government in a hurry, to provide the right incentives for those who just want to work hard and improve their lot while rolling out the red carpet for those around the world who will co-invest in our future and contribute their taxes along the way. In so doing they would provide the fiscal headroom to pay for some of the initiatives in that speech—reducing humanitarian need, building social housing, revisiting Hillsborough, fighting extremism and imposing ID cards. Those are their choices. But without a complete understanding of what makes the economy tick, without appreciating the power of incentives, without understanding that unleashing the creativity, innovation and optimism of the British people will make us richer in every sense of the word, the Government are doomed to fail.
We get to the dénouement. With the resignation of the Health Secretary and media reports of the Cabinet marching on Downing Street, I ask the Minister whether the Labour Party would be better off spending the next six months going on mandatory economics training rather than fighting each other in a way that makes our nation poorer while making the gracious Speech and this debate irrelevant.
Baroness Gill (Lab)
My Lords, yesterday’s gracious Speech set out the Government’s agenda, focused on growth, investment, security and restoring Britain’s standing in the world. It comes at a moment when the country urgently needs honesty about the economic choices that we face and the inheritance that we got from the last Government. I found it rich to listen to the noble Lord, Lord Fuller, because we are correcting the mess that they left us with. The Government deserve credit for recognising that Britain cannot prosper through isolation. Recent trade agreements with India and the Republic of Korea and stronger engagement with the UAE are positive steps that will create opportunities for British businesses.
But we must also level with the public: those agreements are not large enough to compensate for the weakened trade that we have with Europe, our largest market and closest economic partner. For years, the British public were sold a narrative that leaving the European Union would automatically unleash growth and prosperity. Instead, over the last six years, Britain has experienced weaker growth, lower business investment, reduced exports and stagnant productivity compared with many similar economies. The consequences are no longer abstract economic arguments; they are directly felt in people’s lives.
Small businesses that once traded freely across Europe now face customs checks, export paperwork, VAT complications and regulatory barriers that they simply cannot absorb. Food exporters have lost markets. Manufacturers have faced delays and rising supply chain costs. Independent retailers importing goods from Europe have had little choice but to pass increased costs on to consumers, and ordinary families have paid the price: higher food prices, labour shortages, increased transport costs and supply chain disruptions have all contributed to pressures on household budgets during an already severe cost of living crisis. Britain outside the EU has not become more economically dynamic; in many ways, it has become more economically constrained.
This debate is now about more than economics alone. It is about Britain’s place in an increasingly dangerous world. The war in Ukraine has fundamentally changed Europe’s security landscape. Russian aggression has reminded us that peace and stability can never be taken for granted. At the same time, the growing threat posed by Iran through regional destabilisation, proxy conflicts, cyber threats and support for extremist groups demonstrates how interconnected modern security challenges have become. These crises and the threats we face were eloquently articulated by my noble friend Lord Robertson. It is important that this House and the Government take his speech and comments very seriously, because Britain cannot afford strategic isolation in this environment.
Outside the European Union, we are no longer fully integrated into many of the defence, industrial, procurement and strategic initiatives shaping Europe’s future security architecture. That matters not only militarily but economically. Defence procurement, advanced manufacturing, cyber security, energy resilience and technology investment increasingly depend on large-scale European co-operation.
No serious country can confront these challenges alone. Intelligence sharing, sanctions enforcement, energy security, defence manufacturing and technological resilience all require deeper collaboration with our neighbours. The idea that Britain can go it alone in a world shaped by Russian aggression, instability in the Middle East and intensifying global competition is not realism; it is a dangerous illusion.
This is why the debate must move beyond simply managing Brexit towards correcting its long-term consequences. Rebuilding a closer partnership with Europe is no longer optional; it is essential. Ultimately, Britain should be prepared to make the case for rejoining the European Union.
The economic case is overwhelming. Rejoining the EU would restore Britain’s access to the single market and customs union, removing barriers that currently damage trade, investment and growth. It would also strengthen supply chains, restore investor confidence and make exporting easier for British businesses once again.
Independent economic analysis has consistently suggested that closer integration with Europe could increase UK GDP by several percentage points over time, adding tens of billions of pounds to the economy, increasing tax revenues, improving productivity and supporting higher wages and living standards. That would mean lower costs for businesses, cheaper imports for consumers, renewed investment in science and manufacturing, and greater opportunities for creative and young people to work and study across Europe. It would also mean Britain once again helping shape the decisions that affect our continent, rather than standing outside reacting to them.
None of this, I believe, weakens Britain globally; it strengthens us. A Britain with strong European partnerships is more influential with weakening allies such as the United States, more attractive to investors and better able to compete in a rapidly changing world. Yesterday’s gracious Speech acknowledged that Britain needs growth, stability and renewed international leadership. The challenge now is to match that ambition with honesty and courage to admit where mistakes have been made, reject the politics of isolation and pursue a serious new relationship with Europe that restores prosperity and strengthens our security. The greatest danger facing Britain today is not change; it is refusing to change course when the evidence is clear for all of us to see.
Baroness Ludford (LD)
My Lords, like others, I wish to speak about EU partnership, and I very much agree with the remarks by the noble Baroness, Lady Gill. As my Lib Dem group leader, my noble friend Lord Purvis of Tweed, said yesterday,
“it is a strategic priority that we make real progress for a reunion with our close allies in the customs union and single market, and then EU membership, which remains our long-term objective”.—[Official Report, 13/5/26; col. 17.]
The reason for this clear and ambitious Liberal Democrat aspiration is that it makes sense for both our security and our economy, so it is very hard-headed.
On the geopolitical and security aspects to be debated next Thursday, I repeat my own view, for what it is worth, that Prime Minister Starmer has done a good job on Ukraine and in placing the UK as a firm member of a security partnership in Europe, with maybe a new European security council. Thank goodness for that, given the dangerous and unpredictable state of the world, as others, including my noble friend Lord Strasburger, pointed out.
But in trade and economic affairs, progress is pretty slow, while the need is pressing. It is absurd for some to say that voters have to be stuck with a decision made a decade ago. It is a striking example of where the boldness that dissatisfied Labour voices are calling for is missing. Labour’s red lines, including on free movement, are not in the national interest. Free movement in Europe, especially now, with more prosperous economies in central and eastern Europe than there were 20 years ago, means much lower immigration than we had under Conservative Governments. We have opened the door to immigration from around the world.
I entirely agree with the noble Lord, Lord Liddle, that the Brexit damage dwarfs the tiny benefits of any post-Brexit trade deals. We are familiar with the figures: Brexit has reduced our GDP by up to 8%—between 4% and 8%—which means a loss per capita of £3,700 and around £90 billion in foregone tax revenue. This is a Brexit black hole.
As far as I know, there are no specific proposals in the Government’s plans for easing of trade in services, but perhaps the Minister could correct me if I am wrong.
My noble friend Lord Strasburger rightly stressed the overlooked importance of the creative arts sector bashed by Brexit. The topic of services is also raised by the Law Society, which points out that the reset has so far failed to produce any proposals for legally binding arrangements to address services trade, such as legal services, for which the EU is a £3 billion market for the UK. It wants action on business mobility as well as youth mobility, and mutual recognition of professional qualifications. I would be interested to know whether there is anything in the pipeline on these and whether there is any prospect of progress on civil judicial co-operation, improving access to justice and consumer protection for British and EU citizens. We also need progress on police and criminal co-operation, as my noble friend Lord Fox said in opening. Civil legal alignment is very relevant to the economic debate we are having today.
Top of the list for a new deal with the EU is the food and drink trade, with the mouth-twisting sanitary and phytosanitary agreement. This would represent a significant improvement in slimming Brexit red tape by removing routine physical checks and the burden of certification, documentation and registration. I heard the chief vet on the radio—I think it was this morning, but it was a bit early—pointing out the importance of tackling threats of diseases, such as swine fever, which this SPS agreement could provide because the UK would get access to EU databases and intelligence that will aid detection.
It will be important not only for UK-EU trade but also for trade, particularly in agrifood, within the UK, as it will align the rules in GB and Northern Ireland and help to address the hesitation we have heard about on the Northern Ireland Scrutiny Committee of GB firms to do business with those in Northern Ireland. The removal of the “Not for EU” label through the interaction of the Windsor Framework and an SPS agreement will also be very helpful. I applaud the work that the noble Lord, Lord Murphy, who spoke earlier, did in his important review, and I am glad that the Government have accepted its recommendations.
The Minister, the noble Baroness, Lady Anderson, referred earlier to the work in Intertrade UK of the noble Baroness, Lady Foster. I know from my membership with her of the Northern Ireland Scrutiny Committee how well qualified she is for that vital work. Last night, I attended a reception at the Irish embassy for Trade NI, which brings together retail, hospitality and manufacturing businesses. Its document points out that, while all economies have been impacted by inflation, Northern Ireland businesses have had to absorb higher post-Brexit trading and logistics costs linked to the Windsor Framework, particularly those importing goods from Great Britain. One of its priorities is to mitigate supply chain and post-Brexit cost pressures, including certification and logistics burdens. However, an SPS agreement will still leave the customs declarations and VAT requirements that all UK exporters to the EU have to contend with—hence the value of what the Lib Dems are calling for in the immediate, which is a customs union with the EU, which, as my noble friend Lord Fox stressed, could turbocharge growth.
I think I heard the noble Baroness, Lady Anderson, refer earlier to upholding British standards. The EU partnership Bill will provide a mechanism for the UK to dynamically align with EU law sector by sector: not only those already being worked on but perhaps other future deals. The upside here is free-flowing, frictionless trade. The downside is that we will have to take our instructions by fax from Brussels without having a say. I think anyone who has ever been involved in EU legislative decision-making, whether as an MEP like me or in the Council of Ministers, will find that hard to swallow. Despite the fashionable claim of decision-shaping, any British influence in contributing thoughts and suggestions will be modest. As the saying goes, if you are not at the table, you are probably on the menu.
I will accept that, while the UK has to make a start somewhere in reversing the disaster of Brexit, this undemocratic lack of a voice cannot last long: nor can Henry VIII powers. But, while it lasts, we have to strengthen UK influence in EU bodies, boosting the role and capacity of UKMis, our mission in Brussels, and relations with the European Parliament and its committees, as well as with the Commission the Parliamentary Partnership Assembly, with input from business and civil society. We need to think carefully about how Parliament will be involved in this process. The other place needs to think about its arrangements, because it currently does not even have a European Committee.
Derogatory remarks have been made about regulation, but the noble Baroness, Lady McIntosh, made an excellent point about the effectiveness of EU enforcement. The only reason we have the Thames Tideway “super sewer” is that, with a push from the European Parliament following a petition from me 20 years ago, the Commission took infringement action and the Court of Justice ruled. Compare that with the feeble performance of Ofwat and the Environment Agency in allowing ongoing sewage discharges.
The King’s Speech yesterday referred to maintenance of stability. I hope we are going to get stable government going forward that is able to carry through an ambitious programme of EU reset.
Lord Shinkwin (Con) [V]
My Lords, my noble friend Lord Hunt of Wirral mentioned value for money. Taxpayers’ and businesses’ confidence to contribute to economic growth, whether through the consumption of goods and services, investment or job creation, must go hand in hand with the confidence that all government policy is developed and evaluated through the lens of value for money. Confidence in each are two sides of the same coin. At a time when the cost of living is, as we have heard during this debate, increasing inexorably, it is surely even more essential that taxpayers know that their money will not be wasted.
I hope we can all agree that, however many noughts there are, the principle remains the same: value for money, transparency and trust matter. That is why I am introducing a Private Member’s Bill on value for money in the policy area where, it could be argued, value for money has never been more important: disability. At a time when the disability employment gap remains at around 30% and the increasing cost of disability benefits threatens to bankrupt the very welfare system on which so many depend, my Bill will enable transparency, specifically in relation to what government departments are spending on employer disability membership organisations. It will provide for scrutiny of both the criteria used to safeguard value for money and the extent to which those criteria have been met.
At the moment, it is far from clear what those criteria are and whether they are being met. The Business Disability Forum is a case in point. This is an organisation which, according to analysis by Professor Kim Hoque at King’s College London and Professor Nick Bacon at Bayes Business School of more than 132,000 job adverts and survey data from more than 160,000 employees, is failing to deliver better outcomes for its members, whose members are less likely than non-members to offer guaranteed interviews in the recruitment process to disabled applicants, and none of whose members offer Braille, and just 3.6% of whose adverts offer reasonable adjustments on account of disability. Moreover, BDF members are proportionately no more likely to employ disabled people than non-members, and disabled members employed by BDF member organisations report poorer job-related mental health and lower job satisfaction than those employed by non-members.
Yet, bizarrely, according to the same research, government departments are among the highest contributors to the BDF, with the Cabinet Office spending £26,400 for its 2024-25 partnership-status membership, and the Department for Transport spending £25,200 of taxpayers’ money as well. In 2025 alone, the BDF earned £652,580 in government contracts. That is more than double the previous year. I would be grateful if the Minister could explain both how that represents value for money and how such an arrangement does not qualify as borderline corruption.
I do not use that term lightly and I am not accusing the Government of corruption, but I worry that they have got themselves into an invidious position whereby they are giving taxpayers’ money to an organisation—the BDF—that is at the same time seeking to influence government policy. Yesterday’s failure by the Government to honour, in the King’s Speech, their manifesto promise of legislation to mandate ethnicity and disability pay gap reporting by organisations of more than 250 employees provides a prime example of the BDF’s pernicious influence in favour of the status quo, to the disadvantage of both disabled people and the taxpayer.
Indeed, the research I have mentioned shows that a transparent mandatory reporting system would not cast BDF members in a particularly favourable light. Furthermore, the introduction of generic rules for organisations with more than 250 employees could also result in a dramatic fall in BDF’s income, given that it relies on charging members for bespoke solutions. The sustainability of its business model depends on the status quo and while this happens, the taxpayer foots the bill.
As a Conservative, I subscribe absolutely to the wisdom of, “If it ain’t broke, don’t fix it”. But no one could possibly argue that disability employment ain’t broke and doesn’t need fixing, urgently. It may not be a panacea but, on the basis that what gets measured gets done, mandatory reporting would help by injecting transparency and consistency into how we incentivise and reward employers to harness the untapped talent of disabled people and people from minority ethnic backgrounds, through recruitment and, crucially, career progression, to everyone’s benefit. It is a win-win situation, which is why Dianne Greyson, the founder of the #EthnicityPayGap campaign, and I are deeply disappointed that the legislation was not in the King’s Speech.
In closing, and on a cross-party basis, I ask the Minster to say what message he thinks the legislation’s omission sends to disabled people and people from minority ethnic backgrounds about this Government’s commitment to extending equality of opportunity. I ask him to confirm that its omission in yesterday’s King’s Speech does not preclude such a measure being introduced in this Session.
Lord Sikka (Lab)
My Lords, it will take a long time to undo the damage done by 14 years of Conservative rule. However, that task has been made difficult, as the Government’s ambition on so many fronts is not matched by actions. I welcome the attempts to build a closer relationship with the European Union, though that will not fully undo the damage inflicted by Brexit.
The energy resilience proposed by the energy independence Bill and the increase and extension of the windfall tax on electricity generators from 45% to 55% promised by the electricity generator levy Bill are most welcome. Can the Minister explain why there is no comprehensive plan to curb profiteering by energy companies? Since 2020, their UK operations have made profits of over £125 billion. More than 120,000 people in this country die in fuel poverty every year. Surely that deserves some kind of government response.
I have misgivings about the highways financing Bill, which will promote the dreaded private finance initiative, albeit under another name. Previous PFI schemes resulted in a £6 repayment for every £1 of private investment in infrastructure. The Government can fund projects at lower costs through borrowing, or issue public bonds, but such alternatives are ignored. The 129 pages of background notes miss out the word “manufacturing” altogether, even though every £1 of manufacturing activity supports a further £1.80 through multiplier effects. Can the Minister explain the Government’s plans for self-sufficiency in semiconductors, rare earth minerals, bricks, cement, auto, medicines and other essential items, to increase economic resilience?
The regulatory consolidation offered by the enhancing financial services Bill is welcome, although I am concerned that the reforms are framed around words and phrases such as “competitiveness” and “regulatory simplification”, which are buzzwords for deregulation. So far, they have facilitated the abolition of the post-2008 crash constraints and weakened consumer protection. The Government’s briefing notes make no mention of the social costs of deregulation. Can the Minister explain why there is no attempt to regulate private equity, which is devouring hospitals, care homes, veterinary services, supermarkets, and water, energy, retail and other businesses?
The so-called industry-friendly reforms of the Financial Ombudsman will weaken consumer protection, and there is complete silence on how UK institutions cover up fraud and financial abuse. We are still waiting for an investigation into the 1991 closure of the fraud-ridden Bank of Credit and Commerce International. I have asked questions in this House about the failure to tackle HSBC after it was fined $1.9 billion in the US in 2012 for facilitating money laundering. The then Chancellor, George Osborne, and the regulator secretly urged the US authorities to go easy on the bank. The response to my questions has been ministerial silence. On numerous occasions, I have referred to the HBOS frauds, which date back to between 2002 and 2007. Regulatory inertia and ministerial indifference have denied compensation to victims even after the courts established criminality. What good is an ombudsman system when Ministers and regulators sweep financial crimes under the carpet?
There are mixed messages from the Government about nationalisation. I welcome nationalisation of British Steel, but why are other steel producers not to be nationalised? Tata Steel also receives a subsidy. The Government, in return, have not taken an equity stake or a seat on the board. Why is this free money being given to companies for distribution to their shareholders?
I welcome the railways and passenger benefits Bill to establish Great British Railways and unite track and train management under a single body. However, why is no attempt made to bring lucrative freight and rolling stock companies into public ownership? These rolling stock companies have a profit margin of 41.6%. There is absolutely no justification for that. People are being told that the nationalisation of rail passenger services and British steel is in the public interest, but so is the nationalisation of water, energy, mail, social care and other essential services. Why are those things off the political agenda altogether?
Sustained economic growth, which is the Government’s aim, cannot be achieved unless people have good purchasing power, but 25.3 million people live in households below the minimum income standard. A major cause of this is the erosion of the workers’ share of gross value added, or GVA. In 1975, workers’ share of GVA was 71.9%. By 2025, despite economic growth in the intervening years, it had declined to 59.7%. There is a huge transfer of wealth from labour to capital, and it has coincided with lower rates of corporation tax. The headline corporation tax rate in 1974 was 52%, compared with 25% now.
The massive increase in capital’s share of the economy has not resulted in higher investment in productive assets. In 2025, the UK invested 18.9% of GDP in productive assets, the lowest figure among G7 nations. For the last 30 years, the UK has been at or near the bottom of the OECD league of investment. Inevitably, productivity and economic growth is low. Can the Minister explain how the Government will boost workers’ share of GVA and why there is no reform of corporate governance and short-termism in the City of London?
People’s purchasing power could be boosted by progressive taxation, but that is not on the agenda. The poorest 20% pay a higher proportion of income in direct and indirect taxes compared with the richest 20%. At the same time, capital gains and dividends are taxed at lower marginal rates than wages. How do you expect people to buy things? Problems are compounded by the freeze on income tax personal allowance. In April 2021, the Conservative Government froze the annual personal allowance at £12,570. The Labour Government continued with it. If the personal allowance had increased in line with inflation, it would today be £16,048. Due to the freeze, someone earning £20,000 will pay an additional £696 in income tax in this tax year alone. Adherence to regressive Conservative policies by this Government cannot deliver resilient households.
Overall, the Government have some good policies, but in the absence of transformative policies it will be difficult to declare sustained economic growth and resilient households. I urge the Government to change course.
Lord Tyrie (Non-Afl)
I was hoping I could agree with something there, but I am not sure I can, so I have decided to say only that I very much hope that the noble Lord will at least find something in my speech he can agree with.
I want to address the fact that we are becoming a poor relation among advanced countries, and I will say something about how we can improve Britain’s economic performance. But, rather than make a lot of detailed suggestions, I will make only one substantive point: we have been here before several times, and we got out of the mess. We were here, in a way, in 1945, and we were certainly here in the late 1970s—actually with worse problems—and we found answers: Britain’s economic performance improved dramatically in the 1980s and 1990s.
In order to find the answers for the 2020s, a number of conditions need to be met. First, the penny needs to drop among the political and bureaucratic establishment, and among the wider public, that the UK is in very serious difficulties. Secondly, we need a workable recovery plan, and considerable intellectual energy needs to be deployed by politicians to find some plausible answers to the problems. That will occur only once the penny has dropped. Thirdly, politicians will need to have enough courage to implement some pretty radical policies and to secure at least acquiescence to them from the public. None of those conditions is currently being met.
Such evidence as can be found comparing the mood of the 1970s with now suggests that, although the public are depressed about the desultory economic performance of the UK and are worried about the cost of living crisis, none of that is at 1970s proportions at the moment. The recent reversals of welfare reform by the Government tell us something about the lack of courage at the top—points being made openly now by other parts of the Labour leadership.
Labour’s manifesto scarcely amounted to a bold recovery plan. I note that Wes Streeting recently told Lord Mandelson in a WhatsApp message, which has been leaked, that the Labour Party had
“no growth strategy at all”.
I do not know whether that will become more relevant in the weeks ahead. On that last point, if people think I am making a party-political point, I say that this Administration is only as short of intellectual capital as those of the catastrophically short-termist Administrations of the Cameron and Johnson years. They have a lot to answer for.
But the rot set in earlier. Successive Governments—Conservative, coalition and Labour—have all been managing the legacy of the Brown inheritance, and far more than is generally appreciated. What do I mean by that? I mean that policy was built, or became built, around the notion that growth could be stimulated by technocratic redirection of both public and private investment by the Government and by government incentives, with the benefit of independently administered regulation of very large parts of the economy. This was, and I think it still is, believed by many to leave plenty of scope for politicians to focus on redistributive objectives. All that should take place within a relatively permissive public expenditure framework, and while tolerating the complexity that comes with deploying and extending a tax system deeper and deeper into fulfilling redistributive goals. The Cameron-led Government brought public expenditure back under control, but for the most part it failed to challenge most of the rest of that consensus.
So what might signal a break with the consensus? The main challenges are coming from the Greens and Reform. They are right to rail against the new economic establishment that now clusters around that consensus, but the solutions that they are coming forward with, such as they are, are incoherent and inchoate, and the numbers do not add up. On current evidence, the concern must be that, if they were elected, they would represent an escape from reality and a postponement of the reckoning.
I have been theorising up to now. How could what I am saying be reflected in practical policies? As a country, we have been struggling towards something of a consensus on a few of them, such as the need for a radical reform of planning, although it has been too little and too slow, and the need to rejoin the single market or something similar. There has been some dispute about that today, but it is worth pointing out that a large proportion of those who voted for Brexit thought that we were going to retain very close links. There is some agreement on the need to deploy tough regulatory tools to stimulate competition. But I do not think enough has been done there.
Several essential policies are still considered unacceptably radical. We need tax cuts, accompanied by deep simplification of the tax system, and it will have to be paid for by reductions in welfare—few dare talk about that. A number of policies would be considered political suicide—for example, the need to encourage immigration in parts of the care and health system, and to facilitate the retention of large numbers of very high-quality foreign graduates who are currently leaving once they get their degrees. Trump is busy pushing them out; surely we should have a better policy for trying to persuade them to come here. Many people also quietly agree that an unacceptable price is being paid for the crash programme of fossil fuel reduction, but there is no consensus on the policy implications of reversing it or reconsidering it.
I have named four things there: tax simplification, EU renegotiation, tolerance and acceptance of fossil fuels for the foreseeable future, and targeted accommodation of immigration. None of these is a magic bullet, but they will all make a contribution. There is very little appreciation in the political establishment of the need for a radical shift towards them, nor of the need to jolt expectations among a wider public. Plain speaking is in scarce supply. AI’s jolt to the economy and public expectations will be much bigger than anything that we are seeing delivered by the Government, who seem, extraordinarily, immobilised by their own very large majority.
Having said all that, we can see that Kemi Badenoch is doing some plain speaking—and plain speaking is not just coming from the right. Here is an extract from a recent publication of the Labour Growth Group, I think out this week or last week:
“The planning system rations land. The energy system rations power … Regulation protects incumbents while crushing challengers”.
I think both Kemi and I would agree with all that, even if we would not agree with all the solutions in that document.
I will end where I began, but I will put it differently. The UK’s problems derive from politics, and so do the solutions. It is possible, fundamentally, to improve Britain’s economic performance. We are not prisoners of the global growth rate, as has been implied on one or two occasions in this debate. It has been done before and it can be done again. What is required is a full appreciation of the problem and the guts to implement radical supply-side solutions. We are a long way from that and, until we get there, the UK will continue to struggle on in the slow lane of middle powers.
Lord Moynihan of Chelsea (Con)
My Lords, this week the Prime Minister—if indeed he still is the Prime Minister; I am not sure—abandoned his red lines to stealthily reintegrate with the EU, to change our laws to its laws, with the UK having very little say in what those laws will in future be. The direction of travel of the Government’s reset is not just a betrayal of Brexit; it is a blundering destruction of our future economic opportunities. The long bond today trades 10% lower than it did at any time during the Truss Administration.
Brexit has not, as claimed by the noble Lord, Lord Liddle, who is not in his place—
Lord Moynihan of Chelsea (Con)
Oh, I apologise—the noble Lord has moved further back. Brexit has not cost our economy, an idea that was ably demolished by my noble friends Lord Redwood and Lord Frost. Indeed, the OBR, in its claim that there has been a diminution, published my 10-page letter to it rebutting its claim—but, interestingly, made no attempt to respond to it.
Here are the facts. The City of London, our key strength, has flourished, as even the Economist, with some embarrassment, admitted. That is because we have diverged from the EU. Our key tech sector has flourished, thanks to avoiding the EU’s disastrous AI Act. The UK’s precision breeding Act has given us a genuine first-mover advantage in gene-editing, with high-lipid barley, low-asparagine wheat, climate-resilient camelina, cancer-beating tomatoes, and many more in the pipeline. We have escaped over 13,000 new regulations and 12,000 new EU directives which have been created since we left.
Contrary to the noble Lord, Lord Strasburger, who is in his place, this country does not want to rejoin the EU. When voters are asked whether they want to retain control of our laws and retain the pound, and, above all, retain control of our borders, you get the same solid rejection as we got 10 years ago. This Government are wrong to sense electoral advantage in crawling back to the EU.
Let us look at what is already planned and agreed for this reset. British fisheries have been handed away to the EU for 12 years, the enormous cost of which was not even assessed. The efficient Turing degree programme is abandoned for the far less useful Erasmus short-term travel scheme—and we pay £815 million a year for that change. There will be dynamic alignment with EU rules across food, agriculture, the electricity market and carbon pricing, with its court, the European Court of Justice, adjudicating on any dispute—we can guess how those rulings are going to go.
The EU, eager as ever to exploit our needy gullibility and rook us for astonishing sums of money, is apparently demanding a further £1 billion a year for just this first set of dynamic alignment agreements, yet those agreements, mostly consisting of concessions and payments by us, will be a negative for our economy. The Government say, unconvincingly, that dynamic alignment will benefit the economy by £5 billion, while the Growth Commission says that it will cost us £15 billion.
The chief alleged positive is the SPS agreement, removing the need for export certificates that cost £120 to £250 each, at a total of some £70 million a year. However, those fees are charged by us; we could remove them at any time, but we do not. It is almost as if someone wants us not to, so as to push us in the direction of rejoining. The entire value of all UK agricultural exports is £12.8 billion, which is less than half of 1% of the economy. We will pay £1 billion a year to save £70 million and claim a mysterious £5 billion benefit from that—we should ask the Government to pull the other one.
Norway and Switzerland pay nothing to be in the electricity market, nor should we pay anything. However, that is not what it is about. Joining means assenting to the EU’s requirement that 42.5% of all our energy must come from renewables by 2030. Our current target is for renewables to be 100% of electricity, which is only 20% of our total energy usage, by 2030, so our current target is less than half of what we will have to sign up to. It is an impossible new target, and, as Kathryn Porter has shown and as we have seen in Spain, the more renewables in the mix then the more brownouts and blackouts.
As for the carbon tax deal, it is mainly for six commodities: steel and iron, aluminium, fertiliser, cement, electricity and hydrogen. Dynamic alignment will mean that we no longer pay carbon tax on exports of those products to the EU. However, our exports of those commodities to the EU are nugatory, and we will be required to charge a carbon tax on our much larger imports from the rest of the world. Our competitive position will decline and the EU’s will improve—well done.
Worse, if we enslave ourselves to existing and all future EU rules in these areas, the entire UK economy in these sectors will be required to adhere to these rules. All we produce in these sectors, whether for UK sales or for export to the rest of the world, must follow these rules. What are these rules? For example, there are totally different, although no better, packaging rules—so changing packaging will be a huge expense for British producers across the economy. There are also pesticide residue rules, based not on scientific evidence but on the kindergarten-level idea of the precautionary principle, so UK farmers will have to change what pesticides they all use.
Above all, unless the Government secure a carve-out—of which the chances are extremely low, particularly for this Government—our world-leading position in gene editing will disappear. Bang goes the finest and most productive gene-editing cluster in Europe, of 100 or more companies, supported by eight world-class research institutes. Any products developed there will not be allowed in the UK—the cluster will collapse.
In yet another huge hit to the economy, changes will also apply to all the goods we import from the rest of the world. The UK’s Fresh Produce Consortium forecasts
“thousands of additional and unnecessary border delays, considerably more inspections, more paperwork and port congestion”.
Restrictions on Moroccan cucumbers, Indian mangoes, South African citrus, US sweet potatoes, Californian almonds, and on and on, all add £400 million to supply chain costs. The UK consumer, who will pay for all that in inflated prices, may make their views on that known at the next election, do you not think? Dynamic alignment will clash with our new trade deals such as CPTPP. Not being able to comply with both, we will necessarily end up being taken either to the WTO court or to the European Court of Justice—more cost, more woe and more confusion.
The problems with our economy do not come from Brexit—they come from net zero, as my noble friends Lord Lilley and Lord Redwood so clearly explained, and from the Government’s willingness to make not working more attractive in this country than working. Remove just those two problems, and develop further the regulatory freedoms that Brexit allows, and we can flourish.
Finally, how can we be happy to hear this week that this inept Government now plan to double down on their already disastrous surrender plan to the EU, in the vain and economically illiterate hope that doing so will prove either popular or beneficial?
Lord Bruce of Bennachie (LD)
There goes Liz Truss’s trusted adviser—I think we all know how that turned out.
In 2024, Labour won 411 seats on 33.7% of the vote and a turnout of 59.7%. Last week, the results were fragmented across six or seven parties. There were gains for Reform, the Lib Dems and the Greens in England, and heavy losses for Labour and the Conservatives. Reform was actually down compared with last year, although you would not know it from the comments.
What is clear is that first past the post in the present circumstances is likely to produce distorted results, leaving most voters dissatisfied with the outcome. That in itself possibly explains why the turnout is down. In Scotland, we had Scottish Parliament elections, and turnout was down there too. The vote share for the SNP, Labour and the Conservatives was sharply down. Reform and the Lib Dems were up, and the Greens were marginally up. That election in Scotland was widely described as a “meh” kind of election.
My take—and I was knocking on quite a lot of doors—is that most people wanted to see measures to turn Scotland around, to address declining education standards and waiting times in the health service, to provide care support, to focus on the weak economy and to address the cost of living. Independence was not the issue, and the fact that the SNP is absurdly claiming a mandate is a distraction from its monumental failure on all the issues for which it actually has direct responsibility.
The SNP’s incompetence in government will result in a massive financial, unfunded deficit, with alarming consequences coming down the track in Scotland. Something as important as breaking up the UK needs an honest and open debate and overwhelming support from the population—there is no such support, no open debate and no idea of where it is heading.
However, one economic issue that was live in the Scottish debate was the energy industry. The offshore oil and gas sector is in natural long-term decline and renewable energy investment is increasing; however, this is anything but a zero-sum game. The jobs created by renewable energy are not as numerous or well paid as those created by oil and gas, nor are many of them interchangeable. In this debate, Reform—let us be honest—are aggressive climate change deniers and would reverse the renewables policy and destroy the jobs that are being created in that sector. The Conservatives also prioritise oil and gas over renewables and would delay, or possibly abandon, net-zero targets.
The fact is that, thanks to the Iran war and the actual pace of transition, the UK is facing higher costs and increasingly relying on imported gas, mostly from the USA and a security-compromised Middle East, when we still have significant economically recoverable reserves of our own. There is a contradiction here. We have signed a contract with Norway to bring gas from its gas fields through our gas fields, which we will apparently not exploit. I have been a long-term supporter of policies to achieve net zero—I was writing pamphlets in favour of renewable energy in the 1970s—but I have always agreed that the transition will take time, both in terms of jobs and investment and in terms of energy diversification. Net zero means just that—even when achieved, there will still be oil and gas in the mix. It makes no sense, especially faced as we are now with the insecurity of dependence on the Middle East, to accelerate the rundown of our own naturally depleting resources and to increase imports from Trump’s America, which may also prove uncertain as there are calls for America to keep it at home.
We are currently losing around 700 jobs a month, and major operators, such as our own BP and Harbour Energy, are talking of complete withdrawal from the UK continental shelf. I repeat: BP is talking about withdrawal from British oil and gas. A Government who are struggling for growth should think very carefully about policies that would destroy jobs and investment. I hope the Minister will address this issue, because there is growing pressure on the Government to do so. Briefing on the energy independence Bill says the aim is to:
“Manage existing oil and gas fields for their lifetime through legislation to introduce Transitional Energy Certificates, and show climate leadership by meeting the manifesto commitment not to issue new licences to explore new fields”.
There is therefore scope for enhanced recovery from existing fields by reducing the tax burden and allowing associated drilling—that is compatible with the Government’s policy. Without such changes, the lifetime of existing fields is likely to prove short. The argument that because world oil prices determine the price we pay, there is no benefit in production ignores energy security, balance of payments benefits and the retention of jobs and investment in the UK instead of exporting them to the USA and elsewhere.
On another tack, as a member of the International Relations and Defence Committee—our illustrious chair is sitting opposite me—my information on the impact of the war in Ukraine and the depleted state of UK defence has been pretty sharply brought home to me. I am astonished that defence and security do not have a higher salience in the debate in Scotland, when we know that Russian ships, subs and planes are cruising our seas and airspace all the time. The contract to build frigates for Norway on the Clyde, as well as for the home fleet, is surely positive, especially when the Scottish Government struggle to build ferry boats. But the idea that closing our air and marine bases—which is presumably what an independent Scotland would do—would make Scotland safer is mind-bogglingly naive. The defence investment plan is long overdue. It is urgently needed if we are not to signal weakness to our enemies, and it needs to focus on the capacity we have and that we can quickly develop.
That leads me to my final point, which binds everything together: reconnecting with the EU. Leaving the EU was a monumental error that weakened the UK and the EU. Had the vote taken place when the Ukraine war was under way and Trump was ensconced in the White House, I am certain that the result would have been different. As it is, we have been left bobbing around in the uncertain waters of the north-west Atlantic. Scotland voted to remain in the EU, but many have not recognised that the world is much changed. For the UK, including Scotland, the way back is not clear or straightforward; I accept that—our standing in the world has diminished. But asking for a reset while ruling out rejoining will sharply limit what can be achieved. The EU will not want to go down the Swiss route of myriad and ever-changing treaties and rules. Of course we should strengthen our relationships with Canada, Australia, New Zealand, the Commonwealth and others, but we should be clear that we accept that the reset is to set in train a process for Britain to become a fully participating part of the European Union.
For our own domestic reasons, we also need to adopt a reformed and more proportional electoral system. If we do not, we could end up with a Government with a strong electoral majority with under 30% of the vote. I doubt if the EU would have confidence in any agreement while that is a real possibility. Otherwise, we will be outsiders paying heavily for the privilege of trading on terms we have no part in shaping. EU negotiators will surely reach a point of saying, “Thus far and no further unless you rejoin”.
The situation is quite clear. We have a voting system that will give confidence that the UK can rejoin and stay within the EU, and we will recognise that unless we take a clear and decisive decision, we are going to drift in the north-west Atlantic for the foreseeable future.
Lord Horam (Con)
My Lords, before I contribute to this extremely interesting debate, I will pay a small tribute to those who are connoisseurs of these debates, and recognise the late Lord Skidelsky, who died unexpectedly and sadly last month. I felt particularly close to him because, although he was born in Harbin, Manchuria, and I in Preston, Lancashire—rather a long way away—we were both born in the same month in 1939. We both went to Cambridge University in the same period, he to read history and me, economics. Of course, he is most famous—apart from his contribution to this House—for his three-volume history of the life of John Maynard Keynes, the greatest economist in history in my humble, perhaps Cambridge-oriented opinion. I see a certain dissent on this side, but we can disagree about that. But, of course, the noble Lord gained perhaps most joy from his final book on the subject, written with his usual impish humour after the financial problems of 2008, The Return of the Master. He made his last speech from the Cross Benches in our last economic debate, and he enjoined all economists to use less jargon and to speak more directly and simply to the people, so they could understand what this important subject was all about. He will be greatly missed.
On the subject of today’s debate, I think all parties agree that the Government’s fundamental view that economic growth is central, which is what they hoped to achieve when they came in and which all parties hope they will achieve, is absolutely right. The problem is that if you state that then all political common sense and political history clearly indicate that you have to pursue it with single-minded determination. That is the essence of it.
I see the noble Lord, Lord Burns, sitting on the opposite Benches. He was at the very centre of the Treasury when Margaret Thatcher was Prime Minister, and he will recognise that it was not entirely a smooth process. There were many critics of monetarism at the time—the noble Lord, Lord Moynihan, is shaking his head behind me again—but the central fact is that she persisted. There were no U-turns: “The lady’s not for turning”. She carried on despite all the difficulties—I think the noble Lord, Lord Redwood, would agree with me on this—and emerged triumphant to set the basis for 20 or 30 years of sensible economic growth, ending Britain being the disaster of Europe. That is what it requires.
Just to prove my essential British fairness, take the Blair Government. They came in, were handed a much better hand by the Major Government and in all respects realised that they had to assert their own economic competence. What they did, very sensibly, was not to rush in with particular socialist or semi-socialist Bills and so forth but to accept the Conservative spending programme, which they did for two years, and only in the third year did Gordon Brown think that it was sensible to increase national insurance contributions to pay for a big increase in National Health Service funding. That was an entirely sensible and professional political point of view.
This time, on the other hand, the Government rushed in immediately with increases in the National Health Service, workers’ rights pledges, an inheritance tax raise and a gamut of Labour proposals which, in their own terms and on their own grounds, made some sort of sense, but they are all anti-growth and anti-business. Therefore, they could not in any way be reconciled with the Government’s central objective of going for economic growth.
To bring things up to an international level and up to date, look abroad. The social democratic Governments of the world can do things properly by economic growth. Anthony Albanese, the Prime Minister of Australia, sensibly accepted the Liberals’—that is, conservatives’—proposals on immigration, which solved their problems in a way we tried to do over Rwanda but which was ditched by the incoming Labour Government. Building on that, he has cut taxes for middle-class people in Australia on the grounds that this improves incentives, and they really need to get their economy growing. Not only that, he has doubled down on the expansion of oil and gas and fossil fuels in Australia, of which Australia is a big supplier. It is quite clear that a Labour Government somewhere in the world is capable of doing sensible things.
Equally, in Canada, Mark Carney, who leads a Liberal Government, has in fact resiled from a previous proposal to increase capital gains tax in order to improve entrepreneurial skills and encourage entrepreneurship in the Canadian economy and improve its business prospects. He too has doubled down on the exploration of oil and gas in Alberta and elsewhere in Canada.
That is just a sensible thing done by a left-of-centre Government. The sad thing is that we appear to have a left-of-centre Government here who are totally incapable of getting a group of people together—we do not know whether it is the present group or some alternative group—who can do the sensible things that even a social democratic Government could do.
So there we are. The things we need to do are not rocket science. We need to do something about energy pricing. Energy pricing is destroying not only the old industries but the new industries, such as databanks. We need to reduce welfare and link it to work. We need to reduce the size of the Civil Service and look at Civil Service pensions. As the noble Lord, Lord Blunkett, said in an article in the Guardian—I do read the Guardian occasionally, in the Library—we need a massive programme to get employers to take on apprentices at scale, not with the puny, ridiculous scheme that we have had for the last few years under Labour and Conservative. This needs a big improvement.
This country has real potential. Unfortunately, we have a Government who are unable to see that the fundamental thing, to refer to Lord Keynes again, is to release the animal spirits of business. Then we might make some progress.
Lord Pitkeathley of Camden Town (Lab)
My Lords, I pay tribute to the noble Lord, Lord Horam, not only for his long service but for the delicate way in which he stepped around the debate between the monetarists and the Keynesians—a debate I always enjoy observing. I pay tribute to some other contributions. The noble Lord, Lord Stoneham, reminded us of the world-class skills and reputation that we have in this country, which we must value. There cannot be many in this House who have as good an understanding of our relationship with the EU and its benefits as my noble friends Lord Murphy and Lord Liddell. I also pay tribute to my noble friend Lord Barber, who reminded us that public value and delivery matter a great deal. I am also sure that we will all continue to heed the wise words of my noble friend Lord Robertson.
I always approach debates on economic growth with a certain humility. As a musician, regeneration chief executive and now a Member of your Lordships’ House, I have managed to experience three industries not universally associated with rapid productivity growth. However, one of the advantages of your Lordships’ House is that we are sometimes able to take a longer view than the immediacy of daily politics allows elsewhere. From that perspective, it seems to me that many of the challenges facing Britain today are cumulative rather than sudden: the productivity weakness, underinvestment, uneven regional growth, fragile infrastructure and declining public confidence that have developed over time.
That is why I broadly welcome the strategic tone of this King’s Speech. Having spent much of my professional life working in and around regeneration, business improvement and economic development, I have seen at close quarters both the strengths and frustrations of the British economy. We remain an extraordinarily creative and entrepreneurial country, as many have noted today. But too often we make it unnecessarily difficult for that potential to flourish consistently. I therefore welcome the emphasis on economic security, industrial resilience and infrastructure investment.
I also, along with many in the House, welcome the proposed European partnership Bill. Without revisiting old arguments, it is surely sensible to seek the most constructive and friction-reducing relationship possible with our nearest trading partners—particularly for the benefit of smaller businesses, which are often least able to absorb complexity and uncertainty. Similarly, the focus on late payments and protections for small firms may appear technical, but such matters have significant cumulative effects across the wider economy.
I also hope that we will continue to think carefully about the implications of technological change, especially AI, of which many in the House are already acutely aware. Britain should indeed seek to lead in innovation, as well as look at long-term economic resilience, which depends not simply on technological capability but on an awareness of public confidence, social cohesion and widespread opportunity. If citizens feel excluded from the benefits of economic transformation, political consent for change itself will weaken. For that reason, I particularly welcome the Speech’s emphasis on opportunity, skills and inclusion, alongside growth. Economic policy succeeds most sustainably when people feel that they have a meaningful stake in the future being created.
No legislative programme can resolve every challenge immediately, but I believe that this Speech reflects a serious attempt to address long-term structural issues with greater realism and strategic intent. It is in that spirit, and in support of my noble friends the Ministers, that I support the Motion.
Lord Kempsell (Con)
My Lords, I listened with great interest to the many excellent speeches in this debate and I commend, in particular, my noble friends Lord Jackson of Peterborough and Lord Moynihan of Chelsea for their outstanding contributions.
However, it is to another speech that I return, because I have been turning it over in my mind: the speech on 5 July 2024 that the Prime Minister gave when he stood on Downing Street and delivered his first statement in office. If noble Lords cannot recall it word for word, I do not blame them—the reset button has been hit many times since then. In that first address as Prime Minister to the British people, the current resident of 10 Downing Street—or at least he was when I checked a few moments ago—set out his agenda for the country. When I reread those words, it dawned on me that he made barely any mention of the economy. Given how the Government have performed over the 678 days since, that oversight now makes perfect sense.
Under Labour, the British economy is like a mirror reflecting the worst instincts of the Prime Minister: it is slow to move, overly biased towards an outdated rulebook and now dangerously close to implosion. As noble Lords have reminded us throughout this debate, since 2024, growth has been relentlessly flat, and the IMF has now downgraded the UK’s growth forecast to 0.8%, which is the largest downgrade in the G7—and all this despite the Government claiming that growth would be its watchword and its number one priority. The Prime Minister himself once famously said, “Growth is the answer”, but under this Government it has become only an ever more pressing question.
Hard-working people across the country today see Westminster at its worst. The civil war consuming the Labour Party is more than a story in this postcode district. Outside these confines, Labour chaos is causing real damage to what was already a struggling and fragile economy. Among 6 am Britain—the strivers and risk-takers who build businesses, create jobs and strive for a better life for themselves and their families—they hoped for answers from the gracious Speech, but, again, it has transpired that the Government have nothing to say to them.
The situation is at breaking point for my own generation. Under this Government, unemployment has increased and the OBR says that it will get worse. For young people, the unemployment rate is now a scandalous 15.8%, up 2.4% since Labour came to office. My contribution to this debate is on behalf of the 1 million young people not in work, education or training, a statistic now worse than that of Spain or Greece—the economies that we used to point to as the international high watermark of youth unemployment. The crippling rise in employers’ NICs stole their entry-level jobs. The very opportunity that noble Ministers refer to as one that this Government have tried to create is in fact being crushed by them. That means no first job on the high street to get your working life off the ground, no casual work to fit around your studies and too few high-quality apprenticeships—for example, for families who simply cannot afford university education.
The ITEM Club forecasts that the labour market will weaken significantly this year, and the British Chambers of Commerce finds that 41% of businesses are worried about business rates, up 7% on last year. It is no surprise to me at all that business investment is down, decreasing by 2.5% in the last quarter of 2025.
As we know, on the macro side, borrowing costs are surging: this Government are paying £305 million a day just to service the cost of debt interest. This week, gilts hit an 18-year high thanks to No. 10’s instability, higher than in any other G7 country—all this from the party that told the electorate that
“the grown-ups are back in charge”.
When he was elected, they called the Prime Minister “Mr Rules”, but as he reaches the end of his time in office, we can say only that he is “Mr Chaos”. What is the answer presented by the Government in the gracious Speech? What is the plan set out today? It is to waste endless hours of parliamentary time in this forthcoming Session on unwanted EU integration, turning away from the dynamic and high-growth partner economies that are traditionally strengthened by their trade with the UK and back to the outmoded plans of the past.
I urge Ministers to intercede with their colleagues in the other place and ask them to bring an end to the chaos and instability that we see today, to put jobs and prosperity first, to get the economy motoring and to let growth flower. If they do not, we can conclude only that the economic legacy of this Government will be the same as of every other Labour Administration in history: higher taxes, higher borrowing, higher unemployment and lower growth. Will it be the case that in the desk drawer in No. 11 there will be another note left behind saying, “I’m sorry, there is no money left”? If that is the case, we will be able to conclude only that, once more, Labour has done it again.
Baroness Kramer (LD)
My Lords, my noble friend Lord Fox has had to leave, as the cold lurgy got him; undoubtedly, it will now get me over the weekend. The core point of his speech—the significance of and need for ambitious and strong leadership now—is almost the central point of the debate we have had today. I hope that the Government are going to take that on board. The impact of the turbulence we face domestically and overseas on the cost of living for ordinary people is really quite devastating. The Government have to deliver bold action in response. I am not sure that this King’s Speech meets that test.
I say to the Government: stop pussyfooting in the European partnership Bill and seize the opportunity. The noble Lord, Lord Livermore, has talked in the past about the 6% to 8% scarring of the economy in 2025. I have seen the numbers and I am with him, but I will leave him to argue that case with the Conservatives, who do not appear to have taken note of them.
I also want to point to the speech made by my noble friend Lord Strasburger, who talked about the specific damage done to one of our most important industries—the creative industry—by Brexit. I could bring industry after industry before this House to make exactly the same case. To those who think that Brexit has not been a huge damage, I say: go out and speak to industry after industry. I defy anyone to continue to make that statement.
Lord Lilley (Con)
My Lords, does the noble Baroness speak to the NFU, which does not want to rejoin Europe because it believes that the divergences from EU rules since Brexit have benefited it enormously? Doing away with those divergences would cost £600 million to £800 million a year just for PPPs, and £500 million a year for fisheries.
Baroness Kramer (LD)
We may be speaking to the people at the NFU, but I suggest that the noble Lord go out and start speaking to individual farmers. He will find that the agricultural sector has been really badly hit by the processes that we have been through. It also underscores the inadequacy of trying to fill this just with trade agreements. I listened to a lot of the ideas that came from the Conservative Benches; if you added them together, you would be lucky to get 1% to 2% growth, even if you were able to implement them in a positive way. That does not anywhere near offset the 6% to 8% damage. Again, I will leave the Minister to continue with that argument.
This is an important time to be much more ambitious on the European front. Of course I support youth mobility schemes, the recognition of professional qualifications and the reduction of red tape, but this is the time when we need to be going for a bespoke customs union and building the trust, as well as building the British economy, that will enable us to be on a trajectory towards the single market and eventually to rejoining. If I look at just the customs union, I think it is widely accepted now that the impact of that would put £25 billion more into the UK economy every year. That money could bring some relief to our debt numbers, could help us deal with the need for additional investment in defence and could in turn help struggling people.
Missing from the King’s Speech is action to turn around the sad trajectory of small businesses. I applaud the late payments Bill, but I say to the Government that it is time to grasp the nettle and completely revise business rates to keep small businesses viable, and it is time to force the energy companies to offer competitive pricing to small businesses. I do not know what is holding the Government back from referring that industry to the CMA because it is clearly not offering competitive options to small business, and we are paying a huge price for that. A scheme for apprentices is very important, but it is meaningless if we keep losing small businesses because they are the ones that can take on apprentices and they are often the only real source of jobs in our most deprived communities.
What about access to finance for small businesses? The British Business Bank has made a commitment to support community development banks and financial institutions, which is laudable, but the Government have given it pennies to work with. A sector that can lend at best £150 million in the UK lends more than $300 billion in the US; it is the complete backbone to small business and provides the secure foundation for its economy. Will the new legislation allow the National Wealth Fund to step into that space and let us properly grow the community development investment financing sector?
These Benches will scrutinise very carefully the enhancing financial services Bill. It has not been much discussed today but I notice that, in their briefing, the Government—this counters other messages that we heard from the Conservative Benches—finally recognise that the financial sector has suffered quite severely because of Brexit and has been stagnant while other areas have been growing. It is salami slice by salami slice. The EU is building capacity in financial services across a network of cities, often in partnership with British firms. People talk fluently now of Lloyd’s of Brussels, LCH has replaced the term London Clearing House, and LCH Paris is becoming a major force. This will become far worse if in June 2028 the EU decides to limit its grant of equivalent status to UK central counterparties. The risk is not just that we lose trillions in derivatives clearing business but that the financial operations that collocate with CCPs could make that call to collocate elsewhere. Neither the EU Bill nor the financial services Bill seems to deal with any of this.
The enhancing financial services Bill intends to enable credit unions to expand. We have called for that for some time and it should help with financial inclusion, but we need a more far-reaching strategy, including clarification of the future of banking hubs. Consolidation of the PSR and the FCA can be successful if it is done with care, but I am much more concerned about plans to scrap much of the certification regime that sets the standard for senior management recruiting and accountability in the banking world. Before the certification requirements were brought in, senior bankers simply hired their friends. I was shocked, in going around to HR department after HR department, to discover that they did not even require CVs or check references if someone was referred by a senior banker within their own organisation. That accounts for a lot of the failures that we have had to deal with historically.
I also suggest that the Members here who question the importance of the certification regime look at the evidence that the Parliamentary Commission on Banking Standards got from senior bankers. The changes I can see to the certification regime weaken individual responsibility and return to the concept of collective responsibility. It was on that basis that bankers were shocked that they should have been expected to call out any kinds of concerns or failure in management, or carry the can for what went wrong. This is an industry that genuinely needs good regulation. I do not care if it is streamlined—that is always an advantage—but we have to recognise the importance of regulating this industry.
I am equally concerned about changes to ring-fencing. The co-mingling of retail and investment banking was a major factor in the 2007-08 crisis. The free money from retail deposits fuelled casino-type investment. Retail banking dropped credit standards, mis-sold products such as PPI, and switched to short-term funding. If anyone thinks that reducing the ring-fence will help the financing of small businesses, think again. The major banks have restructured their operations and staffing in ways that make cash-flow lending impossible except to large clients.
I cannot see how this Bill tackles risks outside the recognised institutions. I have been truly concerned with the Government’s love fest with private credit, which we saw during the passage of the Pension Schemes Bill. Private markets play an important role in financing productive investment, but these markets, which now exceed $18 trillion, as Sarah Breeden, Deputy Governor of the Bank of England, said,
“have not yet been tested, at that scale and complexity, by a broad-based macroeconomic shock in a higher-rate environment”.
There is little transparency, underwriting standards are weak, the loans are sliced and diced, and liquidity is very limited. Private credit is now deeply wound into the banks, insurance companies and pension funds through lending arrangements. Interconnection matters. Add in potential bubbles in tech and AI valuations, and the play by hedge funds now in the gilts markets, and it becomes evident that risk has not gone from the financial sector, it has simply taken a new shape. This Bill is a chance to make sure our regulators have the powers and capacity to respond. I am afraid there is a current complacency and that is very dangerous.
This Bill is also an opportunity to urgently address the issues of digital currency, both fiat and stablecoin. Too many powers have been switched from Parliament to the regulators. Digital is not just a variation on plumbing. Should sterling stablecoin be redeemable at par, for example? What quality of assets is required to back it? I suggest not gold and bitcoin. Who controls the exchanges that can shut off transactions at will? At the international level, what happens to UK monetary sovereignty when future cross-border trade is dominated by dollar and renminbi stablecoin? These issues are above the pay grade of the FCA and the Bank of England, and need to come to Parliament.
We will support the expansion of the sandbox in the regulating for growth Bill, but my noble friend Lord Clement-Jones will, I think, speak extensively on the risk of getting on a deregulation bandwagon without looking extremely carefully, particularly as we are dealing with AI. We saw the damage that has been done by the failure to regulate social media early enough—a price paid by vulnerable people and by many of our youngsters. This is not to be repeated in AI, so again, beware the worship of a deregulation programme.
We will also look closely at the highways financing Bill to make sure that the RAB funding is not a way to burden ordinary people with funding costs that the capital markets have rejected. It has a place, but we have to be careful with it.
My noble friend Lord Fox has detailed our support, but with care, for nationalising the steel industry as we try to sort out its role. There is a need for a long-term strategy to underpin that process.
I thank my noble friend Lord Stoneham for focusing on housing, which is an issue that has not been extensively debated today but which absolutely underpins the future of our economy. I also thank him for his focus on the industrial strategy.
We will work hard to ensure that the competition reform Bill ensures an independent CMA with teeth. This should not be a proposal to weaken the CMA; it should be a proposal to strengthen it in very changing times.
However, none of this, frankly, is enough. Our work is going to be to put together a programme of much greater ambition—ambition that can be managed without excessive risk but that takes real care and real energy.
Baroness Neville-Rolfe (Con)
My Lords, I thank everyone who has taken part in today’s debate. I thank the Minister, the noble Baroness, Lady Anderson, for her crisp and helpful summary of the new legislative programme at the beginning of the day.
The most important economic aim for the UK is to achieve increased growth rates, as the Government initially—long ago in 2024—insisted was their priority. There is nothing in the gracious Speech which suggests that this is still the major objective. Two per cent growth, which we achieved over the 200 years or so to 2008, would make all the difference to our prospects. It is unfortunate, indeed depressing, that the Government have, in reality, given up on any real attempt to achieve such results. The Government have made much of this morning’s better news about the first three months of 2026. Let us see if this is sustained, given the political turmoil of the last few weeks, sadly continuing today. As my noble friend Lady Penn said, the half measures and lack of vision are representative of this Government’s unpopular incremental approach.
We have set out in detail what needs to be done in our Alternative King’s Speech, a much more exciting policy programme than the Government’s. In particular, we must ease the pressures that are holding back ambition, enterprise and small businesses, and which are costing jobs: extra national insurance contributions and business rates are two of the clearest examples. We must stop sending the message that success, investment and wealth creation are things to be punished. Lower tax thresholds, VAT on school fees, the extension of inheritance tax, higher stamp duty—all introduced by the present Government—and repeated talk of a wealth tax all risk driving away the very people, capital and confidence that our economy needs.
We have a Government who are not facing up to what needs to be done, and the bond markets are reflecting that. The UK rate has hit 5.1%, which is above that in Greece at 3.6%, and indeed that in all major economies. This is a higher level and a bigger premium than during the time of Liz Truss, to which Ministers are prone to refer so scornfully. In the trade, this is known as a moron premium. That might seem an unkind description of the Government Front Bench, who are ultimately responsible for these matters, but the facts stand out clearly.
The Government have been going in the wrong direction from the start by imposing higher taxes on business and individuals alike, and more and more regulation on everyone, while making no sustained effort to deal with welfare reform, as we have heard, and allowing a welfare bill which has increased by £18 billion this year to £333 billion, with overall welfare spending projected to reach £409.6 billion in 2030-31. They will not do what is needed because they are frightened of their own Back-Benchers. I fear we did not get enough done on welfare when we were in government, but the need for economies is much clearer now. Yet nothing has been done, and there is nothing in the King’s Speech.
This failure is behind Kemi Badenoch’s proposal in the Alternative King’s Speech for a welfare reform Bill. This would restrict eligibility for PIP, provide face-to-face—not online—assessment, reform sick notes, reinstate the two-child benefit limit under universal credit and prevent those who are not British citizens accessing so much welfare. These are the strong, necessary reforms that the present Administration are, sadly, incapable of making.
I turn now to the debate on the specific proposals in the King’s Speech. Although it has been the major focus of the debate, I do not plan to go into detail on the European partnership Bill, as my noble friend Lady Finn dealt with that well in her powerful and lively introduction. We have had important interventions from a number of my noble friends. My noble friends Lord Redwood and Lord Lilley analysed the pattern of growth and the balance of trade with the EU, especially in goods. From his perspective as a member of our respected European Affairs Committee, my noble friend Lord Jackson of Peterborough pointed out that, to gain privileges in the EU, the UK will have to pay and be subject in part to the fiat of the ECJ. He and my noble friend Lord Kirkhope emphasised the vital importance of ongoing—I stress that word—parliamentary scrutiny, and my noble friend Lady McIntosh of Pickering rightly asked about the future of the border target operating model.
I add that the cost of the EU reset will be greater than the benefits, especially with the negotiations being led by the Prime Minister. He does not seem able to engage with the EU without giving things away—12 years with the French and the Spanish plundering our waters rather than the originally envisaged five years, and free access for young people, more of whom will want to come here than the reverse. The EU should be paying us. Even our growth in AI and gene-editing could be at risk from dynamic alignment, as the noble Lord, Lord Frost, and my noble friend Lord Moynihan of Chelsea pointed out in two precautionary speeches. Moreover, our vital trade agreements with Australia, Japan, India and Canada, the CPTPP, and with the US, especially on pharmaceuticals where good work has been done, could come under pressure as dynamic alignment pushes into new parts of the acquis. Noble Lords can see that we on these Benches do not share the starry-eyed optimism of some speakers on the EU reset.
There is still no progress on the overdue defence investment plan. In a decisive contribution, the noble Lord, Lord Robertson of Port Ellen, pointed out that there seemed to be a passage missing from the King’s Speech on the additional funds needed to acquire the hard power we need to deter current and future threats. Indeed, my noble friend Lord Bridges of Headley pointed out in an excellent speech that security comes with growth and fragile public services are a real security issue. You cannot spend more on defence if your debt-servicing costs are soaring.
I now focus on three other areas: employment, regulation and productivity, and the high price of energy and its industrial impact. The prospects for employment are disturbing. Unemployment is at 4.9%, and a terrifying 15.8% among 19 to 24 year-olds. As we heard from my noble friend Lord Kempsell, that is above the rates in Spain and Greece. Moreover, the ITEM Club reports this week that it forecasts 163,000 further lay-offs this year. The truth is that the incentive to work has weakened as benefits have risen, and the combination of the Employment Rights Act, NICs and hefty minimum wage increases has made hiring risky and expensive for employers, especially in the vital entry-level jobs for our young people, as my noble friend Lord Kempsell said. AI is changing the marketplace at record speed, which means that flexibility is more important than ever, yet we are moving away from that.
This is also an example of the growing blight of regulation, an area of concern for many noble Lords today, including my noble friends Lord Johnson of Lainston and Lord Fuller. There is increasing evidence that excessive regulation acts as a drag on productivity, deterring investment, slowing decision-making and making it harder for businesses to grow. It is particularly difficult for SMEs, as we have heard from the right reverend Prelate the Bishop with Newcastle and the noble Baroness, Lady Kramer—we often agree on issues relating to small business. I know the Minister shares, at least in part, my concern about this regulatory area. I note the Government’s announcement of an enhancing financial services Bill, a competition reform Bill, and a regulating for growth Bill. It appears that the Government might finally have begun to recognise the scale of the problem. However, like my noble friend Lord Johnson, we are not convinced and we will examine the proposals very carefully as they come forward.
The Civil Service has expanded significantly, with costs in pay, unfunded pensions, and support costs. The shift to the public sector reduces productivity, as output per head is lower than in the private sector. It is government’s job to get a grip of this. Unfortunately, there is little sign of that grip in the gracious Speech. There is no sign of tackling the size of the Civil Service or productivity-sapping practices such as working from home. The gracious Speech promised proposals to strengthen its delivery, accountability, innovation and productivity. Perhaps the Minister will kindly explain what that will mean and whether there will be legislation on any of this.
Above all, as many have said, we have a severe problem with energy prices and energy regulation, which is set to get worse with the proposed EU reset. Cheap, reliable energy is essential to competitiveness. We cannot be ideological about something so fundamental to living standards and to the capacity for economic growth. We need to open up the North Sea, rather than leave it to Norway to take advantage of it. The Government’s energy independence Bill is going in completely the wrong direction, ruling out licences for new oil and gas fields. If the Government want to make energy more affordable and accessible, why do they continue to refuse to utilise the energy resources that we have at home?
State intervention to subsidise bills is not the answer to this problem when we have the resources to increase domestic supply in the North Sea. As my noble friend Lord Lilley pointed out, we have crushed our major goods exporting sectors and we cannot export what we cannot produce. The Government make much of their net-zero policies, but I put it to them that, if you end up with the highest energy prices in the developed world, their policy will not be the object of admiration that the Government so often claim but an example of self-harm.
My noble friend Lord Hunt of Wirral reminded us of the lack of a credible plan for making British Steel competitive, which he rightly described as a daily call on the taxpayer for a business that Ministers cannot guarantee will be viable. This, the electric vehicle mandate and high energy prices are together having a devastating effect on the cost of goods, especially vehicles.
My noble friend Lord Sharpe of Epsom highlighted how little the gracious Speech does for SMEs, which are already facing an exceptionally difficult environment. Not least there is the new holiday tax on top of higher NICs and business rates, the compliance burden, energy costs, planning restrictions and, I would add, horrific delays in the tribunals that will police the mistaken Employment Rights Act, costing business at least £5 billion. As my noble friend Lord Horam said, so many of the Government’s measures are anti-growth and anti-business—once the backbone of Britain.
In conclusion, the central question before us is whether this legislative programme meets the scale of the economic challenge facing our country. I am afraid that it does not. Britain does not need more reviews, more strategies, more consultations, more regulation or more ministerial powers. It needs growth. It needs a Government prepared to take the difficult decisions that growth requires: to reduce the burden of tax, to cut back needless regulation, to make work pay, to restore incentives, to bring welfare spending under control and to ensure that British industry has access to energy that is affordable, reliable and secure.
That is why the Official Opposition will scrutinise this programme relentlessly. Where the Government bring forward measures that genuinely improve competitiveness, simplify regulation, support business and increase growth, we will engage constructively. But, where they add new burdens, duck difficult choices, weaken our competitiveness or pretend that process is a substitute for reform, we will oppose them. We are in a mess, and this programme will not solve our problems.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I thank His Majesty for his gracious Speech and all noble Lords for their thoughtful contributions today. I congratulate my noble friend Lady Anderson on her excellent opening speech, and it is now a great privilege to close this debate. It is nearly two years since the first King’s Speech of this Labour Government and two years since the first time I stood at this Dispatch Box with the honour of being a Treasury Minister. In the many debates I have spoken in in that time, this House has provided an education like no other, and I am grateful for the kindness and good humour shown to me by so many noble Lords. It is a privilege to learn from the knowledge, expertise and real-world experience that combines to make the collective wisdom of this House.
I particularly pay tribute to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer. We have not yet agreed as often as I was perhaps hoping, but they are always warm and decent in all their dealings with me, and I am certain that all noble Lords recognise their commitment to serving this House. I look forward to continuing to work with both noble Baronesses on the measures contained in this King’s Speech.
As the noble Baroness, Lady Finn, noted in her opening speech, and the noble Baroness, Lady Neville-Rolfe, noted in her closing speech, economic growth has been this Government’s number one priority over the past two years. Economic stability has been the cornerstone of our approach, and we have seen in recent days the economic damage done by the risk of deviating from that approach, and the importance of sticking to our economic plan. Now is not the time to put our economic stability at risk.
In our first Budget, we took action to fix the foundations of the economy by repairing the £22 billion black hole in the public finances left by the previous Government. As my noble friend Lord Barber of Chittlehampton said in his contribution on how we spend public money—a theme also raised by the noble Lord, Lord Shinkwin—at the spending review last summer we stuck to our fiscal rules, keeping a tight grip on day-to-day spending and getting debt on a downward path, while investing an additional £120 billion in growth-driving infrastructure such as roads and rail, and record levels of R&D.
In our second Budget last November, we built greater resilience by doubling the headroom against the stability rule and cutting borrowing as a share of GDP in every year of the forecast. This year’s spring forecast showed that our plan was the right one. Inflation was at 3% and set to fall to target. Borrowing was set to fall more over this Parliament than in any other G7 economy. GDP per capita was forecast to rise by 5.6% over the Parliament, compared to a fall of 0.2% in the previous Parliament. We increased headroom to over £23 billion. Unemployment was coming down, real wages were continuing to rise and borrowing in the year to February fell by £20 billion compared to last year.
Many noble Lords spoke about economic growth, including the noble Baronesses, Lady Finn and Lady Neville-Rolfe, the noble Lords, Lord Burns, Lord Redwood, Lord Bridges of Headley, Lord Stoneham of Droxford, Lord Fuller, Lord Horam and Lord Kempsell, and my noble friends Lady Bi and Lord Pitkeathley of Camden Town. Today’s data release shows that growth was faster than previously estimated at the end of last year and accelerated sharply in the first quarter of this year, at 0.6%, making us the fastest-growing economy in the G7.
As a result of the action we have taken, Britain today is in a stronger position to withstand the uncertainty created by the conflict in the Middle East, which is putting pressure on energy markets and creating renewed fragility in trade and supply chains. We did not start this war and we did not join it, but it will have consequences for our country and our economy. The Government are continuing to plan for every eventuality, as well as dealing with the economic costs already being felt by families and businesses. The IMF described our plan as the “appropriate response” to the conflict. The decisions we take going forward will continue to be responsive to a changing world and responsible in the national interest.
The noble Baronesses, Lady Finn and Lady Penn, spoke about the importance of energy security. The Government have announced steps to delink the price of electricity from the price of gas, protecting households and businesses from rising bills caused by gas price spikes. This includes offering voluntary long-term fixed contracts to existing low carbon generators not on fixed-price contracts. More widely, we are investing in clean, home-grown energy in renewables and in nuclear. In 2025, we imported 17% less gas than in 2021. Gas generation now sets the wholesale price for electricity around one-third less frequently than it did in the early 2020s.
Several noble Lords spoke today about defence spending, including the noble Baronesses, Lady Penn and Lady Neville-Rolfe, the noble Lords, Lord Burns, Lord Alderdice and Lord Bruce of Bennachie, and, of course, my noble friend Lord Robertson of Port Ellen. We are delivering the biggest sustained increase in defence spending since the Cold War; we are investing £270 billion over this Parliament, after years of our Armed Forces being neglected under the previous Government. We will increase defence spending to 2.6% of GDP from 2027, and we are increasing spending on defence by £5 billion in this year alone. Our ambition is to reach 3% in the next Parliament, when fiscal and economic conditions allow, and the defence investment plan will be published in due course.
Some noble Lords also mentioned welfare spending, including the noble Baronesses, Lady Finn, Lady Penn and Lady Neville-Rolfe, and the noble Lord, Lord Tyrie. As many noble Lords know, this Government inherited from the previous Government a broken welfare system, and we are committed to ensuring welfare spending is fair and sustainable. Through the Milburn report on young people and work, as well as the Timms review of personal independence payments, we will ensure we have a system of benefits and employment support that meets the needs of people and the economy.
As well as immediate support with the cost of living, we must also continue to build growth that is secure and resilient, as my noble friend Lady O’Grady of Upper Holloway said. She also spoke about the importance of our industrial strategy and rightly said that we must continue to turn around the UK’s productivity performance and build an investment-led growth model. We will do that through stability, investment and reform—stability to create a strong foundation for businesses to plan and invest; public investment to deliver growth-driving infrastructure and to crowd in private investment; and reform to systematically remove the barriers to growth across the economy.
My noble friend Lord McNicol of West Kilbride spoke about the importance of AI to future growth and social mobility, a key theme of the Chancellor’s recent Mais lecture. As the noble Lord, Lord Burns, said, many of the issues facing us are for future fiscal events, but they are also the priorities on which the pro-growth legislation set out in the gracious Speech is being delivered. First, we are introducing legislation to reform regulations and remove the barriers to growth faced by businesses, including in financial services. The UK is the world’s largest net exporter of financial services and a leading global financial centre, but we face rapidly growing competition from other markets, as noted by the noble Baroness, Lady Kramer. That is why our financial services and markets Bill will maintain the UK’s competitive advantage by delivering key parts of the Chancellor’s Leeds reforms, the most wide-ranging package of reforms to financial services regulation in more than a decade. I am grateful to the noble Lords, Lord Burns and Lord Johnson of Lainston, for their support for this Bill in their speeches today.
Alongside this, the new competition reform Bill will improve decision-making in mergers and markets investigations, speeding up the work of the Competition and Markets Authority and ensuring that its remedies are regularly reviewed. The noble Lord, Lord Sharpe of Epsom, asked about safeguards to ensure that decisions remain independent. We will ensure appropriate governance and procedural safeguards to maintain expert decision-making that is independent of government.
The noble Lord, Lord Fox, and my noble friend Lord Pitkeathley mentioned the small business protections Bill. It will tackle the scourge of late payments, which costs the UK economy £11 billion each year and leads to the closure of 38 UK businesses every day. This was mentioned, too, by the noble Lord, Lord Sharpe of Epsom, who also asked about future business rate reform—mentioned too by the noble Baroness, Lady Kramer—which the Government remain committed to over the course of this Parliament.
The noble Baronesses, Lady Penn and Lady Finn, spoke about the importance of regulatory reform, which is something I agree with. The regulating for growth Bill will strengthen the duty on regulators to promote economic growth, as mentioned by the noble Lord, Lord Bridges of Headley, and will introduce new sandboxing powers so that businesses can safely test cutting-edge new products and technologies. To address a question posed by the right reverend Prelate the Bishop of Newcastle, there will be no dilution to the protections provided by the regulatory system as a result of the Bill. Maximising growth and innovation are key to this country’s future success, but this will never be at the expense of wider protections.
Secondly, we are building resilience to protect the critical infrastructure needed for growth. As the Prime Minister said earlier this week:
“Steel is strategically important to our economy and our national resilience. That’s why we acted last year to avoid a sudden halt to production at Scunthorpe, protecting workers and the community that depend on the site, and why we’re now bringing forward legislation to give us options to protect Britain’s steelmaking capability”.
The British Steel Bill was focused on by the noble Lords, Lord Fox and Lord Hunt of Wirral, and my noble friends Lady O’Grady of Upper Holloway, Lord Murphy of Torfaen and Lord Sikka. Since our intervention last year to stop steel production in Scunthorpe coming to a halt, we have been talking to British Steel’s owners to find a realistic solution for the business. It has not been possible to agree a commercial sale with the current owners, and we do not believe an agreement which delivers value for money for taxpayers can be met. British Steel is an important asset for UK steelmaking. It plays a strategic role for UK critical national infrastructure, our wider steel sector objectives, local jobs and the economy, given its unique production capabilities. Securing the long-term future of the UK’s steel sector relies on both public and private investment for modernisation.
The nuclear regulation Bill, mentioned by the noble Baroness, Lady McIntosh of Pickering, will modernise the way that new nuclear projects are regulated so we can deliver safe, secure and affordable nuclear power and infrastructure sooner, while maintaining strong environmental protections.
On energy, the energy independence Bill will help to protect households against volatile fossil fuel markets, create more highly skilled jobs across the UK and mobilise investment in clean technologies. The noble Baronesses, Lady Finn and Lady Neville-Rolfe, spoke about the importance of the North Sea, which I agree with. We must harness our domestic supply of oil and gas production from the North Sea. That is why we are managing existing fields for their entire lifetime, including by allowing tiebacks for those fields to ensure they remain viable. In advance of legislation, we have published further details on tiebacks, which external analysis has predicted could result in tens of millions more barrels of oil being available for UK supply. Our clean water Bill will help to build a resilient water system to supply businesses and attract investment, and I am grateful to the noble Baroness, Lady McIntosh of Pickering, for her support for the Bill and the Cunliffe review.
As the Chanceller set out in her Mais Lecture, we are also delivering on our manifesto commitment to transfer power out of Westminster by granting new revenue-raising powers to local leaders in the overnight visitor levy Bill, mentioned by the noble Lord, Lord Sharpe of Epsom.
The right reverend Prelate the Bishop of Newcastle spoke about the importance of connectivity. I agree, and we are improving connectivity to unlock growth. In our economy today, too many parts of Britain lack reliable transport connections and the agglomeration benefits that come with them. Northern Powerhouse Rail will help build a northern economy that reaches its full potential. The Northern Powerhouse Rail Bill, touched on by the noble Lord, Lord Burns, is an essential part of delivering this transformational scheme. It confirms the high-speed route from Manchester to Millington, providing fast and more frequent services for people and businesses across the north’s key economic centres.
We are also delivering on our commitment to support a third runway at Heathrow. Our hub airport connects us to emerging markets all over the world, opening up new opportunities for growth, but for decades Heathrow’s growth has been constrained. Our civil aviation Bill will support Heathrow expansion and that of the entire aviation sector by reforming airport slot allocation and modernising airspace to meet future needs.
Economic resilience in an uncertain world cannot be about turning inwards. Britain’s future prosperity will not be built in isolation but through partnership with those who share our interests and values. No partnership is more important than that between the UK and our European neighbours. Many noble Lords focused in their contributions on the EU partnership Bill, including the noble Baronesses, Lady Finn, Lady Bennett of Manor Castle, Lady McIntosh of Pickering and Lady Ludford, the right reverend Prelate the Bishop of Newcastle, the noble Lords, Lord Fox, Lord Lilley, Lord Redwood, Lord Frost, Lord Bridges of Headley, Lord Jackson of Peterborough, Lord Kirkhope of Harrogate, Lord Stoneham of Droxford, Lord Tyrie, Lord Moynihan of Chelsea and Lord Kempsell, and my noble friends Lord Liddle, Lady Bi, Lord Murphy of Torfaen and Lady Gill.
The noble Lord, Lord Frost, with apparently no irony, accused this Government of messing up negotiations. The truth is, Brexit has done deep and lasting damage to our economy. Recent independent statistics indicate that its GDP impact could be as much as 8%. The noble Lord, Lord Redwood, spoke about the OBR figures, which show clearly that, by the end of this Parliament, the British economy will be £100 billion smaller than it otherwise would have been, which the OBR continues to believe is happening. The reality is that Brexit has created new trade barriers, equivalent to a 13% increase in tariffs for manufacturing and a 21% increase in tariffs for services. Goods exports have fallen by 19%—some £42 billion—and 20,000 small businesses no longer export to the EU at all. It has meant higher costs for businesses, shrinking markets for UK exporters and our strategic industries exposed. It has damaged many other sectors, including the creative industries, as the noble Lord, Lord Strasburger, and the noble Baronesses, Lady Kramer and Lady Ludford, all reminded us.
My noble friend Lord Liddle and the noble Lord, Lord Kirkhope of Harrogate, said that we should be more ambitious and that we should move quickly. I agree. Just as the previous Government were defined by breaking Britain’s relationship with Europe, this Government should be defined by rebuilding our relationship with Europe. We are already making significant progress on agri-food, electricity, emissions trading and Erasmus—but there is a strategic imperative for deeper integration between the UK and the EU, and we must look towards a new and stable future relationship.
The noble Lord, Lord Fox, and my noble friend Lady O’Grady of Upper Holloway, asked about Made in Europe. We are of course engaging with the EU on this vital issue. I cannot say more than that at present.
In answer to the noble Baroness, Lady McIntosh of Pickering, we will pause further implementation of the BTOM while we negotiate new arrangements with the EU. Where it is in our national interest to align with EU regulation, we should be prepared to do so, including in further areas of the single market. That alignment should be forward-looking and durable, providing the certainty that businesses on both sides need to invest and grow.
The EU partnership Bill in this King’s Speech will enable us to implement our agreement with the EU on electricity, emissions trading, and food and drink, now and in the future. Where it is in our national interest to align with EU regulation, including in the single market, the Bill will enable us to do so.
Several noble Lords spoke about the customs union, including the noble Lord, Lord Fox, and the noble Baronesses, Lady Kramer and Lady Ludford. Some of my noble friends spoke about eventually rejoining the EU, including my noble friends Lady Bi and Lady Gill. At the next EU summit, we will set out a new direction for Britain, with significant moves forward on trade, the economy, defence and security, as well as an ambitious youth experience scheme, all of which will create a platform on which we can build as we go forward.
The prize is considerable: costs for doing business reduced for UK companies; new opportunities to export; new experiences for travel, work and study for our young people; a more reliable and efficient energy system across Europe; scale-ups gaining access to deeper pools of capital and talent; and greater choice for consumers, helping to bring down prices and inflation. Closer alignment with the European Union is clearly the right choice for Britain in our national interest.
The noble Baroness, Lady Finn, asked about parliamentary scrutiny. We are committed to being open and transparent in our engagement with Parliament regarding implementation of the summit outcomes and further negotiations to put into effect what the UK and EU have agreed, as well as throughout the passage of the Bill itself. Where we are making commitments to introduce new laws, Parliament will as always play its role in scrutinising the legislation that implements those commitments. We look forward to working with Parliament on the exact arrangements for scrutiny of the legislation as negotiations progress.
The noble Baroness, Lady Finn, also asked about fiscal contributions, which were also spoken about by my noble friend Lord Liddle and the noble Lord, Lord Kirkhope of Harrogate. We accept the principle that when the UK participates in an EU instrument, programme or other activity, we should make a fair financial contribution to its budget to cover the costs of our participation. Any UK financial contribution would be subject to negotiations with the EU, and no contributions have yet been made or agreed on. The Government are clear that agreements made with the EU must be in the national interest, and that although trade-offs will be required, these are worth making where the benefits to the UK exceed the costs.
My noble friend Lord Murphy of Torfaen spoke about the importance of the Bill to Northern Ireland, and I am of course very grateful to him for the work he did on his review of the Windsor Framework. The application of these agreements, alongside the Windsor Framework, will sweep away the majority of regulatory barriers for businesses moving agri-food goods. This will support GB to Northern Ireland and EU movements as well as boosting exports. Businesses moving goods into Northern Ireland will continue to be able to use the vital facilitations under the Windsor Framework for the limited number of requirements not covered by these agreements. Northern Ireland will also benefit from lower energy prices and assurances that there will be no divergent approach to emissions trading.
This Government have consistently made the responsible choices to bring stability to our economy and to raise economic growth through our economic plan. The spring forecast showed that this plan is the right one, with lower inflation and borrowing, higher living standards and a growing economy. As a result, Britain today is in a stronger position to withstand whatever uncertainty comes our way. We did not start the war in the Middle East and we did not join it, but it will have consequences for us all. That is why we have taken action to deal with the economic costs already being felt by families and businesses.
We must also build prosperity that is secure and resilient in a fast-changing world—this is the basis on which the pro-growth legislation set out in the gracious Speech is being delivered. This legislation will remove barriers to growth faced by businesses, build resilience to protect the critical infrastructure needed for growth, and improve connectivity and boost trade to unlock growth, including through a deeper economic partnership with the EU. Those are the right choices and this is the right economic plan to build a stronger and a more secure economy for our country’s future.