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.
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.
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.