Economic and Taxation Policies: Jobs, Growth and Prosperity

Baroness Neville-Rolfe Excerpts

Thursday 13th November 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I also start by thanking my noble friend Lord Elliott of Mickle Fell for initiating this debate so compellingly and I echo his tribute to Lord Desai.

I agree with so much of what he said about the importance of growth—dismal again today—the disastrous effect of high energy prices, the need to remove regulatory obstacles to employment and the devastating effect of high taxation on enterprise culture and competitiveness. As the noble Lord, Lord Liddle, said, it was a balanced speech. It was good to hear the latter’s support for welfare reform and for sorting out the nonsense of the day-one rights in the Employment Rights Bill. Let us hope that happens.

It is helpful to look at the broad picture first. Sometimes implicitly, the debate has touched on two linked economic hypotheses, both of them relevant to how we run the economy and the level of tax. The first, touched on by my noble friend Lord Massey of Hampstead and reflected in the request from my noble friend Lord Frost for reversal, is that there is a level of overall taxation, in terms of a percentage of GDP, beyond which extra tax becomes ever more injurious and disincentivising, hence economically undesirable. Economists note that the current level of taxation in the UK is very high by historic standards. Many conclude that the UK has reached the stage where this hypothesis is becoming increasingly true.

The second hypothesis, touched on by my noble friends Lord Petitgas and Lady Meyer, states that high levels of national debt, judged as a percentage of GDP, is a bad thing. Unfortunately, UK debt now stands at around 100% of GDP—a very high level for peacetime. It holds that the responsible thing for the Government to do, when faced with high levels of debt, is to reduce it, not least since high levels of debt reduce the effectiveness of responses to outside shocks such as Covid.

Under this Government, we have a very high level of national debt and taxation, both of which ought to be decreased, but on present plans will increase. The only way to square this circle is to reduce national expenditure. Yet, as my noble friends Lady Stedman-Scott and Lord Young of Cookham have said, the Government’s own review of PIP is looking at no savings at all. We need welfare reform and, indeed, a single-minded determination to get expenditure down, in the words of my noble friend Lord Horam, who recalled a former Conservative Prime Minister. My noble friend Lord Harper said raising income tax to pay for welfare was not a wise way forward.

If they were responsible, the Government would be planning to reduce expenditure to improve the fiscal position. But, alas, all the signs are that this is as likely as finding a man on the moon. Britain is living beyond its means, locked in a doom loop of high spend, high debt and high taxes.

There were some interesting new thoughts in the debate. My noble friend Lord Howard of Lympne emphasised the importance of microeconomics and the the fascinating lessons of his firm Direct Special Measures in improving our jobcentres. My noble friend Lord Howell of Guildford talked about how Germany has been dealing with the fiscal challenges. It was also a pleasure to hear again the creative thinking of my noble friend Lord Saatchi and to hear from my noble friend Lord Kempsell, who noted that no one in the Cabinet has run a business, as of course many people in this House have done.

I turn to taxation, so eloquently addressed by one such person, the noble Baroness, Lady Noakes. According to the international index published last month by the Tax Foundation, the UK now ranks 32nd out of 38 OECD countries for tax competitiveness. In the G7 it is ahead of only Italy and France. This is not a good place to be. As another former businesswoman, I can confirm from experience that high rates of corporation tax affect investment decisions and that investors go where such taxes are low—just look at Ireland’s success.

The Government are keen to paint a picture in which the state of the economy is everyone else’s fault, but business leaders and the public know that the situation we are in is substantially a consequence of the Government’s own decisions. They started by claiming that growth was their overriding priority, which I supported, but quickly lost credibility with last year’s Budget decisions, notably on NICs, IHT—we heard from the noble Baroness, Lady Foster, about its devasting effect on rural communities—and, of course, the Employment Rights Bill.

It is obvious that, if professionals and innovators see a large share of each additional pound going to the tax man, their incentive to expand businesses or move to Britain diminishes. We can look at international examples as a cautionary tale. France’s experiment with a tax on top earners a decade ago led to an exodus of talent and embarrassment for the Government. We have ourselves seen a huge exit of the wealthy since the election. As the noble Lord, Lord Petitgas, said, some of those leaving are younger people, including members of my own family.

We need to find a way to reverse the incentives to move to Dubai, Singapore, the US or Gibraltar—which we heard about from the noble Lord, Lord Wharton. However, these Benches all agree that taxes on exit would be a disaster and lead to further problems.

In addition to the fiscal damage done to our economy, it is clear from the debate that the regulatory changes being introduced in the form of legislation, such as the Employment Rights Bill, are set to harm working people even further and discourage hiring. The Government themselves estimate that the Bill alone would add almost £5billion a year in costs to businesses, killing growth in the SME sector, which bears the highest burden, as my noble friend Lord Leigh said. The noble Baroness, Lady Kramer, is also very sound on this point about SMEs and we very much agree that it is a vital consideration. Many, including my noble friend Lady Fall, spoke about the problems in the labour market and the recent rise in the unemployment rate to 5%. His Majesty’s Opposition are clear that the Employment Rights Bill should be rewritten.

Unfortunately, this comes on top of other increases such as in business rates and in NICs—£25 billion— new environmental charges of various kinds, large increases in the national living wage at the same time, and energy costs, as my noble friend Lord Elliott emphasised, which are four times as high as they are in US and seven times as high as China’s. My noble friend Lord Trenchard talked of the impact of this growing pattern of regulation on investors such as Japan, and my noble friend Lord Risby made a compelling case for the devastating effect on SMEs, on which I have already touched.

We on this side of the House are clear that economic prosperity comes from productivity and growth, not from ever-higher taxes. Increased productivity is the foundation of raising wages and living standards. My noble friend Lord Elliott’s excellent book is worth reading for the number of policies that he sets out.

Another problem we have with productivity is the sheer size of the Civil Service, which is less productive than the private sector, employing 384,000 before the pandemic and 516,000 today.

The shadow Chancellor set out a menu of £47 billion in savings last month, without hitting most of the capital investment that the Minister so often cites, That includes the SMRs in north Wales that were announced today, which I also welcome. Mel Stride’s menu is the path to faster growth and higher productivity.

My noble friend Lord Bridges rightly registered our disappointment that the promise in the Chancellor’s Mais Lecture of a “fundamental course correction” for the British economy has not been delivered and said that the Chancellor has lost control of spending. To respond to the noble Lord, Lord Eatwell, we are clear that fiscal responsibility means honesty, consistency and transparency, but we have had none of this from the Chancellor.

I look forward to the Minister’s answers to some of these challenging questions, but the evidence is clear: since the election of July 2024, the trajectory of economic policy has tilted towards higher taxes and greater regulatory burdens, and it is clear that we are going to have more of both. This path is fraught with dangers for jobs, growth and prosperity in Britain. The record-high tax burden is squeezing businesses and households and risking a downturn in economic activity. A Budget that prioritises growth and productivity and reduces regulation would set Britain back on the path to rising incomes and expanding opportunity. That is what is needed.