Economic Growth

Motion to Take Note

12:42:00

Moved by

That this House takes note of the conditions required for economic growth.

My Lords, I thank all noble Lords who have made time to prepare for and contribute to this important debate on taking note of the conditions required for economic growth. I pray that it will be helpful, constructive and stimulating, as we hold the Government to account for their major election pledge to bring about growth, presently at which they are struggling. I will focus today on mood, spirit, culture and the social underpinnings of market economies, often neglected subjects in growth discussions. On 29 July, the Chancellor first said the new Government had “inherited a projected overspend of £22 billion”,—[Official Report, Commons, 29/7/24; col. 1033.] or a black hole, and so began the gloomfest, with warnings of a very difficult Budget and, probably unintentionally, the destructive talkdown of the economy. The cloud of employment rights soon appeared on the horizon, with much employer scratching of heads as to how these 28 reforms were going to deliver growth, given concerns, for example, that day-one rights could mean that they were stuck with an unsuitable hire. Last quarter’s rise in unemployment is being blamed on the Budget’s further disincentives to hire with higher employer national insurance contributions and minimum wage levels producing an accelerator effect of pessimism. Business confidence is now at a very low ebb. One entrepreneurial farmer I was talking to recently, who has businessmen friends who were full of plans for new enterprises and the expansion of existing ones, said they had all cancelled these plans since the Budget and are hunkering down to survive. Lifting the gloom is essential for growth. There needs to be reward for risk-taking and succour for the entrepreneurial spirit being deadened by an emphasis on rights. Responsibilities need to come back into fashion. We need a JFK moment: ask not what your company can do for you—ask what you can do for your company. Many employers shoulder significant risk. Their decisions make the difference between someone’s job being there or not, and they live daily with existential threats facing firms they have built up with their own money and effort. Employment rights are obviously important, but employees also have responsibilities towards their employers, which should be pursued out of self-interest, if for no other reason. Securing rights, for example, to work from home or in a hybrid pattern should not be in the teeth of good business reasons for office-based staff to be working together in the office. In 1789, Pierre Victor Malouet warned France’s Estates-General: “Take care when you tell man his rights. For you will transport him to the summit of a high mountain—from where you will show him an empire without limits”. Rights are voracious. JFK also said: “One person can make a difference, and everyone should try”. Call me nostalgic, but people used to work hard because of the need and inner drive to support their families. Arguably, they are now encouraged to vote for the party, no matter where on the political spectrum, that will do the best job of looking after their family for them. Of course the state has a role, but it should not smother or quench that provider instinct. I welcome this Government’s efforts to stoke, not stifle, the spirit of adventure by shaking up environmental regulators and the Competition and Markets Authority. Many potential wealth-creators are snarled up in the sticky web of regulation for no reward and often at much cost. Even trying to open a bank account takes far too long. Regulation can sabotage the good intentions of policy. Of course we need a rules-based system, but when it becomes sclerotic and pathologised, it simply breeds despair. My first City boss was always questioning whether one had the spirit of adventure. He was not counselling recklessness: risk needs to be analysed, and the risk-reward ratio needs to be calculated. The British Volksgeist, or national spirit, currently pervaded by gloom, needs to be freed from stultifying processes and reborn as a spirit of adventure. Alongside that, the world of ideas needs to be freed from the dictatorship of orthodoxy. A high percentage of the British elite inhabit a unipolar world where only one sort of ideas is considered—for example, on the issue of equality, diversity and inclusion. Many in the British public are desperate for change. They are flirting with the idea of Farage and intrigued by the dominance of the disruptors in the United States, yet most mainstream news outlets recycle disdain for Trump and Musk and ignore the energy their ideas are pumping into the American Volksgeist. Americans have rediscovered that the buoyant animal spirits that need unleashing flourish in freedom. Stimulating wealth creation requires encouraging people to take risks and act on out-of-the-box ideas. In this country, the hero is not the risk-taker but the reasonable man. George Bernard Shaw said: “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man”. We will not see progress in this country when blandness is the ideal. Trailering the second Conservative debate later today, we are seeing it in the withdrawal of education options, by making the national curriculum compulsory across academies and forcing independent schools to close. However, the liberation of market forces does not necessarily produce unending economic growth. A sustainably flourishing economy requires a stable social base. Towards the end of her time in office, Margaret Thatcher recognised that she needed to turn to social renewal after a decade-long focus on unleashing the markets and economic reform. The destruction of old industries had a devastating effect on the social fabric of the country, and family breakdown picked up speed on its already upward trend. The noble Lord, Lord King of Lothbury, the former Governor of the Bank of England, is adamant that stable families are the building blocks of a productive society, and ignoring that truth sowed seeds of destruction for future growth. Indeed, Tony Blair said in 1996 that a strong society “cannot be morally neutral about the family”, but now almost half of all children do not grow up with both parents. Hyper-liberal individualism runs alongside purist free-market philosophy; hence many who espouse the latter are libertarian in their outlook. Yet, when social liberalism partners with economic liberalism, the inherent contradiction eventually brings the engine of growth to a shuddering halt. The social underpinnings of markets have been gnawed away. A real-world example is that coping with relationship breakdown made my employees less productive at work. I once suggested to the Treasury that it should investigate the correlation between our low position on OECD league tables for both productivity and family stability and try to cost the loss of productivity that family breakdown brings. The Treasury spad that I spoke to was horrified at the prospect because, in his words, the cost would be far too high. In other words, the link with stable family life, with all its benefits to individuals and society, is well known but ignored by politicians running from an unpopular message. Yet family instability undermines us economically in myriad ways. Adults who experience family breakdown as children are significantly more likely to have debt problems or to be on benefits. They are almost twice as likely to underachieve at school, experience mental issues such as alcoholism, be in trouble with the police or spend time in prison. One-quarter of prisoners have spent time in local authority care, and three-quarters of men in prison had an absent father. Future prosperity is sacrificed to liberal individualism. Moreover, economic liberals’ demands for lower taxes and a smaller state will be forever thwarted when the demands on the public purse are so great, and that has much to do with the degradation of social and, particularly, family bonds. Family hubs are vital to remedying that. There are now around 950 family hubs in over 130 English local authorities, working closely with hundreds of children’s centres, building on the work of previous Labour and Conservative Governments. I declare my interest as a guarantor of FHN Holding, the not-for-profit owner of Family Hubs Network Ltd, in asking the Minister whether his Government will keep investing in family hubs in the spending review. More broadly, David Halpern and Andy Haldane’s Social Capital 2025 says that strengthening wider networks and trust dramatically improves countries’ economic fortunes. In their words: “The social bonds that tie us are the hidden wealth of nations”. Strong social trust allows doing a deal on a handshake instead of through lawyers, sharply lowering transaction costs. A 10% increase in social trust increases relative economic productivity by 1.3% to 1.5%. Social trust requires greater trust in our politics and requires politicians to tell the truth and be straight with the electorate. The leader of the Conservative Party recently admitted the futility of virtue-signalling announcements such as, “We will get to net zero by 2050”, without a credible plan. Labour has form here too. Building 1.5 million homes was hard enough when we did not have the manpower and other resources, and then the minimum wage and national insurance went up. When the Chancellor said her Budget did not increase tax on working people that was true only in a casuistic sense, and voters are sick of casuistry. Politicians should not underestimate the value of honesty. Facing up to things engenders respect. The public see through the deceit of talking down the economy when it was on the way up and misrepresenting Conservative spending plans. They simply say, “A plague on both your houses”. Having been involved in markets for half a century, I have found money to be particularly honest. It is either there or it is not; you are either broke or you are not. In contrast, an ideology that says that net zero requires closing North Sea oilfields down will simply not work in the timeframes being driven through, not to mention that the solar panels we will rely on being made with Chinese slave labour. Wealth creation is vital to support and lift those who need Churchill’s safety net of the welfare state, but many become entangled in that net if they are mentally or physically unwell. So, just as in the wider welfare population prior to universal credit, we need to cut welfare but, more than that, we also need to de-risk coming off welfare, especially where people are languishing on sickness benefits. We also need to reduce the state by reducing the Civil Service. Productivity has gone up in the private sector but not the public sector, where the existential threat that many private sector companies face daily is non-existent. To sum up my main points, poor growth has cultural as well as economic drivers. Will the Minister inform the House how the Government will banish gloom and blandness and encourage that spirit of adventure? How is he going to pep us all up? How will the Government emphasise responsibilities, not just rights, and rebuild a stable social fabric based on families and communities, where people provide, care for and trust each other? Will they admit that there is a pressing need for big ideas and people who think outside of the box? However uncomfortable they make us feel, we need disruptors who can discredit and destroy the dictatorship of orthodoxy. I beg to move.

12:56:00

My Lords, in principle, the growth problem is straightforward: invest in the quality of labour via education and training, and in the quality of capital via research and development and innovation. On the one hand, the state is the main investor in education and skills and plays a crucial role in providing efficient infrastructure and much of the budget for fundamental research. The funding of research is particularly important because the state is able to invest in areas that only yield an uncertain return in the long term. Consider, for example, the fact that all relevant innovations embodied in the iPhone were developed in public sector institutions. It was the genius, then, of Steve Jobs to put them all together. On the other hand, business investment requires incentives and means. The incentive is clear: the expectation that the investment will be profitable. That depends on the prospective demand for the goods and services that the investment is designed to produce. It does not matter if interest rates and taxes are low or even zero; if you cannot sell the product due to a lack of demand then investment is a waste of money, so the maintenance of a high level of effective demand is the vital precondition for the stimulation of competitive investment. Even if demand is there, though, the means are required—namely, the finance. Much investment is financed by retained profits, but truly innovative investment—the investment that changes the world—requires the medium-term to long-term support of financial institutions. That is where Britain fails. Our major financial institutions define the concept of investment peculiarly: they claim they are investing billions in Britain, but what they mean is that they spend billions in the purchase of financial assets in secondary markets. They do not finance the creation of new, real, productive investment—investment in national accounting terms. It used to be argued that liquid secondary markets were a necessary complement to primary investment, but the relationship is declining, with an increasing proportion of investment being funded through private vehicles. There are exceptions to the non-real investment and non-growth stance of UK finance. Some of the larger institutions have small real investment divisions. However, investment is usually confined to fintech. There are some specialist small and medium-sized banks that spread their investment outside fintech into other growth areas, often with a real estate content. Some private equity firms promote organic growth in their target companies, and venture capital trusts are a valuable source of SME funding. Unfortunately, however, it is clear from the overall lack of second-stage SME funding in the UK that these exceptions do not add up to the scale required to transform the growth prospects of the economy. For example, the entire assets of the venture capital trust sector amount to around £6.2 billion. This compares to the £1.5 trillion size of Barclays’ balance sheet alone; that is 250 times greater than the entire venture capital sector. This suggests that we cannot simply look to the financial services industry as it is currently structured to do more. More of the same will simply not be good enough. The structure of financial services must be changed. The new National Wealth Fund will contribute to that change, but for scale we need the private sector, so carrots and sticks are required. On the carrot side, there are already significant tax advantages associated with innovative investment, but these do not achieve what is necessary. The reform of pension funds will be very important. The US pension reform in 1978, which enabled investment in alternatives, gave rise to the professional venture capital industry in that country. It is striking how many successful UK SMEs raise their secondary funding in the United States—another indicator of the failure of UK financial services. How about the stick? Well, how about requiring appropriate financial institutions of over a certain balance sheet size to devote a given proportion of their assets to real investment, either directly or indirectly via funding organisations such as venture capital funds? We must also find a way of weaning the banks off algorithm-driven lending and get back to old-fashioned relationship banking. For how that is done, see Handelsbanken: the point being that real investors need a close advisory relationship with their funders, where advice flows in both directions. It is a remarkable paradox that our wonderfully successful financial services industry is one of the main reasons for our growth failure. But until fundamental reform, by carrot and stick, induces greater flows of finance into real investment, that sad paradox will remain.

13:02:00

My Lords, I thank the noble Lord, Lord Farmer, for instigating this important debate. I want to offer some practical solutions, with three different hats on. The first hat that I wear is as an adviser to the digital centre of government. This week, we announced some big changes in how public services will be delivered in the next wave of what GOV.UK will look like. I mention it because one enormously important plank of this work is the opportunity to change the procurement processes in government—particularly in relation to the digital sector, but this applies across the whole of government. I believe deeply that if the Government were to take a more creative, innovative and urgent view of the procurement process, we could achieve an extremely interesting level of growth, particularly for our own industries that sometimes lose out to bigger US commercial sectors. Can the Minister please reflect on the procurement issues as he sees them? I know that Minister Gould has been working on these issues effectively as well. My second hat is that of the president of the British Chambers of Commerce. Noble Lords will be aware that the chambers of commerce do quarterly reviews and that at the minute, those are pretty bleak, but in a spirit of collaboration with the Government, I note that the noble Lord, Lord Livermore, has met my colleagues at the British Chambers of Commerce. We have a long list of infrastructure projects that just need urgent decision-making today. They range from Sizewell C, which has not yet been given the official go-ahead—although I hear that that announcement might come very soon—through to the electrification of various railway lines and planning for offshore wind. It is not acceptable that projects that will enormously increase wealth, jobs and opportunities in local communities and economies are sitting for so long in planning decision inboxes. Has the Minister had time to reflect on that British Chambers of Commerce infrastructure list and might he be able to keep kicking the relevant departments? This is such an easy win for the country right now. I will finish by talking about my final hat, which is perhaps the more unusual of the hats I wear. It is as co-founder of Lucky Voice, my karaoke chain of businesses, which I am sure many noble Lords have indulged in. It is a small and medium-sized business. We have venues around the UK and a couple overseas. It came from my idea that the Japanese have too much fun singing in private rooms by themselves and that we should be able to do it here in the UK. It is a hospitality business and not very big. It is run by a young colleague, who was elevated from where he joined to now running the business. I own it—full disclosure—but it is having a super tough time; no surprises there. I have been reflecting a lot on how I can best help that business. It is definitely not by trying to help at an operational level; that is normally when I cause total mayhem. The thing that I come back to continually with the CEO is the intensity of the media headlines around our economy right now, which the noble Lord, Lord Farmer, reflected on in some of his comments. I do not want to get into a political debate about the justification for those headlines, but I think all of us would probably accept that we are in a dark place in terms of reporting on what is happening and the plans that are coming up over the next few months. Can the Government reflect on how, in the absence as yet of the industrial strategy, they will fill that void, because it really matters? Every single day matters right now. I have seen that from the British Chambers of Commerce and our member businesses. I also see it every day at Lucky Voice. Consumer confidence is not there and when we ask our customers whether they have a difference in their finances, very often they do not. They are just scared about what this year might bring and do not want to go out and spend cash. I know that engaging in a media war is probably not top of the Minister’s agenda, but I urge him to think carefully about how we can fill the void, particularly in the absence of the forthcoming industrial strategy. Can I also, as a not very successful entrepreneur, urge on him that urgency really matters? Being seen to be urgent across the different spheres that I have tried to highlight would really make a difference.

13:06:00

My Lords, I too thank the noble Lord, Lord Farmer, for bringing this debate to the Chamber. I believe that this debate is fundamentally about determining the correct policy sequence to achieve economic growth. Do we wait for stability in government finances, even if that means raising taxes and deterring investment today, with the view that investors will return once the economy is stabilised, or should the Government prioritise protecting investors in the belief that their investment capital propels growth and in turn increases government tax-take to fund public goods? There is always a risk that a concept such as economic growth gets used so much that it becomes detached from its core elements and the inputs that drive it. As a reminder, it is worth looking at the United Kingdom’s prospects through the prism of the three classical inputs for economic growth: capital, labour, and productivity. First, in terms of capital—in essence, how much money you have—Britain’s debt and deficits are well known to be distressed on a historic basis. Britain’s public debt-to-GDP ratio is forecast to breach 100% this year. Together with a constrained fiscus, these will be headwinds for growth. The second is labour, which pertains to the quantity and quality of the workforce. On quantity, we know that 9.3 million people between the ages of 16 and 64 were economically inactive as of the end of 2024. On quality, the latest OECD PISA assessment in 2022 shows that the United Kingdom’s scores for reading, mathematics and science all fell from those in 2018. Worse still, science scores have fallen in three consecutive PISA reports. The third is productivity, which explains roughly 60% of why one country grows and another does not. In the third quarter of 2024, UK productivity was estimated to have fallen by 1.8% versus the prior year, and the story of UK productivity is that it has grown by only 1.3% since pre-pandemic levels. It is my sense that we are tilted too much towards stability today, taking a risky gamble that could lead to too little investment tomorrow. The Office for Budget Responsibility raised cautions of a disturbing future that awaits the United Kingdom by 2050. In its baseline projections, public spending will rise from 45% to over 60% of GDP, while revenues remain at around 40% of GDP. Debt will rise to 270% of GDP. All the while, the Government remain vulnerable to shocks, including: an ageing population with rising healthcare and retirement needs; a falling birth rate; climate change, with threats from more extreme weather, and ever rising geopolitical tensions which will demand greater defence spending. Without investors and their investment, the picture I paint here will be materially worse. On a more granular level, it is good news that the Government included a £3.5 billion investment in the technology sector in their Budget, with £1 billion dedicated to advancing supercomputing and AI technologies. A bigger and stronger venture capital environment, from which the realised dividends would be considerable, is crucial for this long-term growth story. Take the United States as an example. According to a Goldman Sachs report, the big six technology firms, all with roots in venture capital, added roughly $5.3 trillion of market value in 2024. This amount is larger than the current nominal GDP of every single country in the world, except the United States and China. Venture capital has significantly influenced the US economy, with some estimates saying that 43% of all public companies since 1979 were venture backed, accounting for 57% of total market value and 38% of employees. We can drive this sort of dynamism and success here in the UK too by forging, nurturing and creating a culture of risk capital, where, beyond the traditional banking system, entrepreneurs can raise millions in seed capital to do something that has only a low chance of working but where investors bet that the expected value of the investment is still positive. I see no reason why the Government should not, through serious regulatory subsidies and tax incentives, spark the British risk appetite in the same way that the US Government help to ignite Silicon Valley.

13:12:00

My Lords, I am pleased to speak in this debate, and I thank my noble friend Lord Farmer for securing it. I refer to my interests in the register. Today, we have a Government who wish to spend other people’s money to advance social justice and deal with a range of issues that they believe are important. Indeed, many of them are, but, unfortunately, with a tax rate at a 70-year high, we have now run out of other people’s money. Looking at borrowing, we are at a 64-year high relative to GDP. We are now paying more on our 10-year gilts than most other developed countries, so there is no more money there either. That leaves growth: the magical elixir the Government hope will provide all the answers. They are completely right to focus on this, as our wealth per capita has been declining since 2010. It has been masked by surging population growth, largely through immigration, but the brutal truth is that the slices of economic pie available to individual British citizens are shrinking. In December, the Office for National Statistics confirmed that living standards in the UK are falling, as measured by the all-important metric of GDP per capita. Its verdict was that: “Real GDP per head is estimated to have fallen by 0.2% in Quarter 3— that is July to September last year— “compared with the same quarter a year ago”. Even if that GDP figure is flatlining, as long as the population is increasing, which it has been at 0.75% per year, that means GDP per capita will continue to fall. The increase in GDP needs to be outstripping the growth of the population for living standards to be rising again. So far, we have seen very little evidence of a growth plan, other than warm words. Even Professor Ben Ansell, a significant economist, last week described the Government’s growth policy as contradictory and “empty-minded”. It is easy in opposition to throw rocks and complain; I would like to offer one small route that is largely in the Government’s gift and would cost very little money. One of my registered interests is as chairman of the Trade Facilitation Commission. It arises from my time as the Brexit border readiness Minister. I have met some extraordinarily talented people who know the business of trade inside out. Many are now on the commission. By a long chalk, I am the least qualified. It is non-political and seeks to advance prosperity. We published a report in October last year, which is available at www.facilitation.trade, showing the path to economic growth through trade facilitation. It is important to stress that this is not a dogma driven call for things that a Government cannot deliver; it is about the plumbing that facilitates trade flows. To many this is extremely boring and to many more it is simply incomprehensible. But this document, written for the benefit of this Government, shows a path. It needs only some will and co-ordination to achieve it. The potential is huge. It has been estimated—and not by us—that, if improvements in trade flows were implemented, it would increase GDP per family in the UK by £3,500. If the UK improves its trade facilitation process to the level of the best global performer, we could be adding as much as £40 billion into the UK economy. Here are four things the government can and should do. First, they should appoint a Minister for Trade instead of the current illogical idea of a Cabinet Office Minister for EU trade and mishmash of Foreign Office, Department for Business and Trade and Home Office Ministers, who are all not co-ordinated. Secondly, instead of talking about dynamic alignment to a fundamentally anti-competitive EU regulatory system, they should embrace unilateral recognition of EU standards. We have already done this for medicines, where we recognise EU, US and Japan for drug approvals. Dynamic alignment is sophistry; all it means is subjugation to rules that we have no control over. However, it is even worse than that because it will almost certainly put us into conflict with any US trade deal and our newly signed trade deal with the CPTPP. Both of these trade blocs are growing far faster than the EU. Thirdly, we should encourage and expand trusted trader schemes. These preapprovals provide reduced border delays and cost friction. They enhance security and compliance, and they enhance access to mutual trade recognition agreements. Finally, they should look at the use of digital trade corridors. These reduce the cost, duplication and harmonise data requirements. They enhance data security and improve visibility and connectivity. But in the last few weeks the Government have abandoned their plan for a single trade window. Why has that happened and what are the plans instead? I would urge the Minister and his colleagues to review this report and meet some of the authors. That is not a pitch for myself to be included; all are better qualified than me. If you care about economic growth in this country, please listen to them.

13:17:00

My Lords, before looking at what we have to do to get growth back, perhaps we should consider where we are and why we are here—not just in this country but across the West. We are in a very difficult position. As has already been noted by the noble Lord, Lord Agnew, GDP is falling. GDP per head, which is the only thing that matters, has begun to fall again. It is at the same level that it was in 2019. It is no wonder that people in this country do not feel better off; they are not better off. This is not just in this country; it is common across the West. If you compare the pre-financial crash growth figures to the post-financial crash figures, only America and Australia have maintained even half their growth rates. Most of the Europeans are down 20% or 25% on their previous levels. Famously, Tolstoy wrote in the beginning of Anna Karenina: “All happy families are alike; each unhappy family is unhappy in its own way”. The same is true of most western economies; we all face different sets of problems. The specifics are different, but I do think we are all facing a variant of the same very deep-seated set of problems that we have to be honest about and grapple with. First, the end of the Cold War—I think we have to go back that far—removed the pressure to remain productive and constantly demonstrate superiority of the western free-market model, and we got complacent. Secondly, what happened is what always happens when there is no counter pressure: collectivism. Intellectually bad ideas started to set in and go down the path of least resistance. Thirdly, we saw economic policy follow that intellectual trend, with an expansion of government, more regulation and more state intervention. All that inevitably led to worse economic outcomes, more social conflict and a political environment that got worse. In the end, political choice accommodated itself to this environment. Most western electors faced the choice between two different versions of international progressivism and social liberalism—one supposedly on the right, involving international economic institutions, trade liberalisation and international business, and one conventionally on the left, involving redistribution and a lot of “woke” politics. Neither aspired to change the fundamentals; both involved high levels of migration, weakening social bonds and the nation state still further. This system now has its own internal dynamism, and it looks very difficult to break out of it. The result is what we are seeing—the collapse in growth and zero-sum conditions. The economy is ceasing to grow, we cannot afford things that we have got used to having, social conflict is growing and crisis is near. Doing more of the same is not going to help—it will just make things worse. We have to face this reality and we need to do two very difficult things. First, we must make a huge attempt, much bigger than anything that is being contemplated at the moment, to reverse the trend of economic collectivisation and regulation from the past 30 years. There needs to be a determined attempt to end deficit financing; shrink state and taxation; recreate incentives; reverse the net-zero policy and produce cheap and more abundant energy; remove the vast corpuses of legislative regulation that dominate economic activity; intensify competition in the economy; sort out public services; conduct painful reductions in welfare transfer programmes; and look at investment in infrastructure, housing and so on, in many places. However, it is not only this. As my noble friend Lord Farmer has set out, we need to look at the social environment too. We need to make a major effort to repair the sinews of social fragmentation, to reconnect and rebuild politics by consent. If we cannot do this, we will never get the consent for the economic changes that are necessary. Here we are going with the flow of electorates; there is a greater emphasis on culture, the nation and social conservatism. We need to go with that, which means cutting migration, controlling borders, getting an effective Government, getting out of the web of binding international agreements, killing off wokeness, getting serious about defence and thinking of investing in the family much more. We need to do both those things, which requires making a series of correct choices, many of which are going to be unpopular—but it still has to be done. I finish by quoting the great man Sir John Hoskyns, who was behind the Stepping Stones report in the late 1970s. He said: “It is not enough to settle for policies which cannot save us, on the grounds that they are the only ones which are politically possible or administratively convenient”. We have to do better than that. The British people want better than that—they know something is going wrong—and it is for us, the politicians, to provide it.

13:23:00

My Lords, I shall not speak about the economy, because I am not an economist, but I have always believed that the economy should be the servant of society. The trick is to allocate scarce resources to opportunities, with the objective of maximising social benefit. Even I recognise that excess demand for finite resources will just create inflation. What are the opportunities that I am talking about? They are immense, starting with net zero. Then there is housing, with the target of 1.5 million houses; housing problems are at the centre of many of our social problems. There is domestic energy, heat pumps, insulation, transport, roads, rail, airports and health infrastructure to counter the crumbling infrastructure in the health service and other services, including water. To achieve things, you need material, machinery and workers. Who are the workers that we need? They fall into two groups. The first group are roughly called “graduates”, who in general create intellectual property. The other group of workers, much more numerous, are the skilled manual workers who actually create the property. I believe from what I read that there is a crisis in the creation of a cohort of skilled manual workers. Where does it come from and what can be done about it? We start with schools. For decades, we have said that success at school means that you go to university and get a degree. We do not recognise the value of the skilled manual worker; we have to change the culture so that they are held in similar regard to the workers in intellectual property. Further education has been chronically underfunded over several decades; it needs to be properly funded and integrated into the whole issue of creating this new cohort of skilled manual workers. On industrial training, clearly the vehicle here is apprentices, but apprenticeships need to be much more finely tuned to what the real needs are and encouraged in any way we can way we can to improve the general training of workers. We are not just talking about initial training: we are talking about whole-life training, which is so powerful in a changing environment and for the dignity of workers. Finally, the role of Her Majesty’s Government—sorry, that was old speak, I mean His Majesty’s Government—is to make things happen. Does the Minister agree with this analysis? Who in government owns the problem? All too often, problems are created by the structure of government. Who owns the problem of creating this skilled manual workforce and what are His Majesty’s Government going to do about it?

13:26:00

My Lords, financial and professional services contribute 12% of total UK economic output and employ more than 2.4 million people, two-thirds of whom are outside London. The sector pays more tax than any other sector and is the UK’s biggest net exporting industry, and therefore a significant contributor to economic growth. I therefore welcome the fact that both financial and professional services are included in the Government’s industrial strategy—and I also welcome my former CityUK colleague Emma Reynolds MP to her new role as Economic Secretary to the Treasury. I trust that her experience at TheCityUK will be invaluable in moving forward some of these ideas to implementation. The City, especially in the wholesale financial markets, has always been an early adopter of technology. In its quest for improved productivity and increased competitiveness, it has always invested in technology and striven for growth. It is in its DNA. I am therefore immensely proud of the work that the UK-based financial sector has done of late to try to help successive Governments to identify barriers to economic growth, whether that has been in the work of the IRSG, which I used to chair, or its parent entities, the City of London Corporation or TheCityUK, or indeed the many trade bodies, such as UK Finance, ABI, the IA or GDF—there are too many to mention today. They are all working tirelessly to help HMT and the financial regulators, via numerous task forces and working groups, to identify the best way forwards to unlock growth. The financial regulators, the FCA, the PRA, the Bank of England and others, have been actively involved in this stakeholder endeavour for the past four to five years, including via various sector reviews, such as the Hill, Austin and Kalifa reviews, and indeed a lot of task forces. I commend that collaboration. I will highlight a few of those initiatives that could yield results if we implement quickly. The work of the Capital Markets Industry Taskforce, led by Dame Julia Hoggett, and numerous other groups, contributes to ongoing UK pension reform. However, waiting until all our pension funds consolidate will take years. Although necessary, we need to find ways now to incentivise domestic capital to invest in UK equity and opportunities, including via pension tax credits, where firms are perhaps rewarded for participating in UK risk assets, whether they are listed, quoted, private or critical infrastructure, and then we taper the pension tax credit, for example, if they are not. That could also extend to initiatives for the retail market, where we need to incentivise some of those savers to become investors. Reducing the cash ISA allowance in favour of an investment ISA could be a valuable tool to incentivise this shift. According to the Centre for Policy Studies, the UK has around £1.8 trillion sitting in idle savings accounts. The UK needs scale-up capital. Small businesses represent 99% of our UK business population. The Government therefore need to continue to support—if not better support—investors in start-up capital. We need to put that saving capital to work as investment. Allowing retail investors to participate in IPOs is another way in which we might be able to facilitate some of these initiatives. Investors, including retail, need easy access to investment in growth companies. Some disruptor firms, such as Aquis Exchange, are making headway, but as its chief executive, Alasdair Haynes, has said, there needs to be an acceleration of progress. Why is UK equity investment still subject to stamp duty? It makes it more expensive for our pension funds and retail investors to invest in the UK rather than in global markets. Surely this could be a quick win. I turn to the digitisation of capital markets and draw noble Lords’ attention to a phenomenal report that was published just this morning by TheCityUK and Hogan Lovells. It gives a blueprint and timeline for actions which, if taken up by His Majesty’s Government, could ensure that the UK’s position as a global financial centre remains and expands in the digitised world of future capital markets. This is about not just growing our economy but preserving our dominant position in global trading and financial markets. Any inaction or further delay will weaken our economy. The reality is that speed, rather than perfection, is now of the essence. We need our framework for crypto assets, and digital assets generally, to be published immediately and implemented quickly. We really do need to assist our regulators in accelerating things, especially given the change of Administration in the US. Calibrated risk-taking can yield sustainable economic growth from this sector.

13:32:00

My Lords, I welcome this debate and add my voice to those thanking my noble friend Lord Farmer for securing it. Much has been said about the historical reasons why growth in the United Kingdom remains subdued and why, under the current Government, the future is looking increasingly bleak. The modest predictions for economic growth in 2025 should not be confused as an indicator that all is well. Following the Autumn Budget, there has been nothing but stress and gloom for British business. The Government have created an environment in which ambition will be punished and innovation stifled. Come April, the increased national insurance contributions will hit SMEs the hardest and will have a devastating effect on the many small businesses which the Government should never forget are the backbone of the economy. This devastating policy, combined with the decision to increase the national living wage and to cut business rate relief, has delivered nothing more than the stagnation of our economy and an immense decline in business confidence—a decline that has been very much talked up by the Government. These are hardly the conditions for sustainable, let alone progressive, economic growth. It has been widely reported this week that, since this Government came to power, one millionaire quits the UK every 45 minutes. That is an increase of nearly 160% in just six months. According to the Times this morning, it appears that the Government have realised the self-harm that has been done to non-dom status and will be looking at an amendment to the Finance Bill. I fully accept that my party has also been instrumental in the damaging of the non-dom regime that has taken place. However, I fear that the combination has already had a devastating effect. Unless the Government change course to stem the mass exodus of wealth and reset the confidence of business, we will continue to see a decline in the UK’s prospect for growth. At this point, I must make the very obvious point that capital, innovation and people are all very portable. People will move around the world as the need arises and will go where they get the best breaks and see the best opportunities. At the moment, we are not holding out the prospect of being a good opportunity for them. I fear that, following the Budget, the Government are not hearing the concerns raised by SMEs, which warn that they about to be crushed under the weight of taxation and compliance demands, which, let us not forget, are also increasing. Prior to the Budget, the Growth Commission made various recommendations to the Chancellor, one of which was to reduce restrictions and costs on employers. Given the major concerns that have been raised by the Government doing the exact opposite of this, I would be keen to hear from the Financial Secretary to the Treasury how he thinks any of the policy announcements in the Budget, particularly the increase to national insurance contributions, will contribute to the growth of anything beyond the Treasury’s coffers. The UK’s capacity to enhance infrastructure development and foster innovation has been hindered by persistently low levels of both public and private investment. These low levels have caused an investment deficit that restrains the economy’s potential for growth and competitiveness. Urgent action is needed to address this decline. It further concerns me that the UK continues to rank lower than many other OECD countries in terms of R&D spending as a percentage of GDP. I would welcome an update from the Minister on what the Government plan to do to drive R&D as a catalyst for growth over the next few years. I turn very briefly to the topic of devolution, as I see the potential opportunity to unlock growth here. If the Government are able to move forward with English devolution, as per December’s White Paper, there is huge opportunity to unlock future growth. We have seen how, through his tenure as the Mayor of the West Midlands, Sir Andy Street was able to attract growth and encourage investment into the region. I also think back to my time at City Hall, where the ability of London to attract substantial foreign direct investment led to the success of high-profile regeneration and development projects—we have only to look across the river to Battersea Power Station. I therefore urge the Government to rapidly move forward and take on the opportunities that exist in local government. I end by quickly saying that our ability to really improve and grow lies in our hands. As President Regan said, Governments don’t create economic growth—people do.

13:38:00

My Lords, we have not had any economic growth in the UK for about 15 years. The last time that we had growth was during the years of new Labour, between 1997 and 2008. Then there was the financial crash in 2008 and, between then and 2024, our growth rate—so called—has been around 1%, maybe 1.5%. As a statistician of some age, I do not think that a growth rate of 1% is significantly different from 0%, so we more or less have not had any growth for 15 years. That was the time when the Conservative Party was in power. I do not blame them, but we basically had no growth. They tried personal income tax cuts, investment incentives and so on, but we had no growth. One question to ask ourselves, therefore, is whether growth is actually demanded by the citizens. The Conservatives obviously got re-elected without any growth. There was a lot of immigration and everybody was complaining about it, but nobody was complaining about the lack of growth. We have a paradox here in that a stagnant economy for 15 years can sustain a single party rule—with five Prime Ministers, but that does not matter. The key is in what the noble Lord, Lord Bridges, chairman of your Lordships’ Economic Affairs Committee, recently pointed out: our labour force is reluctant to work. People either want to work from home, to work four days a week or to say that they are mentally incapable of working and they would rather have benefits. I do not criticise that. As an economist I believe in individual choice, and individuals have a choice to work or not work, or to work as much as they want to. If there are benefits for not working, why should you work? I was lucky in that I had a job I actually liked, but most jobs are not very likeable. The paradox is that we do not actually have a keen labour force willing to get out there and work. People, especially after Covid, have decided that they have got to a level of income at which they are not unhappy and can basically manage. If they need a little bit of welfare benefits, what is wrong with that? It is a paradox we have to face about the nature of the British economy. Economics is ultimately all about consumer satisfaction. If the consumer is satisfied with their current level of income and does not really want to get out there and work harder, why should we make him work harder? Why should we torture him to make him work harder? It is all right for us leadership class: we are the leaders, and we care about capital markets. We worked very hard for Brexit because Brexit was going to be the great key to our eternal growth, but that did not work. The question to ask is: does anybody want growth in this country? My argument is that that is in doubt, and the doubt comes from something called the happiness index. This was adopted by the noble Lord, Lord Cameron, when he was Prime Minister, as one of the numbers he wanted to look at. There is very little fluctuation in the happiness index. It goes from 0 to 10 and people are more or less happy: the happiness index has been between 6.8 and 7.5. People are moderately happy and I think we should let them be happy, forget about growth and get back to our work, which is to talk about everything in the world.

13:43:00

My Lords, on that note, I do not want to do anything this afternoon to dent the happiness index. I start by referring to my entry in the register of interests and by joining in the thanks to the noble Lord, Lord Farmer, for instigating this debate and for what I thought was an exceptional speech with a lot of meat in it. I recently read an article by that eminent Oxford political scientist, Professor Ben Ansell, who asked what this Government’s theory of growth was and came up with the conclusion, rather disappointingly, that there was no consistent theory or ideology. I do not know whether that is true, but I do know that there are a lot of mixed messages coming out of the Government at the moment. I have been following closely the utterances of the Chancellor in Davos. She is saying some very interesting and, to my way of thinking, very positive things. One thing she said is that growth is to triumph over all else. However, at the same time as she is saying that, other members of her Government, including Ed Miliband, are still rushing to net zero. At the same time, we are told, we are looking at the prospect of an energy deficit, and there can surely be no greater impediment to growth than rationing power, which is something we might be looking at. These inherent contradictions unfortunately permeate through all parts of government thinking on growth. We are closing down the North Sea at the same time that President Trump’s mantra is to drill, drill, drill. Someone is right, and I do not think it is us. This afternoon I want to talk about a couple of things. One is education. I simply do not understand where the Government are coming from in tinkering with our academies. I no longer know whether the Prime Minister thinks that academies are good or bad: there seems to be no consistency. The Government have driven 20,000 fee-paying students into the state school sector—which is struggling to accommodate them, and I have no doubt that there will be more to follow—and are changing the national curriculum. I ask the Minister: are they doing all these things out of a narrow ideology, or do they genuinely think it is going to better equip our young workforce for the workforce challenges ahead, particularly in the competitive world of things such as AI and quantum computing? We know that unemployment is up and that NICs are going to attack all, not least the lowest paid—we heard from the noble Baroness, Lady Lane-Fox, about hospitality, which is going to be adversely hit—and those on the bottom rung of the employment ladder. We know that we have a problem with productivity. I do not agree with the noble Lord, Lord Desai; we are now signing off many more people for all kinds of mental health reasons. I read a very good article by the noble Lord, Lord Rose of Monewden, who said that working from home is a disaster and that in his opinion the country has gone back 20 years in the past four. The Government can show a real commitment to productivity and growth by insisting that civil servants return to their desks. In the United States, President Trump is about to sack great rafts of employees who refuse to do that. The Government are now talking about tinkering with the visa regime to fill knowledge gaps in AI and the life sciences. Is that a tacit admission that we are unable to provide people of that quality in our own country at a time when we have a record population of 67 million, up from 50 million in 1950? I want to think about our image abroad. What are we trying to sell to the international investment community? Are we to be a low-regulated, highly taxed digital economy or something different? We should look again at how we attract inward investment. I welcome the fact that we will look again at the non-dom policy. Millions of pounds have left this country; these people are highly mobile and, once they go, it is astonishingly difficult to attract them back. Those are all the negatives. The positive is that the UK is still the second most popular place to invest. We have huge convening power, unequalled soft power and links through all the great international bodies, from NATO to AUKUS and the Security Council. And yes, we have the Commonwealth, which I go on about regularly—56 willing countries that would trade with us much more if only we were prepared to show that we took them seriously and wanted to trade with them.

13:48:00

I am delighted that my noble friend Lord Swire finished on an optimistic note. I share his optimism—this is a great country in which it is very good to do business. I know this because I started an economic consultancy many years ago, which still flourishes. One of the great advantages of this country, which my noble friend did not mention, is the ubiquity of the English language. Bismarck said that the most important fact of the 19th century was that America elected to speak English rather than German. Heaven knows what would have happened if they elected to speak German; it was a narrow call, but they speak English. We should not underestimate our natural advantages. None the less, we are struggling, and have been for some time, as the noble Lord, Lord Desai, said. The responsibility of a Government in these circumstances, particularly a new one with a large majority, is to bring forward a coherent plan for economic growth and to push it with all the strength, effectiveness and vigour that Trump is showing at the moment. Nothing less will do if we are to overcome the problems we have. In that respect, I will point out a couple of things that the Government are doing wrong. First, they said in their campaign that they would concentrate on housebuilding as a force for economic growth. We need more housebuilding, as we all know, for good social reasons, but to make it a main factor in economic growth is not a good idea. It is very difficult to ramp up the building industry just like that, and it is only 8% of our GDP. Surely we should concentrate on the 80% of our GDP that is the service sector, which is huge. It is about not only our normal professional services in finance, law, insurance and so forth but the creative industries. For example, in Shepperton and Pinewood we now have studios equivalent in size to the whole of Hollywood. We are that sort of creative force in the world. I welcome the Government’s response to the recent report on AI. Trump says that he will put £500 billion behind AI and supercomputers. We certainly cannot match that, but we ought not to be cancelling the Edinburgh supercomputer, as we did recently. We should be putting more money into supercomputing, as something of the future. Secondly, I agree with the noble Lord, Lord Tunnicliffe, that skills are essential. We must give more status to those who are skilled. We have a wonderful pathway for people to go to university, but, over 30 years, and through numerous different Governments, we have not developed a similar pathway for people who are not academic. We need to do that. We are now seeing examples of how we are desperately short of people of that calibre to make the economy grow. In a speech the other day on the national insurance increases, the noble Lord, Lord Blackwell, made the point that we have low productivity. That is almost exclusively in the public sector. Private sector productivity has been growing by an average of 2.9% a year for the last 20-odd years. In the public sector it has been going down by 0.3% for the last 20 years. Those are ONS figures—the ONS is subject to some criticism at the moment, but I am relying on its figures. The Government recognise this problem, and I think the Chief Secretary to the Treasury has said that they intend to improve productivity in the public sector by about 5%, if they can. That will not work. They need to bring into the public sector some private expertise of the McKinsey kind. You will not get the public sector to reduce its workforce without some input and experience from the private sector. The Government ought to add that to their agenda. I repeat that we need a coherent, clear plan for economic growth. We have not yet got it.

13:53:00

My Lords, it is always a pleasure to follow the noble Lord, Lord Horam, even though it is nearly 40 years since I could describe him in parliamentary terms as a friend. I am very pleased to be able to speak in the important debate which the noble Lord, Lord Farmer, secured and introduced, making many interesting points. Early in his introduction, he said that gloom must be dispelled. I agree, but not at the expense of honesty and transparency. This Government inherited 22—no, I will not steal my noble friend the Minister’s best lines—at least 22 acute challenges, from the fiscal position to the state of the NHS to crumbling infrastructure, which cannot be papered over with the boosterish rhetoric so beloved by Prime Minister Johnson. There has been near unanimity in the debate so far on the importance of achieving economic growth, but before I address the “how”, it is worth asking: growth at what price and with what constraints? President Obama recently named Growth: A Reckoning by Dr Daniel Susskind as one of his best books of 2024. I strongly recommend it, although I am afraid that will have less effect on its sales than the advocacy of the former President. Dr Susskind, a research professor in economics at King’s College London, surveys the history of growth—only material in the last two centuries and only an explicit primary objective of Governments for less than half of that—and looks at the challenge for maintaining the path of the past 200 years. Drawing on Equality and Efficiency: The Big Tradeoff, written by Arthur Okun in 1975, Dr Susskind creates a framework for considering a wider range of trade-offs than equality alone, with the environment first among those. The costs of trade-offs can be managed and mitigated—the falling cost of renewable energy is a prime example—but, in some cases, decisions have to be made to accept a reduction in realistic growth targets, in recognition of these trade-offs. I suggest that the willingness to acknowledge, manage and mitigate those trade-offs lies at the heart of the differences between some of today’s speakers and the views of these Benches—and even further, looking across the Atlantic, with the Trump Administration’s, “Drill, baby, drill” on the one hand, and the UK and most other European governments on the other. I will pick up on two points. Economic growth crucially requires stability, both economic and social, as the noble Lord, Lord Farmer, argued. That social stability cannot be achieved without the investment in public services to which this Government are committed, and which the Governments of the previous 14 years wilfully neglected. Despite all the efforts of the Opposition to allege financial crisis—interest rates are higher than in the recent past, but in line with global trends—international confidence in the UK is at an all-time high. PwC’s annual survey of global business leaders, published this week, shows the UK as second only to the US as a preferred destination for investment, up three places since this Government took office. Finally, I turn to the financing of innovation and start-ups, where I find myself unusually in less than complete agreement with my noble friend Lord Eatwell. In 2023, venture capital investment in the UK represented an identical percentage of GDP to that of the US—nearly twice that of France and nearly three times that of Germany. In the words of David Clark, the chief investment officer of investment advisers VenCap, “In the UK, there is no shortage of capital for world-class founders. There is a shortage of world-class founders”. Much of that investment may come from overseas, although that would require knowledge of each US venture capital fund’s limited-partnership investor base, given that UK pension funds, insurance companies and endowments are significant investors in them. For me, the proposed pension fund reforms and restructuring, which I fully support, are about improving the return of those funds for the benefit of their pensioners, rather than filling a capital gap which does not really exist.

13:58:00

I welcome this opportunity to participate in this most important debate today. It is, of course, a very wide-ranging debate and, rather than try and cover all the points—although a lot of them have been covered excellently already—I shall make some general observations which I trust are relevant. On the recent economic performance and the main factors which seem to be influencing it, in the first half of 2024 GDP was growing quite strongly, inflation was falling to the 2% target and unemployment was easing to just over 4%. But the economic situation seemed to deteriorate in the second half of the year. Specifically, GDP was flat in the third quarter of 2024 and in the three months to November, which are the latest figures. One reason for this apparent deterioration, I suggest, relates to the Government’s pessimistic talking down of the economy, with references to the “worst set of economic circumstances since the Second World War”, which is clearly not true, and repeated, ominous references to the £22 billion black hole in the public finances. On the latter, it is pertinent to note that the OBR’s chair, Richard Hughes, referring to the OBR’s review of departmental expenditure limits, concluded: “Nothing in our review was a legitimisation of that 22 billion pounds”. But such pessimism dampens animal spirits and undermines both business and consumer confidence, which are so necessary for driving growth. The second reason relates to the October Budget, which was characterised by major increases in spending, taxation—not least of all on business—and borrowing. The numbers are worth repeating. Spending is planned to increase by almost £70 billion a year over the next five years, and the spending to GDP ratio will be around 44% to 45%, compared with about 40% before the pandemic. Of course, this spending is in a public sector where productivity was around 8.5% lower in the second quarter of 2024 than pre-pandemic. Higher taxes will fund about half this increase in spending. They will raise around £36 billion a year, of which well over £20 billion comes from employers’ national insurance contributions, and they will push the tax to GDP ratio to a historic high of about 38% by the financial year 2029. Increasing the public sector’s share of GDP at the expense of business and the private sector is, I suggest, a drag on growth. The rest of spending will be funded by an average £32 billion a year increase in borrowing, which has to be financed irrespective of any tweaks to the fiscal targets. The debt to GDP ratio will remain at about 100% over the next five years. Talking of fiscal targets, they were met with very modest margins in the October Budget. Given the increased costs of financing debt and weaker than expected economic growth, this has raised many concerns that they will be missed, unless of course there are changes in policy. I await the spring forecast on 26 March with great interest—it is in my diary. Turning to business—that vital engine for growth—we have already noted that businesses will face a sizeable increase in national insurance contributions. They will also face a sizeable hike in the minimum wage from April. They will also face the costs resulting from the implementation of the Employment Rights Bill, which could be up to £5 billion a year. This is a triple whammy, which damages business confidence and undermines growth. In addition, they face the highest industrial electricity costs of any industrial economy, partly reflecting the additional costs of intermittent renewables. These costs are especially damaging for energy intensive manufacturing, including of chemicals, as noted by INEOS chairman Sir Jim Ratcliffe recently. Finally, to make a very brief comment on Brexit, the OBR’s hypothesis assumes that Brexit will hit trade intensity, defined as exports plus imports as a share of GDP, by hitting EU trade, not so much non-EU trade. This would lower potential productivity. But EU and non-EU trade have grown at very similar rates since Brexit, suggesting little Brexit impact, if any.

14:03:00

My Lords, there is a group of Melanesian islands where supplies were dropped during the Second World War. When the war ended and the soldiers departed, a cult grew up on these islands. People thought that if they mimicked the behaviour of the soldiers who had been stationed there before 1945, the gods would start raining goods from the sky again, so they would light brands to show where the runways were and try and act like American soldiers, but, of course, the goodies did not come. That is what we literally mean by the phrase “cargo cult”. A number of people, on all sides in politics and the media, seem to think that, if you keep going around saying “growth” and “investment”, and you wear pinstripe suits and spend time in City boardrooms, somehow growth will magically follow. But, of course, that is not how the world operates. Stimulating economic growth requires taking some difficult decisions. It is simple. It is not easy, but it is simple. The same formula works every time: you need free trade, light regulation and low spending. But delivering those things is not so simple. Free trade should have been the easiest of the lot. When we reassumed control of our trade policy almost exactly five years ago to the day, we had the opportunity to raise our eyes to more distant horizons and rediscover our vocation as a global trading country. But, as became clear, not least in debates in this House, there was a terrific resistance even to doing trade deals with countries as friendly, as aligned to us and as similar to us in GDP as Australia and New Zealand. Although all sides use “trade”, like those Melanesian islanders, actually getting there when it means opening up our markets is altogether more challenging. Although I wish them every success, the Government will find that they have that same dynamic as they approach doing a trade deal with the United States. On paper it is easily done: USMCA standards are very similar to our CPTPP ones. In practice, doing a deal with Trump may be politically more challenging. It is the same with deregulation. Everyone is in favour of deregulation; everyone talks about it. The Government have written to all the regulators and said, “What are you going to do?” Of course, the one answer that the regulators are not going to volunteer is, “We intend to do less”, “We intend to wind ourselves back”, or “We intend to dissolve ourselves altogether”. Warren Buffett used to say, “Don’t ask the barber whether you need a haircut”—I am not entirely sure what barbers and haircuts are, but I hear people talking about them. By the same token, it seems a strange thing to ask the regulators how to stimulate growth. What stimulates growth is having fewer regulators and less regulation. Again, that is easy to say, hard to deliver. The toughest one, of course, is cuts in spending. My noble friend Lord Moynihan just last week published volume 2 of his book on how to achieve growth, where he shows with clear and pitiless statistical analysis that the key to growth is to get a larger private sector and a smaller state sector, and that the magic figure is around about a third. If you can get state-controlled spending to less than 33% of GDP, you are in a strong and growing economy. Of course, everyone will nod along again with that and, like the cargo cultists, they will say, “Yes, you know, we need a smaller, more efficient state, doing less but doing it better”. In practice, it is very difficult to get any meaningful cuts. Both sides play games on this. On the right, people pretend that all manner of money can be got from foreign aid—which is this tiny sum in reality that is overspent again and again—and on the left there is something similar with wealth taxes. Both sides talk about waste and “cracking down on waste”, as though no one has ever thought of it or ever tried it before. The reality is that the vast increases in public spending have come in healthcare and in social security. Unless we are prepared to talk about restraining those budgets, we do not really mean it when we talk about cutting spending. In particular, if you drill down and ask, “Which bit of social security?”, it is pensions. I saw that even Vladimir Putin was not able to raise the pension age—it was the closest he ever came to falling from power—so I sympathise with any democratic Government trying to do it. I will finish with a cheerful thought. Before we give up in horror and say, “It just can’t be done in a democracy”, or at least, “It can’t be done without a terrible 1976-style crisis”, almost all our problems in terms of the size of the state would be solved if we returned to the levels of state spending that we had in the early Blair years. I think there were a few Members opposite who were part of the Government then, and they will remember that it was perfectly comfortable—we were not living in some kind of Dickensian workshop. So, if we could just return to Blair spending levels, how difficult could that be?

14:09:00

My thanks to the noble Lord, Lord Farmer, for initiating this debate, which has been interesting although not always enlightening. I was tempted to talk about pensions, as raised by the noble Baroness, Lady Swinburne, but we will have other opportunities to debate that. I will simply say that it is a lot more complicated than that. I speak as an unreconstructed Keynesian with a side order of Joan Robinson—I will come back to that in a minute—but, first, it is preposterous for those on the other side to lecture us on the UK’s poor economic performance. They were in power for the last 14 years. As explained by the noble Lord, Lord Desai, who is not in his place, they cannot shift the blame to anyone else. Perhaps the Liberal Democrats could take a little share of the blame, but they may be reformed sinners. They also try to claim that the ups and downs of short-term statistics over the last few weeks is in some form the fault of this Government. Well, to use the tired analogy, it is like the supertanker heading for the rocks. They steered it towards the rocks, we are steering it away and the move is starting. I mentioned Joan Robinson because I want to quote from a book by the Chancellor, Rachel Reeves, about the women who made modern economics. She states: “Keynesian economics as developed by Robinson is still relevant for policymakers today, and I would argue that the poor performance of the UK economy since 2010 owes a lot to the failure to heed the lessons of Keynesian economics. When David Cameron and George Osborne became prime minister and chancellor respectively in 2010, they embarked on a programme of austerity that went against everything that Keynes (and Robinson) would have advised”. Subsequently, she says: “Welfare spending was cut, public sector wages frozen, departmental budgets for everything except the NHS cut”. She concludes by pointing out: “The economic recovery which was picking up steam at the end of 2009 and into 2010 was stopped in its tracks. Economic growth stalled and productivity tumbled”. That is the record of 14 years of Conservative Government. They come here today and lecture us on the failure of the present Government. Let us see. I hope my noble friend will be able to assure us that we will not be adopting the policies of 2010 from the coalition and that the policies we introduce will achieve the economic growth that we require. I conclude with a final comment on the contribution from the noble Lord, Lord Agnew—not the substance; I look forward to his joining us on the Economic Affairs Committee and some interesting debates. He said, in effect, that 10,000 millionaires were leaving the UK each year. Well, I have to admit that I am a millionaire. I live in central London. I have a house that is worth more than £1 million. Using the tired old trope of millionaires is meaningless. A vast number of millionaires have been created. I suspect that we are going back to the time of our childhood, when £1 million was a lot of money. It is not any more.

14:13:00

My Lords, I declare my interests as on the register, and I also declare a particularly awkward conflict, which is that, as the noble Lord, Lord Hannan, referred to, recently I published two books on this very subject, economic growth. Every time that the Government announce another problematic economic policy, sales of my book go up, so I could, in this speech, be accused of standing here to promote my books. I apologise for that embarrassing conflict, which I can do little about, as long as the Government continue to have such dysfunctional policies. Both sides of the House want GDP per capita growth. The Government want it to provide services and benefits to citizens, and Conservatives want the same, although they also want to put more money every year in people’s pockets, believing that that is a better way to promote individual happiness than through government expenditure. The noble Lord, Lord Hannan, referred to how in the early 2000s our GDP per capita was near parity with the US. The economy was growing steadily under Blair, state expenditure was about a third of the economy, taxes were about a third of the economy, and regulation was reasonably moderate. The UK was generally acknowledged to have the best economy in Europe, provided by the Thatcher and Major Governments, which Blair and Brown gratefully inherited. Since 2007 GDP per capita has not gone up significantly, either here or, as several noble Lords have mentioned, in the social democrat countries of the EU. GDP per capita has steadily increased in other countries. The US is now 40% higher than us, with much more cash in the pocket of the average worker in the United States as a result. Just go over there and see the difference. Policies pursued by both major parties in the UK since around 2005 are responsible for this—bigger and bigger government, higher taxes, metastasising regulation. Our new Conservative leader, Kemi Badenoch, has acknowledged in the other place that since 2007 we have mostly been no better than Gordon Brown was in the Labour Party. Realising our errors, we have changed, while in contrast the Labour Government have doubled down on a growth-destroying approach. When your GDP per capita is low, you cannot afford to offer to your people all the things that you would like to. The more you spend, the more your economy stalls. The problem worsens year after year and we end up where we are: a large, intrusive state with too-high taxes, far too much regulation, no money and no growth. There is a new regulator each week, unpardonably targeting successful sectors whose growth will now fall away under the assault of fines, subventions, DEI, ESG and on and on. Employment this week is down. Of course—what did the Government expect? Yet the OBR and the IMF still mainly predict positive albeit anaemic growth. Regrettably, they still prioritise growth in overall GDP rather than in GDP per capita. Anybody who is in touch with the economy, which sadly this Government seem not to be, knows that to assert that the economy is growing is nonsense. Right now the economy is either flat or shrinking, and—as my noble friends Lord Agnew and Lord Frost pointed out—with our population growing by some 0.75% per year, GDP per capita is therefore definitely shrinking. This means that in this country we have in our midst millions of personal recessions, with all the human unhappiness that this entails. The Chancellor has finally realised what a disaster the non-dom policy has been and, importantly, has said that growth will trump net zero. Will the Government now get rid of the centrally imposed heat pump diktat? Will they now reduce the growth-destroying green subsidies? Will they now allow further growth-promoting drilling in the North Sea? How bad will it have to get before the Government realise that they are on precisely the wrong track? How bad will our economy be by the time a reversal in policy is forced—which it will be—on the Government?

14:18:00

My Lords, I am grateful to my noble friend Lord Farmer for initiating this debate. It is a timely discussion given the challenges we face. Broadly speaking, economic history offers us two models: a bottom-up, liberal approach that prioritises risk taking, innovation and wealth creation, and a top-down, state-driven model that typically comes with higher taxes and welfare spending. Today the UK is operating under model 2. That model has delivered growth in the past, but it seems very unlikely to do so now. As my friend, the noble Baroness, Lady Moyo, said, we do not lack the three canonical ingredients for growth—talent, innovation and capital. Indeed, we punch above our weight in financial services, life sciences, technology and the creative industries. We can certainly be proud of how we attract a lot of investor interest from around the world. What we lack is confidence in our economic policies, both here and abroad. Since the Autumn Budget, pessimism has deepened. With near-zero GDP growth, long-term gilts over 5%, debt levels at 100% of GDP and wage growth outpacing productivity gains, we find ourselves in a bind. Whether that is because of a legacy or not, these are the facts. It does not matter who is responsible; that is what we are living with. The classic growth levers are therefore gripped: taxes have hit a ceiling, budget cuts are hard and borrowing costs are too high. Alarmingly, some experts warn of a potential debt trap, with both borrowing costs and public spending well exceeding economic growth and interest payments covered mainly through further borrowing. In fact, 85% of our annual borrowing covers our interest on existing debt. It is an untenable situation. Allow me to outline five topics that might help reset investor sentiment. I had six with the non-doms, but I took the view that that had been dealt with at Davos today. First, we must address the size and cost of the public sector. When businesses face financial strain, they cut costs and innovate; the Government must also do so. The DOGE initiative in the US should not be underestimated: for better or worse, it will make the political weather in this policy area. By streamlining public services and improving efficiency, we can lower expenditure while keeping quality. Secondly, our energy costs are too high—in fact, they are the second-highest in the G7, double those of the US. This burdens businesses and households alike, and will hamper our AI development. Our commitment to net zero remains important, but we must adopt a pragmatic approach balancing environmental goals with economic realities. The UK already leads the G7 in decarbonisation; now is the time to focus on affordability without compromising progress entirely. Thirdly, we must strengthen and invest in our special relationship with the US. This is the largest economy in the world and the only one that seems to be working. As we move further into an American and AI-driven century, leveraging our unique ties with the US will be critical for trade, investment and innovation for this country. Few nations enjoy such a privileged connection; many would give their right arm for it. We must capitalise on it fully to secure our economic future. Fourthly, on the supply side we must roll back regulation and planning restrictions. We can be the nation of common-sense regulation again—distinct from the EU’s regulatory complexity and the US’s unique model. We will attract investment and encourage innovation. Recent changes at the CMA are a welcome signal that the Government are more attentive to global business concerns, which I welcome. Fifthly and finally, we need to rebuild trust with the private sector. The recent Budget trifecta of NIC increases, changes to workers’ rights and higher business rates has caused widespread concern and consternation among many business leaders. We should listen to their feedback and consider adjustments, such as maintaining our flexible labour market and lowering capital gains tax for entrepreneurs. We need a pro-growth tax measure to ensure that the UK remains competitive. There is no time to lose: in April the NIC increases kick in and business confidence, particularly that of SMEs, will suffer a further blow. In my view, these ideas and many others discussed today represent more than just policy adjustments. They are part of a broader effort to shift perceptions of the UK economy from one characterised by high costs and low growth to one defined by innovation, connectivity and competitiveness on a global scale. We face what I believe is nothing short of a national emergency—a situation that demands bold action and decisive leadership. Only by fostering confidence among businesses and investors can we create an environment conducive to sustained growth and, ultimately, prosperity for all.

14:23:00

My Lords, I join in the congratulations to the noble Lord, Lord Farmer, for securing this debate. It is the first time I have had the pleasure to follow the noble Lord, Lord Petitgas; I enjoyed his speech. The noble Lord, Lord Desai, made clear that growth has been an issue for many Parliaments. I find the Conservative Party’s conscious collective amnesia, demonstrated by a number of speakers today, to be extremely cynical. They had their chance and, as the noble Lord, Lord Frost, ably demonstrated, the wreckage they left behind has had to be picked up by His Majesty’s Government now. As we heard from the noble Lord, Lord Moynihan, parties of all colours—except green—seek to grow our economy. The differences appear when it comes to deciding how to distribute the spoils of any growth; sadly, that is not our problem today. Most people agree that the best strategy for us is to offer a beneficial, stable economy that supports existing business and attracts new ones. Of course, that is open to definition. The current Government say that they are no different, and we hear a relatively familiar menu of mechanisms they say they will adopt to try to achieve growth: fiscal stability, investment, infrastructure, skills, devolution and planning reform, research and development, and net zero. But what will, and can, the Government actually do with this smorgasbord? Since the election, they have largely published analysis and launched consultations. What legislation we have seen to date has been skeletal, short on detail and long on granting powers for subsequent detailed laws. The Great British Energy Bill and the product regulation Bill are cases in point. On 9 January, in answer to a question about growth from me, the Minister set out how he sees the Government’s record so far. He presented a shorter list: a modern industrial strategy, planning reform, pension reform and skills reform. I thought I would try to put this debate to some use and probe those four issues with the Minister. The new council to steer the industrial strategy was launched just before the Christmas break. Under a chair from Microsoft, the 15 other members come from a cross-section that is hard to recognise as what we would call traditionally industrial. There is someone from Rolls-Royce, but there is no one from the chemicals, automotive or life sciences sectors, and no representatives from the smaller companies that make up the vital industrial supply chains. Although several trade unions have seats, which I agree with, I note that none of the major industrial trade associations do. Can the Minister explain how our largest industries and top exporters can be expected to be represented on this council when they are not there, and how the producers of half the UK’s GDP, which comes from SMEs, will be represented when they have no voice on that council? To date, it is clear that the Government envision eight horizontal sectors encompassing a whole range of activities, some of which do not conform with the traditional definition of industrial. I assume automotive and aerospace—my old stomping grounds—are in the advanced manufacturing box, but where is our huge chemicals sector? Perhaps the Minister can flesh out this organogram today or in writing. When will we see what the plans are for these sectors, other than rolling over existing sector deals? Planning reform invokes a rather simpler set of questions. When will the changes that the Government plan come into effect? For example, when will the first house be built on grey-belt land, and when will we see new local plans that include the grey belt? Until approvals start to happen, the effect of any planning changes on growth will be zero—perhaps less than zero, as investors sit back and wait to see what happens. Unlike the noble Lord, Lord Davies, I am going to talk about pension reform. A cornerstone of the Government’s plans for growth clearly requires a significant change in behaviour by UK pension funds to invest far more heavily in UK assets—especially in illiquid and high-risk assets, notably upscaling small businesses and large infrastructure projects. How will the Government achieve this, given increasing warnings from the industry that it could reduce payouts to pensioners? Will they pressurise funds by applying a minimum threshold of investment in such assets? Will they mandate the consolidation of smaller funds and the pooling of local government pension schemes? If so, what is their assessment of the legal and administrative challenges and the implications of a reduced voice for pension holders? Finally, pensioners with small pots are least able to bear the risk. Will the Government put in place protection for such pensioners? Surely the most effective way to get more investment in UK assets is to increase the pipeline of attractive projects and tackle the problems of upscaling small businesses, in which the lack of lending, more often than the lack of capital investment, appears to be the major financial gap. In truth, access to talent appears to be one of the biggest barriers for many businesses, so the Minister was absolutely right to list skills as a priority for action. The challenge of lifting the skills of some 31 million workers is huge and is not an overnight venture. It comes from accumulated effort and investment in schools, universities, colleges and institutes, not forgetting the role of the businesses themselves. But the Government’s challenge is this: if the construction of a new electricity transmission system gains planning permission, finds the necessary funding and lines up the necessary components, which have lead times measured in years, who will do the work? Who will build that transmission system, the new houses, and the infrastructure we need for growth? Considering the complexity and the vital necessity of tackling skills, you would think it would be a good idea to set off on the journey straightaway. The vehicle the Government are trusting with this new task is a whole new organisation, Skills England, which “will bring together central and local government, businesses, training providers and unions to meet the skills needs of the next decade across all regions”, as the Government say. But once again I ask the question: when? Skills England plans to publish the findings from its first engagement sometime this year—soon, I hope. Will the work start then, or will there be further consultations before the work starts? There is huge inertia in the skills supply chain, so can the Minister give your Lordships’ House some sort of timeline—perhaps an idea when the first person who benefits from these government skills changes will hit the UK workforce? To close, I will add one further issue that the Minister did not choose to mention. It picks up the point made by the noble Lord, Lord Agnew, about access to markets. Unlike the noble Baroness, Lady Lea, I believe there is no doubt that British manufacturing has suffered due to Brexit. If you talk to British manufacturing, that is what it tells you. It is welcome that the Government recognise the need to reset our relationship with the EU, but once again we are in the territory of what and when: what will that reset be, and when will we see it? Noble Lords will have noted that, in a helpful contribution, the leader of the Liberal Democrats, Sir Ed Davey, called for the Government to negotiate a new deal with the EU, with the goal of forming a customs union by 2030 at the latest. There was a reciprocal intervention from the EU, which the Government slapped down at a moment’s notice. This is important and it would help: it would slash red tape and boost our trade with Europe by reducing the number of checks on goods, as businesses are finding in Northern Ireland, which, I remind noble Lords, is in a customs union with the European Union. People are already struggling with the cost of living and are now worried about what a Trump presidency will mean for our economy. Forming a customs union with the EU would put us in a much stronger position to resist Trump’s bullying. It would be a win-win for our country. I look forward to the Minister’s detailed response.

14:33:00

My Lords, creating the right conditions to promote growth is a critical challenge that we must address. I am grateful to my noble friend Lord Farmer for initiating this debate so thoughtfully, and for bringing in social and cultural factors that are important to growth as well. Thanks to the last Conservative Government, this Government inherited the fastest-growing economy in the G7. They pledged that their first priority would be to increase economic growth. However, growth has since evaporated, and that follows the recorded 0.7% growth in the summer. During the UK investment summit, the Prime Minister said: “You have to grow your business”. Then two weeks later, in the Budget, the Chancellor increased national insurance contributions by a whopping £23.7 billion, including a regressive lowering of the threshold at which employer national insurance is paid. This was widely seen as an attack on business—business is an easy target—and a jobs tax, so not conducive to growth. This week, it was announced that the early estimate of the number of payrolled employees for December 2024 decreased by 47,000 on the month. Then today, Sainsbury’s has sadly announced 3,000 job losses. These may be the harbinger of worse as businesses and social enterprises reduce hiring and increase prices. The debt figure for December was a shock too, especially as every pound of interest paid on debt comes off public services or investment. I agree with my noble friend Lord Udny-Lister that this has been devastating, because doom and gloom have become the order of the day, and that is a mistake because it dampens the animal spirits that are needed for enterprise and growth. Economic success is heavily influenced by morale. Yet, for six months, the Prime Minister and the Chancellor barely said a positive word about the economy or the fine prospects we believe we have in our country—the optimism that my noble friend Lord Horam called for. Instead, during the second half of the year, we saw the impact on consumer confidence, and the CBI indicated that manufacturers expected their output to fall during the beginning of 2025. Like the noble Lord, Lord Fox, I like to look forward. Like him, I will try to tackle four areas but with fewer questions, which I hope the Minister will feel able to answer either today or in writing. First, on education and skills, the intrinsic link between improved education and skills and economic growth is widely accepted. Of course, this is a long-term endeavour. The Conservative Government devoted great effort to improving education, and this was reflected in amazing improvements in our PISA scores. However, the new Children’s Wellbeing and Schools Bill will undermine academies and free schools, which have been at the heart of this revolution in standards. The proposed restrictions on academies’ pay, the exclusion of veterans and others bringing their strengths to teaching from other careers and the imposition of a Labour curriculum risk reversing those very improvements. Can the Minister explain how academies will continue to attract the best teachers? The IFS has warned that they may struggle. Is consideration being given to the impact of the new policies on school standards? Investment in skills, apprenticeships and education is key to promoting both productivity and economic growth, and I am particularly glad that the Government have stated their intention of doing much better on vocational education. My time at Tesco convinced me of this and that there is a snobbery about universities that has held us back in this sector. Secondly, on productivity, in the long term, the overall rate of growth in productivity is reflected in the rate of growth in the economy. The important metric is GDP per capita, as my noble friend Lord Moynihan of Chelsea explained. Concerningly, in the third quarter of 2024, productivity was estimated to be 1.8% lower than in the previous year—the noble Baroness, Lady Moyo, told us that. The problem is partly cultural, and I believe that working from home and poor management in the public sector have contributed to this. In our Budget debate, I called for an internal productivity and growth assessment, modelled on the equality assessment, of every proposal for a new policy, an SI or a Bill. The Minister agreed to look at this and I wonder what conclusion he has reached. It feels as if its time has come and that it could be useful to the Treasury in prioritising the pro-growth policies that we need. Thirdly, on regulation, possibly the most powerful contribution to productivity growth is by regulatory reform rather than just by trying to flex taxes. My noble friend Lord Agnew of Oulton made a number of excellent suggestions on trade facilitation, involving things such as trusted trader schemes and getting the single trade window, which I was sorry to hear had got lost, back on track. My noble friend Lord Frost talked about the intellectual case for regulatory reform. At the UK investment summit, the Prime Minister said he was “determined to do everything in my power to galvanise growth”, so I found it particularly baffling that the election manifesto promised to ramp up so many regulations, such as in football and in employment. Then, after figures indicated that the economy had flatlined, the Prime Minister wrote to regulators asking them to go for growth. That is obviously an indication that he fears that the regulators are hampering growth, and I think he is right. Unfortunately, that is a bit like putting the fox in charge of the hen coop. Those bodies need external challenge to tackle what my noble friend Lord Farmer called the “sticky web of regulation” and its negative effect on wealth creation. It is hard to deliver, as my noble friend Lord Hannan of Kingsclere said. As the chair of the CBI, Rupert Soames, explained, government policies, particularly new employment regulations, will bruise businesses. The Government’s own impact assessment on its workers’ rights package estimated that it will cost companies £5 billion a year, and of course that comes on top of the NICs increases, the minimum wage rises and so on, which we have discussed at length—my noble friend Lord Petitgas is right that they were very disappointed by that. There is a real need to restore trust in business so that it can play its part in growth. What assessment have the Government made of the impact on economic growth of all the increased regulations that are coming forward? Does the Minister agree that keeping a tracker as part of his work on growth could be valuable and help us to prioritise the right areas? My fourth and final area is infrastructure. A number of comments have been made on how we can improve investment, venture capital and so on, but I am going to focus on delivering major national infrastructure projects, because they are essential to the Government’s mission to kick-start growth. Unfortunately, the cost of building delays to projects exceeds those of our international peers. The FT has described modern UK infrastructure projects as containing a bewildering number of contractors, with multiple layers passing down cash and responsibilities protected by complicated legal agreements, and then you add environmental regulations. Spending £100 million on a bat tunnel along the edge of HS2 was ridiculous. Analysis from BCG of four major projects—Crossrail, the Arundel A27 bypass, Hinkley Point and Royal Liverpool Hospital—has identified several themes that are driving costs and delays. The Government have announced that they are looking at judicial review, and I was glad to hear from the noble Baroness, Lady Lane-Fox, about the BCC list of things that are ready to go. Poorly defined objectives overcomplicate projects, and the UK fails to look at key projects within a wider portfolio setting, identifying the most efficient path. The Government have also failed to prioritise investment in critical energy infrastructure despite the fact that British companies pay the highest electricity prices in the developed world. The punitive taxes on the North Sea oil and gas industry, in an effort to achieve an ideological target of a decarbonised grid by 2030, will cut tax revenue and jobs and drive up business bills further, as we heard from my noble friend Lord Swire. Can the Minister confirm how the Government will support nuclear energy projects? Currently the timeframe for grid connections for a new energy project can be as long as 10 years, so will he commit to national grid development? The Government must address infrastructure development delays and costs if they are to achieve their number one mission of growth.

14:43:00

My Lords, I thank the noble Lord, Lord Farmer, for securing this debate, and I congratulate him on his interesting and wide-ranging opening speech. I thank all noble Lords for their contributions today. It is of course a pleasure to respond to this debate, and a particular pleasure to hear from noble Lords in the party opposite about how to grow the economy. It is perhaps a pity that they did not take any of their own advice over the past 14 years. We have heard in this debate from members of the previous Government about how to grow the economy, despite economic growth being one of their greatest failures. We have heard from some of the most prominent supporters of Brexit about how to grow the economy, despite their own disastrous Brexit deal permanently reducing GDP by 4%. We have also heard from some of the most enthusiastic acolytes of Liz Truss about how to grow the economy, despite the Liz Truss mini-Budget crashing it. What we did not hear during the debate, I am afraid, was a single word of humility. We did not even hear the slightest hint of self-awareness and we still have not heard the long-overdue apology to the British people for the previous Government’s record on the economy over the past 14 years. The reality of the past 14 years is stark. First, there was austerity, which, as my noble friend Lord Davies of Brixton said, took demand out of the economy at exactly the wrong moment. Then a disastrous and tragically misjudged Brexit deal imposed new trade barriers, equivalent to a 13% increase in tariffs for manufacturing and a 20% increase in tariffs for services, reducing total trade intensity by 15%. Finally, as I have said, the Liz Truss mini-Budget crashed the economy and sent the typical mortgage soaring by £300 a month. The combined effect was devastating. Had the economy grown by the average of other OECD countries over the past 14 years, it would be more than £150 billion larger today. The previous Parliament was the worst on record for living standards. Inflation hit 11.1% and was above target for 33 months in a row. The UK was the only G7 economy with private investment levels below 20% of GDP. Productivity had entirely stalled, with output per worker growing more slowly than in every other G7 country bar Italy. We were the only G7 country to have a lower employment rate and a higher inactivity rate compared to before the pandemic. Little wonder then that the previous Government, at the last election, suffered the worst defeat of any governing party in history. I say to noble Lords opposite that they were not rejected so comprehensively because the British people thought they had done a really good job of managing the economy. It now falls to this Government to clear up the mess that we inherited and to grow the economy once again. The reality is, as my noble friend Lord Chandos said, that we inherited three distinct crises: a crisis in the public finances, a crisis in our public services and a crisis in the cost of living. As noble Lords including the noble Lord, Lord Farmer, and the noble Baroness, Lady Lea of Lymm, have reminded us today, in the public finances we inherited a £22 billion black hole—a series of commitments made by the previous Government which they did not fund and did not disclose. The previous Government made no provision for costs that they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal and £1.8 billion to compensate victims of the Post Office Horizon scandal. Those sums have to be funded. It was not just broken public finances but broken public services, with NHS waiting lists at record levels, children in portakabins as school roofs crumbled, and rivers filled with polluted waste. Added to this was a cost of living crisis that had hit working people hard, with inflation at 11% but coupled with a decision by the previous Government to freeze income tax thresholds, costing working people some £30 billion. This Government have made different choices. At the Budget, we took action to wipe the slate clean, repair the public finances, rebuild our public services after years of neglect and protect working people. This meant taking some very difficult decisions. These were not decisions we wanted to take but they were necessary. I recognise that that has involved asking some businesses to contribute more, but not acting was simply not an option. As a result of the decisions we have taken, we have created a foundation on which we are now able to take forward our agenda of growth and reform. The noble Lord, Lord Agnew, spoke about living standards as a result of the Budget. The independent Office for Budget Responsibility has forecast that real household disposable income per capita will increase over the course of this Parliament. That compares to the previous Parliament, which was the worst on record for living standards. The noble Lord, Lord Moynihan of Chelsea, spoke about employment. It is welcome that the number of people in employment is forecast to rise by 1.2 million over the course of this Parliament, but clearly there is more to do. Because of the inaction of the previous Government, the UK is the only major economy where economic inactivity has not returned to pre-pandemic levels. That is why the Government has announced a £240 million package to get Britain working and to tackle the root causes of inactivity, and why we will bring forward a Green Paper this year to reform the welfare system. At the time of the Budget, the independent Office for Budget Responsibility revised up its growth forecast for the next two years. After the Budget, the Bank of England did the same. The OECD also revised up its forecasts, which now show the UK economy growing faster than the economies of Germany, France, Italy and Japan over the next three years. Last week, the IMF forecast that the UK will be the fastest-growing major European economy over the next two years. The UK was the only G7 economy, apart from the US, to have its growth forecast upgraded for this year. This week, in PwC’s annual survey of global CEOs, the UK has become the second most attractive country in the world for investment, below the US, for the first time. I am sure all these points will be welcomed by all noble Lords and will be the start of the optimistic narrative across this House that has been spoken about in today’s debate. While the latest ONS figures for November show modest growth, I am under no illusion about the challenge facing us. That is why we need to go further and faster to achieve higher and more sustainable growth. It is why we need to continue to put forward the big ideas that the noble Lord, Lord Farmer, spoke about. It is why the Chancellor will continue to do just that in her forthcoming speech on growth, continuing our growth strategy, built on the three pillars of stability, investment and reform. As my noble friend Lord Chandos said, stability is at the core of our approach. Here, I disagree with the noble Baroness, Lady Moyo. We cannot deliver growth without first stabilising the public finances and giving businesses the confidence that they need to invest. This Government have a stable majority, which creates political stability, and we respect the UK’s economic institutions, including the independent Bank of England and Office for Budget Responsibility, which instil confidence in our economy but were consistently undermined by the previous Government. In the Budget we introduced tough new fiscal rules to ensure that day-to-day spending is balanced with tax receipts, while getting debt down as a share of GDP. As the Chancellor has made clear, meeting those fiscal rules is non-negotiable. As the noble Baroness, Lady Lea of Lymm, said, the independent Office for Budget Responsibility will produce an economic and fiscal forecast on 26 March. This will provide a clear assessment of the performance against those fiscal rules. To reassure the noble Lord, Lord Horam, we have set a 2% productivity, efficiency and savings target for all departments. The noble Baroness, Lady Neville-Rolfe, asked about productivity assessments. I continue to look at that idea carefully. The second pillar of our strategy is investment, which is the lifeblood of a growing economy. It is not acceptable that, under the previous Government, the UK was the only G7 economy where private investment stood below 20% of GDP. Neither is it acceptable that the previous Government consistently cut public investment to patch up holes in day-to-day spending. We are taking a different approach. The Government’s international investment summit last year generated £64 billion of private investment, creating nearly 40,000 jobs across the UK. In the Budget, as my noble friend Lord Tunnicliffe said, we committed £100 billion of new public investment in roads, rail, hospitals and other significant growth projects—including investment in the energy transition, to answer the noble Lord, Lord Moynihan of Chelsea—to crowd in private investment, and create more jobs and opportunities in every corner of the UK. Our approach is supported by the IMF, which has said that it welcomed the Budget’s “focus on boosting growth through a needed increase in public investment while addressing urgent pressures on public services”. The noble Lord, Lord Swire, spoke about the importance of inward investment, which I agree with him on very much. Our investment approach will be guided by our modern industrial strategy and the new National Wealth Fund, which will catalyse £70 billion of private investment in high-value sectors. It has already created 8,600 jobs across the UK and secured almost £1.6 billion of private investment. It is why we must invest in innovation and R&D, which we have protected at record levels. We have the highest R&D tax relief in the G7, the importance of which was set out so well by my noble friend Lord Eatwell. As my noble friend said, access to finance is vital, which was an issue also mentioned by the noble Baronesses, Lady Moyo and Lady Swinburne. The noble Lord, Lord Farmer, asked about investment in family hubs. The Government have increased investment in England in early years and family services to £8 billion in 2025-26; this includes £69 million on family hubs in phase one of the spending review. The noble Baroness, Lady Lane-Fox of Soho, spoke about the urgency of the industrial strategy, and I agree with her absolutely. We have announced the members of the Industrial Strategy Advisory Council, which is chaired by Clare Barclay, CEO of Microsoft UK, and includes serial entrepreneurs and those with extensive SME experience. As the noble Lord, Lord Udny-Lister, rightly said, they are the backbone of our economy. The noble Baroness, Lady Swinburne, rightly said that financial and professional services are a key part of the industrial strategy. She set out the huge contribution that they make to our economy and to growth—and I shall pass on her very kind comments to my honourable friend the Economic Secretary. The industrial strategy also includes the creative industries, as mentioned by the noble Lord, Lord Horam. At the International Investment Summit, we published a Green Paper to inform the development of the industrial strategy. That consultation has closed and we are actively considering the responses. To reassure the noble Lord, Lord Fox, the industrial strategy will absolutely be developed in close co-ordination with all the industries in the sectors that he mentioned in his speech. We will then bring forward the full industrial strategy, including individual sector plans, which will provide all the detail that the noble Lord, Lord Fox, asked for and will be aligned with the multiyear spending review. The final pillar of our strategy is reform to tackle barriers to investment and unlock the full growth potential of the UK economy, as mentioned by the noble Lord, Lord Horam, and the entrepreneurialism spoken about by the noble Lord, Lord Farmer. That is why we are unlocking £80 billion of investment through landmark reforms to create new pension mega-funds, as set out by my noble friend Lord Eatwell. I look forward to my honourable friend Torsten Bell, the new Pensions Minister, setting the answers to all the questions asked by the noble Lord, Lord Fox. It is why we will shortly set out a programme of welfare reform, as discussed by the noble Lord, Lord Desai. My noble friend Lord Tunnicliffe, highlighted skills, and I agreed very much with what he said. We have established Skills England to bring together the fractured skills landscape and ensure that businesses have the right employees they need to grow. Again to reassure the noble Lord, Lord Fox, its work has absolutely begun—in particular, in part of the industrial strategy. It is itself represented on the Industrial Strategy Advisory Council, which he spoke about. On planning reform, we are overhauling the system with the most significant programme of reform for a generation to speed up exactly the decisions that the noble Baroness, Lady Lane-Fox, spoke about. I assure her that the infrastructure projects that she mentioned are exactly why we want to speed up the system. The noble Lord, Lord Fox, asked about timescales here; the most pressing next step is to get the legislation through this Parliament and this House. Given what the noble Baroness, Lady Neville-Rolfe, said on that topic, I hope that we can now count on her support for that. We are also working closely with regulators to ensure that we are doing everything possible to reduce the regulatory barriers to growth. As the noble Lord, Lord Farmer, mentioned—and the noble Baroness, Lady Neville-Rolfe, also touched on—the Government are determined to deliver a regulatory environment that champions innovation, attracts investment and drives economic growth. Before Christmas, the Prime Minister, Chancellor and Secretary of State for Business and Trade issued a joint letter to regulators, as several noble Lords have mentioned today, to generate bold pro-growth reforms that can be implemented in the coming year. Of course, that is not the full or sole extent of ensuring that reform is pro-growth, and we will bring forward further reforms in due course. The noble Baroness, Lady Lane-Fox of Soho, asked about procurement. As she will know, the Procurement Act will go live in February, and ahead of that the Government will publish a new national procurement policy statement, setting out the policy objectives to which the Government expect public procure-ment to contribute. The Government are working closely with stakeholders on the design of this new statement. The noble Lords, Lord Swire and Lord Horam, spoke about AI and the opportunities that it presents, and I agree with the sentiments that they expressed. The AI Opportunities Action Plan announced by the Prime Minister last week will help us to seize the benefits of this important technology. It takes forward all 50 recommendations set out by Matt Clifford to help transform the lives of working people and drive growth. To reassure the noble Lord, Lord Agnew, we do of course have a Minister for Trade, and I discussed trade facilitation with him just yesterday. However, reform is needed in our relationship with the EU, as the noble Lord, Lord Fox, said. Following their meeting in Brussels on 2 October, the Prime Minister and President of the European Commission agreed to strengthen the relationship between the EU and UK, putting it on a more solid, stable footing. We will now work with the EU to identify areas where we can strengthen co-operation for mutual benefit, such as the economy, energy, security and resilience. As the Prime Minister has made clear, we want to work with our European neighbours to reset relationships, rediscover our common interests and renew bonds of trust and friendship. That is why, last month, at a meeting of the Eurogroup meeting of EU Finance Ministers—the first to be attended by a UK Chancellor since Brexit—the Chancellor set out the need for a closer UK-EU economic relationship based on trust, mutual respect and pragmatism. That involves breaking down barriers to trade, creating opportunities to invest and helping our businesses to sell in each other’s markets. We recognise that delivering new agreements will take time, but we are ambitious, have clear priorities and want to move forward at pace. The noble Lord, Lord Petitgas, spoke about the importance of trade with the US. The UK is of course an open trading economy, and we have over £300 billion in trade with the US. This trading relationship is important to both the UK and US economies, supporting millions of jobs. We will of course continue to make the case for free and open trade. We have heard much from those in the party opposite about how to grow the economy, but so much of our agenda of stability, investment and reform they unfortunately oppose. They have shown no humility for the economic damage that they inflicted on this country over 14 years, they have come up with no alternative plan and they have provided no apology. It falls to this Government to clean up the mess that we inherited. We are doing that by restoring growth to our economy, rebuilding our public services and making working people better off.

15:01:00

My Lords, I thank all noble Lords who contributed today. It was a robust debate and it was full of good ideas, stimulating and constructive. I thank the Minister for addressing many of the questions and giving details. I am saddened by the political point-scoring, because we have problem of growth and we need a coherent plan, as my noble friend Lord Horam, said, for growth. I intended—and as I said at the beginning, I prayed—that this debate would produce some ideas that would be a help to the Government. I hope that the Government will take this debate, study it and take the ideas from it, and that it may help them in producing a coherent plan for growth. I thank everybody for their work and preparation. This has been an important debate. We have a growth problem and we need a growth plan. I beg to move.

Motion agreed.