To ask His Majesty’s Government what assessment they have made of the relationship between changes in the tax burden and the effect on economic growth.

To ask His Majesty’s Government what assessment they have made of the relationship between changes in the tax burden and the effect on economic growth.

Our tax system is very supportive of economic growth. Our tax-to-GDP ratio is in the middle of the pack of the G7, and we have the lowest headline rate of corporation tax in the G7. The UK economy saw the fastest growth in the first half of this year, and the IMF expects the UK to remain the fastest-growing European G7 economy in 2026-27. According to the IMF, this year, for the first time since 2004, we are forecast to be borrowing less than the rest of the G7 on average. Despite the headwinds from the war in the Middle East, there is a lot to be optimistic about.

Our tax system is very supportive of economic growth. Our tax-to-GDP ratio is in the middle of the pack of the G7, and we have the lowest headline rate of corporation tax in the G7. The UK economy saw the fastest growth in the first half of this year, and the IMF expects the UK to remain the fastest-growing European G7 economy in 2026-27. According to the IMF, this year, for the first time since 2004, we are forecast to be borrowing less than the rest of the G7 on average. Despite the headwinds from the war in the Middle East, there is a lot to be optimistic about.

My Lords, the tax burden is forecast to reach its highest level ever. The last two, disastrous Budgets raised taxes by £40 billion and £26 billion respectively; the results can be seen in today’s very disappointing unemployment figures.

The manifesto ruled out any major tax increases, but there is still great uncertainty in the UK economy, which is damaging the economy. What evidence can the Government offer that such a historically high tax burden is consistent with promoting economic growth, which is so badly needed in this country?

My Lords, the tax burden is forecast to reach its highest level ever. The last two, disastrous Budgets raised taxes by £40 billion and £26 billion respectively; the results can be seen in today’s very disappointing unemployment figures.

The manifesto ruled out any major tax increases, but there is still great uncertainty in the UK economy, which is damaging the economy. What evidence can the Government offer that such a historically high tax burden is consistent with promoting economic growth, which is so badly needed in this country?

I should just say to the noble Lord that we had quite a big mess to tidy up when we came into government two years ago; I do not think that the Opposition should be allowed to get away with that.

Only on Friday, the ONS estimated that GDP growth increased in July by 0.4%, which was well above expectations. In fact, UK GDP growth is the fastest in the G7. The tax level still sits in the middle of the G7 nations. For example, the effective tax rate for a single individual with no children and on average earnings is one of the lowest in the OECD. I am not pretending that everything is rosy in the garden—there is a war in the Middle East. On the unemployment figures that came out today, I do not know whether the noble Lord is aware of this, but in only two peacetime years out of the past 150 has the average annual employment rate been higher than it was in 2025.

Let us just listen to what businesses have been saying. A representative of the KPMG said that

“businesses are starting to press ahead with investment”

and that

“we are starting to see the data moving in the right direction”.

As I say, there is a lot to be optimistic about.

I should just say to the noble Lord that we had quite a big mess to tidy up when we came into government two years ago; I do not think that the Opposition should be allowed to get away with that.

Only on Friday, the ONS estimated that GDP growth increased in July by 0.4%, which was well above expectations. In fact, UK GDP growth is the fastest in the G7. The tax level still sits in the middle of the G7 nations. For example, the effective tax rate for a single individual with no children and on average earnings is one of the lowest in the OECD. I am not pretending that everything is rosy in the garden—there is a war in the Middle East. On the unemployment figures that came out today, I do not know whether the noble Lord is aware of this, but in only two peacetime years out of the past 150 has the average annual employment rate been higher than it was in 2025.

Let us just listen to what businesses have been saying. A representative of the KPMG said that

“businesses are starting to press ahead with investment”

and that

“we are starting to see the data moving in the right direction”.

As I say, there is a lot to be optimistic about.

My Lords, there is a strong argument that the businesses hit hardest by the tax rises—notably in employers’ NICs—are small businesses with more than seven employees and medium-sized businesses. Have the Government done work to look at the impact of growth on that specific sector? It is crucial in very disadvantaged communities, and the impact is masked by always quoting the high-level numbers.

My Lords, there is a strong argument that the businesses hit hardest by the tax rises—notably in employers’ NICs—are small businesses with more than seven employees and medium-sized businesses. Have the Government done work to look at the impact of growth on that specific sector? It is crucial in very disadvantaged communities, and the impact is masked by always quoting the high-level numbers.

Obviously, I do not want to pre-empt anything that might come out in the Budget, but it is fair to say that the Government have protected the smallest businesses from the NICs changes by more than doubling the employment allowance, which allows eligible employers to reduce their employer NICs bill by up to £10,500. This means that around 900,000 employers, or around 40%, will have no employer NIC liabilities. We are thinking about small companies—we know that they are the ones that grow the economy—and we are going to continue doing what is best for the British economy.

Obviously, I do not want to pre-empt anything that might come out in the Budget, but it is fair to say that the Government have protected the smallest businesses from the NICs changes by more than doubling the employment allowance, which allows eligible employers to reduce their employer NICs bill by up to £10,500. This means that around 900,000 employers, or around 40%, will have no employer NIC liabilities. We are thinking about small companies—we know that they are the ones that grow the economy—and we are going to continue doing what is best for the British economy.

My Lords, returning to the original Question asked by the noble Lord, Lord Leigh, does the Minister agree that what really matters is growth in GDP per capita, where we sit near the bottom of the G7—given our population growth over the past five years—and that this has happened at a time when our tax burden has risen at the fastest rate in the G7? That is not a coincidence, is it?

My Lords, returning to the original Question asked by the noble Lord, Lord Leigh, does the Minister agree that what really matters is growth in GDP per capita, where we sit near the bottom of the G7—given our population growth over the past five years—and that this has happened at a time when our tax burden has risen at the fastest rate in the G7? That is not a coincidence, is it?

I think it is fair to say that, as far as GDP per capita is concerned, the other figure that is not really looked at but is prevalent in all this is payroll employee-based productivity, which has grown by 2.2%—the fastest calendar year rate outside of the pandemic for more than a decade. Productivity growth is the main way to get a sustainable increase in long-term economic growth. As I said, we are not out of the woods yet, but there is a lot going on that is positive and optimistic; that is the line we need to toe.

I think it is fair to say that, as far as GDP per capita is concerned, the other figure that is not really looked at but is prevalent in all this is payroll employee-based productivity, which has grown by 2.2%—the fastest calendar year rate outside of the pandemic for more than a decade. Productivity growth is the main way to get a sustainable increase in long-term economic growth. As I said, we are not out of the woods yet, but there is a lot going on that is positive and optimistic; that is the line we need to toe.

My Lords, our new Prime Minister has talked about growth in every postcode. He is surely right to set that objective so that communities are not left behind. How will the Government ensure that the revenues raised through taxation help to deliver growth in every part of our country?

My Lords, our new Prime Minister has talked about growth in every postcode. He is surely right to set that objective so that communities are not left behind. How will the Government ensure that the revenues raised through taxation help to deliver growth in every part of our country?

My noble friend asks a very important question which is central to this Government’s plan for growth and devolution. Closing regional productivity gaps is a major economic opportunity, with productivity in northern cities around 20% lower in than similar-sized cities in the OECD. If we are able do that, we can boost UK GVA by £82 billion. We are devolving more power to local leaders and investing in transport and housing infrastructure. The aim is not simply to redistribute existing growth but to increase the productive potential of major cities around the country. We are going to rely on regional mayors, for example, to ensure that they have a say in how that growth takes place.

My noble friend asks a very important question which is central to this Government’s plan for growth and devolution. Closing regional productivity gaps is a major economic opportunity, with productivity in northern cities around 20% lower in than similar-sized cities in the OECD. If we are able do that, we can boost UK GVA by £82 billion. We are devolving more power to local leaders and investing in transport and housing infrastructure. The aim is not simply to redistribute existing growth but to increase the productive potential of major cities around the country. We are going to rely on regional mayors, for example, to ensure that they have a say in how that growth takes place.

My Lords, coming to the basics of the argument, why do the Government believe that raising taxes and increasing regulation promote growth?

My Lords, coming to the basics of the argument, why do the Government believe that raising taxes and increasing regulation promote growth?

My Lords—

My Lords—

My Lords, under Tony Blair, the Minister’s predecessor in another place—

My Lords, under Tony Blair, the Minister’s predecessor in another place—

Oh!

Oh!

I thank the noble Baroness. Under Tony Blair, the Minister’s predecessor in Sedgefield in another place, the state was taking 34% of GDP, spending about £1 in every £3. Now, since the pandemic, it is closer to £1 in every £2. That has coincided with an extraordinary flattening of our growth rate. Will the Minister urge his colleagues in government to look at which taxes are the most deleterious to growth while bringing in the lowest revenues? I am thinking specifically of taxes on savings, investment and inheritance.

I thank the noble Baroness. Under Tony Blair, the Minister’s predecessor in Sedgefield in another place, the state was taking 34% of GDP, spending about £1 in every £3. Now, since the pandemic, it is closer to £1 in every £2. That has coincided with an extraordinary flattening of our growth rate. Will the Minister urge his colleagues in government to look at which taxes are the most deleterious to growth while bringing in the lowest revenues? I am thinking specifically of taxes on savings, investment and inheritance.

The noble Lord raises a very important point. We always have these taxes under review. No doubt when we have the Budget at the back end of October some statements will be made by the Chancellor reflecting what we need to do to ensure that the economy grows into the future. We will continue to do what is in the best interests of the British people.

The noble Lord raises a very important point. We always have these taxes under review. No doubt when we have the Budget at the back end of October some statements will be made by the Chancellor reflecting what we need to do to ensure that the economy grows into the future. We will continue to do what is in the best interests of the British people.

My Lords, does the Minister agree that a bigger obstacle to growth than the tax burden is the level of public debt across the world, which is reflected in higher interest rates across the OECD countries? Therefore, can he restate the Government’s commitment to the fiscal rules and to fiscal consolidation in general?

My Lords, does the Minister agree that a bigger obstacle to growth than the tax burden is the level of public debt across the world, which is reflected in higher interest rates across the OECD countries? Therefore, can he restate the Government’s commitment to the fiscal rules and to fiscal consolidation in general?

The new Chancellor has said that we will stand by the fiscal rules that were laid out at the start of this Parliament. The noble Lord is absolutely right about the debt servicing costs that we have to meet. One of the upsides—not of the debt but of what is happening—is that while borrowing was stuck at about 5% of GDP for the previous four years, it has fallen by 1% to its lowest level for six years, at 4.2%, in 2025-26. According to the IMF, this year, for the first time since 2004, we are forecast to be borrowing less than the rest of the G7 on average. We all know about the conflict in the Middle East and the impact that is having on debt not just in this country but around the world. However, we are setting a plan to ensure that we can lower that debt burden.

The new Chancellor has said that we will stand by the fiscal rules that were laid out at the start of this Parliament. The noble Lord is absolutely right about the debt servicing costs that we have to meet. One of the upsides—not of the debt but of what is happening—is that while borrowing was stuck at about 5% of GDP for the previous four years, it has fallen by 1% to its lowest level for six years, at 4.2%, in 2025-26. According to the IMF, this year, for the first time since 2004, we are forecast to be borrowing less than the rest of the G7 on average. We all know about the conflict in the Middle East and the impact that is having on debt not just in this country but around the world. However, we are setting a plan to ensure that we can lower that debt burden.

My Lords, wealth creators and entrepreneurs are more internationally mobile than ever. What steps are the Government taking to ensure that their cumulative tax rises do not drive away young people or established wealth creators such as Chris Rokos, who until recently contributed so much to the UK’s prosperity in tax and philanthropy?

My Lords, wealth creators and entrepreneurs are more internationally mobile than ever. What steps are the Government taking to ensure that their cumulative tax rises do not drive away young people or established wealth creators such as Chris Rokos, who until recently contributed so much to the UK’s prosperity in tax and philanthropy?

The noble Baroness has mentioned young people and the importance of them staying in the UK and working here. We all know the problems that we have with NEETs. We need to consider what some businesses around the country and internationally are saying about doing business in this country; for example,

“businesses are starting to press ahead with investment … we are starting to see the data moving in the right direction”

and

“Despite geopolitical tensions, cost-of-living pressures and fiscal uncertainty, the fundamentals for … UK businesses are strong”.

This is business that is speaking about the future of the British economy. As I said, we need to be optimistic. She asked whether the tax burden is driving people out of the country. Some figures will be released next year which we think will prove that the effect has been marginal on the number of people who are leaving.

The noble Baroness has mentioned young people and the importance of them staying in the UK and working here. We all know the problems that we have with NEETs. We need to consider what some businesses around the country and internationally are saying about doing business in this country; for example,

“businesses are starting to press ahead with investment … we are starting to see the data moving in the right direction”

and

“Despite geopolitical tensions, cost-of-living pressures and fiscal uncertainty, the fundamentals for … UK businesses are strong”.

This is business that is speaking about the future of the British economy. As I said, we need to be optimistic. She asked whether the tax burden is driving people out of the country. Some figures will be released next year which we think will prove that the effect has been marginal on the number of people who are leaving.