My Lords, I draw noble Lords’ attention to my entry in the register of interests, which notes the businesses I have started, invested in and grown over the years, including my main business, Cavendish Financial plc, which I started with one colleague and a PA and, I am pleased to say, now employs over 200 people.
The timing of this QSD seems remarkably fortuitous—I cannot claim it was wholly planned this way—and will perhaps allow us to consider the rationale and effect of some of yesterday’s Budget as well as reflecting on how future changes to tax policy might affect employment and related areas.
The Minister will be pleased to know that I will not be spending all my allotted time digging in the illusory black hole, as the OBR has rightly confirmed that, other than a possible contentious £9.2 billion, the £22 billion was not something that it could support—at least in respect of the reserves, where the underspend is yet to be determined. We will have to leave that matter there. I suspect that the Minister will also be pleased to know that we will not spend the whole of the next four years going over this, to our mutually enormous pleasure. That is not really the point here, other than to note that Labour created a reason to increase tax and so, like every other Labour Government, increase tax they so did.
As I am sure the noble Lord, Lord Bilimoria, will recall, we were warned by the CBI earlier this week when Mrs Newton-Smith said:
“If we see a rise in national insurance contributions paid by employers … that will make it more difficult for businesses”.
That warning was echoed by the respected economist Paul Johnson of the IFS, who pointed out that NI is a tax felt solely by working people and employers. His response to the actual rise has been to remind us that the OBR suggests that three-quarters of the impact of employer NICs will be felt by employees, even if the changes do not immediately show up on their payslips. Indeed, these tax rises partly explain why the OBR has downgraded its projections for real household income growth over the next few years. Someone will pay for the higher taxes, and it will largely be working people.
The employers’ NIC rise will further increase the incentive for employers to switch to contracting with the self-employed or, as many will have heard on today’s radio broadcasts—and this is really worrying for us here—to subcontract to overseas production. Indeed, I have talked to employers today who have said to me that they are cutting down on their future recruitment. Radio 4’s “Today” programme said it had not found one business person who thinks that yesterday’s Budget will help their business to grow and employ more people.
Incidentally, Paul Johnson also opined that a rise in employers’ NI would be a straightforward breach of Labour’s manifesto. His views on the damage to employment that the rise will cause has been echoed by normally non-political characters, such as the CEO of Lloyds Bank, and of course for certain industries, such as the hospitality sector, it will be a disaster. Mark my words: care homes will close after this Budget.
I thank the noble Lord, Lord Leigh of Hurley, for raising this issue. As he says, the debate is extremely timely. I have set up and run a small business—not at all on the sort of scale that he has achieved but it has given me a perspective that he perhaps suggested in his speech did not exist on this side of the discussion. Many noble Lords who take the Labour whip have been successful in business, so I think the suggestion that we on this side of the Committee do not know what is required to achieve success in business is wrong.
I will not pursue the issue of the £22 billion, which has been well trodden, but will pick up on the noble Lord’s comment that Labour created a reason to increase tax. It was not Labour that created the reason; it was 14 years of Conservative mismanagement of our economy that created the situation that has led to increases in tax.
I spoke briefly to the noble Lord, Lord Leigh, yesterday, and we agreed that it is a general issue and not just about the Budget. Looking at the issue in general, it is quite clear that if firms have to pay higher tax then there will be impacts on employment, on the pay that can be given to employees, and presumably on profits. Of course, profits does not just mean entrepreneurs; it means pension funds and other investors who hold those investments. Clearly, those effects exist—I do not think anyone would argue about that.
However, in truth, it is a lot more complicated, because the Government receive the money and then spend the money—they do not bury it in a hole in the ground. The Government increase their revenue and use it to create employment, through providing their own services, and to create the society infrastructure that is required for business to operate. Higher quality infrastructure means more successful businesses. The Government also purchase, using that money significantly to buy from the private sector—and much of the private sector depends on government revenues for its economic success. There are two sides to that equation and we cannot assume, a priori, that one side is more significant than the other. We have to look at the evidence.
My Lords, the Government, the Chancellor and the Prime Minister keep talking about growth. The investment summit at the Guildhall had a huge sign saying “Growth”. But, to do that, the private sector has to be supported to grow. It is private sector growth that creates the jobs that pay for the taxes that pay for public services—no growth; no taxes. If you put up taxes, you get no growth. That is the paradox.
I thank the noble Lord, Lord Leigh, for his excellent opening speech. Taxes on employment generate £454.8 billion. That accounts for 45% of total public sector receipts. It is huge. Employment tax revenues represent almost 17% of UK GDP. For a married worker with two children earning an average salary, the UK has a tax wedge of 27%, above the OECD average of 25.7%. Higher employment taxes can discourage firms from hiring, reduce wages and affect workers’ decisions to enter the workforce or seek higher-paid jobs. Corporate and consumption taxes also influence that. Employment corporate taxes can deter investments in jobs. I am sorry but the previous Government have to be blamed for raising taxes to their highest level in 70 years and, in particular, putting up corporation tax from 19% to 25%. That was a huge mistake and should not have been done.
Consumption taxes create a wedge affecting labour, demand and supply. Higher taxation is associated with reduced labour supply, and studies show that a 1% rise in tax correlates to a 0.5% drop in hours worked. Of the 17 OECD studies, only five found no significant negative impact of taxes on unemployment. The remaining studies indicate that higher labour taxes increase unemployment levels. A 10% reduction in the tax wedge could lower equilibrium unemployment by 2.8% and raise the employment rate by 3.7%. That is what we are talking about. The fiscal drag that the previous Government put in place until 2028 is also hugely damaging, affecting 7 million tax payers.
My Lords, I congratulate my noble friend Lord Leigh on securing this timely debate, which feels like a dress rehearsal for the actual Autumn Budget debate on 11 November.
I wish to contribute three points today. First, I want to share some views from business leaders outside London on employment taxes. Secondly, I want to highlight what appears to be an inconsistency in government policy. Thirdly, I want to focus on the need to encourage UK-born entrepreneurs to stay here and create jobs rather than going overseas.
On my first point, I draw the attention of noble Lords to a report launched by the Jobs Foundation this week. As my noble friend Lord Leigh kindly mentioned, I am president of the Jobs Foundation, as declared in the register of interests. The report is called: Two Million Jobs: How Businesses Play a Crucial Role in Helping People from Welfare into Work. It is a ground-breaking piece of research that tries to help the Government to deliver on their highly commendable ambition to increase the employment rate to 80% by helping 2 million people from welfare into work.
The author interviewed business leaders, employees and stakeholders in four locations—Sheffield, Loughborough, Hartlepool and Pembrokeshire. These locations were chosen to cover the length and breadth of Britain, and represent the individual needs of a city, a town, a coastal community and a rural community. Many policy areas were discussed, and I know from these conversations that some elements of the Budget will have been very much welcomed, including the measures to improve transport links. But a consistent theme from the interviews was a concern about increasing taxes on employment, so I know that many of the business leaders spoken to, who are all involved in helping people from welfare into work, will be concerned about the announcement on employers’ NI in yesterday’s Budget.
My Lords, I thank my noble friend Lord Leigh of Hurley for this debate about the impact of tax policy on employment. I repeat the title, because I can see that the exam question has moved to the impact of the Budget on business. Unfortunately, I will probably fail as well.
I talked about a “boom in gloom” in the short debate on foreign investment in September. At that time, business had already grown fearful about slowing growth, with a foreboding that we were heading away from a market economy towards big state-led economic management. Confidence was waning. Employment is a barometer of business confidence and investment, so will this Budget shore up or further blunt such confidence? The answer boils down to whether business trusts the Government to spend their higher tax and new borrowings productively and deliver the future growth dividend ultimately to balance the books.
Many, if not most, are sceptical about this tax, borrow and spend Budget package. It seems doubtful that it can deliver the innovative entrepreneurial economy that the UK should aspire to. The OBR’s own revised forecasts on inflation, rates and growth made for poor reading overnight, while sovereign yields widened in the gilt market. That is not anecdotal; it was on the Financial Times website all day. Rates will stay higher for longer, increasing the cost of capital for the economy, the Treasury and mortgage holders.
The impact of these tax measures on employment is the key for growth. I shall frame this around three observations, first addressing the impact on business and employment. Business is facing a trifecta of a high minimum wage, increased NI and a new set of labour rights. Let us not pretend that, by taxing business, the impact will not fall on working people and consumers themselves. This is taxing employees through the backdoor. It will sap confidence, increase costs and hurt employment. An increase in income tax, although equally regrettable, would at least have been more transparent and given workers a clearer idea of the impact on them. It is rather complicated to get to the same money. The OBR report says:
My Lords, the noble Lord, Lord Petitgas, suggested that this QSD would make a good exam question. I have often thought of it as a possible topic for PhD study; perhaps somebody has done it already.
Before I get on to the detail of the Budget, let us look at the positive use of tax policy in this country’s economy. I can think of three good examples. Let us take the agriculture industry: without the use of tax subsidies since the Second World War, we would not have the farming industry we currently have. Secondly, let us take the use of tax relief for microbreweries, which the Government want to encourage—I think that is somewhere in these documents. The tax relief given to microbreweries has created a lot of employment in the sector for people creating small breweries. Thirdly, the obvious example is the use of tax relief for the film and television industry, which provided a massive subsidy. If you make a film that qualifies in the UK with a budget of £100 million, you get back £25 million to £30 million in cash the moment you deliver the product. This has meant a huge increase in the number of films made in the UK; almost every Hollywood studio no longer makes its films in Hollywood but in the UK, entirely as a result of the positive use of the tax system to benefit our economy.
Inevitably, as the noble Lord, Lord Leigh, said, we must touch on what happened in the Budget. I do not think that I have so far heard anybody defend what happened in terms of the use of NI to raise £25 billion. Actually, it is not just the use of NI that is potentially damaging to small businesses, care homes, pubs and restaurants. It is also the triple whammy of the possibility of an NI increase, the increase in the minimum wage and the changes to zero-hours contracts. Nobody quite knows how those will impact on small businesses, particularly in the entertainment sector. The OBR says—this is common ground, I think—that, as a result of these policies, at least 50,000 jobs that would not have been lost otherwise will be lost and that our growth rate will be a lot lower than it would have been otherwise.
My Lords, it is a great pleasure to follow the noble Lord, Lord Razzall. I agreed with some of what he had to say, which is a bonus for me today, so I am enormously grateful for his contribution. I am also grateful to my friend Lord Leigh for tabling this debate. Who knew that it was going to be so well timed? Like many others, I too will fall into the trap of focusing on the Budget because it is top of mind at the moment, and not in a good way.
I have to say, from listening to my noble friend Lord Leigh’s opening remarks, that he brings extraordinary expertise of commerce and the private sector, as of course do many other speakers in this short debate today, notably my noble friend Lord Petitgas and of course the noble Lord, Lord Bilimoria. Unfortunately, that is more than can be said of the current Chancellor and indeed the wider Cabinet—I think some analysis has been done, and private sector experience is somewhat lacking—so I hope that the suggestion made by the noble Lord, Lord Davies of Brixton, that some of the Labour Peers are promoted to positions of greatness such that they can share their private sector expertise, is taken up. It is definitely the case that there is private sector expertise on the Labour Benches; it just does not seem to have got up to the top levels.
Yesterday the new Labour Government raised the tax burden to the highest level in our country’s history. Despite making an outright promise not to raise taxes on people, they raised taxes on working people. In hiking the employers’ national insurance contributions—NICs for short—to raise a headline figure of £25 billion, the Government have committed a straightforward breach, according to the IFS, of their manifesto. Furthermore, there are numerous examples of the now Prime Minister and Chancellor promising before the election not to hike taxes. Can the Minister give the Committee any insight into how the discussions went when drafting the section of the manifesto about no increase in taxes on working people? Was it a cunning sleight of hand that left the words “national insurance contributions” unencumbered by the “employees’” qualifier, or was it just incompetence?
No; my speech is already six minutes long, but I will do it next time.
Of course, at that time, we were dealing with the pandemic and its fallout, and the fallout from the energy price support we had given. Therefore, we had a very firm footing on which to raise taxes.
The Minister will try to bring out his fictitious black hole; I sincerely hope that he will not, given what the OBR has now said about it—I am starting to feel a bit embarrassed for him. Plainly and simply, promises have been broken, and we need to now think about what we can do to ensure growth in the private sector. The views of the private sector on this are now well known. Can the Minister share with me whether anyone in the private sector thinks the rise in employer NI is a good idea?
I want also to look at what the OBR has to say in its economic and fiscal outlook. My noble friend Lord Elliott is right. It is like beer, which is going down by 1p in a pint—that is huge, is it not?—and wine: the more you tax it, the less you get. The noble Lord, Lord Razzall, was very helpful in this regard. If you tax the film and creative industries less, they grow more. Unfortunately, we have seen taxes go up, so—surprise, surprise—the labour supply is forecast to come down by 0.2%. I do not know whether the Minister is happy with this, but I wonder what the Government will do to mitigate for those people who would otherwise have been in a good job.
But it is worse than that. Real earnings will then stall in 2026 and 2027, as firms rebuild their margins and pass on the costs of higher employer NICs. Real wages are not expected to resume growing in line with productivity until beyond the forecast horizon. What interventions will the Minister set out in terms of increasing productivity such that we can get some sort of real wage growth going?
It is not just the OBR that has an issue here; it is also HMRC, which reflects that 940,000 employers will lose an average of £800 per employee. This is not good news for employment, and it is not good news for growth. Labour’s No. 1 mission is to secure the highest sustained growth in the G7. I am an optimist, but this Budget literally has the forecasts for growth coming down. I cannot see how that is compatible with Labour’s No. 1 mission.
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A Mrs Christina French from Birmingham, founder of Diverse Sparks Ltd, an electrical contractor, has been quoted in the press as saying that the rate rise and the threshold drop has meant that she has now to consider selling her business. Her exact words were:
“It’s rubbish because I’ve created jobs and apprenticeships for the last 12 years, and now that’s not going to be an option for us”.
That is the reality of life for business owners. Sadly, Labour’s Front Bench has not much experience of starting a business and hardly any of running a small business, so they may not be aware of the pressures facing business owners. If they are not going to listen to business creators and owners such as Mrs French and me, perhaps their friends at the OBR might persuade them that, when it points out that,
“The employer NICs rise is estimated to reduce labour supply by 50,000 average-hours equivalents”
and promptly downgrade the UK’s growth prospects, it should be listened to.
The wonderfully named Growth Commission, which one would have thought would take pride of place at Labour’s top table, has modelled a rise in NI and predicts that it leads to a negative hit to GDP, peaking all the way to 2030 but still impacting GDP negatively in 2045-6. One has to wonder whether the gamble, which has been taken to fill a hotly disputed black hole with a tax rise on jobs, really makes sense? Perhaps the Minister can explain the thinking here, particularly given the hugely respected Growth Commission’s views.
I am grateful to some other great folk, such as those at the Jobs Foundation, chaired by my noble friend Lord Elliott of Mickle Fell, who remind us that businesses and entrepreneurs provide 80% of the jobs in the UK. Their mantra comes from Winston Churchill, who famously said—though I refrain from doing the accent—that:
“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon”.
Famously, the Chancellor herself referred to an increase in NI as a jobs tax. This was in 2021, when criticising the proposals then to raise national insurance. Her point was that NI is purely a tax on people who go to work and those who employ them. She then said, revealingly, that, if you earn an income through dealing in stocks and shares, you do not pay a penny more in NI. That is revealing because it shows that Labour does not really understand and appreciate the difference between capital gains and income. Perhaps the Minister can explain to the Chancellor that dealing in stocks and shares is not a source of income: it is an activity that requires you to risk capital, which you might lose because of the great uncertainty. This brings me to my concern about the effects of other tax rises on employment.
For businesses to grow and employ more, they need capital. Many, like mine, have been to the capital markets through the Alternative Investment Market—AIM. That market has become harder and less liquid, despite the best efforts of Jeremy Hunt and the Mansion House compact. The decision taken yesterday to reduce business property relief—BPR—on inheritance tax by 50% will be a hammer blow to many entrepreneurial family businesses. When a family member passes on, they will now have to find 20% of the current value of the shares and pay for that in cash. That will simply lead to more firms closing down, selling up and having to sell assets to release cash, simply for the Exchequer.
This huge rise in IHT for private business owners has yet to be fully assessed. In its booklet, the OBR does not split out APR and BPR, so we have no idea of the true cost. We do know that this move and, of course, the potentially disastrous decision to tax the non-doms, in particular by including the EPTs in inheritance tax, means that wealth creators who create jobs are despairing at the effects that this Budget will bring to employment.
In my opinion, these measures are not just about raising tax but about ramming through ideological dislike for inherited wealth and, indeed, private enterprise. Sadly, the measures taken will, in reality, really damage everyone employed in the UK. I ask the Minister what assessment HMG have made of the impact of their tax policy on employment. I beg to move.
I thank the Library for its relatively short briefing. It identifies that this whole area is contested, at the least. It is very difficult to identify cause and effect in this area because the whole system is moving on. It is not an isolated, scientific experiment, with a control for all the variables involved; to reach a definitive conclusion is not straightforward. For example, there is the vexed issue of incentives and disincentives. The situation as it works in practice is not quite as clear-cut as the anecdotes that are often advanced to try to argue on one side or the other. The general issue, as I say, is a lot more complicated than perhaps was suggested by the noble Lord in asking his Question.
The noble Lord quite rightly identifies that we have an interesting case study in yesterday’s Budget of what the effect of the increase in national insurance contributions will be on employment. The Office for Budget Responsibility’s report makes for interesting reading. Of the net effect of the measures in yesterday’s Budget, principally the increase in national insurance contributions, it says that:
“The unemployment rate is forecast to average 4.3% in 2024, a small increase on 2023, before remaining close to 4.0%. The employment rate (for those aged 16 and over) is expected to remain close to 60% over the forecast”.
Whatever the impact of the increase in national insurance contributions by itself, the overall effect of the Budget is to maintain employment and, ultimately, provide the basis on which our Government will move forward and achieve the sort of growth we need to repair our public services.
The Labour Party has promised to maintain corporation tax at 25% and not raise income tax, employees’ NI or VAT. That is all great, but the noble Lord, Lord Leigh, mentioned the hugely damaging effect of the taxes on non-doms and the removal of the non-dom regime. Inheritance tax reforms will drive investment away from this country. I know many people who have already left. Some 75,000 non-doms pay £9 billion of tax; they spend and invest in this country. Those people are mobile and that money will fly.
The increase of capital gains tax from 20% to 24% was not as bad as we thought, but the elephant in the room is the £40 billion of tax increases. The OBR warned that this could weaken long-term growth in the UK economy. Sure enough, the forecasts for growth do not even reach 2% in the years ahead, at about 1.5% or 1.6%. Increasing national insurance by 1.2% to 15%, raising approximately £25 billion, is a tax on jobs. I agree with the noble Lord, Lord Davies, that if you spend more and increase infrastructure then that should help productivity, but our public spending will reach 44% of GDP by the end of the decade, funded by tax and borrowing. Businesses are bearing the brunt of this £40 billion tax increase. The threshold of NI going down from £9,100 to £5,000 will bring many more people in as well. The business rates discount put in place by the previous Government of 75%, which has really helped, is going down to 40%. How many pubs and restaurants and how much of the high street will be able to take that?
On top of that, we have a £5 billion cost on the impact of employment regulation, and we have flexible employment, which is a huge advantage over a country such as France. If you make our workforce less flexible, it has a cost to it, and it makes us less attractive for investment. Inflation is now predicted to go up to 2.5% or 2.6%.
To conclude, since 2008, over those 16 years of financial crisis, austerity, the Covid pandemic, the Ukraine war, with inflation up to 11%, energy inflation, the cost of living crisis, 7 October and the tragedy of that day and the tragedy since, and with the uncertainty in every direction you look in the world, how much more can business put up with? How much can business deal with? How resilient can our businesses be? As the noble Lord, Lord Leigh, said, 80% of the jobs are provided by it, and then there are the 5 million SMEs and the jobs that they provide. How can we carry on and deal with just one challenge after another? Then we get this Halloween Budget, burdening business with higher taxes. This is a tax, borrow and spend Budget, not a growth Budget. It is not a pro-business Budget or a pro-entrepreneurship Budget. The Government’s job is to be a catalyst and create the environment for businesses and entrepreneurship to flourish and grow. The Budget does exactly the opposite.
That brings me on to my second point. Listening to the Budget, I was struck by the apparent inconsistency in government tax policy. On the one hand, the Chancellor announced an increase in the soft drinks levy, presumably to discourage people from buying sugary drinks; a rise in alcohol duties to discourage drinking; and an increase in tobacco duty
“to maintain the incentive to give up smoking”.—[Official Report, Commons, 30/10/2024; col. 819.]
All these tax rises are premised on the correct assumption that increasing taxation reduces consumption. But, on the other hand, there seems to be little recognition that increasing taxes on jobs by increasing employers’ NI will similarly reduce demand for employees, and potentially reduce the number of people in work. If increasing taxes on tobacco is designed to reduce smoking, surely increasing taxes on employment reduces the number of jobs? I would be interested to know whether the Minister expects the number of jobs in the UK to fall with the increase in employers’ NI. If that is the case, will it not hinder the Government’s laudable efforts to get 2 million people from welfare into work?
My third and final point is that we need to focus on how taxation affects where entrepreneurs locate themselves and their businesses. Earlier this month, I attended the GITEX conference in Dubai, which gathered together over 6,500 entrepreneurs from over 180 countries. It was a wonderful window into the future and so inspiring to see innovators enacting their ideas and creating the world of tomorrow. However, something was painfully striking: the number of young UK-born entrepreneurs who had left the UK to pursue their dreams and ambitions. I asked them why they had chosen to do this, and a consistent theme was the UK’s business environment, including, but not solely, the level of taxation. One might ask: why is this a problem? It is a problem because start-ups create far more new jobs than established companies.
A report by the Ewing Marion Kauffman Foundation in 2022 looked at the United States and found that, in 2019, companies in their first year created 5.24 new jobs each, while companies older than that created, at most, 0.4 new jobs each. Therefore, it is essential that we incentivise start-ups to locate here in the UK to create some of the 2 million jobs required to increase the UK’s employment rate. Sadly, some entrepreneurs are already looking to vote with their feet. A recent survey by the Startup Coalition found that more than 80% of the start-up founders it represents were considering leaving the UK. We need the young entrepreneurs I met in Dubai to want to stay here in the UK to build their companies and create jobs, and that requires a tax system that encourages entrepreneurship and incentivises wealth creation.
“The rise in employer NICs in this Budget will further erode profits and we assume firms are only able to pass on around 60 per cent of the cost to employees in the short term”—
probably rising to more than 80%. Moreover, uncertainty about new labour rights represents a policy risk.
All this will feed into the real economy through high prices, low consumer spending and a slow labour market. This painful trifecta will raise costs for business, discourage expansion, and hurt staffing levels and hiring plans. Certain sectors, such as hospitality and retail, and SMEs, which cannot cushion from shocks easily, will have to pass on these higher costs if they can and, if they cannot, they may need to lay off. It is misleading to suggest that, by taxing business, you are not taxing employees—unless, of course, they are in the public sector. What analysis has been prepared, sector by sector and for SMEs, on the impact of these measures on employment?
My second point concerns inflation. We, along with the OBR, should worry about continued inflation. The “tax, borrow and spend” spree is happening at pace while the returns of large public investments, if any, will come through only in the long term. As the noble Lord, Lord Davies, said, a fundamental issue is the mismatch between borrowing the money now and spending it and the long-term returns; that is not to say we do not need more infrastructure. Confidence is therefore crucial to seeing us through the interim years. However, so far, the OBR, the markets and business are all showing grave misgivings. The costs of capital and of doing business in the UK have gone up. It is a difficult quandary and a real dilemma. Did the Government assess the impact of their new labour rights, raised minimum wage and public sector awards on inflation?
Let me end on the NHS. It is, as I see it, one of the case studies on investing in infrastructure for the long term. It binds two key aims: ensuring a healthy workforce, and the productive use of money. These are crucial, because the welfare bill is growing faster than GDP while too many working-age people are unfit to work. The Government have rightly said that they want greater emphasis on preventive care—I appreciate that this is not necessarily the Minister’s area of expertise—but preventive care is about telling people how to live their lives in healthier ways. Is money the obstacle, therefore, or is it more about finding the right language and legitimacy for the state to have these conversations? I say that not to belittle the huge issues facing the NHS, including its need for money, but to highlight the fact that it is not always about spending more money—and the same applies to education. It is also about setting productivity targets and changing the culture.
I am slightly disappointed that I have not yet heard a speaker in this debate say what they would have done as an alternative. We have heard all the arguments as to why this is a lot of rubbish; the noble Lords, Lord Bilimoria, Lord Leigh and Lord Petitgas, all suggest that it is what they would not have done, but we have not heard what they would have done. There seems to be some common ground; although the noble Lord, Lord Leigh, denied the existence of the £22 billion black hole, which I do not want to get into, I do not believe anyone thinks we do not need to raise more revenue to improve our public services. In that case, how do we do it? Bearing in mind that the Labour Government boxed themselves in by saying they were not going to increase income tax, VAT or NI, they had to do something.
Personally, I would not have done this. Our policy would have been to look to raise tax revenues elsewhere. We would have looked again at a better windfall tax on the oil and gas companies. We might have reversed the tax cuts that the Tories gave to the banks, and we might have looked at the obvious group that can provide more revenue for us: the large social media companies. We could have found creative ways to raise the money without doing this, which in a lot of ways is a tax on jobs.
We are all very pessimistic at the moment, but I have always been a bit optimistic. I remember standing in the Chamber in about 1998 or 1999 when the Labour Government introduced the minimum wage, and every speaker on this side said, “This is going to be a complete disaster; the minimum wage will destroy jobs and destroy our country as we know it”. It did not, and I hope this does not either.
The noble Lord, Lord Bilimoria, made an excellent contribution. I appreciate his comments about the last Government. As a Conservative, I can say that no one wants to see taxes go up—it is just not in our DNA.
I remember many debates when I was a Treasury Minister and the noble Lord, Lord Livermore, in opposition, would slam me for tax rises. I was going to come up with various quotes today about the number of times he has previously slammed me for tax rises, but I thought that would be really cruel.
The noble Lord, Lord Razzall, asked for alternatives. I will give him two that are still on the table. First, if we increased productivity to pre-pandemic levels, we would get £20 billion a year. Secondly, reforms to adult welfare would save £34 billion a year. That was our plan; we did have a plan but, unfortunately, we were not able to put it in place.