That an humble Address be presented to His Majesty as follows:
“Most Gracious Sovereign—We, Your Majesty’s most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty addressed to both Houses of Parliament”.
My Lords, it is a great honour for me to open our five-day debate on the gracious Speech. These moments allow us to reflect on how much we have achieved after many constructive hours of debate, lots of votes and the occasional—or maybe not so occasional—late night. Noble Lords know quite how ambitious we have been in our legislative agenda. Over 60 Bills were passed in our first Session of Parliament, and yesterday His Majesty set out our ambitions for the forthcoming Session.
Those ambitions have one central mission: to build a more resilient country that spreads opportunity for all. The country in which we live is one in which talent is everywhere but opportunity is not, and the world in which we live has never felt more dangerous and volatile. Even in the last few months, global uncertainty has only increased, and the impact on our neighbours is real. They are struggling with the cost of living and worrying about the impact on their futures and their children’s futures of events outside their control. Our discussions today and in the rest of this Session must be real and tangible for them—they must be felt by people in their daily lives. Delivering on our promises are not just words but our contract with the nation.
That is why the gracious Speech set out new legislation focusing on outcomes, not outputs. It does not just address the problems of today but seeks to strengthen our national foundations, so that we can build a stronger and fairer economy that works for all of us in England, Wales, Scotland and Northern Ireland, bringing prosperity to every corner of the United Kingdom, building on our place in the world and strengthening our relations with key allies.
The Government’s economic plan is based on three pillars: to create a strong foundation for businesses to plan and invest, to deliver growth-driving infrastructure and to crowd in private investment, and to systematically remove the barriers to growth across the economy.
This year’s Spring Statement showed that our economic plan is the right one but, as we have set out, the war in Iran will come at a cost. That is why the measures set out in the gracious Speech will help build growth that is both secure and resilient in order to raise living standards for working people.
At the heart of this, as noble Lords will be aware, we are continuing our work to secure a closer and more stable relationship with our largest trading partner, the EU, valued at £860 billion last year. This is vital, because since Brexit too many businesses are burdened by unnecessary bureaucracy that dominates everyday imports and exports with the EU, compounding the costs that are passed on to British families, pushing up prices and increasing the cost of living. The common understanding agreed last May will remove those barriers, underpinned by sensible legislation that upholds British standards while cutting red tape.
This is a core part of a wider plan. The UK is taking a strategic and clear‑eyed approach to major partners, deepening trade where it supports growth while balancing security and economic resilience. That includes securing a landmark deal with India, expected to boost UK GDP by £4.8 billion a year; making the most of our accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, expected to increase UK GDP by £2 billion a year; and a stronger focus on the UK’s global strengths, particularly in services exports.
My Lords, when the Chancellor of the Exchequer made her first speech in that office on 8 July 2024, she said that, by growing the economy, the Government could
“rebuild Britain and make every part of the country better off”.
That was not a modest claim; it was the central economic wager of this Government. Ministers told the country that the hard arithmetic of our public finances could be overcome by sustained growth across the Parliament, and that higher productivity, higher investment, stronger real wages and the highest sustained growth in the G7 would produce abundance and avoid difficult choices. That ambition is not wrong: Britain needs growth, and we want the country to be more prosperous, more productive and more secure.
However, growth is not summoned by slogans; it is not delivered by a press release, a reset, a mission board, a pillar or another ministerial speech. Growth is earned by those who embrace risk and sustained effort to produce value. Government can, at best, help enable growth by making this country the best place in the developed world to invest, to hire, to build, to innovate and to make things. Two years on, the question before this House is not whether the Government’s ambition was the right one, but whether their policies have matched that ambition. The answer, I am afraid, is clear: the Government have borrowed too much, grown too little and regulated to excess.
The Office for Budget Responsibility tells us that successive plans to reduce borrowing and stabilise debt have “not yet materialised”. Public sector net borrowing was £152 billion in 2024-25 and is forecast at £132 billion this year. Underlying debt has continued to rise. Debt interest spending is forecast to rise from £110 billion in 2025-26 to £137 billion by 2030-31. While government debt is rising and borrowing costs are at a 30-year high, the Government are spending £333 billion annually on welfare. That is more than the Government receive in income tax. That is very the definition of unsustainable.
My Lords, nearly two years ago, the general election resulted in a brief outbreak of euphoria on the Benches opposite, and then, during the long parliamentary Session that followed, reality bit. During that campaign, as we heard, growth was declared as the number one priority of that Government, and yet, during that first Session of Parliament, many of the Government’s actions pushed in the opposite direction. The truly disastrous increase in employers’ NIC was a striking example, but it was by no means unique. It meant that the country exited the last legislative Session with greatly increased operational costs for businesses. This sent messages that discouraged investment and pushed thousands of high street businesses and hospitality businesses into oblivion. It was indeed the opposite of a growth-centred strategy, and the hangover from that Session will see yet more non-growth legislation that has yet to arrive.
Now we have a new set of Bills, and, as we have just heard, the prism through which we should look at them is: how does it affect the Government’s mission on growth? Let us look at some of those Bills. On the small business protections (late payments) Bill, yes, it is important that we deal with the scourge of late payments, but we will be looking to see how the legislative back-up will be delivered to support the small business strategy the noble Baroness, Lady Anderson, just spoke about.
Then we have the enhancing financial services Bill. We welcome reforms that may support growth, but we do not want to put pressure on people’s savings and undermine consumer protection, so we will be looking very hard at the details there.
The competition reform Bill seems like an attempt to water down the work of the Competition and Markets Authority in the way that each digital unit has been curtailed, so we will be looking very closely at that plans on that Bill.
The regulating for growth Bill looks like just the sort of technical Bill that your Lordships would like to get your teeth into—I look forward to many hours of that.
My Lords, most of us agree that economic growth is critical. I am very pleased to see that it is on the board, as it is one of the best topics that we are discussing in this response to the gracious Speech. Growth widens the choices that are available for Governments. It increases the scope for making those choices and the trade-offs that Governments are forced to make. As we know, higher output and greater productivity lead to high disposable incomes, generate the taxes that we need to fund public services, and, when you have a decent rate of growth, provide much more room for spending, adjustments and allocations between different areas.
The tough challenge for any Government is that underlying growth rates change only slowly and are difficult to predict. Since 2007, the growth rates of the major countries have been significantly slower than they were in the years before. In this respect, the UK’s performance is similar to that of other major European countries. The reality is that it is difficult to increase the underlying growth rate in the UK if we have slow growth around the world. That has been the pattern and, for the moment, it looks as though that pattern will continue.
We must be much more careful about putting too much emphasis on month-to-month changes, which tend to be erratic. There has been a pattern in recent years of stronger figures in the early months of the year and weaker figures later—possibly a seasonal adjustment problem. This morning’s GDP might show a quarterly increase of 0.6% but the reality is that this is still only 1.1% higher than the first quarter of last year. This compares with the years when we became accustomed to growth rates of 2.5%.
One criticism of the Government’s approach has been the failure to acknowledge at an earlier point that much of the previous Government’s woes were due to this global slowdown and that simply changing Governments has not changed this. Ahead of the election, the Economic Affairs Committee highlighted major spending challenges ahead—the cost of net zero, increased defence spending and an aging population—all of which will put pressure upon financial stabilisation. Given these challenges, my view was that taxes would have to increase across the board or significant public spending savings would be necessary, and probably both. Instead, we have seen increased public spending and attempts to raise taxes either on employers or on a very narrow part of the tax system. This has sparked anger and has not succeeded in raising sufficient revenue. Further, the other measures to protect jobs have done little to improve the economy’s supply side.
My Lords, I am pleased to speak in this debate on the gracious Speech and wish all noble Lords well in this new Session. I declare an interest as president of the Rural Coalition.
It is an honour to follow the noble Lord, Lord Burns, particularly with his north-east roots. I speak from the perspective of the region in which my diocese is located, the north-east. These are communities with deep resilience and enormous potential but which continue to live with the consequences of economic inequality, industrial transition and social fragmentation.
There is much that gives cause for confidence. We see innovation emerging from our universities and wider research communities, growing expertise in clean energy, digital technology and advanced manufacturing, and renewed confidence in sectors helping to shape the industries of the future. The North East Space Skills and Technology Centre, based at Northumbria University, is a notable example of combining public funding, university match funding and private sector aerospace investment—a model that is about long-term economic development.
However, optimism is accompanied by realism. The latest North East Chamber of Commerce quarterly economic survey points to a business community that remains resilient but cautious. Firms continue to report pressures linked to labour costs, energy prices, inflation and uncertainty around future demand. Businesses are still recruiting but many are delaying investment decisions and remain concerned about long-term productivity and skills shortages.
The rural economy is especially important within Northumberland, yet often insufficiently recognised in national economic debate. Farming, land management, tourism, food production and rural small businesses contribute enormously not only to economic activity but to environmental stewardship, cultural identity and the sustainability of rural communities. Yet many rural businesses continue to face challenges linked to transport connectivity, digital infrastructure, workforce shortages and access to services.
My Lords, it is an honour to follow the excellent contribution from the right reverend Prelate the Bishop of Newcastle. Her messages are directly relevant also to the area where I live, the south-west of England, and I congratulate her on her thoughts. It is also always daunting to follow the legendary noble Lord, Lord Burns, but that is the order in which the speakers turned out.
Yesterday’s gracious Speech emphasised “economic security”. Public expenditure is vital in achieving that. I strongly support the Chancellor’s spending reviews and Budgets. Her goals could not be more important: to create the conditions for growth, to maintain and improve public services, and to manage and reduce debt. I realise that the conflict in the Middle East poses significant challenges but, thanks to the progress already made, we face them with enhanced resilience.
The public debate and ours in this Chamber tend to focus on the amount government spends and the level of taxation. These are indeed fundamental questions, but I will focus on two related questions that perhaps get less attention. First, what matters most to the citizen and to economic growth is not just the amount we spend but how well we spend it. Every day, the Government spend £3.5 billion. How do we maximise the public value of every one of those tax pounds? Secondly, how might we innovate in the way that we raise and allocate funding for the social outcomes that we need?
I will start with the first question. Maximising public value surely demands that, at every level—from a teacher in a classroom or a nurse in a hospital ward to a civil servant or a Minister in Whitehall—there is a constant, daily focus on delivering real value. The noble Baroness, Lady Finn, made a similar point about Civil Service productivity. This is not a new insight; a previous Parliament concluded that “officials at every level will be ordered to make due, swift and good execution without tarrying or delaying”. The sentiment sounds contemporary, even if the language does not. It is from 1376. Parliaments have been urging more effective and rapid delivery for at least 750 years, and rightly so, because Governments spend other people’s money and should be firmly held to account for what they deliver in return.
My Lords, is a great pleasure to follow the noble Lord, Lord Barber of Chittlehampton, given his background as head of the Prime Minister’s policy unit under Tony Blair. Also, if I might, I will commend to colleagues his book, entitled Instruction to Deliver, which sets out very much the message he was giving about outcomes.
I refer back to the comment by the noble Lord, Lord Fox, about the steel industry, because the National Audit Office—he will know the importance of that institution—has produced a very detailed report. Rather like the noble Lord, I found the announcement that the Government now seek the power to nationalise British Steel to be fascinating—although perhaps not surprising, because it should be seen for what it is: not the emergence of a plan but the admission that a plan has already failed.
A year ago, Ministers came to Parliament—and we all arrived here on a Saturday, specially—to provide the emergency powers needed to prevent the imminent closure of the blast furnaces at Scunthorpe. We were told that this was a temporary intervention, that constructive discussions with Jingye were continuing, that the taxpayer’s support was recoverable, and that there was a route to a commercial solution. I do not know whether this features in the book, but I am reminded of Milton Friedman’s observation that there is nothing so permanent as a temporary government programme. Well, after all that, we are back precisely where the Government insisted on that day that we were not going: nationalisation anyway. The question for Ministers is simple: what has been bought for the money already spent?
The National Audit Office, releasing its investigation into the Government’s intervention in British Steel’s Scunthorpe site, revealed that, by 31 January this year, the department had spent £377 million on this and that costs were expected to exceed £642 million by June. That means £1.3 million to £1.4 million every single day. The NAO further observed that
My Lords, it is a great pleasure to follow the noble Lord, Lord Hunt, whose brand of Conservative politics I have always personally admired. He raises very important questions about the steel industry. However, I will make just two points. First, I agree that there is a case for a sovereign capability in steel, and we have to work out a strategy as to how best and most efficiently to do that. But, secondly, it has to be part of a European policy. We have to be there because we have integrated supply chains in the steel industry. A lot of our exports—something like two-thirds—go to the European Union, and there is a similar flow in the other direction, so we cannot have an effective policy without it also having a European dimension.
I want to focus my remarks on the gracious Speech’s commitment to building a much closer partnership with the European Union. I strongly support the Government’s proposed legislation but urge them to make fast progress. As the Prime Minister said, we need to be at the heart of Europe, and it seems to me that that is the only way forward to meet the frightening new geopolitical challenges that Britain now faces. It is also a necessary, but in my view not sufficient, precondition of restoring broad-based economic growth in our country, which has eluded us since the financial crisis, and more particularly since the 2016 referendum.
As we approach the 10th anniversary of the Brexit referendum, we need to ask ourselves what benefits positively have been realised. I am not aware of any respectable economic analysis that demonstrates positive benefits. How much have the so-called Brexit freedoms delivered? Some people here refer to the ability to make our own free trade agreements. My noble friend made an excellent speech this morning and referred to those Brexit freedoms. Let me just point out to the House that the benefits in economic growth to which she referred amount to about 0.5% of GDP per year, when the loss as a result of Brexit is something of the order of 4%, and some economists say far, far higher.
20 of 92 shown
To achieve growth in the current global economic environment, businesses need as much certainty as we can offer. They need support to take advantage of new trade opportunities, and of course they need assistance and guidance in light of new technological innovations. That is why we have published three landmark strategies setting out our collective vision for growth, seeking to make the UK the best place in the world to do business and the best-connected economy, and delivering targeted support for businesses as they seek to grow.
None of the issues we are discussing today can be considered separately from our national security and our place in the world. The ongoing war in Ukraine has highlighted the importance of European co-operation on security and defence. In an ever more uncertain world, it is right and necessary that we seek to deepen our strategic partnerships, including with our neighbours with whom we have common interests, face common threats and must build common solutions.
Your Lordships’ House will be aware that we have already taken concrete steps towards these objectives. Last year’s historic UK-EU summit announced a series of deals that are good for household bills, borders and jobs. We have also recently announced a significant agreement with France to reduce illegal channel crossings, and deeper co-operation has opened further opportunities for learners, educators and young people through our agreement with the EU on the UK’s association to Erasmus+ next year.
This is a sensible, measured approach that crucially also preserves our ability to strike deals with other countries. In this space we have had notable successes, including signing a trade agreement with India and concluding a deal with the Republic of Korea. We are also currently in the process of negotiating trade agreements with the United States, the Gulf Cooperation Council, Switzerland, Turkey and Greenland. The UK exported around £275 billion to these countries in 2025, and securing FTAs will strengthen our trading relationships.
As part of our mission to kick-start economic growth, we published three key strategies last year. The industrial strategy sets out the vision for the sectors that will help achieve the most growth for the UK, boosting long-term investment; the small business strategy outlines how we will support businesses in the UK to scale up; and the trade strategy details how DBT will make full use of a range of trade tools, from free trade agreements to agile or sector-specific mini deals that allow government to respond rapidly to the changing geopolitical context, maximising opportunities for UK businesses both at home and abroad.
Through the steel strategy, which we published in March, the Government set out our long-term plan to fight to revitalise the UK steel sector, restore domestic production to sustainable levels and secure the industry’s role in supporting sovereign critical sectors. We are now introducing primary legislation that will provide a route for government to nationalise steel companies or their operations, provided a public interest test is met.
Bringing British Steel Ltd under national ownership will allow government to explore future opportunities, including a transition to decarbonised steel-making, and to provide reassurance for its workers, suppliers and customers. This Government recognise that securing the long-term future relies on both public and private investment for modernisation.
We are also helping businesses to navigate Windsor Framework trading arrangements between GB and NI. We have announced £16.6 million for an enhanced “one-stop shop” regulatory support service designed to navigate the knowledge gap facing small and medium-sized enterprises. So too have we supported the work of InterTrade UK with over £2 million in funding. It is ably led by the noble Baroness, Lady Foster, to promote the economic bonds and strengths of all parts of the United Kingdom, and we will continue to back the east-west council in developing ties across it.
However, there is more to do. As set out in the gracious Speech, we will take action to further unlock the benefits of a deeper relationship with our closest neighbours. We are prioritising the conclusion of landmark deals on food and drink, emissions trading and youth experience announced at last year’s UK-EU summit—deals that we seek to conclude this year. As the Prime Minister said in his speech earlier this week, we must put Britain back at the heart of Europe. This year’s summit will provide an opportunity to build on our strategic partnership, including implementing joint commitments and making progress on where further co-operation can drive economic and security benefits for both sides.
Our collective goal is and must be to deliver real, tangible benefits for people and businesses in the UK. The food and drink deal will fulfil the manifesto commitment to deliver a veterinary agreement with the EU. Once in place, it will lower costs for UK business exports to the EU by removing certificate and route inspection requirements, in turn reducing the pressure on food prices. The deal will help support trade within the UK internal market, strengthening our union by further simplifying the movements of agri-foods between Great Britain and Northern Ireland. By aligning Great Britain with standards already established in Northern Ireland, we are further protecting the internal market. For the vast majority of agri-foods moving from Great Britain to Northern Ireland, traders will no longer need regulatory certificates, checks or paperwork, thereby reducing costs for businesses. The Windsor Framework will work alongside the SPS agreement, continuing to address Northern Ireland’s unique circumstances by upholding the Good Friday agreement and providing Northern Ireland’s unique dual market access to both the UK internal market and the EU single market.
Association to Erasmus+ will open up world-class opportunities for learners, educators, young people, youth workers, sport-sector professionals and communities of all ages across the UK. We will further strengthen our people-to-people ties with Europe by establishing an ambitious youth experience scheme with the EU. This scheme will create opportunities for young people to travel, to take up short-term work or to study, and to take part in valuable cultural exchange. As agreed at the UK-EU leaders’ summit in May last year, the overall number of participants in the scheme must be acceptable to both sides, and participation will be subject to a visa requirement and time-limited. We are negotiating the details of that scheme now, with an aim to agree it at the next UK-EU summit this year. Either through Erasmus+ or our new youth experience scheme, the EU is at the heart of our offer to young people.
The emissions trading agreement, which will link the UK and EU emissions trading schemes, will establish a larger and more stable carbon market. This will support industry confidence to invest in new technologies, leading to new jobs and enabling businesses to decarbonise more quickly and efficiently where possible. It will also create the conditions for mutual exemptions from our respective carbon border adjustment mechanisms, saving £7 billion of UK exports a year from being charged. Combined, the food and drink deal and the emissions trading agreement alone could deliver up to £9 billion to the UK economy a year by 2040, as well as easing pressure on consumer food price inflation. At the same time, they will reduce friction within the union.
We also look forward to starting formal negotiations on an electricity agreement with the EU. This agreement will make electricity trade with our European partners more efficient, driving down energy costs and protecting consumers against volatile fossil fuel markets. Delivering efficient electricity trading means that we can harness the clean energy potential of the North Sea, supporting clean energy jobs and resilient supply chains, and providing secure, affordable energy on the path to net zero. This will also remove trading frictions between GB and NI, and support energy security for the whole UK. Collectively, these actions will deliver for communities across our nations and regions for decades to come.
The European partnership Bill is the means by which we will facilitate the implementation of those deals agreed with the EU, now and in the future. The Bill will enable the Government to deliver their treaty obligations with the EU. On any future alignment, we are making a sovereign choice to align with EU law in specific areas, enabling us to cut red tape, to drive down costs and to boost growth. The cost of non-alignment is added bureaucracy and onerous paperwork for UK businesses. As set out in last year’s common understanding, this will come with an appropriate decision-shaping role for the UK. The Bill has been designed to ensure that Parliament will have its say on new EU legislation before it is applied in the UK. I look forward to discussing the detail with Members of your Lordships’ House in the coming months—for many hours, I suspect—as the Bill progresses.
The European partnership Bill demonstrates the strength of what this Government are seeking to achieve: a new relationship that looks forwards, not backwards, and reflects the realities of our economic and security interests in an uncertain world. Through this Bill, we will unlock tangible benefits for the people of our United Kingdom and provide a strong platform for future growth and co-operation. Putting the industrial, small business, trade and steel strategies into action is a priority, and pushing for more ambitious outcomes on global trade remains a crucial part of our agenda.
Finally, the gracious Speech reminds us that our security and prosperity are not guaranteed; they must be earned and delivered through our collective efforts and determination. The European partnership Bill is pivotal to that effort—a statement that we are moving beyond the politics of division and towards a more productive partnership with our European allies. I beg to move.
When the Government sought to cut the rate of the increase in that spending, they U-turned. On Tuesday, the Prime Minister showed us how determined he can be in the face of unsustainable and soaring pressure, but when it came to the essential battle on welfare—the real test of his ability to get those tough and big calls right—he capitulated. The Government’s plans would have merely slowed the rate of growth, not reduced the bill. If we are to deliver the brighter future that young people deserve, we need to be much more radical.
Can the Minister say what measures in the King’s Speech will bring our unsustainable welfare bill under control? Why was welfare, which is so great a challenge, not the subject of one of our debates this week? Those are not abstract numbers. Every pound spent servicing debt is a pound that cannot be spent on defence, roads, hospitals, skills or tax reductions. High debt interest is not a symbol of compassion but the price of policy failure.
At the same time, growth has disappointed. The IMF has cut its forecast for UK growth this year from 1.3% to 0.8%. The economy grew by just 0.1% in the final quarter of 2025. Youth unemployment is up. There are now more than 700,000 unemployed young people aged 16 to 24 and the youth unemployment rate has risen over the year. This is the reality behind the rhetoric. Ministers promised through their words a growth Government, but they have produced through their actions a high-borrowing, high-tax, high-regulation Government. As the outgoing Minister for Safeguarding and Violence Against Women and Girls said on Tuesday, it is deeds, not words, that count.
In the first Session of this Parliament, the Government’s preferences were clear. When in doubt, tax. When in doubt, regulate. When in doubt, create a new body, a new duty, a new levy or a new compliance burden. The rise in employer national insurance contributions was a direct tax on jobs. It was accompanied by a lower threshold at which employers became liable. At the same time, the Government pressed ahead with higher wage costs and an Employment Rights Act which, even after the important concession on day one unfair dismissal rights secured in this House, still makes it riskier and more expensive to take on staff. Employment rights matter but so, too, do employment opportunities. If the Government make it more expensive to hire, more uncertain to manage a probation period and more complex to comply with the law, they should not be surprised when firms hesitate before creating the next job. The people hit first are often the young, the inexperienced, the marginal applicant and the small business that cannot absorb another legal risk.
The same anti-growth instinct is visible in energy. The Government have set out plans not to issue new licences to explore new oil and gas fields in the North Sea. At a time of geopolitical instability and high energy prices, it is extraordinary to choose greater dependence on imports over the responsible use of our own resources. It means less domestic investment, fewer high-skilled jobs and more exposure to shocks beyond our control.
Therefore, when we turn to the Bills announced in the gracious Speech, the Official Opposition will apply a simple growth test to each of them. Does it make it cheaper to hire? Does it make energy cheaper? Does it make it faster to build? Does it increase productivity? Does it make investment more attractive? Does it reduce the burden of regulation rather than merely relabel it? Where the answer is yes, we will be constructive and support the Government. Where the answer is no, where a Bill creates another regulator, another levy, another licensing regime, another statutory duty, another offence, another code, another reporting requirement or another cost on business, we will challenge it firmly. On productivity, I would be grateful if the Minister could provide more detail on the proposals to strengthen the productivity of the Civil Service.
The country cannot afford another Session in which every problem is met with a new rule and every industry is treated as a revenue stream. An alternative King’s Speech would start with what the economy actually needs: lower business taxes, cheaper energy, faster planning, lighter regulation and a serious commitment to competitiveness. It would slash business rates for the high street and hospitality. It would remove the most damaging part of the Employment Rights Act. It would bring forward a serious deregulatory programme, not another request for regulators to write letters about growth. It would make energy policies serve industry and households, not ideology. It would use our freedoms outside the European Union to strike a more agile, more pro-innovation path where that is in the national interest. So I ask the Minister: which measure in the King’s Speech will make it cheaper for a small firm to employ its next worker? Which will bring down the energy bill of a manufacturer? Which will cut the number of forms, approvals and licences faced by a growing business? Which will tell investors that Britain is open, not merely in rhetoric but in law, tax and regulation?
Let us turn to Europe. Like many noble Lords, I listened to the Prime Minister’s speech on Monday, hoping that the Government might have learned from the public’s verdict in the local elections and changed course. I was disappointed. What we heard was not a reset but a retreat into the familiar instincts of the left: more state direction, more nationalisation, more guarantees announced from the centre, and closer alignment with the European Union. There is a place for government action but the Government cannot substitute themselves for enterprise. They cannot nationalise their way to productivity. They cannot guarantee their way to opportunity if the private sector is being taxed, regulated and second-guessed at every turn. They cannot align their way to competitiveness by binding Britain more closely to a European model whose own leaders now acknowledge is failing to deliver the growth Europe needs.
This is not an argument for hostility to Europe. Britain should trade with Europe, co-operate and stand with it on security and work constructively with our neighbours, wherever our interests coincide. But co-operation is not submission. Friendship is not rule-taking and a reset does not become re-entry by stealth. The British people voted in 2016 to leave the European Union. At the last election, the Prime Minister promised not to rejoin the single market, the customs union or free movement. Yet with every speech, summit and reset, the Government appear to edge closer to the EU’s regulatory orbit—closer to payments, mobility schemes and alignment for its own sake.
The irony is that Europe itself is now warning against the very model to which this Prime Minister seems so drawn. At Davos this year, the German Chancellor, Friedrich Merz, said that
“Germany and Europe have wasted incredible potential for growth”.
He said Europe had become
“the world champion of overregulation”.
A few weeks later, at the European Industry Summit, he went further, saying:
“Overregulation … hampers our economic growth”.
He called for a “regulatory clean slate” and said that Europe must “deregulate every sector”.
Those are not the words of a British Eurosceptic caricaturing Brussels. They are the words of the Chancellor of Germany, speaking from the heart of the European project, warning that regulation has damaged growth, investment and innovation. The Draghi report made the same diagnosis. It said that Europe
“largely missed out on the digital revolution”.
It observed that only four of the world’s top 50 technology companies are European. It warned that innovative companies are held back by “inconsistent and restrictive regulations”.
If the leaders of the European Union now know that their penchant for overregulation is a central cause of their economic weakness, why is Britain being drawn closer to that system? Why would we import the very burdens that Europe itself is trying to cut? Why would we trade the freedom to be faster, lighter and more agile for the comfort of alignment with a model that has underperformed? The Prime Minister owes the country a clear answer, not a slogan or another platitude about being at the heart of Europe. Will the Minister confirm that there will be no dynamic alignment with EU rules without explicit parliamentary approval? By explicit approval we do not mean a broadly drafted Henry VIII power. Will he confirm that Britain will not become an EU rule-taker? Will he confirm that there will be no new annual payments to EU programmes without a vote in Parliament? Will he confirm that any youth experience scheme will be capped, time-limited and not recreate free movement by another name? Brexit was a vote to govern ourselves. The Government should use that freedom to make Britain more competitive, not bargain it away in pursuit of applause in Brussels.
The Government’s problem is not that their ambition is too high, it is that their instincts are wrong. They want growth but tax jobs. They want investment but raise uncertainty. They want enterprise but regulate success. They want fiscal space but allow debt interest to crowd out the future. They want to be pro-business but treat business as something to be managed, charged and corrected. Britain does not need another reset. It needs a change of course. It needs lower burdens, cheaper energy, faster building, a tax system that rewards work and investment, and a regulatory culture that asks first whether intervention is necessary at all.
The Official Opposition will support measures that genuinely promote growth. But we will not be silent when the Government repeat the mistakes of the previous Session. The British people were promised growth. They have been given borrowing, tax rises and regulation. It is time for Ministers to stop talking about growth and start removing the obstacles to it.
All four of these Bills make important points, and I am sure there will be lots of debate in your Lordships’ House, but it is hard to discern a pattern and to see the strategic drive for growth within them. There are no bold moves. In addition, although AI is set to affect every aspect of our economy, there is no AI Bill in this Session. How can that be sensible?
I will use my final minutes to talk about two other Bills—the ones the current Prime Minister chose to pre-announce in one of his fight-back speeches earlier this week—on steel and Europe. Perhaps summoning the ghosts of Clement Attlee and Harold Wilson, Labour proposes nationalising—or should I say renationalising—the steel industry for the third time with the Steel Industry (Nationalisation) Bill. I do not underestimate the importance of this measure to those working in the industry, and to the country’s manufacturing and defence sectors and its industrial strategy. However, the Government have of course effectively been funding this plant since the summer, and this move was one that I think most of us expected to be brought to your Lordships’ House sooner or later. We want to see the details, including the plans to help find private co-investors who can help modernise the sites and put money in to help create more jobs. We need to see a proper long-term plan for the future, with an emphasis on national security, and we need to know the costs.
By choosing to pre-announce this measure, the Prime Minister was clearly aiming to stir the blood of those to the left of his party, and it also followed the surprise appointment of Gordon Brown as some sort of global emissary. I assume that the PM was searching for reflected glory from the halcyon days of the Brown premiership. Perhaps the Minister can throw some light on what Gordon Brown will actually be up to. If he is the Prime Minister’s man, how will he relate to the Chancellor and the Treasury, and how will his activities be accountable to Parliament? Will he be summonable by Select Committees, for example?
Of course, steel nationalisation in sum will not meaningfully increase our GDP or move the needle on national productivity, nor will it address the cost of living. However, the second topic that Starmer pre-announced could indeed materially affect the fortunes of British people. We welcome all talk of moving closer to Europe—of course we do—but the European partnership Bill seems to be just the latest example of a total lack of ambition when it comes to rebuilding trade links with the EU. It offers very little that is new. What the PM announced in that speech seemed to be only a restatement of where we already are, with the UK at least six months into negotiating a reset in its relations with the EU.
Here I note that, at the same time as these negotiations are going on, the EU “Made in Europe” regime proposals pose an existential risk to the EU-UK automotive trading relationship, which is worth around €80 billion a year. The UK is the EU’s number one trading partner in automotive trade. Can the Minister tell your Lordships’ House what negotiations are under way? This is a really important issue, and we have to know that His Majesty’s Government are going all out to reach an agreement. That is vital for our automotive industry.
To return to the proposed legislation, clearly, as we have heard from the noble Baroness, Lady Anderson, some alignment is planned, and we of course look forward to the long discussions that will no doubt ensue when we interrogate the depth of that alignment. However, Prime Minister Starmer has equivocally ruled out crossing the red lines he cautiously drew during the general election. So, assuming that the EU reset is successful, agreement on border arrangements for food and animals would be positive, not least for our beleaguered farmers. Easier EU travel for bands, orchestras and theatrical productions—if we get it—would be really welcome, as would anything else of the like that the noble Baroness, Lady Anderson, set out.
However, so much more is possible. If the Government are bolder, there are huge wins. Business could trade with our largest market so much more easily, making jobs secure, and increasing pay and delivering growth; holidaymakers could use EU e-gates instead of queuing for hours in the “rest of the world” line; and our border police could once again properly use EU data to help them more easily identify and stop the evil people traffickers. Those are just three examples of what could be delivered. These and many more are possible, but they will not happen if the Prime Minister sticks to his red lines. The Government need to go further and faster to strengthen our relationship with the EU if they want to turn around our very low-performing economy and begin repairing the £90 billion Brexit black hole that the Conservatives’ botched deal delivered.
I understand that these red lines were in Labour’s manifesto, but since then the world has changed rather. Our close relationship with the USA has been under pressure, and Trump has indicated to all Britons where our real economic future lies. This hostility from the US President, added to the war in Gaza and the Arabian Gulf, an energy crisis and Putin’s continued pummelling of Ukraine, should set the scene for a revised world view.
In general, people out there also recognise that the whole balance of the world has changed. An awful lot has changed in the two years since that election and that manifesto. To robotically stick to an out-of-date manifesto as if it is a holy writ is a dereliction of leadership. Whoever turns out to be the Prime Minister should be bold and ambitious for our country, and they should work hard to take the country with them, hitting the road to explain why there is a need for a different approach, how people should benefit and what needs to change. That is leadership.
This is not one-sided: our European neighbours are feeling the need to move closer too. For example, last month I was in Berlin for a joint UK-German business meeting as part of the Kensington treaty. The Secretary of State Peter Kyle MP was there, as was his German counterpart, plus the key business organisations for both countries and about 300 businesses. The energy of that meeting demonstrated that we have enormous mutual opportunities, but with each day that passes, it feels as if the work gets harder and business morale gets lower.
This Government have already wasted two years. The country, our economy and our people cannot afford more years of timidity. We need a Government who are bold and who move decisively. The Liberal Democrats are clear that, as a start, Ministers must straight away prioritise negotiations for a new customs union with the EU. This would turbocharge our economy and unleash British business. That would be the start of a real growth policy.
However, my biggest concern now is that some groups involved in the current leadership debate are convinced that faster growth can be achieved through increased public expenditure and larger fiscal deficits. My experience is that this is a confusion of cause and effect, and a very serious one. Over time, the scope for higher public spending is a result of faster growth; it is not the cause of faster growth. We start with a debt ratio close to 100% of GDP. Debt interest costs consume 10% of our tax revenue. We have not been able to pay for the huge borrowing at the time of Covid or the cost of supporting energy bills. Proposals to increase this further, either openly or through disguised off-balance-sheet borrowing, which we have heard some chatter about, are high-risk policies.
We all desire a world where spending eventually pays for itself. With some aspects of spending this is the case, although the benefits take time to emerge. However, more often, they do not pay for themselves. The Chancellor deserves credit for recognising and emphasising this. For faster growth, we need an environment with effective incentives for work and investment. We urgently need an overhaul of the tax system to iron out inconsistent and bizarre marginal rates of tax for some people. We need to eliminate the wide range of unnecessary exemptions and allowances and ensure the right incentives for business taxation. However, these are all issues for future Budgets, rather than for the gracious Speech.
There are reforms in the gracious Speech that I welcome and which could make a difference, and we have heard about some of them this morning. I welcome the emphasis given to growth when judging the approach to financial services regulation. It has been a view of mine since the crisis that there has been a significant regulatory overreaction to the 2008 crisis. There is a natural desire to prevent it happening again and it is very important that prudential risks should be managed. However, in the process, increased regulation damaged bank lending to the private sector and the productivity of the banking industry. The focus was on changes that were the easiest to make, rather than on addressing the weaknesses that posed the greatest risk. This was also the action taken by the other major countries. My view is that the growth reduction which we have seen all those countries suffer is, in part, a result of that response to the crisis.
I support efforts to minimise friction in trade and flows of investment within Europe, although reaching agreement will be difficult and contentious, and, as many have pointed out in the course of the debate already, the growth performance of the major European countries has been one of the slowest in the world over this period. It is not exactly a vibrant market at this point.
Also welcome to me are the proposals for Northern Powerhouse Rail. In a predominantly service-based economy, cities have become increasingly important centres of wealth creation. However, they can realise their potential only if they have a functioning public transport system that allows as many people as possible to access them. With the growth of the economic potential of cities, commuting by car into those cities becomes increasingly difficult. This is not just a London issue; we can see the pressure around many cities. I was involved in transport services in Wales, where road systems are struggling to cope with these pressures. I remain hopeful that the proposals for a commuter service in south Wales, which I was involved in putting forward, will be in place soon, despite some of the devolution issues.
If growth is genuinely to reach every part of the country, rural economies must be treated not as peripheral to national prosperity but as integral to it. As my noble friend Lady Batters has often pointed out, food security is vital for economic prosperity and stable food systems reduce poverty.
In Newcastle, areas such as Ouseburn and Grainger Market reflect the imagination and determination of local enterprise. Businesses such as Greggs, founded in Newcastle and still strongly associated with the region, show how commercial success can remain connected to local identity and social responsibility, with a much wider reach. It can be argued that the humble cheese and onion bake is now an instrument of EU partnership, as there is a Greggs in Tenerife airport.
On a serious note, this connectivity is why economic policy cannot be judged solely by where the growth occurs but by the nature of that growth and who shares in its benefits. Do people experience greater dignity, security and opportunity through that growth? Do communities feel strengthened or left behind? Do younger generations believe that they have a meaningful future in the places where they grew up? Does work enhance human flourishing or does it leave people exhausted, insecure and excluded?
It is right that the Government’s proposed legislative programme seeks to support investment, industrial renewal and closer co-operation with our European neighbours. The proposed European partnership Bill is important for regions such as the north-east; our relationship with our neighbours is not an ideological abstraction but a matter of practical economic significance.
I hope the Minister might say more about how the Government intend the proposed Bill to strengthen opportunities for regional exporters, universities and smaller firms outside London and the south-east. How will the Government ensure that improved relationships with the EU lead to tangible economic benefits for places such as Newcastle and Northumberland, rather than reinforcing existing geographical inequalities?
I also welcome the emphasis placed on energy security and industrial renewal within the gracious Speech. Northumberland is well placed to contribute to the nation’s transition towards cleaner and more secure sources of energy, through offshore renewables and associated industries. Yet the transition to a low-carbon economy must also be rooted in justice and fairness. Communities that contributed so much to earlier generations of industrial and energy production should not feel excluded from the opportunities now emerging. Economic transition cannot simply happen to communities; it must happen with and for them.
Can the Minister say more about how the Government intend to ensure that smaller local businesses, local workers and younger people are able to participate fully in the opportunities created through energy transition and industrial investment? What role do the Government see for devolved leadership and community wealth-building in ensuring that prosperity is genuinely shared?
I also welcome the Government’s proposed regulating for growth Bill and its stated intention to create greater clarity and consistency for business. Along with the noble Baroness, Lady Finn, I ask the Minister how the Government intend to ensure that smaller businesses are properly supported within this agenda. How will they balance economic flexibility with the need to maintain fair employment standards, workforce well-being and responsible business practice?
Economic life is ultimately about human beings, relationships and moral responsibility. As we pursue growth and competitiveness, we must resist any tendency to treat human beings merely as economic instruments or units of productivity. Every person possesses inherent dignity and worth, which no labour market can define and no economic circumstance can erase. Modern slavery remains a painful reality in our country. It represents not only criminal exploitation but a profound moral failure—the denial of human dignity for economic gain. In that respect, I ask the Minister what further steps the Government intend to take to strengthen transparency and accountability within supply chains, particularly in sectors vulnerable to labour exploitation.
Good growth is not growth at any cost. Good growth strengthens communities, widens opportunity and enables people to live with dignity and hope. The success of this Session of Parliament will not be measured solely through national growth figures or investment totals; it will be measured by whether people truly experience greater dignity, stronger communities, wider opportunity and renewed hope in the places that they call home.
To take an example, we are now seeing a welcome increase in defence expenditure, and we already know that there needs to be more still. In this dangerous world, the public will want to know both what capabilities that extra investment will provide and that there is urgent, evident progress towards their realisation. Similarly, there will surely be further growth in health expenditure and, again, in return, the public will expect to see measurably reduced waiting times and significantly improved care. We have made a start, but there is much more to do.
Willingness to continue paying taxes has always depended on the impact that results from those taxes. The world over, this pressure to deliver public value is sharper now than ever. But what exactly is public value? How do you know it when you see it and how do you monitor it? At times, the Treasury in this country has led the world in thinking through these questions—I am going back to the noble Lord, Lord Burns, to Gordon Brown’s time as Chancellor and to the work of the noble Lord, Lord Macpherson, who was in charge of public expenditure back then. Later, in 2017, and building on that earlier work, David Gauke, as Chief Secretary, commissioned a report on public value from me. It was strongly welcomed at the time but sadly got lost in an ever-changing world of Chief Secretaries and the pandemic. Now might be the time to revive and build on that agenda.
The report described four elements of managing public value. The first is inputs: is the allocated funding being efficiently managed? The second, which my noble friend Lady Anderson emphasised, is outcomes: are we making progress towards the intended outcomes that the money was allocated for, and how do we know? The third is engagement: are the intended beneficiaries willing to take their share of responsibility for delivering the outcomes? For example, health outcomes are improved by people who manage diet and exercise; getting into employment is enhanced by people actively seeking work rather than waiting for it to come to them; and, in schools and universities, we need people to study hard rather than just show up briefly. In each of these cases, the same amount of public expenditure will deliver greatly enhanced outcomes if the beneficiary engages. This is important to public value. Finally, there is stewardship: as the funding is spent, is it also enhancing the underlying quality of a service—its technology, buildings, resilience, workforce, skills, leadership and commitment—thus leaving the service better than it was found, all the time?
By tracking indicators relevant to these four elements in close-to-real time, we can measure the impact our public expenditure is having and adjust implementation as necessary. Some social outcomes partnerships are already well advanced in this respect, which leads me to my second point: innovation. The Treasury recently established, and allocated £500 million over 10 years for, the Better Futures Fund. It is boldly aimed at solving some of the most complex social problems affecting children and young people. The fund will add to Britain’s already world-leading experience in social outcomes partnerships, and the fund will become the largest of its kind globally. It builds on the Life Chances Fund, established by the previous Government in 2016, and the work over many years of the great Sir Ronald Cohen.
The characteristics of such social outcomes partnerships make them a major innovation. They attract philanthropic and private investors, which, in the case of the Better Futures Fund, could double the funding that the Government have made, making the total £1 billion. They engage local government charities and social enterprises as partners in prevention, not just cure. They work exceptionally well for those tough, cross-cutting challenges that bedevil public policy. Crucially, for each funded scheme, there are defined outcomes, and government outcomes payments are paid only once the defined outcomes have been delivered and independently verified. There is increased prevention, collaborative partnerships, devolved delivery, high-quality data analysis, measurement of public value, and evidence from ATQ Consultants that such social outcomes partnerships deliver up to £9 of public value for every £1 they spend.
To conclude, with such innovative approaches to delivery and a consistent focus on delivering public value throughout the public services, we can enhance public sector productivity, contribute to private sector productivity and create the conditions for growth. The downward spiral that followed the financial crisis of 2008, with its declining return on investment, is not inevitable. We can turn it into an upward spiral with a rising return on investment.
A year of delivery lies ahead. In time, we might even delight people, perhaps including our ancestors from 1376.
and warned that the intervention has not stabilised the company’s finances, that there is no clear end date, and that spending could exceed £1.5 billion by 2028 before transformation costs, compensation to Jingye, or exit costs are even considered. This is not a rounding error, nor a bridging loan, nor a prudent investment patiently awaiting a return. It is a daily call on the taxpayer to keep alive a business that Ministers have still not shown can be made viable.
In paragraph 2.6 of its investigation, the NAO records:
“Advice provided by DBT officials to ministers on 28 March”
2025
“noted that there was ‘no affordable solution to maintain steel-making at Scunthorpe’ … the advice recommended that the government ‘not intervene to stop the company from making commercial decisions to close’. DBT told us that it had no budget or legal power to intervene at that time, and that there was no strong value for money case to do so, advising instead to focus on the impact on the local area and to support steelmaking elsewhere”.
Over the subsequent 14 months, apparent operating losses have doubled, while production levels have fallen further. What is the value-for-money justification today? Ministers will say, of course, that British Steel is strategically important, and no one disputes that steel matters—for defence, construction, rail, energy and manufacturing. The question is not whether steel matters but whether this Government have a credible plan to make steelmaking in Britain competitive, and at present I do not believe that they do.
Nor can this debate be separated from the Government’s new tariff regime. From July, the Government propose to cut tariff-free steel quotas by 60% and impose a 50% tariff above quota. Ministers describe that as protection for British steelmaking, but, for automotive, construction, aerospace and engineering businesses, it is a direct increase in input costs.
Think of the automotive manufacturer already under pressure from the Government’s EV mandate, the construction firm facing squeezed margins and higher material prices or the exporter using steel as an input. They are facing higher costs at home and fiercer competition abroad. All of them will inevitably pay the price, a high price, for a policy framed as saving jobs in one turn while quietly making jobs more expensive to sustain in many other places.
There is also a profound contradiction running through the Government’s position on energy and steel production more broadly. India, to cite one example, is driving a substantial share of the global rise in coal-based steel capacity, expanding output, expanding furnaces and expanding its competitive position in world markets. In contrast, this Government have banned domestic coking coal production, pushing domestic steel-makers towards more expensive alternatives, and then seemingly wonder why the taxpayer must step in to make the difference. The result is that we make domestic production more expensive, restrict cheaper imports and load the industry with additional regulatory costs, and then we present the bill to British industry.
When the noble Lord winds up this debate, can we please have a strategy for steel? The Government published one, but it does not have the long-term impact that we all want to see. Steel has been the backbone of this nation. It must be part of its future too, and it is about time that we had a clear strategy that takes us all further forward.
For some people on the other side, none of these questions of fact about the impact matters because what matters to them is that, with Brexit, Britain has regained its sovereignty. In a technical sense in constitutional law, that is correct, but what is worth while about technical, legalistic sovereignty if all that does is impose additional costs and burdens, as in the chemical industry and many other sectors, on whole swathes of our business? This is the challenge that the alignment Bill will address, and I think we should get it through this House as quickly as possible.
The noble Baroness, Lady Finn, made a very good speech, even if I did not agree with it. She asked why we should align ourselves with a stagnant European Union. I have two points about that. First, 40% of our trade is with Europe. Most people think that geography is what determines trade, particularly trade in services, which is our great strength. The reality is that Europe is going to be by far our biggest trading partner for decades ahead, and we have to have a better relationship simply in those terms. I agree with what Chancellor Merz says about the need for regulatory reform in Europe and think the Draghi report is excellent. I would like to see some of its lessons applied in the United Kingdom. One of the reasons why we may find support in key member states for our alignment Bill is that I think Chancellor Merz will see Britain as a potential ally in future on the need for pressing for that regulatory reform.
What we are trying to do is difficult. Nothing to do with the European Union is easy, as I have known for a long time, having worked on these issues. First, we have to face the issue of budget contributions. We have to find a formula that can be applied relating to our share of joint GDP and the economic significance of the particular sector we are talking about.
Secondly, we have to have flexibility on freedom of movement. I think the youth experience scheme is an excellent idea. This House has demanded freedom of movement for artists and performers in Europe, one of the key things that we have lost. The same applies to professional services. I would make these movements on freedom of movement in return for closer co-operation in tackling illegal migration. I find it odd, by the way, that people on the other side can criticise freedom of movement. As soon as they got Brexit, what did they do? They implemented the biggest wave of immigration that we have seen in the post-war era. One of the reasons for the rise of Reform today is that the Conservative Party did exactly the opposite of what it promised in the referendum as far as immigration was concerned.
Thirdly, we have to raise our game in Europe and all that means for rebuilding our Brussels capabilities, having strong co-ordination machinery domestically, having the political will to impose solutions from the centre—from No. 10—where departments disagree, and having a Cabinet that takes the Europe relationship seriously and spends time on it. We have a lot of common interests in joint EU-UK co-operation—in defence procurement, in a joint approach to the regulation of artificial intelligence, in trade and in technology, where we have so much to offer. Jean Monnet said Europe was born in crises; we are certainly living through a big crisis now. We have to think boldly, and I would like to see the possibility of a commitment to rejoin the European Union in the next Labour manifesto.