Lord Hunt of Wirral (Con)

My Lords, I shall speak to amendments 310, 311, 312 and 319. If I may start with Amendment 311, I stress that productivity is vital for growth. The Government’s own impact assessment of the Bill is lacking in many areas, but it correctly identifies productivity as a problem in the UK workforce and reveals the fundamental weakness of their approach. They state quite explicitly: “there is little quantitative evidence about the knock-on impacts on productivity”, and conclude: “On balance, we believe the impact on growth could be positive … but the direct impact would be small in magnitude”. Most tellingly, they admit that “the impact on average productivity will be small”. To paraphrase, the Government seemingly admit that productivity will not be significantly improved, if at all, by this legislation. This raises a fundamental question that goes to the heart of economic policy: how does one achieve high levels of productivity? High productivity emerges through competition—genuine, unfettered competition—where businesses face lower regulatory burdens, can compete effectively for the best workers and possess the freedom and flexibility to innovate, to adapt and to respond to market signals. Productivity growth stems from technological innovation, capital accumulation and, as we have just heard in the questions on the previous Statement, investment in skills and productivity—skills above all. These improvements occur naturally when markets are allowed to function, when competitive pressures incentivise businesses to innovate or perish and when the price mechanism can operate without distortion. Competition drives productivity by creating what economists call “creative destruction”—the process whereby inefficient firms are displaced by more productive ones. When businesses have to compete for workers, they invest in training, technology and better working conditions. When they have to compete for customers, they innovate and improve efficiency. When they must compete for capital, they demonstrate their productivity gains to investors and offer competitive returns. So what will this legislation achieve in practice? I regret that it will impose additional regulation, create additional burdens and constrain the very competitive forces that drive productivity improvements. This of course comes on top of the tax rises announced by the Chancellor—measures that undoubtedly constrain business investment and growth. The increase in national insurance contributions is particularly damaging in this context. Higher employer NICs directly squeeze the possibility of productive investment. Investment that would otherwise create jobs in productive areas of the economy will now not take place. Capital that could have been deployed to improve productivity, whether through new technology, training programmes or research and development, will instead have to be diverted to meet higher tax obligations and burdens. This represents a fundamental misunderstanding of how productivity improvements occur. Productivity does not increase through regulatory mandate or government directive; it increases when businesses have the freedom, the incentive and the resources to invest in productivity-enhancing activities. This brings me to Amendment 319 and what I can only describe as a profound contradiction in government policy. The Government committed just months ago to a 25% cut in the regulatory burden. They reaffirmed this, as we heard, in the published industrial strategy. Yet here we have legislation that introduces what can only be described as a raft of new regulatory burdens. The question that demands an answer is this: how will the Government achieve this 25% reduction in the regulatory burden? How will it be measured? How will the Bill, which manifestly increases regulatory compliance costs, align with that stated target? I turn to Amendment 310. A truly competitive market must make it simpler, not harder, for new businesses to enter. Yet there is no consideration in the Government’s impact assessment for how this legislation affects barriers to entry. I believe that this represents a profound oversight because, when businesses cannot enter a market because of costs imposed by government regulation, that fundamentally alters the competitive dynamics driving productivity improvements. The economic logic here is straightforward but crucial: when entry barriers are low, existing businesses face constant competitive pressure from potential new entrants. This pressure has to keep them on their toes, forcing them to remain productive, innovative and responsive to consumer needs. They cannot afford to become complacent because they know that more efficient competitors could emerge at any time, hot on their heels and full of competitive energy. But when government policy raises the cost of market entry through complex regulations, compliance burdens or increased operational costs, it can effectively insulate existing businesses from this competitive pressure. The result is predictable: established firms have less incentive to innovate, less pressure to improve productivity and less need to compete aggressively for the best workers. Turning to Amendment 312, I come to a particularly important point about wage competition. In a competitive market, businesses compete not only for customers but also for workers. When entry barriers are low and competition is fierce, employers must offer competitive wages and working conditions to attract and retain talent. This competitive pressure naturally drives wages upward as businesses bid for the best employees. When regulatory burdens prevent new businesses from entering the market, however, this wage competition diminishes significantly. Existing employers face less pressure to offer competitive wages because workers have fewer alternative employment opportunities. The reduced threat of labour mobility gives established businesses greater power in wage negotiations. I believe that the costs imposed by this Bill will exacerbate this problem in two distinct ways. First, the direct compliance costs and increase in employer national insurance contributions will pressure businesses to control their wage costs more tightly. Secondly, and perhaps more importantly, these costs will deter new business formation, reducing the competitive pressure that would otherwise drive wages upward. Of course, the Government may want to point to the increase in the minimum wage as evidence of their commitment to higher wages, but that misses the fundamental point about how competitive markets operate in practice. The minimum wage affects only a small proportion of the workforce—those at the very bottom of wage distribution; for the vast majority of workers, wages are determined by market forces and competition between employers for their services.