Lord Hintze (Con)

My Lords, at a time of profound fiscal pressure, the question before us is not how we slice the pie, but whether we are expanding it. A responsible Budget must be grounded in economic reality. Incentives matter, savings matter, and what truly determines whether our citizens are becoming better off is growth per capita, not headline GDP; to do otherwise is misleading. I ask the Minister to consider the analysis. We can think about growth only as growth per capita. The 1.5% to which he alludes is more like 0.3%—if we are lucky. Without understanding what the proper economic drivers are, we cannot have proper policy formation. This is not a political point; it is a point for policy. To that end, I ask the Minister to please consider that if we fail to support those who produce, invest and innovate, we endanger the very foundations on which fairness and opportunity rest. I turn to the economic principles that illuminate this challenge. These are principles we can work with. One of the most influential contributions to modern economics comes from the British Nobel laureate, Sir James Mirrlees. The noble Lord, Lord Eatwell, talked about him earlier. He was very effective in the IFS and looking at British tax policy 2006-11. His seminal work in 1971 on the theory of economic transfers and optimal taxation demonstrates a simple but profound truth: redistribution changes incentives. Incentives matter. When marginal taxes rise sharply, high-productivity individuals reduce effort, invest less or relocate their activity beyond the UK. Recent examples, such as the relocation of wealth creators such as Mittal, are not ideological anecdotes but precisely the behaviour that Mirrlees predicted 50 years ago. It is a principle. As a nation, we are poorer for these people leaving—not just billionaires but the young strivers who are leaving these shores to make the UAE and other places in the world richer, not us. Likewise, when transfers become too generous relative to wages, labour participation falls. Anyone attempting to take a train on a Sunday—we all do—encounters the resulting shortages. It is a clear expression of weakened incentives in essential services. I could go on, but please can the Minister think about that: this is economics at work. These pressures are compounded when the state grows beyond its optimal scale. The Scully curve, demonstrated through strong academic analysis by Gerald Scully in 1989—this is an old piece—shows that excessive government activity suppresses growth. A larger state requires higher taxation, which reduces the savings that form the pool of capital for investment and innovation. When the state crowds out capital formation, it crowds out the future—our children’s future. I suspect that what we are seeing in our world at the moment is that crowding out. This argument is for fairness for working people, savers and innovators. Fairness must also protect the fragile in our society. The elderly, the sick and the disabled cannot simply “adjust incentives”; they depend on a state strong enough to provide support, yet disciplined enough to ensure that that support is sustainable. When our growth falters, it is the most vulnerable who suffer first. Thus, the defence of our fragile citizens is inseparable from the defence of economic growth.