Baroness Noakes (Con)

It is always a pleasure to follow the noble Baroness, Lady O’Grady of Upper Holloway, but she will not be surprised to find that I agreed with very little of what she said—indeed, I was horrified by some of it. Four minutes is not long enough to cover the very many ways in which the Government are damaging our economy, so I will concentrate on just one area: how their tax policies impact business investment in the UK. This morning’s dismal GDP figures, which are the result of this Government’s policies, underscore the growth problem. If the UK is going to escape from that, we need businesses—both existing ones and new investors from abroad—to invest. Tax really matters when it comes to investment decision-making. This year’s tax competitiveness index ranked the UK 32nd out of 38 countries, with a corporate element only marginally better, at number 28. These are terrible figures. The key drivers of this are the headline rate of corporation tax, the complexity of the tax system and low levels of tax allowances. First, I turn to the headline rate. We used to have a rate of 19%, and then it was raised to 25%. The current Government have said that they will keep it at 25%, which is a mistake. When CFOs run the numbers on investment decisions, a key determinant of the outcome is corporation tax, because it is such a big drag on net investment returns. Low corporate tax rates both encourage investment and increase tax yields. Ireland, with its 12.5% corporate tax rate, is the living proof of this. Secondly, on complexity, we notoriously have the longest tax code in the world, at over 22,000 pages. Size is not synonymous with complexity, but it is a pretty good proxy. Businesses want to be able to understand the tax rules that affect them and to be able to interact efficiently with the tax authorities. We fail on both counts. Thirdly, although we have a competitive system of tax allowances for plant and machinery, we are not competitive for structures and buildings, which are important for some kinds of business investment. Research by the Tax Foundation suggests a significant GDP boost if tax expensing were widened. In last year’s budget, the Chancellor made the terrible decision to raise employers’ national insurance on top of the minimum wage hike. This has already led to higher prices and lower employment, and it is now a big negative factor in investment decisions that create jobs. Similarly, business rates are now weighing heavily on business investment that needs a large physical footprint. On top of all this, as my noble friend Lord Elliott explained, the non-dom tax regime actively deters entrepreneurs from making the UK their investment base. Wealthy businesspeople are already relocating; soon they will not come at all. The Government did not create all these problems, but they certainly made them a lot worse. A decent rate of growth is a pipe dream if the Government continue with policies that actively deter business investment.