Oral evidence: Pre-Budget scrutiny: Business and workforce, HC 682

Oral evidence, 20 October 2026.

Witnesses

David Hale, Dr Geoff Tily and Louise Hellem.

Chair

Welcome to the Treasury Select Committee on Tuesday 20 October 2026. Today we are continuing with our pre-Budget scrutiny sessions. I am delighted to welcome an expert set of witnesses to help us in preparing for next week’s Budget, but also for when the Chancellor of the Exchequer appears in front of us after the Budget. He will be appearing in front of us on 11 November. I am delighted to welcome our witnesses. Dr Geoff Tily is the head of economics at the TUC, or the Trades Union Congress; Louise Hellem is the chief economist at the Confederation of British Industry, also known as the CBI; and David Hale is the Government affairs director at the Federation of Small Businesses, often referred to as the FSB. We try to spell out initials, so bear that in mind when we get into our alphabet soup of organisations. To start, Dr Tily, how would you describe the outlook for businesses in the UK at the moment?

Dr Tily

We think that the economy has performed better than expected over this year, but there are still a number of challenges that we hope are dealt with in the Budget. You are asking about businesses, but the position on households is very important here. We have to keep in mind how hard hit households have been for nearly 20 years. We have an unprecedented living standards crisis. As I am sure you know, real pay has barely moved since before the financial crisis. Household disposable incomes, which include benefits and taxes, have also not moved over the same period. There are plenty of figures out there showing the scale of hardship. A telling one, I think, is that 8 million households do not think that they could finance an unexpected bill for £850. We have put out a Budget statement, which I think we have shared with the Committee. In that statement we also elaborate some additional costs that households have been facing since interest rates and prices have gone up. We find that mortgages in particular have gone up by an extremely large amount. They have gone up from roughly a monthly payment of £600 to a monthly payment of £900, which amounts to £3,600 in a year. Maybe I will not go through all the costs, but there are large costs on mortgage, on energy, on those who have loans, and on water. In terms of the economy, we outline a causality from low incomes to a lack of consumer spending, where we see that the UK is performing particularly badly compared to other countries.

Chair

You are saying that that lack of consumer spending is having an impact on businesses, presumably.

Dr Tily

We are certainly saying that—and on the economy. There were figures the other day. The GDP figures showed that business-facing services were doing well, but consumer-facing services were still down on where they were ahead of the financial crisis. If you look over the period before the pandemic to the present, the UK has the slowest consumer spending growth out of all G7 economies. We think that this weak demand, in effect, is a critical factor in the weakness of the economy. You can do the calculations. At the moment, consumer demand is contributing about 0.7 percentage points to GDP. In between the financial crisis and the pandemic, it was contributing 1.5 percentage points. Before the financial crisis, it was contributing 2 percentage points a year.

Chair

Can I just bring you back to businesses? Most trade union members will be working for larger businesses, rather than the smaller ones. Are there any themes that you would draw out that affect those larger businesses that are employing trade union members?

Dr Tily

There are the same themes around demand and the use of AI. Another theme would be the Brexit deal, which has perhaps been less than ideal.

Chair

Louise Hellem, what is the take from the CBI?

Louise Hellem

When we speak to businesses across the economy, there is definitely a theme of resilience, but in quite a high-cost environment for firms. That is particularly around high energy costs, high employment costs and some of the policy costs around business rates and things like that as well. We definitely see some sectors that are performing more strongly, particularly those firms in sectors such as energy, digital, defence and healthcare. As Geoff said, some of those more consumer-facing sectors are the ones that have the weakness. We have been pleasantly surprised by that resilience that we have seen across the economy, given the global and domestic headwinds that we have seen. One reason for that, in many ways unfortunately, is that businesses are adept at crisis management now. They have developed strategies over the last few years, particularly when it comes to things such as high energy costs. We have a lot of firms that are now hedging a lot more of their energy prices and, where they are able to, having much higher stock inventories. That still has an impact on the business’s bottom line and is tying up working capital. While we are not seeing elevated levels of distress that are too high, we are seeing a lot of firms that are holding back on hiring and on investment decisions as well.

Chair

We will come to some of that a little later. Thank you very much for now.

David Hale

On the small business side, I do not think that it is any secret that confidence has been low. It has taken a hit in the last few years since coming out of the pandemic. Costs are very high, particularly fixed costs, where small businesses do not necessarily have available some of those strategies that Louise was just talking about on energy. On a personnel level, some of the labour cost issues get very difficult for small businesses because it is staff who you are close to where you see very increased costs and businesses having to put strategies in place to manage that. In general, it is very difficult. That is not to say that businesses themselves are not optimistic. Quite often it helps to be optimistic to start and run a small business. I would not want to downplay it too much, but in general it is a low-confidence environment, a high-cost environment and even, for more businesses than not, a falling-revenue environment, which is particularly worrying.

Chair

Grant Thornton did a survey of businesses, which highlighted that the second most cited challenge they face, when asked what their biggest challenges are, is economic uncertainty. You have touched on it obliquely, but how would you interpret that for your sectors?

David Hale

Bluntly, if you were considering taking somebody on and having a cost that will sit with you for tens of thousands of pounds, you do not know what is going to happen with your energy costs. You might draw the conclusion from the last few years that there is more risk that they go up than that they go down. You do not know what is happening with other Government costs; there are worries around taxation. You do not know what is happening with the economy in general. The uncertainty makes it very difficult for people to place an investment when they know, if they place an investment, that they are stuck with paying the cost of it.

Chair

You mentioned energy prices as one of those things. Are there any things that Government have direct control of? While the Government are doing some things on energy prices, there are global shocks there. Are there specific things that you think the Government could do to help out on economic uncertainty? This year, for example, there have been no leaks around the Budget, whereas last year there was a lot of speculation and some information in the public domain, allegedly from leaks, although they never found anyone who had leaked it. Do you think that there is anything the Government could do to improve the certainty of the economic outlook?

David Hale

Yes, completely. What is really positive and potentially helpful with the new Government is the conception of having breathing space. The policies intended to create breathing space at the same time as tackling some of the long-term growth issues create an opportunity. On breathing space, the thing that we have been asking for is an increase in small business rates relief. It has not increased since 2016. That was a long time ago in any terms, but particularly in terms of property costs and general inflation. A proper increase in that creates some immediate benefit cross-sectorally. On energy specifically, the Government took steps with the renewables obligation for households, but not with businesses. Particularly at the small business end, small businesses tend to buy energy in a similar way to households. If the Government could do something on the renewables obligation, that would be useful on breathing space. Going beyond that and talking about Government-imposed costs, by far the largest one that is commonly referred to would be what has happened on national insurance. We would worry around mitigations that are being put in place for small businesses not keeping pace with what is happening to wages. The employment allowance did not go up last year. If it does not go up this year but we see a general increase in wages, including regulated wages, that would be a negative.

Chair

There are things you think the Government could be doing right now to help.

David Hale

There are plenty of things.

Louise Hellem

I would echo some of that from David. There is a mix of geopolitical and domestic factors that have featured in that uncertain environment. Addressing some of the high costs that we are seeing, particularly energy costs, would be important. In particular, we would like to see policy costs move into general taxation, rather than being on businesses’ bills. We are also calling for follow-through and delivery on the big strategies that the Government have set out, such as the industrial strategy and the 10-year infrastructure plan, to show that sense of continuity and commitment.

Chair

We have 10-year plans being announced and things, but what is it you specifically need from the Government for business confidence to grow?

Louise Hellem

It is the follow-through on some of those.

Chair

When you say follow-through, what would you want to see the Government deliver, let us say, in the next two or three years, assuming that that is roughly the length of the Parliament?

Louise Hellem

Across the industrial strategy, you have those sector plans for each of them, but there are some commonalities. Some of the big ones are this point around energy and grid connections. We have seen some really great progress already on planning and infrastructure,, but we need to continue to see that and a lot more pace going into the system. We would like to see a lot more co-ordination across regulators and more accountability for them to look at not just the regulation in their own narrow area but how the whole system for that regulation fits together.

Chair

That is great. We will come to regulation in more detail. I will go back to David Hale, then Louise Hellem and then Dr Tily on the relationship with the EU. The Prime Minister has signalled that he wants to change that relationship. What would business want to see, and would that make a difference to business confidence?

David Hale

To pick up on the last point Louise made around deliverables and specifics, in the short term, getting a meaningful SPS agreement across the line is what we want to see. There is a danger of getting distracted from what can be delivered now and what would be meaningful and positive—I would point to that SPS agreement—and getting too distracted about the long term. If I was to focus on anything in relation to the EU, it would be that.

Chair

The small things matter right now. That is what you want to see.

David Hale

The small, immediate things, yes.

Louise Hellem

Businesses are very supportive of having a closer relationship with the EU. As David said, it is around tackling some of those current issues, so SPS, but also the emissions trading scheme. I think they are very supportive about thinking about some kind of youth mobility scheme as well. A big concern that businesses have at the moment in relation to Europe, though, is around the “Made in Europe” scheme and making sure that the UK has access to that. That is beneficial not only for UK firms but for European firms as well, given the integration of supply chains that we have had. That is really top of mind at the moment.

Chair

Dr Tily, where does the TUC stand on the relationship with the European Union and the Prime Minister’s recent announcements?

Dr Tily

We are in favour of things to foster a closer relationship and better trading relationships. Could I just go back to the previous point? I wanted to agree about energy costs. We all know that energy costs are extremely difficult for British businesses. We agree with what my colleagues have said about business support, extending the British industrial manufacturing scheme to cover the whole of the manufacturing sector and generally moving costs into general taxation and away from energy costs. We have our own proposals on a social tariff. I do not know whether you want to get into that now, but other support for living standards is important. Any support that not only can help households but will help to increase the spending on the high street and wherever is what we think is useful.

Chair

We all talk about energy costs now because particularly the war in Iran and the ongoing war in Ukraine have caused a big shock on energy prices, but these are long-term structural changes you seem to be highlighting there, Dr Tily and Louise Hellem. Am I right that you want to change things so that businesses should not be paying so much for their energy costs, but more should fall on the general taxpayer? You both said that. I want to be clear for the record. Do you have an idea of what that would cost?

Louise Hellem

From the work that we have done, if you move the renewables obligation and FIT into general taxation, we think it would be about £5 billion a year for the next five years. We have done some analysis that shows that, if you offset that through indirect taxation, you can have a positive impact on the Exchequer by £7.2 billion at the end of that period, because of the investment that you have brought forward.

Chair

To be clear, it would cost the Exchequer, or the British taxpayer, £5 billion a year so that businesses did not carry the cost, but over that five years there would be a £7.2 billion dividend.

Louise Hellem

Yes, but it assumes that you are raising that tax elsewhere within the system, so through indirect taxes. It is because it is a much more efficient way to raise taxation, rather than the economic impact of putting these costs on to energy bills directly.

Chair

Dr Tily, do you have anything to add to that?

Dr Tily

We support that scheme. The estimates of costs we had were from Make UK, which were a little lower. I guess we would also emphasise the fact that, if energy costs were successfully reduced, there should be some benefits downstream in terms of growth and so on.

Louise Hellem

I expect that the difference in the figures is because our scheme is for all sectors, rather than just for manufacturing. A big advantage of the scheme is about increasing demand. We need to increase the demand for electricity to help with the roll-out of electrification. That will also bring systems costs down if we are spreading it over a greater demand.

Chair

Colleagues will pick up on some of these points.

Ms Minns

I have some questions on regulatory frameworks. Before I ask those, Ms Hellem, you briefly touched there on grid connections, which for your members is a pretty challenging area. Has the CBI taken an initial view on Great British Grid?

Louise Hellem

We are positive where it is part of the broader system. From our perspective, it is not necessarily competition that is the issue, but actually it is about connecting—forgive the pun—together around where that demand and supply is needed within the system and, like I say, bringing a lot more pace to decisions, which is more about capacity of decision makers.

Ms Minns

Thank you. Since you mentioned it, I just wanted to quickly ask. Let me ask you about regulatory frameworks. I have worked for nearly 20 years in regulated industries. I have sat on the other side of the table, sometimes arguing for, sometimes arguing against. Can I ask a question to you, Ms Hellem and Mr Hale, about which regulatory frameworks present the biggest friction points for business expansion?

Louise Hellem

Our general view on the regulatory system is around the overlapping regulations and requirements, and the duplication that we see across the system. Quite often they might be in the minutiae and the detail. An area that I would point to as an example of that is the regulation around plastic packaging at the moment. We have overlapping regulations around the extended producer responsibility, plastic packaging tax and the packaging recovery note system. We need to clear out that system. What is it that we are trying to achieve? Having regulation that is just one system for businesses to engage with would be a much better way, we think, to get the same outcome, but for much less cost and complexity.

Ms Minns

That is quite a specific one. Mr Hale, would you like to comment on regulatory frameworks?

David Hale

There are two things. First, we currently are engaged with Government on a joint piece of work as a regulatory taskforce that should report soon, which we hope will address some of those issues, particularly around those smaller things that are duplicative. One that I would be really keen to draw to the Committee’s attention is that we find that, when Government look at regulatory reduction, HMRC sits exempt from that. This is purely on the administrative side. We do not think that that is right. HMRC is frequently one of the top two or three—but often the top—administrative barriers that firms, particularly new, young and small firms, report as being very difficult, and unnecessarily so. We would point to that. There are a number of different issues where we do not feel that Companies House has acted in a way that benefits the practical interests of small businesses that are using its systems.

Ms Minns

Can you explain a little more about that?

David Hale

There are new verification steps that have been brought in. I do not think that they have been particularly well designed with small businesses in mind. It used to be that Companies House was never really mentioned when regulation came up. It has traditionally been a strong performer until the last year or two. I guess that this is slightly more of an engagement point. As I say, we are engaged in a regulatory taskforce, so I hope that this is a point of the past and we can deal with it soon.

Dame Harriett Baldwin

May I ask Mr Hale another question? Small businesses are such a backbone of the UK economy and they create so many of the jobs for people as well. We are asking you for your evidence in the run-up to the 2026 Budget. I wondered whether you could cast your mind back to the 2024 and 2025 Budgets and highlight for the Committee which things in those Budgets have been helpful and which have been a challenge for small businesses.

Chair

We are talking about the future Budget. This is what today’s session is mainly about, so perhaps you could relate it to that and what might be coming up next week.

Dame Harriett Baldwin

What lessons can we learn from those Budgets that would help inform the advice you would like to give to the Chancellor ahead of the 2026 Budget?

David Hale

In many ways, it is difficult to get away from the 2024 Budget. The issue I mentioned that was not necessarily present in that was small business rates relief, but the Chancellor, in that Budget, gave herself room to make more changes to the system. I would hope that the new Chancellor would make use of that and increase small business rates relief. We have talked about the renewables obligation. In terms of national insurance, if I was to be critical, I think the 2024 Budget was designed on a very optimistic view of where the labour market was. That has not been borne out. It is fair to say that it has done a lot of damage on the employment side, including in terms of how that is probably now starting to feed through to households but, again, at that Budget there were steps taken on the employment allowance to protect small businesses at the lower end. It being two years ago, and looking to the future, that has not kept pace with what is happening with wages, so I would look at that again. If we look at 2024, that was where some of the regulatory labour market reforms were coming in in terms of day-one sick pay. That is quite a well-worn conversation, but there is potential to take measures such as a statutory sick pay rebate that would help ease the impact on firms and the workers that would be most impacted by those changes. Not to go on, but the one that I would particularly draw attention to that I think has damaged small business intentions is the changes that were made to entrepreneurs or business asset disposal relief. That has had an impact, and perhaps a less well-discussed impact than the other changes on national insurance. We had the increase to 14% the April before last, and now the increase to 18%. We would be keen for the Chancellor to ease that at least to the 14% that we saw the April before last.

Dame Harriett Baldwin

I was waiting to hear the things that you thought had been positive for small businesses. Otherwise, I think your asks are all to try to mitigate some of the challenges that previous Budgets have delivered to your members.

David Hale

There is an extent of unwinding challenges that have come through Budgets. I would point to the employment allowance, which was a positive that was delivered, itself as a mitigation, but that is a positive that is delivered. All we are really keen to do is to make sure that that maintains its real value relative to wages.

Dame Harriett Baldwin

On the HMRC point you were making to my colleague, is Making Tax Digital something that you are expecting the Chancellor to make a change to in this Budget?

David Hale

I am not sure about expectations to do with this Budget. The Making Tax Digital process is an example of where we would prefer that HMRC was subject to the same regulatory ambition that the rest of Government is, at least, if not more, given where it sits. I would not say what I was expecting or otherwise in terms of MTD. Some things that are HMRC-driven that I am particularly worried about in the Budget next week are the deemed reseller rules to do with VAT, which I do not know whether we are intending to get on to. Those sorts of things would concern me at the Budget next week, primarily.

Ms Minns

Ms Hellem and Mr Hale, I want to go back to something you were talking about earlier when you expressed a view that perhaps a focus on delivery and a little less tinkering might be beneficial. Can you expand on that? What would you like to see the Government do in terms of stopping with the tinkering and delivering a period of stability in terms of policy?

Louise Hellem

Some of it, like I say, relates to those areas I mentioned before—we now have the industrial strategy and the infrastructure strategy—in terms of enabling that to really bed in and seeing the systems on the ground. Particularly when you mentioned tinkering, the tax system comes to mind within that. One that we have touched on very briefly, but not in that much detail, is around business rates. That is a system that comes up time and time again with businesses in terms of the overall cost. It is also one where we have been promised a fundamental reform. At the moment, we seem to go from one fiscal event to another with a different part of the system being tinkered with. We would like to see more long-term reform on that, particularly to smooth a lot of the cliff edges there are around the system, particularly around the £51,000 and £500,000 thresholds. Also, it is a system where the multipliers are not fixed within the system. You have a fiscal neutrality clause within that. It means that businesses do not know what their business rates bill is going to be year to year. We have had instances over the last couple of years, particularly for some sectors, where they have seen 100% or more increases in their business rates bill, because of either policy decisions or the decisions by the VOA. That has led to cancelling investments worth millions of pounds because they have these tax bills landed on their door. We would like to see a fundamental reform of that system, rather than potentially another merry-go-round of the tinkering this time around.

Ms Minns

So you want fundamental reform. And Mr Hale?

David Hale

I would probably have a somewhat different take from the small business side. It is more an action rather than a long-term ambition or postponement of decision point from our perspective, which is why I would say on business rates that we have the system as it is. We have an element of the system that has not kept pace, in terms of small business rates relief. Let us get on and do that. That is an easy, actionable change. It can bring the breathing space that the Government have talked about, which is helpful. On the longer-term challenges side, we talked about national insurance and sick pay. We have challenges around the edge of the labour market, particularly related to health. At the moment, you have a situation where there are some firms—large and small—that are taking on people who are likely to have time off sick. They are structurally disadvantaged by the way we organise our labour market rules. Putting in place things such as statutory sick pay and helping the small firms that do it, in particular through the employment allowance, would be helpful.

Ms Minns

On this point about stability, we often think about it in terms of new things that the Government want business to pick up. There are a number of things—you have already highlighted a couple today—that you disagree with that Governments have done in recent years. Does your desire for stability extend to saying, “Can you just not even reverse those things that you have put in, because we would like the certainty of knowing what we are dealing with for the next two or three years?”

Louise Hellem

From our perspective, quite often when we call for stability it is about that predictability. Are the messages that the Government are giving out consistent with the policy that they are talking about? One of the big hits around national insurance was not only the cost to businesses, but the fact that the Government were saying at the time, “We want to increase growth. We want to help get more people into work.” Then we have a policy that makes it a lot harder for businesses to employ people. That is the same with some of the policies around the Employment Rights Act as well. Businesses would like to see that pathway to reform that is in keeping with the ambitions that the Government are setting out. I do not think that that means that you cannot change anything, but it is about how you can change systems in those conversations with businesses as well, and to understand some of these issues and barriers. A lot of it then is around the simplification, rather than necessarily rates and things like that.

David Hale

What really worries me is when Government give the impression that they confuse businesses’ desire for stability with inaction on things that would help businesses. There are a number of Government policies that, in effect, ratchet up the negative risks that we have seen develop. For example, when general energy prices rise, so does what the Government are taxing. We have all seen what has happened with property prices, but we still have a small business rates system set in a 2016 framework. We know that wages have increased, but the tax measures that are there to make sure that small businesses can continue to afford them have not. We can even talk about the secondary threshold that went up. That had not gone up previously in line with wages, as it normally should have done. At the moment, we have too many areas of Government policy that enhance instability, because they tend to ratchet with it, and not enough small changes at the tiller to make sure that there is the stability that businesses need. From the small business side, it comes back to, “I want to invest £30,000 or £40,000 in a new member of staff. Are various things, including Government, going to disrupt that so suddenly I cannot afford my mortgage?”

Ms Minns

Give me your top one that you would like a change on.

David Hale

As the immediate way to get good breathing space, I think we would point to small business rates relief, but there are others, particularly on national insurance.

Dr Tily

I wanted to make a general remark on this stability point, in contrast with the need for action. Dame Harriett was talking about the 2024 Budget. I would like to put in a good word for the 2024 Budget, when the Government made a decent effort at supporting Government consumption and Government investment. We know that public service spending has been very starved for a long time, and public service spending supports the economy from both a demand side and a supply side.

Chair

Was it the capital spending or the—

Dr Tily

It was both. I cannot remember; it was about 50/50 between investment spending and current spending. They were both needed. At the time, the decision was made to use national insurance, and I think even the IMF at the time said that that was a reasonable approach. Maybe the Government could have gone further on different taxes than national insurance, but overall it was a sensible package and a needed package. There is still spending needed. A previous question was answered about difficulties with HMRC. I imagine that there have been HMRC staff cuts and resources have been quite badly starved. There is a need for public spending. There is a need for action on some of these things as well.

John Glen

I want to focus in on some of the measures that you have said your organisations, respectively, wanted, and then to look at the issue of the labour market. Mr Hale, the FSB has asked for an increase in the VAT threshold to £100,000 in your Budget submission. It is currently £90,000 and one of the highest among our peers. What effect would it have and how much would it cost?

David Hale

The good thing about increasing the VAT threshold is that the last time it was increased, which was very welcome, it was positive by the fifth year of the forecast.

John Glen

What were the costs in years 1 to 4 previously?

David Hale

I would have to check exactly, but in the low hundreds of millions. The Treasury, understandably, is concerned about the fifth year. That is what I would point to from the point of view of long-term growth. What pushing the threshold higher achieves is simply that you are not getting businesses that get to a point where they say, “This is too much of a headache”—there are some price effects as well—“I am just not going to work for part of the year.” Particularly now, where we see a lot of businesses that scale very quickly in terms of revenue at the smaller end, particularly with online, we are seeing people go into the VAT system who are not equipped to properly file.

John Glen

I understand the principle. You will have had a lot of engagement, I assume, with Treasury officials and you will have discussed these matters. How likely do you think it is that the Treasury is going to raise it to £100,000, or raise it anyway?

David Hale

I do not know on this occasion. There has been a welcome change in the last few years in terms of how the VAT threshold has been viewed. There is more of a general appreciation, in part because of who is bumping up against it and how that has changed, with younger people—

John Glen

It has not changed yet.

David Hale

No, but what has changed in terms of the types of businesses that are bumping up against the VAT threshold. Sorry, I was not clear.

Chair

Can you give us some examples?

David Hale

Selling online through social media and through different things means that businesses can potentially scale quite quickly from quite a low base. Traditionally, we would always ask—which is again relevant to the £100,000—for the VAT threshold to be set above the level of what one person working on their own, without staff, with a reasonable cost base, but not a particularly large one, would be able to afford. That is what we are aiming for. If £100,000 achieves that—I think it depends on what trade somebody is working for—that is what we would like to see.

Bobby Dean

I wanted to chip in on this quickly. To a lot of people’s minds, it just moves where that pinch point is. There is a different scaling challenge, but now it is at £100,000 instead of £80,000. Would the more radical thing not be to lower the threshold? Would that not get rid of a lot of the lumping problems? Maybe lower it down to, say, the median wage in the UK or something, around £30,000. Basically everybody is brought in. The price competitiveness equation changes. The threshold issue you are talking about changes. What would businesses’ reactions to that be?

David Hale

It is the structure of trading. There are far more people who have around £30,000 of independent income than have around £95,000, so you will always have a bumping effect. If you set it at zero you would have a huge one, because it would be a barrier to entering business altogether. If you set it at the median wage, it would be a barrier in practice to anyone who was like, “You know what, maybe my employed job is not working out and here is this self-employed route that I could take.” There are far fewer people who are obtaining £100,000 of revenue. If you set it at £500,000 revenue, there would be no bumping problem because there are so few people who are bumping into it as that sole trader. It is the structure that speaks to that.

John Glen

Ms Hellem, it is widely anticipated that the one tax that is going up for business is tax on banks. They represent 10% to 12% of the economy. They also fund businesses with loans, interest rates and so on. Have you done any work on the effect that this would have on the economy?

Louise Hellem

We have not done any quantitative work. This is something that has been rumoured, but it has come up as a big concern for our FS members. Also, there is a realisation that it would have an impact on all sectors, in particular on the availability of finance. It goes back to the point that I mentioned earlier around the rhetoric and objectives from Government, and then the policies that they are looking at. This week or last week, the Chancellor described the FS sector as the jewel in the UK’s crown. To do that and then, in the same breath, increase banking taxes—

John Glen

The CBI would be against an increase in bank surcharge?

Louise Hellem

We would not support an increase at all, no. That is quite negative for the UK economy.

John Glen

Broadly, in your road map you talk about how we have had enough strategies and you need delivery. These come out in numerous submissions in the run-up to Budget. It is always difficult for us here because it is all rhetoric. What do you think is the delivery imperative of Government that you find most compelling for your members?

Louise Hellem

Like I said, it is picking up on some of those themes that we have talked about around energy and planning. Another one that we talk quite a lot about is around investable pipelines. It is where Government are talking about particular projects that they want to see built. How can you help to make sure you have the right ecosystem around that in terms of planning, but also around skills provision?

John Glen

What specific policies would you like in addition? You have said that the Government have made progress on planning. What specifically would you want to see next Wednesday that would enhance the delivery that is your imperative?

Louise Hellem

A practical thing, and this would not relate to one specific project, would be around what the right mechanisms are through which you can bring private financing into some of these investment propositions. Quite often, when you are looking at infrastructure build, it is still private capital that might be delivering some of those, but we do not currently have a proper public-private partnership framework in the UK. That is where the UK is quite different from other countries. We are all, I am sure, familiar with some of the issues around PFIs, but it is a system that the UK started. We do not have a real way to apply that in the UK any more, versus other countries that have taken that model.

John Glen

Where would that sit across Government? I understand what you are saying, but how would that be fixed? Who would do what to fix it?

Louise Hellem

That is where the Treasury could set out a framework and say, “For these kinds of projects, these are the kinds of models that we would look at. These are the conversations and the people who should be involved in those from a Government perspective.” Then you can have people who can bid into those. At the moment, there is not a way to connect those bits of the system together.

John Glen

Dr Tily, could I come to you on the labour market issues? Today we see vacancies at their lowest in the last five years. Vacancies fell 21,000 in three months to September to 691,000. We also see a trend in AI, and obviously the UK economy is relying a lot on services. One theory out there that we have heard from witnesses is that productivity may be increased by the fact that the cost of employing people is higher, so people are not employing people and are using AI and other efficiency savings. What do your members say about the state of the labour market, and what specific measures to address these problems in the labour market would you wish to see in the Budget?

Dr Tily

Our judgment about the position of the labour market is that it is mixed. The statistics are difficult to read, but we think that the picture is quite mixed. We now have official payroll figures, which tend to have been a bit more negative than the headline labour force survey figures. The headline figures are that unemployment is relatively low and employment is relatively high, but the payroll figures have been deteriorating for longer. We would flag that the deterioration in the payroll figures has been in there for quite a long time. We have a chart in our report that shows that, if you look at the private sector and public sector employment data separately, you see that private sector employment gains have been slowing for quite a long time. They were slowing from 2023. They begin to fall at the start of 2024, so it is something deeply embedded. We think that part of that is cyclical, related to the monetary policy actions of the Bank of England, and that remains the case. Vacancies may have bottomed out now, so there may be some improvement coming in. In terms of what to do, we would stress that we should consider cyclical and structural factors separately.

John Glen

What actions of Government would you want to see in the Budget next week?

Dr Tily

If there is cyclical unemployment, it belongs at the door of the Bank of England and the Government to support demand in the economy. The action that we think that the Government should take and that we have put forward in our Budget submission is more action around the youth guarantee. The Government announced a scheme in the last Budget that was aimed at people who have been unemployed or on benefits for 18 months. We suggest that that should be moved to six months.

John Glen

If I could draw you in on this youth unemployment issue, if you look at the figures from the period up to July this year on youth unemployment in 16 to 24-year-olds, it is up to 16.4% from 14.3% the previous year. What would you like to see for youth unemployment in particular?

Dr Tily

Again, we think that that deterioration is partly cyclical. The structural trend is that more and more, over time, youth unemployment has been taking a big hit. That is back to 1992 and it goes through to the present. There is not really any discontinuity, then. Youth unemployment is a higher proportion of overall unemployment. We think that that is a structural factor. In answering your question, as I say, we support an extension of the jobs guarantee. We support measures within universal credit on the taper rate. We think that the taper rate within universal credit does not permit young workers to keep as much of their salaries as they should and, therefore, acts as a disincentive. We would support some action on the taper rate. We have some costings on that to reduce it from 55% to 45%. I think that we have estimated that that would cost £4 billion. Of that £4 billion, some would be recouped. There are key measures on the jobs guarantee.

John Glen

When you look at the labour market and the interaction with welfare reform, obviously it has been the topic of the day. The Secretary of State, Angela Rayner, was on the “Today” programme this morning discussing some of those trade-offs as people talk about the changes that may be needed in welfare. Do your organisation and your members have a view on this matter?

Dr Tily

Our organisation has heard for a very long time that reductions in benefits are some sort of price that we must pay for an improved labour market. We categorically reject that. It is a narrative that we have heard for many years, or decades even. It is a narrative that has been acted on for many years and decades, but we do not think that benefits are standing in the way of improving our young people.

John Glen

You do not think that there needs to be an interplay between incentives to work being put into some of these schemes from benefits, to encourage people to move from one to the other.

Dr Tily

Of course we recognise that a benefits system should support workers when they are in hardship, but also encourage workers back to work. We do not, in general, feel that workers do not want work. Workers want work. There may be a worry that there is not enough work out there, to the extent that there is a cyclical problem as well, but we think that workers want work.

Chair

Did you see the Prime Minister’s article in The Times yesterday talking about the scourge of youth unemployment? I do not know whether you have any comments. Do you agree with the position as laid out there, as the TUC?

Dr Tily

Youth unemployment is a terrible thing, but it is a terrible thing that has been terrible for many decades. We keep hearing, and people might argue, that the solution is to take away benefits, but we do not think that. We think that the best approach is to consider good pathways to work. It is to use the benefits system to incentivise. The measures we have talked about on the taper rate of universal credit are where benefits might be increased to help people into work. We suspect that people have suffered enough cuts to benefits, and that is not the problem.

John Glen

Ms Hellem said that her members employ many people, including 10% to 12% of the workforce in financial services. She would be against increasing taxes on banks. Does the TUC agree that increasing taxes on banks would be a bad thing for employment in this country?

Dr Tily

No, we do not.

John Glen

You are in favour of those increases.

Dr Tily

We are very much in favour of increasing the surcharge. We would point out that the surcharge is not a new thing. It is not something that was invented by Labour.

John Glen

What about the overall competitiveness where we are now with the national insurance and corporation tax surcharge and levy? If you look across our peers, how do you feel about that?

Dr Tily

The economy needs more support in general and it seems fair to ask those with the broadest shoulders to pay more. I would draw attention to the scale of the profits. The big four banks have made £29 billion over the first half of this year, which is over £1 billion a week. These are big numbers in the context of fiscal policy. These profits are up 40% on five years ago. It is difficult to judge over the longer term, but, if you look at financial corporations as a whole, profits in the financial corporation sector now are basically double what they were ahead of the global financial crisis. We think that there is a lot of room, without some massive Marxist agenda, to take loads of money away from the financial sector. We could even cite Mrs Thatcher here.

Chair

From Marx to Thatcher in one sentence.

John Glen

I am very happy to continue hearing what you are reading out, but can I just draw you into the fact that, if you look at 10-year gilts, notwithstanding global pressures, we are at a higher rate than our peers, and the tax burden is at a record level? Do you not think that the markets are going to feel uncomfortable about even more tax increases overall? We heard from Ms Hellem how there needs to be certainty around investment propositions in the UK economy. Do those two facts not concern you?

Dr Tily

I do not think that markets would fear an increase in bank taxes. I think you heard it last week from Lord O’Neill that probably bank taxes was a sensible place to aim. A lot of money can be raised here. If you raised it to the energy profit levy, it is £60 billion over four years, or £15 billion a year. Doubling it would raise £16 billion and even just replacing the old rate would raise £2 billion a year. These are massive, supernormal profits and this is not a level of profitability that is sensible. It is going to shareholders. It would be more sensible to use some of that money to support the economy in other ways.

Catherine West

Moving on to growth in every postcode, Mario Cuomo, the former governor of New York, said that we campaign in poetry, but we govern in prose. Let us talk about growth in every postcode. Is this the correct approach to achieving economic growth? Could I ask the FSB?

David Hale

Absolutely is the short answer. Growth in every postcode almost feels like one of those things that should not need to be said, as it is presumably what we are all aiming for, but I think, including in terms of some of the reaction to growth in every postcode, that it probably showcases why it is important to have that as a mantra and for policy to follow beyond that. I will not labour the point but, whether that is business rates relief or national insurance, small businesses and self-employed people are present in every postcode. Too often, it is easy for policy to get distracted by the latest flashy thing here or there. It is a helpful mantra, even if it should not be.

Louise Hellem

We are very supportive of a more regional and place-based approach to growth. There is a question, for growth in every postcode, about whether you are trying to get that uniform growth absolutely everywhere. That is not necessarily the approach that we would advocate for, but instead think about where the specialisms are and where the centres of excellence can be, and make sure that they are up and down the country. That fits very much with the approach with the industrial strategy that we have seen, embedding that in a more place-based way and thinking about how we, in particular, increase some of those opportunities around our second cities and make sure that we have good transport links into those, so that people in every postcode can access those opportunities. One big thing that we would advocate for within this is to make sure that any decision making that is done at a local level is matched by the right capabilities and capacity. That goes to the earlier points before around making policies deliver on the ground. It is about thinking through each of those capabilities that needs to be built up to make this policy successful.

Catherine West

Dr Tily, last week in the Treasury Select Committee we heard that Lord O’Neill felt that it was a bit too much poetry and not enough prose. He was arguing, basically, for the cities and the conglomeration effect that you get within a city because of the transport hubs and the sense that you can get to those jobs. Does the TUC have a view on every postcode versus cities and leadership of mayors, and all those sorts of questions around what the right size is within our very diverse economies that we have in the UK?

Dr Tily

The aspiration is completely right. It is a hugely important part of the UK’s economic problem. Over decades, prosperity and growth has not been shared across the country, and great parts have been left behind. Even in prosperous parts of the country, there are pockets that have been left behind. We also note, and we have analysis in our Budget submission, that there has not really been any improvement. This has been emphasised for a number of years. Over the 2010s, there were no gains. London comes out of the financial crisis and remains ahead, while other places remain behind, even in the latest period since the pandemic. There is actually some narrowing, but the narrowing is achieved by London growing more slowly and the other regions still staying in the same places as they were before. We think that the aspiration is completely right. Rather than good growth in every postcode, we want to ensure that people have access to good work across the whole of the country, whether or not the postcode frame is the right frame for that. We think that the action must be an interplay. It must be an interplay of the industrial strategy at national level and autonomy at a regional level.

Catherine West

If I could pick up that question of inequality within a region, as a London MP I see this in constituency work every day. How do we try to promote the growth of, say, London and Manchester but also cope with, say, Fallowfield or certain London boroughs that have very high rates of children living in poverty? What is the answer to that from an economic point of view?

Dr Tily

It is partly the regional and national agenda. The trade union movement, as I am sure you know, has a regional and national dimension to it. These union officials are heavily engaged with the issues in their region. It is about having the frameworks and infrastructure for a dialogue at regional level, but it is also about resources. I do not think that you can get away from it. There are some things that are cheaper than other things. There is an important skills dimension that can be devolved, but again that perhaps benefits from a central guidance as well as a regional one. In terms of strengthening industry across the country, that must have a regional dimension. It should be a goal. A big agenda for the TUC is reindustrialisation. We see the purpose of the industry strategy as reindustrialisation. Reindustrialisation has a very important regional dimension.

Catherine West

Ms Hellem, could I ask quickly about the point that you made on capability and capacity within local government? Take the example of Cornwall, where there is no mayor. Cornwall has not been getting as many grants since the withdrawal of EU funding. What can we do to build up capacity? There are pots of regional money, which are sometimes underspent. What can we do to give a region the capacity to get that money in and to do it quickly?

Louise Hellem

The example of Cornwall is a striking one. There is a bit of a risk that areas like that—Cornwall does not have a mayor and, if it is ever to get one, that is a very long way down the road—will be left behind, particularly if some of the growth strategies are really based upon that mayoral model. There needs to be a lot of engagement with the area around whether that is going to happen in the future and thinking about other ways to engage with them. We have been very welcoming of the idea of moving some of the current capacity within the civil service and thinking about how people could be deployed in more local areas, as well as trying to build up capacity within the region, if we want to move a little more quickly on this.

Catherine West

Finally, what is the role of chambers of commerce in those areas, speaking up for business and the partnership between business councils, to try to get our economy going?

David Hale

As the Federation of Small Businesses, we are there to represent the small businesses that give people opportunities. Your constituency is a good example. This is not a conglomeration versus non-conglomeration point. The basic fact is that the businesses that give people opportunities are more likely to be small businesses or people setting up their own businesses. They are the businesses that are less able to access some of those strategies that Louise was talking about earlier in terms of hedging with energy costs and so on. If we focus on that half of the business population, we will get where we want to get to in terms of opportunity a lot more quickly than if we were to focus on one or two primes in one or two areas. That would be broadly what I would say.

Dr Tily

I am sorry; I was maybe being a bit vague. In terms of the interplay of the industrial and regional strategies, it is important to note that, when it comes to the industrial strategy, we consider that the Government’s identified eight key sectors are a bit narrow. It makes sense to identify them as areas of strong growth, but in terms of resilience and security, we think the industrial strategy should be broader. If the industrial strategy is broader and takes into account bricks and glass, and food and drink, it gives more scope for reindustrialisation across the whole of the country.

Chair

How many sectors or areas would you want to see?

Dr Tily

We would want to see most of the manufacturing industry covered.

Ms Minns

I represent a northern constituency, arguably one that has been left behind. I am acutely aware that our wages are not as high as in other areas. Clearly, the cost of labour is not the reason why large employers are not setting up in Carlisle. What is the one thing that would change that? Perhaps we can start with you, Dr Tily. What would you like to see Government do to get businesses to locate to areas such as Carlisle?

Dr Tily

It goes back to the previous question. It is about making very real the industrial strategy with the regional dimension and putting some real money behind it.

Ms Minns

What does that mean for Carlisle?

Dr Tily

It means finding industries to strengthen across the manufacturing sector and funding them, having discussions between businesses, Government and workers about which industries those are, and looking for increased funding across the economy. We might talk about the National Wealth Fund, but the National Wealth Fund could be used partly as a reindustrialisation fund. Money from it could help to reindustrialise your constituency.

Louise Hellem

First, I would note that high employment costs have an impact on the opportunity to provide new jobs. That is around both the tax increases that we have seen and the Employment Rights Act. Like Geoff, I think a lot of it is around that point of how you can bring the industrial strategy to life in a place-based way. Briefly, a great example that I would highlight, which is in my neck of the woods, where I grew up, is the Advanced Manufacturing Research Centre in Rotherham. That is a great example that is linked to some of those industries that we want to promote in the future. It is very place-based. It is about bringing together those big local employers with the rest of the supply chain, the local universities and the local colleges, and making sure that you have the right ecosystem for the local community. If we can see more examples of those up and down the country, that will be really beneficial for some of these places that may feel more left behind.

Ms Minns

Mr Hill, do you have anything from a small business perspective?

David Hale

To build on Louise’s point, a lot of times it is the local supplier base and the condition of that that dictates where primes will invest. In my neck of the woods in the midlands, we have a really strong automotive supplier base. We used to have a different prime to the one we have now. The supplier base is not dependent on the prime; the prime is attracted to the base. That is a really important point that can sometimes be missed in some of the detail of the industrial strategy. Too often, we look at how we can get a particular prime in a particular place and not at how we can build a really solid supplier base so that people want to come. That would be the only point that I would emphasise.

Bobby Dean

Dr Tily, earlier on in your defence of the 2024 Budget, you said that public spending can support demand and the supply side, and ultimately be good for growth. Can you point to evidence of where public spending has led to growth in the last couple of years? More broadly, where can public spending be most effective for growth?

Dr Tily

The expansion of public spending in Budget 2024 supported the economy. It may have supported the economy more than the Office for Budget Responsibility expected. That was in a difficult environment, of course. At one level, the Government increased spending; at another level, interest rates remain relatively high. They are pushing in different directions.

Bobby Dean

I accept the broad argument that you are making. I am asking for the specifics. Was it on healthcare spending? Was it more on the infrastructure side with capital spending? Which areas of public spending were drivers for growth?

Dr Tily

In general, if public spending is supporting spending in the economy, it is helpful. That is helpful at an aggregate level. It is helpful to keep the NHS funded because the function of the NHS is to make people better and therefore able to get back into the economy. NHS spending is helpful. In an economy where there is not enough spending, it is helpful in its own right to have public spending going in. Investment spending is generally agreed to be very helpful. It had been pulled back quite a lot, so increased resources into investment spending was very helpful. I would flip it on its head as well and remind us all of the experience when public spending was withdrawn from the economy from 2010 forwards. The effects of cutting spending on investment and current spending were severely damaging to the economy. Not just us, but countries across the world found out that if you pull back public spending when the economy cannot take it, it is very damaging to economic activity more generally. Public spending is hugely important both in a structural sense for the economy and in a demand sense for the economy.

Bobby Dean

Your arguments are broadly in the aggregate. Ms Hellem, you talked earlier about the lack of a framework for public-private partnerships in the UK. Can you give us more information about how that would work for business? What would business’s ask be in terms of the models? As you said, in the past there was a negative experience in this country, but other countries seem to have learned the lessons and proceeded with PPPs in a different way. What models would you be seeking for the UK Government to take on?

Louise Hellem

There is a variety of options. We have done a paper on this that I would be very happy to share with the Committee. You have models such as the RAB. There is a variety of models out there. It depends on what the actual infrastructure investment is. One of the important things, though, is about not only understanding the pipeline of opportunities and the types of models but making sure that you have the right capabilities on both sides. A lesson from the previous models was to make sure you have the right capabilities in Government around contracting and things like that so that, again, throughout the process, everybody has a clear understanding of expectations and costs. That was one of the important lessons from last time.

Bobby Dean

You mentioned in your answer infrastructure investment. I just want to probe on that a bit further. Could this be applicable to not only energy and transport infrastructure but social infrastructure, such as the building out of hospitals? Could it go further into the industrial strategy and support specific businesses too? Would you like to see that kind of involvement?

Louise Hellem

I am not sure about specific businesses. You might have to elaborate more on that. I do not see any reason why it could not be used for public infrastructure. We can see the possibilities there, but we understand that you might want to start with those bigger, heavy infrastructure builds.

Bobby Dean

On the business side, I am talking about some of the key areas in the industrial strategy. The UK might want to form partnerships with the private sector, around particular advanced manufacturing businesses or clean green technology businesses, through the National Wealth Fund or other public financial institutions. Would that be part of these PPPs and the models that you were thinking about?

Louise Hellem

Yes, I might not class it as a PPP in the same way, but definitely that co-investment is incredibly important. That is one of the positive things that we are seeing through the National Wealth Fund, which is helping to bring in more private financing by co-investment with the public sector. That can help create new markets. A recent example is a mine in Cornwall, which had some National Wealth Fund money to start the project. Again, that speaks to where the Government want to build up sectors within the UK to improve the UK’s resilience and UK supply chains. There is definitely an important role there.

Bobby Dean

Can I just take a step back? This feels like a million miles away from the sorts of things that business would have been advocating for, say, 20 years ago, which was much more about letting the market do its job. There now seems to be an invitation from Government to get involved, co-invest or set up public-private partnerships to encourage more investment in infrastructure. What guardrails does business want in place to make sure that Government are not crowding out private investment and distorting the market?

Louise Hellem

Normally, the public sector might get involved if there is market failure or, like I say, in nascent markets where there might be a lot of risk. In particular, that is where public investment can play a big role by coming in instead of crowding out private investment.

Bobby Dean

Finally, Mr Hale, on this broader subject of where the Government could spend for growth, do you see any opportunities for small and medium-sized businesses?

David Hale

If we looked at some possible spending reductions, we might see opportunities. We do not think that the Government procure well. A way to get action rather than just more strategy—this would be more for the spending review—is to set reductions in procurement spend as a target. One way that you could make sure that that does not have any undue negative impact on the quality of the services that people receive is by getting more small businesses involved. The Government’s supplier base looks nothing like that of any large companies. For most large companies, around two thirds of their suppliers are small businesses. The Government do not even get to one third. The reason why large companies tend to have a supplier base of smaller companies is that it is a way to get proper competition when they procure and to get better prices. The Government do not see that effect. If you were to put some headline reductions in for Departments to reduce spend, it would help. On the guardrails, you need some guardrails to make sure that we are not making less good use of money than we should, in particular on innovation funding. Unfortunately, we have moved from a very firm, neutral tax credit R&D system to one that puts a lot of onus on Government to identify particular businesses through agencies such as Innovate UK. With the lack of guardrails, you lose some of the market discipline that we would get there. Having said that, from an infrastructure point of view, for small businesses it is about the last mile. It is about roads. It is about blockages that affect smaller roads in the constituency. The motorway network is not perfect by any means, but it is about the small roundabouts that cause problems in local areas. It is that sort of thing. Roads is less flashy and so it sometimes is discussed less often, but we would always point to roads.

Bobby Dean

Can I just put one specific to you that I have heard others advocate for? AI and tech adoption programmes could support maybe small and medium-sized enterprises to take on technology in the same way that larger businesses are. Is that something that Government should be getting involved in?

David Hale

We are at the point of take-up on AI where you see quite a lot of rapid adoption in small businesses. The IT sector, which is quite small business-dominated in a way, is making use of AI quite quickly. It will be a few years before we are really at the point that you eventually get to in technology where some small businesses adopt very quickly and some adopt very slowly. It is much less even than among large businesses in general technology adoption. AI and tech adoption is not necessarily the first thing that comes to my mind. There are good programmes such as Cyber Essentials for helping to keep people secure. You could take that sort of approach to AI. I would not immediately jump to a broad spending-driven adoption programme when the market is still working itself out.

Dr Tily

I just wanted to come back on the National Wealth Fund, if I may. We know that Rachel Reeves acted to extend the flexibility of the public finances with the public sector non-financial liabilities measure, but the National Wealth Fund does not seem to have been used as extensively as it might be. In our submission, we discuss how the key problem could be the short horizon over which projects are judged. At the moment, the National Wealth Fund judges projects over a five-year horizon. We suggest extending that to 15 years and perhaps requiring a lower return so it can be used to advance on a broader front. There are other ways to use the National Wealth Fund as well as the 15-year horizon.

Louise Hellem

I was just briefly going to comment on the AI adoption point. That is one of the big areas that we would like to see progress on in the Budget. In particular, a business AI adoption taskforce could drive more roll-out across the economy, particularly for small and medium-sized firms. One of the really positive schemes that we have seen over the last few years is Made Smarter, which provides advice alongside practical support. We would like to see that rolled out to more sectors and regions.

Chris Coghlan

Mr Hale, it is interesting that you mention failures in Government procurement. What exactly would you like to see done to improve that? You mentioned lower targets. Is that lower targets for large companies?

David Hale

I mean total spend in the spending review being at least lower than it otherwise would have been. That discipline makes Departments think about their procurements differently. Within that, getting small businesses in can come from greater use of DPSs and frameworks that you can join easily. If you are not on a framework at the start, it is often quite difficult to enter. Too often, we have these very aggregated contracts. You end up with a situation where only one or two people are bidding for a contract. That is never going to get you the best price. You want many more people to bid for it. It is not just about price. Is someone going to come up with an innovative solution? Probably not if they are the only person who is bidding for the product. That is not how people work. It is also simply about how well contracts are advertised. You get into a level of detail where it is just about performing a little better from a small business perspective. If you look at particular industries such as defence, the vetting procedure is a large barrier for small business entrants because they do not have the capacity to speed it along or the existing capacity to have people in a business who are already vetted. If you might or might not enter a contract, the vetting will hold you back. There could be something to speed that up. It is not just one thing.

Chris Coghlan

What metrics would you use to evaluate whether an industrial strategy is working for small businesses on the ground?

David Hale

When we talk about grants and the guardrails, a very simple mechanism to check is how many of these grants are in practice going to small firms and whether that figure matches the prevalence of small firms in the economy. With things such as the industrial strategy, you worry that it will not, but that is good discipline. More than half of employment is with SMEs. Is that matched by the funding? When it gets to how you build and develop supplier bases in places where you particularly want them, perhaps there should be more funding. We should at least be tracking it and aiming to match, broadly, what we would expect it to be.

Chris Coghlan

Ms Hellem, you mentioned Government co-investment. How specifically would you see this working? Do you see this as a significant part of solving the start-up to scale-up problem?

Louise Hellem

The start-up/scale-up cliff edge in the UK is well known. We would like to see more support on that. Some of that can be through PuFins such as the British Business Bank. It is also around how we can improve the depth of capital markets in the UK so that we do not see as many firms starting here and creating great innovations here but then moving in particular to the US to access those deeper capital markets. That would be a big thing for us to see.

Chris Coghlan

Dr Tily, what specific steps should the Government embark on for their new age of industrialisation?

Dr Tily

We have outlined proposals on this in our Budget submission. We asked them to establish a “reindustrialise Britain” mission and unit, which we think should be in No. 10 North. We propose a UK accelerator Act, which would be to design and be a blueprint for a sectoral approach across the economy. We propose a “reindustrialise Britain” fund, which again would come out of the National Wealth Fund, to make sure that there is money on the ground. Likewise, as has just been discussed as part of this, we think there should be a procurement Bill, because trade unions have always argued that procurement has potentially great benefits for the domestic economy, labour standards and wider issues of security.

Chris Coghlan

What upscaling measures do we need in order to have a workforce capable of delivering on this?

Dr Tily

Again, it comes down to dialogue. The trade union movement is across the country. We hope the union learning fund gets reinstated, as we heard from the Chancellor at our congress. We think operating at a place-based level, with worker voice and employer needs, is the right approach to getting skills right across the country. Again, it comes down to a broad design of a centralised steer with a lot of implementation at local level.

Chris Coghlan

Is there a risk of persistent skill shortages where apprenticeships fail to develop as fast as AI? How do we adapt the workforce to cope with the pace of change?

Dr Tily

Again, the learning networks are in place and they can be used. We were wondering whether AI might come up. At the moment, we judge that the headline movements in the labour market are still dictated by mainly cyclical factors, but there are areas where AI is coming in. Certainly, we have a list of areas where AI might be affecting hiring. The approach has to be proactive. In part, it has to depend on training for skills, but it also has to depend on how AI is more broadly adopted across the economy. There is a fear that AI is used only to save on costs, but it really should be used to help expand and to enable people to do fewer bad jobs and more good jobs. It should not be a zero-sum situation.

Chris Coghlan

On that, there is quite a lot of reporting on how AI makes it very hard for entry-level workers because those jobs are the first ones to get replaced, whereas middle managers are safer because they have seniority and judgment. They are almost directing AI instead of entry-level workers. Is there a case that you could use AI, in effect, to upskill entry-level workers so that they could operate as middle managers?

Dr Tily

How workers use AI and digital has to be a key part of skills training. There is probably an argument that AI should be a sector in its own right in the industrial strategy. There is massive uncertainty in this area, is there not? We do not know whether it is going to improve productivity. There are all these worries, as we heard from the IMF and the OECD recently, that it could be quite perilous for the economy as a whole. It is a massive issue.

Chris Coghlan

Finally, to the whole panel, I am just interested in generally hearing about your hopes and fears about the industrialisation strategy, if anyone wants to go first.

Louise Hellem

I am happy to go first. One of the big things for us—it may be a bit of a theme of our conversation today—is that you cannot have a proper reindustrialisation strategy in the UK without addressing high energy costs. It is definitely our hope, if not for this Budget, that very soon we are going to see more substantive action from Government on that. One of our immediate asks is to remove policy costs from bills, but we also want to engage with Government and think about this end-to-end approach to improve grid connectivity and make sure that we have a system that is really working together. That is both about the benefits for reindustrialisation and increasing the UK’s resilience. That would be one of the big areas for us.

David Hale

Following on from that, it needs to have some grit. It cannot be, or I would hope it does not end up being, one or two primes making announcements that sound good, but not tackling the real issues that apply across the industrial base. Energy is the one of the moment, but it is one of a few. That would be good. Briefly, if I may, I will mention labour costs. This might be why we have had some disagreements on some aspects of policy. We really see this as a structural issue for people who are outside or in danger of being kept outside the labour force. There are real reasons why that group has found it harder to enter work over the last 20 years, and that is perhaps being accelerated. I am an optimist about AI, but what slightly worries me is that those entry-level roles where you could easily foresee AI having an impact are becoming harder to get into. For all the focus on individual jobseekers, either you need to make your own job and be self-employed or you need somebody to give you a job. It is harder to do that from outside the labour market than it used to be. We need to look at that, if we are not to see a constraint on growth from having a smaller potential workforce.

Dr Tily

As we discussed earlier, we support measures to reduce energy costs for businesses. More broadly, we support bold action. We support putting money in there. I should also mention that it is not just about the industrial strategy; it is about living standards. We have a measure to reduce business costs and we have a proposal for a social tariff for households, which we think is very important. We think that strengthening living standards is an important part of strengthening the economy because of the shortfall in demand caused by high interest rates and so on. I should reiterate that the Employment Rights Act is vital to action in both the short term and the long term. All the evidence these days points to the fact that what is good for workers is good for the economy.

Chair

I just want to come back on energy costs again, particularly to you, Ms Hellem. You have framed the cost of electricity as an essential competitive issue for UK businesses. Can you just crystallise what Government or the sector could do to smooth that and what the particular cliff edges are between the UK and other countries?

Louise Hellem

Industrial energy prices are 36% above the EU average and 47% above the G7 average. One of the reasons why that difference is so large is that at the moment we have the renewables obligation, the feed-in tariff and, indeed, the climate change levy all on business bills. We would like to see those all moved into general taxation. As we talked about earlier, that would come with an up-front cost.

Chair

It is those Government levies that are causing the difference.

Louise Hellem

That is the big immediate action that we would like the Government to take. There are some longer-term actions, like you say, around making sure we can have a greater roll-out of electrification through grid improvements. That is action that we need to see now but would take longer to come about.

Chair

On electrification, what incentive do Government need to create for businesses to electrify? It is not all down to Government. In the end, businesses will have to make those judgments about their own premises and business operations. What are the barriers to businesses?

Louise Hellem

One barrier at the moment is these policy costs. If you are looking at the cost of electricity versus gas, that is one thing that makes that higher. You need to reduce that spark gap. You then need to make sure that businesses have the opportunity to electrify because they have the attachment to the grid. We do not always have the right conversations. The grid says that there is not demand in this area, but businesses do not come forward with the demand if they do not think the supply is going to be there.

Chair

The last Government had a target of decarbonising the grid by 2035. The current Government had a manifesto commitment to do that by 2030. That is decarbonisation, let alone all the connectivity and other things. Do you have any sense of the timescale for, one, when this needs to be done and, two, when it could be done, given these very ambitious targets to do work on the grid?

Louise Hellem

It is right to have the ambition. We see that we are probably moving a little bit from 2030 to 2035, at least in those last few percentages. That is probably a bit more of a practical timeline.

Chair

You think only the last few percentages will be dealt with between 2030 and 2035.

Louise Hellem

It is better to get it right. There are additional costs to trying to move it forward on an accelerated timeline.

John Glen

Could we address again the issue of tax on business? Ms Hellem, the CBI has done work that shows that in this tax year, finishing at the beginning of April 2026, businesses paid £344.8 billion, 31% of all tax revenues, yet nearly £15.5 billion is spent complying with tax rules. What specific measures would you and your members like to see in the Budget to simplify the tax system?

Louise Hellem

On simplification, there are the measures that we have already talked about in terms of business rates. That would be one of the big areas, particularly around removing cliff edges in the system. Some of the other areas that we would like to see are perhaps on the smaller end, but, for example, we still have a lot of issues from businesses, particularly on the SME end, around IR35. There are measures that you can put in place there to create safe harbours for those who are certified to be self-employed. It would be very helpful to have advanced assurance for R&D. I would also echo the comments about the interactions with HMRC. Again, you can improve systems by having better digital tracking and things like that from inquiries that come into the system.

John Glen

Could you tell us a little bit more about that specific thing about HMRC interactions? Can you make real for the Committee what the problem is in terms of customer interaction?

Louise Hellem

There is a variety of things. You mentioned the £15 billion in terms of compliance costs. Some of these are very practical things. Within the CT regime and the compliance frameworks, there are something like 985 boxes. The regime itself can be simplified. There is an ongoing discussion at the moment around how the domestic CT regime co‑exists with the international pillar 2 regime. Again, there is a lot of duplication in the system that you can take out. There are also some very simple issues. If your firm is in contact with HMRC, you might be talking to a different person every time you make contact. You might get a slightly different answer and you might be sent on a different loop.

John Glen

You need continuity of interface.

Louise Hellem

Yes, there could be better continuity of service. That is supposed to happen, but does not always happen. It would be good to have better digital tracking of inquiries as well.

John Glen

On business rates, I assume you want to move from some sort of slab to a slice approach.

Louise Hellem

Yes.

John Glen

Presumably, there is also a problem with businesses that are on the high street but also have an online presence. There is hybridity. Politicians often say, “We want to get at these online behemoths that do not pay enough tax,” but businesses often do both. Have you thought about that problem? How would an appropriate change affect it?

Louise Hellem

Our proposal—you called it a slab-to-slice system—is about improving the system for everybody. It is not going down the road of having different rates for different sectors or types of businesses. Indeed, we think it is quite important to make sure that you are not creating more complexities and cliff edges within the system. As you say, people might think about the shop on the high street, but there is always a warehouse at some point along the chain. We think it is much better to improve the system. To the point about cliff edges, like I say, there are these cliff edges around £51,000 and £500,000 for property values. If you go over that by £1, you will have a much greater bill. That can catch businesses unawares or mean they have a disincentive to expand, which we think is holding back growth and investment.

John Glen

Mr Hale, there has been a significant proposal from celebrity chefs to have a 10% VAT rate for hospitality businesses. What do you think about that?

David Hale

I would not expect to see one next week at the Budget. As you will well know, in Treasury terms it is an extremely expensive policy. Would it help hospitality? We presume that it would, given the extent. When it comes to expectations, I am not expecting to see one, as disappointing as that will be for people in the sector.

John Glen

What would your top ask for the hospitality sector be? UKHospitality has been very powerful in its advocacy and criticism over the fusion of above-inflation increases in the national living wage combined with the Employment Rights Act, contrary to what Dr Tily said, and the overall operating environment on the high street. What would be the best alternative, if we are not going to have that?

David Hale

I will point out a few things, if I may. This goes back to how Government can negatively interact with the ratcheting costs that businesses are seeing. Hospitality is a big user of energy. The renewables obligation point stands for hospitality as much, if not more, in general, as it does for other sectors, so I would include that. Small business rates relief is really important for the hospitality businesses that it will help. On the national living wage, in particular, which is increasing, the national insurance tax take has increased particularly on that. Sometimes it is a distraction to talk about the wage when we could be talking about the tax take coming down. That is what we would point to in terms of where you can bear down on national insurance costs. The proposals on sick pay are particularly tricky in an industry that in general employs people who are more likely to have days off sick. Again, I would point to the statutory sick pay rebates. I would hope that all of the things that I have been talking about will make a difference to hospitality, largely on fixed and staffing costs, which is where I would be more hopeful next week than on headline VAT reductions, which I am just not expecting to see.

John Glen

I am not really clear. If they are not going to reduce the national insurance employer contributions, the national living wage will go up, there will not be any changes to employment rights and sick pay will come in very early, where is the benefit going to come for hospitality?

David Hale

My strong view is that the employment allowance should be going up in line with the national living wage every year. That should be an indexed and predictable cost.

John Glen

The indexation will take less out as tax.

David Hale

Yes. On the statutory sick pay rebate, I would strongly urge the Government to introduce that. Whether or not they do, we will have to see.

Chair

You are making your pitch.

John Glen

Dr Tily, could I come to you, please? The Centre for the Analysis of Taxation—CenTax—says that an equalisation of CGT with income tax would, even with indexation and so on raise £14 billion a year. Are you disappointed that repeated Treasury briefing over the last week suggests that they are not going to raise CGT, its scope or the rate? Would that be something you would have supported?

Dr Tily

It is something that we would have supported. We recognise those figures that you have mentioned. We note that it was relatively successful when CGT rates were raised by the previous Chancellor. It raised an impressive amount of revenue over the last years. It has gone up by 89%.

John Glen

Do you have any assessment of the behavioural effects, if you were to raise it to the prevailing income tax rates? That is the proposal.

Dr Tily

We do not have our own assessment of that, but we are aware of other people’s work. In particular, there is this concern that it will somehow diminish dynamism and entrepreneurism, but IPPR—the Institute for Public Policy Research—has put out analysis showing that there are better ways to support dynamism in the economy. In general, capital gains tax is not a barrier to entrepreneurship. We continue to support an increase in capital gains tax. Again, you have to come back to this point about the difficult position that the economy is in, the support that is needed and the need for those who can best afford it to pay some more. That is the burden of many of our policies, in our submission.

John Glen

It looks like you are going to get the bank tax that you are in favour of. It does not look like you are going to get the CGT increase that you are also in favour of. Are there any other taxes that you would like to increase on business? This is your chance to pitch it.

Chair

I am sure the Chancellor is hanging on every word of this session.

Dr Tily

One area that we have looked at—there is material on this in our submission and we are putting out some more material this week—is around corporation tax relief. We have noted that corporation tax paid seems only to be about half of the rate of corporation tax. We understand that there are lots of reliefs in operation when it comes to corporation tax, many of which are no doubt very sensible, but there does seem to be quite a large gap.

John Glen

Which ones do you not like? Which specific reliefs do you mean?

Dr Tily

To be perfectly frank, we are basically proposing a review to see why the shortfall is as large as it is.

Chair

It could be an example of where the Government change things, but the aggregate position has not always been looked at. Thank you very much indeed to our witnesses: Dr Geoff Tily of the Trades Union Congress; Louise Hellem of the Confederation of British Industry; and David Hale of the Federation of Small Businesses. The transcript of this session will be available on the website in the next couple of days uncorrected. Thank you to our colleagues at Hansard for that. Thank you to our colleagues at Bow Tie for the broadcasting. Just as a reminder, after the Budget next week, we have a number of witnesses the following week and then the Chancellor of the Exchequer in front of this Committee on 11 November. Thank you very much indeed.