A year of hard Labour: UK plc’s verdict on Starmer and Reeves
Just a year ago, Keir Starmer’s Labour party won an historic general election victory having promised to be “the most pro-business government this country has seen’. Ali Lyon sees whether industry and business leaders feel the party has met that vow 12 months on.
As some of the great and good of Britain’s storied business community were still finding their seats at the Times’ annual ‘CEO summit’, the feted business journalist Dominic O’Connell asked the slowly amassing audience a simple question.
In June last year, he observed, with Labour on the precipice of an historic general election victory, the woman hoping to become Britain’s first Chancellor had made the room a bold promise: her Labour party would be the most business-friendly government ever.
As Rachel Reeves prepared to take to the stage at this year’s event, O’Connell wondered out loud, how many in the audience, which included top FTSE chief executives, thought she had lived up to that promise? Not one hand went up.
The crowd’s displeasure, while striking, can’t have come as a surprise to the Chancellor.
Indeed just a week later, the Prime Minister deigned to tackle head on the ructions that had emerged between his government and UK plc during his first year in office.
In his most direct admission to date of the fiscal burden he had asked businesses to shoulder since last July, he told delegates of a business summit: “I fully acknowledge that this year, as we’ve had to fix the foundations of our country… we’ve asked a lot of you.
“I want to say thank you.”
But if the accounts of over a dozen business owners, bosses and industry chiefs that CityAM spoke to on the eve of Labour’s first anniversary in office are to be believed, gratitude, and gratitude alone, will do little to restore UK businesses’ trust in the party after a succession of bitter pills.
Almost to a number, their accounts painted a picture of a government taking important, necessary steps to improve the long-term prospects of Britain’s ailing economy, while neglecting to nurture or safeguard the interests of the firms responsible for delivering those goals in the here and now.
Labour has ‘lost the trust of business’
“They have lost the trust of business,” said Kate Nicholls, chair of UK Hospitality. “Ever since the Autumn Budget, business has realised that the access it had to the party, and the relationship we had going into the general election, was going to be different.”
It has been a striking fall from grace. Starmer’s was an administration which – as the fresh-faced Prime Minister first walked down Downing Street on the morning of 5 July 2024 flanked by flag-waving campaigners and staffers – had the full support of a UK business community hopeful his premiership would usher in a new era of stability after years of tumult.
Business confidence – according to the BCC’s quarterly sentiment survey – was the highest it had been in three years at the end of the second quarter of 2024, with 58 per cent of firms saying their prospects for the upcoming year looked rosy. By contrast, just 13 per cent felt their revenue would decrease, despite a persistently tight macroeconomic environment requiring interest rates to remain higher than bosses had hoped or expected.
But in the lobby group’s latest poll of business sentiment released on Thursday, 56 per cent of bosses said they’re worried about further tax rises. Meanwhile just 48 per cent said they expected their revenue to rise in the next 12 months, even though monetary conditions have loosened – and are likely to continue to do so – in the coming year.
Sensible long-term economic approach
Of consolation to Starmer will be that those figures could be markedly worse. When asked what the government had done well a quarter of the way into its term, almost all bosses CityAM heard from heaped praise on its efforts to unclog the long-term barriers that have impeded economic growth since the great financial crash 17 years ago. And chief among those is its flagship effort to overhaul the planning system and “get Britain building”.
“The government has identified the right challenge, which is raising economic growth,” said Chris Walker, partner at economics consultancy Chamberlain Walker and a former Treasury economist. “The planning reforms… boosting things like housebuilding and getting nationally important infrastructure through is really important.”
Also earning plaudits from finance circles, have been Labour’s efforts to bear down on duplicative and needless regulation that had been acting as a blocker on firms’ aspirations and a drain on resources. On Christmas Eve last year, Starmer, Reeves and business secretary Jonathan Reynolds penned a strongly-worded missive to Britain’s largest watchdogs, demanding they concoct a suite of growth-enhancing proposals to lighten their imprint on business’ day to day operations.
“The attempt to have greater regulation clarity has been important,” Justin Onuekwusi, chief investment officer at St James’s Place, told CityAM. “If you are a pro-growth government, you have to understand the role regulation plays in keeping people safe but also helping drive growth. I think that’s been really positive.”
Simultaneously, Labour’s exploits in the international and diplomatic arena have helped win over several influential industry leaders. Its efforts to re-establish cordial relations with the European Union and on trade – in which it published the first overarching strategy since Brexit and ratified three flagship trade deals – were branded “really positive” by BCC director general Shevaun Haviland.
“The PM being back in the world, and being open for business, is absolutely right,” she told reporters at her body’s well-attended summit last week.
A Budget that could come to define this government
But those warm words were by far the most cordial Haviland deployed on a day when she used her annual keynote to make a strikingly direct demand to Labour as it began to prepare for its next fiscal event.
“If there is one message I want government to take away it is this,” she told delegates. “There must be no further tax increases on business in the autumn Budget.”
The reason Haviland felt so compelled to reach for as stark a warning as she did was painstakingly evident in all the assessments of Labour CityAM received from heavyweights in the so-called ‘real economy’. And they all hone in on one singular moment where Labour tested the extent of goodwill, and was dealt a harsh verdict.
“You can divide Labour’s relationship with business into two,” said one industry body chief, who contributed on the grounds of anonymity. “It’s before the [2024] Budget, and after the Budget. It could come to define this government.”
“The [2024] Autumn Budget surprised everybody,” agreed Nicholls. “It had significant cost implications across the economy.”
And Dominic Ponniah, chief executive of facilities management firm Cleanology, said the Chancellor’s maiden fiscal package “confirmed everyone’s worst fears that taxes were going to go up”.
And go up they did. In what was the first major test of Labour’s economic credentials, Rachel Reeves chose to launch a £40bn tax raid to juice spending on public services, with £30bn allocated to the NHS in an historic change of tack for Britain’s fiscal policy. And over half of those tax receipts were generated straight from a hike of Employer National Insurance contributions, which Nicholls branded the most regressive tax change that she’d seen in her entire career.
The government claimed it had kept its promise not to raise taxes on “working people” by raising the UK’s main payroll tax. But it immediately triggered a deluge of warnings that firms would respond in one – or a combination – of four different ways: raise prices, reduce headcount, lower wages or slash investment.
With the change only having come into force this April, businesses are still reeling from the punitive, highly unexpected lever the Chancellor opted for to pull in an attempt to balance the country’s precarious public finances.
“We were hit extremely hard by the NI increase,” Ponnia told CityAM. “Not so much the rate increase but the threshold change has been a hammer blow to many businesses in our sector, costing us as a business an extra £1m a year alone.”
The British Retail Consortium has chalked the damage that last year’s Budget did to its sector at £7bn. The hospitality industry has it at £4bn.
Bosses awash with cynicism
Despite its inroads on trade, planning and regulation, that shock hike – and the persistence of astronomical rents, industrial energy prices and business rates – had meant a toxic cynicism has swept over the more bruised parts of UK plc.
And where bosses were once prepared to give the “most business-friendly government ever” the benefit of the doubt on potential shortcomings, the likes of Ponniah will now moan about the lack of business experience or the big-state predilections of a Labour administration.
“[The party] has done nothing to support businesses,” he said. “In fact it often feels like they actively hate us.”
But as those doubts and cynicism continue to spread, Nicholls said the triumvirate of Starmer, Reynolds and Reeves can just as quickly regain the faith of business if it listened to their demands, and responded.
“On the good things – planning, skills, grid capacity – they have to move much, much quicker,” she told CityAM. “They need to listen to feedback from business much more. And the Employment Rights Bill is going to be a real litmus test about how serious the government is about growth and how serious it is about balancing business and work interests.”
Sound advice for any government that has had the unenviable job of leading the country since the financial crash knocked Britain’s decades of steady economic growth stone dead. Assuming the government can squeeze some economic growth out of an undeniably bleak landscape, and assuming Reeves is still in office, then perhaps as she waits in the wings of next year’s Times CEO Summit, she can expect to see a few more hands go up.