What companies can expect if Labour wins Britain’s election
LABOUR’S strong results in local elections in Britain on May 2nd affirm the prediction from our forecast model that it is on course to form the next government—our central estimate gives it a thumping 106-seat majority. The transformation of Labour’s political fortunes since the last general election has been accompanied by a fervent romancing of business. Gone is the disdain of Jeremy Corbyn, the party’s former hard-left leader, who planned to collectivise a tenth of every big British company. In its place Sir Keir Starmer and Rachel Reeves, the Labour leader and shadow chancellor, have spearheaded a “smoked-salmon offensive”, inviting executives to breakfast and waxing lyrical about the virtues of profit.
Bosses are keen to listen. It is easier to get tickets to see Taylor Swift’s opening night at Wembley next month than to attend the party’s “business day” in September at a dingy Liverpool conference centre. Executives can see which way the electoral wind is blowing, obviously, but there is more to it than that. Polls of business leaders suggest they would rather see Labour in power than the Conservatives.
Yet probe those leaders in private, and they profess alarming uncertainty about what lies in store under a Labour prime minister. At the heart of Sir Keir’s pitch is a grand bargain. Labour promises to restore basic governing principles that have too often been neglected by the Tories: political stability, predictable policymaking and supply-side reform. In return, it will ask companies to swallow big changes, notably in labour markets.
A great deal is at stake for Labour and for Britain in getting this bargain right. The country has been plagued by low growth since the financial crisis of 2007-09. Money is so tight that the only way to pay for better public services is to improve the economy. But romances often end in disappointment, and the ways in which this one could sour are clear.
The party’s attractions for business are real. Its senior figures are instinctively cautious, pragmatic and ruthless about winning elections. Sir Keir avers that lifting economic growth—rather than the conventional Labour priorities of redistribution or public services—will be the first order of government. Since the election in 2019, Britain has left the EU and had three prime ministers, five chancellors and seven chief secretaries to the Treasury. Labour promises to end political instability and investment-chilling policy churn.
Labour also aspires to win a large, rebellion-proof majority in Parliament, with which it promises to freeze corporation tax for five years and to retain some of the Tories’ most sensible reforms, such as the full expensing of capital investment. Sir Keir pledges a more constructive relationship with Europe, though he will not reopen the question of Brexit. The party’s young, urban electorate offers hope for a reformed planning system that allows homes and infrastructure to be built, not blocked. When Liz Truss was prime minister British debt was said to incur a “moron premium”, reflecting the risk of politicians doing mad things. Sir Keir could bring a sanity dividend.
Yet as welcome as all this would be for investors, business still has reasons to worry about Labour. One is its interventionist instincts. Labour is strongly influenced by the thinking of the Biden administration: sceptical of “hyper-globalisation”, enthusiastic about industrial policy and fond of terms like “economic security”. Labour voters are more interventionist than both Conservative voters are now and Sir Tony Blair’s supporters were in 1997. Labour MPs are more likely than their Tory counterparts to think business is under-regulated. The majority of Labour candidates in the most winnable marginal seats at the next election come from outside the private sector. The very notion of a “partnership” with business is a sign that Labour does not much care for laissez-faire. Yet a medium-size economy cannot mimic the industrial policy of a superpower.
Another source of unease is Labour’s view of work. In 2022 the party unveiled a long list of proposed changes to employment law. Some of these, such as a promise to enforce existing laws, are laudable: several hundred thousand people are paid less than the national minimum wage each year, yet fewer than 20 employers were prosecuted between 2007 and 2021. But Labour also plans other reforms, such as giving employees full rights on day one (rather than after two years, as now), overhauling employment tribunals and tweaking the legal definitions of “worker”. This could chip away at one of Britain’s great strengths—an open labour market—and its corollary, low unemployment.
Adding to the unease is Labour’s willingness to hold contradictory positions. The party rules out mass nationalisation as a poor use of state resources, but it makes an exception for the railways. It gleefully plans well-publicised tax raids on unpopular targets, such as private schools, non-domiciled taxpayers and private equity, while also insisting that it would have the iron discipline to wait until growth materialises before funding extra spending. Its leaders lament the rise of protectionism, while promising “Buy British” policies for farmers and steelworkers. Ambiguity is understandable before an election. But Labour has been slow to acknowledge that it faces trade-offs, insisting blithely that it is both “pro-worker and pro-business” at the same time. For a party that promises an end to uncertainty, this combination of reticence and both-waysism invites suspicion.
Swipe left?
A Labour government comes with a risk, but it is not the right’s fear that the hard left is poised to seize back the party and hoist the red flag from the Treasury. In reality even Angela Rayner, its base-pleasing deputy leader, is pragmatic. The real danger is that the leadership’s instincts entrench economic stagnation. Caution may lead it to duck planning reform and forgo the chance of closer relations with Europe. A taste for intervention could poison the labour market. Illusions about industrial policy could blunt productivity.
Labour’s courtship of business is based on stability. That is welcome and necessary—but it will not be sufficient. ■
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