Why business wants more from Reeves on Labour plans

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Rachel Reeves has more to do before she wins over UK business to Labour’s plans for the economy, City insiders have told i.

The shadow Chancellor set out her vision on Tuesday when she told an audience in the City of London that growth in Britain needed to be rooted in greater economic security for the nation and its workers.

According to leading figures in the City, Ms Reeves’ delivery of the annual Mais Lecture was “assured” and delivered “a sensible message”.

But the business world is also looking for her to provide far more detail on how they will tackle a tough economy should she enter No 11 Downing Street after the upcoming general election.

During the lecture, which has previously been given by the likes of Rishi Sunak, Gordon Brown, Nigel Lawson, Kenneth Clarke and Tony Blair, Ms Reeves said Labour would seek to bring about a “new chapter in Britain’s economic history” but would have to make “almost impossible trade-offs” on tax and spending if the economy fails to grow.

Rachel Reeves saod Labour would launch ‘new chapter in Britain’s economic history’ (Photo: Stefan Rousseau/PA Wire)

She promised to reform the Treasury and pledged to stick to the Government’s 2 per cent inflation target.

“As a speech it was assured and well delivered,” a boss of a leading retail company told i. “But it was lacking in detail.

“I understand why Labour is concerned about providing too much detail as we are probably still six months or so from a general election, but they will have to break cover at some point and the sooner the better for the business world, so we know what we’re going to be dealing with under a likely Labour administration.”

Other private sector power brokers did not even think Mr Reeves was worth watching, according to one City insider.

“I think a lot of executives didn’t bother paying attention,” they said. “Labour have no money to spend and are trying very hard not to say anything interesting at the moment.”

Another City source told i that their main takeaway on the speech was Labour seeking to double down on green pledges, despite dropping its policy to spend £28bn on net zero in February.

“The plans to force the Bank of England to consider climate change when making decisions as a key consideration is likely to make it easier to push through supply side reforms once in Government,” the City executive said.

Economic policy that Labour has revealed

While Labour has not confirmed a great deal on its economic policies, it is unfair to say the party has not revealed anything.

So far, Labour has pledged to close tax loopholes on private schools and private equity fund managers, as well as ending the non-domiciled tax status – a policy the Conservative criticised at first but then adopted at the Budget earlier this month.

Labour has also pledged to avoid wealth taxes and tax rises on working people. But, while this may neuter Tory attack lines, it limits the potential areas for a future Government to raise revenue.

Further commitments include an overhaul the business rates system – although this is also lacking in detail – closing loopholes on the oil and gas industry’s windfall tax, and to look at the amount of tax paid by tech companies.

Nimesh Shah, chief executive of financial advisory firm Blick Rothenberg, said Ms Reeves “held her own” during the speech and “had the air of a future Chancellor” but that it lacked “practical actions”.

“The theory behind the economics made sense, but there wasn’t enough substance for me,” he added. “She referenced a broken economy under the Conservative Government, and her prerogative is to force economic growth, but the ‘how’ is unclear.”

The Institute of Economic Affairs (IEA), the right of centre think tank that backed Liz Truss’s infamous mini budget, was also underwhelmed.

Matthew Lesh, IES director of public policy, said: “Reeves’ analysis of Britain’s era of low growth — driven by lacklustre productivity, underinvestment and a lack of ‘supply side’ reform — is entirely correct.

“Beyond understanding these basics, however, Reeves’ prescription for Britain’s growth challenge is problematic. ‘Securonomics’ [the term the Shadow Chancellor used for her prescription of growth based on economic security] is an effort to insulate Britain from global shocks through greater state investment in strategic industries where Britain has an advantage.

“She claims this is a ‘new’ model, but really at the heart of her agenda is the old, failed idea of a state-directed economy.”

What business wants

So, what does the City want from Reeves? Top of the list a reform of business taxes, closing the talent and training gap, setting out its business rates plan and incentives for businesses to invest.

“We need a serious look at business rates,” said a leading City figure. “For the retail and hospitality sectors this is a particularly big issue, but it’s an issue for all businesses with premises.

“There’s a couple of things that we’d like to see. At the moment business rates are based on property values, but they’re only updated every three years.

“We’d like to see that become an annual revaluation so that if values fall, which many commercial premise have done recently, then the rates go down each year values fall.

“We’d also like to see the overall burden of the rates reduced or just the rate itself to go down. It currently always increased by inflation every year. Whereas we’d like to see just have the rate set and any change is just determined by the value of properties.”

A senior corporate banking executive also highlighted the tax burden: “Where the UK’s financial community is looking for some sense of direction is on taxation.

“She has been pretty clear that she won’t raise corporation tax beyond the current 25 per cent but we would like to know where she is on other taxes that hit the sector, like the corporation tax surcharge of 3 per cent and things like the bank levy.

“If she is a supportive as she says about the UK’s financial sector, then she should have something to say and do about those taxes.”

The need to help business to get the human talent they need for growth is also seen as key. A director of one of the UK’s largest manufacturing firms told i he would like to see a whole new approach on apprenticeships and training.

“We have an apprentice pot of money of around £2.7bn, but it too complicated to access and too prescriptive on how companies can bring people in,” he said.

“There’s also barely anything to encourage training and upskilling employees, which is something we are all encouraged to do in the digital age.

“What Reeves could do to impress us it to merge the apprenticeship budget with the training budget. There’s talk she’s minded to create a new bigger budget split 50-50 between the two, but it’d be great to see that confirmed and more detail.”

Blick Rothenberg’s Mr Shah added: “It’s completely unclear how Labour plan to address talent shortages in the UK and their immigration policy to address this challenge.

“Similarly, we do not know how Labour plans to approach inward investment and how it will attract international investment through trade agreements, reciprocal arrangements and incentives.”

Workers’ rights

Another issue of some concern to the business community is Labour’s pledge to introduce full workers’ rights from the first day on the job.

The policy also includes a ban on zero-hours contracts, ending fire and rehire, and scrapping qualifying periods for basic rights such as unfair dismissal, sick pay, and parental leave.

According to Labour insiders this policy, which has been driven by the party’s deputy leader Angela Rayner, “will absolutely be in the manifesto”.

However, some are nervous about it.

Alex Veitch, director of policy and Insights at the British Chambers of Commerce said:

“We’ve already had useful conversations with Labour on their plans for workers’ rights. What’s important is to strike the right balance, to give employers the flexibility to respond to challenges and opportunities.

“To protect jobs, and the economy, any changes to legislation must be proportionate and affordable for companies. Businesses crave stability – and we’re looking to all politicians for a clear long-term growth plan at the next election.”

Louise Hellem, chief economist at the CBI, offered support to Ms Reeves and called on Labour to work with business.

“The Shadow Chancellor is right that the strongest route to sustainable growth is unlocking business investment,” she said. “Key to that is a long-term, sustainable vision of what the UK’s economy could be in 2030 and a plan to realise it, delivered through collaboration between business and government.”

Labour was contacted for comment.

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