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1 February 2024

How Rachel Reeves is making Labour the party of business

The shadow chancellor’s refusal to reinstate the cap on bankers’ bonuses is a political signal.

By Freddie Hayward

Business wants three things: people, infrastructure and certainty. This is the challenge to which Labour must rise at its business conference today. It is a big deal for the party. It is an opportunity to parade its tight relationship with business as well as – in its eyes – lay the foundation for a partnership between workers, companies and government that will deliver the five national missions, the keystone of which is economic growth. Shadow cabinet members boast about the number of business leaders they have met in recent months. The credibility such meetings, including this conference, bestow on a party tarnished with a reputation for being anti-business – however unjustly – is crucial.

Ahead of the conference, much of the conversation in Westminster has been over Rachel Reeves’s U-turn on bankers’ bonuses. She has said she won’t reinstate the cap on payouts that was abolished by Liz Truss, despite criticising it at the time. This is mostly signalling. The EU introduced the policy in 2014 back when the UK was a member to encourage less risk-taking in the banking sector. A sound objective. But it’s not as if this is a tax on the wealthy. Instead, Reeves’s move is a relatively cost-free one designed to reinforce the narrative that Labour is “pro-business”.

With that in mind, let’s look again at those three priorities of business. When I say people, I mean workers with the skills necessary to perform the jobs that will help businesses grow. This is not easy to achieve. Any move that Labour takes to increase skills through education will inevitably require time (of course, that’s no reason not to do it). There’s also the immigration question. We must remember that Labour has effectively promised to cut the numbers of people entering the country. Keir Starmer condemned business for its “immigration dependency” at the Confederation of British Industry last year. If you look at a recent Office for Budget Responsibility forecast you’ll see its optimistic growth predictions are partly dependent on high levels of immigration. The problem then is whether Labour will take a short-term economic hit to cut immigration. This is yet another tension between Labour’s policies. I suspect it’s the goal of short-term economic growth that will win out – but this is unclear.

Let’s move on to infrastructure. The priority for one business I spoke to recently was simple: electric charging ports and an upgraded National Grid. Speculation over jettisoning the £28bn-a-year green prosperity plan makes Labour’s commitment to delivering the green transition ambiguous, even if the overarching objective of clean electricity by 2030 remains. The same applies to whether Labour will build Northern Powerhouse Rail, let alone its ability to come to agreement over industrial action.

All of which feeds into the most important factor: certainty. Any business case for investment factors in an “uncertainty discount”. The higher the discount the less attractive an investment. Labour is already moving to reassure business. One constant complaint is the short-term time frame for funding. Labour has said it wants to elongate the funding settlements across a number of areas. The party has promised ten-year budgets for key R&D institutions such as the UK Research and Innovation, and to give local government multi-year settlements.

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Above all, the missions provide direction and purpose. You might scoff but this is corporate bread and butter. The Tories are doing a very good job of guaranteeing that Keir Starmer resides in No 10 for the next ten years. And perhaps this is the most important point. Out with prime ministerial churn and 16 housing ministers since 2010. In with consultations, the hard grind of government and rigorous continuity. At the very least, expect business to welcome that.

This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.

[See also: Keir Starmer pins the ailing economy on the Tories]

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