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Jonathan Reynolds: “Labour governments shouldn’t be judged by how much they spend”

The shadow business and trade secretary on Sunak's net zero U-turn, schmoozing the private sector, and transforming the economy.

By Alona Ferber

In the headwinds of a looming election, Keir Starmer’s Labour has been vying to position itself as the “natural party of business”. The evidence this has paid off continues to mount. At October’s Labour Party Conference, a business forum for industry leaders reportedly has a 180-strong waiting list. And this year, there has been a series of business figures – from the entrepreneur Gareth Quarry to the former CBI president Paul Drechsler – who have publicly switched from the Conservatives to Labour.

Under Jeremy Corbyn’s leadership, the party was notoriously queasy about the private sector. One industry insider recalls senior Labour officials’ preference for engaging with “small businesses” over “all businesses”, lest anyone think the party was in any way aligned with decidedly un-socialist multinationals.

Starmer has worked hard to shed this image. One key weapon in what has been dubbed the “scrambled egg offensive” – aka schmoozing businesses over breakfast, as opposed to the New Labour penchant for networking over a prawn cocktail – is the shadow business and trade secretary, Jonathan Reynolds. The 43-year-old, who was a councillor before becoming MP for Stalybridge and Hyde, Greater Manchester, in 2010, does not seem queasy about the private sector in the slightest.

There is no business, in fact, that it would be inappropriate for Labour to schmooze. “Having a strong relationship with business doesn’t preclude you from criticising businesses when they do something you think is wrong,” he tells me when we meet at Portcullis House – thought not in his office which, his aide tells me, is “hot as the sun”. Engaging with companies “actually… strengthens your ability” to sometimes criticise them, he adds.

It is the first week of parliament after summer recess, and the scandal over crumbling concrete in schools is the perfect symbol of austerity Britain. For Reynolds, a father of four with children thankfully at schools not on the at-risk list, there may be just a hint of schadenfreude – but there is also enthusiasm. The return to the Commons “feels like the season finale”, he says. And Reynolds is “really, really confident” in Labour’s plans for achieving the first of the party’s five national missions: to secure the highest sustained growth in the G7.

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Reynolds and his shadow cabinet colleagues come to this challenge at a time of economic crisis and great change. While in the UK, Rishi Sunak has U-turned on net zero policies, globally, the winds of progress are blowing in a very particular direction: massive public investment in the green economy. Labour’s answer to Bidenomics is its Green Prosperity Plan and the £28bn a year that the shadow chancellor, Rachel Reeves, has pledged to tackle climate change from the next parliament if Labour wins the election.

In his blue shirt and matching red cufflinks and tie, a tattoo of a Manchester bee peeking above one shirt-sleeve, Reynolds projects a kind of reliability that seems very Brand Starmer. The private sector, on the whole, has warmed to him, an industry figure tells me. And indeed, in Starmer’s back-to-school reshuffle, Reynolds, whose former role was shadow secretary of business and industrial strategy, was given additional responsibility for trade. Currently in his sixth shadow cabinet role, Reynolds’ past portfolios included energy and climate, and work and pensions. The busy frontbencher also chairs Christians on the Left and is a vice-chair of Labour Friends of Israel.

Mirroring Rishi Sunak’s February reshuffle, industrial strategy, something Reynolds has long banged the drum for, is no longer the express focus of any government department. Where does industrial strategy sit now?

[See also: Sunak’s net zero U-turn breaks with international opinion]

“It still sits with me,” he says, and industrial strategy is “absolutely central” to the party’s economic plans. He and Starmer discussed this during their reshuffle conversation, Reynolds adds: “He himself is a huge supporter of this, and we are going to be laying out some of the details as to how that would work.”

Some observers, including party and industry insiders, note that it is not completely clear how Reynolds’ industrial strategy policy connects with the Green Prosperity Plan. The shadow business secretary seems keen to project alignment, however. The shadow cabinet is “absolutely joined up”, he says, noting that Sarah Jones, newly shadow minister for industry and decarbonisation, will have “a foot in the net zero team”. He reminds me, too, that the party’s industrial strategy document, published in September 2022, mentioned “delivering clean power by 2030” as the first of four priorities. This preceded Labour announcing its second mission as that very aim.

Major Labour-affiliated trade unions are sceptical over net zero’s promise of green jobs, while Labour has pledged to create a million “good new jobs” under the Green Prosperity Plan. Reynolds insists that “anyone trying to say there’s some sort of tension between jobs and ambition on net zero, it is plain wrong”, and he rejects the notion that there is any “tension between those different portfolios in the shadow cabinet”.

A former parliamentary private secretary (PPS) for the shadow net zero and energy secretary, Ed Miliband, Reynolds has “a huge amount of strong personal relationship with” him, he says.

“We talk all the time,” he adds, “about these two things coming together, and make sure when I’m being our voice to business we’re absolutely consistent in what we are saying.”

For Reynolds, net zero is “the biggest economic opportunity this country has ever had”, not only because of those elusive “jobs of the future”. It is also about the promise of reduced energy prices, which are “a huge input cost” for businesses.

And Sunak’s recent change of direction on net zero risks this opportunity, Reynolds told me via email after we spoke: “I meet with investors, with businesses every day who tell me Britain is losing out on jobs, wealth and opportunities because they don’t know what this government wants, and they don’t trust there will be any policy consistency.” Labour’s industrial strategy, he added, would “offer a clear framework”.

The Conservatives, he points out, have not really had an industrial strategy in their 13 years in power. Greg Clark, the former business, energy and industrial strategy secretary, “made an admirable start” but never had true backing from the government: “It didn’t go beyond the business department. I think he would probably say that explicitly himself.”

Under Labour, however, the Industrial Strategy Council would be a “statutory organisation like the OBR [Office for Budget Responsibility], like the Committee on Climate Change”. Such a body would give “people some confidence that plans are not going to be changed in the short term”. Indeed, research by WPI Economics suggests that the lack of an industrial strategy on net zero could lose the UK economy £224bn by 2050.

There is surely much to be gleaned from Bidenomics on this front, even though Labour’s £28bn is dwarfed in comparison with the scale of US investment ($500bn in new spending and tax breaks, according to McKinsey and Company). In April, the US national security adviser, Jake Sullivan, outlined the new approach as a“ modern industrial and innovation strategy – both at home and with partners around the world”, an answer to the economic, geopolitical and ecological moment.

Sullivan’s speech “was one of the genuine must-reads for anyone in the Western world interested in economic policy”, says Reynolds. Also noteworthy, the shadow secretary points out, is that in Sullivan’s list of the US’s partners around the world – listed because “he’s rejecting the accusation of protectionism” – the UK was absent. “That is significant,” says Reynolds.

And painful, too, perhaps, given that the month of Sullivan’s speech, Reynolds had told the Observer that Labour would be the “most interventionist government for a generation”, and that voters had “yet to understand “the scale of Labour’s ambition on the economy”. But since then, I put it to him, voters may have understood something different. Labour’s message is one of fiscal rules and frugality. A few days before we spoke, Rachel Reeves was heckled on stage at the FT Weekend Festival after ruling out a wealth tax. What is the public not seeing exactly?

[See also: How London and Boston are using their financial muscle to divest from fossil fuels]

First, he clarifies the party’s position that “everything has to be subject to fiscal rules”. Second, he says, Labour doesn’t want the success of the Green Prosperity Plan measured “by how much we are spending, but by how much we are getting out of it”. But more importantly, Reynolds is sceptical about the terms of a debate that pits what he euphemistically terms “reassurance and hope” against each other.

“That’s a completely false way to look at it. You do not get the kind of transformational government this country needs unless you build on strong foundations,” says the shadow secretary. These include stable bond markets, a stable currency and a “government seen as credible in terms of its own spending plans”. And, for good measure, he adds, “I don’t think Labour governments should be judged by how much they spend.”

So, assuming there is no new money, what can Labour do for businesses that doesn’t involve expenditure?

“The first ace up our sleeve is stability,” he says. “It doesn’t sound very glamorous but that is the number one request after the tumultuous 13 years that we have had.” The Industrial Strategy Council gets another mention here, as do: planning reform; changes to the apprenticeship levy to channel underspend to the skills system; plans for improving UK research and investment (“which we’ll now hand to Peter Kyle in the science and innovation department”); and, of course, “making Brexit work”.

Since our interview, Keir Starmer clarified that Labour will seek to reset the UK’s Brexit deal if it wins the election, earning both plaudits and accusations of delusion. Reynolds told me that “we can improve the relationship” with the EU – “That’s Horizon [which the UK has since rejoined]; that’s the mutual recognition of professional qualifications; an SPS [sanitary and phytosanitary measures] agreement” – while Labour is “absolutely right to not talk about revisiting the single market or customs union”.

What would Labour do about post-Brexit customs checks, which the government has now delayed implementation of five times? Despite speculation that the postponement is related to inflationary pressures, Reynolds, says it “may be about how ready the system is to actually implement those checks should they wish to do so. I think there is a lot going on here.”

Labour would, he says, aspire to remove “the need for checks in areas where we don’t need them – so on food and agriculture, that’s the SPS agreement”. Otherwise, “If we’ve got the same standards in place and we have no desire to undercut those standards, I think there are things we can do to take those pressures out of the system, before we even need to think about how those checks would work.”

A number of recent reports have cast Labour’s pitch to be the natural party of business in a questionable light. There has been criticism over HSBC and NatWest staff being seconded to Reynolds’ team, as well as of senior Labour members accepting gifts from companies such as Google – including tickets to Glastonbury worth £3,377 for Reynolds and his wife, whom he employs in his office on a part-time basis (both of which he declared in the register of interests). According to OpenDemocracy, this gift preceded a Labour U-turn on the digital services tax, which they had previously called to increase from 2 to 10 per cent.

Given Labour’s avowed commitment to a pro-business and pro-worker agenda, this could send a mixed message – or worse.

Reynolds doesn’t seem to think so. “You can’t deliver for working people unless you’ve got that partnership with business,” he says, adding that Labour’s “greater ambition on public investment” is that it will leverage private investment, because the state alone cannot deliver what the UK economy needs. While some “look at this in a binary way – can you be fighting for workers or for business? – it’s not actually how workers themselves look at it”, he says. The job will be on Labour to “articulate why that relationship is so important and why those two things go together”.

On Glastonbury, Reynolds refutes the suggestion that he U-turned following his visit to the festival, sticking to Labour’s explanation that the policy was always intended to be a “temporary measure”. In any case, he says, “Where we are developing policy we would also be talking to organisations like Google as major economic stakeholders in the UK. The idea that they’d have to take us anywhere to do that – I mean they would just come in here and talk to us.” The shadow cabinet indeed met with Google at the company’s London HQ in June.

Reynolds admitted that “it’s nice to go to something like Glastonbury”, but also – and perfectly on brand – said it was wonderful to see “a flagship creative event”, adding it demonstrated the UK’s “deeply impressive” economic footprint, as well as “how technology is changing how artists work, and what [it] means for things like competition issues”. He gets complaints, sometimes, for not engaging enough with the creative industries.

Fast forward to the week of our meeting, and the mood is far less jubilant than on Worthy Farm in June. Aside from crumbling schools, Labour-run Birmingham council, the largest local authority in Europe, has issued a section 114 notice. Moody’s, the credit ratings agency, has warned that more councils are expected to fail.

The Conservative’s levelling-up agenda has not addressed this systemic failure, but currently the West Midlands and Greater Manchester, under the government’s Trailblazer deals, are set to retain business rates for a decade, as a pilot scheme. Reynolds would not confirm whether Labour would continue the policy, saying that “there’s a complexity there around where business rates are retained”. In 2021, in fact, Reeves said Labour would scrap business rates, replacing them with “a fairer system”. The shadow business secretary wouldn’t provide details on this either (work on the plan is “quite well developed”; week’s away from Labour Party Conference, the announcement will come at “the optimum moment”). Part of the policy, he explains, will be about overcoming barriers to investment, something “greatly influenced” by what he has seen in his Greater Manchester constituency.

Of course, the mention of devolution and levelling up brings Reynolds back to his pet policy area: industrial strategy. Devolution to address the UK’s stagnant economy, as proposed by the party under Gordon Brown’s Commission on the UK’s Future, is “entirely consistent” with this.

“Certain policy areas are best delivered on a devolved basis, and devolution of skills in Greater Manchester – my area – and to the West Midlands, are a good example of that,” he says.

In the lead-up to the election, part of being Brand Starmer is making policy calls under the “tough on spend” rubric. Among Starmer’s more controversial decisions has been the retention of the two-child benefit limit. This provoked fury within the shadow cabinet. In his 2021 Labour Party Conference speech, Reynolds, then shadow work and pensions secretary, said Labour’s plans included “binning the two-child limit”. Does he think Starmer did the right thing?

Like the rest of Labour’s policy agenda, Reynolds fits this neatly within his “hope and reassurance” frame. Labour is ambitious on tackling child poverty, but “if Keir had said, ‘Oh yes, I promise we’ll get rid of the two-child limit on day one,’ the next question would be: well, what about the benefit cap? What about the bedroom tax? So much money was taken out of the social security budget since 2010 that there are no easy answers.”

And here, he returns to Labour’s first national mission: “People have got to understand that unless we can get this economy working better, there will always be really difficult policy challenges.

“I think what we’ve set out, where we don’t make promises we can’t keep, and we don’t make promises unless we can say how we will address them, that is just how it’s got to be.”

[See also: Labour is right to strike a note of caution over HS2]

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