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“I want to lead the most pro-growth, pro-business Treasury our country has ever seen”. That’s what chancellor Rachel Reeves told business leaders at a Rolls-Royce plant near Derby before the election. After Wednesday’s Budget, some of those executives must be wondering whether they misheard.
Deciphering a Budget often involves reading the small print. Not this time. The minimum wage rise and £25bn increase in employer national insurance contributions, combined with Labour’s employment rights package, is anti-employer — and ultimately anti-worker. The tax rise will dampen wage rises, the Office for Budget Responsibility says: which Reeves has now acknowledged. Anaemic growth forecasts don’t provide much justification for the enormous scale of borrowing.
National insurance was always going to be in the frame for this Budget, given both parties had boxed themselves in on tax. And Reeves might have hit the private sector even harder. Many are relieved she did not raise capital gains tax further and has pledged to keep corporation tax stable. But the employment rights package is a sledgehammer.
What worries me is whether anyone in this government understands how business decisions are made, what it means to risk your own capital in a venture or how confidence is generated. Reeves is right to say companies depend on good education, health and infrastructure. She agrees that public services can’t prosper unless businesses do. But it’s not clear what that means in practice.
I appreciate Reeves and Starmer’s dislike of empty boosterism. But in their desire to keep bashing the Conservatives, which the country already did resoundingly at the election, they unleashed four months of doom-mongering which depressed consumer spending and business confidence. Money has flowed out of the country. Did no one foresee this? Or did they not care?
The gulf between government and business is not confined to this administration, nor even to Labour. Boris Johnson was openly hostile to big business, pretty much blanking anyone who was a Remainer, (though he did make the excellent Gerry Grimstone, a former chair of Barclays, a minister).
One of his advisers once told me that Johnson found it frustrating to meet different business groups. Why couldn’t there just be one? Even ministers who are sympathetic can find it hard to connect in any meaningful way. They seat competitors around the table, then wonder why nothing useful is said. They overestimate the power of UK chief executives of international businesses. For their part, CEOs tend to be unsure what the parameters are, and bewildered by dealing with people who are not paid by results and are beholden to the parliamentary cycle. Small companies and entrepreneurs don’t have time to lobby ministers: they are too busy building the future.
We are in an era of career politicians, where few have experience of business or science and few have created a single job which wasn’t taxpayer funded.
The exceptions — Michael Heseltine, Jeremy Hunt — prove the rule. Under Starmer, Labour ministers have valiantly and robotically started to utter the phrase “partnership with business”. But most, including Reeves, talk far more authentically and passionately about hard-pressed workers struggling to pay bills. There is a strong belief that much of the UK’s low productivity can be explained by poor working conditions. The idea that a lot of companies are good employers seems to have passed many by.
Tone matters. In her speech, Reeves could have explained why she thinks the planning reforms and investment package will exceed the OBR’s growth expectations. She could have fleshed out the industrial strategy. She could have talked about data centres, which the government has added to the list of critical national infrastructure, or indicated that pouring £22bn into health would help life sciences. She could have offered tax simplification. Instead, she doubled down on the contentious £22bn “black hole”. Giving over £13bn to miners and victims of the Post Office Horizon and infected blood scandals will be welcomed by many — but it was a choice.
Politically, it’s clear that Labour feels more vulnerable than its enormous majority might suggest. You can see this in the decision to retain the triple lock on pensions, in the splurge on the NHS (a sure-fire route to popularity) and the freeze on fuel duty. Labour MPs in rural seats will be ducking for cover this weekend, after the chancellor inexplicably clobbered family farms with assets over £1mn. But their colleagues in the 89 marginal constituencies where Reform UK came second to Labour will be relieved at the help to pensioners and motorists.
The leadership also has to manage its own side. Cabinet ministers in unprotected departments are disappointed that their settlements are so limited. Paul Nowak, general secretary of the TUC, rejected the idea of there being any link between employer NICs and employee wages. Will this government stand up to unions?
This is not an easy hand to play. But in the last four months it has often seemed that the government is struggling to transition to power. This Budget must mark the moment that it stops campaigning and looking backwards, and adopts the grown-up tone it promised at the election. In this post-Brexit, post-pandemic, possibly pre-Trump world, that means making good on the promise to be pro-business. There is no other way for Reeves to achieve her vision.