(Bloomberg) -- Labour’s campaign to woo businesses is in full swing this week, from an international investment summit on Monday to an infrastructure taskforce with senior executives today.
While the touch points have been frequent, the UK’s new government is yet to convert the corporate support it attracted during this summer’s election into a more solid working relationship, according to business figures who have dealt with them in power.
Several executives who traveled to Liverpool for Labour’s party conference last month were unimpressed, and the run-up to the summit this week was made more fraught by difficulties appointing an investment minister. That leaves Chancellor Rachel Reeves’s Budget on October 30 as a moment when Labour could reset the tone toward corporations — yet the signals so far point to tax rises.
“The feedback from investors is very positive, but they were not born yesterday and they have heard it all from previous governments,” Nick Lyons, chairman of the UK’s biggest pensions provider Phoenix Group Holdings Plc, said on the summit sidelines at London’s Guildhall on Monday.
While the event named £63 billion ($82 billion) of private investment into Britain — some of which had already been committed — Labour’s enthusiasm for business was undercut by several squabbles away from the stage.
Even before the summit started, the tension between ministers’ instincts to champion workers and the need to attract investors was on display. Transport Secretary Louise Haigh attacked P&O Ferries over its mass sacking of workers in 2022, prompting its parent company DP World to threaten withdrawing a £1 billion port upgrade. Other ministers distanced the government from her comments, and the investment was later confirmed.
Starmer, meanwhile, argued that Labour’s plan to strengthen workers’ rights on issues such as zero-hours contracts is good for growth, playing down worries from organizations such as the Federation of Small Businesses.
Reeves will convene her infrastructure taskforce today, with senior executives from companies including Phoenix, Lloyds Banking Group Plc, Banco Santander SA and BlackRock Inc. That group will lend expertise on how to channel large sums of money into big projects, with Labour saying the area is an “urgent priority.”
But anyone thinking of committing billions to long-term projects will have questions that can only be answered with Reeves’s Budget. The chancellor has warned that “tough decisions” are needed to fund billions of pounds in investment as part of the first Labour fiscal policies in almost 15 years. Starmer insisted this week that businesses speaking to him prioritized the stability of his administration over tax questions.
Still, reports of a possible increase in employers’ national insurance contributions led business groups to voice fears about the impact on the economy, particularly in retail and hospitality.
Starmer said in an interview with Bloomberg TV that speculation about another change, potentially increasing capital gains tax to as much as 39% from the current 20%, was “wide of the mark.” The idea of any large rise was unwelcome and would make the UK uncompetitive, said business leaders at the summit, asking not to be named discussing politics.
Growth Conditions
“Every country has its issues, including here,” Bruce Flatt, chief executive officer of Brookfield Asset Management, told those gathered in the Guildhall’s Old Library. “The only advice I am offering — I don’t offer much advice to governments — is do the best you possibly can to have the least amount of restrictions in front of people prudently to be able to encourage money to get in the ground and to grow.”
In a surprising development for Labour — a party historically in favor of state intervention — there was an anti-regulatory tone in the government’s message to its international audience. Starmer said he would “march through the regulators” to ensure they took growth seriously. “Maybe you need an anti-regulation minister,” responded Google’s former boss Eric Schmidt, apparently encouraged by Starmer’s zeal.
Labour will have to flesh out its position on regulation soon: Reeves is due to send “remit letters” to the Financial Conduct Authority and Prudential Regulation Authority laying out what the new government wants them to prioritize.
Those letters may still not give the whole picture, one person familiar with the situation said. The government still does not want to acknowledge that reforms such as loosening rules on company listings come with greater risk that could hit investors, the person said.
Business figures said they were not clear what the government intended for the UK’s competition authority. In the US, businesses can get a sounding from competition officials on whether a planned deal can go ahead before they put it in motion. That does not happen in the UK and could be a positive innovation, another person said.
Wealth Fund
The government released further details of its National Wealth Fund during the summit, building out from the UK Infrastructure Bank with total funding of about £27.8 billion and ambitions to also bring in private capital.
The UK’s version of a sovereign wealth fund should be much bigger, and the government could borrow to invest in the project, said Lyons, who spearheaded industry work on how to get more UK investors such as pensions to back growth assets.
“The bond markets would believe that is not a problem,” he said, but only if the venture was “properly independent so investors do not feel this government or future ones are investing in their pet projects.”
At the summit, investment leaders were hopeful of the UK’s ability to tap into growth industries, particularly given its strong academic track record. BlackRock boss Larry Fink said the UK could become “the next real destination for capital,” while Brookfield’s Flatt said “the UK has a chance to be one of the great economies over the next 10, 15, 20 years.”
To keep up with the economic promise of artificial intelligence, the UK “needs to be one of the first movers,” Fink said. Yet doing so requires the government to reconcile growth with green concerns around powering new data centers.
“We want to design policies together with business because we think those are most likely to succeed,” Reeves told attendees at the summit. Not every business is sure that she means it.
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