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The British Labor Party came to power with a mandate to boost the UK’s underperforming economy. In his first five months in government he has made the task even more difficult by undermining the “animal spirit” of British businesses. Months of gloomy pronouncements ahead of his inaugural budget in October had already damaged confidence. Far from repairing the damage, the Budget left employers reeling from the £40 billion in tax rises it imposed, most of which will be borne by them.
Mondays The director general of the CBI, a lobby group, said businesses were reconsidering their investment, expansion and hiring plans following the measures revealed in the Autumn Budget. Earlier this month Major British retailers have also written to Chancellor Rachel Reeves, warning that annual costs across the sector could rise by up to £7bn. Last week’s data showed that business activity had fallen in November for the first time in more than a year.
Revenue had to be raised from somewhere. Labor needed to deal with the financial difficulties and strained public services it inherited from the Conservatives. His estimate began the repair work. But the government has been wrong to put too much of the burden on the business community. The increase in employers’ national insurance, amounting to around £25bn, is particularly onerous. It’s possible that it will trickle down over time in the form of lower wages and less hiring. And it’s just one of a series of increased cost burdens, including an increase in the minimum wage, a gradual reduction of pandemic-era business rates relief and new regulations on workers’ rights that could cost £5 billion a year.
The government should act quickly to revive business morale. It needs the private sector to drive job creation, investment and innovation, particularly because other elements of its agenda – including improving public services and increasing capital investment – take time to achieve increased growth. Labor should outline and prioritize plans in three main areas for the new year.
First, it should simplify regulations that hinder business growth. This includes accelerating (and being more ambitious) plans to reduce bureaucratic obstacles in the planning system. Beginning to simplify Britain’s byzantine tax system, with its variety of codes, exemptions and thresholds, would also ease compliance burdens for smaller businesses. Ongoing consultations with companies to ensure that employee rights reforms do not make hiring significantly more difficult. riskier or more expensive It is important too.
Secondly, the government should facilitate investment. Reeves has already promised that there will be no more tax increases for businesses. But there are other areas where she can help. Reform of commercial rates must be promoted. The property tax imposes an excessive burden and discourages expansion. Incentives would also help. For example, the government could expand the types of expenses that qualify for full tax relief. Cutting stamp duty on share transactions would support stock markets. These measures would increase revenue over time by underpinning growth.
Thirdly, the Labor Party needs to get its trade and industrial strategy into shape. Plans to restore trade relations with the EU should be more ambitious, alongside broader initiatives to ease barriers with other major trading partners. Businesses will also be keen to see progress on proposals to attract private investment through new capital funds, such as the National Wealth Fund.
After a decade of political turmoil, there were hopes that stability under a supermajority government could boost UK plc. If the Labor Party continues as it started, it will waste that opportunity. To deliver growth, the government needs to build the genuine partnership with businesses it has promised.