I do not generally indulge in what Eleanor H Porter’s Pollyanna called ‘the Glad Game’, although the current political climate makes it tempting, as ideological opponents become poisonously irreconcilable enemies. Counterintuitively, however, amid the rising polarisation, there is still one idea to which most mainstream political opinion subscribes: that the key to making Britain great again is economic growth.
Growth has been a challenge for many years. The Global Financial Crisis of 2007-08 arrested economic expansion everywhere, but the United Kingdom has recovered more slowly than the United States, France, Germany and many other European Union countries. It was also affected more severely by the Covid-19 pandemic.
This has become known as the ‘productivity puzzle’. Solving it and achieving the levels of growth enjoyed by other industrialised economies would be transformative, increasing prosperity, creating more and better paid jobs and enabling more effective public spending and investment. Growth has been the explicit ambition of Conservative governments since 2010, and it was the dominant theme of the Labour Party’s manifesto this year.
Meaningful growth has to come from the private sector. On a conceptual level, that is broadly accepted across the spectrum, and in opposition Keir Starmer and his senior colleagues made strenuous efforts to reassure and court the business community. After 13 months as Labour leader, he moved the starchy, left-wing intellectual Dr Anneliese Dodds and replaced her as shadow chancellor with Leeds West MP Rachel Reeves.
Reeves was no more charismatic or fluent than Dodds, but she had worked for the Bank of England at the start of her career, and was willing to accept almost any policy strictures to win the approval of business leaders. Haunted by the folk memory of the damage done by ‘Labour’s tax bombshell’ at the 1992 election, Starmer and Reeves sold themselves on a weird, dynamic kind of continuity: a Labour government would be more competent and stable than the Conservatives, but had no plans to change the basic rules of the game. It would keep public expenditure under control, prostrate itself before potential investors and rule out any ‘increase [in] National Insurance, the basic, higher, or additional rates of Income Tax, or VAT’.
There were reasons to suspect this was an electorally convenient façade. Many overlooked the fact that Reeves’ Bank of England career was more than 15 years in the past; that the anointed Business Secretary, Jonathan Reynolds, had spent most of his career before Parliament working for his predecessor as MP for Stalybridge and Hyde, James Purnell; and that the incoming Cabinet was dominated by lawyers, political advisers and union officials. Hardly any have significant experience of private enterprise.
Last month’s Budget set out an economic vision which suggests all that time and attention lavished on business leaders was spent more in transmit than receive mode. Public expenditure will increase by £70 billion a year, predominantly on operational costs rather than capital spending, employers will be squeezed for higher National Insurance contributions, capital gains tax and inheritance tax will rise and ‘non-domiciled’ tax status will be scrapped.
By the end of the decade, the Office for Budget Responsibility estimates that public spending will amount to 44% of GDP and the tax burden will reach an unprecedented high of 38%. The scale of expenditure will ‘crowd out’ private investment rather than catalyse it.
This has exposed the fact that, by background, experience and inclination, current ministers have little empathy with the private sector or the priorities that drive it. Conservatives found the –understandable and pragmatic – degree to which business embraced the Labour Party woundingly frustrating, but they had ruined their own reputation.
Kemi Badenoch’s new shadow cabinet includes people with genuine business experience and credibility. The shadow chancellor Mel Stride founded and grew a successful business marketing company, while his deputy Richard Fuller travelled the world for innovative Boston-based LEK Consulting. The shadow business secretary Andrew Griffith was Chief Financial Officer and group Chief Operating Officer at Sky. The contrast with Labour is stark.
Last week, the mercurial Elon Musk, in the wake of Donald Trump’s re-election as president, tweeted ‘America’s A team is usually building companies in the private sector. Once in a long time, reforming government is important enough that the A team allocates time to government.’
It does not take a MAGA hat to see that in principle Musk has a point. The shadow cabinet might not be UK plc’s ‘A team’, but its key players understand how the private sector works. This is an opportunity for the Conservatives to start winning back their reputation as the party of enterprise.
Badenoch is a devoted free marketeer. In April she set out her vision to TheCityUK:
‘We do well when we operate by certain principles… Government should do a few things well, not intervene constantly and inconsistently… the result is ever greater regulatory capture, stifling of the free market, and the weakening of the wealth generation that we desperately need.’
There is a long way to go, but Badenoch’s instincts and her shadow cabinet choices should encourage business. There are policies her party can embrace: a taxation system that rewards hard work, ambition and investment; light-touch, focused regulation that ensures minimum standards while fostering innovation and prosperity; vigorous promotion of free trade. Business should be welcomed into an honest process of policy development.
Labour’s charm offensive now looks like a cynical bait-and-switch exercise. The Conservatives have an opportunity, but they cannot delay. The conversation needs to begin now.
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