Thoughts from Labour in the City Chair, Sophia Morrell, following the General Election.
We are just three weeks out from Labour’s most disastrous election result since 1935 and there have already been many thousands of words offered on what went wrong. Where I’d like to offer a perspective is on Labour’s approach to business relations and wider economic policy. Renewing both of these in tandem will be critical to the success of any future leader.
Even the best policy offer in the world will be irrelevant as long as voters do not trust Labour on the economy and their capacity to deliver on their promises. My mother, for example, is a WASPI woman who voted Tory. A £20,000 handout could not convince her to vote Labour, because in her view, Jeremy Corbyn was going to wreck the economy. Equally, the fact the WASPI compensation arrived uncosted after the manifesto publication really mattered. It was frustrating to see the careful prudence of the grey book undone in this way, as accusing Labour of overspending is the Conservatives’ primary attack line and it was offered straight to them.
Contrary to public perceptions, Labour’s relationships with business and the City were much healthier than alleged. Many organisations have spent the last two to three years heavily courting the party, keenly seeking an audience with John McDonnell in particular on his ‘cup of tea offensive’, because they shared a genuine belief that Labour may soon be in charge of the Treasury.
Labour had a fantastic opportunity to win over the business community at a time when the world’s spotlight was on the role of capitalism. Shareholder activism, corporate governance reform and responsible investment have been thrust to the top of CEO agendas as business has become constantly scrutinised about its purpose. The rise of environmental, social and governance-based investing is further proof that business is becoming more conscious of its role in society. Of course, Corbynism from a values perspective is a gulf away from bottom-line motivated CSR efforts. But there was a similarity in the direction of travel which could have been exploited.
What’s more, the business community, and the City especially, generally disliked Brexit and felt poorly-served by the lack of Government engagement immediately post-referendum. Labour could have better capitalised on this.
Business is instinctively pro-investment and I believe the volume of government capital on the table could have crowded in private money for major infrastructure projects, particularly at a time of record low interest rates. However, without their trust on economic policy and by spending time defending policies like the Inclusive Ownership Fund and the Financial Transactions Tax, Labour’s pitch to business often ended up being shouted down. Once again, these policies moved in the right direction of travel, but ended up with details which were too difficult for businesses to swallow. Employee ownership, for example, has become increasingly popular, especially among start-ups which offer equity stakes at early stages. Yet the share dilution element of the Inclusive Ownership Funds structure set alarm bells ringing among companies and fund managers. It was also perceived as a stealth tax with too few of the actual dividends ending up in the pockets of workers.
Similarly, with the Financial Transactions Tax, I met well-paid Labour supporters in the City who agreed that in the wake of the crisis, they should pay more tax to fund public services. But the FTT risked forcing relocations or being paid by ordinary people, which is why a tax of the kind ultimately proposed has never been successfully implemented anywhere in the world (and certainly not amid an economic disruption like Brexit).
In the future, Labour should look at taxation policy in the round to start drawing on this vast pool of capital more effectively – for example, by restricting corporate debt tax relief, which costs more than the annual defence budget in Britain and is difficult to justify. Labour could have encouraged deleveraging and easily afforded to offer tax incentives back to business for employee ownership policies – much needed carrot rather than stick.
Winning voter’s trust on the economy is not a new challenge for Labour. But it is fundamental to its future success. Where we have an advantage is that attitudes towards capitalism and the role of business are shifting globally, to the extent that even Theresa May’s opening gambit as party leader in 2017 was to reform corporate governance. We must show ourselves to be leading and shaping that argument, looking forward not back.