Labour has read its John Maynard Keynes. It unleashed the “animal spirits” of a possible economic bounceback at its first investment summit yesterday, with an upbeat Keir Starmer pledging to “improve Britain’s brand” and promising a land of opportunity for global investors — and some “heritage Yookay“ experience thrown in — cottage pie lunch, dinner in the crypt at St Pauls, and King Charles working his royal charm.
More soberly, reality checks came from the ex-Google titan and investor, Eric Schmidt, who told the Prime Minister: ”You have a tactical leadership problem to achieve this and I think you can pull it off, but you have to figure out a way to get control.”
Labour now has control of the country’s immediate economic fortunes and stuff is about to get real. Besides the boosterism, Starmer and his Chancellor Rachel Reeves used the moment of limelight to signal that there will likely be tax rises for employers, in the form of raising national Insurance contributions. In the Treasury, it’s hardly a secret that Reeves has her eye on relaxing stringent “golden rules” on borrowing — embraced to show discipline in Opposition — and so to flex her way to more funding for big projects.
The cries of betrayal about the manifesto are already flying. In reality, there was always going to be some creative interpretation of pledges not to raise taxes on “working people” — though stung employers on small margins might also complain they they work pretty hard too, but somehow don’t always fit the Labour rhetoric on that front.
Much now depends on whether the interpretation of pro-business rhetoric holds up when it hits the crash barriers of the Budget on October 30th
Reeves sought to reassure us that corporation tax would not rise beyond 25 per cent, an emergency rate applied by the Tories to balance the books after Covid. Alarm bells sounded. One of the oddities of Labour’s economic stance is that it often announces not doing something damaging as if this were a wonderful thing: it remains at the higher end of business taxes among comparable countries — the same as France but fully ten percentage points ahead of Germany and four points ahead of the US.
The problem is not simply “improving Britain’s brand” as Starmer put it
But that is hardly a “Must come to Britain” invitation: it was never credibly going to rise any further under any government not headed by Jeremy Corbyn.
Ditto we got the old Gordon Brown manoeuvre of citing a headline £63bn for investment “under Labour” though around half of it was pre-committed by the last government. It would be more honest if Reeves could set a precedent in ditching this tricksiness about figures, but I would not hold my breath.
In fairness, ending instability was a theme which landed well. Investors have been buffeted by dizzying changes in the last government’s stance on everything from swithering on Net Zero targets (three different ones in five years) to a plethora of on-off infrastructure projects. Investors do need see a clear path ahead and many of those who jetted in to London are prepared to give Labour a fair shot.
Yet that is really a foundation for growth, not a major vector in itself and the Chancellor will have her work cut out explaining why the Government is going after employers on NIC contributions while pushing for growth and better quality employment.
The divide is really between large companies — like Dubai Ports (DP) who finally committed to the London Gateway investment after a huff over silly comments by the Transport Secretary, major back-end investors like Blackrock or big tech players who can absorb bumps in their budget because they deem the UK a worthwhile destination in the medium term — and smaller ones who are adversely affected by any change in taxation. Ditto the threatened rise in Capital Gains Tax, which is one of many factors for companies placing capital in global markets, but a killer for smaller ventures if the rate is set too high to encourage expansion.
So the problem is not simply “improving Britain’s brand” as Starmer put it as the UK’s new chief marketing officer: a solid brand follows having something to sell and a clear path to what that might look like against competitors. It still feels as one US executive Whatsapped me wryly as he headed home, that the outing had been “a bit of a Nothing Burger, tho the weird beef thing (cottage pie) was ok”.
Team Starmer might reasonably respond that at least he came — a sign that there is interest in the UK and that it might yet find competitive advantages in a struggling Europe. It has given Starmer and Reeves (the only truly unsackable Cabinet figure) a platform on the world business stage and a confident backdrop for a Budget which is going to bring very bad news for a lot of people. The beef was edible. The secret sauce of a big change Britain’s lagging prosperity remains elusive.
