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Starmer Prepares for Power with Major Reshuffle By Grace Skelton, Associate Director

Sir Keir Starmer’s long awaited reshuffle took place yesterday. It had been widely briefed as an opportunity for Starmer to get his top team in place for the general election – promoting Shadow Ministers who have impressed and ensuring Labour’s most experienced and recognised faces are in place. Scroll down for the full Shadow Cabinet list.

Rise of the centrists

Labour’s centrists are unquestionably the winners. Rising stars Wes Streeting and Bridget Phillipson never looked in danger of losing their posts, and Peter Kyle, Liz Kendall and Darren Jones have all been elevated to the Shadow Cabinet. Starmer loyalists Shabana Mahmood and Steve Reed remain in the Shadow Cabinet. Meanwhile soft left MPs including Lucy Powell and Lisa Nandy were demoted to more junior roles and Angela Rayner, the powerful Deputy Leader, has been given the Levelling Up role in a move described by many as ‘the John Prescott role’.

Also significant is the promotion of senior Blairite Pat McFadden to the Shadow Chancellor of the Duchy of Lancaster and the National Campaign Coordinator – in plain English, he is tasked with running the general election campaign and if Labour wins the election, the machinery of government. McFadden is as Blairite as they get – he was in Tony Blair’s inner circle from when Blair became Labour leader in 1994 and was his Political Secretary in No.10.

The party HQ team McFadden will be working with are similarly minded – Morgan McSweeney, Marianna McFadden and Matt Pound all come from the new Labour school of politics. And his deputies – Jonathan Ashworth and Ellie Reeves – are thoroughly steeped in the moderate wing of the party. These appointments tell us that Labour’s approach will continue to be ruthlessly focused on winning the election and resisting voices that wish to pull the party leftwards.

Government experience clearly counts for Starmer, who knows that the Parliamentary Labour Party is light on MPs elected before 2010. Rachel Reeves, Ed Miliband, John Healey, Yvette Cooper, and David Lammy all kept their roles, and there is a return to the frontbench for the roundly respected Hilary Benn, who has been appointed Shadow Northern Ireland Secretary.

Keir Starmer’s reshuffle has taken many by surprise by the extent of its appointments. With his newly appointed Chief of Staff, Sue Gray, by his side, Starmer’s grip over the Labour Party is the strongest it has ever been. It demonstrates an unflinching commitment to building the best possible serious team to win the next election and his own determination to become Prime Minister. It is in sharp contrast to the government’s latest problems, which sees them under attack for the schools crisis.

Starmer’s Labour Party has a refreshed team of top talent including the much-lauded Darren Jones MP who has impressed many as Chair of the Business and Trade Select Committee. Keir Starmer is a serious leader with a ruthless streak to do what it takes to win. This latest shuffle puts Labour poised with ideas and a skilled team eagerly awaiting the opportunity to serve in a future Labour government.

James Frith Labour Candidate in Bury North

Full Shadow Cabinet

  • Sir Keir Starmer: Leader of the Opposition
  • Angela Rayner: Shadow deputy prime minister and shadow levelling up secretary
  • Rachel Reeves: Shadow chancellor
  • Bridget Phillipson: Shadow education secretary
  • Yvette Cooper: Shadow home secretary
  • Wes Streeting: Shadow health secretary
  • Ed Miliband: Shadow energy security and net zero secretary
  • David Lammy: Shadow foreign secretary
  • Pat McFadden: Shadow Chancellor of the Duchy of Lancaster and National Campaign Coordinator
  • Nick Thomas-Symonds: Shadow minister without portfolio
  • Jonathan Ashworth: Shadow paymaster general
  • Shabana Mahmood: Shadow justice secretary
  • Jonathan Reynolds: Shadow business and trade secretary
  • Liz Kendall: Shadow work and pensions secretary
  • John Healey: Shadow defence secretary
  • Louise Haigh: Shadow transport secretary
  • Thangam Debbonaire: Shadow culture secretary
  • Anneliese Dodds: Shadow women and equalities minister and Labour chair
  • Steve Reed: Shadow environment secretary
  • Peter Kyle: Shadow science secretary
  • Hilary Benn: Shadow Northern Ireland secretary
  • Ian Murray: Shadow Scottish secretary
  • Jo Stevens: Shadow Welsh secretary
  • Emily Thornberry: Shadow attorney general
  • Lisa Nandy: Shadow cabinet minister for international development
  • Darren Jones: Shadow chief secretary to the Treasury
  • Ellie Reeves: Deputy national campaign coordinator
  • Lucy Powell: Shadow Commons leader
  • Alan Campbell: Labour chief whip (Commons)
  • Angela Smith: Shadow leader of the House of Lords
  • Roy Kennedy: Labour chief whip (Lords)
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The end of ‘free’ money

After 15 years of ‘free’ money, we’re now seeing what breaks when interest rates shoot up. Silicon Valley Bank, Signature Bank, Credit Suisse, as well as wider confidence, have all vapourised at speed. It is difficult to say where the next fractures will appear but there are undoubted stresses in the private markets, asset management and real estate and with those who borrowed excessively in the good times. What next and what are the implications for our clients?

Banks will become more boring
The irony is that the framework put in place after the last financial crisis has worked well (especially in UK and Switzerland, less so in the USA where some of the new regulations weren’t implemented). Bank resolutions have been for the private sector, the taxpayer hasn’t (yet) been troubled. But in a sense, the regulations put in place since 2008 are fighting the last war. We can expect the regulatory burden to tighten further, a consequent fall in lending appetite, credit will become scarcer and that means slower economic growth.

Less money for more frivolous and ambitious ventures
With credit contracting, more marginal start-ups become unviable, fund raising becomes more difficult and we’ll likely see the failure of some fintech, medtech and other businesses. We’ll see greater realism in the commercials of many businesses – cash conservation will be king and a quicker path to profit will become imperative.

Approaching the peak of the interest rate cycle
Central Banks have two main roles – to control inflation and to keep order and stability in the financial markets. The ECB ‘chose’ price stability last week and raised rates again. However, the events of the last two weeks will have been very deflationary – and that means the likes of the Fed and Bank of England will not need to raise rates as fast, if at all, to contain inflation. That said, core price rises are still persistent and wage expectations are still rising. While we may have peaked in terms of interest rates, those rates will still remain higher for longer and will not fall as quickly as the market is expecting.

It’s a reminder that risk, in all its guises, needs to be managed and diversified
A company should not leave all its cash in one bank – or indeed rely on one bank to provide all its sources of finance. Credit risk, operational risk, market risk all require attention. As does reputational risk – values, behaviours, standards are all under scrutiny. The world is more transparent, more judgemental, and less forgiving on those who get it wrong. The biggest takeaway of all – culture matters.

A toxic culture will eventually be exposed and will be an existential risk for those who don’t manage it.

Getting your comms right matters more
Sloppy language, loose lips and ill-judged commentary transmits faster and has more impact in today’s world. One poorly phrased sentence saw 20% of SVB’s deposit base evaporate in 24 hours. The messaging of difficult and bad news should be scripted and practised. Communications needs to be front and centre, not an afterthought. There is less room for error and companies need to invest in getting their messaging right.

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January’s negative reputation: 3 ways to fix it

The glasses are dry, the wallets are bare, and the decorations are a long distant memory. You’ve said ‘Happy New Year’ on Teams every day for the last four weeks, and you’re sure that if you say it one more time, your colleagues will have you committed. Thankfully, the month of January is almost behind us…

The internet tells us it is the most depressing month of the year, with Blue Monday, the post-holiday season and the short days and long evenings. If January were a client, it would be high risk, one that requires a strategic approach and proactive management.

Clearly, January has a reputation problem. But does the reputation match the reality? I have taken the toxicity of brand-January as gospel for years: ‘Hold off any big launches, too much real news around’, ‘‘Don’t organize events, everyone’s doing dry-Jan’. Then, last week I learnt that ‘Blue Monday’ itself was in-fact the machination of the PR machine at the now defunct Sky Travel. My foundations shaken; I sought to find a solution to fix January’s reputational crisis.

Like any good strategist, first, we dived into the data. Combing reams of articles about seasonal blues and piles of data on consumer peaks and trough. Finally, we arrived at our critical insight: January has fewer days of celebration than any other month of the year. Eureka! A strategy to fix this? We needed to find plenty of reasons to celebrate January.

Next came the tactics: what were the good days to shout about (strengths) and the bad days to steer well clear of? There were many more of the latter unfortunately: world hypnotism day (4th) – HR minefield; national squirrel appreciation day (21st) – risk of rabies; national peanut butter day (24th) – serious allergy problems; national croissant day (30th) – likely Brexit issues.

Then, we arrived at the golden nugget: three celebratory days to fix the reputation of January:

  1. Lunar New Year (22 Jan)

The Lunar New Year, like January itself, is misunderstood. Its remains clouded in controversy, having undergone its own internal re-brand of late. But once people start to learn about it, they embrace it.

Here at Hawthorn we marked the occasion with drinks and cheese (moon shaped), while many of our clients took the opportunity to mark the occasion on social. It was progress, but not nearly enough….

In 2024, let’s push the boundaries and make Lunar New Year the ‘Christmas? What Christmas’ celebration that it truly deserves to be. After all, it’s the Year of the Dragon next year. What better way to start the year?

  1. Burns Night (25 Jan)

A stalwart of the calendar year that goes criminally under-leveraged, as far as January’s profile goes. Burns Night celebrates the life of the poet Robert Burns. Our Scottish colleagues get sick of explaining what this means and why we should care.

This year we had the pleasure of taking to the Tower of London with our client who deals in scotch whisky, for a spectacular celebration, just down the corridor from the crown jewels themselves! Anyone on the fence about the strength of the occasion after that was well and truly converted by the end.

In 2024, our goal is to make Burns Night a staple of social (and client) calendar.

  1. Dry January

Dry January rallies and polarizes in equal measure. At no other time of the year does the nation rally behind a coordinated mission to not go to the pub. That sense of camaraderie and minor achievement is rarely seen outside of a major football tournament. And while some may be losing their drinking buddies, others will be gaining a temporary gym buddy. This is to be commended.

At Hawthorn, we’ve stood in solidarity by moving our January social to next month.

In 2024, Dry Jan needs to be celebrated for the achievement that it is. Perhaps a badge for all those doing it? Or a wristband?

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Name Role

January may bring challenges and uncertainty, but we are excited to have had a successful and productive start to 2023. We have gained new clients, planned exciting events, and have been presented with many opportunities for growth. Let’s embrace January as an opportunity to think creatively and set a positive tone for the rest of 2023.

By Gordan Carver, Senior Director

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London listings, Rayner’s Labour and VAT’s back

Policy Preview: London Listings
“The world clings to its old mental picture of the stock market because it’s comforting; because it’s so hard to draw a picture of what has replaced it; and because the few people able to draw it for you have no interest in doing so.” Michael Lewis

The London Stock Exchange (LSE) has had a turbulent past few years. European regulators blocked its merger with Deutsche Börse in 2017 for the third time, and though it pivoted to a data provider model with the purchase of Refinitiv in January, the LSE’s own share price has struggled.

While the business model of competing with other data providers will likely prove significant to the LSE’s long-term prospects, some of the poor performance the exchange has seen in recent years is due to a slowdown in new listings, partially due to Brexit uncertainty and partially due to the LSE lagging other major exchanges in innovation. 2021, however, has shown the signs of a turnaround are already in place – with more 50% listings in the first six months of 2021 than in all of 2020.

Arguably the most significant LSE listing this year – in terms of its own business model – was the July trading debut of the fintech firm Wise, which specialises in international monetary transfers. Notably, the listing was not an IPO but rather a direct listing in which existing shares are entered into the market rather than new issuance as typically occurs in the former. Such listings, which typically enable existing investors to cash out more quickly, have grown in popularity in the US tech sector in recent years but the LSE had heretofore largely been reticent.

Wise’s debut was seen as a success and the firm is now the largest in the UK tech space by market capitalisation. London has prided itself on developing a wider fintech scene in recent years and there are a number of other expected listings, such as those of challenger bank Revolut or payments firm Klarna, that the LSE will be keen to secure.

To that end, last November the UK government launched a review of its listing regime, with a split emerging between advocates of continued high regulatory standards and those in favour of loosening listing rules, in particular to attract fintech listings. The LSE seems to have firmly come down on the side of the latter, most emphatically the requirement that a minimum of 25% of a firm’s shares be sold in an initial listing. It also gave softer backing to calls to allow firms with dual class shares to be treated as ‘premium listings’ and thus eligible for the FTSE 100 index. For example, Wise’s CEO Kristo Käärmann has enhanced voting rights shares, meaning Wise will not enter the FTSE 100.

These rules are overseen by the Financial Conduct Authority (FCA), which is conducting its own review, off of which it has proposed reducing the free float requirement to as little as 10%, and to allow certain forms of dual class share structures to be included as ‘premium listings’. An overhaul of listing rules along these lines is likely to be signed off by year’s end.

Power Play: Rayner’s Labour
“Finding the right alchemy that will woo the older and socially conservative voters of the Red Wall whilst keeping on board the younger, more educated, and socially liberal voters elsewhere has become Labour’s quest for the Holy Grail.” Professor Eunice Goes

Angela Rayner’s position of prominence is secure within the Labour Party. Following its disappointing results in the early May elections, Keir Starmer and his allies attempted to side-line her, failing when Rayner refused to accept what she regarded as a significant demotion. Instead, with backing from party allies, she negotiated retaining her position as Deputy Leader and exchanging her roles as party chair and national campaign coordinator for positions as Shadow Chancellor of the Duchy of Lancaster and a newly-created post of Shadow Secretary of State for the Future of Work.

This is symptomatic of two things – firstly, Keir Starmer’s weakness at the head of the party, unable to reshape his frontbench to his liking. Secondly, it demonstrates that the left-of-centre, though less radical than the left under Jeremy Corbyn, still has some residual strength within Labour. For the time being, Rayner is able to stay in position as Deputy Leader, consolidating her own power base.

What does this mean for Labour? The party’s attention will soon be turning to the next general election, which could come as soon as May 2023. Labour will be keen to stem the flow of so-called ‘red wall’ voters deserting Labour. Some within the party may feel that as a Stockport-born former trade unionist, Angela Rayner may be better able to connect with voters across the North of England and the Midlands than Sir Keir Starmer QC.

There may not be much time for Labour to effectively set out their message, if the election is just two years away. A non-trivial proportion of that time will still be politically dominated by the pandemic, and Labour will need to offer a positive vision of the future, rather than criticise the government’s perceived failings during the pandemic.

The party will continue to position itself as tough on crime and social issues, playing to Starmer’s prosecutorial experience. The Conservatives will always be more credible on law-and-order issues, however, and Labour will need to seek to shift the economic debate onto terms in which it is most comfortable.

Rather than being painted as the party of fiscally irresponsible tax-and-spend, in her newly appointed brief handling the Future of Work Rayner will seek to frame the nature of the post-pandemic recovery as being an opportunity for more socially-just economy rebalanced towards workers. We have already seen the beginnings of this with pledges for a ‘new deal for workers’, with Rayner calling for an enshrined right for workers to work from home.

Although the Opposition’s policy influence is necessarily limited, we can expect Labour to continue to influence policy debates by positioning itself as more socially conservative yet with an economic policy characterised by more targeted interventions in the interests of workers.

Dollars and Sense: VAT’s Back

“Happiness is not in money but in shopping”

Marilyn Monroe

Since the start of 2021, the United Kingdom no longer offers tourists and visitors refunds to the value added tax (VAT) that they pay on UK bought goods. Formerly known as the Retail Export Scheme, similar VAT refunds are available across the European Union and they have proved a boon to growth for big retailers.

Such refunds not only bring in tourist spending – helping drive the development of commercial shopping centres such as the UK’s Bicester Village – but also have provided a fresh income stream to retailers and logistics businesses, who typically take a small portion of the refund in exchange for handling the relevant paperwork. The end of the Retail Export Scheme will not totally end this business, as UK exports shipped directly abroad will still be VAT-free.

Yet certain retailers are likely to be particularly impacted, from famous London outlets that have long been magnets for tourism to the smaller luxury stores and shopping centres in Manchester that have seen high-end spending driven by VAT-free purchases from tourists largely from India, the Middle East and China, in recent years.

The COVID-19 pandemic, resulting lockdowns, and travel limitations have far overridden the impact of the VAT refund’s abolition on retail. However, as the post-pandemic recovery continues and travel slowly opens up with the rollout of global vaccinations efforts, the VAT refund scheme’s abolition risks seeing the UK retail recovery lag behind that of other sectors and even retail in Europe.

Yet the government has so far shown no signs that it plans to reinstate the Retail Export Scheme, or some variety thereof. Simply put, foreign tourists are not a particularly politically salient constituency and the government is wary of being seen as handing valuable tax receipts to retailers in a post-pandemic environment.

Nonetheless, a potential middle ground with benefits to all exists – the digitisation of tax receipts raises the possibility of reinstating at least certain refunds for goods whose export status can thereby more easily be verified. The government has put tech at the forefront of other customs arguments – recently raising the idea again in relation to policing the Irish border – similar arguments about the future of UK retail recovery follow naturally.

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Equity for private equity? Gulf going green and no longer contained

Dollars and sense: Equity for private equity?
“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing” Jean Baptiste Colbert

One policy choice may soon demonstrate whether post-Brexit Britain is set to hew closer to the US’ agenda or it will pursue the so-called ‘Singapore-upon-Thames’ model

It is a foregone conclusion that US President Joe Biden and the Democratic-held Congress will look to eliminate the carried-interest tax structure favoured by so many private equity firms. The position was endorsed by almost all major Democratic presidential candidates in 2019-2020 and it has repeatedly been suggested as a tool to help pay for recent infrastructure spending programmes. What may be more surprising is the amount of Republican support for such a move. While support is not as universal as on Congress’ left benches, ex-president Donald Trump campaigned on higher private equity taxes in 2016 and raised the bar for qualifying for such a tax in his 2017 tax reform., and again called for its elimination as recently as 2019.

The US, however, is not alone in allowing the general partners of investment funds to share in the gains of that fund, and pay tax on it as capital gains rather than as income. Britain has similar regulations, and with capital gains taxes for higher-rate tax payers set at 20% (28% for property investments) rather than the 40% income tax level for high-earners.

There have been occasional rumours that the Conservative government is considering raising the tax as well. The 2019 Conservative manifesto only pledged not to raise income tax, national insurance and VAT – and Chancellor Rishi Sunak’s March announcement that corporation tax will rise – undoing a decade of Conservative cuts – in response to the pandemic raising the spectre of private equity likewise being targeted.

The private equity industry has long sought to avoid taking its policy battles to the public, and to instead make its arguments persuasively directly to policy makers. Lobbying was crucial to getting higher carrier interest taxes removed from Trump’s 2017 tax reform, as acknowledged by Larry Kudlow, who would go on to head Trump’s National Economic Council. Yet Biden – and Trump’s continued rhetoric – shows it only slowed, rather than stemmed, the tide.

Private equity has proven a key investor in the UK, and its activity increased during the turbulent years after the 2016 Brexit referendum. The UK’s exit from the EU has made competition for the future of the services and financial sectors as sharp as ever, though many have seen New York as the real winner. The Biden Administration’s tax plans and continued US political tumult may put this in doubt, however. Meanwhile in the UK, Prime Minister Boris Johnson is in search of ways to demonstrate his support for traditional Conservative principles while shaking the party up with his so-far-successful ‘Northern Strategy’.

Private equity can fill these gaps by demonstrating its value to London, investment across the British economy, and to UK competitiveness. But it is a message that it must not just take to politicians, but through a pro-active communications agenda targeting both the public and the media, or otherwise risk repeating the scenario we see playing out today in Washington.

Power play: Gulf going green
“It was charged against me that the British petrol royalties in Mesopotamia were become dubious” T.E. Lawrence

The Gulf States are undoubtably concerned by the world’s major economies transitioning away from hydrocarbons, but the shift is already reshaping the region’s dynamics – and avenues for partnership, both commercial and political.

Some analysts suggest that we have already seen the peak of global oil demand, while even conservative estimates predict that demand will have peaked by 2030. Economies like Saudi Arabia and the UAE, which have historically relied on oil exports for revenue, are seeing this important revenue stream dry up – the Middle East is likely to see a 70% reduction of net oil and gas income by 2030. However, regional energy demand is set to double by 2040 – Gulf states are investing in renewables to ensure energy supply can keep up with demand.

These dynamics mean oil’s geopolitical role is changing. Oil’s historic role as a driver of allyship between the West and friendly Gulf states will diminish as Western states stop relying on them. Saudi Arabia and the UAE may decide that the likes of Russia and China – already a major supplier of solar panels to the region – make more worthwhile allies. This lack of interest in the West is already stoking greater competition between Gulf states. The recent OPEC spat is symptomatic of this. Rather than driving unity between the UAE and Saudi Arabia, oil is a rapidly shrinking pot. Oil-producing nations are seeking to maximise their own share at the expense of other members of the organisation.

Competition rather than cooperation will be the norm when it comes to resource politics in the Middle East. Qatar has already sought to establish itself as the region’s main player for natural gas, producing 178.1 billion cubic meters in 2019 compared to 23.7 in 2000. MENA states are making efforts to develop their renewable energy capacity, though currently only 11 per cent of the region’s electricity generation currently comes from low-carbon sources.

Huge expansion is planned as Saudi Arabia and the UAE recognise the need to competitively investing in domestic hydro and solar power projects. With a planned $100bn investment, Saudi Arabia has credible plans to increase its installed green capacity fivefold in the coming years. Many of these large-scale projects will be driven by state-owned firms and investment bodies, with companies owned by the likes of the PIF and Mubadala competing for tenders.

The interest in low-carbon energy projects in the Middle East will only increase as states’ efforts to ramp up energy production leads to aggressive investment and greater opportunities in renewable energy across the region.

Policy preview: No longer contained

“It is not the going out of port, but the coming in, that determines the success of a voyage.”

Henry Ward Beecher

This January, we wrote on the state of the global shipping industry and noting that the then-incoming Biden Administration was likely to take a negative view of the concentration of power among a small set of container shipping alliances that have been built up over the last decade. Container prices had already been steadily rising, but by June many benchmark prices had doubled, some even tripled. Though they have since retreated, container pricing has contributed significantly to higher-than-expected inflation indicators in Europe and the US.

This has escalated the urgency of the matter for the White House, as indicated by President Joe Biden’s 9 July Executive Order aimed at promoting competition in the US economy. The White House specifically noted the concentration of power among large container shipping firms and warned this risked “leaving domestic (US) manufacturers who need to export goods at these large foreign companies’ mercy.

The order only directly addresses this, however, by encouraging the Federal Maritime Commission “to ensure vigorous enforcement against shippers charging American exporters exorbitant charges”. The scope for US executive branch reproach is limited by the non-US domicile of major international shipping companies.

Nonetheless, we expect the US Department of Justice (DOJ) to announce a new investigation into the shipping industry – picking up the probe that it first launched in 2017 but dropped in 2019. However, the key US approach is likely to come via legislation, with Congressmen John Garamendi (D-CA) and Dusty Johnson (R-SD) leading bipartisan efforts to draft legislation on behalf of the House Transportation and Infrastructure Committee.

The key provision of the legislation is expected to seek to bar shippers from declining cargo bookings for exports – the rates for which are far-below those for US imports, which has led to many shippers even leaving American ports empty so as to faster reload for export to the US. Importers, however, will be weary that this will not lower their prices – and may even increase them.

Container prices will be a particular important feature of the economy not only for their impact on inflation, but will be further prioritised by policy makers as the diversification of supply chains to protect resiliency grows in the aftermath of the COVID-19 pandemic and amid ongoing global trade tensions. One area where a DOJ probe is likely to look – and legislators are expected to examine – is the relationship between container port terminal operators and shipping companies. Action to prompt diversification, and potentially even divestment, on this front should be expected.

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