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Labour’s banking on a stability dividend

For Labour, this election campaign marks the culmination of a process that’s been underway since Keir Starmer became leader; to reassure the business community by burying his predecessor Jeremy Corbyn’s far-left agenda. Earning the trust of the business community has been a central part of this plan, and it has worked. We can tell it’s worked because nobody laughed when Shadow Chancellor Rachel Reeves declared yesterday that the Labour party “is now the natural party of business” and that she plans to run the “most pro growth, pro business Treasury in the history of our country.”

What does this mean in practice?

According to Reeves, it means going for growth with all the enthusiasm of Liz Truss but without the unfunded market-spooking radicalism. In her speech at Rolls Royce in Derby, Reeves reiterated her pledge to abide by robust fiscal rules as well as her commitment to getting debt falling by the end of the parliament. She also recommitted to a new “Business Tax Roadmap”, first announced at the Labour Business conference in February, to be published within six months of an election win, providing certainty over taxation for the life of the parliament – including a pledge to cap Corporation Tax at its current rate. Labour has also rowed back on some of the more controversial elements of a new “workers’ rights” package, promising that nothing will be imposed without a thorough consultation and input from employers. Labour’s plan to replace the unpopular Apprenticeship Levy with a new approach to skills training will have also caught the attention of bosses.

But woven through these specific pledges runs a more nebulous idea: partnership. Reeves dismissed the “free market dogma of the past” in favour of “a new spirit of partnership” with British business. “Our plans for growth,” she said, “are built on partnership with business.”

The party has made much of its newly minted links with business leaders, not least in financial services and in the formation of an industrial strategy, but one of the most eye-catching expressions of what a partnership could look like comes in the form of Labour’s planned National Wealth Fund.

The policy is being worked on as we speak by The Green Finance Institute and members of this early-stage commission include Legal and General, Aviva, NatWest, USS and other pension funds plus some green campaign groups. The plan is to kickstart the fund with around £7bn of public money before, as Reeves puts it, “crowding in tens of billions from the private sector.” The subsequent investments will be targeted at national infrastructure projects, with an emphasis on the green transition and low carbon energy generation. While we await details of how exactly this will work, it’s worth noting that the terminology is misleading. A “Wealth Fund” puts one in mind of countries like Norway, whose Sovereign Wealth Fund is valued at north of £1 trillion and includes stakes in over 9,000 companies globally. Labour’s plan appears to be more of a Development Fund, financing shared public-private infrastructure schemes.

The legal, regulatory, governance, risk and compliance elements of such a scheme are myriad and complex, and while they don’t amount to a reason not to try it, they should certainly serve to dampen the spirits of anyone who envisages a rapidly established, well capitalised and agile investment vehicle.

The likelihood is that a Fund such as this, however muscular, will not on its own be able to deliver anything like the kind of economic growth on which Starmer and Reeves are so clearly basing their future plans. With further surprise tax rises ruled out and a pledge not to borrow to fund day-to-day expenditure, only rapid and sustained GDP growth will allow Labour to deliver on its ambitions.

And here we come full circle. Back in 2010 a young David Cameron and his then Shadow Chancellor, George Osborne, talked of “sharing the proceeds of growth.” Future reductions in the tax burden and uplifts in public spending would only come, they said, from growing the economy. This is almost word for word Labour’s policy today.

Until the full manifesto is published, the central offering from Starmer and Reeves – to the country as much as to the business community in particular – is that “stability and certainty” will be restored to British policy making. As Reeves said yesterday in one of the less catchy soundbites of the campaign, “stability is change.” It may well be the case that a sense of competence and a less volatile political environment yields an uptick in business sentiment and investor activity, but on its own it’s unlikely to improve the intransigent rates of sluggish GDP growth that have characterised so many developed economies in recent years.

Labour is banking on a stability dividend, and there’s no shortage of businesses or individuals ready to cash one in after years of political and economic shocks, but a large part of Labour’s promised stability actually takes the form of continuity; on spending plans, headline tax rates and fiscal rules. These are political calculations designed in large part to reassure an electorate and head off political attacks, but they leave Labour with a set of policies that risk falling short of their own rhetoric.

If you’d like to speak to Hawthorn about our Political Advisory offering, please email Mark Burr at

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