Labour’s ‘partnership with business’ remains murky

If economic growth could be conjured by words, Britain would be as rich as Norway by now. Although inflation is falling and real wages are on the up, there is a sense that the country is in long-term decline, and ministers don’t know how to fix it. With yet more NHS and London underground strikes on their way, shadow chancellor Rachel Reeves struck a chord this week when she drew an analogy with the plight of the country in the 1970s. 

Reeves’ acknowledgment of the failure of Labour corporatism brought outrage from the left, as if it is a betrayal to learn from history. But her prospectus is very different to Margaret Thatcher’s. Thatcher was a liberaliser who abolished exchange controls, curbed militant unions, made the City of London a global financial centre and wooed Japanese car manufacturers.

Reeves would liberalise in only one area: making radical reforms to planning law, to unlock housing and infrastructure. Beyond that, she seeks not a smaller state but a “smarter” one: with an active industrial policy, a new drive on skills and a swath of new employment rights which would go far beyond anything this country has seen before. 

There is much to like about Reeves and her vision. She wants to embrace the so-called Washington consensus, not be a spectator. She understands that investor confidence has been knocked by Brexit and political turmoil. Her pledge to keep corporate tax at 25 per cent for the whole of the next parliament, to stick to the Conservatives’ fiscal rules and to improve relations with Brussels sends a welcome message of stability. 

She also recognises that sustainable growth must be investment-led, and that the state has a role in smoothing the way. One common theme in meetings for the Harrington Review of Foreign Direct Investment, to which I was an adviser, was how frustrated companies are by the number and mediocrity of regulators they have to deal with in the UK, compared with many other countries. Our competitors have adopted a strategic, state-backed approach to investors: we need one too.

It remains unclear what the phrase “partnership with business”, repeated endlessly by Reeves and Labour shadow ministers, actually means. To paraphrase what more than one small business owner has said to me, “I don’t want a partnership with government, I just want to run my own bloody company.” 

I wonder if Sir Keir Starmer or Reeves have met with many small businesses. In a recent one-hour speech, Reeves did not mention small business at all, and referred to “enterprise” only in the context of a Treasury unit. This isn’t entirely surprising: Labour is experiencing the same charm offensive from big business that the Conservatives did in 2009, and Reeves is preoccupied with how Britain can respond to the White House’s pitch to advanced manufacturing and green industry. But meeting corporate CEOs who flatter you over canapés tells you little about how entrepreneurs drive growth. 

This wouldn’t matter so much, if Labour wasn’t offering an employment law package which jars with the reassurance it wants to project to business. The “New Deal for Working People” contains some sensible measures, such as outlawing the egregious practice of “fire and rehire”. But it would also outlaw zero-hours contracts, which are not always exploitative but reflect the seasonal nature of businesses such as hospitality and farming. It would drive through “fair pay agreements” via collective bargaining between unions and employers. The first will be in social care, though details are scarce. And it would guarantee rights to sick pay, parental leave and unfair dismissal from day one of a job.

In seeking to assuage business fears that it will become impossible to remove underperformers, Reeves said that Labour “will ensure that business can still operate probationary periods”. Gee thanks, say the entrepreneurs who’ve mortgaged their flats or borrowed from friends to create a start-up. Maybe I’ll emigrate. 

Reeves argues that a resilient workforce is vital for economic security. She says that too much work is insecure, and that hard work doesn’t always pay enough. I don’t disagree. But neither do I feel that the country’s biggest problem is our lack of a right for workers to go off sick on day one, or to disconnect from email outside of working hours. We are at a point of flux, with tight labour markets tilting power towards workers.

When a new government takes office, the issue of hiring and firing will hit close to home, because, in my experience, almost no one is ever sacked from Whitehall. This drags down departments, and the morale of officials who have to put up with underperformers. If Reeves is to achieve her vision of an active state, she will need an elite, Singapore-style civil service staffed by a smaller number of highly paid people. Machinery of government changes are much discussed: merging the cabinet office and Number 10, for example. But it’s the quality of the officials in those buildings which will drive government effectiveness. 

The Labour leadership is desperate to enact significant reforms in its first 100 days which will set the tone for the parliament, and to take advantage of the post-election honeymoon. When Gordon Brown made the Bank of England independent in 1997, it was a bold reform which also had the merit of being simple to enact. Much of what is needed now is trickier and longer-term, but fresh energy may go quite a long way with voters.

The shadow chancellor has a scale of ambition to match the times. What Labour insiders call her “smoked salmon and scrambled egg” offensive with business is paying off: but she should beware the old-style beer and sandwiches.

camilla.cavendish@ft.com