Does Labour cut it with business?

It all started so well: Tony and Cherie, holding hands, promising a brave new chapter for British business. Labour’s election victory in 1997 had a crisp, new feel to it after the Conservatives with their tired old ways. This was New Labour Extra, ready to zap away all those nasty stains.

Four years on, has anything really changed? Businesses today face more red tape than under the Tories and are staggering under the weight of a succession of stealth taxes. The strong pound has become a source of lingering resentment for British business.

‘Business has had many of its worst fears realised in terms of red tape and regulation,’ says Ian Peters of the Engineering Employers’ Federation.

Four years ago, winning the business vote was seen as essential to winning the support of the voters of Middle England. Labour promised low interest rates and tough targets on government spending and borrowing. There was a concerted effort to woo small businesses, easing access to finances and promising tough action on late payers.

Yet there was no mention then of changes to the taxation of overseas dividends; a nasty little aside to Gordon Brown’s 2000 Budget which would have hit the profits of almost every big British company. Only the threat from several big players that they would quit the UK persuaded Brown to rethink the idea.

The burden on business
There appears to be no such respite from the climate change levy; certain to send manufacturers’ costs soaring.

Those to speak out against Labour’s track record include Sir Clive Thompson, chief executive of Rentokil Initial and former president of the Confederation of British Industry. Responding to claims that Labour has shown itself to be ‘the party for business’, Sir Clive said: ‘Over the past four years, Britain’s reputation of having an attractive tax regime, light regulation and flexible market has been seriously eroded.’ Labour has ‘burdened business’ with excessive red tape and new taxes.

The Institute of Directors describes Labour’s first term as something of a mixed bag. Ruth Lea, head of the IoD’s policy unit, says: ‘Gordon Brown, we believe, has been a good custodian of the economy. The decision to hand interest rates over to the Bank of England was a triumph, quite frankly.

There have not been particularly difficult economic times.

‘Whether this is the case going ahead is a different issue, especially with public expenditure increases in the pipeline. There’s been about a Pounds 5.5bn increase in taxes on business, and it’s fair to say that business hasn’t been too keen on this. The windfall tax on utilities came through first. One, I think, of the most damaging was the abolition of tax credits on dividend payments. IR35 has been very unpopular with the IT sector.

The complication to the tax system’s gone down like a lead balloon. Capital gains tax is now extremely complicated, and even though Gordon Brown will come out with tax breaks for this and tax breaks for that, they’re so complicated that people give up.’

Lea says the increase in red tape under Labour is ‘driving people batty’.

Family benefits result in red tape
She says: ‘The working families tax credit is very, very unpopular. The working time directive was coming through from Europe anyway, but it has been unpopular. The minimum wage has hit certain sectors and it’s likely to get worse. Then you’ve had all the extension of employee rights and all the “family friendly” stuff. A lot of the employee rights stuff sounds really good – “happy employees, happy business” – but it’s not how our guys see it. It’s extra red tape, and that’s a real thumbs down.’

Labour can point to a record of low inflation, continuous growth and steadily falling unemployment. Yet for all its stewardship of the economy, elements of its relationship with business have been of concern to British boardrooms.

One of the most curious examples involves Labour’s relationship with Camelot, the National Lottery operator.

Before the last election, Camelot was one of Labour’s prime targets.

Pushed through by John Major, the lottery provided Labour with endless ammunition, from the millions squandered on the Royal Opera House to the fortunes creamed off by the Camelot directors.

This antipathy towards Camelot quickly got the newly elected government into trouble. Chris Smith, the culture secretary, demanded that Camelot’s directors hand back their bonuses, apparently forgetting that he was no longer in opposition. Smith backed down after the Camelot board threatened to resign, but the damage had been done. He had sent out a message that the government was quite prepared to interfere in the affairs of business.

The point was proved again when Camelot battled with Sir Richard Branson’s Peoples’ Lottery for the new lottery licence. The lottery commission, ostensibly independent, declared that neither bid was good enough – then granted Branson extra time in which to perfect his package. The business community detected the hand of Labour in the decision. Camelot had to turn to the courts to elbow its way back into the contest.

A penchant for interfering
Labour’s penchant for interfering came through again in the fiasco surrounding Rover Group and the Longbridge car assembly plant. It was witnessed in appeals to Corus, the Anglo-Dutch steel group, to reconsider plans to cut 6,000 jobs.

But Labour has its supporters. Last month, Sir Terence Conran, Habitat founder and David Potter of Psion were among 58 businessmen to declare their support for the government in a letter to The Times. Not so long ago, businessmen would not have been seen dead putting their names to such a document.

British business may not like the extra taxes and the extra form-filling, but things could be a lot worse. Labour has at least shown that it can run Britain without bankrupting the place.

As the IoD’s Ruth Lea puts it: ‘Talking to people, there is an element of confidence in Labour. Even though they know a second Labour government will do things they don’t want, they feel that at least they’re competent. There’s no doubt that Gordon Brown has won that point.’

It is a point that will not go unmissed in Britain’s boardrooms.

  • Jon Ashworth is business features editor at The Times.

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