Partnerships, stability, ESG 2.0: Labour’s agenda for government
After 14 years, Labour are back. Our Senior Advisor Lord Stewart Wood shares his thoughts on what happens next.
Keir Starmer’s manifesto for the 2024 election, “Our Plan to Change Britain”, was a document with few surprises. That shouldn’t surprise anyone. But going into the election with a large poll lead, the Labour leader and his powerful Shadow Chancellor Rachel Reeves were understandably keen to preserve maximum policy latitude, without needing to make bold promises they may struggle to keep in the face of tough public finances and multiple international crises.
What was striking about the Labour manifesto, however, is not just how little new policy it contains, but how explicit the Labour Party is about the match between its modest short-term funding pledges and modest short-term tax increases. An injection of funds into the NHS to start to tackle the monumental challenge of waiting lists, plus kick-starting an increase in teacher recruitment, are to be paid for with a handful of specific tax increases – ranging from the removal of the VAT exemption of independent schools, to completing the withdrawal of non-dom tax advantages begun under Sunak, to an expanded form of the energy producers’ windfall tax, and the elimination of the carried interest tax loophole for private equity managers.
Underneath this fiscal prudence, however, lies a raft of interesting proposals and ambitions in the area that Starmer and Reeves want to make the central focus of their new Government – the economy, and in particular the way in which investment, productivity and growth can be radically improved by reforms to institutions, public-private partnerships, the greening of “UK plc”, and greater openness to repairing our trade relationship with the European Union.
So what did the Labour Manifesto tell us about the economic agenda of the party that is now in power? Here are four key themes.
First priorities: energy, immigration and public services
First, it gave a clear indication of what their early flagship legislative proposals will be. The first substantial chapter is titled “Labour’s First Steps For Change”, and sets out a few clear priorities for the first few weeks of a Labour Government – the launch of Great British Energy, Labour’s publicly owned clean power company, and a new Border Security Command force to tackle illegal migration; plus a prioritisation of limited proposals of public service reform to reduce NHS waiting lists by 40,000 appointments each week, and to recruit an additional 6,500 secondary school teachers. This will be the meat of Labour’s first few weeks in power – alongside some high-profile reversals of the outgoing Conservative Government (in particular, scrapping the Rwanda scheme for cross-channel illegal migrants).
The “partnership” approach
Second, Labour’s economic policy will clearly be characterised by a plethora of new partnership organisations that connect government (and the Treasury in particular) with businesses – as well as, to a lesser extent, unions & representatives of nations and regions. Top of this list is a new statutory Industrial Strategy Council, “to provide expert advice” to Whitehall. Labour’s new publicly-owned Great British Energy will be run in partnership with business and trade unions, as will the new body leading on apprenticeships and technical education: Skills England.
Reeves is clearly envisaging a number of overlapping structures to secure business buy-in for her new supply-side proposals, but with an eye on using them to engineer contributions from private sources for new infrastructure and major investments. Labour’s new National Wealth Fund – endowed with £7.3bn of public money, but aiming to be matched by leveraging three times as much in private investment – is the epitome of this new approach.
Certainty at last?
Third, Starmer & Reeves’ offer to business, alongside governance partnership, is a fascinating combination of tax simplification and more long-term certainty in investment horizons. On the former, Labour’s manifesto promised an overhaul of business taxation, including the replacement of the existing business rates system, and a pledge for corporation tax not to exceed 25% (still the lowest rate in the G7).
On the latter, there are various proposals aimed at persuading business that Labour will usher in a period of greater long-term certainty in investment horizons. Government capital budgets will have a 10-year horizon, alongside the establishment of a new National Infrastructure & Service Transformation body, merging the existing Infrastructure Projects Authority & National Infrastructure Commission to better support the delivery of major new capital projects. There will also be a “roadmap for business taxation” in the next Parliament.
There is also an ambitious section on planning reform, advocating a widespread updating of national planning policy to accelerate the construction of new science and technology clusters, expanding brownfield and greyfield (greenfield deemed “low-quality”) development, and revising planning consent systems to speed up the building of new sustainable energy infrastructure. It is widely expected that in the first few weeks after the election, the Treasury will begin a period of active secondary legislation to streamline, simplify & shorten UK planning processes.
ESG 2.0
Fourth, the manifesto contained an extraordinarily ambitious agenda to ‘green’ the UK economy by 2030 –a highly ambitious deadline that has been greeted with both excitement & scepticism. The institutional focal point of this ambition will be Great British Energy, which will encourage a bidding system for sustainable investment projects from communities across the country. Alongside this, the British Jobs Bonus will provide £500m to incentivise companies to locate clean energy supply chains in coastal and deprived areas. But private sector regulatory requirements will also become more onerous: Labour will mandate UK-regulated financial institutions – including banks, asset managers, pension funds, and insurers – as well as FTSE 100 companies “to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement”. In the traditional energy sector, still more onerous is the extension of the current windfall tax on oil & gas companies, involving an extension of the Sunset Clause on the energy levy, an increase in the levy rate by 3 percentage points & the removal of excessively generous investment allowances.
Conclusion: a reforming government?
These four themes constitute the spine of Labour’s focus on the economic supply-side, to bring about the transformations in investment, growth and productivity that will be their overriding economic mission.
But lurking below the level of these headline ambitions sit a few intriguing, elliptical hints at other radical economic ideas for economic reform. The manifesto suggests Royal Mail may be transferred into some form of community ownership, for example. There are also intriguing sections on revisiting the powers of regulators such as Ofwat and Ofgem to impose more punitive penalties on executives of private sector companies that fail to deliver basic public goods for consumers. And in the area of economic devolution, Labour is clearly enamoured with the idea of offering more policy latitude – in public services, transport, skills and wider local economic policy – in return for authorities combining and agreeing to form larger, more coordinated local governance areas. Here, too, their “partnership” approach is clearly visible.
Perhaps unsurprisingly, most commentary on Labour’s manifesto during the election campaign focused on their tax pledges, their limited spending proposals, and the questions these raise about how longer term ambitions will be financed if stronger growth does not return. But what is most intriguing about the manifesto’s ‘supply-side’ economic sections is the reliance it places on leveraging private investment without spelling out the ways in which the new Labour Government would incentivise or require such a step-change. Meeting this challenge is likely to determine to a significant degree whether ultimately Labour’s laudable economic ambitions will succeed or fail.