Despite getting off to a rocky start – including nearly losing £1 billion worth of investment – Labour’s much-anticipated Investment Summit seems to be delivering exactly what ministers had hoped for. The good news, including a combined investment of £6.3 billion from four US technology firms to expand data-centre infrastructure in Britain – is rolling in.
The biggest question for plenty of businesses at today’s Summit will be about tax
Business is struck, perhaps awestruck, by Labour’s commitment to slash red tape. During a panel event with the Prime Minister and ex-Google CEO Eric Schmidt, the tech guru expressed how ‘shocked’ he was to learn that Labour was now ‘strongly in favour of growth’. Keir Starmer replied by insisting that ‘wealth creation is the number one mission of a Labour government’. Meanwhile, the chief executive of the US pharmaceutical company Eli Lilly commended the government on its ambition to cut regulation and go for growth: a move the company says Britain ‘needs to be quite different to make it interesting’ for investment.
But is the government at risk of overpromising? When you dig into the headline figures, some exaggeration is taking place. The Daily Telegraph reveals this afternoon that roughly £20 billion of the £50 billion ‘investment pledges’ Labour is touting from this summit (£60 billion now, according to the Chancellor this afternoon) have already been announced. Meanwhile, the Financial Times reports that as the government woos more private investment, it is quietly rolling back its own plans for investment, cutting ‘by a fifth’ the money it’s putting into its newly-established National Wealth Fund: a vehicle, with a fancy name, that is going to pick projects across the country and inject cash into them.
But the real risk isn’t overstating the private investment headed the UK’s way. Rather, it’s understating the changes that are about to take place, which will weigh heavily on where business chooses to invest.
While Labour has had plenty to say about how growing the economy is an essential pillar to their platform, talk of cutting red tape is fairly new – and doesn’t quite line up with the party’s plans announced so far. ‘I don’t see regulation as good or bad,’ Starmer said in his address to the Summit today. ‘Some regulation is life-saving…but across our public sector, I would say the previous Government hid behind regulators. Deferred decisions to them because it was either too weak or indecisive, or simply not committed enough to growth.’
It’s an encouraging assessment, albeit one that successive governments have made and yet have struggled to do anything about. Moreover, with Labour’s new employment rights coming down the track – regardless of whether they are hailed as long overdue or excessive – it’s still the case that the government’s first move in its 100 days has been to beef up regulations.
The party might counter that with its serious talk of planning reform: were an overhaul to be successful, this would no doubt create confidence in the business sector that the UK was really ready to build. But in the meantime, businesses also have to brace for changes that the Chancellor is making in her first Budget. While Rachel Reeves promised again at the Summit today a commitment to ‘fiscal and economic stability’, markets are preparing for a change in the fiscal rules which could allow the Chancellor to borrow up to an additional £50 billion for capital spending. While that change may well appeal to some businesses – who will want to see the government making investment alongside their own private contributions – they will equally be wary of market reaction, as gilt yields drift upwards and investors wait to see the details exactly what Reeves is asking to borrow, and the merits of the projects she wants to borrow to build.
But the biggest question of all for plenty of businesses at today’s Summit will be about tax, not least because the Chancellor gave her clearest indication today that employer National Insurance hikes remain on the cards. Taking questions at today’s Summit, Reeves refused to rule out an NI hike, stating that the Labour election manifesto ‘says “working people”, and then lists those three taxes paid by working people. We are going to stick to those manifesto commitments we made, including the manifesto commitment for business on corporation tax, which we will cap at 25 per cent.’
This indication that employer NI is in play is certainly going to give some businesses pause before they commit to stating how many more workers they would hire in the UK. But critically it is also going to raise questions about what tax levers Labour might pull – if not in this Budget, in future ones. The Institute for Fiscal Studies’s director Paul Johnson has come out the gate calling any increase to employer NI ‘a straightforward breach’ of the party’s manifesto pledge. The so-called ‘tax triple lock’ was explicit that income tax, NI and VAT would not be touched: there was no exemption or breakdown for different types of NI payments.
The question for business will be: what else will change? The manifesto said that the ‘fiscal rules are non-negotiable’. They look as though they are about to change. It said that NI would not be increased. This is looking increasingly likely to happen. The government is using the summit to remind businesses it is committed to keeping corporation tax at the same levels throughout this parliament, but there are caveats there, too, that are yet unknown. Regardless, it doesn’t necessarily instil the ‘confidence’ Labour insists will define its premiership.
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