How Labour hoodwinked business and forced bosses to revolt

Britain’s business elites descended on the British Museum on Wednesday evening for one of London’s hottest tickets: a private viewing of the Bayeux Tapestry. Executives from BP, KPMG, Diageo and Equinor sipped Italian wine and nibbled on cauliflower tempura and morsels of slow-cooked pork belly before jostling their way to the front of the queue. The chance to see the tapestry on English soil for the first time since it was made nearly 1,000 years ago was a privilege for those assembled. But in many other ways, the executives weren’t feeling so lucky. Labour swept to power in 2024 promising to be unashamedly pro-business and slash red tape. Instead, once in government they imposed back-to-back tax raids alongside introducing a slew of workers’ rights that employers fear will undermine Britain’s flexible jobs market. Two years on, Andy Burnham has promised to do things differently. The new Prime Minister once again pledged a pro-growth agenda, following through with a cut to business rates for hospitality businesses in his first week in office. It was a welcome move. But with the Budget just days away on Oct 28, bosses are increasingly fearful that this Government will exercise the same old tax-and-spend impulses as the last. John Healey, the Chancellor, is expected to launch a fresh tax raid on banks and promised help for entrepreneurs is expected to come with the caveat that those selling up will face a higher tax bill . Even some of Labour’s allies have sounded the alarm. Andy Haldane, the former Bank of England chief economist who informally advised Burnham on his campaign to become Prime Minister, warned last week that he feared the Budget would be designed to appease Labour backbenchers, rather than restore confidence among businesses and investors. Speaking at the British Museum event last week, Rain Newton-Smith, the director-general of the Confederation of British Industry, which hosted the evening, said: “We drive growth by helping struggling sectors, not holding back thriving ones.” As Healey puts the finishing touches to his first Budget, patience is wearing thin. “This Government has created a hostile environment for business from day one,” says an executive at one leading business group. “Now the Chancellor stands in front of the building they set on fire and promises to put it out. The Budget is the last chance to loosen the straitjacket they have put on business. If they don’t, they will lose us for good.” Making Britain un-investable In the run-up to the last election, Labour went out of its way to convince business leaders that the party was on their side. Growth was the party’s “number one mission”, Keir Starmer insisted, and tax and spending rules were changed to unlock public and private investment. The government vowed to help remove the barriers holding business back. For executives making investment decisions stretching years into the future, the promise of predictability was almost as important as stable taxes. But the relationship soured remarkably quickly. Rachel Reeves’s first two Budgets imposed close to £70bn of tax increases, including a £25bn increase in employers’ National Insurance contributions. That was followed by a radical increase in workers’ rights. Minimum wage has also risen above inflation. It has left some executives warning that Labour is making the UK “un-investable”. “We’ve got a Leftward-leaning Labour Government that took over from a Leftward-leaning Conservative government,” says the chief executive of a housebuilder. “They say they are pro-business, but they are actually operating a kind of Stalinist state where the private sector takes all the risk but it is not allowed to be seen to make profit. “They talk a good game but then they overregulate to the Nth degree and that is making the UK un-investable.” The roots of the problem stretch beyond this Labour Government. Britain has consistently ranked near the bottom of the G7 rich club of economies in terms of investment since the 2008 global financial crisis. “The main obstacles were a lack of policy consistency, like net zero targets moving from 2050 to 2030 and then back to 2035 and a raft of slow processes regarding government assistance, planning process and visa process,” says Lord Harrington, who conducted a review of foreign direct investment under former chancellor Jeremy Hunt. However, Labour has not helped things. Problems “have been compounded by the current Government with the Employment Rights Act and National Insurance increases”, Harrington says. Businesses fought bitterly against Labour’s manifesto pledge to give workers protection from unfair dismissal from day one. They eventually secured a six-month qualifying period instead of the existing two years. But the concession came at a price. Labour agreed to scrap the cap on unfair dismissal compensation, exposing employers to potentially unlimited payouts at tribunals. Bosses warn that the combination of higher wage bills and greater legal risks will make companies increasingly reluctant to hire. The battle over the Employment Rights Act is just one example of growing tensions between ministers and bosses. That frustration is now spilling into public view. Retailers, which already operate on thin margins, have become increasingly outspoken ahead of the Budget about the prospect of further tax rises. John Lewis has warned that another raid on the sector could trigger a wave of closures on Britain’s high streets, while M&S boss Stuart Machin has branded Labour’s previous Budgets a “disaster” for the retail sector. The same frustration was on display in Westminster on Tuesday, where Britain’s hospitality bosses gathered in the House of Commons to make one last desperate plea for relief from the Chancellor. Inside the Terrace Pavilion, the atmosphere was almost tropical. Rain-soaked coats and umbrellas had turned the packed room into something resembling a greenhouse as representatives from some of Britain’s biggest pub, hotel and restaurant groups waited to hear what politicians had to say. Executives from Greene King, Stonegate, Butlin’s, Haven, Hilton and McDonald’s were among those in attendance, alongside pub campaigners, local hoteliers and trade groups. There was also a conspicuous absence: Jonathan Reynolds, the Business Secretary, who had pulled out at the last minute to the disappointment of those hoping for a more substantial intervention from Labour. Instead, they heard from Daisy Cooper, the Liberal Democrat deputy leader, Julia Lopez, the shadow business secretary, and Kate Dearden, Labour’s business minister. Dearden was sympathetic to the industry’s struggles, but offered little by way of immediate reassurance. She acknowledged the “significant pressures” facing employers before telling the room: “I’m not allowed to [discuss] Budget stuff, by the way.” By the time the speeches were over, a sizeable number of attendees had already decided they had heard enough and headed for the exits. The sense of fatigue was perhaps unsurprising. Hospitality has been among the worst-hit industries since Labour came to power. UKHospitality has spent much of the past year campaigning for a cut in VAT, fronted by celebrity chef Tom Kerridge. But even Allen Simpson, the trade body’s chief executive, appears to recognise that immediate VAT relief looks unlikely. His more pressing concern now is business rates, particularly for hotels, which face increases averaging 110pc over three years. Simpson claimed ministers had previously promised to address the problem in this Budget after introducing relief for pubs. But he is worried. “If the answer is nothing, we are going to see thousands of job losses across the country,” he warned at the Commons event. Simpson believes Burnham and Healey understand the damage inflicted on hospitality by the past two years of tax increases. The industry has recently pledged to create 100,000 employment opportunities for young people, an agreement brokered by Downing Street. Simpson described this as a “down-payment on trust”, and said hospitality businesses were relying on ministers to make changes that would allow them to grow and recruit. It was an implicit bargain: the industry would help Labour tackle youth unemployment, but expected meaningful tax relief in return. Bashing the bankers While the hospitality industry is hoping that the darkest days of this Government are behind them, anxiety is acute in the City. Britain’s banks are bracing for another tax raid in next week’s Budget, amid growing expectations that Healey will increase the surcharge on the industry’s profits. The prospect is particularly galling given the Chancellor’s recent praise for the sector. Speaking at the International Monetary Fund’s annual meeting, Healey described banks as part of the “jewel in the crown” of the British economy. Yet he is considering raising the surcharge on banking profits from 3pc to as much as 8pc, potentially raising another £2bn a year. Banks already pay corporation tax of 25pc, giving them a headline rate of 28pc with the current surcharge. Raising it to 8pc would take the headline rate to 33pc. It would be a hammer blow to the City, considering that other countries like Germany are cutting taxes for business. One City veteran warns that the consequences could extend well beyond the banks themselves. “Hitting the banks with further taxes will just make the UK even less competitive versus our major international competitors, punish a major British asset for being successful and make it harder for lending and finance to flow to where it’s needed,” they say. “The biggest beneficiaries will be those who are trying to entice business away from Britain.” This is particularly true for international banks, which can choose where to locate staff, capital and business. London remains one of the world’s leading financial centres, but it is competing with New York, Singapore, Frankfurt and Paris. Jamie Dimon, the chief executive of JP Morgan, has been vocal in his warning that higher bank taxes would hit jobs and growth across the UK. Another senior executive at an overseas bank says a further tax rise would not necessarily trigger an immediate change in investment plans. The consequences would be more gradual. “What happens is over time, business slowly moves out of London. So you look back in 10 years and you go, well, what happened there? “Why isn’t that being booked in London? Well, these were the decisions that were made back in 2027.” Banks do not need to announce a dramatic departure from London for the country to lose out. Decisions about where to hire, expand and book new business can gradually shift. One thing may save the City: the rest of Europe looks like a basket-case. “ Paris is burning . Switzerland is trying to get UBS to hold more capital and they are threatening to leave,” one senior banker says, “The UK is not that bad. The reality is if you want a European entity, where do you put it?” ‘The taxman is coming’ Tim Sarson, of KPMG, says the best thing Healey can do in the Budget is put an end-date on tax rises. “Nobody expects goodies,” the consultancy’s head of tax says. “The fiscal situation’s too tight and we’re a long way off the next election. Most expect some tax rises, they just hope they won’t be the ones in the Government’s sights.” Resigned to another raid, the biggest question now is whether Labour might be back for more. Businesses can adapt to higher taxes if they know what the rules are. What they find harder to manage is the prospect of being repeatedly targeted whenever the Treasury needs to raise more money. The stakes extend far beyond the City. Where and how you tax business sends a signal. Haldane, now president of the British Chambers of Commerce, has warned that repeated tax raids and a growing perception that the “taxman is coming for your profits” is turning Britain into a place that “repels” business. He warned last week: “A world in which the taxman takes the upside and investors take the downside is not an environment where investors will want to invest more money.” The same problem applies to attracting entrepreneurs and wealthy investors from overseas. Changes to the tax treatment of non-doms by both the Tories and Labour have raised questions about whether the country remains as welcoming as it once was. Rumours of a potential