Cracking down on industry regulators, flying to Davos to attract the global elite and preparing for airport expansion: after a difficult start to the year, Rachel Reeves is working overtime to win back business confidence.
Financial market turmoil at the start of the year has been followed by a pro-growth charm offensive aimed at getting Labor back on its feet, before the chancellor moves on in a speech she is expected to deliver next week.
For a centre-left party, however, efforts to win back the trust of business leaders are unpalatable to some and have drawn warnings from union leaders, charities, consumer groups and environmental campaigners.
The chancellor’s suggestion to the super-rich gathered at the World Economic Forum that she could soften planned changes to the overseas tax regime, in particular, has set off alarm bells on Labour’s left wing.
“It is deeply concerning that the UK chancellor is making concessions to the super-rich at Davos, while the calls of those struggling to make ends meet at home are being ignored,” said Anna Marriott, head of inequality policy at Oxfam.
Some economists are questioning whether ordering watchdog bosses to “tear down regulatory barriers” without making significant changes to regulations would even deliver the economic growth the chancellor wants to prioritize.
“She’s fuming while Rome burns,” said David Blanchflower, a former Bank of England policymaker. “She looks like a deer in headlights, she lacks a coherent plan. She sounds like a Tory chancellor. Where is the alternative?”
While in Davos, Reeves and the business secretary, Jonathan Reynolds, highlighted a series of decisions aimed at showing Britain is “open for business”, including the ouster of Competition and Markets Authority chairman Marcus Bokkerink.
Privately, ministers are candid about the fact that they acted in part as a result of repeated complaints from businesses about the CMA’s approach, particularly in the technology and finance sectors.
Consumer groups are concerned. Rocio Concha, director of policy and advocacy at Which?, said the increase was important but “ministers must ensure that regulators take up their responsibilities to protect consumers [just] how seriously”.
Support for regulation may not do much to reassure bond market investors. Neil Mehta, a fund manager at BlueBay Asset Management, said: “It’s desperate. The market is not listening and things like this take a long time to have an effect.”
A competitive economy is not the same as allowing big business to run unchecked, Diane Coyle, a professor of economics at Cambridge University, wrote in Bluesky. “Enforcing competition so that markets work in the interests of customers means there is less need for regulation of other kinds.”
Analysts believe the tough messages to Britain’s regulators are mainly aimed at allaying business concerns after the chancellor’s £40bn budget for tax hikes, given that options to lift the measures are limited by the tight financial position. public.
In a sign of what is at stake, Sainsbury’s had a warning for the chancellor after it announced 3,000 job cuts on Thursday due to rising costs.
However, some economists believe the return to regulation could help spur economic growth after years of tightening and deregulation since the 2008 financial crisis.
Kallum Pickering, chief economist at Peel Hunt, said: “The proliferation of regulators sends a signal that they are serious and for now this is a step in the right direction. The government seems to have taken it and it seems to have been well received.
“Any positive pro-growth signal should lift animal spirits, and after the government’s gloom last year, this is a good thing – and it’s coinciding with the approval of various projects.”
In a bid to woo City bosses, the chancellor has ordered regulators to “encourage more risk-taking” and reduce regulation after the financial crisis which she claimed – in a speech to bankers in November – had “gone too far”.
Amid pressure to prove it is not hampering Labour’s growth agenda, the Financial Conduct Authority (FCA) has suggested easing mortgage affordability rules, but warned it could come at a cost to consumers.
“We have been very, very clear that this could result in a high level of default,” FCA chief executive Nikhil Rathi told the House of Lords financial services regulation committee on Wednesday. “You can’t relax the rules and you don’t have prepayments. It’s simple [a question of] what is politically acceptable.”
Meanwhile, the chancellor has refused to bow to finance industry lobby groups, despite urging the supreme court to avoid handing out a “windfall” to borrowers damaged in the motor finance commission scandal. Lenders have been trying to avoid paying what some analysts believe could be a £44bn compensation bill for customers.
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Across the Square Mile, the chancellor’s speech next week is expected to give her support for a third runway at Heathrow, as well as making planning applications easier for housebuilders and businesses investing in Britain.
The last time airport capacity in south-east England was examined almost a decade ago, by the Airports Commission led by economist Howard Davies, Heathrow expansion was said to be “crucial for the country’s prosperity in an increasingly global economy integrated”.
However, it is not easy in a party where Ed Miliband, the net zero secretary, threatened to resign from Gordon Brown’s cabinet in 2009, when Heathrow expansion was last on the table for Labour. Miliband is not threatening to quit this time and insists economic growth can be achieved by keeping within budgets on carbon and the energy transition. However, environmental groups are concerned.
“Expanding our airports will not produce the economic growth that Rachel Reeves so desperately wants,” said Alex Chapman, a senior economist at the New Economics Foundation. “[It is] also completely incompatible with the government’s aim to be a climate leader.”
Despite efforts to boost economic growth, Labor still has red lines it is unwilling to cross.
Ministers have been asked to offer concessions to business groups on Labor’s workers’ rights reforms, in a development that could fuel tensions between Reeves and Angela Rayner, the deputy prime minister. But while some changes may be on offer, union leaders remain convinced big changes are yet to be made.
Tim Sharp, senior policy officer for employment rights at the TUC, said: “Reeves has said things about how economic prosperity and social justice go hand in hand. It’s an old-fashioned idea that there’s some kind of trade-off between workers’ rights and economic growth. It is not supported by the evidence.”
Labor is still carrying Brexit red lines, despite being told by some experts that rejoining the EU’s single market and customs union could be the most pro-business and pro-growth decision it could make.
However, Keir Starmer’s government is seeking to forge closer economic ties with Brussels, while also cozying up to Donald Trump. However, experts say it would be difficult, if not politically impossible, to strike a deal with the White House because Trump would make demands that could be unpopular with British consumers and force the UK to leave. further from the EU.
“Brexit is wasting them, they are practicing austerity again and so the economy is not showing growth,” said Blanchflower. “The bottom line is that you should rejoin the EU. But Reeves is trying to find everything she can because she doesn’t have a coherent plan.”