In the run up to the election The Economist and The Financial Times, two institutions that were repeatedly critical of the Chancellor’s economic record, both backed Conservative-led governments. We can have our suspicions over the vested interests at play, but on the face of it their rationales were clear. The Financial Times said Ed Miliband had “rarely met a market he did not consider to be broken” and The Economist said he risked casting a “lasting pall over investment and enterprise”.
However, it would be both incorrect and defeatist to assume that the interventionist policy will always lead to overwhelming opposition from business. Regulation is not only essential to protect employees and consumers, but also for the efficient functioning of markets. Our relative lack of the bribery, fraud and malpractice that blight less well regulated economies is one of the UK’s biggest advantages.
As such, businesses will accept new regulations if they have confidence in authorities to properly identify market abuses and implement workable solutions. What cost Labour was not our interventionist policy platform, but the belief that we lacked the competence to pull it off.
There are two major reasons why:
1. Politically driven policy
As I have previously argued, the energy price freeze is the best example of a policy that put us on the wrong side of the business community. It demonstrated a complete lack of understanding of how the industry functioned, and may have led to higher energy bills in the run up to the election, as firms feared for future profits.
Things didn’t have to be this way, it’s perfectly possible to curtail the excessive profits of energy companies without terrifying other industries. Tony Blair won the 1997 promising a windfall tax on privatised utilities, and as recently as 2013 even Sir John Major backed a repeat, saying:
“The private sector is something the Conservative party support but when the private sector goes wrong or behaves badly I think it is entirely right to make changes and put it right. At the moment I do not see how it can be in any way acceptable that with energy prices rising broadly 4% in terms of costs that the price to the consumer should rise by the 9-10% that we are hearing.”
Labour’s blundering approach to energy regulation was not based on what would make the most effective market, but what would best fit with our narrative on the ‘cost of living crisis’. Energy prices affect nearly everyone and here was a way to highlight a significantly increased expense that, in contrast to the government, we would alleviate. Normally I am all in favour of political messaging being central to policy making, but not when the result is policies that can’t stand up to scrutiny. While it may have marginally increased Labour’s lead on ‘looking after people like me’ and similar, the 18 month slating we received from businesses damaged us on the far more important metric of economic competence.
The mansion tax is another case in point. Property could have been taxed in a much more progressive and effective manner by introducing further bands of council tax and revaluing properties. But Labour didn’t propose this because the money would have gone to local councils, not central government, and Ed Balls was determined to fund every one of our spending commitments. Again, I will not dispute the sense behind this ambition, but they should have found a way to reconcile it with sensible policy.
While the mansion tax was not strictly a business policy, it’s clearly very relevant to those higher earners who often represent the business community. Labour’s crude position again gave the impression that we hadn’t done the intellectual legwork required to be ready for government.
2. Anti-business rhetoric
Much has been made of how Ed Miliband’s “predators and producers” speech demonstrated his undue suspicion of business. However, few who followed the PPI miss-selling scandal, the proliferation of pension ‘liberation’ schemes, or the blacklisting of union activists, could doubt that there are predators out there. The first half of Sir John’s quote above recognises exactly that.
The problem was that none of the Shadow Cabinet, Ed included, were able to give a clear articulation of who the predators were. On several occasions I found myself defending the Party to business people by saying ‘why do you assume he means that you are the predators?’ With some explanation of the policies that constituted our approach it could have been part of a campaign for a progressive form of economic growth, where all sections of society benefit from successful businesses. Instead it became an empty soundbite bar the vague indication we were coming after business.
I can only assume Ed’s team thought that, post-financial crisis, opposition from business simply wouldn’t matter. If so it was a spectacular miscalculation for a parliamentary term where economic credibility has dominated political debate.
Unfortunately many have not learned lessons from the last five years. It is a commonly stated view that to reclaim the economic narrative Labour should forcefully make the case that ‘it wasn’t too many nurses that caused the financial crisis, but greedy bankers’. As well as it being a bad idea to refight an argument that was lost years ago, blaming the bankers begs the question of ‘which bankers’? Is it the research analysts, the stock brokers, the capital markets teams, the risk managers, or just the executives? What about the accountants who approved their balance sheets; the rating agencies that passed them as creditworthy; or the consumers who borrowed more than they could repay?
Unless the Party can provide adequate answers to these questions (and do so regularly, simply and persuasively), proclaiming ‘the bankers did it’ will perpetuate the perception that we don’t know what we’re talking about. Few things scare businesses more than reactionary fervour without the understanding to direct it properly.
To be clear, I do think there was (and to an extent there remains) a problematic culture within banks, risk management procedures at an entity level were clearly insufficient, and that key individuals made what proved to be disastrous decisions. But the actual proportion of bankers who were meaningfully responsible for the financial crisis is tiny, and none of even this basic level of nuance is captured in proclaiming ‘the bankers did it’. Blaming all bankers for the financial crisis sounds as stupid to the City as blaming all doctors for Mid-Staffs. When Tory politicians engage in this kind of rhetoric toward the public sector we are always happy to tout it as proof of their regressive intentions. We can hardly be surprised if businesses react the same way to us.
The NHS is the Conservatives’ Achilles heel. Unless they meet all funding demands and make no structural changes they will be accused of destroying or privatising the public’s most supported institution. This is the reason they pledged the extra £8bn needed by the end of this parliament, and why before the 2010 election they promised no top down reorganisation. The leadership understands it has to be seen as whiter than white, not so they can ‘win’ the issue, but to limit their loses.
Business is Labour’s equivalent. This is partly due to cultural Conservatism and the financial circumstances of business ‘leaders’. But there is also the justified belief that when it comes to creating a positive environment for businesses, our hearts simply aren’t in it. As such, we only need provide a few excuses to fear us and confirmation bias will do the rest.
That said, I do not propose embracing anarcho-capitalism and abandoning all attempts at intervention. Employers aren’t locked in a perpetual zero-sum game with their workers, and winning their support does not require us to compromise our guiding moral values. Business well understands the need for regulation – we simply need to cut out the lazy anti-business rhetoric, and make sure our policies are considered and reasonable. Quite apart from the electoral incentives, it’s just the right thing to do.