The Budget has promoted a business backlash – but is it performative or real?

It’s been just over four months since Keir Starmer’s government won the UK general election – barely enough time for a daffodil to bloom. But has Labour’s hard fought support from the business community already withered away?

The Financial Times recently quoted business leaders complaining “they don’t understand business”, topped off with an anonymous executive complaining that the Government was “shit”. This came hot on the heels of a long read in The Times on ‘How Labour lost its relationship with British business’.

At the Confederation of British Industry’s November conference, the boss of McVitie’s, the biscuit maker, remarked darkly that it was “becoming harder to understand” the case for investing in the UK, while the CBI’s chair, Rupert Soames accused the Chancellor of milking businesses like a cash cow.

A trifecta of policies has stirred discontent: an enhancement of workers’ rights, a rise in employers’ national insurance contributions and changes to inheritance tax.

Of these, the first, which provides employees with sick pay from day one and bans both ‘hire and refire’ and zero-hours contracts, was a manifesto commitment and can’t truly have come as a shock. It is certainly an extra burden for companies. But as recently as September’s Labour Party Conference, the CBI’s Director General, Rain Newton-Smith, was cheerfully standing alongside the Deputy Prime Minister, Angela Rayner, in a joint pledge to work in partnership on the legislation.

More problematic is a rise in National Insurance set out in the Budget. For an employee on an average UK salary of £37,500, the increase is an additional cost of £1,100 – a sum which multiplies quickly for employment intensive industries such as hospitality, retail or transport.

Coupled with this is a change to inheritance tax which, while positioned as hitting family farming businesses, will actually hit family businesses across the board with an asset value of more than £1 million.

There is genuine anger from certain hard hit economic players – 81 retail chains, for example, wrote to the Chancellor totting up the NI increase, a higher minimum wage and package levy as a collective cost to the sector of £7 billion.

Business leaders, though, are hardly ingenues and very few are politically naïve. Most were attuned to the situation – Labour’s weak fiscal inheritance, bold plans for public services and pledge not to raise personal tax. It isn’t a bolt from the blue that the Chancellor would seek to raise funds from the corporate sector.

Some of the shock and outrage is strategic – rather than being actually shocked or outraged, entrepreneurs and industrialists are firing warning shots to the Chancellor that she had better not go further. Rachel Reeves has taken note, assuring them “I’m not coming back with more borrowing or more taxes”.

Labour’s dialogue with business remains very much alive. Corporates still queue up to engage with ministers – and there are multiple topics of mutual interest, including Britain’s new Industrial Strategy, the creation of a handful of pension ‘megafunds’, reforms of apprenticeship funding and a pledge for lighter financial regulation.

And to be fair to the Government, it has shown that it is willing to listen, and adapt – note, for example, a watering down of reform to tax on carried interest, following intensive lobbying by private equity. Or consideration of an increase in fuel duty, which was hastily abandoned. The well organised booze and betting sectors also got away relatively lightly.

Of broader concern than anger about individual tax raids is that a post-election uptick in economic confidence has fizzled out. Several measures – including a Lloyds Bank Business Barometer, the Institute of Directors’ confidence index and S&P’s monthly purchasing mangers’ index – suggest that while optimism picked up directly after the change of Government, it quickly slipped back over the course of the summer. Economic growth for the three months to September came in at just 0.1%.

Messaging from the Government about its bleak inheritance from the Conservatives – not least, claims of a £22 billion black hole in public finances – has backfired. A deliberate strategy of ‘bad news first’ has unbalanced an already unsteady ship.

A Government with a large majority has put an end to political instability – but it hasn’t yet summoned a sense of optimism about the UK as an investment destination.

It’s far too early to claim that Labour has ‘lost’ the business community. But ministers know they face a tough job in regaining trust from a jaded crowd. For that reason, the door to engagement with business remains wide open.