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State and Strategy: How the UK’s Political Shifts Will Reshape Business

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State and Strategy: How the UK’s Political Shifts Will Reshape Business

Written by Verity Barton

This year, around four billion people across the globe are expected to head to the polls for national elections, including nearly 50 million British voters. In 2024, they will be discharging their democratic responsibilities in increasingly polarised times and across a world that feels fractured. With many voters in a constant state of malaise about the future, our leaders’ stance on the role and size of Government – and what that means for business – has never been more important.

Like most Western countries, the UK and its political classes have debated the role of the state for centuries, from Hobbes’ Leviathan thought through to Thatcherism and the economic liberalisation of the 80s. Unsurprisingly, political reality can get in the way of puritan ideology and already, we’re starting to see that influence Rachel Reeves’ approach to big-spending policy plans. With polls showing Keir Starmer on track to be Prime Minister after the next election, people are wondering what Starmerism looks like in a post-Covid world, what it means for the role and size of the state and what its impact on business could be.

So, what do the centre left and centre right believe – and why?

At their philosophical core, many on the centre right favour economic and social liberalisation – this was the driving force behind Thacher and Reagan – and railing against the nanny state believing this fosters a strong private sector and entrepreneurialism, leaving the state to be a safety net for those most in need. The centre left believes that the state has an obligation to regulate, guide and direct the economy and that, nearly 40 years on from Regan and Thatcher, that this decades’ long ‘state-in-retreat’ mantra has been an abrogation of that obligation, leading to inevitable consequences for services.

The case for small government

Ronald Reagan famously said that the nine scariest words in the English language are, ‘I’m from the Government and I’m here to help.’ While some dismiss that as a right-wing soundbite, but others believe that statement is as true today as it was in 1986. 

Generally, the centre right trends toward leaner, more efficient Government with a strong aversion to the ‘nanny state’. The logic being that smaller government, economic deregulation and social liberalisation lead to economic growth driven by a strong private sector.

At its core is an assumption that business can do things better than Government; sometimes that’s true (BP, British Airways), and sometimes it’s not (Thames Water).

The argument for an interventionist state

For the left, the state’s responsibilities don’t end with ensuring someone’s basic survival, but at empowering their family, community and them to live the best lives possible.

While a wealthy few have prospered under 40 years of Neo Liberal Individualism, freed from their obligations to community and country, the majority have suffered. Under the false belief that the unfettered market achieves better social and economic outcomes, successive UK Governments have abdicated their responsibilities to regulate, guide, and direct the economy. To achieve this constantly moving goal of a stronger, more equal, and prosperous society, society cannot then expect the state to fight with one hand tied behind its back because of an outdated ideological obsession with shrinking the state.

What is the state’s impact on society?

Most agree that the primary role of the state is to establish and maintain order and stability. Aristotle takes it a step further, writing the primary goal of the state is to “promote the general welfare of society”, suggesting that the state’s power to intervene and dictate individuals’ lives is counterbalanced by the need to safeguard individual freedoms to live as they choose, as long as it does no harm to others.

Governments of all political persuasions have battled and debated the nanny state and the size of the safety net for years. With families experiencing higher interest rates that are slow to come down, increased energy prices, greater than real-terms inflation on food and frustration over timely access to services, the approach of the Conservative and Labour parties matters more at this election than at last.

For One Nation Conservatives, it was ‘Big Society’ and David Cameron’s call for cultural change and empowering people to help themselves and their communities. But for those on the left, instead of society driving that cultural change, they see a role for Government, not as an overbearing parent or barrier to growth but as a partner and ally in forging a better future for their families.

While some would argue that the nanny state can encourage dependency in those it supports and infantilise society, others believe that argument collapses in the face of the UK Government’s most consistently popular interventions, for example, moves to ban plastic bags, tax sugary drinks and ban fast food advertising on public transport.

Covid is the greatest example of an interventionist state for generations. The Government told us who we could see, how long we could exercise for, whether we had to sit down at a table to have a drink with friends in the pub and propped up the most impacted businesses while paying the wages of more than 11 million privately employed people.

There was obviously a need for the Government to react and adopt a whole-of-government approach to ensure the most vulnerable in our society were protected and the economy had a buffer around it. Many on the left would argue this kind of top-down decision making, with no real check or balance, is the benefit of an agile, but statist approach – effectively, the ability to scale up as needed. However, many on the right would argue that Government went too far with adults who should’ve been empowered to make their own risk assessment. Looking back, can we genuinely say we got the balance 100% right given our children’s education and people’s health and well-being suffered because everything was done through the prism of Covid? For many on the right, this bar on freedom of association was a core breach of the liberal social contract.

What it means for business

One of the key responsibilities of Government is to inspire business confidence and remove barriers to market entry to drive growth and investment. In these turbulent economic times, we know that business craves certainty – whether that’s on regulation, tax or sustainability obligations – more than ever before. The challenge for Government, though, is to what extent it should intervene and for what purpose.

There is no doubt there is a challenging economic and fiscal outlook – both for Government and business. UK growth in 2023 was the second weakest in the G7 and average earnings growth has slowed to 5.8%, well below inflation. As economic performance has declined, UK tax revenue has decreased, creating a negative feedback loop of reduced investment in vital infrastructure to reignite growth.

Government has made things more challenging for business, under the premise of letting the market drive cultural change our putting consumers first, by pushing out Net Zero timelines or stepping back from market intervention. Major business transformation doesn’t happen overnight; industry needs lead times to plan and should be able to have confidence the Government will stick to its own plans.

But is the answer to the challenge above more intervention? Or is it deciding at the outset that the market should have greater freedom in the first place?

The rationale behind a less interventionist approach to the market, is that you step back and let business and private enterprise thrive. This should incentivise business to create wealth and opportunity in a way that the state simply can’t. Those on the left would argue Government has a responsibility for guiding industry and supporting the development of essential new technologies for national security or before they become profit making.

Balance isn’t just a question of whether to regulate or not, it’s also about getting the regulatory landscape right with vague regulation just as bad – if not worse – than overregulation. A key element of business confidence is certainty and generally, if it must follow rules, industry wants clear rules. A not unreasonable request. A classic example of well-intentioned, but poorly executed regulation is the golden thread of building safety, that is crucial information that must be kept and readily shareable. Logic suggests the information that must be kept would be clearly laid out; however, the regulations say the information to be kept must be proportionate meaning not everyone across industry will keep the same level of information, running counter to the whole point of the regulation in the first place.

Influencing stakeholders that matter

Anybody who engages in the political debate or looks at the polls knows Labour are expected to form the next Government. After a period of tumult in its relationship with business, Keir Starmer, Angela Rayner and Rachel Reeves have been at pains to rebuild trust and position themselves as the party of business. Parallel is a Tory Government battling economic headwinds while fighting internal pressure to cut tax, take more advantage of Brexit, address the migration challenge and just generally ‘be more Conservative.’

But what does that mean in practice?

With an election widely expected in the second half of this year, the Government is expected to have another Autumn Statement to deliver more for individuals, families and business. Ahead of this, Government and Treasury officials want to engage with industry to understand, not only the challenges and barriers to economic growth businesses face, but also the policy levers which need to be pulled to deliver solutions.

At the Labour Business Conference earlier this year, Rachel Reeves spoke about Labour’s contract with business. However, there’s still a lot of uncertainty about what this means for employers and what obligations the quid pro quo element of that partnership would place on business. Coupled with Rayner’s commitment to strengthen workers’ rights in the first 100 days of a Starmer Premiership, there are many unanswered questions on the burdens Labour might place on private enterprise and whether this will drive economic growth or make the UK a less competitive and less attractive market instead. As members of the Labour Business Network, we regularly engage with Shadow Ministers and advisors and know they want to understand from business how Labour can support and promote economic growth as part of a mission-led Government.

If you are interested in understanding how you can influence the political narrative or how Instinctif can support your business in preparing for a change of Government, please contact Tellmemore@instinctif.com.

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