FTI Consulting UK Public Affairs Snapshot – Sunak vs. Starmer: Battle for the City

“We will ensure a pro-business environment, with a competition and regulatory framework, that supports innovation, investment, and high-quality jobs.” “We aim to make Britain one of the most attractive places in the world for businesses to invest.” “It is the private sector which will unlock the investment, growth and opportunities of the future.” Exam question: which party said which of these sentences in their manifestos?

The fact it’s so difficult to tell should, in many ways, be a relief for business. It is fundamentally a good thing that the mainstream parties are taking a resolutely pro-business stance, and fighting to proclaim their credentials as the natural party of business.

That is reflected in the headline pledge on tax. Notably, both the Conservative and Labour parties are united by a pledge not to raise the headline rate of corporation tax.  Since 2023, the main rate has been set at 25%, and the small business rate at 19%. It is a major revenue raiser for the Government – the fourth largest after income tax, National Insurance contributions (NICs) and VAT, and the lowest rate in the G7.

This is seen as a key Conservative achievement, along with making “full expensing” permanent, allowing companies to write off the cost of investment in one go. Here, too, Labour agrees with retaining a permanent full expensing system, while the Conservatives pledge to go further and extend it to leasing once fiscal conditions allow.

On business tax, a headline Conservative pledge is the abolition of the main rate of self-employed National Insurance entirely. Alongside this, Conservatives will retain existing small business tax incentives and explore options to “smooth the VAT cliff edge” at £90,000. Labour is less specific, but is pledging to publish a roadmap for business taxation for the next Parliament, and commit to a single fiscal event per year – something they hope will offer stability, although only once the election is safely out of the way.

Business rates look set to be an area of genuine policy difference. Labour’s headline policy is to replace the business rates system with what they say is a new “fairer” system. This is expected to raise the same revenue, and small businesses and high street shops may benefit, while warehouses or large chains may lose out. In a similar vein, the Liberal Democrats propose abolishing business rates altogether and replacing them with a Commercial Landowner Levy. More modestly, the Conservatives pledge to “ease the burden” of business rates for high street, leisure and hospitality businesses by increasing the multiplier on distribution warehouses that support online shopping over time.

This policy area has long been in the “too difficult” box, so how wholesale change is implemented will be a matter of significant interest. Meanwhile, businesses in London are likely to regret that reintroducing a VAT refund scheme for tourist shopping only features in Reform UK’s manifesto – though there is at least a Conservative pledge to review the night-time economy.

The tax treatment of carried interest has also become a dividing line between Conservative and Labour business policy. Back in March, an official Treasury costing (by civil servants but based on assumptions made by Conservative special advisers) of Labour’s plan to tax carried interest as income, suggested that such a change would lead to fund managers moving abroad, and cost the Government £900 million, instead of raising £565 million. Intriguingly, Shadow Chancellor Rachel Reeves has suggested that there will be some flex in these tax changes, with fund managers that risk their own capital continuing to enjoy favourable tax treatment.

On industry, Labour has set out its intention to publish an Industrial Strategy, accompanied by a statutory Industrial Strategy Council – clearly different to the Conservatives’ more market-guided approach. Labour is also going big on infrastructure, with a pledge to “back the builders, not the blockers”. Infrastructure gets 17 mentions in the manifesto, with Labour pledging to “forge ahead with new roads, railways, reservoirs, and other nationally significant infrastructure” and “make major projects faster and cheaper by slashing red tape”. Given, however, that several Labour MPs have opposed developments in their constituencies, and that the manifesto also argues in favour of greater local devolution, we should expect things not to be entirely straightforward in practice.

On trade, the Conservative and Labour parties are also united by a pledge to continue negotiating a trade deal with India. Negotiations started in January 2022, and the Conservative Government hoped these would be completed by October 2022, but this deadline has been missed. Cars, medicine and professional services are seen as the main beneficiaries, with official statistics suggesting that Indian demand for medicines will grow by 170% between 2019 and 2030. Despite 14 rounds of negotiation, and Rishi Sunak’s visit to India, no deal has been finalised.

The Conservatives also highlight a potential deal with the US in their manifesto. Under Biden, the US has been reluctant to sign trade deals, but in the case of a Trump victory in the autumn, a UK trade deal would be a ‘priority’ for Trump’s second term, according to Robert Greenway, former Deputy National Security Advisor to President Trump. This does not feature in Labour’s manifesto, although it does make clear that the US is an “indispensable ally”.

Labour’s focus here is on “improving the UK’s trade and investment relationship with the EU, by tearing down unnecessary barriers to trade”. Though the manifesto rules out a return to the single market, the customs union, or freedom of movement, it states that Labour will prioritise a veterinary agreement, a mutual recognition agreement for professional qualifications, and specific help for touring artists. More widely, Labour will also seek “targeted trade agreements aligned with our industrial strategy and economic strengths” and publish a trade strategy post-election, noting the Gulf and Africa as important future markets.

Employment law has been a key dividing line between the two main parties. Importantly, Labour has pledged to deliver a New Deal for Working People, including legislation in Parliament within 100 days of entering government. This is expected to include raises to the National Minimum Wage, repealing the Strikes (Minimum Service Levels) Act, and a ban on “exploitative” zero-hour contracts. Not all businesses have supported these proposals.

Since Roosevelt’s first 100 days in 1933, pledges to achieve a set of policies within 100 days have become a common way for a new Government to frame their priorities and address the biggest issues first. In 2010, the first Bill introduced by the Conservatives was the Academies Act 2010 – sending the message that education reform was a key priority for Cameron. It now looks like Labour will do the same for workers’ rights. How Labour balances the ambitions of activists and the needs of businesses will be well worth watching.

The argument that Britain requires change runs through the Labour manifesto like a stick of rock. How that change will come about is articulated in language designed to be thoroughly business-friendly. The challenge for business will be to ensure that the realities of government match the rhetoric of campaigning.