What the UK Labour government’s agenda means for business

The UK General Election was held on 4 July. It resulted in a historic outcome: The Labour Party overturned an 80-seat Conservative majority to win a landslide 174-seat majority of its own.

Labour is now running a majority government. Since the election, there has been a king’s speech on 17 July setting out the first year of the Labour government’s legislative agenda.

AICPA & CIMA’s Global Advocacy team’s on-demand General Election Briefing webinar has additional information on the UK General Election, but here we’ll highlight what it means for our members, the profession, and the wider business community.

Policy agenda

In the Labour Party Manifesto, Prime Minister Sir Keir Starmer set out five key missions for a Labour government to focus on and deliver:

• Kick-start economic growth;
• Make Britain a clean energy superpower;
• Take back our streets;
• Break down barriers to opportunity; and
• Build an NHS fit for the future.

Many of these missions cut across government departments and the role of Pat McFadden as Chancellor of the Duchy of Lancaster will be to drive these through government and ensure they are delivered. Each mission contains many policies designed to deliver a series of outcomes. The one that relates most to business and the majority of CIMA members in the UK is the first one — kick-start economic growth. It focuses on policies that relate to the economy, businesses, and skills.

Here are some of the main policies and approaches relating to the economy and business environment.

The economy

Delivering economic growth, if sustained, will allow the financial headroom to contribute to Labour’s other missions and agenda.

Chancellor of the Exchequer Rachel Reeves set out her approach to achieving economic growth in the Mais lecture earlier this year in London. In the lecture, she put forward an economic model she termed “Securonomics”.

Securonomics focuses strongly on economic security, stimulating investment through a partnership with the private sector — and reform where needed — to unlock opportunities within the economy.

This model is about building a resilient economy by creating a balance between openness to global trade and resilience at home to help protect working people. There would be, for example, red lines on openness to international trade and also areas where the UK should have some self-reliance. However, this approach isn’t just about building domestic capacity but also stronger and more diverse supply chains.

The king’s speech, as part of the focus on resilience and secure supply chains, announced the Cyber Security and Resilience Bill, which would require providers of essential infrastructure to protect their supply chains from cyberattacks, particularly from hostile state actors.

Another big focus of Securonomics is government partnership with business to identify barriers and opportunities to grow and being strategic about growth areas where the UK enjoys a comparative advantage in the global economy.

Economic growth

The new Labour government will seek to introduce several policies to help deliver economic growth. They are:

• Updating institutional roles. Labour wants to hardwire growth into institutions that have an impact on the economy. To achieve this, institutions like the Enterprise and Growth Unit within HM Treasury and the Office for Budget Responsibility (OBR) will take on more important roles. Labour’s Budget Responsibility Bill will introduce a new legal fiscal lock whereby any government making significant tax and spending changes will be subject to a forecast by the OBR. The OBR will also report on the long-term impact of capital spending. A number of new institutions will be created as well to work with the private sector to help deliver economic growth.
• New fiscal rules. Labour will bring in a new fiscal rule that mandates that the current budget must move into balance, so that day-to-day spending costs are met by revenues and that debt is falling as a share of the economy by the fifth year of the economic forecast for the period. Reeves also intends to bring in a policy stating that fiscal rules could only be scrapped if the OBR declares a crisis.

• Provide policy and economic stability. Some policies that will help provide economic stability have already been announced — such as a single autumn Budget each year and no raises of headline taxes such as income tax, national insurance, and VAT (included in the Labour manifesto). Corporation tax will be capped at 25%. The Labour Party has also committed to a business tax road map within the first six months of its government, which will outline business tax intentions for the course of the Parliament. This focus on tax certainty is something AICPA & CIMA have called for and welcome.

• Investment. The king’s speech contained the National Wealth Fund Bill, which will put the institutional architecture of the National Wealth Fund on a statutory footing, following the announcement that the UK Infrastructure Bank and British Business Bank would be brought together. The king’s speech also announced the Great British Energy Bill, which will establish Great British Energy, a publicly owned energy producer. Public investment in Labour’s Green Prosperity Plan will be driven by Great British Energy and the new National Wealth Fund. Through that fund, Labour will aim to collect £3 of private investment for every £1 of public investment. The newly created British Infrastructure Council will also help develop partnerships for investment. There will also be a review of the UK’s pension system and longer-term funding for research and development (R&D) to encourage investment. AICPA & CIMA welcome the focus on longer-term funding for R&D and have highlighted the importance of R&D to business and economic growth.

• Planning reform. There have already been announcements on planning by the new government. Labour will reintroduce mandatory housebuilding targets and ensure that the National Policy Statement for infrastructure is updated within the next 12 months. To help achieve planning reform to boost growth, the king’s speech announced the Planning and Infrastructure Bill.

Industrial Strategy Council

Labour’s plans to reintroduce an industrial strategy and create an Industrial Strategy Council will surely impact business. The proposed industrial strategy will have four central missions:

• Delivering clean power by 2030. This will be focused on greening the UK energy supply and helping to deliver net zero.
• Harnessing data for the public good. This is about actively shaping new technologies for the public good, ensuring new technology and data capabilities are used in the public and private sectors. It is also about using regulations to keep a few companies from controlling a disproportionate amount of data. Creating more competitive markets where smaller firms can operate will drive new services and help consumers. This mission is also about opening up public data sets, where possible, to industry.
• Caring for the future. Labour plans to ensure high-quality care for all, especially the ageing population. Labour states that improvements in care services will help get people back to work by assuring them that family members have the necessary support. It also helps women return to the workforce, as they are more likely to be informal caregivers.
• Building a more resilient economy. This is about strengthening supply chain resilience and goes back to the Securonomics approach described earlier. One key policy under this mission will be setting up a Supply Chain Taskforce across sectors critical to the UK economy.

The Industrial Strategy Council will be created on a statutory footing to advise and help implement this strategy. Labour has said that figures from industry, trade unions, and academia will be on the council.

Labour’s plans for an industrial strategy will not just focus on the missions but also on four “pillars” of the economy:

• Sovereign capabilities. Critical industries and infrastructure for the whole economy.
• Global champions. Highly productive, export-intensive companies that will create well-paid jobs.
• Future successes. Future opportunities and new clusters of export-intensive businesses that support well-paid jobs, alongside global champions.
• Everyday economy. Sectors and companies people interact with most in their daily lives: public services, retail, leisure, etc.

The outline of Labour’s industrial strategy shows not only the sectors the Labour government will focus on but also how the industrial strategy is integral to its economic growth agenda.

Business environment and SMEs

The Labour Party Manifesto contained a number of policies concerning businesses and the environment in which they operate.

Below are key ones CIMA members should be aware of:

The full capital expensing regime will be kept. AICPA & CIMA welcome this and have highlighted the importance of this policy for UK businesses. We will continue to push for changes such as allowing second-hand equipment to be expensed to support more businesses.

New workers’ rights. A number of new workers’ rights, as part of the Employment Rights Bill to implement Labour’s “New Deal for Working People”, will be introduced by the new government:

• Ban “exploitative zero-hours contracts” (but not zero-hours contracts altogether). ​
• End the practice of “fire and rehire”, apart from in “exceptional circumstances”.​
• Workers to have more rights from “day one” (eg, unfair dismissal protection, parental leave, sick pay), whilst protecting probationary periods for employers. ​
• Make flexible working “default from day one” for all workers, except where “not reasonably feasible”, and introduce a “right to switch off” so that “homes don’t become 24/7 offices”.
• The minimum wage should be a “real living wage” by updating the Low Pay Commission’s remit to take account of the cost of living for the first time. This is in addition to the minimum wage taking account of the median wage and economic conditions.  

For small and medium-size entities (SMEs), the Labour Party manifesto contained a number of specific policies that would:

• Require large businesses to better report on their payment practices to expose late payers, especially of small business invoices.                 
• Require at least one SME to be shortlisted when smaller public contracts go to tender.
• Guarantee small businesses’ access to bank services in their area (eg, depositing cash) by rolling out banking hubs.
• Take action on late payments to ensure small businesses and the self-employed are paid on time.
• Improve guidance and remove barriers to exporting for small businesses.
• Reform the British Business Bank, including a stronger mandate to support growth in the regions and nations, making it easier for SMEs to access capital.
• Reform procurement rules to improve access to government contracts for SMEs.

Skills

Improving skills provision is a big part of the new government’s agenda and economic growth mission. Jacqui Smith, minister in the Department for Education, has been brought in to deliver on skills. The two big skills policies we know from Labour’s Manifesto are:

• Creating a new body, Skills England. This will bring together businesses, training providers, trade unions, and national and local government to ensure a highly trained workforce and is part of the delivery on Labour’s industrial strategy. This new body will work formally with the Migration Advisory Committee to ensure training in England accounts for the overall needs of the labour market. The aim of this body is to coordinate with local areas of England and the devolved skills policy to help upskill the workforce.

• Changing the Apprenticeship Levy to a Growth and Skills Levy. This will allow 50% of levy funds to be spent on skills training other than apprenticeships. Changing the Apprenticeship Levy to an Apprenticeship and Skills Levy is something that AICPA & CIMA have called for over a number of years, and we will now work to ensure that it delivers help and supports members and their businesses to upskill and reskill.

Draft Audit Reform and Corporate Governance Bill

This is a draft bill, so we will wait to see if it becomes law in this first session of the new Parliament. The bill will replace the Financial Reporting Council with the Audit, Reporting, and Governance Authority (ARGA). ARGA will be given powers and tasked with addressing bad financial reporting to build trust.

The bill also plans to give a wider remit to the regulator, remove rules that don’t fit for smaller Public Interest Entities, create new powers to investigate company directors for reporting and audit failure, and develop a new regime to oversee the audit market with objectivity and resilience.

This is just a snapshot of the key announcements relating to the economy, industrial policy, business environment, and skills that we know about from the Labour Party Manifesto and key speeches from new ministers.

In the coming weeks and months, we can expect more announcements that reveal the shape and potential impact of the government’s agenda.

— Ross Archer is director–Public Policy at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.