Sunday, December 22, 2024

Labour’s new business backers should be careful what they wish for

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Similar shortsightedness has instructed the taxation of North Sea oil and gas, where what began as a windfall tax has become a permanent feature of the business landscape.

The effect is to generate more revenue from existing, fast maturing fields, but to progressively kill off investment in new acreage, further undermining future energy security.

Cuts in the annual tax free allowance on capital gains and dividend income meanwhile further reduce the incentives to invest in the productive economy.

Only the limitations of space constrain me from listing myriad other examples of penny-wise, pound-foolish policy masquerading as necessary fiscal consolidation. None of them do anything for growth, even if they enable the Government to just about scrape over the line in meeting its fiscal rules.

But don’t believe that Labour, newly rebranded after the madnesses of Corbynism as the “party of business”, is going to reverse these measures in pursuit of the business vote.

Far from it. Much more likely is that it will double down, and introduce a whole new slew of them in its hunt for revenue. Tax initiatives we already know about include the reintroduction of the lifetime limit on pensions saving and the imposition of VAT on school fees.

Harmonising rates of capital gains and income tax is only the most obvious of the temptations the Treasury will dangle before Rachel Reeves as she attempts to reconcile Labour’s spending priorities with the economy’s growing inability to fund them.

And so here we are, with the Prime Minister running around like some kind of unguided missile, firing off one policy initiative after another in the hope that at least one or two of them might hit the target.

None of them is helpful to the economy, yet all carry some sort of a cost. Each one in itself is not enough to break the bank, but add them all together and pretty soon we are talking serious money.

Both the national service and “triple lock plus” initiatives are, moreover, directly aimed at older cohorts, adding to the sense of policy that routinely favours the vote-heavy past and the old over the future and the young.

As for the business signatories to the Labour letter, they should be careful what they wish for. The promise to reform the planning system is more than outweighed by the commitment to further regulate the labour market.

Rather than backing one party over the others, business leaders should instead be asking themselves whether Britain is any longer a place where they would want to invest and create wealth.

If the answer to that question is no, then Labour’s offering of change through stability is not going to shift the dial.

Predictability is a necessary component of sustainable growth, but it is not in itself sufficient. I see very little in the Labour offering that delivers the building blocks the economy so desperately needs.

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