Peter Kavanagh looks at what Labour means for business in the cold light of day. Peter Kavanagh is managing partner at Theodore Goddard. As the news broke of the overwhelming Labour victory on Friday morning the reaction of the City was in stark contrast to the welcome it would have given Old Labour: the FTSE rose sharply and there were only a few quietly muttered warnings of “what are we letting ourselves in for?” variety.
However, the business welcome for Labour is not being given without question – by Friday lunchtime more than 100 business people were assembled at our offices asking for more information. What they all wanted to know was what the Labour victory actually meant for business.
Inevitably, one of the first issues to be addressed is tax – both personal and corporate. In our view the Labour victory means that business is likely to see its tax burden increase. The new Chancellor's first Budget, covering high priority matters, is likely to take place in mid-June. This means the next six weeks should be seen as a window of opportunity for business to consider the likely changes and take immediate action to minimise the impact. It is also worth noting that, although the effective rate of corporation tax may well increase, capital allowances for investment expenditure by manufacturing industry may become more generous which means businesses may be well advised, where possible, to delay committing to imminent capital expenditure projects until an announcement is made in June or July.
In the build-up to the General Election, Labour made a clear commitment not to increase the rate of personal taxation. However, although the actual rates of income tax are not likely to be changed in the immediate future, other ways of increasing tax revenue will almost certainly be found. Possible steps, which will increase the tax burden on higher earners, include altering the cap on employees' National Insurance contributions and restricting higher-rate tax relief on pensions. Whether such steps would be retrospective is uncertain but City firms and other businesses which pay big bonuses would be well advised to pay these before the expected Budget in June.
Environmental issues were talked of relatively little during the election campaign. However, a number of policy documents over recent years have made clear Labour's commitment to put environmental concerns at the heart of its policies.
Lenders and regulators are generally likely to look far more closely at the environmental performance of business, and annual reports should contain a statement about environmental strategy, targets and how these are to be achieved.
Under the new Labour government, the water industry will face tough regulation and will be compelled to take steps to ensure that leaks are reduced to a minimum, without passing this cost on to domestic users. Industrial users can expect to pay more for water. If businesses are planning to lend to, or invest in, the water companies they should check that ample budgets exist for repairs.
Although the windfall tax and enforcement of stricter environmental legislation will have an impact on the recently privatised utilities, Labour has made it clear that there are no plans to reverse any of the privatisations of the past 18 years. However, the planned privatisation of London Underground will not take place and is likely to be replaced by a Private Finance Initiative-type approach.
Businesses involved in PFI should not be concerned about the change of government because Labour plans to retain PFI, albeit with a different name, the Public Private Initiative. But one area where there may be change is on health, where Labour may swiftly push through about a dozen schemes of various sorts. This is excellent news for any businesses involved in these schemes.
Historically, business and Labour have clashed over industrial relations. This is not likely to be quite the same with the new Labour government. It does not plan to change the Tory union legislation on immunities, ballots and secondary action with two possible exceptions – the right of employees to vote for union recognition and the right of dismissed strikers to take an unfair dismissal claim to an industrial tribunal. Labour plans to consult widely on both these issues.
The Social Chapter has been highlighted as an area of contention between Conservatives and Labour. Labour has made it clear it will sign. However, legislation passed under the Social Chapter is not an immediate serious threat to business. To date there have only been two directives under the Social Chapter and many major UK businesses are complying with these already.
There is much that business can do here to monitor new legislation in Brussels and Westminster and start lobbying early where necessary.
The Labour government will now be negotiating on behalf of the British nation at the Inter-Governmental Conference in Amsterdam next month. This gives business the perfect opportunity to see how Labour will actually act on European issues. Its policies indicate a more pro-European stance and this should be welcomed by business. In particular, Labour support for tighter enforcement of the single market brings UK business more competition but also a larger marketplace.
The Government promises the biggest reform of competition policy in more than 20 years if it comes to power. Labour's reforms would start with the Conservatives' latest proposals, put forward in the Green Paper, Tackling Cartels and the Abuse of Market Powers. These include giving new investigative powers to the OFT, outlawing cartels and introducing fines for companies that break anti-cartel rules. Labour, however, would also ban unfair behaviour, such as predatory pricing by companies that dominate their markets.
It would be naive to assume that under the pressures of office all the promises made from the safety of the Opposition benches could be relied on. Those areas where business had real concerns when the last Labour administration was elected do not hold the same terrors now.
If that is not to change business must play a full part in the consultation processes which are likely to be coming our way in the next few years.