We’re all fed up of talking about Brexit – let’s face it. So we’re going to talk about Jeremy Corbyn instead. Research published by London First and Britain Thinks suggests that the prospect of a Corbyn government is almost as unsettling for business leaders as Brexit.
Of the 104 business leaders surveyed, 38% considered the prospect of a Labour government to be one of the three greatest challenges facing UK businesses in the next five years. This was second only to the 51% who named Brexit as their biggest fear.
Many prominent business leaders have been pretty frank about the prospect of Corbyn occupying Number 10. Lord Alan Sugar has promised to leave the UK if Corbyn becomes Prime Minister and Labour themselves have even been war gaming about the potential flight of capital and financial resources should they win a General Election.
It’s easy for Alan Sugar to take off and sit on a beach due to his personal wealth but what do those running the nation’s SMEs think?
Alex Fenton is the Founder and CEO of GapCap. He comments: “It is fair to say that a Jeremy Corbyn led government would make Brexit look like a cakewalk for UK businesses. His proposed Trotsky-esque policy changes would drag Britain back into the 1970s. Nationalisation of major markets, corporation tax hikes and increasing tax on the wealthy alone will drive investment and innovation out of the UK.
“Nearly half of all employment in the UK is from businesses with under 50 employees, and with Corbyn’s anti-entrepreneurial policies in place and a clamouring for international entrepreneurs, it would not surprise me to see Great British entrepreneurial innovation taken elsewhere.”
Michael Conway, of clothes2order, is less bombastic but equally concerned.
He comments: “Critical to the success of Labour’s economic policy is maintaining consumer confidence and a stable economy to ensure businesses continue to grow and invest. Without this, companies and investment will leave the UK.
“Labour has made some positives pledges such as unlocking £500bn of lending to encourage private sector investment. However, I do not believe that Labour has done enough to convince the business community that it will be able to maintain a favourable economic environment.
“Radical reform of business rates is concerning. Online is the evolution of retail which benefits customers through faster., more efficient and cost effective service compared to traditional retail. Increasing tax for online businesses in order to make traditional retailers more profitable will not benefit the economy.
“Scale up businesses which have the opportunity of becoming world-beating enterprises should be a focal point of business policy, and I am unaware of any Labour commitment to help those organisations.”
What is interesting from the Britain Thinks survey is that Corbyn would also potentially scare away much needed private-sector investment.
Jasmine Whitbread, Chief Executive of London First, explains: “Business has been focused on contingency planning for Brexit, but a future Labour government is being added to the agenda. Labour’s intention to invest in housing and infrastructure is seen as a good thing by many but there’s real concern that the party could scare away much needed private-sector investment. It’s clear that business and the Labour party need to build much stronger links, ensuring a clear understanding of the plan for the UK’s future economic growth.”
31% of those surveyed also expect a Labour government to take power by May 2022 and 76% confirm that their organisation is taking steps to prepare for the possibility.
But beyond the feeling that Corbyn might be bad for business, what policies may impact companies in the UK?
As you would expect, workers’ rights are core to Corbyn’s vision for the UK. As part of this the National Minimum Wage would increase to the National Living Wage for all – estimated to be at least £10 per hour by 2020. Unpaid internships and zero-hours contracts would also be banned.
Although these policies would increase costs and restrict activities for many businesses, 52% of business leaders surveyed by Britain Thinks favoured a Labour government on the issue of workers’ rights, compared to the 32% which favoured the Conservatives.
Corbyn’s manifesto paints him as the champion of small businesses and start-ups. The proposed National Investment Bank would ‘fill existing gaps in lending by private banks, particularly to small businesses, and provide patient, long-term finance to R&D-intensive investments.’ Mandated quarterly reporting would be scrapped for companies with annual turnover of less than £85,000.
Corbyn has also pledged to funnel investment into neglected regions and infrastructure and target late payments in both private and public sectors.
However, the emphasis on entrepreneurship and creating an ‘innovation nation’ is perhaps at odds with his keystone pledge to re-nationalise the rail system, utilities, and Royal Mail. In these sectors, innovation is encouraged in the public sector rather than the private.
Further, a proposed Excessive Pay Levy on companies with staff earning very high pay may deter ambitious entrepreneurs from growing a business in the UK.
International Trade and Investment
Regarding international trade, Corbyn’s manifesto again champions small businesses in the global economy: “We will develop an export incentive scheme for SMEs based on international best practice, and we will ring-fence Tradeshow Access Programme grants to help SMEs reach new customers around the world.” It promises capital investment schemes and other international incentives, though is fuzzy on details. Meanwhile, finance professionals warn of capital flight.
But Will McIntosh-Whyte, who manages funds for Rathbones, isn’t so sure about Corbyn’s championing of business: “If Jeremy Corbyn’s Labour took power, it would probably look a lot like a hard Brexit.
‘Domestic stocks would get hit hard and Sterling would fall. Mr Corbyn fundamentally disagrees with many economic and legal conventions that have been sacrosanct for a generation or more. The uncertainty he brings is highly likely to unsettle businesses and investors, leading to capital flight and a rise in gilt yields.”
Tax the rich
Whether business leaders consider Corbyn’s policies good or bad, his government would inevitably have far-reaching repercussions for UK businesses. Basic economics – and lessons from history – have also often shown that the higher the rates of tax you place on businesses and wealth creators, the less wealth and jobs they often create.