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Business leaders have warned that the UK government’s tax-raising plans and negativity about its economic inheritance risk undermining its efforts to boost private sector investment.
Sir Keir Starmer’s Labour government is desperate to attract foreign capital to upgrade the country’s infrastructure and kick-start economic growth, which has flatlined for a decade.
But executives are increasingly concerned that Starmer and Chancellor Rachel Reeves’s negative comments about the government’s finances risk deterring investment.
Rain Newton-Smith, chief executive of the CBI business lobby group, said: “Businesses . . . want to see the government put the public finances on a sustainable footing, but they also think that can be done in a more positive way.”
Newton-Smith acknowledged that the government had to balance realism about its budgetary constraints and building confidence in the UK economy. But she warned that executives “want to see politicians talking up the UK’s status as a place to live, work and do business, not get lost in the kind of signalling that could deter international investors”.
Since Labour’s general election victory on July 4, Reeves has claimed that the government has inherited “the worst set of circumstances since the second world war” and that the previous Conservative administration left a £22bn hole in the public finances. Starmer warned last month that the Budget would be “painful”, adding that “those with the broadest shoulders should bear the heavier burden”.
Starmer has insisted next month’s Budget will not contain any measures that stifle growth and ministers will seek to reassure hundreds of executives at a sold out “business day” at the Labour party’s annual conference next week.
The gathering in Liverpool will come as businesses brace for a tightening of tax rules for private equity bosses and “non-doms”. The Treasury could also seek to raise funds with potential measures such as increasing the rates of capital gains or inheritance tax, a windfall tax on the banking sector or a reduction in pension tax relief.
The new government is also preparing to make its pitch to high-profile international investors at a flagship summit on October 14.
Several senior business figures told the Financial Times that the timing of the international investment summit was a mistake given it will come just before a Budget in which they expect to be hit with higher taxes.
“Everyone there will be wanting to find out one thing only, which is how much their taxes are going to go up,” said one of the business people. “The timing seems like a terrible mistake.”
“I feel like the Budget and the investor event are the wrong way around, someone has messed up,” said another.
A third said it was not yet clear whether many top executives would fly in for the event. “There’s a risk the summit falls flat and the government loses momentum.”
The concerns are an early test for a government whose election in July was broadly welcomed by businesses. After years of political chaos, many executives were heartened by Starmer’s pledge to bring stability, boost investment and prioritise economic growth.
Labour has already taken steps to set up a £7bn national wealth fund to invest in decarbonisation of the economy and new £8bn state-owned clean energy company, GB Energy, while moving to tackle planning backlogs that hold up development.
The announcement by Amazon Web Services last week of an £8bn investment in the UK over five years was hailed by Reeves as “the start of the economic revival”.
Many businesses are also only beginning to reckon with the scale of the government’s planned overhaul of employment law. The reforms have been watered down since they were originally set out in 2021 but will include significant changes in areas such as trade union recognition, the use of zero-hours contracts and the introduction of “day one” rights for employees.
A poll by the Institute of Directors this month found that 57 per cent of businesses would be less likely to hire as a result of the reforms.
However, business ministers emphasise that they have held multiple meetings with business leaders to discuss the changes.
“The chancellor has vowed to lead the most pro-growth, pro-business Treasury in the country’s history,” said a government spokesperson. “That starts by taking tough action to restore economic stability and get a grip of the public finances.”
“Early action has already been taken to unlock investment, with a new national wealth fund, pensions review and overhaul of planning system,” the spokesperson said, adding that the investment summit would “bring together business leaders from around the world to advance opportunities for our national mission of growth”.