It is not difficult to find areas of profound disagreement between the major parties on business policy – not least when it comes to Brexit and the public ownership of national infrastructure. But in the wake of their separate pitches to the CBI, a surprising degree of consensus has emerged.
The leaders of the Conservatives, Labour and Liberal Democrats were all keen to promote a “green revolution”.
Prime Minister Boris Johnson trailed a large increase in clean tech investment, and Labour’s Jeremy Corbyn had previously promised hundreds of thousands of climate apprenticeships. The Liberal Democrat leader Jo Swinson came armed with a sheaf of green promises, such as millions of trees to be planted and an ‘environmental duty of care’.
All three parties have committed to more infrastructure, and each base this upon fiscal rules that unite around the theme of borrowing to invest. Although there are differences on tax, none are willing to defend the current system of business rates. All have expressed some interest in taxing internet companies to fund the hard-pressed high street.
The range of views on corporation tax has also narrowed: both Labour and the Liberal Democrats are happy to raise it, and the Conservatives have made clear they are happy to reverse an expensive promised cut, at a cost of £6bn a year.
The word “investment” also unites the parties’ pitches. Business investment in the UK has roughly stagnated since the EU referendum, with current levels only around 10% above where they stood pre crisis. To put it simply, a successful business policy is one that sparks a proper investment boom.
The parties now seem in agreement that the answer must lie in use of the government’s own balance sheet – direct investment by the state. This unanimity is fairly remarkable, and represents a shift of the Conservatives towards the position of the other parties.
For 2010–17, the major policy of the Conservative-led government was one of radical corporate tax cuts – nine pennies in the pound in total, probably costing over £20bn in annual tax revenue. The Treasury had gamely attempted to show that the cuts would eventually raise investment by 2.5–4.5% a year, but there is now a hardening consensus around the poor return on further corporate tax cuts. The prime minister’s announcement that further cuts will be postponed was therefore not a great surprise, and the business reaction has been extremely relaxed despite its £6bn a year impact.
Regardless of political rhetoric, the prime minister appears to be, in this case, interested in what works both politically and economically. It is only a few months since the Conservative leadership contest where most of the candidates promised that tax cuts must pay for themselves – a test of ideological purity on the right.
The prime minister’s ability to drop this doctrine demonstrates again a pragmatic indifference to dogma when the political mood shifts. The attraction of the tax-cut-postponement also lies in the money it raises, and shows that despite a loosening of the fiscal approach the Conservatives are still constrained by the need to make sums add up.
It is important to emphasise the political nature of the shift. Corporate tax cuts do not have retail appeal, and so were vulnerable. Others, like the employment allowance introduced by George Osborne in 2014, certainly have appeal; at great expense, it grants hundreds of thousands of small businesses up to £3,000 off their national insurance bill. Introduced at a time when tackling unemployment was a greater imperative, there is little evidence that this is a measure with any discernible effect on hiring – what evaluations exist appear to be aimed at whether businesses are aware of this bounty.
Philip Hammond reduced the scope of the employment allowance, but the prime minister wants to make it more generous, and raise the allowance to £4,000 at a likely cost of some £700m a year. The problem right now is productivity, not the incentives to hire, and scarce money should be aimed at encouraging better management or innovation. So, a smarter approach would be to evaluate whether a more targeted use of money might have better results.
The CBI conference was also remarkable for a sense of harmony around the case for more infrastructure. Jeremy Corbyn, for example, promised the CBI “more infrastructure being built than it has ever dreamt of.”
However, it is not clear that any of the parties have the recipe for it being delivered. The past decade has seen a bewildering and no doubt dispiriting series of infrastructural institutions created, amended and destroyed. At the same time, decisions made by arms-length regulators such as Ofwat and Ofgem are important in determining the returns to be made from investments in critical infrastructure – but their relationship with overall government investment policy is not particularly clear.
The unsteady progress of Brexit, and continuing uncertainty around HS2 and Heathrow’s third runway, have also set back levels of certainty and confidence in the government’s infrastructure plans. More state largesse may help to resolve this uncertainty, but in light of a decade’s promises, it should not be surprising if the business world would rather wait and see.
The business community may welcome the degree of consensus on display by the major parties. But if that consensus is a surprise, a cautious response from the business community is to be entirely expected.