On Thursday (12 December) this week, the UK will hold what is widely considered to be its most momentous general election since 1979. An apparently stark choice faces the country: with the Conservatives, exit from the EU on 31 January 2020, and the prospect of the low-tax low spend ‘Singapore-on-Sea’ free market nirvana long desired by the most ardent Brexiteers; with Labour, the opposite: the possibility of remaining in the EU via a second referendum, and a plan for a state-inspired transformation of the UK’s economic model, including wholesale nationalisation of major public utilities, writes Nicholas Hallam, Chairman of Accordance.
Opinion pollsters currently have the Conservatives comfortably ahead of Labour (by an average of about 10%). The current lead would translate into a majority of at least fifty seats. But given the pollsters recent track record (failing to predict the Tory majority of 2015; the referendum result; Trump’s victory; and Theresa May’s electoral collapse in 2017) no one is confident of anything either way. Uncertainty reigns.
This is not, to put it mildly, an ideal situation for UK businesses. They have been generally circumspect about publicly supporting any of the major parties, and there is much trepidation about every possible outcome.
Labour’s manifesto commitments, if implemented, would fundamentally alter the UK’s business landscape. There are very, very many proposals that concern commercial life. They include: increasing the top rate of income tax, and then aligning capital gains tax (CGT) and dividends tax to the new income tax rates – an effective hike in CGT from 20% to c.50%; increasing corporation tax from 19% to 28%; introducing collective sectoral bargaining across the UK economy; granting all workers full employment rights from their first day in role; requiring that there is a full consultation with all staff if management wish to bring in new technology; nationalization (at a price to be determined by Parliament) of the railways, water companies and BT Openreach. Perhaps most arrestingly, the manifesto proposes an automatic transfer of share capital from business owners to employees and – ultimately – the state:
We will give workers a stake in the companies they work for – and a share of the profits they help create – by requiring large companies [companies with over 250 employees] to set up Inclusive Ownership Funds (IOFs). Up to 10% of a company will be owned collectively by employees, with dividend payments distributed equally among all, capped at £500 a year, and the rest being used to top up the Climate Apprenticeship Fund.
It is hard to see how the combination of these policies, however well-intentioned, would not have a significant negative impact on business investment in the United Kingdom. For many companies, it would simply no longer make commercial sense to prioritize the UK as a growth area. Apart from everything else, the existence of the new IOFs would create the permanent possibility of shareholders losing further chunks of businesses. Why, after all, should the Government stop at 10%?
Still, it may be that, even in victory, Labour would be prevented from actioning these measures. Were the UK to vote for Remain in the second referendum to which the Party is committed, it is unclear whether Labour’s nationalization plans would be compatible with the EU’s state aid regulations. (The fear of incompatibility is one reason for Mr. Corbyn’s historic antipathy to the EU). And whether or not the EU objected, businesses certainly would; Labour greatly enjoyed Boris Johnson’s recent humiliation at the UK’s Supreme Court over the proroguing of Parliament, but it would almost certainly likewise find itself entangled in interminable litigation.
The Conservatives offer a contrastively simple alternative: there is little policy beyond the promise (or threat) to ‘Get Brexit Done’. Johnson, it is true, has made public sector investment pledges that are gigantic in comparison to the spending in the last near-decade of Conservative rule; but these fade to nothingness when compared to the Labour offering. In any case, Johnson has hardly bothered to fight Labour on the fine details of taxation and public spending (other than to allude broadly to the potentially self-defeating nature of financially disincentivizing the 5% of UK taxpayers that generate 50% of the UK’s income tax revenue). His strategy has instead been to make constantly the point that Labour’s commitment to a Brexit renegotiation and second referendum will necessarily prevent any other significant Government business (such as nationalizing a major chunk of country’s economy) from taking place in any foreseeable future. This line of attack seems to have been devastatingly effective.
Yet, as so often, the simple alternative is a deceptive one. Though a Conservative-led UK would almost certainly leave the European Union in January, its destination thereafter is a matter of some mystery. The standstill transition period which would keep EU-UK regulations identical to existing arrangements is scheduled to cease at the end of 2020. All the experts (not necessarily a group much beloved by the current Conservative leadership) agree that a serious trade deal with the EU would normally take years to negotiate and ratify; but Johnson has committed to asking for no further extensions, at the same time as insisting that the UK will exit the transition with a fully functional light touch free trade agreement. There will be no no-deal. To make matters yet more complicated, the pro-Brexit voters on whom Johnson has come to rely during the election campaign are quite often anti-Libertarian, and supportive of versions of economic and cultural protectionism. Unlike the Brexiteers of the Conservative European Research Group, Singapore is not an island paradise for which they yearn.
This tension between elements of the Conservative’s pro-Brexit coalition (currently unified by their outrage at what they see as attempts to reverse the referendum result) can be expected to flare up in the future. The battle over the future relationship with the EU will be intense. There is particular concern among UK economists over the impact of a no-deal or very hard Brexit on the UK’s dominant services sector.
But Johnson is, as he always been, all about the now. There is a faith among Conservatives that he will somehow find a way through when it comes to it. They know someone will be betrayed (just ask the DUP); but long to believe it won’t be their faction. Johnson may also sense – and be right – that once ‘Brexit is done’ in a conspicuous way in January, its salience as an issue will disappear. Indifference or aversion to the detail will triumph over all.