Why have business leaders turned their backs on Labour?

As Rachel Reeves was met with deep disquiet at the CBI conference, Andrew Grice examines where it went wrong for Labour after the party’s ‘smoked salmon and scrambled egg offensive’ to woo business

Before the election in July, Labour leaders launched a drive to woo business in what became known as the “smoked salmon and scrambled egg offensive”.

Labour promised the stability the business world craved after seeing five prime ministers in the past eight years of Conservative rule. It pledged to be both “pro-business and pro-worker” and to prioritise economic growth.

The campaign paid off when Sir Keir Starmer’s party won the backing of 121 company executives, who said in a joint letter: “Labour has shown it has changed and wants to work with business to achieve the UK’s full economic potential. We should now give it the chance to change the country and lead Britain into the future.”

This was in stark contrast to some previous elections, when industry figures had warned about the dangers of a Labour government.

Why has the relationship turned sour?

Business leaders believed incoming Labour ministers overdid the “doom and gloom” about the UK economy as they tried to blame their rotten fiscal inheritance on their Tory predecessors. This appeared to harm business and consumer confidence. Some bosses felt Labour’s package of enhanced workers’ rights went too far and would impose high costs on firms.

Last month’s Budget was the final straw because Rachel Reeves imposed a £25bn tax hike on business through higher national insurance contributions (NICs), while personal taxation was left largely unchanged. Bosses were also stung by a 6.7 per cent rise in the national minimum wage.

The deep disquiet among business surfaced at the CBI’s annual conference on Monday. Its survey of 266 companies found that half are looking to cut jobs after the NICs rise and almost two-thirds are rethinking recruitment plans. The CBI warns that investment plans – vital for the government’s number one priority of higher growth – could also be put on hold.

Rain Newton-Smith, the CBI director general, said: “Tax rises like this must never again be simply done to business. That’s the road to unintended consequences. Instead, we need an elevated partnership for a higher purpose.”

Are all sectors disenchanted with the government?

Some more than others. Those who employ younger adults, such as the hospitality and retail, will be hit by the NICs and minimum wage rises. Others involved in infrastructure projects welcome the chancellor’s decision to change her fiscal rules to allow more borrowing for investment.

What is the government’s message to business?

Inviting comparisons with Margaret Thatcher’s “there is no alternative” mantra, Ms Reeves told the CBI event: “I have heard lots of responses to the government’s first Budget, but I have heard no alternatives.” She insisted she had to target business and the wealthy to raise money to rescue public services and hinted that companies would not be hit again. “I do not plan to have another Budget like this,” she said. “I have wiped the slate clean.”

Does the “business vote” matter?

People in business vote as individuals but what they say does influence public opinion. While Labour insists the Budget did not affect the payslips of “working people,” ministers admit wage rises will be lower because of the NICs rise. Some firms are already telling employees to expect lower pay increases. The cumulative effect of such messages could harm the government.

Is there anything the government could do to get business back on board?

Labour has long promised to reform business rates, a big bugbear for many companies. It might reduce the bill for High Street shops to revive town centres while increasing them for firms like the online giants with warehouses, though that might also hit supermarkets.

Are the Conservatives back in favour in the business world?

Not yet. Kemi Badenoch, the Tory leader, admitted at the CBI conference that her party “lost the confidence of business”, telling delegates “you thought that we didn’t understand what your needs and concerns were.” Ms Badenoch said the Tories “must be the party of business, not just big business, not just corporates, but small business too”, and expressed concern about the “burden” on small firms.