Labour must do more to win back confidence of business

Editorial: The latest CBI survey shows Rachel Reeves must renew business confidence in the new year if Labour is serious about bolstering the economy against recession

If the government was hoping for some good cheer just in time for the festive season, those hopes have been comprehensively dashed by the latest survey from the CBI.

The growth indicator, from the organisation regarded as the voice of UK business, cannot have been what the government prepared for, nor even, as the climate has grown gloomier, what it necessarily expected after almost six months in power. It shows the outlook for UK business going into the new year is the worst it has been for two years.

Now it is fair to point out that the CBI represents interests that may not be especially indulgent towards a Labour government. But that recognition has to be set against several considerations.

The first is that Labour was the out-and-out favourite to win the election, and there was an acknowledgement on all sides, including from those sectors such as small and medium-sized business, that the Conservatives had run out of road, and that the best prospects for the country lay with Labour.

The second is that, both before and during the campaign, Labour ministers in waiting, chief among them the then shadow chancellor, Rachel Reeves, went out of their way to reassure business that they understood its interests and concerns.

The third is that Labour gave every indication that it appreciated the centrality of business to the growth agenda it was then promoting as the key to raising living standards.

What might be regarded as the fourth consideration, however, the excuse of the “surprise” £22bn “black hole” Reeves and others trot out as a reason their plans have changed, is starting to wear rather thin.

It is not just that the figure remains fiercely disputed by the Conservatives, including by the former chancellor – well, he would, wouldn’t he? It is that Labour has now been in power for almost six months, during which time it has done two things that have directly affected both the economic situation and short-term prospects.

One was to agree on generous pay settlements with several branches of the public sector and with the rail unions, which not only cost a lot more than the much-peddled savings from, among others, the means-testing of pensioners’ winter fuel allowance, but, in the case of the train drivers led to what even the transport minister admits is a worse service.

The other was to present and pass a Budget that honoured campaign promises not to raise taxes on “working people”, by dint of stinging employers, especially big employers, with steep increases in their national insurance payments.

The attraction of such a solution to the “black hole” was noted at the time, but so were the potential downsides: cuts, or stagnation, in employee numbers, in pay increases and bonuses, as well as in investment, and an overall effect that could militate against, rather than for, the growth that had been Labour’s stated priority.

The latest CBI survey seems to justify all those warnings and more. Every indicator, in every sector, from manufacturing to distribution to services, is forecast for a decline, and not just a decline, but a decline in double digits. These are really horrible figures, which reflect a massive loss of confidence on the part of UK business – and confidence, once lost, is exceptionally hard to restore.

The figures also support accusations that the chancellor, backed by the prime minister, failed to join the dots and understand that requiring employers to bear the brunt of the suffering would inevitably affect “working people” in the end.

It is true that small businesses will be compensated for some of their extra costs at the end of the financial year. It is also possible that, amid all the pre-Christmas markdowns, consumers may have found some new encouragement to spend and that the actual third-quarter figures, when they come out, will be better than expected.

But the risk is that gloom piled upon gloom risks creating the very recession that needs to be avoided at all costs and is the very opposite of growth. Nor are external factors likely to come to the UK’s aid. On the contrary, governments in the UK’s near neighbours, France and Germany, are in political meltdown over failed budgets, while the imminent arrival of Donald Trump in the White House could precipitate a tariff war in which the UK finds itself marooned between the US and the EU.

The government’s answer, in so far as it has offered one, is to insist that there were no promises of economic growth before Christmas – true – and that its project is for the long term, within a five- or even 10-year frame. It is also true that the size of the Labour majority gives it the luxury of time.

But confidence is crucial, and if confidence is as low as the CBI survey would suggest, then the government may need to make some adjustments to its course very soon if it is to have any chance of lifting the gloom and averting the dreaded recession.

To achieve that, the country will need a few hints at least that the economy is moving in the right direction, some of those elusive “green shoots” to revive a phrase from an earlier era.

The government may, in theory, have another four-plus years at its disposal but if it cannot create realistic expectations of growth sooner rather than later, then the chances are vanishingly small that the voters will give it the chance to translate its five-year growth framework into 10.