Never has business fallen so quickly out of love with a chancellor – can Reeves woo it back?

Tonight’s Mansion House set piece is the latest ‘most important speech of the chancellor’s life’ – and this time it lives up to the hype, writes John Rentoul

Business leaders wanted to believe, which is why they gave Rachel Reeves a hero’s welcome when she arrived at the Treasury. She and Keir Starmer had worked hard before the election to reassure them that Labour had returned to the pro-business stance of the Blair-Brown years.

Fiscal responsibility and stability were the watchwords, and Reeves seemed to recognise that private enterprise produces the wealth that makes good public services possible.

But then came the Budget, with its rise in taxes, the biggest since 1993, heavily loaded on employers’ national insurance contributions. The change in mood was immediate. Doubts about Angela Rayner’s plans to improve employment rights crystallised as many business leaders shifted from seeing them as a “sensible compromise” to fearing a declaration of “class war”.

If we exclude Liz Truss as a short-lived aberration, it is hard to recall a time when business leaders have fallen out of love with a government so quickly. The business world knew that taxes would have to rise whoever won the election – indeed it was fiscally responsible to raise them – but the shape of these particular tax rises is seen as anti-business, anti-growth and anti-jobs.

Some of this is overdone. Any tax rise may suppress growth in the short term, although the Office for Budget Responsibility said the Budget overall was a stimulus, and if business leaders thought there was an easy alternative, they have not been paying attention. Cutting public spending would suppress growth, too, and Truss demonstrated what happens with unfunded tax cuts.

But, as employers, they see the tax rise as being aimed at them. The clue is in the name: “Employers’ national insurance contributions”. Even if everyone knows that most of the cost will be passed on to employees and customers, it has been widely criticised as being aimed at wealth creation.

‘Rachel Reeves is trying to offset the anti-growth Budget with a long-term growth plan’ (Getty Images)

Hence the chancellor’s Mansion House speech, and her plan to merge local government pension funds as a way of increasing productive investment. She is like Gordon Brown in many ways. She takes advice from him and seems to model some aspects of her command of the Treasury on his. Not that she is using the Treasury as a power base to try to push the prime minister out of office, but she has a similar approach to using a few set-piece events, heavily briefed in advance, to set out strong strategic messages.

In this case, she is trying to offset a Budget seen as anti-growth by some business leaders with a long-term growth plan. Her message is that she had to take some tough decisions early to put right the disastrous inheritance from the past, but now she is turning to the task of improving the prospects for the future.

Most people who understand pension funds and their investment policies seem to agree that Reeves’s plan for “megafunds” is a good one, which will realise economies of scale and encourage investment in companies and technologies with higher growth potential. Personally, I find cliches about “unlocking” investment unconvincing, and talk of bigger funds more able to take risks a bit like a 2008 nostalgia party, but perhaps this will indeed yield some marginal benefit over time.

Politically, though, her Brown bulldozer strategy seems to be effective. Instead of wasting too much time defending her Budget – because her best defence would be to say, “Surely you didn’t believe me when I said I had no plans to raise taxes” – she is ploughing ahead with a new, pro-growth message with which most business leaders agree.

Brown had an easier time of it, inheriting the government books in a much better state, and having the almost-universally acclaimed independence for the Bank of England as his opening surprise. But she has fought a difficult Budget to a score draw in public opinion. It wasn’t popular, but it didn’t unravel. She has restored the public finances to a broadly sustainable state, and once the pain of the tax rise has worn off, it may be possible to persuade business leaders again that most of her ideas are sensible.

Everyone thinks that Rayner is the Gordon Brown of this Labour government, with her eye constantly on the top job and how she could do it better. But it might be worth noting that, in a thin betting market, Reeves is the current favourite to succeed Starmer as Labour leader.