Politics Archives - WA Communications

Government pushes on with plan for cryptoassets regulation – but questions remain for business

The Government’s response this week to the consultation on the future regulatory regime for cryptoassets represents a significant, positive step forward – matching other markets around the world – in establishing a regulatory framework to allow crypto and blockchain to flourish as a driver of growth in the UK fintech sector.

The document released this week set out the Treasury’s plan to implement, following industry feedback, many of the proposals for the future regulatory framework of the sector outlined in April this year. The areas covered by the consultation range from fundamentals like the definition of cryptoassets and the broad legislative approach; to plans to regulate core activities such as custody and lending; and to bring centralised cryptoasset exchanges into the financial services regulatory perimeter for the first time.

What the Government is aiming to do with the proposed framework is manage clear tensions in designing policy that improves consumer outcomes; encourages investment and international competitiveness, all the while protecting against market failure – driven by high profile examples like the collapse of FTX. This is a tricky balance to strike. Heading into an election year, the plan outlined this week still has a number of unresolved questions that will need to be worked through with industry and addressed before implementation.

Lack of clarity on timescales

The Treasury was keen to make clear the consensus that exists across the industry for the plan presented earlier this year – highlighting that nearly 80% of respondents were in ‘broad agreement’ – indeed, many of the proposals set out in the original framework earlier this year were taken forward without any modification. This has seen a number of the issues that were raised by critics unaddressed – for example how crypto gambling will be dealt with under the new regime.

In addition, the document was relatively light on detail in terms of when the critical ‘phase 2’ secondary legislation, that will give the Financial Conduct Authority (FCA) its new powers to regulate the sector, can be expected, nor on the exact mechanisms for how this will be added to the statute. It was confirmed that legislation would be “laid in 2024” subject to Parliamentary time. This timescale, while offering a general idea of when we can expect forward movement, becomes murkier when you consider the political uncertainty (and crucially, the loss of Parliamentary time) that will occur due to the general election expected next year. Given the state of the polls, it certainly makes Labour’s position on the future regulatory framework equally as important as that of the current Government.

Where Labour stand

Speaking of the Opposition: shadow Treasury ministers were keen to stress to businesses at Party Conference last month that they would not be ripping things up and starting afresh with the Treasury’s current proposals for crypto and the wider fintech sector. Some concerns were raised by shadow ministers as to whether proposals go far enough on consumer protections regarding the promotion of cryptoassets – reflecting Labour’s focus on this issue across many policy areas.

As it stands then, the consensus is that the direction of travel on crypto will remain broadly the same. However, should an incoming Labour government, with this added focus on protecting consumers, inherit a half-finished regulatory regime in late 2024, there remains the risk that the checks and balances on firms contained within the proposals could be made more stringent.

Any additional measures placed upon the FCA in the name of consumer protection (on top of the already greatly expanded powers handed to the regulator as part of this plan) would run the risk of overburdening an already-stretched regulator and adversely impact all firms in the space – not just those who are subject to the specific consumer-facing measures that Labour may seek to introduce. This is a risk firms should consider highlighting to the Labour Treasury team as they consult with business on the future of fintech.

Further friction between innovators and traditional players to be expected

From a wider industry perspective, there remains questions around how new and innovative financial products would be prioritised and onboarded into the proposed framework as they emerge. The lack of detail here is critical in terms of how it relates to recent issues such as de-banking of assets, with its highly charged political debate and subsequent scrutiny from the FCA. De-banking is an example of an issue that is known to disproportionately affect cryptoasset businesses – both those in the DeFi space and beyond. Other markets around the world – including the US and the EU with their Markets in Crypto-Assets (MiCA) framework – are making changes that seek to resolve this issue, encouraging growth and cross-sector collaboration. The Treasury’s plan set out this week does not yet address this issue – leaving the door open for suggestions from business to prevent the UK from falling behind its international competitors.

Conclusion

Therefore, while its clear that the measures outlined in the Government response this week are, overall, the right approach, the timeline put forward for when this will become a reality remains somewhat unclear, especially given the uncertain year we are anticipating from a political perspective, and factoring in positive progress in other markets around the world. For fintechs and the wider sector, there is still a significant amount of work to be done in making the case to both the current Government and Labour in advance of the next election for a swiftly implemented and proportionate future regulatory framework.

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Labour Party Conference: Five key takeaways

As Labour concludes its annual party conference in Liverpool, Tom Frackowiak Partner and Head of the WA Financial & Professional Services practice outlines his five takeaways for business:

Five takeaways from Labour conference in Liverpool:

1. Conference momentum: Labour will be ecstatic with how the conference in Liverpool went! A record number of attendees, speeches from the Leader and Shadow Chancellor that landed a narrative focused on “national renewal” and rebuilding Britian, packed fringe events and receptions. The business community also turned up en masse to listen and engage with Labour’s vision for the UK economy. As one Shadow Minster said to me slightly tongue in cheek, “we are now the party of business”; having been in Liverpool it is hard to argue with that assertion.

2. Labour engagement will be difficult: Businesses in Liverpool were highly complementary of the efforts made by the Labour team to engage with their sectors, but many still struggle to secure individual meetings with Shadow Minsters and their advisers to have more detailed discussions on policy direction. Again, looking at the number of businesses in attendance in Liverpool this is unsurprising. Clear thought and consideration need to be given to how you achieve cut through! How is your business essential to Labour’s programme for Government?

3. So, listen to the words from conference: To get cut through, business need to show how they will help a Labour Government “build”, “invest”, “innovate” and deliver a “new direction for skills”. With aspirations to be a “Mission Government” how does your businesses corporate agenda align with Labour’s five national missions? Can this be framed in the short, medium, and long-term?

4. Still a lot of policy detail missing: While Labour has set out an overarching vision for Government there is still a lot of detail that businesses to hear for planning and investment decisions. Currently Labour’s ‘national wealth fund’ is doing a lot of heavy lifting for its economic vision for the UK economy. In sectors like financial and professional services – which only has four paragraphs in the final 112-page National Policy Forum paper – there is an eagerness and anticipation to know more.

5. Labour haven’t won the General Election: While clearly momentum is with Labour and national polling gives the Party a consistent double-digit lead over the Conservatives, there may still be over a year to go until a General Election. While there is a clamor from business to get to know Labour the General Election results of 2015 and 2019, plus EU Referendum should be a warning that election results can often ‘surprise’. Any strategic approach to advocacy and engagement should adopt a holistic or multi-stakeholder approach.

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Sunak shatters consensus on HS2 and opens new questions on UK transport policy

In the last 14 years we’ve had four General Elections, six Prime Ministers and nine Transport Secretaries. We’ve also had consensus among the leaders of the big political parties that HS2 is a good thing and needs to happen. Yes, it has been trimmed along the way, and phases have been delayed, but the idea has survived – and Ministers have been proud to talk about the benefits.

Yesterday all that changed when Rishi Sunak announced he was cancelling the rest of HS2 – everything except Phase 1 from Euston to just north of Birmingham. What’s more he didn’t just cancel it – the way he spoke about it was deliberately critical. HS2 is not just the ‘wrong project’ but the ‘ultimate example of the old consensus’. It’s difficult to imagine any Minister in this Government talking positively about HS2 again.

Here are a few reflections on what this announcement means.

First, the risk premium for new infrastructure in the UK. This is a public sector project but one that has been highly visible around the world. The inward investment strategies of some of our largest cities outside London have been based on it. A whole structure of advice and planning – the National Infrastructure Commission – started at the same time as HS2. Whatever the merits of the decision, investors will see it as another reason to be wary of government. They may think (unfairly) the UK just can’t do infrastructure well. Both major parties could usefully think about how to reassure them.

Second, it’s not just a consensus about HS2 that has gone: transport policy is now more unstable than at any time in the last 15 years. Expect to hear more from the Conservatives about car drivers and private individuals, less about active travel and modal shift; more about towns and suburbs, less about our biggest cities. There’s an obvious political dimension to this but the Prime Minister no doubt believes in it too. It’s also possible to discern another force at work: the Treasury, one institution that consistently opposed HS2. George Osborne overruled his officials when he was Chancellor, but it’s not difficult to imagine their advice to Rishi Sunak – the enormous risks of mega-projects, their poor returns compared to smaller schemes, especially roads.

Third, the Government has now created a huge range of hard questions by its commitment to Network North. Transport infrastructure is complex: it takes years to plan, get consents, design and build successfully. The plan includes everything from extending existing schemes (£2 bus fare) to new projects that sound just as challenging as HS2 (£12 billion for Liverpool-Manchester, over £2 billion for Bradford-Manchester). But the money that has been saved on HS2 would, mostly, not have been spent for years: when will these new projects happen, who will lead them, how will they be funded? Expect DfT to be busy for years answering these questions – and note caveats in the official document about costs, business cases, benefits and funding profile.

Finally, whatever happens to these plans, the transport sector needs to think long and hard about the story it wants to tell, and how to respond to this challenge. Even if Sunak’s term as PM is short, the story he is telling about transport is not going to go away – nor is that old consensus going to re-emerge.

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Railing against the consensus – Conservative Party Conference and Transport

After weeks of speculation, Prime Minister Rishi Sunak has used his keynote speech at Conservative Party Conference to wield the axe against HS2’s Birmingham to Manchester leg.

The announcement is the latest shift from the Prime Minister that impacts the transport sector and reiterates the prominence of transport issues as we head towards an election in 2024.

What happened at Conservative Party Conference?

HS2 cast a shadow across the Conference. Whilst rail featured heavily on the fringe – covering topics from rail reform, contracting, rolling stock and decarbonisation – the debate over HS2 predictably dominated discussion.

Leaks meant that industry, Ministers, backbenchers, and regional stakeholders all sought to make their case ahead of the announcement, with West Midlands Metro Mayor Andy Street unsuccessfully trying to fight a rearguard action. Many on the fringe and across the sector will be frustrated by how No10 has handled the comms for this announcement, especially considering reports first emerged weeks ago.

Sunak’s alternative to HS2 is the reinvestment of £36 billion into the new “Network North” plan. Spending will be spread across new road, rail and bus projects aimed to improve interconnectivity across the North and beyond. However, there is little to cheer for the rail sector with DfT subsequently confirming that only about 30 percent of the funding will go to rail, with the remainder for local transport and roads, and no new capacity for north-south rail passengers.

Whilst rail dominated Sunak’s remarks, Transport Secretary Mark Harper reiterated the government’s focus on motorists.

His ‘Plan for Drivers’ brings together 30 measures aimed at improving car journeys at expense of bus lanes, low traffic neighbourhoods and travelable 15-minute communities. It is the latest example of how the Conservatives want to project a ‘pro-car’ image, and position Labour as ‘anti-motorist’.

Other modes of transport – plane, maritime, active travel and more – were largely absent from the focus of senior politicians in Manchester.

The reaction to Conference

Sunak is realistic his announcements will not be welcomed by industry or many politically and predictably the immediate reaction has been largely negative. This was borne out by the criticism from prominent Conservative and Labour Party figures who have been quick to raise concerns and reflect doubt about the Network North alternative.

On social media, for every positive post there are three negative.

Stakeholder reaction

The Prime Minister’s gamble – like with the delay on petrol and diesel cars – is that it reignites support for the Conservatives among the voting public that he needs to win over in more rural and suburban parts of the country. He will be cheered to see positive support from several Conservative MPs in critical swing seats in the North.

What to look out for from Labour Conference

Yesterday’s announcement is the latest attempt in transport policy from Sunak to create a wedge issue between the parties. Labour must decide if it will support the government’s plans or risk supporting a project widely recognised as poorly run at the expense of many alternative projects that the electorate may prefer.

Like with continued support for the 2030 ICE ban in favour of EVs, Labour is caught between a rock and a hard place. Labour will need to use the Conference to set out its plans and give industry more confidence about what the future could look like, without falling into the Conservative bear trap.

For business, the transport battleground will require careful navigation. To be heard, sectors will need to recognise the competing priorities of both parties and how their case can align with them without becoming the focal point of a new debate. This calls for a balancing act of discreet engagement married with public communication that builds support with both.

To discuss how to achieve this balance, please get in contact with me on jamiecapp@wacomms.co.uk.

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Do your duty: The financial regulatory shake-up of the vicennial

As the long-anticipated consumer duty comes into force today the financial services sector faces the biggest regulatory overhaul in over two decades. One marked by a notable willingness from the FCA to take “robust action” if the sector fails to comply – an indication of the more interventionist stance the regulator has pursued in recent years.

The duty reforms, driven by FCA concerns over sustained consumer detriment and poor customer service, mark a landmark moment for the market. The scope of the 120-plus page document is broad, but its four key pillars are: products and services; price and value; ensuring that consumers understand products; and making sure they get support.

And whilst the sector has had since July 2022 to prepare itself, the impact will be far reaching and could cost the industry up to £2.4bn. Banks, building societies, insurers and investment companies are amongst those impacted, as well as motor finance, product warranties and store cards. For many, it means older financial products which do not meet the higher standards will be removed from the market in a move which the FCA hopes will spur competition and drive innovation.

Whilst the consumer duty has been broadly welcomed by industry, politicians and consumer champions alike, its implementation will not be plain sailing.

The rules are still up for interpretation

The FCA is known for not being overly prescriptive in its rules. It tends to lay out guidelines and leave it to firms to interpret them. The same can be said for the consumer duty which has been simultaneously criticised as too interventionist and too vague – a difficult balance to strike. For many firms, identifying where the new rules need to be applied and the value of making these changes will be a significant undertaking.

Sections of the market have been missed

The new rules will only apply to sections of the market and products which are already regulated by the FCA, meaning that anything outside this far-reaching definition will not be held to the same standards. This is particularly key for the Buy-Now-Pay-Later sector, where recent speculation that the government will delay the timetable for new regulation, will no doubt be met with more robust criticism as the standards gap widens.

It’s going to get political

Political scrutiny of the financial services sector has been heightened in recent weeks – with attention turning to customer screening processes, passing on of savings, and reporting and governance standards. A regulatory requirement for “higher standards” across the market adds to the arsenal of MPs looking to hold the sector to account.

As we approach the next general election, politics will become simple and populist as parties focus on winning votes. That means even technical regulation can become a lightening rod for support or dissent.

The Conservative Government will point to the introduction of the consumer duty as a sign of its commitment to its voters and draw on the duty’s principles to make new interventions. Action on banks withdrawing accounts, for example, fits neatly when framed by the new consumer duty. On the other hand, the 120-page document provides the Labour Opposition with a foundation on which to launch its consumer-centric approach to financial services and a stick to beat the Government with if it fails to take – or ask the regulator to take – action where providers fall short.

For providers, this means there is a need to review the risks and opportunities the consumer duty presents and ensure that the action they are taking to champion consumer interest shines through with politicians and the media alike as scrutiny mounts. Getting the evidence base right will be key to securing long-term impact amongst those shaping the future operating environment.

For further information or a presentation on how WA Communications can help you, please get in touch with Natasha Egan-Sjodin by email – natashaegan-sjodin@wacomms.co.uk or on 07706 325 417.

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How can government and business collaborate to create ‘good’ economic growth?

I’m a great believer that there’s something you can call good economic growth. That’s growth which creates real wealth and good jobs, but does so in a way that is lasting and respects the greatest sources of wealth we have – the planet and its people.

There’s never been a time when bringing these things together has been more important – whether to improve the state of Britain’s economy, or to address the most profound challenges of climate change and biodiversity.

For all our recent turbulence, Britain has giant strengths. These can create immense opportunities when we bring them together well: not just great companies and entrepreneurs, but also some great public institutions including our universities, legal system, and the Civil Service. These are globally respected and have huge potential as sources of value.

Most of my 30 year career in and around Government was spent doing what I’ve just described – trying to bring Government and business together to create lasting benefit for society. Then I called it micro-economic policy, and it’s what I did at HMT for 15 years – whether getting private investment into infrastructure or creating a better tax regime for entrepreneurs. It’s also what I did on the Board at Ofcom: I spent 7 years helping to set up the regulator and then run it. It was also a big part of the nearly 10 years I spent as a Permanent Secretary, or CEO-equivalent, across the Department for Transport, Home Office, and for a little while the Department for Business.

In fact one of my proudest achievements as a Permanent Secretary was helping to shift the mindset at DfT so that it was a bit less focussed on extra concrete and steel – the traditional answer to transport problems – and more focussed on radical innovation. The UK’s strong story on EVs today can be traced back to the partnership we created a decade and more ago between business, government and academe: to my mind that’s a model for government and business working together.

Chairing WA’s Advisory Board now gives me the opportunity apply this experience to help WA’s team and clients. One of the reasons I was keen to join WA was that its own approach – the emphasis on collaboration – is really well aligned with my own. And real collaboration starts with really good understanding: not just of the policy challenges and constraints that might be faced by the firms WA advises, but the longer-term goals and the sense of opportunity.

And my hunch is that after the Election, whoever wins, that theme of good growth is itself just going to keep on growing.

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In Conversation with Steve Richards

WA Senior Adviser, broadcaster and journalist, Steve Richards and WA’s Head of Public Affairs, Marc Woolfson, provided their take on the latest developments in Westminster and Whitehall, and unpacked what this means for anyone seeking to engage with the Government and understand the potential priorities of a Labour administration.

This conversation is the latest in a series of discussions with senior political and media figures hosted by WA.

Yesterday morning, Steve shared his insights on the mood at No.10 before providing reflections on the Government-in-waiting and Starmer’s preparations to ‘take back control’ of the country.

We’ve outlined five key takeaways from the discussion below:

1. General Election still predicted for Autumn 2024

At the time of our conversation with Steve, the Privileges Committee had just released their report on how Boris Johnson misled the House. Following the resignation of Johnson and Nigel Adams over the weekend, Sunak now faces (at least) two challenging by-elections in Uxbridge and South Ruislip, and Selby and Ainsty. Amidst this upheaval, some in Labour are hoping for a snap election.

Steve, however, is still setting his sights on an election in Autumn next year. From his viewpoint, although there will be continuing challenges for Sunak arising from this event, Johnson’s exit from the Commons marks a significant diminishment of his political prowess and danger to Sunak.

Unless we see a significant closing in Labour’s lead, Sunak will likely delay the election in the hopes the tide will change by next year.

2. Zombie Parliament: Sunak’s five pledges

Beyond firefighting a constant stream of internal upheaval and scandal, Sunak remains focused – if not obsessed – on achieving the five pledges he set out in January (halve inflation; grow the economy; reduce national debt; shorten NHS wait lists; and stop the boats). Halving inflation by the end of this year is a must as Sunak cannot afford to approach an election with rising inflation rates.

As a result of this focus, there is talk of a ‘zombie parliament’ at Westminster. For the foreseeable future, activity in Parliament will mainly be used as a mechanism for building up to the election rather than to pass any weighty pieces of legislation. As an example, long-awaited proposed reforms to modernise the UK rail industry have fallen by the wayside.

Ultimately, there simply isn’t much legislative time available to the Government with preparation for the party conference in October, and long recesses pushing MPs back out to campaign in their constituencies.

Anyone seeking to engage with Government on legislation over the coming months may struggle unless it falls within the remit of Sunak’s five priorities.

3. Keir and Reeve’s cautious policy: Nothing without funding

Keir Starmer and Rachel Reeves are taking a cautious approach; every piece of policy is submitted to Keir’s office for scrupulous checking for any claims that might imply an increase in spending.

The party’s proposal to scrap ‘Non-Dom’ tax status – which Labour says costs the Exchequer £3.2bn – is increasingly the answer to almost any question about the viability of its spending plans.

But with Jeremy Hunt rumoured to be looking at announcing exactly this move in the Autumn Statement, effectively removing this potential uplift from Labour’s plans, Kier is especially nervous about any discussion on spending.

Labour is also being very quiet on their policy plans and recently rowed back on commitments in their green recovery programme and on universal childcare.

In line with this preference for fiscal responsibility, as well as Blairite influences at the heart of Keir’s team, Labour is driving their focus towards policies that symbolise change without spending money, including technology, innovation, and AI.

4. Labour and business: Now until Autumn is the prime time to engage with Labour

Between now and Conference is an important time for industry to engage with Labour if they are looking to shape the direction of policy.

Starmer wants Labour to look like the party on the edge of forming a Government by the time Party Conference comes around in October. Speeches will need to be policy-rich, trailing their manifesto, which is already being drafted.

Labour is sincere in its claim that its door is open to business. Industry interest in the party serves as a reassuring recognition that they are viewed as the next likely candidate to form a Government. If Starmer wants to realise his mission to get the economy growing faster than any other country in the G7, Labour will need close relations with businesses to achieve this ambitious goal.

Jonathan Reynolds (Shadow Secretary of State for Business and Industrial Strategy) is expected to announce further details of Labour’s industrial strategy at Conference, formalising their goodwill towards industry.

However, if in power, relations may be more strained as Reeves seeks to fill her funding gap, with the potential for businesses to face new ‘stealth taxes’. Industry will benefit from putting in the groundwork now, during a period when Labour is reticent to reveal any tax rises that may make headlines during the pre-election test period.

5. Public sector and unions: The challenge ahead for a Labour Government

Winning the election will only be the first hurdle for Labour. Should they win, they are set to inherit a challenging landscape, especially in the public sector.

Unions present a considerable challenge. Labour hopes relations will improve through greater goodwill and by restructuring who is involved in negotiations. However, as New Labour did in 1997, Starmer plans to stick with Conservative spending plans for the first two to three years, so will not have the money to meet the pay demands of the unions.

On the NHS, Labour’s plans have been ambitious but vague. Although they highlight scrapping non-dom tax status as a means to pay for recruitment into the NHS, internally, Labour knows this will not be enough. Moreover, Wes Streeting has asserted his ambition to ‘reform’ the NHS but has not defined this ubiquitous term. Internally the party is divided on their position over the use of the private sector to meet capacity.

Starmer is also acutely aware that he has U-turned on many of his leadership pledges, including plans to abolish university tuition fees. At present, the current model for higher education would not see much change, however, if in power, university schemes and the graduate tax are areas Starmer may revisit.

The theme of the first term of a Labour Government will be dominated by one question: where’s the money coming from?

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Will the ‘Back to Work’ Budget work?

Sunak and Hunt are emerging from a bruising few months.

The cost of living crisis, questions about the fiscal competence of the Conservatives, and languishing poll ratings meant the duo face a political and economic mountain to regain momentum ahead of an election.

Today’s Budget therefore had to serve two purposes. It needed to continue the government’s response to the immediate economic and financial challenges facing businesses and households. It also had to offer a plan for the future, responding to Labour’s recent polling dominance.

Hunt responded to this challenge with a lengthy statement, which put meat on the bones of the Prime Minister’s five priorities and set out a direction for how the government plans to grow the economy.

Here are our key takeaways from Hunt’s Budget:

Economic growth is the central mission of the government

The more positive fiscal outlook – driven by falling energy costs and wider economic changes – has given Hunt more headroom to act. He used it to focus on supporting businesses and driving economic growth, which has become the defining mission of the government.

He will seek to achieve this by supporting businesses that invest through the capital expensing policy, further support for life sciences and creative industries and even producing a ‘Quantum Strategy’. It reflects a more targeted, transactional approach to this government’s relationship with business and prioritisation of high potential and high growth sectors. For those that invest, or have a plan to do so, this government wants to help those plans come to fruition.

The programme for growth can only be delivered with business help

The flip side of this Budget is a reflection that the government has limited resources, time and money to make big things happen. Governments of the recent past would highlight big infrastructure programmes to drive growth and support the economy. Even Hunt highlighted these types of policies in his last statement.

This Budget strikes a different tone. Through a mixture of tax changes and funds, government wants businesses to work closely with central and local government to deliver its priorities. The new Investment Zones are the clearest example of this, with government wanting combined authorities, universities and businesses to work together to drive regional transformation. It means that whilst the Government has set an overall direction, it is now looking to others to fill in the detail and help make its plans a reality.

Stealing a march on Labour

Labour has been on the front foot, with Starmer’s national missions defining the early battleground for the General Election campaign. Hunt’s statement began the Conservative Party’s fightback, stealing his headline childcare policy from Labour. By capitalising on Labour hesitancy to release specific details, the government has now taken the initiative in this debate.

Questions on the pace, scale and ambition of the policy are likely to follow in the days and weeks ahead, but the biggest impact could be on Labour. This episode is a lesson for Starmer and his Shadow Cabinet. By not fleshing out their platform, they are now at risk of a significant ‘love bombing’ operation from Sunak and Hunt. For businesses and public affairs professionals, it means Labour may accelerate its policy development and programme of big announcements.

The election starting pistol has been fired

This budget will focus minds in the Government and Opposition. Hunt focused his statement on the audiences that could provide a route to retaining power. More money for red wall constituencies, support for older voters and backing for businesses that could help fill the party’s coffers set itself up for the coming battle.

Meanwhile Labour faces a wake-up call that the road to power will not be straightforward and that there is still fight left in the Conservatives. A mixture of targeted funding, retrenchment of core messages on the value of work and businesses and the assault on Labour’s programme is the clearest demonstration of how the Conservatives plan on rebuilding their political momentum.

Sunak and Hunt will hope this Budget is the beginning of a long road back from the dismal poll ratings they face, and for Labour marks the first stern challenge they have faced since taking a commanding lead. The reaction to the Budget will define whether this is a turning point, or another nail in the coffin of the Conservatives.

To find out how the Budget is landing, and what it means for businesses, you can join our Budget analysis webinar by signing up here.

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The Labour Party and Carried Interest – why does it matter?

Carried interest. What does it mean? Why does it matter? If you know the answers to those questions, feel free to skip a couple of paragraphs. But for everyone else, carried interest sounds so opaque that it couldn’t possibly be of any interest (excuse the pun). So why does the Labour Party keep going on about it?

Whenever you hear Sir Keir Starmer or Rachel Reeves talking about the economy, chances are they’ll mention carried interest. Not usually by name – that would be too direct for politicians – but in more generic language. Official Labour Party documents talk about “closing tax loopholes for private equity fund managers.” Reeves claims that “private equity bosses say that their income is capital gains…we would close that loophole.”

These are all references to carried interest. But what is carried interest?

It’s more straightforward than it sounds.

After the return of capital to investors, private equity fund managers typically receive 20% of a fund’s overall profits as payment for sponsoring and managing that fund. So far so simple. The controversy arises because private equity managers only pay capital gains tax (a rate up to 28%) not income tax (a rate of up to 45%) on carried interest. The majority of countries where PE is well-developed have a favourable tax regime for carried interest.

Many will argue there is good reason for this. The profits of private equity funds come from the sale of assets. It is reasonable that they attract capital gains tax. Others argue that a fund’s profits basically amount to income for private equity managers and should be taxed as such. Labour is clear about which side of the argument it supports. Reeves has claimed that taxing carried interest as capital gains is “absurd” and gives “tax breaks for fund managers averaging £170,000…as they asset strip some of our most valued businesses.”

That doesn’t sound like the basis for a great relationship between Labour and the private equity sector. But the Labour Party is not alone in calling for a change. A similar debate has been raging in the United States, where carried interest is also taxed as capital gains. Initial drafts of the Inflation Reduction Act would have required fund managers to hold an asset for five years before receiving the advantageous tax rate. The Senate Democrats argued this would raise $14 billion over 10 years – a relatively modest revenue-raiser in the context of the US economy. But according to Senate Majority Leader Chuck Schumer, the Act would also ensure “the wealthiest corporations and individuals pay a fairer share in taxes”. A political rather than economic motive.

Back in the UK, the Labour Party is trying desperately to appear pro-business. In a speech to the CBI in November, Starmer said that Labour Party was “not just a pro-business party but a party that is proud of being pro-business.” So why the attack on private equity? As in the United States, the money raised from changing the tax rules on carried interest would bring in relatively little – around £440 million a year. Which means, as in the United States, the motive can’t be primarily economic. It must be political.

This is because Labour is eager to appear pro-business in order to gain economic credibility, but it isn’t afraid of criticising business when it’s politically expedient to do so. And those sectors of which the public may have a less positive impression – such as private equity – are first in the firing line. By pitting wealthy financiers, whom Labour argues are avoiding tax, against ordinary working people who pay their fair share, Labour aims to present itself as the party of economic justice. Redistributing wealth from a small number of financial elites to support the greater mass of ordinary people.

In other words, the Labour Party is looking to get the keys to Downing Street and will do whatever it can to appeal to voters (as all political parties aspiring to government should do). It believes that increasing tax on carried interest and bashing financiers will achieve this. Which means that carried interest, as niche and as dull as the term may sound, is actually rather interesting, particularly as a microcosm of Labour’s economic approach in the round.

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The Great Unretirement

In January, the Chancellor, Jeremy Hunt, called on retirees to return to the workforce after a House of Lords committee report showed that early retirement is the biggest driver of labour shortages in the UK.

The Lords Economic Affairs Committee’s Where have all the workers gone? report, published following an inquiry into the UK’s labour supply, concluded that there are four main drivers of shortages in the labour market: increased sickness; early retirement, changes in migration trends; and an ageing UK population.

Hunt has urged older people to return to the workforce, and is reportedly working on a “back-to-work Budget” in response to concerns about the large number of people aged 50-64 who have left the workforce.

It is widely accepted by both politicians and economists that rising economic inactivity amongst the over 50s presents serious challenges to the UK economy, as labour shortages exacerbate inflation and threaten economic growth.

For months there has been speculation about a ‘Great Unretirement’ and it would be understandable if investors and businesses were sceptical about the Government’s ability to deliver on this agenda. Back in October 2021, for example, Sunak announced a £500m drive to get older Britons back into work and plug the gap in the labour market. This had little impact, with the rate of over 50s leaving the workforce steadily increasing the first quarter of 2022.

The UK has been an aberration in terms of unretirement. The Learning and Work Institute has undertaken a study which shows that the UK has seen a slower post-Covid return to economic activity among people aged 55-64 than other countries including Germany, the US, Japan and Australia.

But that could be about to change as cost-of-living pressures start to bite . While Government initiatives may have failed to arrest rising economic inactivity in older people, cost of living pressures do appear to be having an impact. According to the Office for National Statistics (ONS), 48,000 people moved out of economic inactivity and into employment between the three months to September and the three months to December 2022. Economic activity among the over-50s is now at its highest level since the pandemic began.

Recognising the desire of many older people to return to work and the important economic contribution they stand to make, the Shadow Work and Pensions Secretary, Jonathan Ashworth, announced that in government Labour would extend free retraining to the over-50s.

Whichever party is in power after 2024, investors should anticipate that getting retirees into employment will be seen as crucial to driving economic growth.

Mel Stride, the Secretary of State for Work and Pensions, has been tasked by the Prime Minister to carry out a review to understand how to attract the economically inactive back into work.

Stride is likely to come under pressure to propose changes to the pension system that would encourage workers to stay in their jobs longer, such as an increase in the tax-free lifetime allowance, which currently stands at £1,073,100.

A current scheme of “Midlife MOTs” – where middle-aged workers take stock of their career with trained advisers – is also set to be expanded. The individual reviews assess finances and opportunities for various types of work retirees could take up.

Regardless of the formal policy response, getting retirees back into work is likely to remain a key government objective even if the number of economically inactive continues to fall in the short-term. The UK has an ageing population and annual welfare costs are expected to increase by £8.2 billion in the next five years. This creates a structural problem as these costs are paid for by the working population via tax.

Investors should anticipate that businesses that have a positive track record of retaining and attracting older workers are likely to benefit, particularly as other employers struggle to compete for talent in a tight labour market.

According to an ONS survey of older people who had left work during the pandemic and not returned, 58% said they would consider returning to work, but many of them wanted more flexible hours, higher pay or the ability to work from home.

Businesses that can give older workers an attractive route back to work will be better insulated from demographic trends.

It is already widely acknowledged that investing in an ageing workforce has substantial value. The airline easyJet has launched a recruitment drive urging people over the age of 45 to join its cabin crews.

This comes after Fuller’s pubs launched its first recruitment campaign specifically targeting older workers. The pub and hotel group has teamed up with Rest Less, a digital community for individuals aged over 50, to try and attract more people back into the workforce.

Within the civil service there have been drives to attract older workers, with the Department for Work and Pensions announcing last week it would pursue “age positive” recruitment policies by signing up to a national initiative intended to foster age inclusive working practices.

The UK has an ageing population, which will need extra money to be spent on health and welfare but which is less likely to be working and contributing to the economy. The fundamental demographic realities cannot be avoided, but what politicians will want to do is make sure that labour market trends do not exacerbate structural demographic challenges. In 2023 and beyond, investors can expect a clear message from government that the over 50s are as crucial to our economic recovery as younger workers.

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Starmer speech – On a mission for a decade of renewal

Yesterday Keir Starmer set out the five ‘missions’ which will form the “backbone of the manifesto and the pillars of the next Labour government”, in the first of many pre-general election speeches to come over the course of the next year.

With Labour maintaining a commanding lead in the polls, and the Conservative government in constant crisis mode, the Labour leadership’s main concern is not to do anything to upset that trajectory.

However, it’s not the first time Starmer has tried to “reset” Labour’s vision and there is still work to be done by him and his top team to fully rehabilitate the Party’s image before voters go to the polls. Starmer needs to prove that he – and his Party – can take up the mantel of Government and deliver significant reform in a short time frame.

Importantly though, for the first time in a long time for a Labour leader, the national media treated the speech as a significant political event, giving it the live broadcast, rolling news coverage and instant analysis that is usually reserved for a Prime Minister’s speech.

Bearing all this in mind, this was, understandably, a carefully crafted (and clearly heavily focus grouped) speech, designed to reassure the public that Labour has the ideas and clarity of purpose to address the challenges facing Britain and the long-term vision that has been found lacking from the Conservative benches.

Drawing heavily from management theories used commonly in the business community, Starmer was setting out his goals – painting a picture of what success would look like by the end of his government’s first term in office:

To have the highest sustained growth in the G7
To fix the NHS
To make the streets safe
To raise educational standards
To make Britain a clean energy superpower, decarbonising the energy system by 2030

For businesses and investors there was the strongest possible message that a Starmer led government’s approach to the economy would be neither “state control” nor “pure free markets” with Starmer stating that “I’m not concerned about whether investment or expertise comes from the public or private sector – I just want to get the job done.”

With the foundations set, the window for influence is open. Work is clearly well underway to put more meat on the bones of these missions, with measurement criteria and granular detail to follow as we get closer to a likely Autumn 2024 general election, with Starmer due to speak on Monday to set out his thinking on the economic mission.

For businesses looking to future proof and inform policy in the long term, these missions provide a framework for engagement at a critical time for the Labour Party.

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Scotland needs Labour and Labour needs Scotland

I attended the Scottish Labour Party conference in Edinburgh at the weekend. It took place two days after the shock news of Nicola Sturgeon’s resignation. As a consequence, the mood amongst delegates was jubilant. The overwhelming feeling was that change is coming and a belief that the SNP’s grip on Scotland is finally loosening. A YouGov study in the days before the First Minister’s resignation showed 29% support for the SNP, 27% for Labour and only 12% for the Conservatives. Labour now strongly believes that with the hugely popular Sturgeon gone they will receive a further electoral boost.

However, despite the buoyant atmosphere, key figures were keen to urge caution. Pat McFadden, Shadow Chief Secretary, speaking at a Labour Friends of Scotland fringe meeting, stressed that the enormity of the task ahead in delivering a Labour victory could not be underestimated. And both leaders, Anas Sarwar and Sir Keir Starmer, warned against complacency in their keynote speeches. The focus was very much on the need for economic growth and the failure of both governments, SNP in Holyrood and Tories in Westminster, to deliver what the electorate needs and deserves.

Meanwhile, the infighting amongst the SNP leadership challengers spilled over into the Scottish media. Nicola’s announcement clearly took them all by surprise. Her deputy, John Swinney, ruled himself out almost immediately. Humza Yousaf, the Health Secretary, and Ash Regan, a former minister, threw their respective hats in the ring. Angus Robertson, rumoured to be Sturgeon’s preference, has said he will not run and Cabinet Secretary, Kate Forbes, the current favourite according to polls, announced her intention to stand earlier today.

Back in the conference venue, the First Minster’s “legacy” was much-derided. Scotland’s denuded public services, the parlous state of the economy, unprecedented levels of poverty and the worst drugs record in Europe were all laid squarely at her door. She, and by extension her Government, had failed the people of Scotland and it is down to Labour to provide solutions. And for once, it did not feel as if this was Labour Party delusion. New candidates for the next election, including former International Trade Secretary, Douglas Alexander, were credible and inspiring. The optimism and need for change amongst the delegates was palpable.

Scotland was Labour’s original Red Wall, losing 40 out of its 41 seats in 2015. Based on recent Scottish polls, and bolstered by UK Labour’s poll lead, it is not beyond the realms of possibility that the party could win 25 seats next year. The outcome of the next election now lies as much in Midlothian as it does in the Midlands. Anas Sarwar deserves enormous credit for this spectacular turnaround and I predict a host of senior Labour figures visiting the length and breadth of Scotland in the next 18 months now that this realisation has dawned.

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A guide to the challenges of 2023: A tell-all year

As the second week of 2023 draws to a close, it’s clear the year ahead will be rife with economic and political challenges.

WA Partner Rhoda McDonald was joined by WA Senior Adviser, broadcaster and journalist Steve Richards to discuss the issues that will dominate 2023.

Here are our key takeaways from the event:

Labour finding it’s feet

The Labour party enters 2023 with renewed enthusiasm. Starmer is keen to whip the Party in to shape and prove they are a Government in waiting. As he prepares for an offensive, there will be high expectations for his cabinet to perform, and with reshuffle rumours circling, there will be no room for idlers.

His team has largely been moulded by a new New Labour era, with some Blair flair, and it is clear that top of his agenda is modernising central government, stimulating economic growth, and reforming the British energy sector.

One of the key policy differences between the Conservative Party and Labour is around industrial policy – Rishi Sunak shows no great interest in an overarching Industrial Strategy, whereas Labour’s looks potentially very substantial, extending to light manufacturing, transport, and even retail, to underpin their ambitions for higher productivity and growth.

A Tory Party divided

Meanwhile the Prime Minister is tending to a wounded Tory party and attempting to rebuild political and economic stability. With wavering Tory voters, and the threat of a new Reform Party poaching his MPs, Sunak needs to be constantly appealing to the public and his backbenchers if he is to retain control.

Although Sunak appears to be relishing the challenge and leaning in to his role as the peace maker of the party, it is unlikely to be smooth sailing as the year kicks off with headlines dominated by strikes and pay disputes.

It’s all about the economy

The country’s economy is top of the inbox for the current Government and the Opposition alike. As Sunak’s forte, he is busy emphasising his brand as the fiscally minded Prime Minister who can stabilise the markets and bring public spending under control.

For Sunak the pivotal moment will come in the March Budget. The Prime Minister had prepared a draft budget during the leadership campaign, which was very business focused – looking at tax rates, business needs, and how to get people back into the workforce. As Corporation Tax rises take effect this year, against a background of a dire economic environment, the message of ‘growth, growth, growth’, and delivering the incentives needed to shape company and labour market decisions, are likely to be at the forefront when the Chancellor stands up at the Dispatch Box on 15^th March.

On the other side, Labour are in the midst of deciding whether they follow a New Labour approach and stick to Tory spending plans, or to reinvent the fiscal wheel and risk further unease. Either way, the position they take will be determined by Shadow Chancellor Rachel Reeves.

Fixing the NHS

With the NHS hitting the headlines every week, healthcare reform will be a prominent issue throughout the year. The Government cannot shy away from the mounting pressure to act.

Having already passed the 2022 Health and Social Care Act, the Conservatives are unlikely to introduce new reforms this side of the election. However, talk of how to use the private sector and discussions of outsourcing are starting to snowball, with Labour saying they would consider this approach to relieve demand on the NHS.

Energy crisis

While the energy crisis continues and with geopolitical factors such as the war in Ukraine determining future supply issues, the Government is facing further spending pressures. The clock on household support is running down, and businesses are already feeling the pinch.

The risk for Sunak is inaction should the energy crisis become more acute. Although he has been avoiding Government intervention, he will be forced to change tact and avoid taking heavy fire from Labour as they seek to differentiate themselves.

The Deregulation agenda

With growth set to be the buzz word of the year, the regulatory landscape remains a battle ground yet to be won. As the realities of an EU regulatory bonfire threaten chaos, the Government is looking at lighter regulatory initiatives.

With businesses calling for clarity over the regulatory landscape, there are opportunities for both the Conservatives to make their mark and for Labour to carve out fresh ground for putting the UK on the front foot.

All eyes on GE2024

2023 is set to be the tell all year. Sunak and Starmer are facing the toughest set of challenges any leader, especially a newly incoming Prime Minister, have faced for decades. How they respond to and address the economic turbulence and address the nation’s discontent will ultimately determine their fate at the ballot box.

While Labour may be 20 points ahead in the polls, Sunak’s momentum over the summer appears to have closed a once-gaping gap. However, unless either party makes marked progress on the issues of the year, the prospect of a hung parliament with a minority government will become a looming possibility.

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The UK and France – A Family Affair

The UK and France are like siblings. They may love each other deep down but most of the time they seem to be fighting it out. Always trying to outdo the other.

So it has been since 2016 – the year of Brexit – when the UK and France seem to have been at constant loggerheads. Then President François Hollande famously declared after the Brexit vote that “there must be a threat, there must be a risk, there must be a price” to the UK leaving the EU. President Emmanuel Macron continued that hardline stance, constantly criticising the arguments of the Leave campaign, opposing extensions to the UK’s timetable for leaving the EU and holding multiple ‘Choose France’ business summits to secure investment from overseas.

Events reached a nadir when, in this summer’s Conservative Party leadership campaign, Liz Truss was asked whether she considered Macron a friend or foe. Truss hesitated, smiled and looked out to the audience. ‘The jury’s out,’ she declared to cheers from the room.

Macron was asked about Truss’ remarks that same day. He paused, let out a long sigh and stifled a smile. “I don’t question it for a second: the UK is a friend of France,” he said. His face afterwards erupted into a broad grin – recognition that this was but the latest development in a very long-running family saga.

With Prime Minister Rishi Sunak at the helm, the relationship has taken a turn. At their first bilateral meeting at the COP27 summit in Egypt, Sunak and Macron were the vision of brothers reunited. All smiles, handshakes and ritual back slapping. After the event, Sunak tweeted that the UK and France were “friends, partners and allies” – a pointed rejoinder to Truss’ characterisation of the relationship.

So what do the ups and downs of British and French relations mean for business? Should investors take note?

The evidence of the last few years points to a mixed and often counterintuitive picture. The political drama of the Brexit years, for instance, had little effect on trade volumes. In 2015, total trade between the UK and France stood at £65.1 billion. It rose after the Brexit vote to £78 billion in 2017, £82.9 billion in 2018 and £84.4 billion in 2019 but fell again to £67.1 billion in 2020 – the pandemic year.

The same variation exists for Foreign Direct Investment (FDI). UK outward FDI stood at £60.5 billion in 2015, rising consistently every year to reach £85.5 billion in 2020. UK inward FDI stock stood at £69.6 billion in 2015, before rising and falling in successive years to end at £69.1 billion in 2020. The French stock market, however, has overtaken the UK’s as Europe’s most valuable. The CAC-40 has grown by 47% since 2020 while the FTSE 100 has only grown by 16%.

Steady trade volumes between 2016 and 2020 suggest that trade opportunities created by the relative weakness of the pound outweighed any loss of confidence that resulted from political hostility between the UK and France. The rally of exchanges between British and French politicians during the Brexit years were simply par for the course for business – a continuation of the long and complex rivalry between two countries stretching back a thousand years.

The variation in inward FDI since Brexit may be more nuanced, linked to broader investor uncertainty about the UK’s future outside of the EU. The disparity in the value of the French and UK stock market is more structural, linked to the nature of the businesses listed on the CAC-40 and the FTSE100 as well as recent political upheavals in the UK.

The immediate economic future for both countries is difficult but in different ways. Inflation in the UK hit 11.1% in October while inflation in France reached 6.2%. Unemployment in the UK stands at 3.6%, rising to 9.8% among those aged 16 to 24, while unemployment in France stands at 7.3% rising to 18.3% among those aged 15 to 24. Political difficulties are also plaguing the French President, with his party working with a minority government in L’Assemblée Nationale and the IMF stating that the French government should stop its “whatever it takes” attitude to support households and businesses through the energy crisis.

For investors, the key to understanding the effect of British-French political developments on investments means assessing the likelihood that the intense rivalry between the two countries and the relationship between its political leaders translates into policy changes that affect the ease of doing business in either jurisdiction.

In the meantime, the UK and France may soon be fighting it out again, with a quarter-final match between England and France in the football World Cup not beyond the realms of possibility. They could yet have another opportunity to showcase their rivalry to the world.

If you would like to discuss the UK-France relationship in more detail please contact our policy specialist Thomas Sharpe on thomassharpe@wacomms.co.uk.

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Return of the Online Safety Bill

The first month of Rishi Sunak’s premiership has been full of speculation about which of Boris Johnson’s 2019 manifesto pledges he will keep and which he will scrap.

One of the most contentious pieces of legislation coming down the track is the Online Safety Bill. It has been confirmed that the Culture Secretary, Michelle Donelan, is ready to present an amended version of the Bill to MPs after progress on it stalled due to recent political turmoil.

The Bill is intended to regulate social media platforms with the threat of criminal sanctions, including jail terms and fines, if firms do not regulate content. The Bill would assign Ofcom as the enforcement agency for a new “duty of care” that would be placed on platforms included in the scope of the legislation.

With the UK cementing a reputation as the capital of tech investment in Europe, implementing a regulatory framework that is fit for purpose is crucial. Regulatory stability is a core risk assessment tool that can determine the appetite for tech investment.

Coming out of Covid, countries around the world have faced economic downturns, and the tech sector has not been immune. Many firms have cut their online advertising budgets and now some of the largest tech businesses, including Amazon and Meta, are laying off staff.

Investors have also piled on the pressure to cut costs, accusing tech firms of being too slow to react to warnings of an economic slowdown. Now that tech companies are not growing at astronomical rates, investor scrutiny has swung to profitability.

Many investors, faced with inflation, and rising interest rates, are gravitating towards more traditional sectors like energy and consumer staples that deliver tangible goods, make a profit and reward shareholders. Staple stocks are often viewed positively by investors during times of economic uncertainty.

There are obvious headwinds in 2023 for tech companies, and with this backdrop of instability, it is even more important that the sector keeps up with regulatory changes.

Tech businesses have been calling for legal clarity during the period of extensive parliamentary scrutiny of the Online Safety Bill so that they can prepare for the new regulations. New laws contained in the Bill will be applied to companies that host user-generated content, such as images, videos, comments and messaging. The Government estimates around 25,000 search and user-to-user platforms will fall under the scope of the legislation.

With two-thirds of adults concerned about harmful content online, the Online Safety Bill presents an opportunity for investors looking to generate healthy returns in the UK tech space. Tighter regulation will drive out bad actors and grow market share for well-regulated platforms, and there will be a cooling-off period before enforcement activity is initiated, minimising the risk of hefty fines. An online safety regime that is workable and adopts the Government’s aims of addressing illegal content online would make the UK a safer environment for users, where tech companies will have clear responsibilities and greater accountability.

The proposed framework includes giving the regulator powers to compel tech companies to publish annual transparency reports on the content on their platforms. This will incentivise online-service providers to become best in class and allow investors to make informed choices.

Better intelligence sharing on evolving online harms will enable tech businesses to develop products that are safe and less exposed to risk. The Bill proposes a “Safety by Design” framework that’s intended to help companies include online safety features in new apps and platforms from the start of production.

Tech regulation is often presented as a problem child, but it could tackle many of the challenges the digital economy faces. Regulation brings certainty and is critical to value creation. Failing to keep on top of evolving technological trends and threats could have major implications for UK based tech businesses, particularly when other countries are bringing in their own regulations.

There is a fear that the Online Safety Bill could hurt small businesses by hitting them with additional costs, but any teething issues are expected to be temporary and in the long-term, it is anticipated the Bill will boost the competitiveness of smaller tech firms as it disproportionally impacts Big Tech. Curbing the influence of Big Tech will present new opportunities for private equity as it will spur smaller competitors and innovation in the digital market. If investors aspire to identify the future winners in the tech space, their first concern should be understanding the rules which will govern it.

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Autumn Statement 2022: A double-edged sword for a nation in recession

Today’s Autumn Statement paints a mixed picture for the UK, with growth, investment and long-term ambition perching on a knife-edge as Hunt announced a swathe of real terms cuts to public services and immediate tax changes for millions.

The core measures – NHS funding, short-term windfall taxes, and efficiency reviews – all point to the tough decisions a Government facing down a recession has had to take and will undoubtedly reassure the markets. However, it will almost certainly come at a further cost to the Conservative Party’s poll ratings amid fresh criticism of their understanding of the real-world impact of their policies and the OBR forecasting the largest fall in real household disposable income on record.

For Labour, today’s statement presents an immediate opportunity to go toe-to-toe with the Conservatives on the long-term vision for the country, with many of the measures announced today not due to kick in until after the next general election.

It’s all about tax

As ever, tax – freezing it, cutting it and introducing it – is the dividing line between the Conservative and Labour parties, with Shadow Chancellor Rachel Reeves MP immediately jumping on Hunt’s plan to freeze the basic rate tax threshold until 2027-28.

Coupled with the decision to reduce the threshold for higher rate taxpayers by £25,000 a year, today’s tax announcements will prove to be an unpopular move for a Conservative Party which was re-elected in 2019, committed to a low tax economy. The Government urgently needs to repair its reputation with voters ahead of the next general election, but it is unlikely these measures will do so, as it provides an immediate opportunity for Labour to cement its poll lead by going on the offensive over rising taxes and falling living standards.

Cuts, cuts, cuts

For departments now facing reduced real term budgets and efficiency pressures, the door will be open to businesses, industry voices and campaign groups offering solutions which improve the outlook for key industries and make sound economic sense.

Whilst protecting existing budgets until the end of the spending review period in 2025 is a sign of the Government’s commitment to minimising the immediate impact of the economic downturn on public services, ultimately double-digit inflation putting immediate pressure on pay deals coupled with a 2.7% reduction in funding increases going forward, points to a difficult period for a public sector that is already under considerable strain. There are also clear plans for widespread public service reform in the not-too-distant future.

However, with many of these real term cuts backloaded to after the next general election, public spending will now be a difficult territory for both parties – and particularly the Conservatives – as they tussle over long term spending commitments with voters.

Schools, the NHS and social care are cushioned

Additional funding and a public display of gratitude for schools has taken many by surprise, following speculation that the education budget would be amongst those facing a squeeze. The £4.6 billion additional funding announced today will go some way in plugging the funding gap the sector has long highlighted.

Pots of funding were also made available to the NHS and social care sector, totaling £8 billion next year. However, this was followed by an immediate double-edged sword of efficiency measures and improved productivity requirements, with a politically astute decision to announce a review by former Labour Health Secretary Patricia Hewitt to commence next year.

Having put the NHS and schools top of the priority list at the start of his speech, this double-edged sword of increased funding and pressure for future reform of the system is a microcosm for the Tory agenda.

The green agenda

Despite economic pressures, Hunt again reiterated the Government’s commitment to the 2026 COP agreement to reduce emissions, positioning the Sunak administration as more pro-environment than the Truss administration. But the energy and investment measures today suggest there is little meat on the bones for the green agenda.

A short-term windfall tax on energy companies and a new 45% levy on electricity generators might go some way in plugging the energy cost bill and reducing pressure on households, but coupled with a new tax for EV drivers, industry is likely to argue that this Conservative Government just made investment more difficult.

Difficult decisions ahead for everyone?

Taking today’s mixed bag of good news and downbeat outlooks as a litmus test for the debate ahead, there are difficult decisions ahead for senior members of both the Conservative and Labour parties as they consider their future economic policies in the run up to the general election.

The tax and spending picture outlined in this Statement will form the backdrop to an election campaign in which household budgets, long term growth and access to services are a central feature.

There are likely u-turns ahead from the Conservative Party and strongly worded criticism from the Labour Party, but ultimately with the economic realities difficult to ignore. Both parties will be in listening mode and looking for input on reform in regulated industries, the public sector and skills and innovation in order to build a blueprint for prosperity.

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Cabinet reshuffle: who’s who?

Rishi Sunak has reshuffled his Cabinet, looking to restructure government round his key priorities.

With little positive movement in the polls and his government hit by a series of distractions in recent weeks, one hundred days in, this is Rishi Sunak’s attempt to regain momentum and refocus government on his core aims.

The Prime Minister has remodelled government to reflect the areas he wants to make progress on in the next 18 months. Taking over as Prime Minister at a time of economic crisis, making radical machinery of government changes before steadying the ship would have been difficult. He has long articulated his belief that the UK is lagging behind on science, innovation and technology, reflected in what is in effect intended as a new ‘department for growth’. On energy – the policy area that dominated BEIS – it has been clear for some time that the government’s focus is on energy security and resilience.

These reforms – and the ministerial appointments that accompany them – might theoretically be the right thing to do but the big question for the Prime Minister is whether they improve his political standing heading into the crucial election period. Major departmental and personnel changes take time and focus to bed in. They’ll be judged on whether they help meet the ‘five priorities’ the Prime Minister has set out, including driving economic growth.

This reshuffle provides an opportunity for businesses: making their case against these core priorities and helping the government meet their urgent need to show positive news and progress on delivery in these areas. New departments – and the ministers and advisers in them – will look for high impact, well-packaged ideas that align with government (and voter) priorities and create early wins.

To download the new cabinet chart, click here.

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Who’s in charge of resetting Government policy?

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‘The Grown Ups are back in charge’: Analysis of Post-Truss, and Rishi Sunak’s new Government

Last week it looked like Liz Truss’ legacy might not just be the smouldering remnants of the oldest democratic party in the world, but its possible extinction altogether.

Now, it seems her parting act has been something rather extraordinary – and for once, in a good way; the Conservatives now look, and feel, like they are in a more sane and unified place than for quite some time. No one is pretending the polls predicting almost total wipeout aren’t problematic, but the acute desperation that had set in amongst many Tories during the Truss tenure has dissipated, almost overnight.

Having sailed so close to disaster last weekend and the mad flirtation of a Boris return, it was almost as if by Monday afternoon the Conservatives realized they needed to re-find their collective marbles, sharpish. Their roar of approval as Rishi Sunak got to his feet at PMQs yesterday was in stark contrast to the awful, deathly, sickly silence of Truss’ later appearances.

As a first run-out, PMQs was quite spicy, with Sir Keir Starmer going straight on the attack over non-doms and the reappointment of Suella Braverman as Home Secretary, despite her having resigned over a security issue days earlier (watchers of the Westminster runes are suggesting ‘she will blow herself up sooner rather than later’). An occasional slight twitch of the PM’s right leg might have denoted some nerves, however, there was nothing here to cause him undue bother and the performance had his trademark polish.

So, to yesterday afternoon, back to building his team. Probably the biggest surprise of the Cabinet appointments on Tuesday was Penny Mordaunt remaining in the junior post of Leader of the House; she will have expected more – unless this is just a ‘holding pattern’ in expectation of Ben Wallace’s resignation from the Ministry of Defence if he doesn’t get the Truss-promised three per cent of GDP defence spending (allowing him to resign ‘on principle’, releasing him to go after the head of NATO job, which is what he really wants).

Michael Gove regaining his previous empire puts ‘Levelling Up’ right back up the agenda. We can expect Grant Shapps to bring his usual enthusiasm to BEIS and the role gives him ample opportunity to continue his energetic broadcast appearances. Mark Harper’s return to Government in the DfT is good news; he’s universally known as a safe pair of hands and as being ‘all over the detail’. Steve Barclay’s reappearance at health means he knows what to expect, but that doesn’t make the scale of the challenge ahead any less daunting, compounded (as everywhere) by spiralling inflation.

Across the board, there is a real desire to get back to some kind of ‘business as usual’ after this summer and autumn of psychodrama, and real recognition of the need to deliver on a domestic agenda, if the Conservative Party is to claw itself back out of the electoral oubliette in which it’s managed to land itself.

Sunak’s backroom team is also extremely important – not least if they are to swerve the huge structural weakness in Truss’ team; that she didn’t have anyone who understood economic and fiscal policy. Sunak himself, and Liam Booth-Smith, his Chief of Staff, think in Excel – so that issue is at least overcome. As a clear sign of how differently this incarnation of Government is viewed by the markets, they remained overall stable when it was announced the new Autumn Statement would be delayed by three weeks, taking place in November. Imagine what would have tanked if Truss had tried to pull that one off?

Truss’ own Chief of Staff Mark Fulbrook (of Sunday Times ‘under investigation by the FBI’ headline fame) still seems intent on demonstrating real ill-judgement. His suggestion that Truss should reward her N10 team in a resignation honours list has not gone down well. That’s without going so far as to question whether those short-lived advisers would even really want it. Talking to them in the aftermath, ‘bruised’ is the word that comes up time and again. One noticeably leaner advisor darkly joked his smaller waistline was down to ‘the Liz Truss stress diet’.

There is a largely prevailing sense of being embarrassed by having been involved in any of it, and a desire to quickly leave the whole sorry period behind them.

The Government is crossing its fingers and toes, hoping they can do the same with the last three months in the public’s mind.

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Back from the brink? (And a brink it was.)

As Conference got going on Sunday, one MP reflected in expectation of the PM’s speech later in the week that “The best she can do is just drone on for an hour”.

Liz Truss did an awful lot better than that in her speech on Wednesday. After what had been a torrid few days up in Birmingham, it looks like she has possibly just about clawed things back from the brink – though exactly how much breathing space it has really brought her very much remains to be seen. It is unlikely it will have done enough to completely reset where the Conservative Party currently finds itself – which, for the avoidance of all doubt, is certainly not in a happy place – whilst the polls remain so completely dire.

However, the mood in the hall as she delivered her closing note yesterday to CPC22 was positive, buoyant even, and there was plenty of enthusiastic clapping during her speech. She had an incredibly tricky three-fold task to pull off: reuniting warring Tories who are at sixes and sevens over the 45p tax U-turn and benefits uprating; convincing the public the Government is on their side, and steadying the markets.

It’s the economy, stupid

To work backwards through the three – that last one she has seemingly pulled off. The overall economic backdrop remains pretty grim. ONS figures put growth at 0.2% (we are mercifully not in recession – yet), inflation is running at 9.9% and the Bank of England interest rate is 2.25%. But the pound is – at the time of writing – remaining somewhat steady at around $1.13. Those markets received this speech an awful lot better than they did the ‘mini-Budget’ a couple of weeks ago. The clearest possible message was sent to them as the PM unequivocally committed to the Bank of England’s independence in setting interest rates, and that she and the Chancellor would continue to work together ‘in lockstep’.

To some degree it is her own fault that there has been so much speculation over the last few days that Kwarsi Kwarteng would have to ‘fall on his sword’ – she after all had told broadcaster Laura Kuenssberg on Sunday that scrapping the 45p was a ‘decision the Chancellor made’. He is safe for now, but over the last few days has certainly shown little of the ebullience that is his leitmotif, and it will be indicative to see how quickly it returns.

His own keynote speech on Monday was extremely flat and without any announcements. He spoke again, as the PM did in her speech, of the commitment to fiscal responsibility and running a tight ship. But we don’t as yet have any more detail as to how and where more paring in public spending might land. The ‘lean state’ that Truss spoke of yesterday arguably already looks pretty skinny, and former Civil Service colleagues in various departments are extremely nervous about the ‘efficiency savings’ they are expecting to be asked to make.

In terms of total managed expenditure, the three big beasts are the Department for Work and Pensions, the Department for Health and Social Care and the Department for Education. Looked at in the round, the only real place to go for potential ‘savings’ is DWP (of which more later). Any savings from other departments – a few hundred million here, a few hundred million there – will not be sufficient to cover what the Government’s mini-Budget set out, but will still be painful.

‘We have got your back’

There were some very solidly traditional Conservative messages in the PM’s speech: the Party will always be one of low taxes; when the state plays too big a role, people feel smaller; backing business to the hilt; hard work must be rewarded and our children given a better future; our greatest days lie ahead. It just about avoided slipping into pure sloganism bingo. There was nothing here to scare the horses, and it will have been of reassurance to the Party faithful, and the Government will hope, to the wider public.

Because it’s otherwise been an oddly policy-lite Conference – with the announcements that have been made being of a slightly motley nature, and largely in any case overshadowed by negative headlines about internecine warfare.

There was some ‘red meat’ stuff about expanding tagging for offenders and maintaining protecting single sex spaces in prisons – and the proposed curbs on public sector strikes have gone down well with the faithful and right-of-centre/middle ground media. Expanding the small business threshold from 250 to 500 employees should help cut the costs of regulation for nearly 40,000 businesses – though it is slightly less clear what replacing the existing GDPR regime with a British data protection scheme might yet achieve.

Notable by absence was anything of great note in the energy/environment space. A commitment to delivering a ‘world-leading first fusion energy programme’ by building a prototype fusion power plant by 2040 felt quite small-fry, in the scheme of things. There was also an announcement about increasing the Environment Agency’s maximum fines for water companies that illegally release wastewater and sewage from £250,000 to £250 million – but very little mention of Net Zero.

It should be noted, also, that the Government’s three priorities have changed. They used to be growth, energy bills and the NHS. They are now ‘GROWTH GROWTH GROWTH’ – though the Health Secretary and Deputy PM Thérèse Coffey did come in for a good dollop of praise from the PM, and a reiteration of the commitment to two-week GP waiting times. There has also remained throughout Conference a (verbal at least) commitment to the Levelling-Up agenda.

Keeping the show on the road

Many MPs just didn’t bother to go to Conference, and some of those that did (and are certainly not usually of the rambunctious variety) were a mixture of bitterness, anger and something akin to resignation (“it’s fatal, the damage has been done”).

These are the same folk who will be returning to Parliament on Monday – and will be needed to support the PM’s agenda as it further takes shape. If planning reform – as the PM yesterday intimated – is to be one of the first big ticket items, the whips are going to have their work cut out. On that front, enforcing Party discipline seems rather much focused on the ‘stick’ side of things at present. If a few carrots don’t materialize, things are going to fall apart very quickly.

Even leaving aside the backbenchers (it was only ever a matter of time before big beasts Gove and Shapps went rogue) the fact Cabinet at this point seems to be only somewhat loosely keeping things together is extremely problematic.

Admittedly the PM was the one who drove a coach and horses through the notion of collective responsibility when she let drop that Cabinet hadn’t discussed the 45p rate. But even so, to have a serving Cabinet Minister in the form of Penny Mordaunt apparently pre-rebelling over the benefits reform (and whether uprating is pegged to wages or inflation – the former amounting to a cut in real terms) before any decision has been announced is quite something.

The latest YouGov polling puts Truss at minus 59 approval rating (Boris’ at the end was minus 53). So, the Conservatives have three options. One: leave her there and hope things get ‘better’. Two: somehow engineer a coronation replacement and cross fingers that the country wears its fifth PM in six years. Three: throw it all up in the air, call a General Election, force Labour to take control and deal with the world as it is, with the gamble of it ensuring they only serve one term.

Options two and three do as yet still feel drastic, but the Conservative Party does somewhat, at times, have the propensity to shoot itself in face rather than the foot.

Conference might be over, but the PM’s problems certainly have not gone away.

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Is Labour Back?

There is a clear change of mood within the Labour Party. This year’s Conference didn’t feel like a party still riven with the internal battles of recent years. Keir Starmer has complete control of the National Executive Committee and party machine, the ‘grownups’ are running the show and the suited young men and women, and corporate sponsors are back in force.

Importantly, following the Conservatives’ disastrous fiscal event and consequential Sterling crisis at the end of last week, there is also genuine belief seeping back into the assembled activists, councillors, MPs, and shadow ministers, that their years of opposition could be coming to an end.

Some key take-outs included:

It’s still the economy stupid: Rachel Reeves is considered a class act and has carefully manoeuvred the Labour Party to be seen as a safe pair of hands with the economy, spending time wooing business and dramatically improving her media performances. Not quite believing the gift that was handed to her last Friday, she now needs to occupy the ground of economic competence that has been vacated and consolidate Labour’s poll boost.
Some meat on the policy bones: while caution remains the watchword of Labour this week, we have started to see a pattern emerging of what a Labour government could look like with some interesting announcements. A commitment to R&D spending to support innovation at the heart of a new industrial strategy; rail re-nationalisation (the populist nationalisation), helped enormously by the Herculean task it took to get Liverpool on a train; reinstating the top rate of tax; a National Wealth Fund, offering returns for taxpayers while targeting investment towards infrastructure; zero carbon energy by 2030; new powers to local and regional leaders; and a commitment to substantially increase the percentage of social housing as part of the UK’s housing stock. All solidly centre left policies that hark back to the days of Labour governments past.
Handed a poisoned chalice: Yet the legacy they would inherit if elected, will be nothing like the favourable conditions that Labour found in 1997. The room for manoeuvre for an incoming Labour administration is non-existent; for example, the £28 billion a year borrowing identified to tackle climate change no longer exists because of the spiralling cost of UK debt. As one leading light in the party said, “the problem with referring back to the 1972 Barber budget, is that it was a Labour government in 1976 that had to go to the IMF to repair the damage and then pay the price in 1979.”
Country first: Keir Starmer capped off an encouraging week for Labour with easily his best speech as leader. While he will never provide the soaring oratory of Blair or Brown, he has grown into the role, and he gleefully occupied the space that had been gifted him at the centre of British politics with the departure of Johnson and the tilt to the right under Truss. While the rhetoric of ‘country first’ has not been seen since the conference speeches of Tony Blair, he is probably the wrong comparison. Instead, Keir Starmer represents a Labour tradition closer to John Smith, Harold Wilson, and indeed Clement Atlee. The question that will be answered at the next election is, is the country ready once again for a re-pitch of classically social democratic policies packaged up for the challenges of the coming decade.

As things stand, and buoyed by commanding leads in all polls, Labour look set to form the next government. This comes with huge expectations and pressure. They need to be providing their answers to the overwhelming challenge facing the country, which are only set to get worse over the next 12-18 months.

For business, it’s no longer just about just ‘paying attention’ to Labour, it’s engaging with the people, priorities and policies that are looking increasingly likely to be those of the next government.

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What are the chances of a breakthrough on the Northern Ireland Protocol?

In the early hours of 8 December 2017, a bleary-eyed Theresa May shook hands with a sleepy Jean-Claude Juncker on an interim Brexit agreement, supposedly resolving the issues around Northern Ireland. That handshake has plagued the UK’s relationship with the EU ever since.

The interim agreement was supposed to allow progress in the exit negotiations to move to other issues such as trade. For a while it seemed to do so, but recriminations soon began. In June 2018, then Secretary of State for Exiting the EU, David Davis, was actively briefing against the so-called Northern Ireland backstop. He resigned the following month. By December 2018, then First Minister of Northern Ireland, Arlene Foster, said removal of the backstop ‘has been our message from the day a backstop was conceived.’

That was then. What about now? Despite agreeing to an amended Protocol and backstop as part of a revised Withdrawal Agreement in December 2019, the British government argues that the Protocol in practice is not working as it should. Rather than maintaining Northern Ireland’s place in the UK and its internal market, the government believes that it is doing the reverse: threatening the province’s economic settlement within the UK.

With images of food shortages in Northern Ireland and complaints of burdensome customs paperwork, the UK government has evidence to back up its assertions. The EU for its part argued that the Protocol is a consequence of Brexit and the only solution to challenges in Northern Ireland.

But the consequences are more than economic. In May, the republican Sinn Fein party became the largest party in Stormont. For the first time since power-sharing in Northern Ireland began in 1998, there would not be a unionist politician as First Minister.

The second largest party in the May elections was the unionist DUP. But its leader, Sir Jeffrey Donaldson, stated that his party would refuse to nominate a deputy first minister, unless the Northern Ireland Protocol were replaced. The DUP blames the Protocol for endangering Northern Ireland’s economic and constitutional settlement with the UK and since the Executive requires cross-community consent, there can be no government unless the DUP changes its mind.

The deadline for forming an Executive is not infinite. Unless an Executive can be formed by 28 October, further elections will be held. Political instability in a constitutionally fragile province during a cost of living crisis is not an ideal situation.

But there might be light at the end of the tunnel. Vice-President of the European Commission, Maros Sefcovic, has said in recent days that the pressure of the Protocol and the restrictions placed on trade could be reduced. Checks on only a few lorries a day would be required if the UK were to agree to the EU’s new plan.

It sounds almost too good to true.

The EU’s new plan would require the UK to provide the bloc with real-time data on trade movements. According to Sefcovic, checks would only take place ‘when there is reasonable suspicion of…illegal trade smuggling, illegal drugs or dangerous toys or poisoned food’.

Will the UK agree to it? Not publicly at the moment. As well as unilaterally extending grace periods, initially intended to ease the transition for Northern Ireland and Great Britain into the Protocol arrangements, the Government has a further proposal of its own. The new Prime Minister, Liz Truss, introduced the Northern Ireland Protocol Bill in Parliament in June while she was then Foreign Secretary. This Bill would seek to unilaterally disapply those parts of the Protocol that the government believes are hampering the constitutional and trade relationships between Great Britain and Northern Ireland: customs processes, regulations, tax issues and governance.

Speaking in Parliament in her first Prime Minister’s Questions, Liz Truss re-stated her preference for a negotiated settlement but that this had to ‘to deliver all the things that we set out in the Northern Ireland Protocol Bill.’

The EU cannot countenance the UK taking unilateral action to extend grace periods and disapply parts of the Protocol and is taking legal action against the British government. Both the UK and EU have solutions they claim to be practical and logical. But neither, it seems, wants to accept the other’s solution.

Which means that uncertainty – the great enemy of investment – remains a real and present danger in Northern Ireland. The next early morning handshake to try to resolve issues in Northern Ireland is a long way off.

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Who’s in charge of fixing crisis Britain?

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Descent into the fire

The next in our series of insight pieces from Amy Fisher looking behind the scenes of the Conservative leadership campaigns.

As predicted this time last week, things have gotten very personal, very quickly indeed. Only Tom Tug in the debate last night really made any attempt to try to point out the circular nature of the firing squad. This was of course in the context of his own pitch as being a ‘clean start’ – which, irrespective of what happens in the next vote amongst MPs later today, already has more than a whiff of the ill-fated Theresa May’s ‘strong and stable’ slogan.

A large part of what has tipped this over into toxic warfare have been the televised debates themselves. Why any of the candidates agreed to do them is a bit baffling.

Whilst the public at large might rail against this, it’s a simple truth that until it is whittled down to the final two candidates (this week) and then the final winner (by 5th September), it’s only the MPs and Party members that really matter- in the sense it’s only they that have an actual vote in who becomes the next PM.

TV hustings also take an inordinate amount of time in preparation (not that Truss’ performance yesterday in reading her closing statement necessarily bore this out). Why haven’t the candidates instead spent their time more aggressively wooing Parliamentary colleagues?

These debates are also extraordinarily high risk – something Sunak and Truss have, belatedly realised: the next one (scheduled for Tuesday) has now been canned once they said they would not take part. How on earth did none of the advisers spot that each candidate being able ask another a question, as per last night, was going to going to be anything other than mutually assured carnage? The truth is that a lot of them are inexperienced and untested in either/both policy formation and/or campaigning. It did make for great TV though.

On the advisory front, I’ve been a little surprised by Penny’s lack of real detail on the fiscal/economic front. I would have expected her to have shown a bit more concrete thinking on the growth agenda. She’s being advised by Gerard Lyons, who at one stage was seen as a credible contender for Governor of Bank of England after Mark Carney.

I don’t wish the above to look as though I am jumping on the ‘get Penny bandwagon’. It’s just that having risen so spectacularly at the end of last week, the wheels seem to equally quickly be coming off the bus. I have to admit that I’m sceptical of over-hyping the use of ‘dark arts’. The problem with the furore about her views on trans’ rights and today’s story that she met the Muslim Council for Britain is that (a) she does seem to have previously held a position on self-identification that the Party just won’t wear, and (b) she did by her own tweet confirm she, well, met them.

So, the two “favourites” remain Rishi and Liz. There is no doubt at all that each camp will have been doing ‘due diligence’ on the other; the only question being when the material is deployed for maximum effect (read: damage).

Of course, there are some ‘true believers’ in each of the camps. But the reality is most of the Party are trying to game the least-worst option. In any number of Tory WhatsApp groups and exchanges over the weekend, the phrase ‘end of days’ is one appearing time and again. An ex-minister I spoke to over the weekend told me “Now we’ve gotten rid of Boris, none of it’s good. But it was a Hobson’s choice that he had to go”.

It was always going to be a Herculean task for the Conservatives to win a fifth term in 2024. To channel Boris, it’s a very real possibility the Party will make it a Sisyphean one by spending the summer tearing itself apart.

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My week in Westminster

Jack Powell reflects on his week of work experience in the world of public affairs

It would be easy to think the world of public affairs is currently dominated by the buzz of the Conservative leadership election. After all, within only a week in Westminster I have picked up on this buzz myself. But it is actually so much more. My week of work experience at WA Communications has taught me that the work that is undertaken is about the weird and wonderful processes and events within a parliament that never rests, even when the world’s attention is on Liz and Rishi.

It would be counter intuitive to say the dominance of the leadership story has no effect on the work of public affairs. Clients want insight; they want to know what Liz or Rishi would think of their company or how policy they may introduce would affect them. This morning, for instance, I was probing through the depths of Twitter to uncover the candidates’ views on the housing support fund. Of course, this is not a centre-piece policy up for debate in the leadership race, but it will nevertheless will be a part of their time in office as Prime Minister and is still of interest to countless businesses across the UK.

I did take the opportunity to indulge in the drama of the leadership race by attending a husting for Liz Truss’ campaign on Tuesday afternoon. At the event, I took the opportunity to ask her about larger issues, such as her tax policy and commitment to pragmatism, and to contribute to the debate around the future of the Conservative Party. This was a big change from the very same morning, when I watched the five-hour second reading of the public procurement bill in the House of Commons, which will have gargantuan implications on how the procurement sector will operate. It just goes to show that whilst column inches are focused on the leadership race, arguably bigger decisions are being made in the corridors of power for some sectors.

So, what I’ve learnt from the week is that although the media is glued to the Twitter accounts of our prospective Prime Ministers, pre-empting who the next Chancellor may be, or even the price of Liz’s earrings – the world of public affairs is not. They are in the background, continuing to fight for companies and push for policy change. And that is the real world of politics.

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Who will define Conservatism in 2022?

Down to the last two leadership candidates, the country will now see a string of nationwide hustings for Conservative Party members, meaning an intense (and, at times, uncomfortable) summer-long debate. Like it or not, the choice of the 160,000 Tory party members will define what it means to be Conservative in 2022.

As the two candidates, former Chancellor Rishi Sunak and current Foreign Secretary Liz Truss, go head-to-head, their policy announcements to date promise to take the Party in two distinctly different directions. Who wins will determine the road ahead for Conservatism up to the general election and beyond.

Perhaps most fundamentally, the candidates differ on their approach to tax and spend, butting heads on who has the most legitimate claim to Thatcherism 2.0. Both want to create a smaller state with (eventually) lower taxes but differ on when and how to implement these. Sunak advocates fiscal responsibility, vowing to tackle inflation before making any cuts. Truss would cut taxes on day one as Prime Minister, with an Emergency Budget and new spending review paving the way, presumably, for shrinking government departments.

Without a doubt, the cost-of-living crisis will be one of the next Prime Minister’s biggest challenges, and how the candidates tackle it will likely define their premiership. With the exception of Sunak, all of the candidates in the race made commitments to do more to support people. Sunak has remained adamant that the best thing he could do to combat the cost-of-living would be to curb inflation. If he wins, he will come under huge pressure to go further.

On Brexit, neither camp will want to appear to the Party membership to be taking a soft approach towards the EU. Behind the scenes, however, the Northern Ireland Protocol is another area of key difference between the two candidates and will redefine the UK’s relationship with Europe. Sunak, after three years in the Treasury, remains alert as ever to the economic impact of policy decisions, and leans towards compromise. Truss, conversely, wants to cement her position as the hardline Brexiteer despite (or because of) voting remain in 2016.

Ultimately, this is a fight for the right of the Party. Sunak wants to distance himself from Boris Johnson’s high-spend ‘Cakeism’, while Truss seeks to woo the traditional heartland with immediate tax cuts. The challenge for both candidates, upon becoming Prime Minister, will be to unite a party that includes the European Research Group, Red Wall and One Nation Tories, and everyone in-between before the next general election.

Tax and spend

The candidates have already clashed bitterly on tax and borrowing. Sunak has branded Truss’ policy socialist, whilst she has argued that he would push the country into a recession.

Sunak insists he is a low tax Conservative. However, he will not make specific pledges to cut taxes until inflation is brought under control. In truth, he cannot plausibly pledge tax cuts now, having overseen some of the largest tax rises in recent years. He’s standing on a soapbox of fiscal responsibility, advocating low spend with future cuts on the horizon when the time is right.

Truss, on the other hand, would cut taxes on her first day in office. She has so far pledged to reverse Sunak’s increase to corporation tax and National Insurance, costing the Treasury over £30 billion. She would generate fiscal firepower by paying back the £311 billion Covid debts over a longer period – treating them akin to Second World War loans.

It is difficult to see how two political heavyweights with such opposing economic ideology could work together in a cabinet of collective responsibility. It is highly unlikely that either candidate will serve in the other’s government, instead retreating to the back benches or (in Sunak’s case if he does not win) from politics altogether. The bigger concern for the Conservative Party is whether MPs can unite around the winner to support the implementation of their fiscal policy. Whichever path is chosen, the Parliamentary Party must wholeheartedly support it if they are to stand the chance of winning the next election. If voters get any whiff of squabbling under the new leadership, the new Conservatism may end up being defined by its time on the Opposition benches.

Environment

The environment, in particular the 2050 net-zero target, had all the candidates in this race equivocating to a greater or lesser degree. Eventually, all of them pledged to support the 2050 net zero target.

While it is likely that the long-term target will remain untouched, the short-term route towards this goal looks set to be abandoned or revised, in no small part due to the cost-of-living crisis. Sunak has pledged to increase renewable production (offshore rather than onshore) and build more electric car charge points, though he has yet to announce any detailed environmental plans. As Chancellor, he largely avoided talking about net zero and some accused him of blocking green policies that had any associated spending implications.

Truss committed to net-zero reasonably early in the contest, securing the backing of notable green Tories including Vicky Ford and Simon Clarke, both of whom have cited her support of Cop26 as one of their reasons for supporting her. So far though, she has pledged to ‘pause’ green levies on energy bills to save households £153 each to help ease the cost-of-living crisis. She also wants to lift the fracking ban. As Foreign Secretary she rarely bought up environmental issues in speeches or with counterparts, and as Environment Secretary she cut subsidies for solar farms calling them ‘a blight on the landscape’.

The biggest challenge for both the candidates here is that the party membership is at odds with the wider electorate on this issue. A recent poll in The Times puts the environment at the bottom of the top ten concerns of party members, and a YouGov poll found that only 4% of members believe net zero should be a priority. Contrast that with an April poll that put broader public support for net zero at 64%. It’s true that the race for leadership means the candidates have to focus on the first group, but if they want to be serious contenders in the next general election, then what?

Levelling Up

There has been a distinct lack of enthusiasm from any candidates for Johnson’s flagship ‘levelling up’ agenda. This may be a decisive move to distance themselves from his premiership, but they have not indicated what they would do for the Red Wall that won them the last election so decisively. Neither candidate wants to make commitments that would be costly to the public purse, and broadly speaking they both want to focus on reducing spending and shrinking the state.

So far, Sunak has committed to keeping a Cabinet Minister for levelling up and has promised to ensure that every part of England that wants a devolution deal gets one. He has also pledged to devolve powers on business rates to mayors and look at the devolution of post-16 education. He said he will work closely with local leaders on the future of transport investments, including Northern Powerhouse Rail.

Truss has promised to create ‘low tax zones’ across Northern England with low business rates and few planning restrictions, making it easier and quicker for developers to build on brownfield land.

Both candidates have committed to the Northern Research Group pledge card but must try harder than this to incorporate the Red Wall into their new Conservatism if they want to count these votes at the next election.

Brexit

Sunak voted Leave and his voting record has been consistently pro-Brexit. At the Conservative Party Conference last year he said “I believe the agility, flexibility and freedom provided by Brexit would be more valuable in a 21^st century global economic than just proximity to a market.” He has said he will create a Brexit Delivery Department tasked with reviewing all 2,400 laws inherited from the EU. He wants to scrap and replace GDPR, overhaul laws governing the City of London, and speed up clinical trials. It is thought that he might move on the Northern Ireland Protocol and seek compromise with Brussels, though giving any suggestion of doing so at this stage in the leadership contest would be extremely high risk.

Despite voting to remain in the EU in 2016, Truss is seen, counterintuitively, as the hardline Brexiteer. She wants to reform the European Court of Human Rights but is prepared to withdraw from it if necessary. As Foreign Secretary, she introduced a Bill to unilaterally override some post-Brexit trade rules for Northern Ireland. Her supporters claim she plans to drive forward regulatory divergence from the EU, including overhauling business regulation to spur a more dynamic economy.

It’s hard to believe this is still an issue for voters six years on, but perhaps the Conservative Party will never be able to shed its complicated history with Europe. Nevertheless, the candidate that wins the leadership race will be responsible for forging a new relationship with the Continent, and how they do so in the next couple of years is likely to redefine the Party.

The missing piece?

Both candidates were participants in the outgoing incarnation of government. This should, in theory, make it a little awkward to disavow everything it has done. Although, it has seemed to trouble Truss rather less, leaving Sunak sharply and repeatedly reminding her of the notion of ‘collective responsibility’.

The candidates need not deny its achievements. But they do need to acknowledge the elephant in the room: that the leader that won them an 80-seat majority was ousted by Conservative parliamentarians less than three years later for serious and serial questions over the ethics of his Government, and of himself. Conservatives fundamentally believe in upholding the unwritten constitution and its conventions, but events of the Johnsonian era have undermined one of the central assumptions of our country’s democracy: that the Prime Minister acts as the guarantor of ethical government. In order to build a new, resilient Conservativism, they must reassure voters that this will never happen again.

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Things hot up

Former Government Special Adviser and WA’s new Director Amy Fisher shares her inside track and perspective on the Conservative leadership contest so far, as well as its wider implications for the party going forwards.

Dubbed a ‘wacky races’ line-up of those who’ve put themselves forward for the Conservative leadership, we will at least by the end of the day (with nominations having been made) have an idea of who actually will be in the running – and so who will need to crank up the wooing of fellow MPs over the coming days. Rishi had a good turnout for his drinks last night; one assumes he’s plenty more rose on order. He’s increasingly looking like the Djokovic of this – there may be challengers to the crown, but the favourite no doubt to make it to the last two.

So now the real trouble starts.

Since the starting gun was fired last week with Boris Johnson’s ignominious departure, things have been … brutal. The amount of briefing about, against and amongst the various ‘runners and riders’ has been vicious – and we’ve got a long, hot summer of this to go. Questions have been asked over one (not known for playing ‘nicely’ shall we say) Dom Cummings’ involvements with Rishi’s campaign; it’s somewhat irrelevant as to whether there is any kind of ‘arrangement’. Dom will do what Dom does, which is to blow everything else up so long as he gets what he wants. And a Rishi premiership seems to be it.

I’m worried by what the Party looks like at the end of this, by the time the candidates have finished taking clumps out of each other. This is personal. The last two leaderships (2016 and 2019) weren’t necessarily pretty, as such. But they were about the single issue, really, of Brexit, and to coin a phrase, who was going to get it done. This just isn’t – and with all the smears and allegations of smears already flying around, it’s somewhat ironic that this whole contest was prompted by folk’s collapse of faith in the last chap’s integrity and transparency.

The Party has always had a veering towards being its own worst enemy. I hope this batch of candidates can at least bear in mind that at the end of it all, they will need to form a Cabinet and Government of some kind of unity (not easy if you’ve spent the last eight weeks taking pot shots at each other).

However, new partnerships as the field thins out will be formed. This is where things get interesting- not least in the context of the looming 2024 GE (which CCHQ is very much focused on, and therefore so very much welcomed this leadership contest being sooner, rather than in say 6 months, time). These partnerships are make-or-break, in terms of political success and longevity. Where would Blair have been, were it not for Brown? Same question of DC without George? How each of the candidates shores up their economic offering, possibly with a running mate, will be one to watch – all of these pledges and the ones to come are after all at some point going to need properly costing.

In the last twenty years of my experience, the pendulum has tended to swing from one side to the other in terms of what the Party seems to look for in its leader. Michael Howard, safe pair of hands, DC, ‘star power’, TM back again, then Boris.

Undoubtedly what the Party, and the whole country needs, is some steady-as-she-goes form of Government, which the next few weeks most certainly are not going to be – not least if Boris, as he pledged yesterday to do, really is going to try and deliver all his manifesto commitments before he goes.

Still, by 5pm tonight, we should have a candidates’ slate that’s less like an actual cartoon.

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The last days of Boris Johnson and the leadership contest

Normally Tory MPs are entirely relaxed about an outgoing Prime Minister staying on during a leadership contest. Indeed they welcome what is often seen as a smooth transition. Now a lot of them are disturbed that Johnson is still in Number Ten and might be there for a couple of months. The context explains why. Johnson is going because an army of ministers and MPs said that he and his operation could not be trusted. Yet they are allowing a figure they do not trust to remain in office over a period in which quite a lot could happen, from developments in Ukraine to strikes in the UK. They fear what Johnson might do. More fundamentally this is a government in paralysis as the economic crisis deepens. No one knows who will be Prime Minister and Chancellor by the time of the Autumn Budget or what their economic policies will be. The same applies in all other departments. The new Levelling Up Secretary, Greg Clarke, had told his senior officials that he will only be in post for a few weeks.

The key meeting will be on Monday when the newly elected 1922 Committee meets to decide the form and timing of the leadership contest. The chair, Sir Graham Brady, has made clear they have no powers to remove Johnson immediately but they can determine the amount of time he has left as PM by deciding on the timetable for the contest. Those MPs keen to be rid of Johnson and the paralysis as soon as possible are calling for a short contest that is over “within weeks”. Others are less sure pointing out that the election of a new Prime Minister should not be rushed. My sense is that the first round where only MPs have the vote will be concluded speedily, by the start of the summer recess. Probably the final two candidates will be given until early September before the final vote of party members. A new Prime Minister and government would be in place for the return of parliament and the Conservative conference.

Most immediately, expect a large number of MPs to declare that they plan to stand. Already the number of declarations is in double figures. Farcically this is the weekend when MPs can fantasise that it might be them that can seize the crown. Around a third of the former cabinet are contemplating a bid and an array of backbenchers. Conservative leadership contests rarely go to plan, but I can report that quite a few MPs are saying “it’s time for a soldier”, referring to the likes of the Defence Secretary, Ben Wallace, or the backbencher, Tom Tugendhat. But there is little point speculating until the field is narrowed a bit after this coming weekend of indiscriminate and delusional displays of personal ambition.

Almost inevitably the pitch of all candidates will be towards a more rigid form of fiscal conservatism compared with Johnson’s ‘cakeism’ support for the hard Brexit and a battle over the Northern Ireland protocol, combined with a new focus on standards in public life. The membership is more or less the same as the one that elected Johnson in 2019. Although if they go for Wallace it would be quite a leap in some respects. Wallace was a remainer and has not become an evangelical convert like Liz Truss.

The challenge for whoever wins is to square the circle. A lot of Tory MPs want tax cuts and higher public spending on defence, levelling up, NHS and social care, and local transport provision. Johnson’s coalition of red wall former Labour voters and traditional Tories in the south was bound by Brexit, his personality and his ‘cakeist’ approach that drove Rishi Sunak to despair. How will Johnson’s successor keep that coalition intact, not least when by-elections suggest that it is already fraying? This political background becomes more complex given the current state of the economy. Treasury officials I speak to fear a recession will be difficult to avoid. Then there is the thorny issue of the fuel price cap rising again in the autumn. A fiscally conservative Chancellor will be reluctant to borrow more, but he or she will probably have to in order to further ameliorate the ‘cost of living crisis’.

There will be a new Prime Minister and government in place by September. Until then there is a vacuum unless the 1922 committee decide to shrink the timescale of the contest to a couple of weeks, not impossible but unlikely. Boris Johnson answering questions at Prime Minister’s Questions in the Commons next Wednesday will be as weird as last week when he spoke as if he had years more in power.

The race to succeed Boris Johnson is wide open, with candidates from across the party jockeying for position. Ahead of the election kicking off next week, WA has mapped out the process that will determine the next Prime Minister, and the key runners and riders looking to lead the next Government.

You can download the full briefing here:

Who replaces Boris Johnson?

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Hanging in the balance? What we can learn from the local elections

Boris Johnson lives on to fight another day. The local election results were bad for the Conservatives but not good enough for Labour. Johnson’s MPs are not terrified enough to remove him in the immediate aftermath. I suspect the elections were never going to be the trigger. Leaders can always point to a success somewhere in the country. In his case, Johnson notes that parts of the so-called ‘red wall’ are holding firm.

This does not mean Johnson is safe for the long term. Over the weekend I spoke to several Tory MPs alarmed at the collapse of support in London and the south of England. They fear a fatal dynamic, the Liberal Democrats gaining seats from them in some parts of the country and Labour doing the same elsewhere. Their anxieties deepen when they reflect that the cost of living crisis is likely to intensify.

Johnson’s first substantial response to the election losses takes the form of tomorrow’s Queen’s Speech, a legislative programme composed with the next election in mind. The forthcoming Brexit bill is emblematic. Nearly all the initiatives aimed at moving away from EU regulatory frameworks have already been announced. By putting them together in a bill, Johnson seeks to make Brexit a defining issue once again. Similarly, I am told that some of the proposals that will be included in a ‘levelling up’ bill do not necessarily require legislation. The theme is what matters as much as the content. For businesses wondering what the dividing lines will be at the next general election, Johnson’s words in the Commons tomorrow afternoon following the Queen’s Speech will provide part of the answer.

What is not in the Queen’s Speech is also as significant as the content. For all the huffing and puffing there will be no bill clearing the way for the government to unilaterally disown the Northern Ireland protocol. Even Johnson at his most populist does not want to alienate the Biden administration and the EU in quite such a provocative manner, not least with the Ukraine crisis far from resolved. Even so, expect renewed ministerial attempts to renegotiate the protocol in the next few weeks, accompanied by threats to trigger Article 16. The other ‘missing bill’ on housebuilding is also a sign that Tory backbenchers are becoming more muscular. Johnson’s plans for what was one hailed as a “house building revolution” are dumped as a result of the insurrectionary threats from Conservative MPs in the south of England.

The calm ceremony of the Queen’s Speech will be in marked contrast to the wider political storms. Politics has rarely been more topsy turvy. For months there was speculation about whether Boris Johnson could survive ‘partygate’. Now there is a near panic at the top of the Labour Party about Keir Starmer’s fate being in the hands of the Durham police.

We do not know what the police will decide in its reopened investigation. But if Starmer survives, shadow cabinet members reflect privately that there are already lessons for him arising from ‘Beergate’. The first is that he will face hostile newspapers that are out to get him and to hail Johnson. Although he has sought to be as inoffensively ‘centrist’ as Tony Blair was in the run up to 1997, he is not going to enjoy a similarly supportive set of newspapers. The Daily Mail, The Sun and The Telegraph have played down Johnson’s partying and propelled Starmer’s work meeting in Durham to the top of the political agenda. At the very least they have succeeded in neutering Starmer. He was due to give interviews at the weekend and attend an event today at the Institute of Government. To the bewilderment of some in the shadow cabinet these were cancelled. If Johnson gets more penalty notices while the Durham police continue their investigation, Starmer’s response will be impossibly constrained. I have spoken to several shadow cabinet members who are genuinely worried about this development and what it might portend. Even if Starmer is cleared, he knows he must be prepared for a newspaper onslaught similar to that experienced by Neil Kinnock. His media operation will need to be much more robust in the face of inevitable further attacks.

The local elections suggest that a hung parliament is a possibility after the next general election. This would mean a minority Labour government or a Lib/Lab coalition. None of the other parties would do a deal with the Conservatives. For businesses trying to make sense of the current wild political context perhaps the most useful comparison is with the two elections in 1974 that took place during an economic crisis even deeper than the current one. There was considerable disillusionment with both major parties then and their leaders. The Liberal party was enjoying a revival and in a minor way so was the SNP in Scotland. The February 1974 election produced a hung parliament and the October election a few months later gave Labour a tiny overall majority. Over the last weekend Number 10 carried out an effective spin operation suggesting Johnson was fairly pleased with the election results. If he was, he must be delusional.

Perhaps the most significant results were in Scotland and Northern Ireland. The SNP wins every election in Scotland almost as a matter of course. Some Tory and Labour MPs wonder whether this will change until there is a second referendum. Nicola Sturgeon can always deploy the Westminster resistance to another poll as a weapon: Scotland votes for independence but Westminster won’t allow us to have a referendum. Labour is taking comfort from coming second in Scotland and some at the top of the party dare to hope it might win a few more seats there at the next general election.

The rise of Sinn Fein in Northern Ireland was perhaps inevitable following Johnson’s chosen Brexit route. Although he protests about the subsequent protocol, he was the one that proposed a border between Northern Ireland and the rest of Great Britain. There would have been no such barrier under Theresa May’s Brexit deal. Inevitably Northern Ireland’s economy moves closer to Ireland’s and is more distant from the rest of the UK, not a bad context for Sinn Fein to make its moves. This does not mean a united Ireland is a feasible prospect in the near term, but it becomes part of a destabilising mood in which a significant number of voters in Scotland and Northern Ireland want to break away from the UK. Johnson is not well placed to address the situation as his presence and conduct fuels the mood.

The key developments to look out for in the coming months are the Gray report and the end of the Metropolitan police investigation, the outcome of the Durham police investigation, embryonic leadership campaigns on both sides, a reshuffle if Johnson survives the Gray report, but above all the build up to Rishi Sunak’s budget in the autumn, a pivotal event and one made more demanding by the failure of his Spring Statement. On many fronts get ready for a turbulent summer and early autumn.

Steve will be unpacking what the government’s legislative programme will mean for businesses and, in the wake of the local elections and what we can expect from the next parliamentary session in the latest WA webinar at 9am on Wednesday 11th May. You can register to join the event here.

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Boris Johnson is Safe… For Now

On the surface Boris Johnson commands the support of nearly all his MPs. He will derive some comfort from this public display of loyalty. In terms of his future, the relationship with the Conservative parliamentary party is all that matters. Quite a lot of voters may tell pollsters that they regard Johnson as a ‘liar’. Normally calm constitutional historians and Archbishops may fume. Parts of the media and Twitter can be in uproar. But, as long as Johnson keeps his MPs on board he can carry on. The power to remove him lies with Tory MPs alone. During his post-Easter statement to the Commons, the first since he received his penalty notice for the birthday party in Number Ten, only one backbencher called on him to go.

But the surface does not tell the whole story. Over the bank holiday I phoned several Tory MPs including a few who are uneasy about their Prime Minister becoming a ‘law breaker’. They told me they would not contemplate for a single second speaking out in public against Johnson before the local elections. Their party members are spending their spare time campaigning energetically and they would not undermine such effort by condemning their party leader. They would never be forgiven by activists if they did so. In other words the May local elections are a big protective shield for Johnson and also a threat. In advance of the vote, quite a lot of Tory MPs feel they have no choice but to suspend judgement. Any critical quotes would help Labour. That does not mean their support is guaranteed if the Conservatives perform poorly in the elections.

As has been the case since ‘partygate’ erupted, the mood of the Tory doubters in the parliamentary party fluctuates on a near daily basis. There have been times when they were ready to make a move against Johnson. On other occasions they are resolved not to do so. Ukraine is another factor fuelling the changing judgements, although from my conversations this is becoming less potent compared with the fact that that important elections loom. Political parties are at their most tribal during a campaign. There is another reason why the mood constantly changes. Many of the MPs, especially those from the ‘red wall’, are new to national politics. Suddenly they face the most daunting of decisions, whether or not to remove a Prime Minister. They do not quite know what to think or what to do.

In reality the parliamentary party divides into three sections. There are the Johnson loyalists who will stick with him even if he receives more penalty notices and the Sue Gray report is damning. There is a tiny minority for now calling for him to go. In the middle there is a significant section waiting to see what happens next. That includes some ministers who are unsure how this is going to play out. All are loyal for the time being except for the significant resignation last week of Lord Woolfson, a Justice Minister. It’s easier for peers to resign when local elections are being contested. They are above the electoral fray. In some cases Johnson cannot assume that loyalty will endure across the government after the May elections.

The strategy in Number Ten, a more nimble operation after recent changes, is clear. They call for “perspective” as Johnson focuses on Ukraine, the cost of living crisis and his plans for dealing with the migrant crisis. Johnson’s every move is made with his own survival in mind. He and his new inner circle know he is not safe yet. Johnson seeks to be the indispensable ‘man of action’, visiting Kiev earlier this month and off to India this week. After his act of contrition in the Commons he delivered a different more upbeat performance to his own MPs at a private meeting, linking his plan to send migrants to Rwanda with an attack on the BBC and the Archbishop of Canterbury, suggesting they were soft on Putin. This is a classic Johnson tactic, seeking to tick several boxes in a single assertion. He knows most of his MPs approve of the Rwanda scheme, admire his approach to Putin and are angry about the BBC and the Archbishop. After the May elections Johnson plans to unveil a Queen’s Speech that will again be aimed at pleasing his MPs with bills on ‘levelling up’ and other legislative items that he will claim represents the ‘people’s priorities’.

But Johnson and his advisers are not wholly in control of events. The metropolitan police investigation continues without any indication of which party is being scrutinised and when the next penalty notices will be handed out. No one in Number Ten knows when the investigation will end. When it does the Gray report will be published and, on the basis of her interim findings published earlier this year, it will be damning. In his Commons’ statement Johnson focused only on the Number Ten birthday party. If charged for other events he will have to find new explanations. Johnson has a distinct capacity for climbing out of deep holes. But he is not entirely lacking in self-awareness. Indeed he can be introspective and melancholic at times. Mostly I hear from his allies how he is robustly determined to keep going but one did note that this crisis is getting Johnson down. With his ‘Churchillian’ sense of destiny, being the first prime ministerial law breaker was not meant to be part of the narrative.

The context is as much a key to his fate as the scale of the law-breaking. If the Conservatives do badly in the local elections and Labour soar, Tory MPs will begin to worry about whether they will lose their seats. The elections next month might not be as clear cut as that. They rarely are. But then there is the Wakefield by-election probably to be held later in the summer, a big test for both Johnson and Keir Starmer.

There are some other big themes that will dominate the coming months. The IMF has forecast that the UK economy will suffer the weakest growth out of the G7 countries. Rising inflation is destabilising for even the strongest of governments and the Johnson administration is fragile. The collapse in the standing of Rishi Sunak might have removed a leadership rival but any government needs a Chancellor with authority when the economy is weak. The dynamic between Johnson and Sunak will be pivotal. At the moment both are vulnerable. Usually one has been in a stronger position than the other. Sunak’s spring statement was framed when the Chancellor was at his most assertive as Johnson fought for his political life. In the past Johnson’s deeper interventionist instincts have tended to win out because he was in a strong enough position to prevail over his Chancellor. For now at least they dance together after Sunak decided to stay on rather than resign after receiving his penalty notice and with Johnson currently too weak to sack him. If Johnson emerges safely from ‘partygate’ he might be tempted to appoint another chancellor, but none of the options are straightforward. The likes of Liz Truss and Sajid Javid share Sunak’s fiscal conservatism. Javid’s tax affairs are also attracting media interest.

For whoever is Prime Minister and Chancellor this autumn, the budget will be a moment of great significance for the economy and the future of this government. There could well be a further economic statement from Sunak this summer although he is keen to avoid one, wanting to focus on his budget and not give the impression of ‘panic’ reactions before then. Sunak has spent some time studying what happened in the 1970s when inflation raged more wildly than now. He noted that there were endless emergency budgets that tended to fuel further panic.

Even so the autumn is a long way off. There will be many twists and turns before then.

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Are women finally being heard?

Women in the UK are becoming increasingly vocal about the challenges they face in their healthcare and the unjust variation in access to services. When the Government opened their consultation to inform a Women’s Health Strategy in Spring 2021, over 110,000 respondents took the opportunity to make it known that the system does not work for them. Following years of campaigning, it comes as no surprise to women and those in the women’s health community that an overwhelming 84% of people felt their voices are simply not being heard when they seek health care.

By demonstrating an interest in women’s voices and their experiences, recognising failures in the system, and committing to developing a Women’s Health strategy, the Government has taken a positive initial step, albeit an ambitious one. There is no disease-specific focus and no target patient population, unlike other policy areas. This challenge affects 51% of our population and includes natural, life course events that women have, for many years, been told to just live with. With publication of the strategy imminent, the Government now need to demonstrate that they are willing to not only listen to women’s voices but to implement action based on what they are saying.

Women continue to face challenges when it comes to choices about their own bodies. Ongoing variation in access to abortion care, a full range of contraceptive choice, and a holistic range of menopause treatment options, all impact on women’s freedom to choose the treatments that work best for them. The Government’s commitment to prioritising the menopause in the upcoming strategy and cutting prescription costs for Hormone Replacement Therapies (HRT) in response to the Menopause Revolution campaign is hopeful. However, the Government’s initial attempt to reverse progress made in at-home abortion during the pandemic despite women citing a clear preference for this to continue, suggests more need to be done to prioritise women’s voices, choices and rights in practice.

In addition to not being heard, a fragmented system and the pandemic backlog have resulted in services that are increasingly difficult to navigate, leading to the most vulnerable falling through the cracks. Upcoming system reforms focusing on the integration of care offer opportunities to take a patient centered approach and reduce inequalities in outcomes. The Government is also expected to advocate for the establishment of ‘women’s health hubs’, which aim to enable access to all required care in a one-stop shop, in line with calls from advocates including the Primary Care Women’s Health Forum and Royal College of Obstetricians and Gynaecologists. Despite the promise of better integration locally, fragmentation is continuing at a national level. Abortion has been removed from the Women’s Health Strategy and is expected to feature in the upcoming Sexual Health Strategy. With a wider interest in health inequalities, the Government must recognise the connection between these elements of healthcare and align planning nationally to support local areas to integrate care.

Committing to a women’s health strategy is a promising step in the right direction for this Government and has offered women long overdue hope. Action in response to prominent campaigns, such as the Menopause Revolution, to change the way women can interact with the system allow us to believe that the challenges women have faced for far too long could be overcome within their lifetime.

The Government have a real opportunity to ensure women have their voices heard. To do this, they must recognise the challenges they face, capitalise on system reforms to integrate care, collaborate with the women’s health community, and most importantly, commit to funding appropriate and immediate action. In a health system and economy designed by and for men, the time for meaningful, impactful change, is now.

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Mid-term blues or the next step in Boris Johnson’s demise?

With a significant set of local elections taking place across the UK, what are the key takeaways and what does this mean for the stability and direction of the government?

Conservatives down across the country

Despite the Conservative Party’s best attempts to manage expectations over the losses they were likely to face – talking about 800 seats at risk, far beyond what was ever likely – this set of election results is towards the upper end of disappointing outcomes.

The political realignment seen in recent years has been reinforced by this set of election results. The Conservatives were able to stem the losses nationally by holding on – and even making gains – in Leave voting heartlands, particularly in the midlands. However, it was a very different picture in Scotland, London, other metropolitan and urban areas – losing seats in Greater Manchester and Hull – and in large swathes of southern England, the so-called ‘Blue Wall’. In these areas – particularly places like Oxfordshire, Cambridge and Somerset – the party predominantly lost out to the Liberal Democrats.

Labour moving forwards, but slowly

In a mixed night for Labour, the party’s shown progress but the results also highlight the huge mountain it still has to climb. Winning control of councils covering target seats in both southern England – Crawley, Worthing and Southampton – as well as in the so-called ‘Red Wall’, including Cumberland which includes three marginal constituencies allows it to show that it’s building momentum and give some confidence to members that Starmer will enable the party to grow its seats total at the next General Election.

However, the reality is that it’s not currently doing enough to win a majority in 2024 – or before, if speculation is to be believed. Analysis of these results show that translating the national vote share into parliamentary seats would see a hung parliament, with no party even close to a majority. With Labour more easily able to secure the support of other parties, they’re more likely to be in the driving seat but these results will be a reality check for those expecting a Labour majority government in two years’ time.

Other opposition parties have been the main beneficiaries

With Labour improving but not making major gains, it’s the Liberal Democrats and the Greens who have been the main beneficiaries. Over recent election cycles, the Lib Dems have established a much greater foothold across much of southern England, reinforced by these results. For both parties this will build confidence amongst activists ahead of the next General Election, with the Lib Dems likely to go into the upcoming Tiverton by-election feeling bullish.

A constitutional crisis on the horizon in Northern Ireland?

One of the most significant – although largely ignored set of elections this side of the Irish Sea – has been those to the Northern Ireland Assembly. Although the results are still coming in, Sinn Fein are likely to emerge as the largest party for the first time, with the DUP consolidating their position, the liberal Alliance making major strides forward and the more moderate UUP and SDLP the main losers.

With significant concerns over the Northern Ireland Protocol – and perhaps unspoken the prospect of a republican First Minister creating pressure for a border poll – the DUP are likely to refuse to enter power sharing, resulting in the prospect of direct rule from London, fresh elections and a potential constitutional crisis. Unionists will be hoping this will place pressure on the UK government to act definitively on the protocol, making clear to the EU that it’s not sustainable.

What does this all mean for the government’s future direction?

Boris Johnson will come under renewed pressure from his backbenchers to deliver a policy agenda and style of government that will reattract soft Tories in the ‘Blue Wall’ who have wavered to opposition parties. Ultimately this is where the majority of his MPs hold their seats – there will be an increasing cohort of nervous faces in 1922 Committee meetings worried that these results could be replicated at the next General Election.

However, while the Conservatives did reasonably well in the so-called Red Wall, they still need to consolidate. The government faces a critical question as to how to manage the tension between the varying priorities of different voters and constituencies in its electoral coalition.

With interest rates rising and inflation set to reach 10% by the end of the year, the government will come under renewed pressure to act on the cost of living. Next week’s Queen’s Speech is likely to be judged as to how far the government is acting on this.

In the short term this set of election results is unlikely to give Johnson’s critics the cover they need to move against him. However a series of poor by-elections results in the Summer could provide an incentive.

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Tax Rises Now, An Income Tax Cut To Come

Rishi Sunak has just delivered one of the oddest economic statements in recent years. Sunak punctuated his speech to MPs with warnings from the Office for Budget Responsibility that we were living through a period of “unusually high uncertainty”. Indeed, as confirmation of the gloomy economic climate, the OBR’s growth forecasts for the coming years were revised downwards. Ominously, the Chancellor made clear that these forecasts had not considered the consequences of the war in Ukraine. Sunak was blunt. He acknowledged the economic situation could “worsen”.

Yet he felt the need to stride through the foggy future and announce a cut to the basic rate of income tax in 2024. The strange announcement is illuminating for several reasons. For businesses wondering when the next election will be here is a big clue. Boris Johnson and Sunak are targeting 2024 and not an early election next year. They seek a campaign following a tax-cutting budget.

Usually a pre-election tax cut is kept as a surprise until the very last minute to propel a governing party towards a campaign. But, given today’s announcement, two years before implementation, there will now be no surprise in 2024. The far-off pledge shows that Johnson and Sunak are alarmed by the commentary about their tax-rising policies over the last couple of years. As worried Tory MPs have noted, the duo have presided over more tax rises already than Blair and Brown did in ten years. For different reasons both Johnson and Sunak needed some good news now about a cut in income tax. As a result, they announced it early. Johnson wants to keep his job; Sunak would like to be Prime Minister. They tried to give Tory MPs some distant good news, but the pledge is both politically and economically risky. Will they have to find other surprises by 2024? Will the cut seem credible then?

The measures that take immediate effect are broadly unsurprising: a cut in fuel duty and the lifting of the threshold before National Insurance is paid. Some Tory MPs were delighted that the threshold was raised by £3,000, higher than they had anticipated.

But on the whole Sunak did the least possible in the short term. He knows he will have to do more in the autumn when he delivers his official annual Budget. This was only meant to be an economic update, but there has not been a single statement from Sunak during a period of economic calm. This was no exception. He had no choice but to deliver in effect a mini budget.

Looking ahead Sunak could not have been clearer as to how businesses can engage with government in the run up to the Autumn Budget. If he has had a distinctive theme as Chancellor, it is his search for a ‘business-led recovery’. This was the main topic in his Mais lecture, delivered on the day Russia invaded Ukraine and therefore largely overlooked. Sunak had spent huge amounts of time on the lecture, traditionally regarded as the address that defines Chancellors. In his statement to MPs, he expanded on the Mais lecture, telling them he was exploring “tax cutting options” that encourage the private sector to “innovate”, invest in vocational training, spend more on R and D, and on capital investment. He plans a big package of fiscal reforms this autumn and will be consulting with businesses in the coming months. Sunak sees these reforms as a way of addressing the UK’s relatively low productivity and to boost economic growth when the economy is weak.

I sense he genuinely wants to engage with businesses as to how this can be brought about. He has not yet decided on the tax policies that he plans to unveil in the autumn budget.

For businesses wondering how Labour will approach the next election, the Shadow Chancellor, Rachel Reeves, provided several answers in her response. She adopted a similar approach to that of Gordon Brown when he was Shadow Chancellor in the run up to the 1997 election. In her case she attacked Sunak’s National Insurance rise and accused him of wasting taxpayers’ money in spending billions on useless equipment during the pandemic. Brown did the same in 1997, arguing for ‘fair’ taxes rather than ‘higher’ taxes and pledging ‘competent’ spending rather than wasteful expenditure. Reeves also accused Sunak of ignoring the needs of businesses. Like Brown, Reeves wants to be seen as a pro- business Shadow Chancellor. She is keen to engage with business and is struck by how businesses are increasingly keen to engage with her.

For now, the return of inflation has some advantages for Sunak. Higher prices mean higher tax receipts. This has given him some wriggle room to play the fiscal conservative that also intervenes by spending money. But those benefits do not last very long. Soon public sector pay claims will soar in order to meet rising prices. High inflation can also undermine already low levels of economic growth. Inflation – more than any other economic factor -tends to destabilise governments. Sunak is keeping his fingers crossed that he has done enough in the short term. Some Conservative MPs are not so sure. The OBR’s official forecast is that this year, real household disposable income per person – or living standards – will fall by more than at any time since reliable data was collected. His promotion shortly before the pandemic means that Sunak has endured a turbulent time as Chancellor. Arguably the biggest storms are still to come.

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Statement of Intent: Rishi goes from spender to saver…for now

This article originally appeared in Real Deals on 24 March 2022.

Rishi Sunak might have hoped that his first truly post-Covid fiscal statement could be one brimming with sunny optimism. With the Perspex screens, masks and social-distancing markers gone from the Commons, he perhaps imagined enjoying his time in the spotlight buoyed by impressive growth figures, record employment and harmony throughout the land.

Instead, as the Chancellor rose to deliver his Spring Statement he was faced with an unenviable challenge. Rising energy prices, global disruption to supply chains –exacerbated by the Russia-Ukraine war – have driven up living costs to the point of crisis. Add to this the threat of inflation creeping into double digits before too long and Sunak’s task begins to look Sisyphean.

With this context in mind, it was crucial that the Spring Statement needed to outline the government’s plans for addressing immediate economic imperatives and set out a coherent plan for tackling the economic headwinds that threaten to cause economic hardship for millions over the coming months.

And that’s what we got, to an extent. Sunak’s approach sought both to meet the short-term challenges which the economy faces and to demonstrate something of his own ideology in charting a course for the longer term. Since he took office in No.11, the Chancellor has had little opportunity to set out his stall as a true fiscal conservative. This Statement was a marker, outlining a multi-year plan towards economic strength and sustainability, and looking beyond immediate tax rises and medium-term tax cuts.

Saving today, but more spending likely in the autumn

Sunak’s tone was, for the most part, sombre. He repeated the government’s commitment to provide military and humanitarian resources to Ukraine and to ongoing sanctions on Russia, but warned that this would not be cost-free. He told MPs to prepare for the economy and public finances to worsen – “potentially significantly”. The OBR feels similarly, and has revised its GDP growth forecasts downwards, to 3.8% in 2022 and 1.8% in 2023.

Sunak set out headline-grabbing plans to raise the National Insurance Contribution threshold by £3,000 – bringing it in line with the income tax threshold – alongside a drop in fuel duty by 5p per litre for 12 months, and exempting energy efficiency measures from VAT. The Chancellor will use these as clear examples of the additional – decidedly Conservative-sounding – support he is offering.

He has deliberately chosen not to capitulate to those calling for another spending spree to handle the cost of living, instead choosing to save and to leave a clear “margin of safety” to create fiscal headroom. This has not gone unnoticed. The RAC has already called the fuel duty cut “a drop in the ocean” and the Institute for Fiscal Studies has expressed concern about support for those on means-tested benefits. This may come with a political cost. Sunak has gambled that the benefits of focusing on tax cutting outweigh the risks, but with even the Daily Telegraph focusing on the coming cost of living crisis, there is every chance that Sunak will be forced to revise his fiscal strategy.

Charting a low-tax course

In tone and emphasis, this was a very different Sunak to the one who delivered the Budget last October. Where that Budget made large spending commitments – raising the budgets of every government department – the Spring Statement acknowledged that rising inflation will mean that the real-terms increases will now be less than anticipated. Where last year’s Budget revolved around the ever-present phrase “Levelling Up”, this time the Chancellor didn’t say those magic words once.

Instead, the Chancellor unveiled his new “Tax Plan” – an approach to reduce and reform taxes for people and businesses, with more detail on measures due in the Autumn Budget. The publication of the Plan signals a clear direction of travel for the Conservatives for the remainder of this parliamentary term, and the rationale seems clear: the Chancellor wants to keep backbenchers concerned about the tax burden becoming too high on side. His ambition to lower the basic rate of income tax by 1% by 2024 is a sure sign that reducing the tax burden on voters will be a key part of the Conservative strategy at the next election.

But the government will need to walk a careful tightrope over the next two years. It will have to provide enough support to those in immediate need, maintain sufficient headroom to deal with further uncertainty, and still offer enough eye-catching policies to the electorate to reverse their current deficit in the polls.

The Chancellor has been clear that engaging with businesses will be key to the success of this plan. He has long sought a “business-led recovery” and is likely to provide ample opportunities for businesses to make their voices heard as the next Budget approaches. With changes to R&D tax credits, reductions in investment taxes and new incentives for employee training all under consideration, investors will want to make sure that their portfolio companies think carefully about the changes that they would like to see, and develop clear strategies for conveying those ideas to the government over the coming months.

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Rishi’s recipe for growth: private sector investment

Capital, people, ideas. A simple strategy but one built on much thought and observation about the future direction of the global economy, and Britain’s place in it. These are the strategic priorities outlined by Rishi Sunak in his Mais lecture last Thursday. To be more accurate, the word ‘private’ should be added as a critical pre-cursor to all three words.

This was the heart of Sunak’s ambition, to incentivise much greater private sector investment in all three areas. Sunak’s position as a free-market enthusiast was never in doubt and this belief in the benefits free markets deliver sits at the heart of his political and economic philosophy. As such it is unsurprising that his core aim is to lift private investment rather than deploying the power of the state. This approach will be challenged as pressure grows for intervention to soften the impact of rising inflation and the cost of living crisis but his starting point is fundamentally fiscally hawkish.

But what does this tell us about Sunak’s likely approach to policy development in future and key questions around tax and spending priorities?

No un-funded tax cuts

This message was unambiguous. Sunak wants to cut taxes but emphatically does not believe that all tax cuts automatically pay for themselves. Indeed, the unspoken message here was more about tax rises coming down the line. The example cited was Thatcher and Lawson in their first term – fixing the public finances before going on to deliver lower taxes.
There is already intense pressure from the Tory backbenches to scrap or delay the national insurance rise due in April. It is clear the Chancellor will resist those calls if he possibly can given the premium he is placing on strengthening the public finances. This will be a key test of the strength of his resolve, and political positioning ahead of any future leadership bid.

Capital: options to drive more investment

The Chancellor acknowledged that a ‘cloud of uncertainty’ over Brexit and Covid had played a part in holding back business investment but set out his ambition to turn that around now that the cloud had passed. He accepted that low corporation tax on its own had not been enough and indicated that cutting taxes on business investment will be a future priority. Capital allowances are the most obvious tool to deliver this which is likely to be good news for manufacturers.

People: promoting lifelong learning

Consistent with his central theme, the message was that the state is playing its part with an upbeat analysis of the state of schools and university education in the UK. The gap in the Chancellor’s view is the provision of adult technical skills and the need to promote continuous lifelong learning. He wants to see much greater investment from the private sector in upskilling the UK’s workforce.

He pledged to ‘reform the complexity and confusion’ of the current technical education system, noting people currently must navigate a menu of thousands of different qualification options at levels 3 and 4. Reform is clearly on the agenda. Beyond this, he noted he would examine whether the Apprenticeship Levy ‘is doing enough to incentivise businesses to invest in the right kinds of training’.

There will clearly be opportunities for business to inform the Treasury’s thinking on how best to incentivise skills investment, with greater flexibility in the Apprenticeship Levy a potentially valuable outcome.

Ideas: more R&D required

Once again, Sunak’s diagnosis is that the state’s contribution is already generous enough and the gap that needs to be filled is from the private sector. His vision is optimistic, believing new technology such as artificial intelligence can significantly boost productivity across multiple sectors of the economy. However, he was ambiguous on the mechanism for delivering this.

The tax regime is the clear focus for intervention and Sunak strikingly noted that despite apparently generous R&D tax reliefs available in the UK, ‘business spending on R&D amounts to just four times the value of R&D tax relief. The OECD average? 15 times.’ Clearly the level of the reliefs isn’t the only issue and the Treasury is likely to take a close look at how these reliefs are structured and what more can be done to reform the current approach.

This is likely to open up interesting opportunities for knowledge intensive industries, but those that currently benefit from R&D reliefs will need to be alive to the potential impact of change to the system.

Where’s the green agenda?

Many suspect (and are concerned) that the Chancellor is less interested in the green agenda and decarbonisation than some of his Cabinet colleagues. This speech didn’t assuage those worries. There was no focus on climate change or environmental issues. Indeed, the words ‘green’, ‘sustainable’ and ‘carbon’ didn’t feature at all, with only a passing reference to climate change and a single reference to electric vehicles and offshore wind as examples of areas where productivity increases could be found.

Of course, there will likely be other occasions where he seeks to burnish his green credentials, particularly as he will need a coherent green narrative in the event of any future leadership bid. But this speech tells us is that Sunak’s priority as Chancellor is first and foremost restoring the public finances and driving growth via private sector investment. Where green initiatives and decarbonisation help deliver this, he welcomes them but ‘green for green’s sake’ doesn’t appear to be part of his core focus.

What does this mean for companies seeking to influence the Treasury?

There are three core points to consider from this speech:

If you have suggestions on how to incentivise greater private sector investment in the three priority areas (capital, people, ideas) the Treasury will listen and you have a great window of opportunity this year to shape the Chancellor’s thinking.
If you are already planning investment in the UK then be sure to break down that investment and highlight how it will contribute to these three areas: don’t just give the headline figure, provide examples of the new buildings or machinery you plan to build; outline your skills investment strategy and how it will upskill your workforce; shout loud and proud about the any R&D initiatives you are bringing to, or growing in, the UK.
This Chancellor does not believe that increasing the scale or involvement of the state is the answer to driving growth. So any requests for additional funding or more regulation will simply not cut through unless supported by a clear narrative about how this will incentivise greater private investment.

The Chancellor has a plan, and it centres on businesses investing more. This means the voice of business will be critical in shaping the future economic strategy of this Government.

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Politicians signal regulatory change on the horizon for IVF clinics

After a long period of stability, IVF policy is set for a shake up as a result of new regulatory proposals made recently by the Human Fertilisation and Embryology Authority (HFEA), the industry regulator. HFEA is looking to amend the Human Fertilisation and Embryology Act 2008 in a number of areas which would affect access and treatment types.

Scrutiny of IVF clinics has been growing over the past year. In June 2021, the Competition and Markets Authority (CMA) collaborated with the HFEA to develop new guidance which allows couples to initiate legal proceedings against IVF clinics that have falsely guaranteed their success rates. Following on from this, Julia Chain, the newly appointed Chair of HFEA, has called for far reaching changes to be made to current IVF regulations, which would allow HFEA to fine clinics that mislead patients over the efficacy of their treatments, as well as widen access to treatment. Chain has also called for IVF regulatory reform to allow scientists to use embryos for research beyond the present 14-day limit.

Chain has argued that IVF policy has become outdated, with reproductive regulations no longer matching the reality of treatment provided in the UK. She has highlighted several areas of the 2008 Act as being in need of reform, including patient protection and the means of maintaining the quality of care provided for them. Chain has called for a broader range of methods for addressing poor performance, such as economic sanctions against non-compliant clinics. This would also include addressing the increasing commercialisation of the fertility sector, where 65% of treatments are self-funded and public funding is unevenly distributed, resulting in a postcode lottery.

Political awareness of the discrepancy in NHS funding for fertility procedures has been growing. Under pressure from MPs across all parties, in September 2021 the then Care Minister Helen Whately MP announced that the government had conducted an internal review of variations in coverage and was currently considering its next steps.

This additional scrutiny substantially changes the political environment affecting IVF. Government reviews, the attentions of the CMA, a new activist Chair of the HFEA, as well as increased press coverage and ongoing legal cases will all increase the need for careful political due diligence of any investments in the sector. Demand for IVF services will remain high, and indeed is three times higher than it was in 1999, but investors will need to take the political and regulatory changes on the horizon into account as they plan their strategies and make their decisions.

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A lifelong commitment? What to expect from the Lifetime Skills Guarantee

Skills are a key part of the government’s agenda, seen as vital for unlocking its ‘Levelling Up’ commitments in the light of skills shortages in areas like engineering, IT, and accounting. These shortages are long-standing. A 2018 study by the Open University found that skills shortages were costing UK companies £6.3 billion a year due to factors such as training and additional recruitment costs.

The government has acknowledged these shortages, and the need to ensure the education and training system is able to cope with the ever-increasing demands placed on it. In a foreword to the January 2021 White Paper on skills, the then Education Secretary Gavin Williamson indicated that more opportunities for training needed to be made available. As part of its response, the government has introduced a new policy – the Lifetime Skills Guarantee. It hopes that this initiative will address changing skills needs and employment patterns by giving people the opportunity to train and retrain throughout their lives.

What is it?

The Prime Minister announced the Lifetime Skills Guarantee in a September 2020 speech. The scheme covers a lot of ground policy ground. Pledges include increasing investment in FE colleges, introducing a lifelong loan entitlement, and a new funding system for higher technical courses. Only two policies, however, are being funded by the National Skills Fund: a new Level 3 qualification offer for adults and the extension of digital skills bootcamps.

The qualification offer, which commenced in April 2021, aims to give all adults without a Level 3 qualification (equivalent to A level) access to a fully-funded course. Previously, only adults under the age of 24 could access funding. The courses are taught by a range of state and private providers.

The government maintains a list of eligible courses, with 379 currently listed, and has made digital, engineering, health, and construction qualifications a clear priority with 37, 51, 54, and 66 courses available respectively. Whilst course lists are subject to review, investors in training providers that deliver these courses are likely to be particular beneficiaries of the scheme.

A high priority, and a long-term solution for a long-term problem

The Lifetime Skills Guarantee tackles big challenges, and the government has devoted significant effort to implementing it. The Guarantee was referenced multiple times in last month’s Budget, which also included a wider commitment to increase spending on skills by £3.8 billion by 2024/25 – a cash increase of 42% compared to 2019/20. These are not small pledges. The government has expended serious political capital on addressing the problem of skills shortages and, given this emphasis, is likely to release further funds in future years to support the scheme.

Announcing the Guarantee, the Prime Minister also made clear that the initiative is intended as a long-term scheme, rather than a short-term remedy to fill immediate skills gaps – that the nature of learning demands time and resources. He suggested that other countries have had an advantage over the UK when it comes to skills and technical education “for 100 years”. Indeed, the government’s Skills and Post-16 Education Bill confirmed that the planned rollout of the Lifelong Loan Entitlement, another major Guarantee commitment and one that aims to make it just as easy to secure loans for higher technical qualifications as for full-time degrees, remains over three years away in 2025.

Considering the CBI’s October 2020 analysis that predicted around 90% of employees would need to reskill by 2030, if the government is serious about this issue– and all indications suggest it is – then funding for initiatives like the Level 3 offer is likely to be enduring. The fact that only £375 million from the £2.5 billion National Skills Fund has been allocated for 2021/22 reinforces this. There are an estimated 11 million people who would be able to access the free qualifications under the Level 3 offer. Given the political weight the government has placed on these Level 3 offers – literally labelling them a ‘Lifetime Guarantee’ – the £95 million that is currently funding courses over 2021/22 is very likely to represent a prelude to further funding in the future.

The outlook for investors

The Lifetime Skills Guarantee is a key piece of the government’s education agenda. Both the Prime Minister and the Chancellor have been personally involved in its roll-out and have alluded to long-term planning happening in this space. This suggests that scheme will benefit from ongoing investment, particularly in sectors which government has identified as priorities. Technicians, engineers and social care professionals are consistently namechecked by ministers as occupations that the country lacks, and current course lists reflect this. Providers with speciality in these areas look set to benefit from the increased demand that funding from the scheme is likely to stimulate. As a result, investors in the technical education sector will want to monitor the government’s developing thinking closely in order to identify potential opportunities from future funding allocations for the scheme.

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Party conferences 2021: politics, power plays and positioning

Party conferences are always an annual spectacle of power plays, positioning, and of course, politics. The 2021 Labour and Conservative conferences did not disappoint – below are our key takeaways of the main themes and messages that emerged over the two weeks.

1. Both party leaders sought to put clear water between them and their predecessors

Starmer sought to lay the ghost of Corbyn-past to rest by changing Party rules and staring down hecklers during his speech, but Johnson did not pull any punches in his assessment of May and Cameron. Comments like, “We are not going back to the same old broken model with low wages, low growth, low skills, and low productivity – all of it enabled and assisted by uncontrolled immigration” were made to foster the idea that the Johnson administration is new, not a continuation of a Conservative Government for more than a decade. Perhaps more importantly, they were made to make the case that he will need some time to turn things around. However, the risk of a leader taking a ‘Blue on Blue’ attack line is that he is seen to condone such behaviour by others – weakening the fabric of Party discipline and the likelihood of public rifts within Government. In the run-up to the Budget later this month this could become a problem – the spat between Sunak and Kwarteng being a potential case in point.

2. The Shadow Cabinet used conference as an opportunity to court business

Recognising that the public’s perception of Labour’s economic competence remains a real issue 13-years after the financial crash, Starmer and Reeves led a business charm offensive in Brighton. In a nod to the success of Brown and Blair in using public support from business in the mid-90s to rebuild trust and confidence in Labour’s economic stewardship, the Shadow Cabinet were keen to be seen as listening to concerns and promising action through measures like abolishing business rates. Polling suggests the method is starting to work with more people thinking that the Conservatives are most likely to raise taxes and are handling tax badly.

3. The Government used conference as an opportunity to put the spotlight on business

For the traditional party of business, it was an all together different situation. Yes, there were regular mentions of business and Government working successfully together, but ministers were at pains to reiterate that it is the job of private enterprise, not the State, to manage commercial risk. The point that profit is associated with successfully navigating jeopardy was repeatedly made by ministers at numerous fringe discussions to some teeth gnashing from industry representatives in the audience who see inflation and supply chain issues as a political fall-out. The tone was in line with Johnson’s belief that Government needs and can afford to be ‘tough’ with business, especially at this stage of the election cycle. The PM is apparently not yet perturbed by organisations like the FSB, NFU and CBI, as well as companies such as Iceland, becoming increasingly critical of the Government’s approach.

4. Net Zero was the dominant topic of discussion at both conferences

Over the last decade there has been a significant increase in the number of fringe events looking at the response to climate change and the opportunity for green growth, but this was the year that Net Zero dominated the discussion. Politicians from both parties presented decarbonisation as a way to improve security of supply in response to global shockwaves, and as a way to increase economic prosperity via new green jobs. There was significant enthusiasm from party members of both colours, but questions about cost and fairness repeatedly bubbled up from the floor.

5. The battle ground will be cost of living

If Net Zero was in the title of every other fringe event, questions about plans to address cost of living concerns were on the lips of attendees, both in Brighton and in Manchester. Labour sees inflation as an opportunity to weaken confidence in Conservative economic stewardship, while there were concerns among the Conservative rank and file that this is an open flank that needs to be covered quickly from attack. The next standing flashpoint will be the Budget on 27^th October, ahead of which the Institute of Fiscal Studies has warned the Chancellor that there is little wriggle room for big spending pledges. It will follow hot on the heels of the next Bank of England Monetary Policy Committee meeting where eyes will be on a potential split in opinion on the base rate. While the rate may not change in early November, a split in the vote could signal a potential uplift in the New Year which would make borrowing costlier.

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Governments can find multinational digital companies taxing, can the OECD find a solution?

On 12^th October 2020 the Organisation for Economic Co-operation and Development (OECD) released the details of a revolutionary global corporate tax plan designed to prevent tax avoidance by multinational enterprises (MNEs). It is the fruit of a collaboration between 135 countries under the direction of the OECD, an organisation representing 37 developed economies. It could transform how businesses pay tax and create a more level playing field for MNEs’ competitors.

Globalisation and the internet have radically changed taxation

As nations have grown economically closer, and digital transformation and ease of trade erodes the need for physical headquarters in each territory of operation, it has become easier than ever for companies to avoid tax. They can do so by shifting profits to low tax jurisdictions where they are legally headquartered. The OECD wants to boost governments’ ability to collect taxes from MNEs by changing global tax rules so that companies are no longer simply taxed depending on where they are based.

The OECD wants a global tax regime for corporations

The proposed rules fall under two separate “pillars”, both of which would only apply to businesses with revenues over €750mn. Pillar 1 is designed to prevent companies from paying very little tax in country A, even if they make vast revenues there, by moving profits to country B where they are headquartered. This is an accusation which has been levelled at companies from Amazon to Starbucks in the UK. Under the proposals, rather than profits only being taxed in country B, a portion of MNEs’ profits would be taxed in country A based on how much of their revenue they make there. This pillar would apply to companies providing “automated digital services” and to “consumer facing businesses”, the latter being everything from food retailers to consumer electronics businesses.

Pillar 2 is designed to stop MNEs being taxed at very low rates overall by effectively applying a global minimum tax rate. If a company pays very low corporate taxes because it is registered in a tax haven, jurisdictions where its subsidiaries are based would be permitted to collect taxes up to the global minimum.

The proposed rules may struggle to achieve political agreement

The group of 135 nations collaborating on this plan described the proposals as a “solid basis” for future rules, which is international organisation jargon for “we haven’t actually agreed anything yet”. Many issues remain outstanding, including what the global minimum should be and what proportion of profits should be shared out globally based on revenue location. Perhaps even more importantly the US has proposed that the Pillar 1 requirements should be optional, something which the UK and France are against. With Joe Biden now confirmed as the president-elect, global politics could be about to see a fundamental change. However, agreeing such a comprehensive change to global tax rules is unlikely to be easy, especially as many digital companies such as Amazon and Facebook are based in the US.

If they are implemented, they will have a big effect on MNEs and their competitors

What would the implications be for business if the politicians can reach agreement? For MNEs this is likely to mean additional regulatory burdens, as well as possibly an additional tax bill. However, the lack of tax paid by digital service companies has spurred numerous European countries, including the UK, to institute or propose digital services taxes on the revenues of online businesses. Compared to these unilateral taxes, both the OECD and companies including Facebook argue that a global tax would provide certainty and stability. It would also prevent trade wars resulting from unilateral action, which could cost more than 1% of global GDP according to the OECD and which would largely affect MNEs.

For competitors to MNEs, such as department stores like John Lewis who compete with multinational online retailers on everything from electronics to clothing, a global tax minimum would be a breakthrough. It would reduce the advantage MNEs get from minimising their tax burden, creating a more level playing field and a fairer and better functioning market.

Implementing what is effectively one of the first global taxes is unlikely to be straightforward but these changes would benefit most businesses, as well as, crucially, the public purse. As we reach the stage of political negotiations and these rules get closer to reality, MNEs and their competitors should be prepared to show they are listening to the concerns driving the rules and develop strategies to work with individual governments, including in the UK, on the implementation of the rules.

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Far enough on Further Education?

On the back of the Prime Minister’s announcement to create a Lifetime Skills Guarantee, Cameron Wall considers what this tells us about the Government’s strategic plans for Further Education and how the sector could respond.

Words into action

A cornerstone of the Prime Minister’s ‘levelling-up’ agenda, has been one of bold commitments on further education and skills. Covid and rising unemployment is putting even more pressure on Number 10 to ensure the UK’s workforce is equipped with the skills our economy needs to recover.

In his speech on Tuesday, the Prime Minister set out more detail on the government’s plans, signalling how the Government intends to grapple with this inevitable unemployment crisis and begin to fulfil the ‘levelling up’ promises.

The PM set out how he plans to end a “bogus distinction between FE and HE”, introducing a series of changes aimed at making practical study more attractive

Front and centre was his announcement to create a new ‘Lifetime Skills Guarantee’ offering free Level 3 courses to adults without equivalent qualifications. This will be paid for from the National Skills Fund, announced in the Conservative election manifesto. To date there has been no other real detail about how the fund will work or what it will cover. Eligible courses will be announced in due course, meaning there is still time for providers to ensure that their courses are covered while also making sure that any further action on the National Skills Fund is aligned with their offer.

Reforms to the apprenticeship system will enable businesses to use unspent levy funds to support apprentices within non-levy paying SMEs, and apprenticeships will become “portable”, so they can easily be moved between companies. This has long been called for by many in the sector, but questions still remain about whether this will be sufficient to fully fund non-levy apprenticeships.

The PM also committed to taking forward a key recommendation on further education from the Augar Review, opening up the main student finance mechanism to students undertaking higher technical qualifications. This is a positive step, but without adequate maintenance support, potential learners may question how they can support themselves to study such a course without an income.

Building on this, the Lifetime Skills Guarantee will over time progress into a system where all students can access a lifelong loan entitlement to four years of post-18 education, as part of cementing efforts to bridge the gap between Higher and Further Education. This ambition sits at the heart of the Government’s education agenda.

A signal of future system overhaul?

Reform has long been on the agenda, and a Further Education system that meets the economy’s skills needs has been a key aspiration for governments going back over decades.

The reforms announced by the Prime Minister cast some light on the potential foundations of the imminent Further Education White Paper which is expected to begin that process of better aligning Further and Higher Education and ensure the value of Further Education is recognised by learners and employers. However, a lot more needs to happen to deliver the Education Secretary’s vision to create a “world-class, German-style further education system”, which would “level up skills and opportunities” and “give FE the investment it deserves”.

Covid has, of course, posed some significant short-term challenges for the Further Education sector, but the White Paper must also settle a number of long-term questions regarding the future of Further Education. Whilst there is agreement the system needs reform, there is a lack of consensus over what this reform looks like.

Clearly Number 10 and the Department for Education are keen to show they are responding to challenges on the horizon with bursts of good news. But, as officials hash out the details of reforms behind the scenes, there is now a clear opportunity to influence what Further Education reform looks like on the ground, and government will be no doubt be looking to the sector for guidance.

Aligning business priorities with government aspirations

Foremost is the question of, in practice, how much the Education Secretary’s vision for a German-style Further Education system actually borrows from Germany. In Williamson’s speech announcing the White Paper, he only made two references to Germany. Instead his tone focused on the value that the UK attaches to Further Education, and how it falls far short of our European neighbour.

Like Germany, Williamson wants our Further Education system to put employers at its heart. He sees colleges acting as hubs within regions, linking vocational training with employers and helping meet the skills needs of the local economy. Now is the time for providers who hold strong local business links and play a role in supporting the local skills needs to make a case to government for regional control. Otherwise, the question government will be asking is, can their desired vision to bridge the gap between Higher and Further Education be achieved without national, centralised oversight?

It is also still to be seen whether the Further Education White Paper will come alongside the long-awaited review of the Apprenticeship Levy, first announced by then Chancellor Philip Hammond in 2018. This also reappeared in the Conservative’s election manifesto, which promised to improve the workings of the levy.

Whilst concerns that expensive apprenticeships are sapping up levy funds have been temporarily supressed by the pandemic, this issue will undoubtedly return in the long-term. Providers should use this opportunity to push for system changes they want to see which have been exposed by how the levy has been used to date. In any case, training providers and employers drawing on these funds will need to justify the contribution to the economy their programmes deliver.

Whilst Williamson may have a clear vision in his head, officials at the Department for Education – under the watchful eye of Number 10 – will now be in listening mode to help flesh out the details of Further Education reform as we approach the White Paper’s launch – and as they begin implementing policy reform on the ground.

To speak to Cameron about this article please email cameronwall@wacomms.co.uk

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What is the government’s plan for state aid?

Two of the Margaret Thatcher’s most steadfast beliefs were the benefits of European economic integration and the folly of governments providing financial aid to support particular businesses and industries, both of which she said contributed to the UK being labelled the ‘sick man of Europe.’ Ahead of the UK joining the European single market in 1992, Margaret Thatcher addressed businesses and encouraged them to think about the opportunities access to the single market would create. She said: “Just think for a moment what a prospect that is. A single market without barriers – visible and invisible – giving you direct and unhindered access to the purchasing power of over 300 million of the world’s wealthiest and most prosperous people.”

How times change. The current Conservative government, in its negotiations with the EU, is willing to sacrifice access to the single market so that it can offer state aid to British businesses. This about-turn raises a fundamental question: why is this government so keen to be able to financially support businesses, and what does it hope to achieve?

What are the rules on state aid?

State aid, broadly speaking, is any advantage granted by the government on a selective basis to businesses, and it can come in many forms: direct cash transfers, preferential tax treatment and financial guarantees offered by the state. Under EU rules, there is not a blanket ban on state aid. State aid can be provided if it is approved by the European Commission, it is of a small sum or if it is covered by the General Block Exemption Rule. The General Block Exemption Rule allows state aid to promote new activities that would not otherwise have taken place and promotes economic development without distorting competition. State aid that falls outside of these parameters and is viewed to distort competition by offering an advantage to a particular business or industry is illegal under EU law.

The UK and the EU are currently at loggerheads over state aid and a future free trade deal. The EU is demanding that in return for a free trade deal, the British government should commit to ‘dynamic alignment’ with the EU’s state aid rules – the so-called ‘level playing field’ commitments. The UK government, however, wants to have its own ‘separate and independent’ policy on state subsidies. The EU’s fear is that if it gives British firms free trade access to the single market without assurances on state aid, the government in the UK could subsidise green technology, for example, and undercut European made products, undermining the principles of the single market. The EU’s objections are quite reasonable – if you want to be a member of a club, you need to play by the rules. If there can be no agreement between the two sides, the UK will leave the EU on 1 January 2021 without a deal, an outcome that is looking increasingly likely (and even desirable to some within Downing St).

What’s the plan?

Should the UK leave without a deal, the government will not be able to splash the cash wherever it wants, as it will still be bound by World Trade Organisation (WTO) rules on state aid. One crucial difference though is that the WTO state aid restrictions only cover goods, while the EU’s rules cover both goods and services. This opens the door to the UK being able to financially support a range of industries in the service sector, an area where the UK already has a competitive advantage, especially in financial and professional services.

Dominic Cummings recently told civil servants in the Department for Digital, Culture, Media and Sport that he was working on a plan to help the UK build ‘$1 trillion tech companies.’ Cummings views a no-deal Brexit and the removal of EU state aid restrictions as an opportunity for the government to support British start-ups to become genuine players on the world stage, having historically lagged behind the United States and China.

Looser rules on state aid would also help the UK be more flexible in times of emergency. At the height of the Covid-19 pandemic, HM Treasury was restricted in its ability to offer CLBILS loans to private equity-backed firms due to the EU’s rules on ‘businesses in difficulty.’ Due to the leveraged financial structure of these firms, under EU rules, they were not eligible for government financial support. Outside of the EU’s legal framework on state aid, the government would be free to financially aid whichever businesses it chose to, an option that will only become more appealing as the reality of increasing unemployment kicks in.

Will it work?

The idea of a British tech giant is an appealing one for the government. Foreign technology firms are difficult to tax, and it would make the government’s life a lot easier if it had a homegrown firm it could draw revenue from. The creation of high quality, well-paying jobs would also be a bonus.

There are some problems with Cummings’ plan, though. Historically, the British government has a chequered record of success in ‘picking winners.’ When compared to the private sector, governments lack the knowledge, expertise and market discipline to sustain and grow companies. This means risk is often not weighed effectively, leading to either over or under-investment. There is also the risk that business decisions get made not for sound commercial reasons but to fulfil some other government priority.

The interaction between the state aid tech giant plan and the government’s levelling up agenda also throws up some inconsistencies between its wider priorities. Tech firms tend to thrive in big cities and those that are home to elite universities. These are precisely not the areas the government wants to ‘level up’: post-industrial towns in the north and midlands. The price of state support for the tech sector would be the government trading off the UK’s remaining manufacturing base in the north and midlands by removing tariff-free access to its biggest market.

State aid is an appealing idea, but to be implemented well it requires a government to have patience, skill and good judgement. It will also involve the government having to make an unappealing sacrifice that will undermine its levelling up agenda. The deeper message of the government’s interest in state aid is that it is no longer ideologically wedded to the ideas of the past and it is more than willing to deviate from them if it is politically expedient to do so.

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Brexit explainer – what is the Internal Market Bill and why does it matter?

For avid Brexit-watchers, the headlines from the past week may seem like the country has been transported back to October 2019. With restless backbenchers, strongly worded statements from EU Chief Brexit negotiator Michel Barnier, and journalists running to the nearest legal expert, Westminster is suffering from a collective case of déjà vu. For those just tuning back into the Brexit negotiations, here’s what you need to know.

What is the Internal Market Bill?

The Internal Market Bill is intended to create a framework for trade to operate across the four UK nations post-Brexit. The Bill attempts to ensure the whole UK operates as its own single market. It would establish two legal principles – mutual recognition and non-discrimination – to ensure there are no new barriers for businesses trading across the UK, allowing a good or service to be sold anywhere in the UK without any internal standards blocking the movement of goods.

Why is the Bill so controversial?

The principal issue is that the Bill would reverse the Northern Ireland protocol contained in the Withdrawal Agreement, which was signed by Boris Johnson and passed by the current Parliament on 24 January 2020. The protocol settled the issue of post-Brexit trade across the Irish border by applying some EU customs regulation to goods travelling between the rest of the UK and Northern Ireland to avoid checks at the Irish border. The Bill would contravene the Agreement in three ways:

It gives ministers powers to not to apply EU standards on paperwork for goods leaving Northern Ireland going to the rest of the UK.
It gives ministers the power to disapply or modify state aid rules in Northern Ireland, which the Withdrawal Agreement stated would continue to be governed by EU state aid rules. Those powers also allow the UK Government to ignore decisions of the European Court of Justice and EU legislation on state aid.
It would prevent individuals from enforcing the provisions of the Withdrawal Agreement in UK courts by stating the measures in the Bill are ‘not to be regarded as unlawful on the grounds of any incompatibility or inconsistency with relevant international or domestic law’.

The second issue with the Bill is the decision to apply mutual recognition to the devolved nations without their consultation. Mutual recognition means goods lawfully produced in England according to English standards can be sold in Scotland, even if Scotland has higher (and thus more expensive) standards. This means the devolved nations are not allowed to exclude goods from other UK nations made to lower standards, undermining their ability to set their own regulations.

What has the reaction been?

Reaction has been strong from both sides of the Brexit debate, fuelled by Northern Ireland Secretary Brandon Lewis admitting in the Commons that the Bill ‘does break international law in a specific and limited way’. Domestic opponents of the Bill suggest that it will damage the UK’s international reputation, preventing it from being taken seriously when addressing illegal acts conducted by other nations and making trade talks harder.

Scottish First Minister Nicola Sturgeon has described the Bill as an “assault on devolution”, an accusation that is unlikely to hurt the SNP’s standing going into the Scottish Parliamentary elections next year. Sturgeon has now pledged to campaign to demand a new independence referendum as “the only way to protect the Scottish parliament from being undermined and its powers eroded”.

The European Commission has threatened the UK with legal action and trade sanctions if it does not withdraw the controversial clauses in the Internal Market Bill by the end of September. Irish Taoiseach Micheál Martin has also personally criticised the Bill, stating that he is now pessimistic about the chances of agreeing a trade deal with the UK. Despite this, the EU has no intention of immediately shutting down its talks on the UK/EU future-relationship, saying it would amount to falling into a trap set by the UK.

Across the Atlantic, US Speaker Nancy Pelosi has warned that there is “no chance” of the US signing a trade deal under a Biden presidency if the UK goes ahead with the Internal Market Bill in its current form because it undermines the Northern Irish peace process.

Why has the government done this?

The government has stated that the Bill is merely its way of tidying up “loose ends” in the Withdrawal Agreement that it says were caused by passing the Agreement “at speed”. The policy is described as a ‘safety net’ by ministers, to protect Northern Ireland’s position if a deal on future relations with the EU cannot be reached.

The UK has also claimed Michel Barnier has threatened not to include the UK on the list of “third countries” on food standards, which would effectively make it illegal to move food from Great Britain to Northern Ireland.

This defence has been met with scepticism by political commentators, the EU and some UK politicians, who believe the UK Government is either trying to force more concessions from the EU, attempting to force the EU to walk away from negotiations or simply did not realise the implications of the Withdrawal Agreement during the negotiations.

Of course, more than one of these reasons can be true at the same time, and it is entirely possible the UK Government feels it is a necessary action to take to protect trade with Northern Ireland, while also using the Bill as a way of shaking up, or perhaps deliberately destabilising, the trade talks.

What happens now?

The government has told the EU it doesn’t intend to withdraw the Bill, meaning it will be debated in Parliament. Conservative MP Bob Neill has tabled an amendment that would give parliament a veto on any decision to breach the Withdrawal Agreement. A significant number of other amendments are also expected. The passage of any amendment would require a significant Conservative rebellion, as well as the support of Labour, the SNP and the smaller opposition parties.

The Bill must also pass in the House of Lords, where it has been widely condemned, including from Conservative peers. The Lords are highly unlikely to block the Bill but may introduce amendments to force the Bill back to the Commons. It is almost certain to back any amendments passed in the Commons designed to water down the Bill. The Bill can’t pass into law until both Houses pass the same version of the Bill in full.

What happens if the Bill passes?

The passage of the Bill in its current form is likely to cause a serious impasse between the UK and the EU. European Parliament leaders, representing a majority of MEPs, have issued a statement declaring they will block the EU-UK trade deal if there is any breach of the Withdrawal Agreement. This marks a line in the sand from which neither side is backing down and makes the possibility of leaving the transition period without a trade deal significantly higher.

While it is highly unlikely the Bill will be voted down, it may be passed with amendments that either remove or significantly waters down the current provisions. The government is considering implementing sanctions, including a ‘nuclear option’ of withdrawing the whip from rebel Conservative MPs.

The Bill also has implications for the union. The Scottish and Welsh Governments have set out strong opposition to the Bill and with Scottish Parliamentary elections on the horizon in 2021, the Bill is set to further provoke anti-Westminster sentiment among Scottish nationalists. Polls have consistently shown a majority in favour of Scottish independence since the onset of the coronavirus pandemic, and this Bill is likely to cement opposition to the current Westminster Government in Scotland.

The matter may well be settled in the courts. Although the UK Supreme Court is unlikely to have jurisdiction over the issue due to parliamentary sovereignty, the EU may choose to take the case to the European Court of Justice which has jurisdiction over the interpretation and implementation of the Withdrawal Agreement.

Whatever happens over the next week, the UK Government has chosen a provocative approach that will have significant implications for the outcome of the UK-EU trade negotiations, its relationship with its own MPs, the strength of the union and its international reputation.

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Archive for the ‘Politics’ Category

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