If you believe Howard Flight, the shadow chief secretary to the Treasury, there’s something of a renaissance going on within the square mile. ‘So many friends have said they would now like to be involved with the Conservative Party and to contribute their input on policy, that I and several colleagues decided we should do something about it,’ Flight said in a statement to about 500 City executives at the launch of the Tories’ new business relationship initiative, the Conservative City Circle.
The launch of this new organisation says something about the success Labour have had in attracting big business away from its traditional political ally. Until the mid 90s, the Conservative party, the City and the broader business community were seen as largely symbiotic, forming a bilateral alliance against those other natural bed-fellows the Labour party and the unions. But today things are different. The Conservative City Circle is more than a bit of creative alliteration; it’s a clear sign that the Tories realise they have lost the initiative on business. This awakening in CCO would have been further augmented when the Tory big guns stepped into the City Gate Hotel in the square mile to see who had turned up to hear them announce their grand new business focused organisation. Whilst there were a few names dotted around the hall, the majority of the delegates were not exactly City big hitters. Indeed the politico-business scales looked decidedly lopsided as Michael Howard and his shadow Chancellor Oliver Letwin also arrived to join Howard Flight.
But, the City Circle event does show that the arrival of Michael Howard, as with so many areas within Conservative politics, has rejuvenated the Tory approach to business. Under IDS, the party huffed and puffed but never really won the confidence of new business backers and lost the support of several serious donors, most damagingly the spread-betting millionaire Stuart Wheeler. In contrast, Howard has won back Wheeler’s money as well as winning smaller donations from people such as Goldman Sachs partner Simon Robertson, the kind of man they presumably wanted to see at the City Circle launch.
So is the Labour party losing its hard earned position as the party for business? If you believe the recent tub-thumping of the Tories, you’d be forgiven for thinking the answer was yes; but in truth the Labour government can feel safe in its position as the party that provides stability for business. The problem for the Conservatives is that, perhaps for the first time, the classic Tory charge that the incumbent Labour government of the time has proved to be inept in promoting vibrant business growth, thus damaging the country’s economy is proving annoyingly hard to sustain. Macroeconomic stability has proved to be a pleasant change for business leaders whose experiences of the former Conservative government are still tinged with memories of a cycle of boom and bust. Furthermore, Labour no longer looks at business with a suspicious eye. The party’s business liaison department has proved highly successful in fostering dialogue with the business community and listening to their needs. This is in marked contrast to a Conservative party that seems to have taken the support and views of the business community for granted.
In policy terms, the Labour party of today has proved you can harbour both pro-business and redistributionary objectives. There are two main reasons for this. First, macroeconomic instability is usually disproportionately damaging to the very poor as they tend to be cash-heavy and have little opportunity to move their money around, thus mitigating the problems associated with economic crisis. In this respect, Labour’s achievement in stabilising the economy has not only helped business, but has also created a healthier environment for the lowest quintile within our society.
Second, Labour’s changes to the tax and welfare system implemented specifically to help the poorest sectors of our society have also helped reduce inequality. Indeed the poorest 20 percent of our society has seen its income growth levels rise steadily so that today they are growing at almost the same rate as that of the richest 20 percent. Under Thatcher, the richest 20 percent were seeing their income rise by a massive eight times that of the poorest 20 percent. Public spending under Labour has grown and results are beginning to show.
The Conservative party, whilst obviously not condemning efforts to end inequality, are putting Labour party spending at the centre of their efforts to win back the support of business. For example, they talk of how Gordon Brown has introduced 66 new ‘stealth’ taxes since 1997, and how his borrowing levels are unsustainably high. But in reality these scare tactics by the Tories seem to be going unheard within the business community. In the last Institute of Directors’ Business Opinion Survey, company optimism continued to rise. Surely if Labour was really losing the confidence of business, this is the kind of survey which would show it?
A quick look at some of the reports findings show that the Tories have little evidence to back up their dire predictions for the future of business under a Labour government. Company output expectations are up; companies reporting a rise in the cost of running a business in the UK fell from 33 percent to 21 percent and company profits continued to improve.
The Labour party is by no means assured of retaining the support of the business community. Business leaders have an unnerving tendency to see things purely in terms of a cost-benefit analysis. Long-term allegiances mean nothing to business if they feel their future is even marginally threatened by a party’s policies. But Labour has been incredibly successful in gaining the trust of the business community and it is a testament to Gordon Brown that he has consolidated that trust with a rational economic policy. New Labour is often lambasted for its overly friendly relationship with business, but arguably this is because in the past those relationships simply didn’t exist.
Through its welfare reforms, Labour has done much to fulfil its role as an archetypal Labour government; surely the fact that the party has also fostered a strong link with business is just another sign of progress. A modern market driven economy need not mean an end to social democracy, the key is to find a happy medium between a strong state and a strong market, something New Labour is intent on doing. The truth is, Michael Howard and his team seem unsure what exactly they would do differently. With Thatcher’s merciless liberal economic orthodoxy, followed by Major’s inept economic management, the current Conservative economic thinkers have little to look back on for inspiration.