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February 15, 2008 6:54 pm
Britain’s Labour government has always presented a distinctly unsocialist face to the business world. As Peter Mandelson, one of the architects of Labour’s decade in power, once told California computer executives: “We are intensely relaxed about people getting filthy rich.”
But is that now changing? British business leaders and City of London bankers are starting to wonder whether Gordon Brown, prime minister, is less comfortable with wealth than his predecessor Tony Blair (who is now getting filthy rich himself in international finance).
This is the month when Labour’s love affair with business turned sour. Alistair Darling, the mild-mannered chancellor of the exchequer, has been jeered by bankers at a black-tie event in the City and lectured by angry manufacturers. The criticism has been building for months, culminating in a surprise attack by Digby Jones, the government minister charged with attracting inward investment. Lord Jones said he used to give foreign investors seven reasons to come to London, but now could only come up with five.
Labour’s 15-year courtship of business was spectacularly derailed last October when Mr Darling came up with two tax changes in a mini-budget that hit wealth creators.
First, he changed the capital gains tax system, increasing taxes on entrepreneurs who held assets for more than two years from 10 per cent to 18 per cent. Private equity “fat cats” were among the ostensible targets.
Then, Mr Darling announced plans for a £30,000 ($58,000) levy on “non-doms” – rich foreigners living in the UK – who did not want to pay British tax on their overseas income.
Both policies were hastily drawn up at a time when Mr Brown was toying with the idea of a snap election. They had the advantage of being popular with the public, affected relatively few people and raised money to match opposition Conservative party plans to cut inheritance tax for swing middle-class voters.
But Mr Brown then ditched the idea of an election and is living with the consequences. The tax grab sparked a fierce counter-attack by the UK’s increasingly savvy business and City lobby, forcing Mr Darling into a convoluted – but far from complete – retreat from his original proposals.
The political damage had been done. For those involved in Labour’s wooing of business – dating back to the early 1990s – these are grim times. Mr Brown himself led that early “prawn cocktail offensive”, as Labour in opposition tried to shed its old socialist clothes and charm the City.
“Never have so many crustaceans died in vain,” mocked Michael Heseltine, a Conservative minister at the time. But he was wrong. The sauce-smothered prawns (London was still emerging from the culinary dark ages) served their purpose and Labour has had business broadly on side ever since.
Labour in power brought plutocrats into the government, set about cutting corporation tax and even embraced the “loadsamoney” soccer culture. “It’s not a burning ambition for me to make sure that David Beckham earns less money,” announced Mr Blair.
Such was Labour’s romance with business that the Tories (formerly the party of the boardroom) seemed almost to give up. David Cameron, their leader, said he would “stand up to big business” and lectured it for selling junk food to children and spoiling the environment.
It was all part of a rebranding exercise, as Mr Cameron tried to persuade ordinary voters he was on their side. But Labour could not believe its luck. John Hutton, business secretary, boasted last year that Labour could become “the natural party of business”.
Perhaps Labour believed the natural order had been reversed permanently. Perhaps messrs Brown and Darling thought they could afford to alienate a few rich bosses and non-doms. Perhaps they simply needed the money. Whatever the reasons, Mr Darling’s tax plans last autumn were a turning point in the way business saw the government.
The Conservatives sense a chance to win back the business vote. In Britain (unlike, say, France) politicians do not like to fight elections with business leaders lined up against them. Alan Duncan, Tory business spokesman, insists that Mr Cameron’s early rhetoric was purely a device to show the party did not consist of “rapacious capitalist pigs”.
Today, the Tories are just ahead of Labour on economic issues – a reversal of a trend that started in 1992 when John Major’s Conservative government presided over sterling’s ignominious exit from the European exchange rate mechanism.
Mr Brown and Mr Darling know that the City and business lobbies are using the Tory revival as a chance to play one party off against the other – the first time this has been a viable strategy for a decade. They also know that business backs winning parties. That means Mr Brown has perhaps two years before polling day to reassert his reputation for economic competence – to steer Britain through a downturn, out of the turmoil of the Northern Rock banking crisis and to restate his business credentials.
Irwin Stelzer, a US economist and “non-dom” living in London, says it may be too late and that Mr Brown’s government has sent out a message that Britain is “no longer the place it was” to do business. Mr Brown and Mr Darling would strongly disagree. But the filthy (and not so filthy) rich are restless and Labour has much work to do to patch up its once rock-solid relationship with business.
The writer is the FT’s political editor
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