John McDonnell, the shadow chancellor, has signalled that he might rewrite his radical plan to force all big companies in Britain to hand over a tenth of their equity to the workforce.
His announcement during the Labour party conference last month stunned business groups, with the Institute of Directors labelling the policy “draconian” and the CBI warning that investors would “pack their bags”.
Under the proposal every company with more than 250 staff would hand over 1 per cent a year of equity over 10 years to a so-called Inclusive Ownership Fund.
Workers would not be able to sell shares but would benefit from their portion of dividends by up to £500 a year each, with the surplus billions handed to the exchequer.
Now Mr McDonnell has sought to turn down the heat, telling the Financial Times in an interview he was flexible about how to achieve the “point of principle” of giving workers much greater ownership of the companies where they work.
The policy was not yet nailed down, and he insisted: “If you can achieve the same objective by a different route, come and talk to us. You tell me another way of doing that that’s practical, pragmatic and in line with [our objective] then great, we’ll listen.”
The conference announcement opened a new front in the cold war between Labour and business, which is already vexed by the party’s plans to nationalise utility companies and lift corporation tax from 19 per cent to 26 per cent.
Did he mislead business leaders?
Business leaders were stunned because the sober-suited former Marxist had repeatedly told them since the 2017 election that he had “nothing up my sleeve” in terms of unwelcome new policies. Did he mislead them? “I said no surprises by the time we get to the next election.”
Straight after his conference speech Mr McDonnell shared a platform with Carolyn Fairbairn, director-general of the CBI. “I offered her an alcoholic…,” he said before stopping himself. “I offered her reassurance,” he smiled.
One alternative being considered by the shadow chancellor is mandating all listed companies to offer employee ownership schemes to their workers.
Mr McDonnell also clarified that foreign-owned companies with UK subsidiaries — such as Amazon and Google — would fall under the scope of the plan. “If they have a registration here then there will need to be a commitment to something like this.” Party officials are taking inspiration from the longstanding profit-sharing system in France, mandatory for all companies with more than 50 staff.
Mr McDonnell insisted a Labour government would not lift the policy from 10 per cent to a higher figure: “That won’t happen . . . because everything we do will be open and transparent.”
Increasingly, when business leaders gather to discuss politics, they fret about the unpredictable impact of a British government led by Jeremy Corbyn, the Labour leader, with Mr McDonnell controlling the Treasury.
Mr McDonnell insisted the business world was looking to Labour for “security” amid the Tories’ Brexit chaos, although many business leaders talk about the threat of a “double whammy” of a disorderly exit from the EU followed by a leftwing Corbyn government.
Executives fear Corbyn more than Brexit
This week at a private City of London breakfast, attended by senior lawyers and corporate affairs chiefs, the talk focused on Brexit. Yet when the question was raised about what was causing more concern in the City — Brexit or Labour — the unanimous response came back immediately: “Labour.”
The shadow chancellor has never apologised for wanting a fairer society with big business and the rich bearing a far heavier share of the load — there were £49bn of extra annual taxes in last year’s manifesto.
He was open about his desire to nationalise the water and rail industries and extend workers’ rights to the gig economy and said the public mood had shifted in the last three years in favour of radical reform. “Eight years of grinding austerity — people have had enough,” he said.
But there are areas where Mr McDonnell is still treading carefully, because despite being a life-long protester — “I enjoy a soapbox” — his priority is getting Labour into power. Some Labour MPs believe that Jeremy Corbyn does not have the same hunger for office.
There are no Labour plans at present for a mansion tax — or any other form of wealth tax — of the sort backed by his predecessor Ed Balls. Mr McDonnell said a property tax would be particularly problematic in the South East, where owners may not have other financial resources.
He has also resisted the temptation to overhaul the £39bn of pension tax reliefs enjoyed mostly by the well-off, arguing that he did not want to hurt “middle-earners”. “You’re looking at some people who are headteachers, senior firefighters, you name it,” he said.
As for the land value tax mentioned in the 2017 manifesto, the shadow chancellor said that would only apply to “non-resident properties”.
Electoral gains force companies to reassess Labour
Since Labour made electoral gains in the 2017 election the business world has been taking the party more seriously given the possibility of another snap general election due to a Brexit breakdown.
Mr McDonnell predicted the Democratic Unionist party would “blink” and Prime minister Theresa May would strike a Brexit deal. But he suggested this would prove to be a “Neville Chamberlain” moment that would only lead to sustained “trench warfare” within the Tory party.
In theory Labour is waiting to see if the deal meets the party's “six tests” before deciding whether to vote it down, but Mr McDonnell hinted that this was unlikely: “We mustn’t be associated with a fudge that’s going to make us even more uncertain.”
The life-long socialist firebrand, who recently enjoyed an “angst free” meeting with Goldman Sachs, the American investment bank, insisted Labour’s radical manifesto would not scare away investment into the UK, even from the super-rich. “I don’t think they’ll go,” he insisted. “The quality of life here is such that people want to live here.”
Mr McDonnell insisted that some executives would be happy to pay more in tax. “And those that don’t, well, we’re not forcing them into penury . . . not looking at a massive hit on people.”
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