Why Labour are not anti-business

Politics is complicated. And inevitably, to deal with the complexity, voters and journalists fall back on simplifications – they rely on caricatures of what the different parties stand for. But sometimes these tropes are misleading and cause us to miss out on interesting and important nuances in the argument. A major example of this is the common accusation that Ed Miliband’s Labour Party is ‘anti-business’. The mainstream political narrative is trapped in a simplified world where policies must be either left or right wing, where all state action is for the left and all deregulation is for the right. Ed Miliband, on this narrative is and old-fashioned leftist, a lurch back to ‘Old Labour’, mistrusting markets and wanting a big centralised state to be more active in the economy.

As I said when I analysed David Cameron’s grand vision of the big society, there is an irony that politicians are regularly criticised for their lack of vision or fresh ideas, and yet when they do develop a distinctive philosophy, these are often shoehorned into pre-existing conceptual frameworks. Just as Cameronism was seen as reheated Thatcherism, so Milibandism is perceived as traditional nanny state socialism. But this doesn’t do justice to the relative novelty of Ed Miliband’s ideas – he is not anti-business, or if he is, he is only anti-big business. And he is certainly not anti-market.

When people accuse Labour of being anti-business, I take them to mean that a) Labour are unlikely to back business interests when they conflict with the interests of other groups in society, and b) that supporting businesses is not a high priority for Labour. I do not take take them to mean simply that the consequences of Labour’s policies will be bad for business. In other words, they are making a claim about the attitude and motivations of the party – their intentions – rather than the effectiveness of their policies. Many people doubtless think that Ed Miliband’s policies would be bad for Britain or for the British people, but it would be seen as hysterical and over the top to say that he is therefore ‘anti-Britain’. People doubt Miliband’s competence, but few seriously doubt his sincerity. By contrast, there is definitely a suspicion that Labour are not ‘on the side’ of businesses.

It might seem that this definition makes ‘pro-business’ positions a bit ‘motherhood and apple pie’ – something so bland that nobody could disagree with them. But on this definition the left has been anti-business throughout history. Rather, they have been pro-worker, standing up for the interests of employees against bosses. Or they have been pro-state, believing that government is better at providing goods and services than the private sector.

But the current Labour party does not hold these views. Its manifesto is full of policies that explicitly seek to help businesses – like the institution of a British Investment Bank to lend to small businesses and the freezing of business rates. Moreover, the party has taken a number of positions which are intended to create the background conditions that support the success of businesses – greater certainty over Britain’s position in the EU, greater investment in infrastructure and (presumably) laxer immigration restrictions.

So why has the impression that Labour are anti-business stuck? Among the policies most often cited are Labour’s pledge to cap energy prices and their raising of income tax to 50% on those earning over £150,000. But neither of these are clearly anti-business. Labour’s energy policy is certainly a stand against the major energy companies, but by keeping energy prices down they intend to reduce costs for businesses that use energy as an input (ie all the other ones). Moreover, the price cap is seen as an interim measure to give Labour the space to improve transparency and competition in the market, by empowering consumers to switch. Thus Labour’s energy policy isn’t even meant to be bad for all energy companies – outsiders like First Utility and OVO would (implicitly) be supported by a Labour government.

The issue of income tax is more complicated – for starters, it is not a tax on businesses, but on workers. The argument usually runs that entrepreneurs will be disproportionately hit, and that multinational businesses will be discouraged from investing in the UK because their top employees will be disadvantaged. My suspicion here is that Labour (in an honest mood) might concede that large multinationals are adversely affected, but would reject their claim to be the representatives of ‘business’. Instead, Labour could argue that the real dynamism and risk taking in the capitalist system comes from small businesses, and so these are the ones they are looking out for.

A high top rate of income tax clearly hurts salaried executives. But its effect on entrepreneurs (who are the human embodiment of the business community) is more ambiguous. On the one hand, they will pay more tax on any money they make out of their business as income. On the other hand, successful entrepreneurship is rarely, if ever about paying yourself a high salary – rather, it is about building up a valuable business, so that the eventual return on your investment in it grows. Income tax is therefore less important to many entrepreneurs than capital gains. Indeed, the empirical evidence on the impact of income tax on entrepreneurship is mixed – Kneller and McGowan find that paying higher income tax makes people more likely to start their own business (though other studies have found the opposite result). And as it happens, Labour have flirted with the idea of reducing Capital Gains Tax for long term investors (such as entrepreneurs), though no such commitment was in their final manifesto.

What this all adds up to is a Labour party that is not just reconciled to capitalism, but embraces it. One which sees its mission as making capitalism work better. After all, Ed Miliband has very publicly taken inspiration from Teddy Roosevelt, who used the power of the state to break up cartels and promote free market competition. Now, as then, Miliband argues, big business is undermining the innovation and competition that drives a healthy capitalist system. That is why he wants to pick fights with the major banks and energy companies. That is why he sees the salvation of the system of in small businesses.

As I said at the start, the media is stuck in the old ideological world, where you had Fabians on the left, putting their faith in the state and mistrusted markets,  and neo-liberals on the right, believing the state incompetent and insisting on maxmimum deregulation. But Milibandism is neither of these – it is more like a British Ordoliberlism, utilising the state to ensure markets function.

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