Back in 2010, the last time there was a handover of power between the UK’s two largest political parties, the message from the incoming Conservative administration was clear – the public finances were broken, only by radically tightening the national purse strings could we hope to fix them.
Fourteen years later, the new Labour government shares a not-dissimilar view on the state of the economy it has inherited. But as set out in the King’s Speech on 17th July, Kier Starmer’s legislative programme for the next Parliament takes a very different approach to the fiscal challenges that lie before him and his ministers.
The new government won’t be demanding austerity to get public spending under control, with a view to being able to cut taxes to stimulate growth. It will instead be asking for a new spirit of collective responsibility to reign across the public and private sectors, with a vision of growth being unlocked in measured, careful steps.
Here are some of the highlights we picked out from the King’s Speech focusing on policies that will impact business, investment and employment.
Budget responsibility bill
If responsibility is the overarching theme of the new government’s economic stance, it can’t be accused of not walking the walk. A cornerstone of its legislative agenda is the Budget Responsibility Bill, which pledges to give the Office of Budget Responsibility the power to independently assess major tax and spending policies. The idea is to create a ‘fiscal lock’ to prevent future governments making unfunded commitments – with a clear nod to the disastrous mini-budget of September 2022, which sent financial markets into meltdown on the back of £45bn worth of unfunded tax cuts.
Greater stability and predictability in fiscal policy will be music to the ears of many company directors. If it works as planned, it will help nurture confidence from the markets and create positive conditions for investment and trade. One drawback is that greater oversight could lead to delays in the implementation of fiscal policies, potentially making the economy less flexible in response to external shocks.
Draft audit reform and corporate governance bill
To underline the ‘do as we do’ message, the King’s Speech outlined plans to tighten financial oversight and governance in the private sector, too. Under the proposals, the accounting, auditor and actuary regulatory body The Financial Reporting Council (FRC) will be replaced by the Audit, Reporting and Governance Authority (ARGA), which will come armed with hefty new investigatory and sanctioning powers in cases of alleged corporate malpractice.
In addition, all large private enterprises will automatically fall under the definition of a Public Interest Entity (PIE), which carries strict auditing requirements. If the aim of the Budget Responsibility Bill is to prevent another Truss mini-budget, the Audit Reform and Corporate Governance Bill is clearly intended to stop another Carillion.
National wealth fund and other growth-focused investments
The new government may be keen to trumpet its commitment to a more measured approach to fiscal policy. But it has also nailed its colours to the mast of nurturing significant growth in the economy, and is prepared to use all the levers at its disposal to do so.
The headline policy on this front, lifted straight from the Labour Party’s winning election manifesto and into the King’s Speech, is the creation of a new National Wealth Fund. Bringing together the UK Infrastructure Bank and the British Business Bank, the new sovereign wealth fund kicks off with £7.3bn in public capital which it will look to invest in clean energy and infrastructure projects.
Perhaps more significantly, the stated aim of the fund is to serve as a single touchpoint for channelling private investment into UK-based projects. The goal is to generate £3 of private sector investment for every £1 of public money invested.
Elsewhere, the Housebuilding and Planning Bill aims to simultaneously tackle the UK’s perennial housing crisis and trigger growth in the construction and property markets by reforming planning law. The aim is to streamline planning applications and give local authorities more leeway in decisions in order to ultimately build 1.5 million homes over five years.
Employment rights bill
While part of the Starmer-era makeover of the Labour Party has been to position it as the party of business and economic competence, some of the announcements in the King’s Speech were very much on brand. One such policy is the Employment Rights Bill, which puts meat on the bones of the party’s promise to ‘make work pay’.
Flagged in some quarters as the biggest reform of workers’ rights in a generation, the Bill includes proposals to make in-work benefits like parental sick leave available from day one in employment, strengthening statutory sick pay, and banning controversial employment practices like zero-hours contracts and fire-and-rehire schemes.
This will all come at a cost to employers, and for those that rely on flexible labour may face significant changes in employment practices. However, there were some olive branches offered to employers in the speech, particularly around workplace skills.
Following years of lobbying by industry, the government has promised to consult on replacing the Apprenticeship Levy with a much broader “growth and skills levy” which will allow employers to access funding for training and skills development across the board. Reform of workplace skills will be led by a new body called Skills England.
Public ownership
Speaking of ‘on-brand’ Labour business policies, the party remains synonymous in many people’s minds with the nationalisation of industry. Even if you have to be of a certain age these days to remember the heavily nationalised social economy created by Labour in the wake of the Second World War, or even its dismantling under Margaret Thatcher’s premiership in the 1980s.
We’re not exactly about to jump back to 1945 under Kier Starmer and co. But the King’s Speech did include some eye-catching nods to public ownership. Most eye-catching of all, the government has promised to nationalise all passenger railway services within five years. After years of failed franchises, spiralling fares and plummeting service levels, only the most hardened free market disciples are likely to cry foul over that.
Elsewhere, the government will also legislate to set up Great British Energy, a new publicly-owned clean energy production company based in Scotland. And while the crisis-stricken water sector has escaped the fate of its counterparts in rail – for now – the government has also announced plans to radically strengthen the powers of the regulator Ofwat to clamp down on practices like dumping raw sewage in rivers, including the ability to dish out heavy fines, place repeat offenders into special measures and even hold executives criminally liable.
