British elections tend to be about accentuating differences between political parties and polarised, antagonistic debate. In this election, there is ‘clear blue water’ between the policies set out by the Conservative and Labour party leaders. Nonetheless, in predicting what will happen over the next five years it is often worth looking at the areas of similarity rather than difference between the main political parties, as these reveal the deep-seated issues that no politician can hide from and the common ground of political consensus. In 2017 with such a strong lead in the polls, anyone could be forgiven for looking at the Conservative party manifesto alone to forecast what the business environment may look like over the next 5 years. Looking at overlap with Labour may provide an even stronger sense of the likely direction of travel.
Here are 12 themes we can expect to see from the government after the election, which may affect the business environment for organisations in the UK.
1. More regulation: The political consensus in favour of free market liberalism has been turned on its head: “We do not believe in untrammelled free markets,” says the Conservative manifesto. The Conservatives, as well as Labour, are committed to greater regulation of markets, including reforms to markets in energy, home-buying, home-rental, phone billing, personal injury claims, and rail ticketing. This is also signalled in the next three trends.
2. Greater employee rights: The Conservative manifesto honours Theresa May’s previous commitment to not only preserve EU employment rights after Brexit but to add to them, with rights to time off for carers, bereaved parents and for training.
3. Rise in the national living wage (formerly known as the adult national minimum wage). Under the Conservatives it may take longer to get to Labour’s £10 an hour, but it is headed in the same direction, with a commitment to match 60% of median wages by 2020 (by my calculation that would be around £8 at 2016 median wages; interestingly the Labour manifesto in 2015 proposed to raise the minimum wage to £8 by 2020).
4. Additional Corporate governance requirements will be introduced. The Conservatives have pledged to introduce new scrutiny of takeovers and mergers; to make executive pay packages subject to strict annual votes by shareholders; require listed companies to publish the ratio of executive pay to broader UK workforce pay; and require larger companies to publish information on the pay gap for people from different ethnic backgrounds and to publish more data on the gender pay gap. The Conservatives also propose to ensure employees’ interests are represented at board level: “we will change the law to ensure that listed companies will be required either to nominate a director from the workforce, create a formal employee advisory council or assign specific responsibility for employee representation to a designated non-executive director”. This addresses a wider issue of declining trust in business. It follows from a government consultation on corporate governance reforms, which sought views on ‘workers on boards’. At Grant Thornton, we looked at these issues in our recent report on building trust in business, which identified the need for greater employee engagement. In response to the government consultation we argued against a ‘one size fits-all’ approach and recommended allowing for different ways of ensuing boards engage with employees; the Conservative party manifesto seems to recognise this approach.
5. Taxes will rise. Taxes always rise in the first Budget after an election – this is the safest time for Chancellors to do so. The first year after each of the last six elections has seen net tax rises of more than £5 billion per year. Who will be most affected by tax rises does differ across parties, with Labour and Liberal Democrats committing to reverse recent corporation tax reductions and increase income tax (Lib Dems add a penny; Labour introduces new rates for higher earners); and with the Conservatives most likely to raise NICs, at least for self-employed (which does allow them to revisit the question of how to ensure a approach to self-employment that better reflects the modern economy).
6. Reform of business rates. Sadly, none of the manifestos has any commitments to simplification of tax. However, they do both pledge to reform business rates. This is welcome – something Grant Thornton has called for, most recently in our draft manifesto for a Vibrant Economy. The test will be just how radical the reforms turn out to be; there have been numerous reviews of business rates over the last 12 years and none has led to fundamental reform and really looked at whether this is the best foundation for local business taxation.
7. A delay in balancing the public finances. The 2015 election was dominated by debate on balancing the books. Post Brexit this has slipped down the agenda, with both Labour and the Conservatives now pledging to balance the budget by 2025 (five years later than both parties pledged in 2015).
8. The impact of an ageing population. One of the reasons for increased expenditure is the growing pressures of an ageing population and its impact on adult social care costs and the NHS. So both parties are committing to spend more on health and social care. At last, we are starting to have a debate about this systemic issue, which will only grow. At Grant Thornton, our work with care and health providers across the country and in private, public and not for profit sectors, indicates that more radical thinking – with a bigger public debate – is needed to find sustainable solutions to this issue. This will not go away – although already the election has shown that it is fraught with difficulty for political parties.
9. Local devolution: At Grant Thornton our discussions in cities around the UK suggests one of the ways of finding sustainable solutions to health and social care is through greater devolution to local bodies, giving them the freedom to try innovative and more joined-up approaches. More broadly, communities want the tools to develop and implement local strategies. This should include greater flexibilities to enable investment in local infrastructure and growth strategies. The good news is that the political parties broadly support this approach. The Conservative manifesto proposes a new fund replacing EU regional funds with a United Kingdom Shared Prosperity Fund, to reduce inequalities between communities and proposes that each Local Enterprise Partnership and combined authority should develop its own local industrial strategy. There is a real opportunity after the election for organisations in towns, cities and rural areas to collaborate to agree plans and shape how these policies are best implemented.
10. An export drive. The Conservatives would establish nine new overseas Trade Commissioners and take action to ‘forge a new culture of exporting’ and enable firms to take advantage of new high growth markets around the world. Labour would introduce ‘an export incentive scheme for SMEs’. Again, it is good that there is consensus on the aim here. We have been talking to bsunesses about practical steps to achieve these mutual aims, and have developed some recommendations.
11. Skills and immigration: There is also a recognition of how skills gaps are affecting employers and the need for skills and immigration policies to tackle this. On immigration, there is a big difference between the party manifestos, with the Conservatives committing to a target to reduce immigration below 100,000 – and Labour ruling this out. Labour also calls for an immediate and unilateral recognition of the right to remain for EU citizens currently working in the UK. This puts Labour on the same side as most business organisations and employers. The Conservative party manifesto does also recognise the needs of employers - hinting at some flexibility in its approach: “We will address the immediate needs of those sectors of the economy suffering shortages in skills. We will make the immigration system work for these sectors… [and] we will make it a priority in our negotiations with the European Union that the 140,000 staff from EU countries can carry on making their vital contribution to our health and care system”
12. Innovation: Finally, both recognise the importance of business innovation, with both proposing a long-term target of 3% of GDP invested in R&D (up from 1.68% now). At Grant Thornton, our discussions with business suggest there is an opportunity to achieve innovation through a collaborative approach including greater corporate venturing.
There is one topic on which both parties have relatively little to say of substance – Brexit. Whilst the Liberal Democrats have made their opposition to Brexit a big differential, neither Labour nor the Conservatives give away much detail about their approach. One intriguing point is that they both indicate the UK may seek continued membership of (and financial contributions to) some EU programmes, with Labour going further by naming some of these (Horizon 2020 research programme, the European Medicines Agency, and Europol). However, the main aim of both manifestos seems to be to allow as wide as possible negotiating leeway and flexibility to take whatever approach is needed at the time. What this means for organisations planning the next few years is that the detail of Brexit remains an unknown and what trade relationships we may negotiate with the EU and whether these include transitional arrangements after March 2019 we will have to wait and see next year.
For a Brexit election, the real issues in the manifestos are more about UK challenges and policies. After a year of debate about Europe, the focus on what kind of UK we want in the future is encouraging. What is a little disappointing is that the manifestos don’t acknowledge some big trends we see amongst organisations across the UK: a growing movement of businesses that are embracing social and environmental purpose as well as profits; a similar trend of consumers and financial services increasingly offering savings products that enable people to invest their money in social impact as well as a financial return; and a desire by leaders in business, the public sector and not-for-profit to collaborate with each other to help shape a stronger UK and provide more sustainable (affordable) public services. The manifestos have missed an opportunity to identify these trends as growing forces for good, which could be encouraged and accelerated.
Above all, what is fascinating is that despite the apparent differences between Labour and Conservatives, there is actually quite a lot of common ground on issues such as trust in markets, unlocking growth, and creating places where people and business can thrive. What remains to be seen is whether there is much time for the new government to focus on any of these once it formally starts Brexit negotiations with the EU next month.