Roughing up industry regulators, jetting to Davos to court the global elite, and preparing to greenlight airport expansion: after a difficult start to the year, Rachel Reeves is working overtime to regain business confidence.
Financial market turbulence at the start of the year has been followed by a pro-growth charm offensive aimed at getting Labour back on the front foot, before the chancellor goes further in a speech she is expected to give next week.
For a party of the centre-left, however, the efforts to regain the confidence of business leaders sit uncomfortably for some, and have drawn warnings from union leaders, charities, consumer groups and environmental campaigners.
The chancellor’s suggestion to the super-rich gathered at the World Economic Forum that she could water down planned changes to the non-dom tax regime, in particular, has set alarm bells ringing on Labour’s left flank.
“It is of deep concern that the UK chancellor is making concessions to the super-rich at Davos, while the appeals of those struggling to afford the essentials back home are being ignored,” said Anna Marriott, the inequality policy lead at Oxfam.
Some economists are questioning whether ordering watchdog bosses to “tear down regulatory barriers”, without making significant changes to regulations, would even deliver the economic growth the chancellor wants to prioritise.
“She’s fiddling while Rome burns,” said David Blanchflower, a former Bank of England policymaker. “She looks like a deer in the headlights, lacking a coherent plan. She sounds like a Tory chancellor. Where is the alternative?”
While in Davos, Reeves and the business secretary, Jonathan Reynolds, have been highlighting a series of decisions intended to show that Britain is “open for business”, including forcing out the Competition and Markets Authority chair, Marcus Bokkerink.
Privately, ministers are frank about the fact they acted partly as a result of repeated complaints from businesses about the CMA’s approach, particularly in the tech and finance sectors.
Consumer groups are worried. Rocio Concha, the director of policy and advocacy at Which?, said growth was important, but “ministers must ensure that regulators take their responsibilities to protect consumers [just] as seriously”.
Scything back regulation might not ultimately do much to placate bond market investors, either. Neil Mehta, a fund manager at BlueBay Asset Management, said: “It’s desperate. The market is not listening, and things like that have a long time to have an effect.”
A competitive economy is not the same as allowing big business to operate unchecked, Diane Coyle, an economics professor at the University of Cambridge, wrote on Bluesky. “Enforcing competition so markets work in the interests of customers means there is less need for regulation of other kinds.”
Analysts believe the tough messaging for Britain’s regulators is largely aimed at soothing business concerns after the chancellor’s £40bn-tax-raising budget, given that options to roll back the measures are limited by the tight position for the public finances.
In a sign of what’s at stake, Sainsbury’s had a warning for the chancellor as it announced on Thursday 3,000 job cuts due to rising costs.
However, some economists do believe rolling back regulation could help to spur economic growth after years of the rules being tightened and tweaked since the 2008 financial crisis.
Kallum Pickering, the chief economist at Peel Hunt, said: “Roughing-up of the regulators sends a signal that they’re serious, and for now that’s a step in the right direction. The government seems to get it, and it seems to have been well received.
“Any positive pro-growth signals should reignite animal spirits, and after the government’s gloomerism of last year, that’s a good thing – and it’s coinciding with the approval of various projects.”
In an effort to woo City bosses, the chancellor has ordered regulators to “encourage more risk taking” and water down post-financial crisis regulations that she claimed – in a speech to bankers in November – had “gone too far”.
Amid pressure to prove it is not standing in the way of Labour’s growth agenda, the Financial Conduct Authority (FCA) has suggested easing mortgage affordability rules, but warned it could come at a cost to consumers.
“We’ve been very, very clear that that could result in a high level of default,” the FCA chief executive, Nikhil Rathi, told the House of Lords financial services regulation committee on Wednesday. “You can’t relax the rules, and have no defaults. It’s just [a question of] what’s acceptable politically.”
Meanwhile, the chancellor has denied caving in to financial industry lobby groups, despite urging the supreme court to avoid handing a “windfall” to borrowers harmed in the motor finance commission scandal. Lenders have been scrambling to avoid paying what some analysts believe could be a £44bn compensation bill to customers.
Beyond the Square Mile, the chancellor’s speech next week is expected to give her backing to a third runway at Heathrow, as well as making planning applications easier for housebuilders and businesses investing in Britain.
The last time airport capacity in the south-east of England was examined almost a decade ago, by the Airport Commission led by the economist Howard Davies, expanding Heathrow was said to be “crucial to the country’s prosperity in an increasingly integrated global economy”.
It is not plain sailing, however, in a party where Ed Miliband, the net zero secretary, threatened to resign from Gordon Brown’s cabinet in 2009 when Heathrow expansion was last on the cards for Labour. Miliband is not threatening to resign this time, and insists economic growth can be delivered while keeping within carbon budgets and the energy transition. However, environmental groups are concerned.
“Expanding our airports will not produce the economic growth that Rachel Reeves so desperately wants,” said Alex Chapman, a senior economist at the New Economics Foundation. “[It is] also completely incompatible with the government’s aim to be a climate leader.”
Despite the scramble for economic growth, Labour does still have red lines it is unwilling to cross.
Ministers have been called on to offer concessions to business groups on Labour’s reforms to workers’ rights, in a development that could stoke tensions between Reeves and Angela Rayner, the deputy prime minister. But while some tweaks could be offered, union leaders remain confident big changes will still be made.
Tim Sharp, the senior policy officer for employment rights at the TUC, said: “Reeves has said things about how economic prosperity and social justice go hand in hand. It’s an old-fashioned idea that there’s some kind of trade-off between workers’ rights and economic growth. It is not supported by the evidence.”
Labour still also holds Brexit red lines, despite being told by some experts that rejoining the EU single market and customs union could be the most pro-business and pro-growth decision it could take.
Keir Starmer’s government is, though, seeking to forge closer economic ties with Brussels, while also cosying up to Donald Trump. However, experts say it would be difficult, if not politically impossible, to do a deal with the White House because Trump would make demands that could be unpalatable for British consumers, and would force the UK further away from the EU.
“Brexit is dumping on them, they’re practising austerity again, and so the economy shows no growth,” said Blanchflower. “The bottom line is you should be rejoining the EU. But Reeves is lashing out trying to find anything she can, as she has no coherent plan.”
