Risk & Economy » Tax » Labour pushes business credentials over Brexit

As the government is faced with fresh Brexit turmoil, one of Labour’s senior shadow ministers speaks out over the challenges facing the business sector.

In recent weeks Airbus, JaguarLandRover, BMW and Siemens have separately expressed concerns about Brexit uncertainty- especially a ‘no deal’ scenario.

Those fears were thought to have been allayed on Friday when Theresa May revealed a pro-business plan that appeared to have received backing of the Cabinet, but last night’s resignation of Brexit Secretary David Davis suggests a backlash to the ‘soft Brexit’ deal may come from other hardline Leavers.

Referring to the fears of business, Jonathan Reynolds, the Shadow Economic Secretary to the Treasury, says: “What you’re seeing from industry is not Project Fear but Project Reality- because businesses have to make decisions,” he says.

“If they haven’t got market access or the supply chain is affected, they have to be honest about that and make adjustments accordingly. We are leaving the EU but leaving in a sensible economic position offers scope for a deal that can be quite successful,” says Reynolds.

“We could pursue a relationship with Europe that leaves the European Parliament, European Commission, but our position on something like the Customs Union pursues simply what is in the best interests of the UK, based on a simple cost benefit analysis, ” says Reynolds, who is also Shadow City Minister.

“It seems quite clear to me that something like a customs union, when you consider the supply chains of motor manufacturing and their needs, is an obvious no-brainer,” says Reynolds. “I think that frankly the biggest issue for the UK, because of the size of the UK economy is that we  clearly need something in place to agree having a say in external free trade deals with that customs union,” says the former coporate lawyer.

Reynolds says crucial to a positive outcome for the UK is striking a bespoke deal. “It was always going to be a bespoke deal because there’s nothing on the shelf we can recover. There’s not been a situation before where there’s a trade deal between two blocs that are aligned and coming apart as opposed to not being aligned and trying to come together,” he adds.

On Brexit hardliners, he says: “It’s clear some of those people would prefer a no-deal Brexit, they believe that’s the cleanest break, which would be catastrophic for business and the country. So this is a really big moment and I’m the sort of person who always believes Labour’s got the basis for a very strong relationship with the business community- natural allies – employment, getting better skilled jobs, sorting out regional inequality, productivity.

“Being Labour doesn’t rule out having a successful partnership and having policies that can have a huge benefit to business- such as  business lending, on investment in infrastructure, in trying to make the entirety of the UK as competitive as possible,” he insists.

Reynolds says he recognises there are some points areas of Labour policy such as the party’s stance on raising the level of corporation tax that won’t be attractive to business, but he insists that the last Labour manifesto’s plans were for raising corporation tax at a level lower than it was under the Tony Blair-led Labour government.

On renationalisation

On nationalisation, Reynolds says Labour “is open to conversations”, which seems a stark contrast to Shadow Chancellor John McDonell’s statements earlier this year. “We’ve been very clear the manifesto is the basis of further discussions with a whole range of stakeholders, so we’re not holding this text up and saying no deviation and no discussion- this is how it’s going to be,” he says.

McDonnell pledged total, “permanent” and cost-free renationalisation of the water, energy and rail industries if Labour wins power at the next election. In February he attacked the privatised water industry, accusing companies of paying out a “scandalous” sum of £13.5bn in dividends to shareholders since 2010, while claiming huge tax breaks and forcing up water bills by 40% in real terms since privatisation of the industry in 1989.

Last month Susan Davy, CFO of Pennon, which owns South West Water, told Financial Director that although Labour was publicly talking about full nationalisation, she had noted a more emollient position during discussions with the party.“ They’re pretty consistent in the way they’re talking about it in the media. But behind the scenes we’re beginning to see a bit more differentiation in how they’re talking about it,” she said at the time.

Reynolds says: “In terms of the water companies I always say, I don’t look for criticisms of the water companies in the Morning Star, I look for them in the Financial Times. There are some legitimate points to raise about the level of profit that’s gone out in dividends, about the debt that has been accrued, about why some water companies feel the need to have subsidiaries in the Cayman Islands when they have access to a pretty good financial centre here on their doorstep,” he adds.

“On the water industry it’s about the level of customer service people are getting and the prices are set, you’ve got to ask the question of how much private activity is coming into those sectors and are people getting a good deal in terms of their water bills at the minute? And in rail, most of the big franchises- companies running or rail- are private subsidiaries of state-owned railways and that’s well known, a lot of them I think are close to quite perilous financial positions,” says Reynolds, who was previously Shadow Rail Minister.

Reynolds is in favour of workers on boards, which is a model he says works successfully in countries like Germany. He cites engineering group BAE Systems as an example of where there is a good relationship between management and the unions. “I’m in favour of what I would call co-production, which is how do you get workforce and management working together, in the national interest and the government framework and infrastructure behind that,” he says.

With his Shadow City Minister hat on, Reynolds says Labour plan for a new national investment bank reflects concerns banks are not fulfilling the role of supporting companies. “Banks would say the supply of finance outstrips the demand for it from business, but we will talk to a lot of businesses that have a different feeling about that.”

Re the deal for the City in the UK’s post-Brexit relationship with the EU, Reynolds argues for the mutual regulatory recognition model, “which is the Labour position in terms of what we would hope the final deal to be,” he says.  “If we don’t get that the next best things would enhanced equivalence,” he says.