Honeymoon’s over for business chiefs . . . Labour’s tax rises burnt through goodwill

“My feeling is that, actually, she delivered,” Blanc said. “Consolidation of pensions means that a company like Aviva can invest in more projects at scale … and anything that gets regulators into a place where they have to think about the competitiveness agenda before they do anything is going to be positive.”

Yet although Reeves’s words at Mansion House should have been nectar to a City that has complained about being over-regulated since the aftermath of the 2008 financial crisis, they did not go down universally sweetly. Others in the financial services industry expressed scepticism about her ability to follow through on her pledges, pointing to a widening gap between Labour’s rhetoric on growth and the reality of its actions — taxing, spending and boosting workers’ rights.

“They did a very good job pre the election, making it sound like they were pro-growth, pro-investment and they had a plan, and then they arrived and they did literally the opposite,” said a chairman who claimed his company faced a £25 million hit from the budget’s hike to employers’ national insurance contributions.

“Everybody was just appalled. People are just very cynical now, because it’s actually what they do, not what they say, and this is just more words about more things they say they’re going to do. They’ve burnt through 90 per cent of the goodwill they had from the business community.”

Labour’s brief corporate honeymoon probably hit its highest point on the Monday immediately after the July 4 election, when Reeves confirmed it would try to speed up the sclerotic planning system in the service of getting 300,000 homes built a year, along with big infrastructure projects such as renewables.

The rapid collapse in relations since then has been down to choreography as well as substance. Some attendees grumbled that last month’s investment summit, where Sir Keir Starmer interviewed the former Google boss Eric Schmidt and Sir Elton John serenaded guests at St Paul’s Cathedral, came before the crucial budget. It was also overshadowed by a kerfuffle over DP World — when Louise Haigh, the transport secretary, called the Dubai-based group’s P&O subsidiary a “rogue operator”, jeopardising the announcement of a £1 billion investment due at the event.

Varun Chandra, the Tony Blair Institute alumnus who is No 10’s business envoy, has been deluged with grievances by business leaders. Poppy Gustafsson, the former boss of the cybersecurity company Darktrace, has been quiet since her appointment as investment minister last month. In the run-up to the election, Reeves talked up her brief pre-Westminster career at the Bank of England and HBOS, but there are growing questions in the business community over her grasp of how the private sector functions. Reeves has edited her online CV, which previously said she worked as an economist at HBOS, to say that she worked there in “retail banking”.

The budget crystallised growing boardroom doubts over Labour’s understanding of the private sector. Rises in the top capital gains rate and the rate for carried interest, used by private equity dealmakers, were less punitive than trailed. But the application of 20 per cent inheritance tax on farms and family businesses valued at more than £1 million triggered widespread anger. The Dyson founder Sir James Dyson, who owns at least 36,000 acres of farmland, described the budget as a “spiteful” package that would spell the “death of entrepreneurship”.

The cornerstone measure — a £25 billion raid from adding 1.2 percentage points to employers’ national insurance contributions and lowering the salary threshold at which they are paid to £5,000 — sparked a slow-burn revolt. On top of a 6.7 per cent bump to the minimum wage from April, it will add significantly to staff costs, particularly in mass-employment but low-margin industries such as healthcare, hospitality and retailing.

Care England, which represents care homes, said the sector faced “unprecedented danger”. UKHospitality, the lobby group for pubs and restaurants, described the increase in national insurance as “unsustainable”. A draft letter by the British Retail Consortium (BRC), whose contents were reported by Sky News, warned: “The sheer scale of new costs in the autumn budget and the speed with which they occur, together with costs from a raft of other regulation, create a cumulative burden that will make job losses inevitable, and higher prices a certainty.”

After the draft’s leak, Treasury officials are understood to have mounted a rearguard action in an attempt to dissuade retail leaders from signing the letter before formal publication. The BRC’s members include grocers such as Tesco and Asda, and groups such as B&Q owner Kingfisher. Sources said that a number of big retailers received “aggressive” messages from Reeves’s team warning them not to put their name to it. While it is understood that no explicit threats were made, an industry insider said some of those on the receiving end believed the Treasury was making clear there would be consequences if they continued to criticise the chancellor publicly.

“But retailers are so pissed off about all this being pushed through without proper consultation,” the source said. “It’s a total car crash.”

Sources close to Reeves deny her team behaved in a heavy-handed way but do not dispute that they sought to stop businesses signing the letter. They added: “We don’t recognise these claims at all. We engage regularly with stakeholders on a range of issues as is standard.”

Steve Morgan, founder of the housebuilder Redrow, is a Tory donor who became disillusioned with his party over its approach to development — although he could not bring himself to vote Labour in July, because “a leopard never changes its spots”. He now runs a medium-sized housebuilder called Castle Green, which makes about 500 homes a year.

Morgan thinks “the direction of travel is good” in terms of Labour’s proposals on planning. But he also runs a country hotel, Carden Park in Cheshire, which has 180 staff. Morgan said that “at a stroke”, the hotel’s employment costs would go up by 10 per cent from April 1, with pay for its younger workers jumping by 19 per cent. “How are we supposed to absorb that?” he asked. “We employ a lot of kids. They’re green — it’s not their fault, it’s just that they’re young. Now we’ve got to pay them virtually an adult’s wage. You will see youth employment, two years down the line, at crisis levels again.”

Of Labour’s overall economic performance so far, Morgan said: “The rhetoric is good. The delivery is shocking. I hope they realise the damage they’ve done. It’s just horrible. Anybody who relies on employing a lot of people — supermarkets, the entire leisure industry — will absolutely be looking at their headcount and looking to chop.”

The employment market remains tight, with 831,000 vacancies, but it has been loosening. The prospect of job losses comes at a point when consumer confidence appears to be weakening. Retail sales are 9 per cent below where they were in April 2021, at the end of the last pandemic lockdown.

Sales in consumer-facing services, including hospitality, are more than 5 per cent lower than before the pandemic. Families seem to be holding off buying big-ticket items in particular: private new car registrations were down by 11.8 per cent last month on the previous year. Clive Black, head of research at Shore Capital, said: “Labour has really succeeded in nipping in the bud quite a nicely evolving consumer economy situation for the second half of this year.”

While corporate giants such as Tesco — which will pay an estimated £1 billion more in national insurance over the course of this parliament — will be able to stay competitive on prices by absorbing at least some of the impact via cost-cutting and reorganisation, smaller operators fear they will have to raise prices again, after a period of high inflation. Anthony Pender runs two pubs and a restaurant in London, including the Somers Town Coffee House near Euston. “We’re at a knife-edge where people will decide if they’re going to use our services or not,” he said.

Data released on Friday showed that UK GDP barely grew in the third quarter and fell in September, leading Reeves to say she was not satisfied with the performance. Sir Nigel Wilson, chairman of Canary Wharf and previously the boss of Legal & General, described it as “the muddling-through economy”. Wilson, who viewed Labour’s first budget in 14 years as “ideological”, said: “We’ve got a growth agenda, which is good. But we need a growth strategy, and I don’t think we have one yet. The sad thing is that when you go around the country, there’s thousands and thousands of young, thriving businesses that need growth capital, and it’s hard for them.”

Anne Glover is among investors holding the purse strings. She is co-founder and chief executive of Cambridge-based Amadeus Capital, which backs early-stage tech companies, often university spin-outs. She said she was “cautiously optimistic” about Labour’s talk of financial deregulation and planning reform, although “high-level political statements don’t often get converted accurately or well into detailed changes”. But Glover said the pain of the budget would truly be worth it only if public services started to show genuine signs of improvement and helped to get some of the 2.8 million people out of work due to long-term sickness back into the labour market.

“Everybody took a fair amount on the chin,” she said of the £40 billion in tax rises. “The trade-off for me is, does this immediately go back into public services? I would be looking for them to demonstrate that the extra taxes are actually delivering an active workforce, because if that happens then wages won’t rise, the pressure on employers’ profits is not as bad — the whole dynamic improves.”

That is perhaps an ideal scenario. If Labour has learnt anything from its messy first four months in office, it must be that reality tends to be rather more difficult.