LONDON — Margaret Thatcher hugged her “nation of shopkeepers” close. Labour is struggling to emulate her success — leaving rivals rubbing their hands.
Months after winning power off the back of a pre-election charm offensive designed to burnish the party’s business credentials, the Labour government is leaking hard-won support from small business owners blindsided by some of its first moves — including a surprise hike in employment taxes.
Chancellor Rachel Reeves — set to unveil her latest fiscal plan next week — has been trying to rebuild bridges with business ever since, making a series of pro-growth announcements and vowing to slash perceived “red tape.”
But while she appears to be turning things around with bigger firms, the top finance minister has yet to convince their smaller counterparts she’s on their side.
Polling by J. L. Partners for the consultancy WPI Strategy in January found that two-thirds of respondents at companies with more than 500 employees felt more confident about Reeves’ growth plans, compared to just 14 per cent from companies with fewer than 10 employees.
It’s leaving a goal wide open for Reform UK leader Nigel Farage and Tory chief Kemi Badenoch.
‘Would I sign that letter again? No.’
Disquiet with Labour is certainly not hard to find among business groups.
Neil Leitch, chief executive of the Early Years Alliance — which represents nurseries — said there had been a “general hope” ahead of the election that “things would change” for the early years sector.
But it has ended up being “hit harder” than it had been over the last four or five years, thanks to Labour’s increase in employer national insurance contributions — a move not trailed in the party’s pre-election manifesto.
“I don’t believe that [Rachel Reeves] had any idea of what the impact was likely to be on small businesses operating as nurseries,” Leitch said.
There is similar dismay in the pub sector, which had “reacted positively” to Labour’s plan for pubs ahead of the election, according to Morgan Schondelmeier, policy manager at the British Beer and Pub Association.
“Pubs are, frankly, very upset to see [the government] making all the noises, and then obviously increasing costs so drastically. The employment costs are really big, but also the reduction in business rates relief is also another a big hit for pubs, and that is mostly actually going to hit smaller pubs,” she said.
That’s a hard message to hear for a party that sweated to woo small firms in the run-up to the election.
Businesses were courted with non-stop Labour meetings, dinners and breakfasts in a bid to get the center-left outfit a hearing. Just a few days into last year’s election campaign, 120 business leaders signed an open letter urging voters to give Labour a chance to lead the country.
“Would I sign that letter again? No,” said one signatory of the supportive missive, speaking on condition of anonymity.
The signatory, a business owner who attended a roundtable with a Labour frontbencher ahead of the election, added: “You think you’ve met the people. They’ve looked you in the eye, and said they’re all for growth, these things are really important, and they’ve listened to you. Then the first thing that happens as soon as they come in is it’s the complete opposite.”
Small business, big numbers
Spying an opening, Conservative Leader Kemi Badenoch has been using her weekly questions to Prime Minister Keir Starmer to highlight concerns about Labour’s “jobs tax.”
Meanwhile, Reform MP Richard Tice — deputy to Farage in the insurgent right-wing movement — has accused the government of creating a “hostile environment for family businesses.”
“It’s pretty much a race between the Tories and Reform to grab [small business votes] off of Labour,” said James Frayne, founding partner of policy research agency Public First.
Tory strategists say Badenoch is now making a deliberate effort to listen to businesses on weekly visits around the country, as she tries to reverse her party’s fortunes following a historic election kicking.
“You will see that as a party we want to be allied closer to the entrepreneurs, the business owners, the businesses, the people who take risks,” explained one strategist, who was not authorized to speak on the record. He also pointed to the appointments of Mel Stride and Andrew Griffith as shadow chancellor and shadow business and trade secretary, respectively, as a “concerted decision.”
“Kemi wanted people in the so-called economic departments who had either run businesses, or been at the top of businesses, who understand business,” the strategist said.
Tice, Badenoch’s rival on the right, also claimed to “feel very much aligned with small businesses.” Small business owners have been telling him there is “no point hiring more people” or “taking more risk,” he said — and they’re now sounding “very supportive” of Reform.
A Liberal Democrat official, also not authorized to speak on the record, said the centrist party would be talking up the potential of Britain’s high streets in the forthcoming local elections. “Championing small businesses has always been a key Lib Dem value,” the official said — taking a swipe at both the “Conservatives’ economic vandalism and now Labour’s high street hammerblow with their foolish national insurance hike and business rates changes.”
Hope for Labour
For these parties, there’s certainly plenty to play for.
Frayne, a former Conservative adviser who authored a report on voter sentiment for the Centre for Policy Studies think tank last year, said small businesses matter electorally in terms of their sheer numbers. But they also play an outsized role when it comes to voter perception.
Small and medium-sized businesses (SMEs) account for three-fifths of employment and around half of turnover in the U.K. private sector, according to figures from the Federation of Small Businesses.
“How business talks about a party helps in that it creates a broader impression about whether someone is competent or not, and should be in charge of the economy,” said Johnson of pollster J.L. Partners.
Frayne agreed. “Whilst the public have always been a bit skeptical about big businesses, they love small businesses,” he said. “People view small businesses as being their local businesses — the people that they see on the high street, the people that they see in their local community.”
With time on its side, Labour could yet win business back ahead of a general election still years away.
Damian Horton, co-founder of the autonomous vehicles software business Eloy, who also signed the pre-election letter in support of Labour, said he was “hopeful” the government is now making the right moves. Going back a year or two it was “almost impossible to build a technology and then work with government to bring it to market for a government-facing service technology,” he said.
“From where we are now, there is some listening going on, you are starting to see these changes,” he said, citing a Treasury review published this month looking at the funding of digital initiatives.
The government also gathered businesses earlier this month to garner ideas for a Small Business Strategy, due to be published later this year.
A government spokesperson said the last few years had been “incredibly difficult for business” and stressed that the administration is “determined to improve the total business environment, including for small businesses.”
The spokesperson said the government had “already achieved a great deal in a short period of time,” citing moves to protect small businesses from late payments and to cap corporation tax, and talking up continued business rates relief for retail, hospitality and leisure.
For now, Labour can also take comfort from the fact that both its rivals have uphill battles to fight.
Anger toward Labour over the budget is probably “less partisan” than it otherwise might have been — and the Conservatives have not been seen as “friends of small business” for a long time, said Frayne of Public First.
“[The Tories] have been perceived to have dumped endless new taxes on them, endless new regulatory rises on them as well, and they’d also just got out of the habit of talking to small businesses as if they were the lifeblood of the party, which previously they were seen to be,” Frayne added.
Reform, meanwhile, has yet to demonstrate it can widen its appeal beyond core issues like migration. But that doesn’t mean Labour can rest easy.
“It’s just a case of whether or not the Tories can earn the forgiveness of small businesses versus whether or not Reform can look like a credible potential government,” Frayne said.
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