Labour in Government:

Whether in the Shadow Cabinet or as Chancellor, Rachel Reeves has been unwavering in her mission to paint Labour as the party of “economic and fiscal responsibility”. Promising an “iron grip” on the UK’s finances, she has displayed notable restraint in Government.

This has included scrapping universal Winter Fuel Payments for older Brits while resisting demands to remove the two-child benefit cap. In both policy and prose, she has been staunchly technocratic, favouring “tough” decisions (i.e., limited spending) over ‘Tax-and-Spend’ economic policy.

However, Reeves’ approach has been met with some internal dissent. In July, seven Labour MPs had the whip suspended after voting for an SNP amendment that would have scrapped the two-child benefit cap. Meanwhile, in September, over fifty backbench MPs abstained on the Government’s Winter fuel cuts.

But have these challenges affected how the business community view Labour in power?

Labour holding steady among businesses

While Reeves and Starmer face mixed public approval, businesses appear to be holding steady in their positive perception of the Government’s approach to the economy.

According to Savanta’s Business Tracker, a plurality (47%) of business decision-makers in August reported being optimistic about the impact of the new Government on the UK economy. This reflected similar sentiment in July (51%), albeit with a slight decrease overall.

This stability suggests that the initial controversies of the new Government (e.g., Winter fuel payments and the two-child benefit cap) have not resulted in a shake-up in the way businesses view Labour in power. In fact, as these confrontations were largely a result of Labour’s unwavering fiscal rules, they may have instead acted to buoy sentiment. With the Truss economic incident a recent memory, it may be that businesses find solace in Labour’s restraint.

Small business, big problem?

Business decision-makers also remain optimistic about the impact of the new Government on their organisations, with under a third in both July (27%) and August (31%) feeling pessimistic.

However, there is a notable variance between respondents in different types of businesses. Decision-makers in medium or large businesses are significantly more likely report optimism here (61%), relative to those in small businesses (41%).

Furthermore, a majority (54%) of respondents agree that the new Labour Government will create a favourable environment for business, but stark divides occur between decision-makers in small businesses (48%) versus medium and large businesses (72%).

The optimism gap above highlights a key challenge for Starmer and Reeves – business decision-makers are not a monolith and will perceive Government activity different based on their position in the market.

Regulatory burden a concern for smaller enterprises?

One potential explanation for this gap can be found in regulatory preparedness. Overall, a majority of decision-makers feel their organisation is somewhat or very prepared for the implementation of the Employee Rights Bill (62%).

However, decision-makers in medium and large businesses are significantly more likely to report preparedness here (79%), relative to those in small businesses (57%). With regulatory adaptation typically being a more strenuous exercise for smaller organisations, it is possible that this limits the extent to which they would view a change of Government positively.

However, beyond this divide, the Government has reasons to be cheerful. Despite choppy waters over Winter Fuel Payments and discontent among backbenchers, businesses remain broadly receptive to Labour’s economic approach.

The company size divide and optimism gap will play an important role in the Government’s future relationship with businesses, as it will have to navigate the competing demands of decision-makers within these groups. But, for now, businesses remain optimistic.

Savanta will be continuing to track how the Labour Government fares against business leader’s expectations.

To keep up to date on the latest developments in the political and business space, please contact our dedicated team of experts.