May Unnerves U.K. Business as Tories Redefine Capitalism

(Bloomberg) -- To one of Britain’s best known private-equity veterans, Theresa May is the least business-friendly Conservative prime minister in decades.

May, who has appropriated policies of the opposition Labour Party, said on Thursday that she will reject the “center ground defined by elites” and govern for ordinary people. Measures such as energy price caps and better workers’ rights will be included in the election manifesto due for release at 11 a.m. Other ideas such as reining in executive pay might not make the final cut, but have sounded the alarm in the City of London.

“Theresa May knows she’s got the right-wing vote sewn up, so she’s been trying to take as many votes as she can from Labour,” said Jon Moulton, founder of the private-equity group Better Capital and chairman of broker FinnCap. “But some of her policies will leave things very hard for business. If she puts too many employee-friendly policies in place, the U.K. market will just become a less competitive place.”

May read into last year’s Brexit referendum result that voters were angry with inequality and business as usual, and saw an opportunity for her Conservatives to channel that frustration. At stake is whether she can find a middle path that addresses voters’ objections to capitalism without undermining U.K. business and the economy.

Populism Prevention?

“Real wages are falling and trust in business is sliding, so it’s just sensible politics to address voters’ unease about the way the economy is working for them by trying to make markets fair,” said James Kirkup, director of the Social Market Foundation. “It’s also a way to stop Britain succumbing to real anti-market populism.”

May Unnerves U.K. Business as Tories Redefine Capitalism

Average real earnings in Britain fell for six straight years after the crash of 2007 and are still below their pre-crisis levels. Data published on Wednesday showed that after 2 1/2 years, they’re falling again. And incomes will be under more pressure in the coming years, with welfare cuts as the government continues its austerity program, and rising inflation as a result of the pound’s decline.

May, who came to lead the party of Margaret Thatcher as a result of the Brexit referendum, says she is determined to address voters’ hardships. On the day she became prime minister last July, she pledged to fight the “injustices” of inequality in Britain, saying “we won’t entrench the advantages of the fortunate few.” At the Tory party conference in October, she attacked “elites” and business leaders who failed to pay their taxes, putting them “on warning: this can’t go on anymore.”

May, who is leading in the polls by as much as 20 percentage points, has advocated measures including giving workers representation on company boards, intervening in foreign takeovers if they’re deemed contrary to the national interest and altering rules governing shareholder votes on corporate pay. Some of this may be rhetoric -- the manifesto will offer clues as to how much will actually become policy. The opposition Labour Party, which moved deeper into socialist territory under its leader Jeremy Corbyn, has made concrete pledges to fight inequality such as levies on companies that pay employees more than 330,000 pounds ($430,000) a year.

Businesses need to get used to it, according to Stephen Martin, Director-General of the Institute of Directors. “Whoever wins the next election, the City should expect the focus on corporate governance reform to continue,” he said, citing the erosion of public trust in business caused by the financial crisis and high profile governance issues at companies such as Sports Direct International Plc and BHS.

“Boards may not like political tinkering, which can be counter-productive, but the time for opposing sensible reform is over,” he said.

Energy Cap

Companies are already bracing for the effects of May’s brand of Conservatism. SSE Plc, one of the Big Six energy suppliers targeted by her energy cap, said on Wednesday it is preparing for “significant challenges” this financial year. The policy, which is similar to a Labour proposal made in 2015, will make for a “very different market,” CEO Alistair Phillips-Davies said.

A clue to May’s thinking comes from an article written by her joint chief of staff, Nick Timothy, four months before they took office. “The most serious weakness that the Conservatives have,” he wrote, “is the perception that we simply do not give a toss about ordinary people.”

Timothy said there was “a small minority of people in our party who frankly do not care very much about others.” To combat that, he urged “a relentless focus on governing in the interests of ordinary, working people.”

That thinking has implications for post-Brexit Britain. While some advocate deregulation and tax cuts as a way for Britain to remain competitive after Brexit, such policies would run counter to May’s understanding of what the referendum result was all about. According to Kirkup, she will continue to defend those she defines as ordinary to prevent a worse backlash against business and elites.

“For some voters, the Brexit vote was a chance to let off steam about the way the country was going,” he said. “Taking that vote as a mandate to cut the economic and social protections those voters value -- to the benefit of businesses that many of them distrust -- would invite another backlash. She’s too cautious for that.”