McDonnell Sees Business Ties as Critical to U.K. Labour's Future

(Bloomberg) -- U.K. finance and business chiefs are finding common ground with the Labour opposition as they seek certainty about Britain’s future, a budding relationship that is "absolutely critical" to the party’s bid for power, Shadow Chancellor John McDonnell said.

Escalating concerns about the slow pace of Brexit negotiations and the internal crises faced by Theresa May’s government have led investors and business leaders to see Labour as a government in waiting -- and to start working with them, McDonnell said in an interview in London Thursday.

“Business leaders were skeptical at first," he said. "But there’s a sort of an informal partnership being built now with investors and business leaders. They feel they can talk to us and have a say that they don’t have with the government."

Labour’s pledge that they would seek to keep Britain in Europe’s single market for as long as possible after Brexit has, so far, been its main selling point to business leaders increasingly concerned at the progress of negotiations and mixed messages from May’s Conservative government.

By also promising government investment -- funded by borrowing -- in infrastructure and areas such as the technology industry, McDonnell says Labour is starting to win business round to its plans for the economy.

McDonnell’s courtship, delivered over regular cups of tea with finance and industry chiefs in his office or in the House of Commons, has not quite dispelled the misgivings many companies still have about some of his hard-left views.

Putting the Case

For many, the relationship is still essentially pragmatic, making the best of an unpropitious political landscape. They are being advised to argue the case for their company or sector to be last in the queue for being nationalized. Companies such as Yorkshire Water recently scrapped all their offshore accounts, following Labour criticism of the industry’s dividend policy and financial structure.

"There’s nothing you can do to nobble these guys or get them to change their policies outright," said Scott Colvin, head of public affairs at Finsbury, a public relations firm. “So the best one can do is put the case as to why nationalizing your company shouldn’t be first of the party’s list, should they win an election."

In a speech setting out his demands for next week’s budget, McDonnell said Labour would spend an extra 17 billion pounds ($24 billion) a year on public services, most of which will be funded by an increase in corporation tax and capital gains tax. Labour’s plans include increasing the levy on corporations to 26 percent and returning the railways and utilities to public ownership.

Higher Taxes

"No one likes a tax rise," McDonnell said. "But what they’re doing is balancing the tax rises against the investment opportunities that we can put on the table for them."

May’s disastrous election result in June and continued infighting in her government have given Labour a boost in the polls, while years of spending cuts and higher inflation are starting to take their toll on voters.

McDonnell said that Labour leader Jeremy Corbyn and shadow Brexit Secretary Kier Starmer have had regular meetings with the European Union chief Brexit negotiator, Michel Barnier, which have helped build up a relationship of respect between the party and the bloc.

Labour is also listening to business demands on transition, and remains open to a bridging period lasting longer than two years, though the party’s aim remains to make it "as short as possible but as long as necessary."

"Their view of investment opportunities, the stability of decision making we can bring to the table as well, and the direction we’re going in -- which they all agree with -- which is investment in infrastructure, tech and skills chimes with everything they want to see in the future," he said.

To contact the reporters on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net, David Hellier in London at dhellier@bloomberg.net.

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Andrew Atkinson, Ben Sills

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