David Worsfold
The Labour leadership and the City are looking to re-calibrate their relationship. When Jeremy Corbyn became leader of the Labour Party in 2015, the City and wider financial services sector, along with most political pundits, stopped taking Labour seriously. That all changed after the General Election on 8 June this year when Corbyn led the Labour Party to a modest recovery that consolidated his – and the Labour left’s – grip on the Labour Party.
The precarious Parliamentary position of Theresa May’s minority government and the many stumbles on the rock-strewn path towards Brexit have raised the prospect of a Corbyn-led Labour government arriving in Downing Street in the next few years from highly improbable to distinctly possible. The prospect of another General Election before the conclusion of the initial Brexit process in March 2019 haunts the government but cannot be ruled out. That prospect has injected a new urgency across the City to understand what Labour wants from them and how it would go about getting it.
Corbyn and his Shadow Chancellor John McDonnell do not like the financial sector. The Labour manifesto earlier this year described it as being “rigged for the few” and Corbyn damned it for being full of “speculators and gamblers who crashed our economy”. The City might feel it can cope with a few rhetorical outbursts like that which are clearly aimed at pleasing the left-wing activists that put Corbyn and his allies into the driving seat in the Labour Party. But this rhetoric has teeth. They proposed a Financial Transaction Tax, initially aimed at raising £26bn over the normal five year government by taxing bond and derivative trades.
The manifesto said there will be a privately-funded £50bn National Transformation Fund to promote regional investment, but little detail was added to explain where that money would come from. Pension funds and insurance companies would surely be amongst the first ports of call. This month, Labour published proposals to move the Bank of England to Birmingham, part of its wider assault on the structure of the City and its institutions.
There is now a Labour group on the City of London Corporation which the party has described as the “UK’s last rotten borough” and proposed abolishing in the past. Strong stuff but people are now talking. Corbyn and McDonnell are planning to set up a business forum in the New Year and the Shadow Chancellor has been willing to meet senior City figures over a cup of tea, served with Rich Tea biscuits. This has echoes of the charm offensive Tony Blair and Gordon Brown launched to woo the City and business in the mid-1990s, although that was more frequently accompanied by prawn cocktails and dinner.
The modern Labour Party is an altogether more frugal creature. Chief investment officers should be relieved these conversations are taking place. Those in the larger institutions will be hoping they can become directly involved in them so they can influence the development of policies and understand how their investment strategies would have to be re-shaped if a Labour government is elected in the next few years. One of the biggest challenges would be aligning the expectation that they will contribute to the National Transformation Fund with the demands of Solvency II.
A left-wing Labour government is not going to be keen on offering attractive returns to entice investment so how would an element of compulsion or direction coupled with potentially low returns sit on a risk-adjusted, carefully matched post-Solvency II balance sheet? If you want the answers to those questions, then you had better get the Rich Teas out.