Apella Advisors Insight: Seven things we learned at the Labour Party Conference

Do get in touch in touch with James Kirkup (jk@apellaadvisors.com) or Liz Lynch (ll@apellaadvisors.com) if you’d like to know more.

1. Politics is easy

Labour still has a clear political strategy. While other parts of government are struggling to settle in, the political strategy team in Downing Street has been focused sharply from Day 1 on winning the next election.

They believe that the second term depends on retaining the support of the greatest possible number of voters who voted Conservative in 2019 then Labour in 2024. They also believe that those voters’ priority issues are the cost of living and healthcare.

One new MP in a marginal seat captures the political reality this way: “If people in my seat feel a bit better off and they can see a GP more easily, they will vote for me and I’ll win again. That’s it.”

Apella is currently working on a wider analysis of this vital voter group and its issues, but for now, we can say that understanding the Government’s strategic focus on them is going to be vital to public affairs in the years ahead, especially because lots of policymaking will be targeted at these voters.

One minister links government business directly to these switch-voters: “The focus of legislation is to show as much impact as we can on changing people's real everyday lives. It's a precious commodity and we need to use it wisely. So we can say in three to four years' time this Government has had a really important impact in your real lives therefore give us another term”.

For business, this means it is even more important to articulate policy and legislative asks through the tangible impact proposals will have on voters’ real lives, rather than just on growth.

2. Governing is hard

You’ve read the media stories about tension and dysfunction inside government. Those stories are largely true, though some insiders say the coverage isn’t quite accurate – because things are actually a bit worse than that. At the lower levels, some disgruntled special advisors unhappy about their pay and conditions (many still don’t have contracts or confirmed salaries) are threatening some quite spectacular public protests. Further up the hierarchy, Cabinet ministers lament No 10’s lack of grip on the media agenda and worry the lack of a clear narrative denotes a lack of clarity in the government’s own agenda.

Consequently, there are widespread expectations among senior government members that some changes of personnel in Downing Street will be made before the year is out.

This is probably a temporary state of affairs. Labour hasn’t governed for 14 years and almost no-one in the current top team has direct experience of running an administration. New governments always stumble before they learn to walk; David Cameron’s Coalition almost privatized the Forestry Commission by accident in its first months.

Successful party conferences result in higher levels of trust in your party’s ability to move the country forward on the issues each audience cares about. Based on our conversations with businesses, it doesn’t feel like this conference did this. In some cases, it moved business confidence downwards and many attendees to Business Day felt like they were treated as a cash cow rather than a partner.

Business is hungry for clarity and substance, exhausted by years of calling for it. But this frustration mismatches the needs of the new ministers and special advisors. They are asking for business to be patient, while they think about how to solve the really knotty problems they have inherited and how to be effective in government.

Businesses dealing with government could do worse than offering a bit of support and sympathy to the people you’re talking to in Whitehall – stress levels are high, sleep is in short supply and friends who try to help are highly valued. Ultimately, even the biggest government is made up of a relatively small number of people making huge numbers of decisions with imperfect information and limited time – then trying to ensure those decisions are implemented. Businesses wanting to cut through with Government should be focused on making delivery easier, not harder.

3. Labour wants investment – but doesn’t always understand investors

Even if the Treasury eases its own restraints on borrowing a little, private capital will remain vital to many aspects of Labour’s agenda: housing and infrastructure (energy especially) are just the most obvious examples.

But not all of the Labour Party completely grasps the decision-making process that leads to investment. One minister centrally involved in a field where private investment is mission-critical privately expresses bafflement about investment choices.

“I hear a lot of businesses saying they want to invest, but then they don’t actually do it and I don’t really understand why not.”

To business readers, the answers are obvious: because the ROI isn’t high enough; the risk profile is wrong; or both.

On the other side of the table, some big investors are surprised that their need for ROI isn’t better-understood. “They ask us to invest in things that are politically useful for them but where we can’t get a return - and they don’t seem to understand that that means we can’t invest.”

(At the risk of self-promotion, Apella’s data analysis on the backgrounds of Labour MPs, showing how few have worked in the private sector, has been raised several times with us this week in Liverpool by investors and executives who worry the ruling party doesn’t instinctively understand P&L or ROI. https://www.apellaadvisors.com/our-thinking/apellaadvisors-insight-labours-next-100-new-mps-and-their-knowledge-of-business)

Meanwhile, there is a certain surprise in Government that some big investors and businesses say they have been moved by Labour’s gloomy messaging on the economy. “They always say they’re interested in fundamental policies and strategy rather than optics, but now we’re getting told that it’s vibes that really matter”, says one advisor.

The bottom line is that relations between the two sides can and should be improved – but that will require some work for both. The expansive dialogue between Labour and business that began in Opposition still has a long way to run.

Businesses should never assume politicians, advisors and officials understand their business model or the economic factors that impact their decisions. Time spent unpacking the fundamentals of your business for that audience is seldom wasted, and can drive better policymaking for the long-term.

4. Labour is betting a lot on pension reform – and savings will matter too

The Treasury and Department for Work and Pensions are running a review of Defined Contribution and Local Government pensions, and running it quickly. A policy area that normally moves glacially could see plans for big changes in a matter of weeks.

The first aim of this review is to direct more pension capital into UK assets: “productive” classes including housing, infrastructure; and UK equities of all sorts.

Usually pension asset allocation would be a nerds-only topic, but in countless conversations with non-nerd politicos in Liverpool, “getting more pension money into it” was offered up as a solution to public policy challenges.

Of course, the reality is much more complicated than that, but the importance that Labour is assigning to pension investment in the UK should be noted carefully. Arguably, this should be seen as having similar significance to this government as planning reforms that have had far more public attention. And just as ministers have insisted they’re happy to upset some people to get Britain building, they may well end up taking an equally punchy approach here too.

Non-pension savings products are likely to get more attention too. No one should be surprised if the Budget announces changes to things like cash ISA limits, to direct more savings towards the Government’s preferred asset classes. Likewise a shift in the allocation of tax incentives, to offer more encouragement to lower-income households to save. “A quarter of households have less than £100 in savings” has become an article of faith for Labour MPs.

Getting more money into UK assets and into the pockets of low-income households will be very high priorities for Labour.

Pensions and savings businesses should prepare for a busy year or two. Enhancing support for low-income households will win favour with Labour on multiple levels. It may also help to off-set some potentially difficult conversations with a Government intent on pushing the industry towards ministers’ preferred asset allocation strategies.

5. Labour needs more labour (and skills)

Some government economic advisors say that the biggest promise they’ve made since taking office is one that’s had very little attention: an 80% economic activity rate. That’s up from the current level of 74% and hitting the target would be a record.

This is part of an analysis that says Britain’s economic prospects depend on getting more workers into the labour force. Partly that’s to allow more economic activity without inflationary pressure. Partly it’s to fill key skills gaps that could prevent Labour hitting some of its other big targets.

“We’ve said we’ll build 1.5 million homes and insulate 5 million more. The reality is we don’t have the people to do these things,” says someone in Downing Street. Meanwhile a backbench MP with real influence on policy says that politics should pay a bit less attention to capital and more to labour. The view here is that there’s no real shortage of money ready to invest if the conditions are right – but those conditions include an adequate supply of skilled labour. So workforce issues – including skills and training – should be seen as first-rank economic questions.

(Even if some of the hard choices relating to the UK workforce – including welfare reform, university funding and migration policy – remain to be addressed.)

Businesses working in just about every sector – and especially those close to key government targets – should be sure to include their contribution to workforce development in essential and emerging skills in the story they tell to policymakers.

6. Labour YIMBYs are a real force – but one that comes with risks

“A housing conference with a political party attached” is how one MP jokingly noted the large number of pro-building events and rallies in Liverpool. Maybe the noisiest part of the housing conversation was the Labour YIMBY movement, a large and growing group of 20- and 30-something Labour types who see more housebuilding as the answer to fundamental economic and social challenges.

Energetic activists combine with equally youthful MPs to push the pro-building agenda. As we’ve noted elsewhere, a significant number of new MPs haven’t been able to buy their own homes yet, adding personal experience to an important political issue.

https://www.linkedin.com/posts/james-kirkup-24a66557_labour-and-the-era-of-themillenial-mp-activity-7213888623161602049-T9Wl

For those involved in building and financing new housing, this is all positive – there are lots of enthusiastic allies in Labour for the builders and their backers.

But in politics, hope can be a dangerous thing – if it’s dashed. If those enthusiastic young activists and their MP backers become disappointed, if their great expectations of more building and more affordable homes aren’t met, then they could become powerful critics of those they consider responsible for that disappointment.

Builders and investors should enjoy the enthusiasm of their new allies – but take care to help them understand the very real challenges in meeting their expectations.

7. Regulators are next on the list for attention

Labour needs growth and is starting to understand that regulators and regulation are a central part of that story.

Look beyond debate about economic gloom and optimism and you often find that what matters more to businesses investing and operating in the UK is not how often Rachel Reeves smiles but how much regulation and compliance adds to their costs and timescales.

Kanishka Naryan, a bright new Labour MP with a (rare) background in venture capital, says the government should be judged on its ability to attract private capital to areas of strategic importance to the UK – with a reduced cost of capital to reflect investor confidence.

Regulators, he says, have a central role in that: they should “move fast” and support growth.

Government insiders, meanwhile, say they’re coming to realise that business is frustrated about regulation. Existing plans for a Regulatory Innovation Office are getting more attention.

This is another area where Apella has separate insight work underway, because we think this is a key issue for business that is going to become more and more important for government too.

Do get in touch in touch if you’d like to know more.