Consultants have their say on Labour landslide

09 July 2024 7 min. read

In the wake of a decisive electoral victory, some professional services leaders have been swift to congratulate new Prime Minister Keir Starmer. But they have also used the opportunity to argue for a number of key policy changes – from easing corporate tax burdens, to offering new innovation benefits to businesses, and honouring green pledges.

The Labour Party has been courting the private sector continuously under the leadership of Keir Starmer. Among other things, this saw Labour quadrupled its use of consultants in preparation for the 2024 general election, according to Electoral Commission data. This reversed a stance taken by previous leader Jeremy Corbyn to freeze Big Four professional services out of the party’s activities.

And while Labour’s new Chancellor, Rachel Reeves, has vowed to cut the use of consultants in the UK’s civil service, Deputy Leader Angela Rayner has also met with leaders from the sector to discuss what their contribution to the nation’s future might be.

Consultants have their say on Labour landslide

Now, with a landslide victory at the polls having assured Starmer’s place in 10 Downing Street, business leaders have been quick to push home the prominence they have been afforded – and a number of consulting big-wigs are among them. The professional services industry's top players regularly work with businesses to reduce their tax burden – for example, the sector is closely tied to the offshoring of private wealth in tax havens – so perhaps unsurprisingly, a lot of the advice directed at the first Labour cabinet has centred on the issue of taxation.

Tax burden

In that vein, Schellion Horn, head of economic consulting at Grant Thornton UK, called for an “internationally competitive tax system that promotes investment”. While Labour’s pledge to cap corporation tax at its headline rate of 25% was welcomed, Horn argued that “the headline rate is only part of the equation”.

Horn suggested, “Mid-sized business labour productivity has been outshining other market segments for the past six years but is now being hindered by a lack of funding to invest. An overhaul of the business rate regime could be most beneficial for small and medium businesses if it offers a way to free up funding to invest and drive-up productivity in this market segment.”

Simon Massey, managing partner at leading accountancy and strategic advisory firm Menzies suggested despite Labour’s charm offensive, “courting industry on the rubber-chicken circuit was the easy part”. To regain business’ trust in government, he argued the new administration must go further with their policies on corporate tax.

He added, “If the Chancellor [Rachel Reeves] and indeed the government mean business, their priorities need to be taking a grown-up approach to international trade and introducing new grants and tax breaks for businesses to drive investment. We also trust they will honour their pledge not to increase taxes for the majority of employers. Now is the time for this Labour government to implement policies that are transparent, consistent and conducive to innovation. With an economic plan so reliant on growth, much hinges on them getting this right.”

On a similar note, Robert Marchant, partner and head of tax at Crowe UK warned that Starmer’s early days would need to address “fiscal drag”. He noted that while the new government had pledged not to raise headline rates of the “main taxes”, it was “comments about unfreezing tax thresholds” were “conspicuous in their absence”.

Marchant continued, “The impact of ‘fiscal drag’ has already been significant (whereby tax thresholds are unchanged despite inflation) both on how more people and companies end up paying more tax but also on the administrative complexity that organisations deemed to be ‘large’, by the tax legislation, have to deal with, despite not having large tax or finance teams in place to handle these requirements. Figures from HMRC show that the number of people paying income tax has risen to 4.4m in three years owing to a freeze in tax thresholds. There have been no suggestions from the Labour Party that they will take actions to address this."

In some cases, however, leaders were simply grateful for the certainty the election result provided. Monique Melis, managing director and global head of financial services compliance and regulation at Kroll, was first and foremost relieved that “the UK financial services sector can rest easy in the fact that radical change is unlikely to be on the horizon”. However, she was keen for the new administration to find new ways of celebrating the prowess of the sector over the next five years.

She continued, “Ultimately, the key question on the table for UK financial services is whether the new government will understand the importance of protecting and promoting the UK sector. Maintaining proportionality, protecting our reputation as a first-class jurisdiction for banking regulation and continuing the momentum of the landmark Consumer Duty will all be early items on the desk of the new City Minister, if not the Prime Minister himself.”

The big rebuild

Beyond the implications of the new government for financial services and tax burdens, leaders were also keen to flag up other Labour pledges that they could assist with delivering. Colin Wood, CEO for Europe and India at AECOM, noted that national public finances were “constrained” (and with the freeze in corporate tax rates that is unlikely to change), so delivering Labour’s planned infrastructure investment campaign will require “a new level of cooperation from day one between the government and the private sector.”

“Industry is ready to rise to that challenge,” he continued. “In particular, we at AECOM and our peers across the sector are ready to help deliver the Labour Party’s pledge to implement a 10-year infrastructure strategy and establish the National Infrastructure & Service Transformation Authority (NISTA). Both initiatives are welcome news for the sector and have the potential to provide the long-term stability, governance and crucially, the confidence in delivery needed to attract the private capital that is vital to financing many of these projects. Our sector is well placed to help as the new Government looks to modernise vital public services in health and national security and in doing so, securing better value for money will be their priority.”

At the same time, the Labour Party still has some surviving green pledges to consider in the wake of its electoral triumph. While Starmer controversially axed some 28 billion-worth of climate promises in the run-up to the election, Ellie Besley-Gould, director at Xynteo, pointed out he now had a “powerful mandate to drive an ambitious climate agenda and reinstate the UK's global leadership”.

"It’s crucial that he stays strong on this commitment to demonstrate genuine dedication to our role in the transition,” stated Besley-Gould. “The plan includes halting new oil and gas licenses, preventing new coal projects, doubling onshore wind capacity and insulation investment, tripling solar energy, and quadrupling offshore wind. All this while stopping petrol and diesel vehicle sales by 2030, reinstating a climate mandate for the Bank of England, imposing a carbon border tax on imports, and planting millions of trees while expanding peatlands. The budget must reflect this if the new Prime Minister is to use this first budget as an opportunity to commit to genuine transformation.”

One area the new government has already delivered on is fulfilling a promise to lift the ban on onshore wind in England. According to Vicky Parker, head of power and utilities at PwC, the decision is a pivotal step towards a more sustainable UK economy – and can help deliver on “net-zero targets and accelerate progress”.

She concluded, “It’s crucial that the ramping up of onshore wind projects is carried out with careful consideration of environmental impacts to address the concerns of local communities and importantly, ensure projects are delivered at a competitive price. Investment in the right skills and supply chains to support this roll out will be critical to ensure that these benefits are realised. It is also essential that a whole-system view is developed quickly on how the country can meet accelerated targets and that the investment and support required is focused towards the most critical areas, in order to allow real progress to be made.”