Rachel Reeves’ matchmaker moment
Finance bros and gals are often seen oozing confidence as they strut their stuff around the streets of the City of London, imagining they’re the main characters on hit show Industry.
But it would be a mistake to assume these investor strategists, expert consultants and risk analysts are libertarian dreamers, swashbuckling Reagan fanatics and small-state government-haters. They may not like to admit it, but sometimes they are just desperate for the helping hand of lawmakers.
Uncertainty is the favourite refrain of analysts – unhelpfully for readers – to signal their desire for the state to do something. Lack of direction, clarity and objective are other complaints made by top lobby groups and pension funds against the government.
Enter Rachel Reeves.
The Chancellor is rushing to take advantage of this craving for more assistance. She is keen to rebuild her reputation as a “pro-business” policymaker and capitalise on bond markets’ emphatic endorsement of her “iron-clad” fiscal rules.
Over recent weeks, the government has been doing what it can to settle nervous investors without touching the public purse.
Wooing the City
It began with the Mansion House Accord, a declaration directing pension funds to invest five per cent of assets domestically.
Then came the infrastructure strategy and industrial strategy, which gave a futuristic label to the UK’s eight high growth sectors (IS-8).
Finally, when she stood up to give her Mansion House speech,swooning the wishful libertarians in the City by claiming regulation was a “boot on the neck of businesses”, Reeves signalled the government would take a more active role in moneymakers’ world by creating a concierge service for wealthy investors and a support platform for fintechs.
Other departments have taken similar steps in the dash for higher growth. The Ministry of Defence has created a scheme, the Defence Tech Scaler, to link ideas from researchers with software and AI suppliers. The Foreign Office’s diplomats are now briefing top executives on geopolitical risk to provide “straight from the source” insight while providing companies with an alternative to “expensive” consultants.
As a result, Labour has become businesses and investors’ consultant-in-chief and Rachel Reeves has become City investors’ designated matchmaker.
These initiatives have disappointed actual free-market advocates. Rightwing think tank wonks have pointed to page 106 in the government’s industrial strategy as evidence that the state was itself deciding where growth would take place, rather than the market.
The diagram, researchers say, show there is no stage of a UK firm’s journey to scaling up where it is free from the shackle of state subsidies. Top businesses may cease to become dependent on deals it has struck with investors and instead look to be propped up by taxpayers via UK Research and Innovation, the British Business Bank, the National Wealth Fund or UK Export Finance.
Talk around the Mansion House Accord was also undermined by the fact Labour gave itself backstop powers to force pension funds to invest five per cent of their assets in the UK.
Sir Nicholas Lyons, architect of the earlier Mansion House Pact, suggested before the agreement was struck that the government should “retain the threat of mandation” to put pressure on pension funds. But Scottish Widows owner Lloyds saw through that threat. The banking group’s chief executive, Charlie Nunn, likened the government’s actions to communist China’s capital controls.
Some investment firms and leading advisory companies also fear the government is stomping on its toes.
Chief executives have privately questioned whether the Office for Investment, the new body led by Darktrace founder and now investment secretary Poppy Gustafsson, can operate a concierge service more effectively than private firms.
Jeremy Savory, chief executive of Savory & Partners, a citizenship advisory for high net worth individuals, told City AM that “investors know where London is” and any “paranoia” that wealthy investors were no longer flocking to the capital city was because it was not as attractive as it once was.
He questioned the concierge service’s raison d’être: “Will it be as attentive as a specialist advisor who can hold the hand of a visa applicant every step of the way?”
Rachel Reeves’ struggles
Despite attempts by the British state to compete and perhaps replace services that already exist in the private sector, the government has never relied so heavily on management consultants to deliver its promises.
Data by the public sector contract platform Tussell revealed that government spending on consultants rose by over £150m during Labour’s first year despite a pledge to halve the amount splashed out on advisers.
And so, Rachel Reeves has sweet-talked investors without mentioning spending – or taxation.
It may have come as a relief to City veterans to see the Chancellor laugh off a suggestion by Liberal Democrat peer Lord Razzall to tax banks and tech companies more to fund spending.
“[It’s] maths like that that got us into the problems we are in today,” she said.
Treasury officials at least told The Sunday Times over a month ago they were at least considering a levy on dividend payments and raising the surcharge on bank profits.
In weeks since then, everything from a tax on wealth to hitting capital gains has been suggested by Labour backbenchers and influential think tanks, sending lobby groups into a frenzy ahead of expected £30bn tax hikes in the autumn.
Her ambition to support top executives with a number of pro-business bodies or initiatives has certainly been welcomed by top investors, with the expected creation of a visa dedicated to luring foreign investors likely to make City bosses giddier about the future of the UK economy.
But the fear of another economic setback from another mega tax raid this autumn prevails among most investors. Ideologues meanwhile argue that the damage has already been done, with government intervention in the private sector having become normalised well before Labour came to power.
Without growth in the short-term, Rachel Reeves may have nothing to show for all her matchmaking efforts.