The general election of 4th July 2024 saw the Labour Party returned to government with a convincing 412 seats. That’s a working majority of 181 seats over all the other parties combined, and 291 over the Conservatives, who managed to secure just 121 seats.
Labour’s landslide victory puts them in a strong position to implement their party manifesto without much opposition, so it is worth considering what Labour’s win means for small businesses, and the legislation that could be on the cards in the upcoming King’s Speech.
“The beating heart of our economy”
First, it’s worth making clear that Kier Starmer’s Labour Party is no Khmer Rouge. The Party’s 2024 manifesto is significantly less left-wing than those published by Jeremy Corbyn in 2017 and 2019, or even Ed Miliband in 2015 and sees a welcome return to the generally pro-business stance of the Labour government led by Tony Blair and Gordon Brown between 1997 and 2010.
Labour’s Plan For Small Business, published in November last year (before the general election was announced) referred to small businesses as the ‘beating heart of our economy’, and made several pledges to launch legislation in support of SMEs should they win the general election.
The plan included pledges to:
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Support the construction industry by speeding up the planning system and clearing backlogs.
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Legislate against late payments from large businesses to SME suppliers, improving liquidity for smaller companies – late payments are estimated to cost SMEs £32 billion.
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Replace business rates with a fairer system for SMEs with physical premises.
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Promote cheaper energy bills and greater energy security for small businesses by encouraging the adoption of clean energy.
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Give smaller businesses a fairer chance of securing public contracts.
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Guarantee small businesses access to high street banking services, including facilities to safely deposit cash.
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Create a trade strategy to make it easier for small businesses to export goods and services.
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Make it easier for start-ups and growing SMEs to access the finance they need to grow.
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Work with small businesses to address the UK’s skills shortage, through a series of ‘Technical Excellence Colleges.’
These pledges were expanded in the full Labour Party Manifesto, which promised, among other things, to ‘kickstart economic growth’, ‘break down barriers to opportunity’, and make ‘Britain a clean energy superpower’.
A commitment to sustained economic growth
General election manifestoes are often heavy on soundbites and light on policy detail. However, it was reassuring to read in the manifesto that “Labour’s first mission for government… means being pro-business and pro-worker. We are the party of wealth creation.” This is consistent with Kier Starmer’s previous comments on the role of small businesses in driving national economic growth, when, to paraphrase, he said that to be a ‘workers party’, Labour first had to be a party of jobs.
The first priority of the new Labour government, as stated in Labour’s first steps for change at the beginning of the manifesto, is to deliver economic stability. This will entail “tough spending rules so we can grow our economy and keep taxes, inflation, and mortgages as low as possible”.
If the new government is serious about this commitment, it should allay the fears of many business owners that an incoming Labour government would embark on a tax-and-spend spree largely levelled at small businesses.
Indeed, the Federation of Small Businesses (FSB) was broadly positive towards the Labour manifesto before the election, reflecting the cautious approval of many business owners towards Labour’s enterprise stance, and their seeming desire to tackle many of the barriers and issues encountered by SMEs.
How these pledges translate into concrete actions will hopefully be seen in their first Kings Speech, with the FSB pushing for a ‘Small Business Act’ to make good on Labour’s pledges towards small companies and the self-employed.
The elephant in the room: taxes
The pledge to keep taxes ‘as low as possible’ makes it impossible to ignore the elephant in the room throughout the election: taxes. The UK currently has the highest tax burden since the 1960s, accounting for around 37% of GDP (Gross Domestic Product), according to the Economic and Fiscal Outlook released by the Office for Budget Responsibility in March 2023.
Both Labour and the Conservatives pledged not to increase personal income tax (basic, higher, or additional rates) National Insurance or VAT.
So, what about corporation tax?
Despite rumours (and fears) that a Labour government would increase the rate of Corporation Tax (CT) back to 26% or even higher, the manifesto pledged to cap the main rate of Corporation Tax at the current level of 25% for the duration of the Parliament.
What wasn’t stated is whether the lower rate for small profits under £50,000 will remain at 19%, or if marginal relief (which effectively creates a sliding scale of CT rates) for small businesses earning £50,000 - £250,000 profit PA will remain the same. Reducing marginal relief or changing the eligibility rules could increase the Corporation Tax levied on small businesses without the government having to increase the 25% main rate.
Dividend allowance could also be further reduced or abolished for business owners who receive dividend income, so that more income taxes are paid without tax rates formally being changed. Not to say the government will do this, but they haven’t said they won’t
Relationship with the EU
Noteworthy by their absence in the manifesto were any concrete pledges regarding the UK’s relationship with the EU; perhaps surprisingly so, given the staunch pro-remain position of Starmer and his senior team. Businesses with European supply chains should not expect any fundamental changes in the short term, least of all any move to rejoin the Single Market.
One of the foundational goals of the new government is to restore the UK’s international credibility for investment, and part of this is being seen to ‘make Brexit work’– to borrow a term from the previous Conservative administration. Nevertheless, Labour’s election has been greeted positively in EU member countries, with many states hoping for a ‘reset’ with the British government. With goodwill on both sides of the Channel, the coming Parliament could usher in a new and more optimistic tone in UK – EU relations, opening new possibilities for collaboration and trade.
A new start for small businesses?
If successful, many of the Labour Party’s proposed policies would have a strong and positive impact on small businesses. Of course, we’ll have to wait and see how things turn out, but on the surface, the 2024 Labour manifesto is the most pro-business policy statement we’ve seen from the party since 2005, if not earlier.
If you would like to find out more or discuss the potential impact of Labour’s manifesto pledges on your business, please feel free to contact one of our team today by calling 01332 982022.
Image Source: Canva
