What A Labour Government Might Mean For UK Business

The party has an activist agenda but fiscal constraints might produce a more-moderate agenda focused on growth

Dominic Grieve (center) and David Gauke (left) discuss the potential business impact of the UK general election with Oliver Wyman Partner Chris McMillan Dominic Grieve (center) and David Gauke (left) discuss the potential business impact of the UK general election with Oliver Wyman Partner Chris McMillan

As Britain edges closer to a general election, many business leaders are asking themselves what the winds of political change could mean for their companies. The opposition Labour Party continues to hold a large opinion poll lead over the Conservatives, who have held or shared power since 2010, and Labour and the Liberal Democrats scored big gains over the Conservatives in local elections across England in early May.

We gathered senior leaders recently to consider the impact of a potential change in government in a discussion with David Gauke, former Lord High Chancellor, and Dominic Grieve, former Chair of the Intelligence and Security Committee of Parliament and Attorney General for England and Wales. They shared perspectives informed by their long public service, providing valuable insight into the early moves a Labour government might take and the difficulties it would face in reconciling aspirations with the country’s challenging economic, fiscal, and political realities. Here are a few of our key takeaways:

  • A large Labour majority appears increasingly likely and could bring a period of political stability. That would be welcome for a country led by its third prime minister since the last general election and still struggling to heal the scars left by Brexit. A big Labour victory also could ease constitutional tensions with Scotland’s devolved government if the party makes gains there at the expense of the Scottish National Party. Keir Starmer could score some quick wins if he takes over at 10 Downing Street. Dominic said one likely move would be to introduce new rules on ministerial behavior, including measures to guard against conflicts of interest, along the lines proposed recently by a commission he led. With one recent poll showing nearly half of the public believes ethical standards in government have fallen since 2019, taking a stand for integrity and transparency would be a way to draw a line under recent political history. And as Dominic put it, “the reason why (Starmer) is going to do it is because it's easy.”
  • The choices would quickly become much harder and reveal what kind of leader Starmer wants to be. After more than 14 years in opposition, Labour is keen to address its traditional priorities, and Starmer has outlined a broad activist agenda that includes increasing homebuilding, promoting green energy, extending economic opportunity, and improving the National Health Service. But circumstances might force a more-cautious, growth-oriented approach that seeks to attract foreign investment to the country and eschews big spending to focus on structural changes like reform of the planning system. Unlike Tony Blair, who came into office in 1997 at a time of near-full employment and with public finances moving into surplus, the IMF projects the UK will grow by just half a percentage point this year, and public debt is just under 100% of GDP. That means that even if Labour pursues moderate policies, some form of tax increase is almost inevitable, and business may be hit.
  • Closer ties with the European Union could be part of a growth agenda but any rapprochement is likely to be very gradual. Some of the consequences of Brexit are still being implemented, like the tighter border controls coming into force later this year for Britons entering the EU’s Schengen Area of free movement. That presents an opportunity for a more Europe-friendly Labour government to work with Brussels to facilitate a freer flow of goods and people, perhaps by aligning on EU phytosanitary standards for agricultural products and creating young persons’ visas for easier travel. And with no end in sight to the Ukraine war, Labour may want to increase defense cooperation with EU countries, building on the existing close relationship with France. But the idea of potential re-entry seems unrealistic even in the medium term. The UK would need a broader political consensus on the issue, and the EU may not be eager to welcome the UK back in.
  • The evolution of the Conservatives will have a major impact on the country’s direction. If the party suffers a big electoral defeat, a tilt back toward the center-right might be more politically expedient. Yet it’s likely there will be leadership candidates urging a shift to unite the right, and perhaps even a willingness to embrace Nigel Farage’s populist Reform UK party. The more local focus of the Liberal Democrat agenda – who governed in coalition with the Conservatives less than a decade ago – means they are unlikely to fill the gap from the lack of a centre-right party. Such a move would be in line with the nationalist shift we are seeing from many right leaning parties in both Europe and the US. That might please many of the party’s members, who tend to lean more right-wing than the average Tory voter.