What will UK PM Starmer tell the Labour Party conference?

Seldom, if ever, can a British prime minister, barely a year into office and sitting on an enormous parliamentary majority, have gone to their annual party conference with so much riding on it.

Yet that is the weird situation Keir Starmer faces this week at the Labour conference in Liverpool. His party, which is largely to the left of him, craves ‘red meat’ such as scrapping the cap that restricts payment of child benefit to the first two children in a family and a more aggressive stance towards Israel over the conflict in Gaza.

Two rival parties — the Greens and Your Party, the new vehicle being launched by his hard-left predecessor, Jeremy Corbyn — threaten to tap into that vote.

At the same time, the polls are led by Nigel Farage’s populist Reform Party, whose combination of nationalism and — so far as the economy goes — aspirations for big government, is peeling away votes from both Labour and the center-right Conservatives alike.

Business, which Starmer wooed assiduously before the general election in July last year, is in a particularly mutinous mood. His Chancellor, Rachel Reeves, unexpectedly hit them with a £25 billion increase in payroll taxes in her first Autumn Budget and, as a result, unemployment is rising, job vacancies are falling and hiring intentions depressed.

The CBI, which represents employers, recently calculated that the tax burden on businesses during the most recent financial year has hit 30.5%, the highest this century, which is expected to have risen this year.

A package of measures aimed at strengthening the hand of workers, including the abolition of zero-hours contracts and giving employees ‘day one rights’ that will make them harder to dismiss, has also alarmed many businesses.

Specific sectors have been particularly alienated. A clutch of pharmaceuticals companies, including Merck and AstraZeneca, have paused or scaled back investments in the U.K. amid unhappiness at the drug pricing regime. Oil and gas producers, meanwhile, are shedding jobs after Reeves increased the windfall levy imposed on the sector.

Other policies have also irritated the world of commerce. The ending of ‘non dom’ status left many thousands of wealthy business owners and investors potentially exposed to U.K. inheritance taxes and a lot of them have left — the consequences of which are already showing up in the public finances. Farmers also face higher estate taxes and small business owners face higher capital gains taxes.

The unhappiness set in even before the Budget. A so-called ‘business day’ at last year’s Labour conference drew criticism after corporate delegates were charged £3,000 to attend, only to be denied access to cabinet ministers.

So this year’s conference — and his speech today to the party faithful — is an opportunity for Starmer to turn the page.

Business will need to hear, categorically, that there will be no more surprise tax raids on it. The banking sector, in particular, needs reassurance that it will not face extra impositions either in the form of a windfall levy or a reduction in the interest rate it receives on its deposits at the Bank of England — which has been mooted by a number of key Labour figures, including Gordon Brown, a former prime minister.

Then there is the possibility of some positive surprises. The oil and gas sector has been encouraged by reports that Labour may dilute its current policy — a ban on new exploration licences in the North Sea — by allowing tiebacks, new wells drilled on current licence areas, which could have the effect of reviving activity.

The pensions and investment sector would like to see a promise that there will be no changes this parliament to the tax regime that encourages savers to put aside money for their old age and allows them to take a tax-free lump sum from their savings.

And, longer term, there is an appetite for tax reforms that would make the U.K. economy more competitive.

They were summed up in a thoughtful letter to the Financial Times on Monday from Rick Haythornthwaite, chair of NatWest Group, who wrote: “The dialogue must now turn to the simplifying levers that can be pulled to restore tax progression, support long-term net zero ambitions, make investment irresistible and work pay, unlock domestic capital, create housing liquidity, and modernise HM Revenue & Customs.”

But there is another key constituency that will also be listening — the bond market.

Andy Burnham, the mayor of Greater Manchester, last week made an unashamed pitch for the leadership that blew up in his face when he suggested to the Daily Telegraph the country had to put behind it the notion of “being in hock to the bond markets.”

This led to Burnham being compared with Liz Truss, the former Conservative prime minister, whose brief premiership was killed by an adverse market reaction to a mini budget that proposed to cut taxes and raise public borrowing. (Truss herself tweeted in response to suggestions Burnham could be Labour’s Liz Truss that “he should be so lucky”).

In her speech on Monday, Reeves appeared to directly confront the leadership pitch from Burnham — who has in the past made two failed leadership bids — by telling party members it was “dangerous” to suggest the government could relax its fiscal discipline, reminding them that, were the markets to lose confidence in the government, ordinary voters would pay the price in higher prices and borrowing costs.

This part of her speech was, notably, less loudly applauded by delegates than the passages on spending commitments.

But it would be no surprise were Starmer to repeat that warning today. The U.K. is currently paying a premium to borrow from the bond markets and anything that can convince the latter that the U.K. represents less of a risk would offer a real financial saving.

As Haythornthwaite wrote: “A bold long-term plan can kick-start growth. That would reassure debt markets but also deliver much-needed social benefits. A nation with robust growth is a healthier, happier one, better able to address inequalities of wealth and health.”

He sounded almost prime ministerial in the process.

Markets would love to hear something similar from the actual occupant of 10 Downing Street today.