Corbyn takes aim at the City

Jeremy Corbyn issued a warning to the UK financial sector yesterday, by pledging that he would “stand up to bankers” and set out his plans to rebalance the economy in favour of jobs and industry.

In a speech delivered to the EEF National Manufacturing Conference, Corbyn declared that the dominance of deregulated finance over the UK economy was “destructive” and called for a fundamental rethink of whom finance should serve and how it should be regulated. He added that wanted to “make finance the servant of industry not the masters of us all.” Notably, he announced that a Labour Government would be far more interventionist on prospective mergers and acquisitions (M&As) by broadening the scope of the ‘public interest test’, allowing the Government to prevent hostile takeovers which, in its view, do not benefit the UK economy.

While Corbyn’s latest bank-bashing rhetoric is not new, it is perhaps the latest sign of a hardening of attitudes towards the City of London by UK politicians, at a time when it has no obvious political champions or defenders. It is also a clear indication that the UK’s M&A landscape is becoming ever more politicised, which could have significant long-term consequences for investors, bankers, private equity and all those involved in high profile transactions.

It is perhaps no surprise that someone who identifies as a lifelong socialist would adopt such a position. Last year, Corbyn made a very public attack on Morgan Stanley, after they declared the Labour Party to be a bigger threat to the City than Brexit (in a video, that was viewed more than a million times on social media). Corbyn’s rhetoric and policy positions are often placed in context of a now familiar narrative that divides the UK economy between “those who lend and speculate” and “those who make things” and how one actively undermines the other through greed and short-termism.

Corbyn’s speech on the economy is the latest in a series of recent policy developments that provide business a better idea of what a future Labour Government might look like. Yesterday’s speech follows Shadow Chancellor John McDonnell’s recent statements on the cancelling of PFI contracts and policy proposals submitted to the NEC on the widespread nationalisation of utilities and infrastructure. It is fair to say that these radical policies are quite unlike anything proposed by an official opposition (and a potential government in waiting) in the past 30 years and its consequences could be profound. One should also consider how these proposals would be implemented post-Brexit, free from EU rules governing market regulations and public ownership.

A Labour Government in, or before, 2022 is a serious prospect and its consequences should be understood. However, regardless of any future election result, the impact of Labour’s policy proposals could be even more immediate. The Conservative Party, naturally, responded to Corbyn’s speech by attacking Labour’s reputation on economic competence. However, criticisms on the substance of Labour’s policy proposals were harder to find. This is, in part, due to the fact that the Conservative Party seems unable and unwilling to defend the role of banking and M&A for the UK economy and largely accepts Labour’s narrative (at least it does under the current Prime Minister) that an undue focus on the interest of the City of London can be to the detriment of the wider UK economy. Indeed, the Conservatives have their own proposals (and a rumoured forthcoming White Paper) to introduce a more extensive regime for screening and vetting transactions and foreign takeovers.

So perhaps the most interesting point about Corbyn’s speech, is that much of it goes with the grain of current political debate – not against it.  On all parts of the political divide, there is growing consensus that more government intervention into financial markets is needed, not less.

All this is likely to mean that we are entering an environment where high profile mergers and acquisitions will fail if they do not take into account the current political climate and its sensitivities. This could even spell the end of 1980s-style hostile takeovers, particularly where British jobs are seen to be threatened. Firms that let themselves be caricatured as “asset-strippers” by politicians will face an uphill battle when it comes to tackling the policy and regulatory hurdles put in place.

For those in the square mile involved in M&A transactions, there is now a pressing need to ensure political audiences are treated with the same level of attention and importance as shareholders and investor audiences. Furthermore, it will become advisable for those involved to communicate the wider benefits of any transaction for the UK economy to politicians on a cross-party basis (for example, how it will help secure skilled jobs across all regions in the country).

The current Government is keen to stress that the UK remains open for business, is outward looking and welcoming of investment – and seeks to demonstrate this in its vision of ‘Global Britain’ post-Brexit. Yet UK politics remains highly volatile and Corbyn’s speech underlines the fact that a supportive, or at least benign, attitude towards the City of London and the financial sector from UK policy makers should not be taken for granted.

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