Labour must use its business nous to win over City doubters

There are some shibboleths that should be knocked down, but from which any expression of dissent immediately casts one as the stooge in an HM Bateman cartoon. In middle-class circles, it simply won’t do to express some opinions that one expects everyone present secretly holds.

At the risk of social ostracism, let me give you some examples. Spike Milligan isn’t very funny. Eric Clapton is a very ordinary guitar player. Archbishop George Carey isn’t very bright. And there may be no more to John Major than meets the eye.

I say this because I can think of no way of explaining why the London stock market should have gone into decline since Major announced the date of the election a little over a week ago, other than a dawning realisation that Major’s position really is as desperate as his opponents make out.

But surely the City did not need reminding that there is to be an election this spring? And surely the markets will have heard that Labour is more than a little ahead in the opinion polls? So surely market-makers had already discounted their markets against a prospective Labour government? And, finally, surely the City has heard that this election is to be fought on questions of stewardship of the economy, rather than on the old party lines which prescribed that the City must be terrified of Labour governments?

It cannot be – can it? – that the City has just finally acknowledged that Major’s Government is set for electoral oblivion and that the scale of its defeat will encourage Labour to drop its modernising mask and implement high-tax and spend policies and intervene in the business process, just like socialists are meant to.

Well, no, not exactly. The fall in share prices in London over the past week or so has had as much to do with events in the US as in Britain. Alan Greenspan, chairman of the US Federal Reserve, told a congressional committee that he was concerned about inflationary pressures – a sure sign that US interest rates will rise soon.

But, nevertheless, the market in London has been pushed down – by some 170 points on the FT-SE 100 index last week – by influences other than just the indication that worldwide bull markets are unlikely to be pushed by low US interest rates indefinitely. The persistent fall in share prices can only be connected with renewed fears over a Labour government.

And that is puzzling. There has been a growing consensus that Labour is a new friend for British business. Labour’s manifesto for business this week is a model for socio-economic co-operation. On Monday, Reed Personnel Services revealed that nearly 80 per cent of some 750 business organisations surveyed felt that a change of Government would make no difference to their prospects or that they would be more successful.

So why the cold feet in the City? In one sense, the Conservatives are victims of their own success in the stock market. The FT-SE All-Share Index is still up 80 per cent since Major’s Government was re-elected in 1992. Any sort of uncertainty is likely to mean that there is a good deal of steam to come out of the market and that means a protracted bear leg.

Nevertheless, there is much on the economic scene to support a new relationship between Labour and business. That much is clear from the Reed survey. So, again, where is the uncertainty coming from? My guess is that Labour is concentrating too hard on communicating with business – witness its manifesto for business this week – and not quite hard enough on presenting itself to the City. It cannot be right, for example, that Hermes, the 32bn BT and Post Office pension fund manager, should this week have stolen a march on regulators and potential legislators by sending a new code of corporate governance to the chairmen of all the British companies in which it invests.

Labour would do much to secure the City as effectively as it has secured widespread business support if it came up with such regulatory proposals. It might, for example, say that it would sweep away the web of unsuccessful self-regulatory bodies in favour of a single financial services regulator, commanding two divisions of retail and wholesale markets.

There are other City-specific nettles that Labour could grasp. Last week, I wrote that Labour’s co-operative ethos would put paid to Lanica Trust’s bid for the Co-op. Were Labour to let it be known that it would allow the Co-op to modernise itself by being allowed to raise capital in the markets, that would serve the dual purpose of protecting the Co-op for the long term, while demonstrating City savvy.

There needs to be some such initiatives to raise City morale and stabilise the equity markets. Labour has to consolidate its friendship with business and its manifesto has done much in that direction. But if it has managed to market itself successfully to the rest of the country, the equity markets over the past week or so have demonstrated that it has yet to sell itself to the City, let alone win its heart.