A contested relationship: The UK Labour party and small business
Author: Richard Beresford
Date: 2017-02-14T00:00:00+00:00
Keywords: Local government and services
Publisher: History and Policy (historyandpolicy.org)
Rights: Copyright History & Policy, 2017

A contested relationship: The UK Labour party and small business by Richard Beresford.

Published in Great Britain in 2017 by History and Policy.

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Policy Papers

A contested relationship: The UK Labour party and small business

Richard Beresford

CONTENTS

- TITLE PAGE
- COPYRIGHT
- POLICY PAPER
- FUTHER READING

Policy Papers

A contested relationship: The UK Labour party and small business

Richard Beresford

Executive Summary

- The Labour party has, under the leadership of both Ed Miliband and Jeremy Corbyn, staked various claims to be 'the party of small business'. Such claims tend to be associated with a shift in Labour thinking which originates in the leadership of Tony Blair and New Labour. Prior to this it is assumed that an anti-small business policy approach prevailed.

- Evidence from general election manifestos over the 20th century however suggests that there is a distinct Labour tradition and approach to supporting small businesses which predates New Labour and which built on traditional Labour values of inclusiveness, fairness, solidarity and community and which have policy implications today.

- Manifesto evidence suggests in particular that Labour’s approach can be understood as emerging from a realistic assessment of the drivers of sustainable, small business-led economies which recognise the vital interrelationships and spending multipliers within local economies; and can therefore be favourably compared with approaches adopted by the Conservative Party during the 1980s and again today.

- Despite the plethora of small business and enterprise policies from central government, subsequent evaluations show that they have had little or no impact on the overall spatial distribution of start-ups in the UK, which remain anaemic in many of the old industrial regions. Studies and further policy measures have sought to address this failing through a focus on perceived cultural failings in the provinces. Labour’s consistent focus over many decades on the importance, instead, of measures to address the relative prosperity of local and regional economies offers more promising and tractable policy guidance: small businesses thrive in regions where demand is buoyant, not depressed.

This Policy Paper is published posthumously by kind permission of the Beresford family.

This Policy Paper appears here posthumously by kind permission of the Beresford family.

Introduction

Most recent analysis shows that the UK Labour Party is committed to promoting small business across a wide range of policy measures with the governments of both Tony Blair and Gordon Brown keen to stress the key role that small businesses play in building an enterprising nation. During the most recent General Election campaign, the then leader of the Party, Ed Miliband, sought to extend this by positioning Labour as ‘the party of the small business.’ Yet prior to the rise of New Labour it has been argued that Labour was anti-small business and that an anti-enterprise culture was embedded in the party’s economic philosophy. Anthony Giddens, one of the architects of New Labour, for example stressed that Labour had traditionally viewed entrepreneurs as ‘selfishly profit-driven, concerned only to extract as much surplus value as possible from the labour force’. This could be interpreted as a convenient argument for those keen to distinguish ‘new’ (business-friendly) from ‘old’ (business-unfriendly) Labour. Indeed, it remains the dominant international view that higher levels of small business activity are associated with regions that have a conservative (right) majority as compared to a socialist (left) majority. This is problematic for a number of reasons. Firstly, the current assumptions about Labour’s previous disposition toward business remains underpinned by a set of claims that are largely untested, yet which are inextricably linked to a meaning system and related methodology associated broadly with a neo-liberal lens. Secondly - and specifically in relation to this paper – this dominant view appears to envisage a small business policy trajectory which has had limited success in addressing the regional disparities in start up activity and which largely ignores alternatives.

This paper provides an assessment of the Labour Party’s ‘contested’ relationship with small business over the course of its history and suggests that traditional Labour party thinking provides an alternative and arguably more realistic understanding of the drivers of sustainable small business economies. In doing so it draws largely on general election manifestos, which although not a perfect source of information, do have advantages when conducting longitudinal comparisons, notably in that they are each trying to do the same thing at different points in time (appeal as widely as possible to voters and win a general election).

Labour and small business

It has been argued that the central formulation of the UK Labour Party's economic policy has, since its inception, been based on a policy of gradual nationalisation and central planning, culminating in the policies of the Attlee government in 1945, and on a strong preference for large scale productive units over small scale firms. Whilst this picture became a little more complicated from the 1970s when the party experimented with small scale worker cooperatives, until this date it has been argued that Labour’s thinking on business showed little interest in small companies - viewing them as an obstacle to any gradual socialization of the economy. Traditionally there had also been little interest shown in small firms amongst the wider Labour Party membership. In some sections of the party indifference extended to outright hostility, with small firms often associated with sweated labour, poor wages and low levels of trade unionism. Small firm proprietors were also viewed as the embodiment of individualism, strongly anti-state figures who used their firms as vehicles for tax avoidance, and provided strong support for the Conservative Party.

In truth, however, the relationship between Labour and small business is more complex than this. Labour’s indifference outside Westminster was not necessarily reflected in its activity within Parliament, where Labour MPs’ contributions to parliamentary debates on small firms were often greater in number than those from Conservatives MPs. Whilst it is true that small business owners were more likely to vote Conservative than Labour, this was not always out of any particular ideological attachment with the Tories, often associated with monopolistic power of big business. During the course of the 20th century small business owners in the UK would shift their political allegiance between the Liberal and Conservative parties as they followed the promise of cheap government, but also in many constituencies small firms maintained a ‘not insubstantial allegiance to the Labour Party’. This was particularly evident amongst small businessmen who were by social origin working class and within local communities and regions where the political milieu was traditionally pro-Labour. Manifesto evidence provides scope to assess this contested relationship.

Evidence from general election manifestos

1900 - 1945

It was the Labour Party which first included any specific manifesto reference to small businesses in 1906. This reference came as part of a wider attack on the exploitation of workers which stated that ‘Shopkeepers and traders are overburdened with rates and taxation, whilst the increasing land values, which should relieve the ratepayers, go to people who have not earned them’ (Labour Party, 1906). The 1929 manifesto Labour’s appeal to the Nation also highlighted this issue, arguing that the Conservative’s indirect tax was an ‘increased burden on the wages earners, shopkeepers and middle class’. Two points are notable here as they recur in subsequent Labour manifestos. Firstly, the Labour Party clearly equates the interests of the small businessman with those of the employee and thus the wider community. The political and economic rationale can be found in the influential Independent Labour Party’s (ILP) under-consumptionist argument of the time, which argued that a rise in purchasing power would ‘turn the wheels of industry again’ (ILP, 1926). This argument is evident in the 1929 Labour manifesto which states, ‘There is a great market at home which can be developed by increasing the purchasing power of the working class’. A second theme is the recurrent reference to monopolistic big business, landlords, speculators and absentee landlords as the common enemy to all working people including the self-employed. Numerous examples are evident in Labour manifestos for example in the references to the ‘selfish interests of big business’ (1931), and the ‘Czars of Big Business’ (1945).

Whilst specific small business policy commitments are not evident in manifestos during this period, Labour’s interest in dealing with one of the key barriers faced by small businesses can be illustrated in the work of the Macmillan Committee established by Ramsay MacDonald in 1931. Although focused on broader questions related to the role of UK banking and finance institutions, the subsequent Macmillan Report identified for the first time that small and medium firms (SMEs) often experienced considerable difficulty in raising finance (the ‘Macmillan gap’) and recommended the formation of a different type of finance institution which would confine itself to these smaller industrial and commercial issues’. A number of venture capital providers were established during the 1930s including the Charterhouse Industrial Development Company, but it wasn’t until the election of Attlee’s Labour Government in 1945 that the Industrial and Commercial Financial Corporation ICFC (today 3i) was established by the Bank of England to provide long term funds for SMEs. The ICFC had its failings but by adopting a long-term investment strategy centred on SMEs it was able to operate in a field deemed to be too troublesome and too risky by the major clearing banks, and provided the impetus for new institutions to involve themselves in the previously neglected small business sector. Labour’s interest in the ‘finance gap’ continued with the establishment of the Wilson Committee. Although the subsequent Wilson Report of 1979 has been dismissed by some historians as anodyne, nevertheless its recommendations included the launch of a publicly underwritten loan guarantee scheme for small firms – a policy initiative which would be introduced at the height of the 1980s enterprise culture and re-launched by the recent Conservative-led Coalition government

1945-1969

By contrast it wasn’t until the 1945 and 1950 elections that references to small businesses were first included in Conservative manifestos. The 1950 manifesto, This is the Road. included a reference to the need for ‘special attention’ for small businesses (although the exact nature of the attention is not specified), and for the need to remove the burden of tax to unleash enterprise (although this particular policy commitment is made in relation to ‘larger and more efficient’ firms). Labour, whilst advocating redistributive economic policies and nationalisation as part of an efficiency agenda, also recognised the importance of small businesses to the national economy. Labour’s 1945 election manifesto  Let Us Face the Future, stated that nationalisation was not appropriate for all industry, and that there were ‘many smaller businesses rendering good service which can be left to go on with their useful work’. This policy position was made explicit in the 1950 manifesto Let Us Win Through Together which contained a unique electoral pledge not to nationalise the retail industry. Whilst this commitment could be interpreted as a pragmatic assessment based on electoral politics, with many working people having an ambition to open a shop, and the party fearing that it would be punished at the polls for confounding this dream, nevertheless the commitment also emerges from a wider tradition in Labour thought which emphasised the degradation and alienation of work involved in large scale machine production. This tradition can be traced back to William Morris, but can also be found in the writing of J.A. Hobson in the 1920s (he joined the ILP in 1919). Hobson, who was sharply at odds with the Fabians’ 'producerist socialism', argued that large scale enterprise was a passing phase of capitalist development, linked to homogenous demand and mass production, and that as incomes rose consumers would demand more differentiated products. In this environment smaller businesses would be both more technically efficient and socially desirable allowing much more democratic forms of work organisation. A social and community element was particularly evident in Labour thinking on the retail sector. For example, Labour’s document A Nation of Shopkeepers (1948) recognised that customers might prefer the social element of dealing with a local shopkeeper rather than the impersonal experience offered by larger stores. The local shop, the document argued was also handier than the more distant attractions of the town centre and cheaper, too, as it saved on transport costs. Moreover, credit might be available from a local shop – an important consideration for many working-class families.

During the post-war period, manifestos show that Labour continued to identify restrictive practices as a central barrier to small businesses. Under the heading Encouragement for Enterprise the 1950 manifesto stated that:

Private enterprise must be set free from the stranglehold of restrictive monopolies. Labour's aim is to give a fair chance to everybody in industry, above all to the small concerns which have been the most ruthlessly exploited by trusts, cartels and rings. The less efficient firms will be helped to raise themselves to the standards of the best.

1970s

Whereas specific policy commitments towards small firms are limited in earlier political manifestos, with both main UK parties committed to supporting the growth of larger firms, the interests of small firms are more prominent in manifestos produced during the 1970s. This decade heralded a change in perceptions and attitudes towards small firms, which would ultimately be driven by successive Conservative governments, but which in fact had its origins in the finding of the Committee of Inquiry on Small Firms appointed in 1969 by Harold Wilson’s Labour government. The Labour Party during this time expressed concerns that the growing dominance of large corporations might further marginalize the small firm sector and contribute to its demise. This was particularly worrying where some in the party were coming to view big business as lacking an entrepreneurial spirit. Anthony Crosland, minister responsible for merger policy between 1967 and 1969 argued that, ‘the threat from these giant concerns is not that they will become too ruthless or too little public spirited…but they will become complacent, un-dynamic and un-enterprising with the passage of time.’

Little was known, at the time about the composition, structure or indeed the extent of the contribution attributable to the small business sector in the British economy. The subsequent Bolton Report published in 1971 with over 50 recommendations, heralded a surge of interest in SME’s and enterprise within government. The Conservative Party manifestos during the decade reflected this interest, with the 1970 manifesto A Better Tomorrow promising to act on Bolton’s recommendations, and the 1974 manifesto, Firm Action for a Fair Britain, describing small businesses as the ‘backbone of British industry’. By 1976 the Labour government was also taking greater notice of the concerns expressed by the self-employed. The party’s election manifestos during the 1970s included as one of the party’s priorities, ‘special support for small businesses’. The Callaghan-led Labour government’s (1977-79) appointment of Harold Lever with special responsibility for small firm tax concessions could be said to have marked a more favourable attitude towards small firms. Lever, along with Joel Barnett had been a consistent supporter of small firms and included as one of his objectives the alleviation of the administrative burden on small firms. He, like a number of his predecessors in the party, was also concerned with the problem SMEs had in raising capital. During a debate on small business held in the House of Commons in January 1976, small-scale entrepreneurs were reported as being supported by the Conservative Party. Nevertheless Labour members also contributed to the debate, including government spokesmen, who seemed almost as concerned as the Conservatives. Support extended to the left wing of the party, with MPs such as Eric Heffer viewing small enterprises as one of the means of revitalizing the economies in the inner city areas.

1979 -1990

Although the economic regenerative potential of small firms was evident in Labour’s earlier manifestos (e.g. 1959), it became apparent through policy measures such as the Small Firm Employment Subsidy (SFES) which was introduced in July 1977 to help small firms create jobs in Special Development Areas. It was also evident in Labour’s 1979 manifesto, The Labour Way is the Better Way, which indicated an intention to mount a concerted effort to stimulate the development of small firms and worker cooperatives in these areas. Commitment extended to supporting the development of well-financed local Enterprise Boards and enabling local authorities to conclude agreed development plans with SMEs. However, no specific reference is made beyond this; and in this regard Labour’s 1979 manifesto provides a stark comparison with both the number and specificity of pledges contained in the Conservative manifesto of that year and in their subsequent 1983 and 1987 manifestos.

1990s

The Labour Party emerged from the 1980s with clear small business policies which were both more high profile and more detailed than before. The 1989 Policy Review Meet the Challenge, Make the Change, and the revisions Looking to the Future (1990) and Opportunity Britain (1991), for example, have a considerable amount to say regarding small business, and policies seem to increase in importance with each publication as is also evident in subsequent manifestos.

Labour’s 1997 manifesto New Labour, New Life for Britain, for example, emphasises that the party’s constitution was rewritten to place a commitment to enterprise alongside Labour’s traditional commitment to justice. In his introductory Vision statement Tony Blair writes that ‘we need more successful entrepreneurs, not fewer of them’. Small businesses were identified in the 1997 manifesto, as they had been in the party’s earlier manifesto It’s time to get Britain working again (1992), as having a major role in plans for economic growth.  A similar range and number of policy commitments are also evident. Of note was one 1997 commitment to ensure that local businesses were more actively involved in Labour’s plans for local ‘bottom up’ partnerships, creating alongside other stakeholders such as Regional Development Agencies, and local voluntary organisations, sustainable local economic prosperity.

Discussion and conclusion

The evidence above suggests that despite popular perception, the Labour movement has rarely cast the small businessman (with the possible exception of the landlord), as the ‘folk devil’ or ‘class enemy’. Where Labour railed against the ‘anarchy of individualistic enterprise’ (1931) it was referring to excessive profiteering and particularly big business monopoly and cartels. The same principle is evident in the party’s challenge to the Conservative Party’s use of the word freedom in its manifestos. Does freedom for the profiteer they ask, mean freedom for the ordinary man and woman, whether they be wage-earners or small business or professional men or housewives? (1945). Rather than being anti-small business, any antipathy towards ‘enterprise’ might be better understood less in terms of any mistrust of small businesses, but more as emerging from a left tradition that was anti-trust and anti-big business.

Election manifestos for much of the 20th century demonstrate that where the Labour Party includes reference to the small businessman in its election manifestos there is a tendency to link the fortunes of the small trader to that of the fortunes of the employee, advocating policies which aimed to create an increased domestic market by improving workers’ wages (1927). This recognition of the interrelated nature of local levels of affluence and the sustainability of local businesses not only highlights a degree of continuity in Labour thinking but also has implications for contemporary small business and enterprise policies and sustainable regional small business economies. For example, despite three decades of enterprise policies, there remains a wide difference in the spatial distribution of new firm formation in the UK. Commentators have sought to explain this by describing business-deprived regions as lacking in an entrepreneurial spirit or culture. However structural factors associated with levels of regional affluence provide a more convincing explanation of spatial differences. Foreman-Peck’s analysis of new firm formation in the UK during the inter-war years, for example, identified different levels of regional purchasing power as a key explanatory factor in the levels of small business activity during this period, with clear regional winners and losers. The depressed industrial regions recorded low levels of new firm formation. Businesses that did start in those regions tended to be in low value-added sectors which offered little by way of growth potential or sustainability. Conversely the more prosperous south witnessed high levels of new firm formation with businesses often clustered within growth oriented sectors. Since the 1980s encouraging self-employment has been a recurring goal of government policy. Policies had a particular regional rationale with government policy-makers viewing self-employment as the way to kick start failing local economies and alleviate deprivation. This was particularly true of old industrial, typically Labour voting regions in the UK which were experiencing high levels of unemployment. However despite the plethora of enterprise policies, subsequent evaluations show that they have had little or no impact on the overall spatial distribution of start-ups in the UK. Much of this failure is due to a common misunderstanding of the direction of causation in the relationship between rates of business start-up and regional economic regeneration. Rather than low rates of start-up causing deprivation, it has been demonstrated that high levels of deprivation explain low start-up rates.

In this regard manifesto evidence suggests that rather than adopting an anti-small business policy, Labour’s policy rationale can be understood as emerging from a realistic assessment of the drivers of sustainable, small business-led economies. Statements in manifestos which span ‘old’ and New Labour suggest that Labour consistently and correctly recognised the vital interrelationships and spending multipliers within local economies, which account for small business success. Consequently, certain policies, which have often been construed as anti-enterprise, were in fact advocated in part for their positive implications for small businesses. Examples of such policies include calls for a living or minimum wage, the establishment of the National Health Service and even nationalisation. It also has implications for the current UK Conservative government’s small business enterprise-led recovery, which is intent on continuing to cut public sector spending and jobs, which are located disproportionately in the business deprived, former industrial regions of the UK, whilst at the same time introducing policy measures to encourage self-employment as an alternative to public sector employment and/or unemployment. Indeed, such policies may well be part of the underlying causes of the current ‘low productivity’ puzzle afflicting the British economy that economists of all stripes have identified. Unlike the Conservative Party of Thatcher, Major and Cameron, manifesto evidence suggests that Labour continued to understand that policies to support regional culture change in favour of small businesses could not thrive in the context of local economic structural collapse and absence of government attention to the encompassing local economic environment in which many small businesses must operate.

This Policy Paper draws on Richard Beresford’s 2015 article, ‘UK New Labour and enterprise: continuity or change? Evidence from general election manifestos’, British Politics, 10 (3): 335-355.

About the author

Richard Beresford was Director of the Centre for Creativity and Enterprise Development at Oxford Brookes University. He was an active member of a number of small business policy groups such as the Small Business Charter, and was a member of the recent Lord Young Enterprise Review. His research was in the area of small business and entrepreneurship adopting cross and multidisciplinary approaches.

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Further Reading

- Artis, M. & Cobham, D eds. (1991), Labour Economic Policies 1974-79, Manchester University Press: Manchester

- Craig, F.W.S. ed. (1970), British General Election Manifesto’s 1918-66, Chichester: Political Reference Publications.

- Craig, F.W.S. ed. (1980), British Parliamentary Election Results 1974-1979.  Chichester: Political Reference Publications

- Foreman-Peck, J. (1985) ‘Seedcorn or chaff? New firm formation and the performance of the inter-war economy’, Economic History Review, XXXVIII: 402-22.

- Manton, K. (2008), ‘The Labour Party and Retail Distribution, 1919 – 1951’, Labour History Review, 73(3), 269-286.

- Tomlinson, J. (1994), Government and the Enterprise since 1900. the Changing Problem of Efficiency,  Clarendon: Oxford

- Tomlinson, J. (2004), ‘The Labour Party and the Capitalist Firm, c. 1950-1970’, The Historical Journal, 47(3), 685-708.

- Whiting, R. (2000), The Labour Party and Taxation. Party identity and political purpose in 20th Century Britain, Oxford University Press: Oxford