UK businesses worry about Brexit — but fear Corbyn taking control

The faint prospect of having Labour leader Jeremy Corbyn oust the current government strikes fear in the hearts of businesses and investors.

Organisations representing businesses had been resigned to accepting prime minister Theresa May’s less-than-perfect Brexit deal with the European Union. They now fear the prospect of a no-deal Brexit. But having Corbyn as leader seems to be the worst possible outcome for many in the business and investment community.

The Confederation of British Industry (CBI) warned last year that his party’s policies would “crack the foundations of this country’s prosperity.”

Corbyn has called a no-confidence vote at 7pm GMT on Wednesday in a bid to trigger a general election and gain more influence, though this effort is widely expected to fail.

“I think most people understand the primary objective of the Labour party tonight is to trigger a general election,” said Azad Zangana, a senior European economist at Schroders. “Most businesses would prefer to not be leaving the EU at all, and having the Conservative party in power. That’s not currently an option on the table.”

Zangana said that Corbyn’s “general hostility to the capitalist system …. is really where the key opposition comes from, from businesses and business owners.”

Corbyn has touted plans to strengthen unions, redistribute up to 10% of company equity to workers, and nationalise a range of companies, including private rail firms and Royal Mail (RMG.L).

“From renationalisation to dilution of shares, Labour seems determined to impose rules that display a wilful misunderstanding of business,” the CBI said in September.

“From rigid employment rules to blunt public ownership, the Labour approach sounds more command and control, than partnership. This is not the change that is needed,” the CBI had warned again in November. “Labour and business do share an ambition to tackle inequality, but the way to achieve this is through collaboration based on the belief that enterprise is a force for good.”

Currency traders also see Labour leadership as a negative for the country.

“The perceived risk of a Labour-led government may also weigh on the pound to some extent,” noted James Smith, an economist at ING.

And business is wary about the Labour party’s history of high borrowing levels.

“Historically Labour governments tend to borrow more than Conservative governments,” said John Wraith, a UK economist at UBS Investment Bank.

Higher government borrowing can lead to higher debt levels and higher debt payments. The government currently pays tens of billions of pounds each year in taxpayer money to cover interest on its debts.