Ed Miliband’s speech on living standards at the beginning of November received much attention. Tackling the ‘Wonga economy’ he proposed a tax break for companies that pay the living wage. This opened up another front in Labour’s attack on the coalition’s record on the cost of living. However, the Labour leader was further criticised for being anti-business. How can Labour propose policies which combat inequality while winning the support of the business sector?

The ‘Wonga economy’ speech certainly made an impact. The Financial Times argued in an editorial that politicians should not ‘through the loose use of language … demonise companies that operate within the law.’ In his attacks on Wonga, the FT argued that Ed Miliband ‘… tacked too close to the wrong side of this line.’

More comprehensive criticism came from John Cridland, director general of the CBI. He argued that Ed Miliband’s conference speech contained five elements of concern for business, when usually the CBI would expect only one or two. Those five elements were, the Times reported (£),’Price controls on energy for 20 months, wage controls by offering a higher minimum wage in some sectors, raiding developers’ unused land reserves, raising corporation tax to pay for business-rate reductions and attempts to draw an artificial split between big business and small.’

The previous Labour model – by which I mean the New Labour model – attempted to tackle inequality mainly by mitigation through changes to the tax and benefit system and through increased public spending which disproportionately benefitted those on lower incomes. Meanwhile, real incomes began to fall and more households became dependent on borrowing. This time around, an incoming Labour government will need to demonstrate it is keeping spending under control. It is no surprise, therefore, that Labour is seeking other ways to tackle inequality. These for the most part are directed at what are seen as flaws in the British market economy linked to monopoly power and rent-seeking in the business sector. Hence the concerns expressed by business pressure groups.

It is possible to maintain and build credibility with the business sector while making policy that combats undesirable market outcomes. That, after all, was what the Thatcher governments did and their credibility with business was not unduly damaged until Tory European policy threatened Britain’s economic national interest. We can fairly look upon that era as the time when credit was unleashed, sowing the seeds of the recent financial crisis, and when manufacturing was undermined: there remain families and communities that are still feeling the pain from those policies. However, my point is that Tory governments also tightened regulations against monopolies and ended restrictive practices which had a lot of support but which hurt consumers and embedded inefficiency: policies which encountered resistance were in fact in the interests of business and the wider economy.

This is the current approach taken by Labour. The policy to freeze energy prices merges both concern about living standards and a desire for a more responsible capitalism. It is true that further fundamental reforms are required to tackle the underlying causes of inequality. Meanwhile, more needs to be done to sell the message about our main objectives to the business sector. Businesspeople tend to look at the direction of travel. They are less interested in particular policies (unless their businesses are particularly targeted) than about the overall policy platform and political motivation. Labour can at times sound as if we believe business is a necessary evil, and an evil to be tamed at that. In fact, business is a natural expression of human creativity. When it is managed responsibly, our national wellbeing and our living standards can improve. Shadow cabinet members need to go out of their way to say this and often. We also tend to misunderstand the role of incentives in an economy, instead simply believing a tax here or a tax credit there will deliver our policy aims. We need a very clear message on business taxation (low and stable) and regulation (clear and simple) coupled with powerful policies on public investment. This is the route to a clear pro-business platform consistent with our values.

This article was first published by Progress on 3 December 2013.