A Labour government: what are the repercussions in the Restructuring and Insolvency sector?

The election of the Labour government on 4 July has set the stage for significant changes for the Restructuring and Insolvency sector. With a focus on economic growth, green energy, consumer and employee protection, Labour’s manifesto promises to introduce some novel changes that will have repercussions for businesses in the UK.

This article will list some key ambitions that Labour have highlighted in their manifesto and the potential consequences of them.

For industries

Labour’s manifesto has specified certain industries that they want to focus on when creating new regulations. One notable example is the tobacco industry, with the manifesto claiming that the next generation will be unable to legally buy cigarettes. Mandatory ‘output’ smoking cessation intervention will also be incorporated into hospitals and the branding and advertising of vapes will be banned. This will limit the market of those in the tobacco industry, potentially causing concerns for businesses that do not have a diversified offering.

The energy industry is one that the new government will also focus on. No new licenses for coal or the right to explore new fields will be issued, fracking will be banned completely and the power of the regulator will be strengthened. Furthermore, Labour will continue to enforce the windfall tax on oil and gas giants. Those that are affected by these regulations may feel insecure within the UK under Labour, as job opportunities and permissions dry up. Nevertheless, new green energy companies may spring up to take their place in the job market – the government aims to invest heavily in this sector, to become more energy independent as a nation and create the publicly owned “Great British Energy”. These choices may divert and change consumer demand for privately-owned ‘dirty’ energy.

In line with the new government’s commitments to climate protection, Labour will also increase the regulation surrounding the water industry. The powers of regulators will be increased, permitting them to fine executives of companies that are polluting British waterways and bring criminal charges in certain circumstances. They will also implement automatic fines for those that are found to be wrongdoing. This may force companies to rethink their policies on disposal, potentially creating a new consideration in their budget which accounts for either the cost of being fined or switching to another method of disposal.

Innovation

Furthermore, Labour wants to focus on funding and speed lining innovation. This includes paying more attention to the growing artificial intelligence market as well as the co-operative and mutuals sector, which they plan on doubling. To realise this, they plan on creating a Regulatory Innovation Office which will collate existing functions into one body. Businesses should expect to see an injection of funds into these industries as well as the introduction of new regulation and guidance. This greater focus may prompt the creation of new businesses, lured in by the promise of funding, and business plans that focus on the enlargement of innovation departments.

Other industries that will be affected are the weapons, food and events industries. Labour aims to ban a number of different ‘knife-like’ weapons and restrict the online sale of those that they do not ban. Individual executives may be personally fined or sanctioned if they flout these new rules. In addition to this, companies will no longer be allowed to advertise junk food or sell high-caffeine energy drinks to children. New regulations will also be imposed on ticket resellers as Labour aims to increase consumer protections. Consequently, the consumer market in all of these industries will be impacted – forcing companies to rethink their strategies or face future losses.

For businesses

The government intends to appoint a Covid Corruption Commissioner that will tackle the fraud and undelivered or impractical contracts that were a consequence of the pandemic. Given that the former Minister of State at the Cabinet Office and the Treasury resigned due to the mishandling of the covid Bounce Back Loan frauds, it can be assumed that these loans will fall within their remit. The increase in scrutiny may lead to more companies filing for insolvency, perhaps in the hope that they will not be pursued if the business is in liquidation, but may also lead to more claims against directors for fraud.
The party has also recognised the importance of tackling late payments, specifically for the benefit of small businesses and the self-employed. Not only does their manifesto state that they will ensure that payments are made on time but that they will also make it easier for these groups to access capital. Statistics provided by the Federation of Small Businesses that estimate that over 50,000 businesses a year go under due to cashflow problems.

Energy costs

The government has also committed to addressing high energy costs. Their manifesto claims that UK businesses have faced the highest prices for energy even before Russia’s invasion of Ukraine. The cost of energy is an important consideration for businesses, as a survey done by FRP found that three in five businesses saw energy as the biggest pressure on profit and one in five businesses were concerned that high energy costs were going to cause their insolvency. It is Labour’s hope that by creating the publicly owned “Great British Energy”, they can decrease costs for businesses and help to keep the lights on.
Labour also wants to work with the Federation of Small Businesses to identify and remove barriers to exports. They point out that small businesses are currently forced to source their information from other government’s websites.

Although the manifesto states that Labour is committed to remaining outside of the European Union, the focus on this area might help to alleviate some of the concerns triggered by leaving the single market.

Under the new government, corporation tax will be capped at 25%. The manifesto points out that this is currently the lowest in the G7 and promises to remain competitive if other countries begin to change their tax systems. This introduces some stability to the market despite the change in government.

For employers

Businesses will have to get to grips with new employee regulations that could increase overall costs and limit their hiring opportunities. With the aim of ‘Making Work Pay’, the new government aims to ban exploitative zero hour contracts – although the Shadow Chancellor has recently walked this back slightly – end the practice of firing and rehiring, increase employee rights, rethink how minimum wage is calculated and remove wage age bands.

The introduction of these practices might mean that employees cost more to hire and retain, with businesses who have relied on the lack of regulation in these areas struggling to meet their previous budgets. It will also have implications for how a businesses can restructure – stricter regulations around firing and rehiring may mean that this option is no longer legally available.

Additionally, the new government aims to crack down on the employment of foreign workers. They hope to achieve this by decreasing net migration and preventing rule-breakers from employing workers from abroad. The theoretical impact that this could have is wide – it could affect anyone from small businesses set up by immigrants to large companies who hoped to save on labour costs by taking advantage of beneficial conversion rates or a lack of surveillance on the rights of foreign workers. This change will limit the pool of potential employees and cause businesses to rethink the structure of their workforce.

For landowners

Labour aims to tackle empty high streets by granting councils power to manage long-term empty premises without the owner’s consent. All rent would be directed to the owner of the property, but a council will be able to re-open the premises at a discounted rate without seeking permission.

The manifesto does not comment on landlord responsibilities or any other specifics, but it is possible that landowners might find themselves in an unexpected position if they have owned an empty property on the high street for over 12 months.

As outlined here, there could be a number of significant changes across numerous sectors. How this will play out in reality remains to be seen. However, we will be keeping a close eye on upcoming legislation and keep readers updated.