'Expect more policy U-turns from Keir Starmer'

Keir Starmer, Prime Minister of Great Britain

(Image credit: Tom Nicholson/Getty Images)

There’s one very easy prediction to make for 2026 – Keir Starmer’s government will make a whole series of U-turns. The one thing we know for certain about this government is that, as soon as it runs into any serious opposition, it quickly changes its mind. We saw that early on with the reversal of the decision to scrap the winter fuel allowance for pensioners, followed by the decision to abandon the very modest attempt to control the spiralling cost of welfare. Likewise, just before Christmas, it more than doubled the threshold at which farmers have to pay inheritance tax on their estates after widespread protests. A clear pattern has been established. A policy is announced, it sparks a backlash, and the government quickly caves in to the pressure.

It is not hard to work out where the next U-turns will come from. The farmers may have been exempted from IHT on what is in effect a small business, at least up to a value of £2.5million. But other businesses owned and run by families will still have to pay huge levies when they are passed on. Almost every country in the world exempts family firms from the tax for a reason. If a firm is worth £10million, it is usually impossible for the heirs to raise 20% of its value to pay the tax bill, so it has to be sold or broken up instead.

And the bill is actually greater than 20%. As James Dyson has pointed out, a dividend has to be paid to meet the tax bill, which is also subject to tax, meaning the real rate is 40% of the company’s value. That is crazy. Almost none of Britain’s estimated five million family businesses, which account for almost half the total number of jobs in the country, will survive that. Once it becomes clear how much damage the policy is doing, the tax rise will be reversed.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

The next reversal will be in business rates. At the last Budget, chancellor Rachel Reeves hiked the amount that pubs, cafes and restaurants have to pay to local councils. In many cases bills doubled. Given that many of these businesses were already struggling with rises in national insurance and the living wage, it is not surprising many of them will now close. Pubs were already shutting at a rate of one a day in 2025. As it becomes clear how many are folding, that rise will be scrapped as well.

The Employment Bill is not likely to last much longer. We have already seen one major U-turn, with the decision that full employment rights will only kick in after six months instead of on day one. But that won’t be anything like enough. We are already seeing a massive drop in hiring as companies decide that employing anyone in Britain is too risky and expensive. Unemployment has been rising steadily, more and more people have quit the workforce, and new graduates face the worst jobs market in a generation. The two-year rule that allowed companies to try a person out over a serious length of time will have to be restored sooner or later.

Finally, the crackdown on landlords has now clearly gone too far. After the Budget, you now have to pay a higher rate of tax on rental income, even though the job involves more work and risk than regular employment. As apartments vanish from the market, the government will have to ease up on that tax as well. Countries such as Portugal have introduced a lower rate for landlords to encourage more investment in the sector. At some point, Britain may have to do something similar. A functioning economy needs properties to rent, and they won’t exist if they are taxed out of existence.

Keir Starmer's policies are catastrophic for businesses

Add it all up, and one point is clear. The government has imposed a whole series of policies that are starting to have catastrophic consequences for businesses. Eventually even the chancellor will notice. The government will end up U-turning on all of them. There is just one catch. Much of the damage will already have been done. Once a pub has closed down, it won’t re-open even if its rates have been reduced. Once a family business has been sold off, it won’t be handed back to the original owner even if the inheritance tax is reduced, nor will entrepreneurs come back from Dubai. Each policy will do real damage. Perhaps by the end of the year, the Treasury team will have learned the lesson of that and start working out that they should listen to businesses before they impose a tax rise instead of afterwards – although, right now, no one should hold their breath.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Explore More

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.