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UK business dodged the latest threat: Jeremy Corbyn taking control

Alanna Petroff
Senior Economics Correspondent at Yahoo Finance UK

Business leaders and investors will be collectively breathing a sigh of relief as an attempt to topple the UK government fell through on Wednesday night, thwarting Labour leader Jeremy Corbyn’s attempt to hold a general election and gain power.

Corbyn and his radical economic policies are considered to be a massive threat by many in the business and investment community. Some argue privately that Corbyn as prime minister could be a greater risk to their businesses than Brexit.

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

In the wake of the Grenfell fire in London, he called for the government to seize empty homes from the rich to house survivors. He has also called for caps on executive pay for companies that provide services and goods to the government.

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

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

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

Corbyn refused an invitation to meet with prime minister Theresa May to discuss Brexit options following the no-confidence vote.

“Before there can be any positive discussions about the way forward, the government must remove clearly, once and for all, the prospect of the catastrophe of a no-deal Brexit from the EU and all the chaos that would come as a result of that,” he said.

Strategists and economists note that he has worked to block May’s Brexit efforts, but has not offered any clear alternative solutions.

“I am disappointed that the leader of the Labour party has not so far chosen to take part, but our door remains open,” May said on Wednesday evening after meeting with the leaders of other political parties, according to Reuters.

Corbyn’s options

Corbyn, widely considered to be more Eurosceptic than most Labour colleagues, is now expected to pursue one or two main paths. The first is to formally back the second referendum that many in his party are calling for, and the second is to put forward another no-confidence vote in the coming weeks, according to ING economist James Smith.

“In the aftermath of Wednesday’s failed confidence vote, the Labour leader is now under immense pressure to put his weight behind a second referendum … But so far Corbyn appears reluctant to go down this route,” Smith said in a research note.

“Corbyn also appears keen to shift attention back to his domestic political agenda, which could be made more complicated given that a second referendum could take several more months to arrange.”

A second referendum would lead to further heightened uncertainty, which is also undesirable for businesses and investors, said Smith.

And as things stand now, Corbyn is not expected to prevail in a new no-confidence vote.

“While Corbyn may try his luck with another vote of no confidence in the government soon, we would not expect him to have any more success a second time around,” said Kallum Pickering, a senior economist at Berenberg bank. “We reduce the risk of a Corbyn-led government from 30% to 20%.”