A Ton of Pressure on New PM Starmer Amid Internal "Storm" and Market Skepticism

Less than a year after a historic victory, UK Prime Minister Keir Starmer enters the Labour Party conference in Liverpool in a paradoxical situation: commanding a massive parliamentary majority while confronting rising discontent from the business community and wariness from financial markets.

Political Debt to the Left and Threats from Rival Parties

Behind the landslide victory, Starmer is caught between two voter bases. The left wing of his party expects him to deliver on "core" pledges, such as scrapping the two-child limit on child benefits and adopting a tougher stance towards Israel regarding the conflict in Gaza.

This expectation has become more urgent as two rival parties – the Greens and "Your Party," launched by his hard-left predecessor Jeremy Corbyn – are actively courting this very voter segment. Meanwhile, from the opposite flank, Nigel Farage's populist Reform Party is leading in many polls, drawing voters from both Labour and the center-right Conservatives alike.

Business Community in "Revolt" Over Tax Shock

If internal challenges pose a difficult puzzle, the opposition from the business community – a key constituency Starmer once assiduously courted – represents a genuine crisis.

The unexpected decision by Chancellor Rachel Reeves to increase payroll taxes by £25 billion in her first Autumn Statement delivered a shock. The consequences have been rising unemployment, falling job vacancies, and depressed hiring intentions among businesses.

According to calculations by the Confederation of British Industry (CBI), the tax burden on businesses in the most recent financial year hit 30.5%, the highest this century. Furthermore, a series of policies, such as the abolition of zero-hours contracts and granting employees 'day one rights' making them harder to dismiss, have heightened concerns among employers.

Dissatisfaction has spread across key sectors:

Pharmaceuticals: Giants like Merck and AstraZeneca have paused or scaled back investments in the UK due to disagreements with the drug pricing regime.

Oil & Gas: A wave of job cuts followed the government's increase in the windfall tax on the sector.

Investment: The abolition of the 'non-dom' status has prompted thousands of wealthy business owners and investors to leave the UK, with the consequences already visible in public finances.

Pivotal Speech Under Pressure from the Bond Market

In this context, Starmer's conference speech aims not only to placate his party and businesses but also to send a strong message to another powerful entity: the bond market.

A recent comment by Greater Manchester Mayor Andy Burnham – who has twice failed in bids for the party leadership – sparked a wave of criticism after he suggested the country needed to move past the notion of "being in hock to the bond markets." Burnham was immediately compared to former Prime Minister Liz Truss, whose brief premiership collapsed after a market revolt against her mini-budget of unfunded tax cuts.

Hours earlier, Chancellor Reeves delivered a speech bluntly warning of the "danger" in suggesting the government could relax its fiscal discipline. She emphasized that if markets lose confidence in the government, ordinary voters would pay the price through higher prices and borrowing costs.

Hope for Concrete Signals and a Long-Term Vision

To turn the tide, analysts expect Starmer to offer clear commitments in his crucial speech:

A halt to surprise tax increases on businesses.

Clarifying the stance on potential taxes targeting the banking sector.

Flexible adjustments to certain policies, for instance, allowing new oil and gas drilling in existing licensed areas to revive activity.

In the longer term, the business community yearns for a comprehensive tax reform plan to enhance the UK economy's competitiveness. As NatWest Group Chairman, Rick Haythornthwaite, wrote: "A bold long-term plan can kick-start growth. That would reassure debt markets but also deliver much-needed social benefits."

Today's speech by Starmer will be a test not only of his internal authority but also of the market's trust in a government once expected to deliver stability.