John McDonnell vow to bring socialism back to mainstream politics sparks alarm among business leaders

John McDonnell has spooked business leaders after making a bold pitch to re-establish socialism in the mainstream of politics.

Leading private sector figures reacted with dismay after the shadow chancellor promised a crack-down on “Philip Greens”, more intervention, looser trade union rules and higher worker wages.

In a sign of Labour’s turning tides, Mr McDonnell won a standing ovation as he told conference delegates in Liverpool, “in this party you no longer have to whisper its name, it’s called socialism”.

The centrepiece of his speech was a living wage review body with a remit to ensure that minimum incomes were set “at the level needed for a decent life”, which independent studies suggested would be more than £10 per hour by 2020.

That is above his previous ambition of at least £10 and also above the Government’s current National Living Wage target of £9 by 2020.

He pleased delegates with attacks on widely criticised business tycoons like Mike Ashley, going on to pledge: “Under Labour there will be no more Philip Greens at all”.

Mr McDonnell confirmed his ambition to shake up the tax system to shift the burden “away from those who earn wages and salaries and on to those who hold wealth”. And he said he was “interested in the potential of a universal basic income”.

Setting out his plans for more state intervention in industry, he said: “We need a new deal across our whole economy, because whatever we do in Britain, the old rules of the global economy are being rewritten for us.”

He also pledged to scrap the Conservatives’ Trade Union Act and reintroduce collective sectoral bargaining.

Union bosses hailed the speech, including Unite general secretary Len McCluskey who described it as “music to the ears of the millions of low-paid workers who are getting poorer under this Government”.

Manuel Cortes, general secretary of the TSSA transport union, branded it as “a bold and grown-up approach to lift workers out of in-work poverty”. He added: “This policy delivers more than long overdue wage justice.”

But CBI director-general Carolyn Fairbairn said businesses would be “wary” of Mr McDonnell’s “combative” tone and focus on “extensive intervention”.

Mark Littlewood, director-general of the free market Institute of Economic Affairs think-tank, dismissed the plans as “fantasy economics”.

He added: “The shadow chancellor wants a return to the industrial strategy of the 1970s, ignoring the past failures of a raft of initiatives, from subsidising the nuclear industry to Concorde. It’s time for the shadow chancellor to get real. The long-term economic prosperity of the UK will not be secured by shifting taxation to wealth, by higher spending or by more regulation.

“Labour’s strategy amounts to huge private sector ‘austerity’ in order to protect and expand the public sector. This would be disastrous for the health of the UK economy.”

Terry Scuoler, chief executive of the manufacturers’ organisation EEF, said: “Business will need to be convinced…that some of the proposed policies are relevant for a modern economy. In particular, a return to collective bargaining is a backward step.”

And Adam Marshall, acting director-general of the British Chambers of Commerce, said: “John McDonnell talks of an ‘interventionist’ future Labour government, but needs to remember that there’s both good intervention and bad intervention. Good intervention creates the conditions for all businesses to thrive, but bad intervention ensnares them in red tape and makes them less inclined to employ, train or invest.”

Mike Cherry, national chairman at the Federation of Small Businesses, was more positive, welcoming the proposal to expand the Employment Allowance.