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Dressed in clothes fit for a funeral, Sir Keir Starmer appeared on TikTok last week to unveil sweeping changes to Britain’s ground rents system.

Insisting that the cost of living was the “single most important thing across the country”, the Prime Minister declared war on an “outdated” leasehold system and promised that charges would be capped at £250 a year.

The Government claims that up to 3.8 million leaseholders stand to benefit, with owners of flats the biggest winners.

Yet for City executives and overseas investors who rely on the UK as a safe place to park their money, there is greater significance to Sir Keir’s move which triggers a deep-seated anxiety about Britain’s lurch away from a capitalist, free-trading nation.

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For them, the move is a sign that Britain’s moribund economy has become a breeding ground for creeping price controls which are chipping away at the country’s reputation as a good place to do business.

Attempts by governments to control prices never end well. Far from creating a socialist paradise, families and businesses are often thrown into inflation hell.

The UK has already dabbled with soft forms of price controls, from a pandemic that resulted in workers being bankrolled by the state to cost of living pressures that gave rise to caps on prescription charges, bus fares and energy bills.

Rachel Reeves’s “securinomics” doctrine has also played into the idea that the Government knows best. But these are not the characteristics of an emerging market. They are hallmarks of Britain today.

She’s not alone. Donald Trump has used his second term in office to slash taxes but also tear up the free trade rulebook and express displeasure in being unable to exert influence over the Federal Reserve when it comes to the price of money.

Tim Sarson, a partner at KPMG, says policymakers haven’t shaken the deep suspicion of the free market that arose in the wake of the financial meltdown.

“There’s been a backlash against the idea of a pure free market [and] an acceptance across both ends of the political spectrum of more interventionist industrial strategy. I don’t see that changing anytime soon,” he says.

But he also warns of a slippery slope, saying: “The danger is that it has become accepted. And there probably are areas of the economy where the intervention then goes too far, and we do get back to picking winners and losers.”

Labour ministers have been unapologetic about this approach.

Peter Kyle, the Business Secretary, declared last week that he was proud of the Government’s activism as it moves to take stakes in British companies.

But the money men of the City are warning that it also calls into question whether Britain really is a good place to do business, with huge implications for future investment.

As he wandered aimlessly around a housing estate in his TikTok video, Sir Keir promised leaseholders “hundreds of pounds” of savings on their fees every year.

Angela Rayner, Sir Keir’s former deputy, dismissed warnings by UK pension funds that the Government was effectively robbing savers by capping rents that had been generating steady returns.

She said a decision to cap the charges was “easily absorbable” and posed “little risk to wider investor confidence”.

But City executives, who invested in these properties for their steady, predictable income beg to differ.

Many have expressed dismay in public. In private, they are apoplectic.

“It’s clear that this is a Prime Minister saving his own bacon,” says one major property investor. “This is a political decision on behalf of one Prime Minister, which frankly is against the interests of the country and against the views of the Exchequer.

“They are the ones ultimately [who] will have to manage potentially the billions of pounds shortfall, if a compensation bill is ever payable.”

Freeholders who will now miss out on their tenants’ ground rents claim this compensation bill could amount to tens of billions of pounds.

Investors say the erosion of trust will cost more.

“We know that some investors are now looking at UK PLC investments and adding a premium for the risk that this sort of action represents,” says the investor.

Others are more direct. “You can maybe f--- people over once, but if you keep on f------ them, they will remember,” says another infrastructure investor.

“As [Ian Fleming’s character Auric] Goldfinger put it, once is happenstance. Twice is coincidence. Three times is enemy action.”

Many in the City are dismayed that their warnings about the precedent of capping ground rents, which started under the Tories, were ignored.

Several FTSE 100 firms wrote to the Chancellor before Christmas to warn of the chilling effect it would have on investor confidence.

Many of the warnings came from members of Reeves’s own infrastructure taskforce, the same people who the Chancellor is relying on to bankroll her future projects.

The lobbying did not work.

The Chancellor’s reply in December foreshadowed the eventual outcome as she told City bosses that the Government remained “committed to its manifesto commitment to tackle unregulated and unaffordable ground rents, and to deliver the legislation needed to achieve this”.

She conceded that it was a “complex area” and that missteps could affect “the decisions firms make on where and how to invest”.

Reeves is understood to have launched a rearguard action against the plans, sending more than one note to No 10 warning about the consequences for growth.

In the end, her pleas were ignored.

“Talk about biting the hand that feeds you,” grumbles one member of Reeves’s infrastructure taskforce.

Such is the strength of feeling in the City, that even the most mild-mannered of fund managers have gone public with their outrage.

M&G, a blue ribbon fund manager with £100bn sunk into Britain, last week warned the cap would cost them £140m – owing to its direct exposure to ground rent assets.

It issued a stinging rebuke to the proposals, which it branded “disproportionate”.

“These changes, if implemented, would negatively impact savers and companies that have chosen to invest in UK assets; they would also set a worrying precedent, leading to consequences for the UK’s reputation as a stable investment location,” it said.

Pension provider Just Group also warned last year that its investments in ground rent provided income that would “pay pensions over the next six decades”.

Even insurers who have no skin in the game voiced their concerns to the Treasury, although their appeals ultimately fell on deaf ears.

Sarson, at KPMG, says the damage to Britain’s reputation as a stable place to invest cannot be exaggerated.

“It is something that definitely has a chilling impact on the attractiveness of a country when it feels like you can’t rely on the handshake, you can’t rely on what you thought you’d agreed. Clients will certainly comment on that,” he warns.

He adds that about-turns on net zero have been particularly concerning, saying: “A lot of governments are going back on their plans around things like when they are going to phase out internal combustion engines.

“It’s been a theme across Europe, but certainly also in tax where governments don’t necessarily walk the walk on policy stability generally.”

Three hundred miles north of the City of London, the Northumberland port town of Blyth is home to the UK’s first offshore wind farm.

A quarter of a century ago, two turbines plunged eight metres into the seabed generated enough electricity to power 3,000 homes.

Today, the site tests turbines with blades as long as 150 metres, three times the wingspan of the Angel of the North, with wind power now meeting a third of Britain’s electricity needs.

Blyth’s success was built on a web of green subsidies, the main one being renewables obligation certificates (ROC).

The scheme was set up by Tony Blair’s government to encourage developers to go green by incentivising investment in wind and solar farms instead of coal, oil and gas.

Sites like Blyth could claim one of these certificates for each unit of clean power they generated.

Energy suppliers were then obliged to hand over a specified number of ROCs to regulator Ofgem each year, effectively creating a market that gave wind and solar farms a top-up to their incomes.

Smaller clean power generators benefited from a similar scheme known as the feed in tariff (FiT).

Critics say the costs of both schemes spiralled out of control because of a decision to link these income top-ups to the now defunct retail prices index (RPI), which has an upward bias built into its formula that ends up overstating the inflation rate.

The difference between RPI and another, more popular measure – the consumer prices index (CPI) – is stark.

Since 2000, prices have risen by 95pc, according to the CPI; but on the RPI, they are up by 145pc. That means that today, ROCs are costing every home an extra £100 a year.

But there was a problem with the system created by Blair and inherited by successive governments.

The creation of a state-subsidised system put the dead hand of Whitehall policymakers into what should have been a free market system. This meant, at the flick of the switch, the economics of the market could be changed. And so it came to pass.

In her November Budget, Reeves took action to move these costs from energy bills onto general taxation from April 2026.

It is at this precise moment that the Government also plans to change the peg used for ROCs and FiTs from RPI to CPI, which Ed Miliband, the Energy Secretary, claims will shave an average of £4 off typical energy bills.

However, investors who bought into these schemes expecting a predictable return say this is yet another example of a Government retrospectively rewriting contracts in a move that damages confidence.

“At the end of the day, Ed has promised everybody £300 off their energy bills,” says one City veteran. “It’s really obvious that Reform and the Conservatives are breathing down their necks and the whole thing has become very political.”

The City veteran adds: “Therefore he’s got to deliver his £300, and if this is a step towards it then the politics around this are the consumer is being cared for. But it’s bonkers.

“They need money at a low cost of capital. If you put even one basis point on that cost then you risk wiping out any gains.”

Others warn the “policy renege premium” is much, much larger.

“People will be p---ed,” says the finance chief of one FTSE 100 firm. “It undermines policy predictability and certainty, which is critical when investing over multiple decades.”

The executive warns that “any” long-dated investment into Britain will now cost the country about £40m on every £1bn invested – that’s not pocket change.

But they insist the charge is justified. “If we are lending over 20 to 30 years, we need to know the goal posts will not change.”

For a Government that wants to build a new generation of nuclear power plants as well as water, airports and energy networks, that’s a big risk.

Downing Street has also opened itself to a flood of potential litigation claims.

Many say precedent has already been set in Spain, where in 2007 the government promised investors a whole range of incentives to draw cash into renewable energy projects.

However, it then reneged on these attractive terms a few years later as it struggled to balance the books during the eurozone crisis. These court battles continue to this day.

Ross Grier, the chief investment officer at NextEnergy Capital, which has £2bn deployed across UK solar, says the Government is playing with fire by changing the terms of contracts long after the ink has dried.

“All types of infrastructure are at risk here. What the Government is effectively doing is gambling that this is not going to have an impact,” he says.

“But we know that the capital that funds this type of infrastructure is transient, so if you make it too difficult to fund infrastructure in your own backyard, that capital will flow to other countries that are making it easier.

“Whichever way you cut it, it’s an own goal for the Government just to deliver a short-term saving.”

As another investor puts it: “When you run the hot tap having been scalded recently, naturally you’re a bit more careful.”

What’s also clear is that Britain’s subsidy-ridden net zero drive has contributed to a decline in electricity generation that economists say has harmed growth.

Massive financial incentives to go green encouraged companies to shun traditional coal-fired plants at a huge cost to the taxpayer.

At the same time, electricity generation has also declined sharply since the turn of the millennium.

Analysis by Peel Hunt of almost 190 economies last year showed just how intertwined energy was with economic prosperity because of its key role in production. Its conclusion? Net zero has made families poorer.

Britain’s net zero drive began in the mid-2000s, when Miliband introduced the Climate Change Act of 2008, which mandated an 80pc cut overall in greenhouse gases by 2050.

The Tories went further by passing a law in 2019 to require the UK to bring all greenhouse gas emissions to net zero by 2050.

Peel Hunt highlighted that electricity capacity in the UK has declined by 21pc since peaking in 2005, as coal, oil, gas and nuclear power stations were shut and wind and solar power took off underpinned by government subsidies.

Other areas that know all about price controls are Britain’s pharmaceutical industry as well as its labour market.

For the former, decades of prioritising value over innovation have driven down prices for the NHS. However, this has come at the cost of fewer innovative medicines, and a feeling that the UK is not a place where innovation thrives, or pays off.

While the NHS has been able to drive a hard bargain on behalf of millions of patients, people are starting to notice, including the leader of “the free world”.

Trump piled pressure on Britain last year to offer the pharma giants a better deal.

In their eyes, Britain still uses a formula that is decades out of date when it comes to assessing whether a drug is value for money, while a clawback agreement struck in 2023 has seen drug companies paying an increasing share of their income on sales back to the NHS.

A deal to ameliorate that has only gone some of the way to solving the problem, according to drug chiefs.

Vas Narasimhan, the chief executive of Novartis, said this month that the amount the NHS was willing to pay for new drugs remained “on par with Eastern Europe”.

“If the UK really wants to make biotech a highly competitive sector, it has to start valuing innovation in the way the leading countries in the world do,” he added.

A recent report by the Association of the British Pharmaceutical Industry (ABPI) is even more damning.

It warned that investment intentions in the UK had “shifted from growth to containment”, with four in five of its members saying they had considered reducing UK investment since the start of 2024.

Others highlight a paradox between Labour wanting to bring prices down on the one hand while simultaneously pushing up costs.

It is a conundrum which the Labour Government, only 18 months into power, has significant experience with.

For example, its experiment with Britain’s jobs market is a case in point where its meddling could shape the economy for decades to come.

A little history lesson first. For all its flaws, Britain’s economy was a job-creating machine in the 2010s.

While this came to a juddering halt during the pandemic, unemployment remained low as the Government pressed the pause button and paid everyone’s wages through the furlough scheme.

But this Government has other ideas, rewriting Britain’s labour code and making it more expensive to hire by mandating inflation-busting increases in the minimum wage.

Proponents of such a move dismiss warnings of mass unemployment as the same bleating when the minimum wage was first introduced by Labour in 1999.

However, today’s world is very different.

Britain’s minimum wage is now among the highest in the developed world relative to average earnings.

What’s more, Labour’s move to pay 18-year-olds the same as workers who are three years older has even sparked a backlash from the Resolution Foundation, regarded as the party’s favourite think tank.

It has noted that the combined impact of higher employers’ National Insurance and a jump of up to 18pc in the minimum wage last year for teenagers resulted in the biggest increase in labour costs on record.

It estimated that this would reduce total employment by 80,000 over the year.

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The foundation has also spoken out against “discriminatory” youth rates that it warned last year would be “ill-advised” to implement.

“This is especially true in the current economic environment,” it warned last year.

“The risks of increasing youth minimum wage rates too quickly are large – as well as making employers more reticent to take on young workers, it could also make them less enthusiastic to engage with the Government in delivering its Youth Guarantee for example by providing work placements.”

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All this while also implementing a shake-up of workers rights that will see union barons handed more power and businesses face more costs and red tape.

Marco Amitrano, a senior partner at PwC, singles out the Employment Rights Act, championed by Rayner, as a big risk to the economy.

He warned that international businesses were also concerned that the new laws would make it “harder and riskier” for businesses to take on new staff.

Describing the economy as already “flat”, he adds: “We wouldn’t go as far as saying what the Government’s done [on employment rights] has ruined the landscape and is taking the country backwards in attracting investment, but it’s a relative game.

“It’s a competition. So I think we’re already seeing the impact in levels of unemployment and the vacancies that are out there.

“The private sector is less willing to take a bet on jobs.”

After all, as a former Labour prime minister put it: “One man’s wage increase is another man’s price increase.”

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