The editor gives his thoughts after the result of last week's UK general election and the arrival of a new UK government.

Last Thursday, UK voters punished the ruling Conservative Party – in office for 14 years – by voting against the “Tories” to ensure that the party received just 24 per cent of votes cast. Labour achieved only 35 per cent – up only slightly from its standing in 2019, when it was led to heavy defeat by hard-Left figure Jeremy Corbyn. However, votes for the Liberal Democrat Party (getting its best result since 1923), and the new right-wing party, Reform, meant that the anti-Labour and centre-right voter base fragmented, allowing Labour to win a thumping majority under the UK’s “first-past-the-post” system. Voter turnout averaged 60 per cent, which is a low figure by historical standards, suggestimg that many voters wanted “none of the above.”

The FPTP approach is defended on the basis that it achieves decisive results, ejecting unpopular governments, whereas under proportional representation, coalitions can be very hard to dislodge. Even so, the fact that a governing party only achieved just over a third of the votes does not look like a ringing endorsement of Big Government, tax-and-spend policies, "wokeness," radical environmentalism, and the like. One suspects that Sir Keir Starmer, now Prime Minister, knows this if he wants to be more than a one-term PM.

We wrote about some of the Labour Party's ideas outlined in its election manifesto here and here. Already, Rachel Reeves, now finance minister, has been more notable for the tax rises she says she is against. Reeves, a former Bank of England economist, knows that the revenue-generating engine of the City must not be harmed. But consistent messaging is going to be important. Reeves wants to remove the UK’s resident non-domicile system, already scheduled for the axe by former Chancellor of the Exchequer, Jeremy Hunt. It also appears likely that those inheriting wealth, or receiving capital gains on the sale of assets, will not see any of these tax burdens decline, and people with large pensions could be squeezed on tax-free allowances.

A problem with all this is that the UK arguably needs to raise, not lower, its savings' rate and improve long-term investment. So the messaging has to to ensure that those with capital won't have their wealth expropriated. Reeves cannot afford to be seen as bashing the middle class. Can she resist calls to do so? After all, if, as he says, Sir Keir Starmer wants the UK to repair relations with the European Union, he should know that several EU states, such as Italy, have non-dom regimes (or similar) of their own. Some HNW individuals, not just non-doms, might get twitchy unless this new government assures them.

A certain level of boldness is inevitable, of course, particularly with a very large majority in the House of Commons. UK finances remain in the red; the national debt continues to rise. That is going to require some difficult decisions – not easy with a vast number of backbench Labour MPs hoping for government to turn on the spending taps. On the other hand, inflation has fallen back to near the Bank of England’s 2 per cent target, and the economy is growing – just. Interest rates might tick down this year, reducing the cost of servicing the UK’s large public debt.

An issue in the background, but not much discussed, is the UK’s low productivity and growth performance in the past decade or so. This must be a top priority for the new government to address.

Labour has already flagged that it thinks public-private partnerships and other measures, steered from government to an extent, can help shift things in the right direction. History is not reassuring on this point – the idea that civil servants can guide economies has a poor record around the world. But some form of collaborative measures are likely. The word "pragmatic" is likely to appear a lot. More positively, perhaps, the new government is more likely to also encourage house-building, particularly as some new Labour MPs have won seats in constituencies traditionally prone to the “NIMBY” (not in my backyard) impulse. 

Another issue relating to UK economic growth potential is the large number of work-age adults who are not seeking work, or deemed too physically/mentally unwell to work. When the UK also has large amounts of legal net migrants to fill job vacancies, it is clear that the UK labour market has a problem. There are issues around tax/welfare incentive effects to address, along with trying to get those who are genuinely unwell treated more effectively and therefore back into the workforce. A problem is that the new government has pledged to introduce a variety of labour market reforms – adding to employment rights, and this could add to hiring costs. Again, there is a need for consistency. 

Mention of illness reminds us that the National Health Service, which is taking a larger share of government revenue amidst an ageing population, needs reform, not just hard cash. A Labour government traditionally beholden to trade unions must be bold, if it can be, in its early years of office. This promises to be one of the trickiest areas to get right.

On education, the new government is likely to come under pressure from the teaching unions to roll back, or adjust, Tory reforms such as the creation of “free schools” and academies. While there are problems, there have been improvements in the UK’s international rankings for subjects such as maths. For a country hoping to push high-tech business, this is a big concern, if not one to make big front-page news. Labour must show it can keep momentum on this area, and more.

International trade issues will be important. By the end of this year, there will be a new US administration. Whoever is in the White House, protectionism appears to be making a comeback in Washington, DC, so Starmer and colleagues will want to do what they can to hammer out deals. With Europe moving to the political, populist right, closer alignment with the EU might, ironically, be more difficult for one of the few centre-left governments in the industrialised world. 

So there is a lot to consider. This hasn't been, in the eyes of this writer, an electrifying campaign. There has been an atmosphere of exhaustion and a desire for a difficult period to be brought to an end. Well, change has now arrived, emphatically, at least in terms of MPs' seats.

It would be dishonest not to conclude that the arrival of a Labour government isn’t usually a cause for anxiety. The new administration, while influenced to a certain degree by former PM Tony Blair, is likely to be a different beast from the “Cool Britannia” one of the ever-smiling Blair of 1997. But Starmer probably also knows that the UK electorate, as much as anything, wanted stability and competence after what has been a tumultuous period in UK public life. It is now up to the new government to deliver calm, effective government. The wealth management industry will be watching closely.