Wealth Strategies

UK Votes In Labour Government – Wealth Industry Reactions

Tom Burroughes Group Editor 8 July 2024

UK Votes In Labour Government – Wealth Industry Reactions

After the landslide win for the UK Labour Party last week and exit of the Conservative-led government, wealth managers give their views on what to expect.

The UK electorate voted last week, giving Labour – under the country’s first-past-the-post system – a big majority at the expense of the Conservative Party. (See here for the editor’s commentary.)

This publication was, unsurprisingly, inundated with reactions from the wealth management industry about the result. Those readers in the UK may be familiar with a lot of existing points, but we want to set out reactions here particularly for the benefit of readers outside the UK who have been watching this poll. Remember, this has been a busy year for elections (India, Mexico, Taiwan, UK, European Parliament and many others) and of course there’s still the US Presidential election to come in November. 


Graham Hook, head of UK government relations and public policy at Invesco
Introduced as Labour’s response to the retreat from “hyper-globalisation” and in the face of increasing geopolitical insecurity, “securonomics” is essentially about improving the economic security and resilience of the nation, with the state playing a more active, directing role in markets.

What does this mean for investors? On the one hand, the approach could create both stability and opportunities. A long-term industrial strategy, combined with a business tax roadmap and sectoral investment plans, could provide a stable and predictable environment for growth. Public/private investment funds could provide new opportunities for investors. On the other, increased business regulation and employee rights could reduce labour market flexibility and increase company costs. The threat of increased government intervention in mergers and acquisitions could also put a dampener on foreign investment from certain jurisdictions.

Sir Keir Starmer has said that "wealth creation is our number one priority." However, independent analysts such as the Institute for Fiscal Studies have pointed to the conundrum at the heart of Labour’s fiscal plans: how will they avoid baked-in cuts to public services without either additional borrowing or further tax rises? Given that Labour has ruled out a return to austerity and pledged not to borrow for day-to-day spending, further tax increases would appear almost inevitable. Thus far, Labour’s approach to tax raising has been to target so-called ‘loopholes’ benefitting those with perceived wealth. Consequently, there has been significant speculation that Rachel Reeves could increase capital gains tax (CGT) in her first budget.

Kevin Cummings, partner and head of UK tax practice at McDermott
"Change begins now"…words that will resonate with the City, but perhaps for different reasons. With an almost certain attack on the way many in the private equity industry are compensated (through the anticipated carried interest reform), this may be just the start. The new government has not ruled out a more general levelling up of capital gains taxes with income tax rates, something that will deter long-term investment and retirement planning. 

We can expect further adverse reforms for those who come to the City from overseas and who might be taxed under a fading non-dom regime, and likely inheritance tax reform is expected to penalise families holding wealth overseas through offshore trusts. Businesses have been promised a stay on corporation tax rises, and we’ll see if the new government can hold its manifesto pledge not to increase income taxes and National Insurance for the most entrepreneurial. They may well still have a pop at the self-employed, perhaps by re-opening the ill-fated reform of partner taxation, equalising the National Insurance drag on self-employed partners with employees.

Fiona Fernie – partner in private client team, Blick Rothenberg 
The Labour party has pledged to improve public services largely based on funds raised by “closing the tax gap.” However, for many years the percentage fall in the tax gap has largely been the result of the increase in the taxpaying population rather than efficiencies in increasing collection. In fact, in monetary terms, the tax gap has increased by approximately £4 billion ($5.1 billion) in the latest HMRC annual report. If HMRC has not managed to close the tax gap to date, I am not sure, short of a huge overhaul in approach together with a significant increase in resource, what difference a change in government will make. And without funding where does that leave Labour's plans for “fixing” our public services?

Azad Zangana, senior European economist and strategist, Schroders
The new chancellor Rachel Reeves plans to exclude public investment from the government’s self-imposed borrowing rules. This is a signal that Labour plans to borrow more to invest. The lines between public current spending and investment have in the past been blurred, which may in time raise some concerns.

Moreover, there is a general expectation that some taxes will have to rise in due course, despite Labour’s manifesto pledge to freeze most personal taxes. This will be difficult given the “fiscal drag” which is occurring as the result of frozen income tax thresholds for the past seven years. With more and more workers paying higher marginal rates, the nation’s tax burden is expected to rise to its highest level since 1948 by the end of the Office for Budget Responsibility’s current forecast period – a tough legacy to inherit.

Overall, the change in government, particularly with such a large majority, should reduce political instability for the nation. A change in the direction of policy back to growing public services is likely to lead to looser fiscal policy and boost economic growth.

Kevin Gardiner, global investment strategist, Rothschild & Co
The details of Labour's economic policies have yet to be decided, let alone announced, but the big picture is (we think) reasonably clear. Prime Minister Starmer may be seeking faster growth, but he is not about to change macro policy frameworks – fiscal or monetary – as he does so. We take his declared centrism in this respect at face value: it is clearly the reason why he is in office, and to retreat from it would be extremely difficult even if he wanted to do so. While it's certainly good to see the optimism about growth, and we are firmly in the glass-half-full camp ourselves, until effective micro, supply-side measures are decided, designed and implemented it can't be taken for granted. Some changes – towards a less flexible labour market – will likely work against it. Hence our suggestion that above that the UK's economic prospects are not suddenly altered. Those prospects are often less important anyway than the global outlook in driving UK stock market indices and interest rates.

Of course, even a centrist Labour government will not be as pro-business or libertarian as a Conservative one, and we should anticipate many changes in the detail of tax and sectoral policies in the weeks ahead, some of which will be contentious. But overall, the financial markets' initial judgement on the widely-predicted change in government – the pound, gilts and FTSE are little moved – seems to match ours.

Holly Payling, a partner in the expatriate tax services team at the accountancy firm Buzzacott
The Labour government’s headline proposal marks a pivotal shift for non-doms from the long-standing remittance basis of taxation towards a residence-based regime. It will be available for both UK domiciled and those who are non-domiciled alike. This is a huge cultural shift from the current rules, which have remained in place for non-doms for many decades.

The central questions revolve around whether a Labour government will echo proposals from the Conservative party which were due to take effect from April 2025 or look to something very different. The Conservative government did not implement its non-dom proposals in the 2024 Finance Bill, so the jury remains out.

Labour has indicated that it will tighten the transitional rules allowing tax incentives for bringing previously untaxed offshore funds onshore, but it has also suggested it will include incentives to encourage investment of offshore funds into the UK as part of its new four-year residency regime.

Perhaps the most significant proposal is that trusts created by non-doms may no longer shelter offshore assets from inheritance tax, irrespective of when those trusts were created. It will likely result in increased scrutiny of offshore trust vehicles.

Seb Beloe, partner and head of research at WHEB Asset Management
Labour has stated its intent to "make Britain a clean energy superpower" and of its commitment to becoming a net-zero economy. Yet, the devil is in the detail. An easy first step in proving its commitment is to make good on its manifesto promise to reverse the Tory decision to prevent the Bank of England giving due consideration to climate change in its mandates. We hope the new [Labour] government embraces its role to advance the sustainability agenda for the betterment of this generation [while also not compromising on the ability of future generations to meet their own needs].

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