Every period of government delivers reform, changes, failures and successes. Among the Tories’ most notable efforts over the past 14 years are leading the UK out of the EU, a bigger state, tax burden and national debt (the last three of which are linked to the exogenous shock of the pandemic). Domestic highlights from a personal finance perspective include the pension freedoms, the triple lock, the Junior Isa, an increased Isa allowance, the residence nil-rate band and the ability to pass down a pension pot tax-free. On the minus side, there was a significant cut to the capital gains tax allowance.
With a landslide win expected on 4 July, it seems a fair question to ask what Keir Starmer’s party might achieve (or impose) given a similar period of time, roughly the lifespan of the Blair-Brown governments.
According to Panmure Gordon, there is no great disparity between the two parties’ records on GDP growth and equity market performance. Indeed, a new Labour government should start with a strong macroeconomic tailwind. Business confidence has been rising, as inflation falls back to target and rate cuts are within reach. Lower borrowing costs, rising consumer spending and a period of what Labour is calling “Securonomics” should boost the economy and the market.
If Labour is disciplined on spending, adheres to the current five-year fiscal rule regarding the public debt to GDP ratio, and/or the pace of economic growth picks up, it may be possible to cut debt, yielding a saving of billions in interest.
Taxes will rise – short of an economic miracle, they must, in the face of rising demand for public expenditure. Under Labour, sections of the UK tax manual will be rewritten, certainly for non-doms, and likely for inheritance tax, capital gains tax (to align it with income tax), pensions and many less widely understood tax breaks.
One would hope that after a decade and a half, the dreary cycle of low growth, zero productivity gains will have been broken. Shadow chancellor Rachel Reeves wants to “tear down” planning rules, which she sees as the country’s biggest obstacle to economic success. Mega energy infrastructure and housebuilding projects (investors should be watching for opportunities in these sectors) should move the economy up a gear but won’t magic up the thriving, world-class high-tech industry for which Britain keeps failing to lay the foundations.
Growth is also linked to our relationship with the EU. The OBR calculates Brexit cost the economy 4 per cent in productivity potential. Reeves will devote considerable attention to attempting to dismantle some barriers to trade. It may be that by 2039, joining the customs union will be the big debate of the day. Of course, by then, we may be exporting our clean energy expertise and basking in the glow of AI-enhanced productivity.
As the clock turns on a new decade, we will be within ten years of the world’s net zero global ambition – and presumably, well prepared given that Labour plans to transform Britain, within five years, into a clean energy superpower. The Great British Energy company will supply cheap homegrown energy to homes everywhere, Starmer says. But the North Sea oil industry may have been phased out of existence, thanks to the higher energy profits levy and the removal of “unjustifiably generous” investment allowances, even though the party says it will allow existing fields to carry on.
The greenbelt may be very much thinner; there may be a new city on the landscape. Private school numbers will be reduced along with those of millionaires whose exodus residence advisers Henley & Partners tells us has already begun. The nation will be more highly unionised than it is now, if Labour drives through its union membership and striking rights reforms. Therein lies a risk of inflation sparking back to life – strong wage growth after all is behind the ongoing stubbornness of services inflation.
Council tax may be significantly higher, if its structure is reformed and because councils’ care bills will rise steadily as pay in the sector (Labour’s guinea pig for sectoral bargaining) rises and the ageing population expands. Disruptive climate shocks and war cannot be ruled out. If Reeves follows her predecessor’s lead on encouraging pension funds to back British companies, the London stock market’s crisis may end.
Labour has set itself a hugely ambitious wishlist, built on big promises, some controversial policies and rather a lot of “won’t dos”. It will need a lot of luck and lasting support from the electorate to achieve it.
