What might a change in government after the general election mean for the wealth management industry?

by | May 23, 2024

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Dominic House, lead consultant at Simplify Consulting, has been reflecting on what we can expect as pre-election campaigning gets underway, as well as some of the key issues which wealth managers will be keeping a keen eye on in preparation for change.

The announcement of the general election means that we’re in for 6 weeks of round the clock coverage of the same speeches being made over and over again. We will see fevered speculation about whether a senior politician is happy to go on camera and be questioned about their policies, and political obsessives like myself will be wondering what the latest polls mean for marginal constituencies like Worcester or Southampton Itchen. If the polls are to be believed, we’re also likely to see the Labour party take office for the first time in 14 years.

So what might this change in government mean for wealth management? Well, leaving political allegiances to one side for the moment – many in the industry will have been encouraged by the recent economic data, even if  the latest inflation figures mean that a June interest rate cut seems less likely. Equally, there is some hope that we have started to move towards a more positive economic period, and that any new government will be looking to support this.

Labour has been actively engaging the city over recent months, with a pro-business message that they hope will result in a less hostile reaction to a potential labour government than the reception for Jermey Corbyn’s leadership in 2017 and 2019.

 
 

Rising real wages have started to be reflected in some net inflow data for platforms and asset managers, as well as long overdue increases in the FTSE100. Whilst the recovery remains fragile, increased certainty should have a positive impact on markets and investor confidence. Labour has been keen to present a level of continuity, with the expectation that income tax thresholds will not be increased, and corporation tax will remain at its existing level – a not insignificant 25 percent. Should Labour win,  Jeremy Hunt’s proposal to axe National Insurance would likely be immediately scrapped, leaving the existing arrangement in place.

What might be in the new Chancellor’s in-tray on the 5th July should Labour win?

From a wealth management perspective, recent announcements from Jeremy Hunt will be under the spotlight. A labour Chancellor may not consider the ‘Great British ISA’ a high priority right now. Whilst there may be some merit in trying to boost investment in UK companies, the current proposals have some inherent challenges that will impact its effectiveness.

 
 

Pensions may be a different proposition, and could be higher on the agenda. It would seem unlikely that there would be an immediate rollback of the changes to the Lifetime Allowance, however, it’s likely that more holistic reform might be looked at in the lifetime of the next parliament. This could impact on the Pensions Freedom legislation. As a former Shadow Secretary of State for Work and Pensions, Rachel Reeves will be aware of the structural and demographic challenges facing pensions, and she has been forthright in her opposition to Conservative changes over the last 10 years, so we can expect there to be a focus here.

Lastly,  the Labour position on Brexit will be under the microscope. What will be the potential divergence, or otherwise with the EU? Keir Starmer has been walking a careful line on Brexit, seeking to bring traditional Labour voters who supported ‘Leave’ back to the fold, whilst keeping the younger, cosmopolitan coalition on side.

Moving from the shadows into Government is a challenge and Labour will now have to put their arguments into practice. Instinctively, one would suspect a movement towards closer alignment to the EU, and potentially, therefore a movement away from the Edinburgh reforms. The challenge will be that whilst Brexit seems less of an issue for the electorate as time passes, there is still a significant, and very vocal segment of society that will see this as a betrayal. This will have to be managed carefully.

 
 

For now, the focus will inevitably be on 4th July rather than what comes next. A change in governments can often amount to more than just  a new era politically, but also one that can have an effect on  many parts of daily life, including economically. The most important thing however is what happens once the election is over and we see the real changes take effect.

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