Will the market be fine with a strong Labour majority?
First things first you're probably wondering how such a strong labour majority will affect the market. Labour have talked a lot about change in the lead up to this election, however the market see's their plans as relatively moderate. For instance, recruiting 6,500 extra teachers sounds huge but is pretty modest compared to the total number of teachers and schools we have here in the UK. And 40,000 more NHS appointments per week is a notable increase, but is still marginal compared to the millions of daily appointments conducted by GPs currently.
Labour’s proposed plans involve setting up various bodies, councils, and partnerships, which to us suggests a gradual change rather than immediate, sweeping reforms. This slower approach, especially in fiscal matters, reassures markets. With the FTSE 100 near all-time highs and gilt markets stable, the financial sector seems prepared for Labour's victory.
We will of course keep monitoring activity, especially how foreign investors react, such as the US markets when they reopen after the holiday. However, the general consensus is that markets will remain calm and resilient in the face of a Labour majority.
Uncertainty Surrounding Capital Gains Tax
We know that there is still some uncertainty regarding the potential for a rise in Capital Gains Tax (CGT) under a Labour government. Although this has been speculated, at the moment we don't know if it will happen. This does add a degree of unpredictability for investors, and we will keep you updated of any potential impacts.
Closer ties with Europe could be a benefit
Labour’s pledge to establish closer ties with Europe is likely to be welcomed by many. The Brexit effect has been substantial, and any move to strengthen economic ties with the EU could positively influence investor sentiment and market valuations. British ISA Plans May Be Affected You should be aware that British Individual Savings Account (ISA) plans might be put on hold. This could affect personal investment strategies, especially for those relying on ISAs for tax-efficient savings.
Progress on Advice Guidance Boundary Rules
We‘re also expecting changes to advice guidance boundary rules under a Labour government. These changes could affect how financial advice is provided and could potentially benefit investors by clarifying the regulatory environment.
Tax Under Labour Government
The incoming government will have a challenging backdrop from a spending and taxation point of view. Labour are aware of this and will have to raise taxes. From a political point of view this is perhaps best done quickly. They have committed to leaving most of the main direct tax rates, as well as VAT, unchanged. The focus must, therefore, be on capital taxes.
They will have to look across the board at possible tax increases, perhaps limiting ISA tax relief, restricting tax relief on pension contributions, introducing extra council tax levels and they could also review or limit a number of tax loopholes. At this stage all the these options are little more than speculation.
Maintain a 'Keep Calm and Carry On' Attitude
Given the overall stability projected in Labour's plans, investors are advised to maintain a 'keep calm and carry on' approach. The markets expected a Labour landslide, and current conditions in the equity markets, with the FTSE 100 near all-time highs, suggest that a strong Labour majority would not cause significant disruption.
