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Client Update - 24th May 2024

Finally, after months of speculation, Prime Minister Rishi Sunak has announced that this year’s general election will take place on the 4th of July. With the date now set, the pressing question on everyone’s mind is: After 14 years of Conservative government, is Keir Starmer poised to lead the Labour Party to victory?

Although Sunak had previously indicated that his 'working assumption' was for the election to be held in the second half of the year, with expectations of waiting until the autumn and a further tax-cutting budget announcement, he decided to seize the moment this week following positive economic news. His announcement came just a day after UK inflation figures were published, revealing that inflation had fallen to 2.3%, just shy of the Bank of England's 2% target and the lowest level in almost three years.

Addressing the nation in the pouring rain outside 10 Downing Street, Sunak described the upcoming election as "the moment for Britain to choose its future," asserting that the Tories can be trusted to lead the country during a time of global instability. However, his words were met with alarm by senior Tories, concerned that their party, currently trailing 20 percentage points behind Labour in the Polls, could face electoral Wipeout, with some even considering submitting letters of no confidence. Despite this, government insiders suggested Sunak had been convinced that, with the economic backdrop unlikely to improve significantly before the autumn, and questions over the delivery of his Rwanda deportation scheme, he would be better off announcing an election now. Others suggested he had simply had enough.

As for Labour leader Keir Starmer, he has been waiting for this announcement for well over a year now. While Sunak may have been the one announcing the election, current polls suggest that his party is starting the campaign significantly behind Labour, with Labour maintaining a 40% lead for over 12 months. As things stand, the Conservatives are in for bad news if the bookmakers are right, with some bookies placing the Conservatives as far back as 25 to 1 to achieve a majority, while Labour is favoured at 1 to 10 to win an overall majority. However, polls and odds are frequently proven to be wrong, a fact certainly on the minds of both party leaders as they kick off their election campaigns. The Prime Minister will tour broadcast studios before embarking on a two-day whistle-stop trip across all four nations of the UK. Meanwhile, Starmer will head to south-east England, signalling his intent to make inroads in Tory areas.

Should Labour succeed in taking over following the election, it will be the party's first time governing in a post-Brexit Britain, bringing both new challenges and opportunities. Additionally, it will inherit an economy with weakened growth, poor productivity, and high taxation, a public sector struggling under immense pressure while draining government funds and a debt-to-GDP ratio limits fiscal options. Many argue that this scenario is hardly ideal for a party historically associated with higher taxes, increased spending, and a preference for a larger role for the state in society.

However, perhaps surprisingly, there is significant similarity between Labour and the current Conservative government on key economic issues. Under Keir Starmer, the Labour Party has moved away from his predecessor’s economic radicalism, declaring itself 'proudly pro-business.' Most importantly for the near-term economic outlook, both parties have reiterated their commitment to strict fiscal rules following 2022’s ‘mini budget’ fiasco, limiting the scope for either side to make dramatic changes in taxation or spending.

The parties find common ground in other areas as well. Labour had planned to eliminate the 'non-dom' tax status, which encourages wealthy foreign professionals and investors to move to the UK for work and commerce by allowing them to keep their overseas assets and income out of Britain’s tax system. However, the Tories, more aligned with this view than expected, pre-empted Labour by introducing a similar policy in the recent Spring Budget.

Despite sharing similar views on many areas, Labour is striving to distinguish itself. They have pledged to reintroduce the lifetime allowance, which was scrapped by the Tories in last year’s spring budget. They have also hinted at increasing pension tax relief, raising dividend tax rates and allowances, and adding VAT to private school fees—an idea proposed by the party multiple times over the past few years. These are some of the key changes being considered by the likely future ruling party.

While these significant changes may impact our clients to varying degrees, it is important to note that, as your financial planners and investment managers, we are dedicated to staying informed and on top of any upcoming changes. The good news is that while these changes will undoubtedly impact taxpayers, sound financial planning can help you avoid the worst of it.

As always, if you have any questions, please do not hesitate to call.

Do have a good weekend.

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