What will Labour’s ‘securonomics’ mean for the UK economy and investments?

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Graham Hook, Head of UK Government Relations and Public Policy at Invesco says: “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.”

What will Labour’s victory mean for wealth management?

Graham Hook continues: “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 have 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.

“CGT revenues are of growing importance to the Exchequer. In the financial year 2022-2023, CGT raised £16.9bn, the highest take on record.  As such, the new Chancellor could be tempted to seek to increase the CGT take further, for example by aligning the tax rates on capital gains from equities or investments with income tax bands.”

How is the election affecting the progress of the Mansion House regulations? 

Mary Cahani, Director, UK Pensions at Invesco says: As the Labour Party comes into power, there’s some uncertainty about how the previous Conservative government’s in-flight reforms will be carried forward. However, based on Labour’s manifesto, we can expect a comprehensive review of the pension system focusing on improving outcomes for pension savers and increasing investments in UK markets. There is also a strong emphasis on continuing the consolidation of workplace pensions. 

Broadly, we think it is unlikely that Labour will reverse the progress achieved by the Conservatives, such as the Mansion House compact,. Indeed, one area where we hope to see accelerated reform by the next government is in relation to the advice guidance boundary. The ‘Targeted support’ model represents a practical response to the advice gap identified after the Retail Distribution Review (RDR). This model acknowledges that consumers facing complex financial decisions may not always want or be able to access regulated financial advice, and we believe it would significantly improve the current situation where consumers may receive no professional support at all. This model will not only support savers in becoming investors during the accumulation phase but also aid consumers in making decisions about their pension funds at retirement instead of making such decisions without professional support.

In a broader sense, a Labour government could consider amending the overall pension framework, particularly in terms of tax, as a way to generate revenue. For example, there could be a review of pension tax relief or annual allowances subject to such relief. However, it has been reported that Labour has ruled out reintroducing the Lifetime Allowance that was abolished by the Conservatives earlier this year. Another option could be to review the tax-free lump sum, but this might not be received well by the public. As part of its commitment to boosting economic growth, a Labour government might prioritize pension reform to encourage further investment in UK markets. Given the potential scale of the review of the pensions landscape by a Labour government, pension savers and investors are advised to closely monitor the details of the King’s speech when parliament reconvenes and, more importantly, the content of Labour’s first budget statement expected in the Autumn.