On Friday morning, as the UK woke up to the enormous scale of Labour’s victory — and the Conservatives’ resounding defeat — my inbox began filling up with press releases and media commentary.
‘How to beat Labour’s tax rises!’ ‘Which taxes will Labour increase first?’ And ‘How to protect your wealth from future Labour tax raids’ will give you a flavour.
OkayY, I exaggerate a little. But not much. And the last headline, it’s worth noting, is actually verbatim from an article in the normally sober Financial Times.
And in none of the coverage that I saw could space seemingly be found to point out that it’s been the Conservatives who’ve been clobbering investors and ordinary people with tax rises for the last 14 years.
It was the Conservatives who reduced the Capital Gains Tax allowance to £3,000 for the current tax year, down from £12,300 as recently as 2022/23. The Conservatives who slashed the Dividend Tax allowance to £500, a mere one-tenth of what it was when first introduced in 2016. And the Conservatives who elected to freeze income tax bands for seven years, dragging millions of us into paying higher taxes.
I’m not being political here. Just even-handed.
The real agenda isn’t about taxes
I’m going to go out on a limb here, and suggest that for investors — and especially investors in the UK stock market — the real story of the election is nothing to do with taxation.
It’s to do with the economy, with the UK’s trading relationships, the UK’s various regulatory regimes, and with corporate prosperity and investor confidence.
Let’s look at each of those in turn.
The past few years have damaged the businesses we invest in
When Tony Blair’s Labour government came to power in 1997, chancellor Gordon Brown very quickly made the Bank of England independent, giving it — and it alone — control over interest rates. No longer could chancellors change interest rates at will so as to influence opinion at the ballot box.
It’s difficult to praise too highly this seemingly simple and obvious act.
Trade relationships? Propelled by the extreme right of the Conservative Party, the Tories repeatedly voted down Theresa May’s deal with Europe, and opted for the hardest possible Brexit. Small- and medium-sized businesses up and down the country have suffered ever since. Bigger ones have just swallowed the extra costs. But there are extra costs, be under no illusion.
Labour is saying that it will try to renegotiate a better deal; a more sensible deal. Similarly, the post-Brexit regulatory regime in areas where we were abruptly yanked out of sensible pan-European arrangements — think civil aviation, medicines, and various industrial standards, for instance — lacks cohesion and capability.
Corporate profitability, investor confidence, and the UK’s status as a sober and reliable place in which to do business? Exhibit A: the chaos of Liz Truss’s short-lived 45-day market-melting premiership. Exhibit B: once again, Brexit, which sundered UK businesses’ free trade with one of the world’s largest trading blocs, located just 22 miles from the white cliffs of Dover.
Promising plans
Again, I’m not trying to be political here. I’m looking at this through the lens of someone with a post-graduate economics education, an MBA degree, and a career involving time working in industry, as well as management consultancy and business journalism — and of course, a UK-focused investor.
And yes, I know, for Labour it’s early days yet. Rachel Reeves has only just delivered her Bank of England speech on bringing back housebuilding targets, overhauling the planning system, and ending the effective ban on onshore wind farms. The intention — quite deliberately — is a building boom.
But the mood music, and direction of travel, seems clear. We can expect more announcements in the days ahead. I’d like to see the sovereign wealth fund turned into reality. I’m looking forward to seeing Great British Energy delivered, which will be good for British businesses as well.
And I’m especially looking forward to seeing Labour’s talk of industrial strategy turned into reality. British businesses to this day benefit from the network of industry-specific and technology-specific advanced manufacturing centres put in place by the Department of Trade and Industry, when Peter Mandelson was in charge.
And I think that we will see all these things, because somehow, this doesn’t have the feel of a government fixated on internal arguments, but one that seems intent of delivering, and showing that it can deliver.
A re-rating ahead?
And for investors, the prize is obvious. The FTSE 100 trades on a price-to-earnings (P/E) ratio well below European exchanges, and around half of that of the Dow Jones and S&P 500.
It doesn’t require much of a re-rating for all our portfolios to look rather healthier than they do now.
Will a Labour government deliver that re-rating? No one yet knows. But so far, the signs are promising.
And right now, while we wait to find out, UK plc could be as cheap as it’s going to get. Let’s hope so.
