A Labour win is unlikely to have a big impact on financial markets, says Hargreaves Lansdown, with markets already having digested the party’s agenda ahead of Thursday’s general election.
Shadow Chancellor Rachel Reeves has stressed an intention to be economically responsible and focus on stimulating long-term growth, with the priority on keeping waters calm in the aftermath of the election.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Labour made expensive commitments during the campaign, keeping the state pension triple lock and ruling out rises in income tax, National Insurance or VAT. However, money will be tight, so there’s a chance of cuts in services or tax rises later. Capital gains tax could be in the frame. It helps them deliver on the promise not to raise taxes for ‘working people’, but it’s a tough balancing act because it doesn’t sit well with its aim to help people create wealth.”
So far, Labour’s pledge to increase taxes has focused on specific groups, including non-doms and parents paying school fees if the cost of VAT is passed on. The party also refused to comment on frozen income tax thresholds. Since the thresholds were frozen, 4.4 million more people have been forced to pay tax including 2.1 million dragged into paying basic rate tax and 1.88 million into higher rate tax.
“Fortunately, nothing will happen overnight,” said Coles. “The Budget isn’t expected until the autumn and any changes are likely to be gradual, so it’s not too late to make the best possible use of any tax-efficient savings and investments, including ISAs and pension contributions.”
According to Hargreaves Lansdown, a Labour victory would also reassure pensioners that the triple lock would be here to stay, giving retirees certainty on how their state pension will be uprated in the next Parliament. The party’s promised pension review also has the potential to transform workplace pensions, from consolidation to thinking about small pots and how people can build a lifetime pension rather than switch provider with every new job.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “The other key part of the review will be pensions taxes, including pensions tax relief. This is ripe for tinkering whenever a government needs money, which has created a complex, messy system that can make it hard to plan long term. Labour’s decision to step back from plans to reintroduce the lifetime allowance has been welcomed and this needs to be built on to deliver a system that incentivises people to save with confidence that they won’t get tripped up by complex rules.”
However, certain investments are likely to be affected if Labour win the general election, including energy and water.
Labour plans to establish Great British Energy, a publicly owned clean power firm. It also wants to draw new licensing rounds to a close, limiting future revenue streams for companies operating on the UK’s continental shelf. Hargreaves Lansdown said that while oil majors will face limited impact due to their diversity, smaller players may need to rethink their strategy.
Streeter said: “Investors will want to see producers focus on profits from existing operations, while ploughing capital into future facing technologies. Electrification will be a growing trend, benefiting electric vehicle manufacturers, infrastructure providers that can support network demand, utilities and energy services companies.”
Under a Labour administration, water companies could also face higher fines if they fail to clean up waterways and mend leaks and executives could lose their bonuses. Already, the cost of repairs and upgrades weighs heavily on firms and mandatory investments in service levels will keep demands on cash resources high.According to Streeter, investors should keep an eye out for regulator Ofwat’s five year price review after the election. This will not only set out price controls but also service level and investment requirements.
“The outcome of the general election may see some industries more affected than others. As ever, to ensure you’re not overly exposed to any particular risk, it’s important to maintain a diversified portfolio,” Streeter added.
