What would a Labor government do with taxes and finances?

“In this context, and in the absence of any major surprises, we do not expect the UK election to be a market-moving event,” says Trevor Greetham, head of multi-asset at Royal London Asset Management.

But government changes are hugely important for the economy and financial markets, not to mention savers, investors and pensioners who rely on the transparency (or lack thereof) produced in Whitehall.

As such, each side’s manifesto will be closely scrutinized by policy experts, lobbyists and savers for signs of major updates to fiscal and monetary policy. Until we see the documents, it is difficult to assess which party will be “better” for the British economy, which has been in a period of low growth and high inflation since the pandemic and is still struggling with the legacy of Brexit.

Moreover, the long-standing obsession with taxpayer values ​​and the influence of the so-called Liz Truss’s mini-budget now means that the ‘costs’ in the manifesto are a permanent feature of British political dialogue. One may get the impression that such documents are as much an encouragement to defeat the party as a call to action or a vision of change.

Labor says: “We have changed.” Will this change anything?

When Rishi Sunak, who was previously responsible for the UK economy as chancellor, spoke on Wednesday, he immediately cited his achievements during the pandemic and argued that his Labor counterparts had “no plan” for growth.

This has come amid some improvement in economic conditions: the UK is out of recession, inflation is at 2.3% rather than 11.1%, the labor market is broadly robust and the stock market is at record highs. Even the International Monetary Fund expects economic growth to rebound in 2025.

There are still big political problems. Sunak is under pressure over Britain’s tax burden, which is the highest since World War II. Britain’s public services are under enormous strain. Mortgage rates are also at levels last seen during the 2008 financial crisis.

The Labor Party has been working for a long time to respond to this situation. Much of this approach is based on the perceived legacy of Jeremy Corbyn, but there is more to it than that. Long before Corbyn became leader, the party sometimes struggled to present itself as “pro-business”. Not surprisingly, he has already published a plan for the City of London, which itself is a key “constituency” traditionally seen as pro-Tory.

The woman at the center of this effort is Shadow Chancellor Rachel Reeves, whose only major gaffe appears to have been an incident involving allegations that she had plagiarized passages from a book she had written on women economists.

Former Bank of England economist Reeves suggested limiting corporation tax to the current rate of 25% would end the ability of chancellors to break fiscal rules and vowed not to reintroduce a cap on bankers’ bonuses, which is itself a controversial measure.

Introduced by the last Labor government as a populist solution after the global financial crisis, banks circumvented the bonus cap by raising basic pay. Dealing with Labour’s legacy here has been difficult, but ultimately it’s as much about optics as whether the party is actually uncomfortable with people earning huge sums in Canary Wharf.

And then there’s the conference room. Still dominated by men. We continue to look for ways to contribute to the UK’s economic growth. And still under enormous regulatory pressure.

During the 2019 elections, executives were reluctant to talk about wealth taxes and renationalization. Yet in the time since then, popular discourse has treated such ideas somewhat more favorably. The right-wing media have always been keen to portray Jeremy Corbyn and his shadow chancellor John McDonnell as Marxist disruptors. Naturally, the financial sector did not like their ideas.

However, in 2024 we have already heard talk of renationalising Thames Water, and concern (at least) about paying dividends to irresponsible bosses is an increasing topic of discussion. The Labor Party may have more room for maneuver here than it assumes.

Would a Labor government cut taxes and fix the ISA?

But none of this is exactly comprehensive. Indeed, one could go so far as to say that Labor continues to be deliberately vague. One of the company’s few solid commitments was to impose VAT on private school fees. You can’t build a government on this alone.

She has already faced a PR backlash for watering down plans to spend £28 billion a year on the green industry, but she is sticking to her idea of ​​setting up Great British Energy, a state-owned renewable energy company. Oil and gas companies are footing the bill and, like all European governments, Labor will have to tackle the climate change.

Enter Ed Miliband, no stranger to losing elections, having returned to his previous role as Secretary of State for Energy and Climate Change (2008-2010) in the shadow government. His current position is different, as shadow secretary of state for energy security and net zero, but the most important responsibilities are the man whose “Ed-Stone” was his last gasp after Labour’s failed re-election bid in 2015.

In the personal finance space, while we may not see the “British ISA” promised this year (or ever) by current Chancellor Jeremy Hunt, Labor will be keen NO dismantling too much of the current saving and investment system too quickly. Despite this, Rachel Reeves has put forward a policy proposal on the taxation of pensions, savings products and financial advice, all of which need simplification.

The affordability of the current state pension is an issue that governments would prefer to avoid talking about, but it will take a while to get your head around it. And the Tories know it. Jeremy Hunt has already said that the new Tory government after the election will stick to the triple lock, but one gets the impression that this is simply a political grenade thrown at any potential upcoming government of a different color.

In addition, there is the tax burden.

High levels of public debt mean the next government will have very little room for maneuver to cut taxes. As the party of the NHS, Labor is likely to be in serious trouble over health service funding, which is still seen as a fundamental issue in polls.

Readers with long memories will remember all the controversy surrounding Gordon Brown’s decision in 2002 to allocate 1% of national insurance contributions to fund a £6 billion increase in NHS spending. Today the NHS costs the state £180 billion, ambulances don’t arrive on time and you have to queue at 8am to get a GP appointment. After a surge in Treasury yields and a dramatic fall in the pound during the ‘Trussonomics’ mini-budget debacle, it is now believed that markets are always watching how tax rises are financed.

What is Labor’s plan for economic growth?

In these strange and difficult circumstances, it is hardly surprising that Reeves supports a Labor government that puts economic growth at the heart of it.

Without better economic growth, she said during a recent lecture, a Labor government would have to make “impossible” tax and spending decisions. This may make sense, but it may have upset economists who wanted the shadow chancellor to make a stronger case for stimulating the economy with government money.

All this means Reeves and Starmer may tread cautiously at first, but that assumes a program of radical change will emerge later. The alternative theory is that little will change from a Labor government. After all, the British voter is now accustomed to high taxes and, after the pandemic, furloughs and “helicopter money” – significant government interventions. More of the same may not be particularly controversial. And so both sides have been stealing each other’s ideas for years.

Besides, decent economic growth won’t hurt. But if Labor wants to do something with the results, it must first make a good showing. It’s time to see if Keir Starmer’s determination to put ‘power over protest’ will bear fruit at the polls.