UK Election 2024: Labour’s Victory and Its Impact on FinTech Sector

The 2024 UK general election ushered in a new era with a landslide victory for the Labour Party, marking a significant shift in the political landscape. The Labour Party, led by Sir Keir Starmer, won over 400 seats, achieving a landslide victory and the largest majority in recent history.

The result reflects a shift in voter sentiment as Labour’s promises of economic growth, clean energy and improved public services were met with a broad response.

The Conservative Party, previously in power, suffered a dramatic loss, while smaller parties and independents also made significant gains. As Sir Keir Starmer prepares to form a new government, attention now turns to the economic and financial implications of this political shift.

With the new policy coming, there is much speculation about how the change will impact the economy and the dynamic financial technology industry in particular.

Market reaction: a mix of optimism and caution

Initial market reactions were mixed. The financial sector, which includes fintech, is particularly sensitive to changes in government policy.

Investors are closely watching Labour’s plans, especially those related to regulatory reforms and tax changes. FTSE100 fell slightly by 0.5% in the days following the election, reflecting investor caution. However, sectors that were expected to benefit from increased public spending, such as construction and green energy, saw positive moves.

Reuters Agency reports that while the City of London remains cautious, there is a general sense of resilience and readiness for the new regulatory environment.

Goldman Sachs has raised its UK economic growth forecast after the election, predicting GDP growth of 1.8% in 2025up from a previous forecast of 1.2%. This optimism is largely driven by expectations of increased public spending and infrastructure investment. But the measures also come with concerns about fiscal discipline and long-term economic stability.

Labour’s economic policies are set to significantly change the UK’s economic landscape. With a focus on public investment, the new government aims to drive growth through infrastructure projects and increased spending on healthcare and education. These initiatives are expected to create jobs and boost economic growth.

But higher taxes on businesses and wealthy individuals are part of the plan. Labour Party Proposal Raising corporate tax to 25% could reduce business investment in the short term. However, it could also lead to a more equitable distribution of wealth and improved public services, which could benefit the wider economy.

The cautious approach in financial markets suggests that despite some concerns, the overall outlook remains cautiously optimistic.

Rules, regulations and the next day

Under a Labour government, new policies are expected to promote innovation while protecting consumers. The new government plans to introduce a £500 million Fintech Innovation Fund to support startups and promote research and development. This initiative aims to create a supportive environment for Fintech companies, promoting growth and technological advancement.

The Labour Party manifesto also includes proposals for stricter data protection regulations and cyber securityreflecting growing concerns about digital security. This could lead to increased compliance costs for fintech companies, but also provide a safer environment for consumers, increasing trust in digital financial services. The regulatory changes are expected to address challenges faced by fintech companies, such as ensuring data privacy, preventing fraud and managing digital identities.

Some of Labour’s pre-election promises for the financial services sector and other priority areas include:

Investments

• National Wealth Fund:The new government plans to create a £7.3bn National Wealth Fund, aimed at creating 650,000 new jobs. The fund will focus on investing in green industries such as rebuilding the steel industry, modernising ports, building gigafactories and accelerating carbon capture technology.

Banking and Financial Regulation

• Open Banking and Finance:Labour Party pledges to support development Open banking and Open Finance to increase innovation and competition in the financial sector. They plan to continue work on a central bank digital currency (CBDC) and create a regulatory sandbox for testing financial products.
• Consumer protection:The party aims to strengthen consumer protection by regulating the Buy Now Pay Later (BNPL) sector and implementing a strategy to combat financial fraud. They also plan to investigate long-term fixed-rate mortgages and increase financial resilience.

Climate finance

• Green finance:Labour aims to make the UK a global centre for green finance by creating a comprehensive regulatory framework for green finance. It aims to harness private capital to tackle climate change and support the decarbonisation of homes.
• Environmental investments: They also plan to fund their green initiatives, such as Great British Energy and Warm Homes, through a fossil fuel profits tax and borrowing through fiscal rules. This will help meet climate goals and support sustainable development.

Other Headline Obligations

• Tax policy:Labour has pledged to maintain fiscal responsibility by ensuring that revenues cover everyday costs and reducing the national debt as a proportion of the economy. They have also emphasised the importance of economic stability and have pledged to keep mortgage interest rates as low as possible.
• Innovation and financial technologies:The party supports the development of fintech and aims to maintain the UK’s leadership in the sector. This includes supporting initiatives such as tokenisation of securities, integrating AI into financial services and further developing Open Finance.

By creating a strong regulatory framework, the government aims to strike a balance between innovation and consumer protection. This approach is likely to increase consumer trust in fintech solutions, leading to greater adoption of digital financial services.

According to Addleshaw GoddardThese changes could lead to a more stable and consumer-friendly financial environment, encouraging responsible lending and borrowing practices.

Smart Data and Digital Assets

Chris Holmes of the House of Lords in an article published by Finextraemphasized the importance of smart data and digital assets in the financial technology sector. He emphasized the need for a smart data law to provide regulatory clarity and enable the creation of a smart data economy. This includes a 5-year plan to expand open banking to open finance and a 10-year plan to integrate smart data across sectors. Holmes also discussed the legal treatment of digital assets, recommending a new digital asset class to provide transparency and security to users.

AI Regulation and the Vision for Domestic Payments

AI regulation is another key area of ​​focus. Holmes’ private bill to establish an AI authority and regulatory sandboxes highlighted the need for structured AI governance. The National Payments Vision, following the Independent Future of Payments Review, aims to improve the UK’s payments ecosystem and address rising fraud by providing a safe and efficient financial infrastructure.

Growth and innovation

The government’s focus on digital infrastructure and cybersecurity is expected to provide a solid foundation for fintech companies. This could lead to a 15% increase in the number of fintech startups over the next two years. The creation of the fintech innovation fund is a strategic move to maintain the UK’s competitive edge in the global market.

Labour’s commitment to digital skills training and education will also play a key role in supporting the fintech industry.

International competitiveness

The UK’s position as a global centre for financial technology could be strengthened by these developments. Strengthened international partnerships, a solid Legal frameworkand Labour’s commitment to improving digital infrastructure should attract more inward investment into the UK fintech sector.

In addition, Labour’s foreign policy and trade strategies, focused on strong trade relationships and promoting the UK’s financial technology capabilities abroad, are expected to help UK financial technology firms access new markets and expand their global reach.

To sum up…

The outcome of the 2024 UK general election is set to bring significant changes to the economy, with a particular focus on the fintech industry. While there are challenges ahead, particularly in terms of regulatory compliance and tax increases, there are also significant opportunities, particularly in terms of public spending and innovation. The coming years will be crucial in determining how the fintech sector adapts under the new government.