Based on months of opinion polls, it appears that a change of government is coming to the UK, possibly more left-of-centre on areas such as the economy, tax and regulation. The editor considers what this might mean for the wealth sector and the clients it serves. This is also a busy year for elections around the world.

Well, now we know. The UK electorate will go to the polls to vote on a new national government on 4 July, which may be remembered for reasons apart from being on US Independence Day. Prime Minister Rishi Sunak, leader of the Conservative Party, surprised people in his statement on Wednesday by choosing early July. Some had expected that he would wait until November, perhaps to give more chance for the economy to flourish.



But whatever the reasons Sunak has for choosing to go now, it appears that investors took all this in their stride. The UK stock market is at near record levels, unruffled by the May local elections which, with the odd caveat, were bad news for the ruling Conservatives, and good news for the opposition Labour Party. When the Prime Minister stood in the rain yesterday outside Downing Street to say he had asked King Charles to dissolve Parliament, markets did not move much. It is perhaps a reflection of how, for months, investors have been bracing for a change. 

Labour, which holds a double-digit lead in opinion polls on the “Tories,” has benefited from an intense media focus on the shortcomings and travails of a governing party through Brexit, Covid-19, Russia/Ukraine, surging energy bills, inflation, anger about the conduct of former PM Boris Johnson, rising taxes, "woke" culture, the brief Liz Truss premiership fiasco, and the large number of migrants – in net terms – arriving on these shores. While the scrutiny on Labour leader Sir Keir Starmer, his shadow Chancellor Rachel Reeves, and other colleagues will get more intense and less accommodating than in recent months, it seems plain that the Tories face a tough fight to keep office.

So what should wealth managers, private client advisors and others working with HNW individuals think about all this? Let’s consider a broad picture first. There is, to an extent – and not always appreciated – something of a new consensus building around the coveted “centre ground” of politics when it comes to the relationship between the state and in the individual. The centre has moved closer to the “Left,” if by that term one means a larger role for government: more interventionist, more inclined to regulate and manage individual behaviour, keener to tax – especially the “rich” – more wary about unfettered free trade, and keen on objectives (at least in public) about net zero, even at the cost of higher prices.

I make no apology for saying that I think this shift is regrettable, and bad in the long run. While globalisation and free market capitalism have their faults, they are in my view best addressed by giving people the tools to flourish and achieve independence, rather than putting the State in charge to such an extent. I worry that in almost every issue you can think of, from mental health to low productivity, the instinct now seems to be to ask first about what the government can do, not what can individuals do. This shift is as much cultural as it is economic. When I cast my eye over successful countries, there are certainly active governments (think of former Germany, for example) but not suffocating ones, as was the case in the UK in the 1970s or Sweden in the 1980s. The tax burden in the UK is at its highest level since the early 1950s. Countries tend not to tax themselves into prosperity. 

Furthermore, I worry that because a poisonous narrative gained prominence about the causes of the 2008 financial crisis, the broad public has a deep and sometimes dangerous distrust of banking, finance, and the very legitimacy of wealth. I don’t see much sign of this changing, even though Labour’s Reeves, a former Bank of England economist, has been on a charm offensive in the City.

This lingering distrust of business, particularly financial services, is why it so important, whoever wins in July, to concentrate on how to improve the underlying growth rate of the UK economy. (Whatever her mistakes, Liz Truss got that idea right.) Achieve that, and this reduces the fight over a fixed “pie” of wealth, with all that goes with it. And part of that will mean attracting capital for investment into the UK, both from domestic and overseas sources. So how is this going to happen? It is far from obvious. For instance, the Tories and Labour both say they wish to remove the old resident non-domicile (non-dom) system and, regardless of election timetables, this will happen. It is said that thousands of non-doms have already left the UK, and there could be a net outflow of revenue, rather than an inflow. Supply-side economics has its critics, but incentives matter in the end. (See my related thoughts on this in a book review.)

One route that a Starmer government might take over the economy is to get closer to the EU, although he might pause at reversing Brexit. However, capital already flows fairly freely between the UK and continent, notwithstanding Brexit. Even so, a Starmer government might try to use a fresh start to pull down a few barriers and carry out deals if he can. 

Time to build
I would like to see what the parties have to say about all the other elements that affect the ease of doing business – improving airport connections (a third runway at Heathrow?), increasing transport capacity, ensuring that our broadband networks are fit for purpose, and reducing, if possible, the cost of energy. Investors may want to know whether a new government will seek ways to bolster infrastructure, and what those opportunities might be. Infrastructure investment is something that politicians of all parties like to champion – the necessity is unquestionable. Starmer has talked about the need to build lots of homes. That’s easiser said that done, given the "NIMBY" factor. Wealth managers ought to try and insert themselves into this conversation by offering ways of providing solutions. 

I hope – although I am nervous – that if Reeves becomes the next Chancellor of the Exchequer we really don’t get hefty tax hikes. An issue that wealth managers will watch is whether, if Labour gets a big majority (say, more than 100 seats), it will struggle to control the tax-and-spend impulses of the more Left-wing members who enter the House of Commons. Of course, Labour will be on its best behaviour in advance of obtaining office, but once in power…

If elected, Sir Keir Starmer presumably wants to be in power for more than one term. If Labour reverts to “type” – added taxes, removing restraints on union power, renationalising large industries and introducing more central state planning – a lot of voters will object, and Labour could get turfed out in four or five years. In some ways, our politics are less predictable than in the past. 

A final note should be on the current government. The Conservatives have held office, first in a coalition with the Liberal Democrats (2010 to 2015) for 14 years. That was enough time for them to have made mistakes, suffered from scandals and setbacks, as well as, so they’d say, chalk up a few achievements. Arguably, one bright spot has been education. The Programme for International Student Assessment (PISA), for example, shows that the UK has risen up the rankings for subjects such as maths.

When 4 July comes around, we shall see how the electoral maths looks. From where I sit, it does not look good for the Conservatives, who appear to be exhausted and fractious, but there can be absolutely no room for complacency about Labour, either, and what it might do.