Evidence so far points to a Conservative-led administration in the UK. We try and work out what this means for the wealth management business.
As of the time of writing these words this morning in London, it looks as if UK prime minister David Cameron’s Conservative Party will have won sufficient seats to retain power. The Conservatives’ erstwhile coalition partners from 2010-2015, the Liberal Democrats, have lost seats to the Conservatives, while Labour has failed to take sufficient seats from the Conservatives in England and Wales. And Labour has been destroyed in Scotland, one of its traditional redoubts. So we could see the Conservatives in power with a small majority.
After weeks of what, in my opinion, has been a lacklustre campaign, it is worth, from a wealth management industry’s point of view, to note several points. First, with Cameron in power with a small majority in the House of Commons, there is likely to be a referendum in a year or so on whether Britain stays in the European Union. That will create some uncertainties and concern banks such as HSBC that have said that such uncertainty could prompt them to shift headquarters from the UK. Cameron may also face backbench rebellions on certain policies that might add to problems, as John Major faced during his Conservative administration in the 1990s, although Cameron’s position is unimaginably better than what the opinion polls had predicted. (Last night was a humiliation not just for the Labour Party, but for the opinion poll business.)
On a far more positive note, the risk that a Labour-run government could have scrapped the UK resident non-domicile system, and introduce a punitive “Mansion Tax”, and raise the top rate of income tax to 50 per cent from 45 per cent, has gone. (That doesn’t mean we are going to see lots of tax cuts.) The recent reforms freeing up pension fund savings pots will remain. Ed Miliband, the leader of the Labour Party, chose to make “fairness”, and higher taxes on “the rich”, a centrepiece of his campaign. He failed to convince enough voters that this made sense. Maybe the zero-sum politics of envy has its limits; it looks as if sufficient voters in London and other parts of the prosperous Southeast were not willing to take a risk on a party that seemed to be more leftwing than at any time since the 1980s. Labour’s threat to cap electricity prices and impose rent controls were throwbacks to dirigisme: they were rejected. That is encouraging.
There remain considerable uncertainties. Scotland is now entirely nationalist, and with a strong leftist tinge in its economic views. Despite losing the pro-independence referendum last September, the Scottish National Party destroyed the Labour Party north of the border; there will be inevitable calls for a constitutional adjustment in Scotland to recognise the greater autonomy of Scotland. Those wealth management businesses in Edinburgh and other parts of Scotland will need to factor this into their calculations.
More broadly, as the wealth management industry knows only too well, the political merry-go-round hasn’t changed some of the biggest challenges it faces in the UK: greater regulation, stronger client demands for better service and clarity on fees, the unsettling impact of technology, and market uncertainties. The UK will, at some point, need to wean itself off the life-support machine of quantitative easing – a rise in interest rates towards normal levels will have to come. The challenges for the UK in being competitive, and in attracting the best and the brightest, continue. With the centre of economic gravity shifting eastward, it would also be nice to see the UK political class understand that this country operates in a global trading system where capital can flow in a flick of a button.
Anyway, regardless of whether your political choices have come through or not, WealthBriefing will continue to track how the policymaking world affects the industry in the months and years ahead.