Transcript
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Hello and welcome to our
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second episode of the first 100 days in office podcast series.
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We will delve into the newly elected Labour Party's policies,
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and how this could impact sectors, businesses and individuals.
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I'm George Lagarias, I'm the Chief Economist at Forvis Mazars UK.
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And today I'm joined by James Robinson, Senior Financial Planner.
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Together we're going to look at how markets have reacted, following,
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the Conservatives record breaking defeat to, to Labour.
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And any planning you can do to prepare for,
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the proposed policy changes.
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Now, as we start,
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let's look at, how markets have been
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reacting to all that
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and unsurprisingly, the markets haven't reacted
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much, the reaction, in fact, has been muted. Why?
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Because most of this has been predicted.
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It is rare that one can predict such a landslide victory. But,
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every
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poll suggested that this would be the natural outcome.
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Even a small Labour victory in this particular case would have been,
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a surprise.
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So, we have,
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a significant majority from Labour, something north of,
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200 seats at the time of recording.
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Conservatives did survive as the opposition party
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and the Liberal Democrats actually picked up a significant number of votes,
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especially in Tory strongholds, the so-called, Blue Wall.
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Now, the FTSE 100 was up,
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maybe 1%, and,
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but the bond market hasn't really moved
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because the question for markets was never who's going to win this election?
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Okay.
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This was, by and large, a foregone conclusion.
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The issue for markets was the one that was completely avoided,
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during the election period, the relations with the EU.
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It's understandable that Labour didn't want to touch upon it,
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because it didn't want to jeopardize its large margin.
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It's understandable that,
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the, Conservative
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Party didn't want to touch upon it, because, they were haemorrhaging
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votes to Reform, which is primarily a Brexit
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party. So,
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it was an issue that was very important
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but completely avoided, in the, in the, in the pre-election period.
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Ok.
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But now markets want some clarity.
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Following 2020, economic performance
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has been generally lacklustre, inflation persistent.
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And the London Stock Exchange has not been at the top of
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of businesses preferences for listing.
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Okay.
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So the question is: what now?
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What markets silently
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have been waiting for is some sort of nod from a British government
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that they are, happy to move closer towards Europe?
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That doesn't mean I'm doing Brexit.
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Of course, it does not mean,
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you know, signing treaties, you treaties or new trade deals necessarily.
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But it does mean two things which are easy to deliver.
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First, having just better relations with neighbours
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can go a long way in reducing trade friction. and,
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and delays,
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and all the issues that are causing real economic harm.
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So, for example, there is a trade deal in effect
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for goods, but, in practice,
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the movement of goods has been somewhat
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cumbersome between the EU and the UK.
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So there are points of improvement on that.
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And those points of improvement can be achieved
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if there are good relations to begin which that to begin with.
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That's why we have diplomacy,
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which has usually positive connotation.
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It is there to, to smooth out the differences between
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the heads of state.
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And of course, there is also
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the framework in the exchange and the trade of services,
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especially financial services, which has yet to take a final shape.
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And again, one needs good relations to, to achieve that.
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So, a more a government that's more positive towards Europe
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could conceivably achieve better economic outcomes
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just by pursuing a more amicable diplomatic route.
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And that is at least what markets are thinking.
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There is a caveat here, of course,
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the French just had their election
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and they are possibly,
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the second round hasn't happened yet,
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but we're possibly very close to more nationalistic government.
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So diplomatic exchanges might still be difficult.
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The other thing that, markets are looking for
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in the UK, some more clarity around growth because
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Mr Starmer, again, didn't want to alienate voters,
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He pursued,
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a more general view of growth.
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But, as our Chief Investment Officer,
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Ben Seager Scott says, hope is not a strategy.
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Where is growth going to come from?
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That to GDP is at 108%.
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The deficit is running north of 4% at 4.5%.
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So fiscal space is very limited.
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One can try to breach it.
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But, the woeful tale of Liz Truss, stance is,
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you know, as a warning for future leaders.
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Otherwise one can increase taxes.
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Yet Labour has said often that they don't plan major tax increases.
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So where is the growth going to come from?
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So apart from relations with the EU,
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the other issue is where is growth going to, to come from?
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And for markets, I suppose,
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again, the election wasn't the
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wasn't, the catalyst they were waiting for.
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they had pretty much priced in.
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What's going to happen?
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The question was going forward. Okay.
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So what does Labour bring to the table?
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And we will learn this in the next few days.
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And I would guess this is where we will gauge the market reactions,
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to, Labour’s victory.
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Now, James, I know that some votes are still being
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counted, but, you know, it's a foregone conclusion
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that we will have a Labour government.
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When we look at what Labour has proposed in their manifesto,
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and some of the rumours we've seen in the press,
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what should people consider when looking at their financial
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and business planning ahead of any proposed policy changes?
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Thanks George. I think the
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the starting point, even before coming on to
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what is it specifically Labour's set out, their plan to do is to take a step back
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and just think about what it is people should be doing as part of good
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planning anyway.
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And the starting point is that you should always build a long term
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financial plan, primarily based on your objectives
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and of trying to avoid knee jerk or preemptive planning as it's
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naturally part or impossible to accurately predict
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what legislation is going to be introduced
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and how that's actually going to be affected,
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because that could change how it is.
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You might want to plan around it.
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That being said, where there's planning objectives
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that have the potential to be impacted by future
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legislative change, that would be remiss not just consider this
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and that if there's perceived little downside to planning around that,
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then it's worth considering taking some actions,
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possibly sooner rather than later in some areas.
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So in this regard, we're having conversations with clients
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about potentially advancing some gifts that they might be making,
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or been planning to make.
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And even thinking about potentially advancing
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the realisation of some capital gains as well.
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And there's also some,
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some action need around reviewing what it is people would like to do around
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their pension planning and how it is they want to be to
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be accessing those benefits.
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The first
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major change or most significant change we can see coming
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is that Labour have made it very clear that they're going
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to be reviewing the non domicile rules in a bid to close, tax loopholes.
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so the proposals set out in March lack some detail.
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So executing planning around that is difficult.
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So the actions that were once there still remain the same.
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But if you are a non domicile resident living in the UK,
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you should consider reviewing your existing strategy
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and how it meets your current and future objectives
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so that you can be ready
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to execute any other changes needed when there's more clarity,
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given by the current government and that, then you can be in a position
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where you come for taking action.
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So the first thing is that
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if you're non domiciled resident in the UK, that you should at least be
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reviewing your plans, getting ready to make changes if it's needed.
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The second
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major change, that looks like it's coming is that Labour also set out
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they're looking to reintroduce VAT to be applied on private school fees.
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in addition to ending the business rates relief exemption for
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for private schools as well, we don't yet know exactly how this 20% VAT charge
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is going to be passed on to those attending private schools.
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But when they're announced planning for private school for individuals
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can be very important.
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And that at this current time, those paying for private education,
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for their children or for family members or whoever it might be
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should be thinking about what am I going to do if there is a 20%
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increase in the cost of, providing these fees, and seeing how
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that might impact their budgets and seeing what stretch they have where available.
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thirdly, that Labour also reportedly
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considering a review of the business property relief regime.
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as a reminder, business property relief is where if you hold a business
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asset that that should be able to qualify for relief from inheritance tax.
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So you could have a zero rate of tax applied.
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if this is reviewed, this could significantly impact
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the family owned and mid-market businesses across the UK.
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it was a relief at first, introduced over 50 years ago
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and it's been a really valuable way for, for individuals, to pass businesses
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down, tax efficiently through the generations
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to ensure the continuity of business operations.
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The idea when it was introduced was inheritance tax doesn't force
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the sale of a business, and therefore it can carry on,
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but it is also something that can therefore create a,
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a large inheritance tax saving for those families
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with large levels of wealth in privately owned businesses,
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in particular, that's when the Office of Tax Implication reviewed it.
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a few years ago, they said that, they should be considering
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whether you get both capital gains tax and IHT relief at the same time.
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So it's something worth keeping in mind if this is something that you'd be looking
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to take advantage of.
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So with family business,
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family owned business has been, well, the largest contributor of GDP in the UK.
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It's in areas the government really need to get right to control,
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to ensure that business can operate profitably and focus on the long term.
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But as ever, it's not just a case of assuming that your business
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is going to qualify for inheritance tax relief
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anyway as the circumstances now where it still doesn't apply.
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So if this is something that you're going
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to be looking to rely on, it's well worth keeping under review.
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But reviewing it properly rather than just keeping the defaults
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option some people take,
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which is, oh, I own a business, it's going to be free of inheritance tax.
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James, thank you for these very insightful comments and for joining us today.
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Thanks everyone for listening to to our podcast today.
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We hope you enjoyed and please remember to like, subscribe
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and leave a review after listening.
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In the next few days we'll obviously know a lot more.
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Okay, the game is afoot
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really, as of today.
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So our next podcast will be on Friday 2nd August,
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and we'll know a lot more by that time,
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so we will delve further into Labour's policies and what these could mean for you.
