Greg Lodge, Performance & Risk Analyst
This article was taken from the June 2024 issue of Market Insight. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications
The United Kingdom will shortly go to the polls. While summer elections aren’t unusual, this will be the first July general election since 1945 which, incidentally, resulted in a Labour landslide. When Prime Minister Rishi Sunak stood outside Downing Street in the pouring rain to announce his decision to call the election, it was something of a surprise move. An autumn election had been widely expected, and the Prime Minister had the option of holding off until January 2025. Perhaps most taken aback by the announcement were Sunak’s own MPs - polls have consistently shown the incumbent Conservative Party to be 20 points behind Labour.
So why call the election when polling suggests an almost certain defeat? The UK has been through a rocky period since the last general election in December 2019, which saw the Conservative Party win a comfortable 80-seat majority. Mere months later, the COVID-19 pandemic arrived, and following close at its heels came a cost-of-living crisis which saw the price of energy and household essentials shoot up. Former Prime Minister Boris Johnson resigned, only to be replaced by Liz Truss, whose short-lived ‘mini budget’ caused her own downfall just weeks after taking office. With this chaotic background in recent memory, Sunak claims that the economy is now on the right track and that he and his party can deliver stability.
Economic growth remains subdued, however, and the base rate has remained at 5.25% since August 2023. This is perhaps not the sort of stability the Prime Minister had in mind. If prospects are unlikely to improve before the latest point at which he could have called the election, Sunak may have felt that there was no better option than to pull the trigger.
When the Prime Minister announced that he was calling an election, his speech appeared to function as his opening pitch to the voting public. He emphasised his record on tackling inflation and improving economic growth, stating that “this is proof that the plan and priorities I set out are working.” He went on to suggest that Labour leader Keir Starmer lacked conviction and that only his Conservative government could maintain economic stability. Starmer was quick to respond; surrounded by Union flags, the central message of his first election speech was one of change. He highlighted “Tory chaos” in Westminster over the previous 14 years and promised a long-term plan to rebuild Britain.
Having announced the date of the election and with Parliament dissolved, the race is on. The Conservatives, Labour and the smaller parties are canvassing, debating and have published their manifestos. The issues at stake are substantial and there are many of them. The economy, healthcare and immigration have frequently polled as some of the nation’s top concerns. Housing, climate change and the state of the public sector are also commonly cited. Campaigning is now well underway and both Labour and the Tories have promised to address these issues but whoever ultimately wins will have a substantial amount of work to do if any of them are to have any impact. Let’s examine the Conservative and Labour manifestos to get an idea of which direction the winning party could take the country in.
The Conservative manifesto, under the slogan “clear plan, bold action, secure future”, promises action on housing, tax, defence and social care. Tax cuts came front and centre. National Insurance would be abolished for the self-employed, who currently pay 6% and 2% depending on their profits. The tax-free personal allowance for pensioners would be increased in a policy which has been dubbed the ‘Triple Lock Plus.’ On housing, Sunak has announced his intentions to create an “ownership society” but acknowledged ahead of the manifesto launch that getting onto the property ladder has become harder under the Conservative’s tenure. To this end, the party has included a goal to build 1.6m homes in England over five years and a return of the Help to Buy scheme, where first-time buyers could claim an equity loan towards the cost of a new home. In addition, the Stamp Duty threshold would be kept at £425,000 for first-time buyers.
The Labour document, straightforwardly titled “Change”, emphasised themselves as the party of wealth creation – a strong hint that the party’s leadership and priorities have changed since the Jeremy Corbyn era. It presented a raft of policies aimed at improving business investment and productivity – something the party sees as key to increasing living standards. Keen to downplay the ‘tax and spend’ label, the plans announced here are relatively modest. A plan to raise £8bn in revenue would come from removing the non-domiciled scheme, levying VAT on private schools and further windfall taxes on energy companies. VAT on private school fees has garnered the most press attention, a move which, according to estimates, would raise up to £1.6bn per year. Similarly to the Conservatives, the Labour manifesto also has a housebuilding target – 1.5m in this case, or 100,000 fewer. Where they differ is that Labour has also included measures to address planning rules and the price of land, which the party believes has been a hindrance to development.
As the countdown to polling day has progressed both leading parties have had crises to contend with. Labour has caused controversy amongst supporters over the deselection of candidates and the expulsion of former leader Jeremy Corbyn over his plans to stand against the party as an independent. These contrast to those experienced by the Conservative campaign; Reform UK, already a threat to the Conservative’s vote share, has seen Nigel Farage return to frontline politics and may tempt away traditional supporters on the party’s right. Sunak’s decision to leave the D-Day commemoration event necessitated repeated apologies and may have coloured voters’ views. At the time of writing, the polls have changed little. Labour retain a lead of around 20 points and barring any unexpected events, the next Prime Minister looks set to be Keir Starmer. Nonetheless, whoever wins in July will be hoping for a strengthening economy and any achievements they can point to when the next election rolls around within another five years’ time.
The information and views were correct at time of publication but may have changed at point of reading.
