Labour Party's Impact on UK Investments: Stock Market and Bond Market

Labour's policies may positively impact the UK stock market, despite potential challenges, by focusing on growth and clean energy.

### Impact of Labour Party Policies on UK Investments
* 🌍  Despite Labour's ambitious spending plans, the fiscal impact is relatively small, with new revenue accounting for only **7%** and expenditure for **4%** of total UK government income.
* 📈  Labour's policies are generally seen as positive for the UK equity market, with a focus on **growth, infrastructure, and education**.
* 🏠  Sectors that could benefit from Labour's policies include **housing, clean energy, and infrastructure**, while the oil and gas industry and rail services may **face challenges**.
* 💷  Labour's commitment to **not increasing income tax** and **freezing corporation tax at 25%** provides stability for UK investors.
* 📉  Potential challenges for the bond market include the **ambitious nature of Labour's plans**, which could lead to **increased debt issuance**, and the risk of a **UK debt downgrade**.
* 🏦  Labour's plan to close tax loopholes, such as treating private equity performance-related pay as capital gains, **aims to generate additional revenue**.

At the moment, there's optimism in the UK stock market, and the general consensus seems to be in favor of a change of government. In this video, we'll break down the effects of the Labour Party's policies on UK investments, both in the equity market and the bond market. We'll also dig into which sectors of the stock market could benefit and which tax challenges investors might face. Don't forget, if you do enjoy our content, please do like this video and subscribe to our channel. Now, let's start off with the fiscal plan from the Labour Manifesto. That's what you can see beside me here. The important parts are firstly the sources of revenue. These are new sources of revenue that Labour has identified. The other column is the policy which that new source of revenue will be used to fund. Notice how there's a very clear tagging of new source of income with a new thing that that money is going to be spent on. For example, by closing tax loopholes, Labour thinks it's going to generate 5

billion in revenue, which is then going to spend on things like the NHS: more operations, scans, and appointments every week; doubling the number of CT and MRI scanners in the NHS; and so on. Now, if we add up all of those new sources of revenue and all the new expenditures, new revenue comes to 7.4 billion, expenditure comes to 4.8 billion, and the difference between those two you can think of as fiscal headroom or wiggle room. There's an extra 2.6 billion, which is handy because I think that the expenditure may turn out to be much higher than labor expects given its really ambitious spending plans. Now, it's always useful to place these numbers in some kind of context, and I think the useful context here is the total income for the UK government in 2023. Now, that was just over 1 trillion; it was 1.1 trillion. So, the new revenue would only be 7% of those receipts, a very slight increase in income. And also, the expenditure would be only 4% of those receipts. So, really, all

we're seeing here is a very small change in income and spending by the government. This is very much a Manifesto, which is aimed at not rocking the boat, nothing shocking, nothing huge, and nothing unfunded. And that's so that labor can maintain their very large lead. As I make this video, that lead is 20 percentage points. If we compare that with the United States and we look at something like the inflation reduction act that was passed in 2022, and the scale of that leaves this plan looking absolutely tiny. According to one estimate, the increased spending on US renewable energy but also energy generation infrastructure was about $433 billion. Now, as a percentage of total US tax receipts, which are about 4.4 trillion, that would make up about 10% of their tax receipts. So even though the US economy is larger, as a percentage of its total income, the incremental spending here is much larger. And that's because the US can afford it. It's got much stronger growth than we have here in the

UK. Whatever party is in power in the UK is going to suffer as a result of that very poor growth, and I'm not convinced that the scale of the spending package that Labour's come up with is really going to move the growth needle hugely, but overall I'd say that the manifesto and Labour policies are probably positive for the equity market in the UK. So let's go through some of those positives for the UK stock market right now. Now the stock market and the Labour Party are not particularly good friends historically, so what's a bit surprising this time around is despite the fact that Labour is so far ahead in the polls, such that their victory is almost guaranteed, not quite, the equity market seems to be taking this in its stride. In fact, it's pushing new all-time highs. So this good feeling, this kind of buzz around the UK equity market has been a long time coming, and it's Labour's to lose. So let's just hope they don't screw it up. But what I think is important is that their

policies are very much focused on growth. They're clearly drawing a line under their previous leadership and trying to be very business-friendly. But also, I think a lot of their spending plans are putting money into the right place, which is infrastructure and education. That doesn't guarantee increased growth in the UK, but it does certainly pave the way for it. Now, you probably seen these graphs before, but I never failed to be shocked by them. If you look at something like GDP growth in the UK, notice how it kind of trends upwards until we get to the financial crisis. Then it undergoes a kind of inflection point, and it never truly recovers to its previous trend. Then we got the pandemic, and we switched the economy off and on again, and the UK just seems to have stalled after that. If we look at GDP per head, that stalling gets even worse. So clearly, what we do need is some kind of new set of policies which will kickstart growth in the UK again. And the way to achieve that is through greater productivity. And again

if you look at productivity in the UK that really really hasn't recovered since that inflection point either, and many of the variables you could look at such as household disposable income, average earnings, all of those suffered from that inflection point as well. And although neither labor nor the conservative party are really talking about it, brexit's been a big problem when it comes to business investment, and that's probably because of the uncertainty it created. It's difficult to invest into your own company if it's going to be difficult to know how the economy is going to evolve and whether you can sell your products into our largest market, which is the one which is right next door, the Euro Zone. You can see here that after the brexit vote, investment by UK companies into their own businesses certainly failed to grow after that brexit referendum in 2016. But as I say, I think the manifesto and the policies that labor's come up with have a lot of the right noises. For example, if we look for the word growth that occurs.

49 times in the document, stability occurs 16 times. So if labor does manage to achieve their first stated mission, which is to kickstart economic growth, I think that would be positive for the UK stock market because that would generate greater demand for goods and services for UK companies. It would push up their profits, and of course, that would push up stock prices. Plus, it would increase business investment, and who knows, perhaps it would also encourage foreign investors to plow money into the UK stock market and into the UK economy. Now let's drill into the individual sectors in the UK stock market to see how these policies could bear on their fortunes. The first sector, which I think could benefit, would be the housing industry because the stated claim here is to build 1 and a half million homes over the 5 years of the first Parliament. So that's about 300,000 homes per year. Bear in mind that the current rate of building completions is around half that, 150,000 a year. So convincing house builders to step up production and also

to push down prices because remember if they increase Supply that may push down prices. They may be reluctant to do that, and it's not as if previous governments haven't tried. Almost every government has tried to do that and failed, but if it does succeed, then I expect the house builders would be one of the beneficiaries, of course, and also the companies which feed into that industry. So companies that produce bricks, which produce glass, and which service the building industry. Another goal which has a fairly clear read through into UK Equity sectors is the one where they're trying to make Britain a clean energy superpower. The plan is that they're going to set up a company called Great British energy, and the goal here is to harness energy sources like the coastline in the UK, which has tidal power presumably, but also a lot of wind energy. And this is already well underway in the UK. If you look at the energy breakdown for the UK on a daily basis, I sometimes do, there's quite a lot of wind energy which is generated on a fairly

regular basis. So, I think if we did harness that source of energy, maybe use more solar power, that could certainly transform our energy dependence. And we saw during the invasion of Ukraine by Russia how dependent we are on dictatorships around the world on our energy. So, becoming self-sufficient I think should be a strategic goal. And I think this is quite a positive move for the UK. Now, the way that this is going to be funded is by imposing a windfall tax on UK energy companies. The actual Manifesto statement is that it's going to be on oil and gas giants. So, presumably those stocks are going to suffer as a result. However, the UK's sector composition relies quite heavily on energy. So, overall this might be a bad story for indices like the Footsie 100 and the 250. Boosting infrastructure is also a growth positive decision. There's going to be 1.8 billion spent on ports and upgrading infrastructure for deliveries into the UK. 1 and A2 billion on gigafactories. So, presumably the car

industry could use batteries produced here in the UK. That'll be critical if we're going to build our own EVs. An interesting retro step, which is to put 22 billion into the UK steel industry. This is one where historically we haven't been very competitive. A billion for carbon capture and 500 million to support the production of green hydrogen. A statement which concerns me slightly is that labor are going to meddle with the pension industry in the UK, such that they'll be forced to invest in UK infrastructure. They say that labor will act to increase investment from Pension funds in UK markets. Of course, it's not the job of a pension fund to invest in UK infrastructure and boost it. It's their job to maximize returns for their pensioners. Now, if you do enjoy our content, remember that you can always go to our website, pensioncraft.com, and learn about joining our community. It's a really great way to learn with like-minded people. You can discuss things like the labor Manifesto or anything that's on your mind and people.

tend to help each other a great deal, so I think that accountability is very useful as an investor. If you're interested in learning more, just go to our website pensioncraft.com. You'll also find that link in the description below. Now let's turn to the challenges for the stock market. Now, the clue's in the name here. It's the Labour Party, and they will try to favour labour over capital. So, for example, they're going to ensure that the minimum wage is at a reasonable level. Furthermore, they're going to link that minimum wage automatically to the rate of inflation, namely they're going to change the remit of the independent Low Pay Commission so for the first time it accounts for the cost of living. Now, imagine that inflation does increase. That automatically means that hundreds of thousands of people in the UK will see their wages rise. So, it could create this wage-price spiral by an automated mechanism. The reason why that's a problem for investors in the UK in UK companies is that, of course, that's a

cost. If you have to pay your employees more, then it reduces your margins, and eventually it'll reduce share prices. The thing to remember is that the UK operates on a global stage, and if UK businesses become less competitive, then that could be a problem for UK PLC. For the oil and gas industry, there's a choice not to issue new licenses to explore new fields because, as Labour says, they will not take a penny off bills, cannot make its energy secure, and will only accelerate the worsening climate crisis. They say that in addition, they're not going to grant new coal licenses and will ban fracking for good. So I think for the oil and gas industry, this combination of a windfall tax – who knows, there might be another one – combined with the lack of new licenses to search for new sources of oil and gas is going to perhaps cap their upside, and that'll have a negative impact on their share prices. There's also a plan to renationalize rail services, so for companies which are in that sector, this may squeeze their margins or push them.

out of business altogether. The way they're going to implement this seems to be like a kind of phased approach. We'll put passengers at the heart of the service by reforming the railways and bringing them into public ownership. We'll do this as contracts with existing operators expire or are broken through a failure to deliver, without costing the taxpayers a penny in compensation. So here again, we're going to have a new company, which is Great British Railways, and the idea is that it's going to deliver a unified system that focuses on reliable, affordable, high-quality, and efficient services. I'm old enough to remember National Rail, and that certainly isn't what I remember, but Great British Railways will be responsible for investment, day-to-day operational delivery, and innovations and improvements for passengers. Now, if it did improve the infrastructure, that could be a positive, but certainly for companies in that sector, this is going to be a problem. Now let's turn to the bond market and think about positives. Now, one thing that can crash the bond

market is if there's a flurry of new issuance. In other words, the government is spending lots of money. It's not earning more money through revenue, so it has to plug the gap, the difference between the two, by issuing lots of debt and borrowing lots of money in the bond market. If you increase the supply of bonds without increasing the demand, that pushes down prices and it pushes up yields. They move in opposite directions. However, this time around, apparently, Labour is not going to be a tax and spend government. They're going to adopt very strict fiscal rules. Firstly, they're not going to have a big deficit, so costs will be met by revenues. And secondly, they're going to use the same rules which the Tories applied to their budget, which is that they may get a temporary blip in debt to GDP. That's the amount of outstanding debt relative to the size of the economy, which is currently around 100% for the UK. So it might temporarily increase, but by the fifth year looking forward using the OB

forecast debt to GDP has to be falling. Otherwise, they'll throw out that spending plan. So clearly, they want to get debt to GDP to come down. Now, that's a positive for the bond market because it means that issuance new debt being issued will be limited. And if that's true, then a limited supply pushes up price and it pushes down yield. So if you're an existing bond holder, good news. If you're looking to get into bonds, not such good news because you probably want yields to be higher. But overall, I think this is going to avoid instability in the bond market, which is disruptive both for the bond market and the equity market. As we saw with a mini budget from the Conservative Party, that's an episode which is probably best forgotten. And going along with a theme of stability and not rocking the boat, the Labour Party seems fully committed to the independence of the Bank of England. It says so in the manifesto. It would be a shock if that wasn't the case, but it seems as if things like interest on reserves and

keeping the 2% target for inflation that's going to stay exactly the same as it is now. Another good policy is to only have one budget per year or fiscal event, as they describe it. They're going to publish a roadmap for business taxation for the next Parliament, which will allow businesses to plan investments with confidence. So, that's a great idea. I think too many budgets and too much fiddling with the tax system is seldom a good thing. Furthermore, there's going to be even more focus on the Office for Budget Responsibility, which takes the government's spending plans and works out its effect on things like debt, but also on growth and other aspects of the UK economy. So, Labour says every fiscal event making significant changes to tax or spending will be subject to an independent OB forecast, which in my opinion is probably a good thing to sity check these policies. However, I think there are some challenges for the bond market. The first one is that Labour's plans are very ambitious, for example, really revamping

the NHS fixing the UK's infrastructure. Implementing Broadband rollouts. All of this could be very expensive, even more expensive than they've budgeted for. If that's the case, they may have to turn around as they gain power and say, Look, it's much worse than even we thought, so we're going to have to spend more. And that means issuance of more debt, and of course, that could push down bond prices. The second problem could be a downgrade of UK debt. If there is a problem in the UK, some kind of economic problem, then it's not under the control of the government. If one of the rating agencies downgrades UK debt, that would tend to push down prices of bonds and push up yields. That could happen, for example, if the plan just doesn't work, if growth doesn't materialize, and they end up with very expensive infrastructure plans which they can't pay for, the rating agencies would then probably downgrade the UK again. Now let's end with taxes for UK investors. Firstly, there's not going to be an increase in

income tax, at least not initially. They acknowledge that the UK tax burden is currently at a 70-year high, and they say, We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of income tax, or VAT. Corporation tax will also be frozen at 25%, which of course is going to make their job a lot harder. Now, there were worries that Labour was going to bring back the lifetime allowance. So, this was a cap on how much you could save tax-free over your lifetime in your self-invested personal pension and other pensions. It was just over a million pounds. The Conservatives scrapped that, but they kind of screwed up the legislation, which caused all kinds of confusion. And again, in line with not rocking the boat and creating more uncertainty, Labour decided to scrap bringing back that lifetime allowance, which is probably a good thing. The cost to HMRC is around £800 million a year, and a Labour source, which is close

to Rachel Reeves, the Shadow Chancellor, apparently said that Reeves would sort out the mess, adding that Labour's priority is to bring stability and certainty back to the economy. So there are those two key phrases again, so the Sip and the IO will remain untouched, which is, I think, a good thing. They are going to abolish the non-dom status for people who come to the UK to work, for example, or to live, and apparently they're going to replace that with a modern scheme for people genuinely in the country for a short period. They're also going to end the use of offshore trusts to avoid inheritance tax. The idea there was that you wouldn't have to pay inheritance tax if the money was stored abroad; you only have to pay tax once it was brought back to the UK, but apparently that's going to be scrapped. The manifesto says it's so that everyone who makes their home here in the UK pays their taxes here. And then finally, a scheme which affects very few people but people who have a lot of

money. The private equity industry is the only industry, apparently, where performance-related pay is treated as capital gains. Labor will close this loophole, so referring back to the fiscal plan, Labor apparently thinks that that's going to generate an additional 565 million a year, even though it only affects about 3,000 people in the UK, I believe. So overall, I think the general feeling of markets, and my feeling too, is that this Manifesto and these set of policies look quite promising. Of course, the reality that Labor faces is that they just don't have much money to spend on improving growth, improving infrastructure, and that's going to be a problem for them. If growth does disappoint, then they're going to be left with a funding gap, and that's going to be very difficult to break out of without reverting back to their tax and spend policies of the past. But let's hope that this is going to be a new start for the UK, and it does kick us out of this malaise that we've entered since.

the Global financial crisis of low productivity growth low GDP growth low wage growth and also increase investment into the UK. And maybe it'll even Kickstart the UK Equity Market that's a change which is long overdue. Now don't forget if you do enjoy our content, please do subscribe to this Channel and like this video. And of course, you can join our membership. And if you want to learn more about that, just go to our website pensioncraft tocom. And as always, thank you for listening.

What Labour's Policies Mean for Investors

My name is Ramin Nakisa and I started PensionCraft in 2016 as I felt strongly that I wanted to teach people how to invest well for themselves so they could stop making costly mistakes and losing their money through having to pay unnecessarily high fees.

Before starting PensionCraft, I worked in investment banking as a strategist and I was a frequent contributor on CNBC and Bloomberg TV. I have written two books about finance and investment: one for professional investors and one that explains how to buy and sell volatility using exchange-traded products.

I publish a new video on YouTube every Saturday and you can join me for a live Q&A on the 1st Thursday of every month at 7pm UK time.

If you want to learn how to become a better investor then why not join our friendly membership at pensioncraft.com?


PensionCraft

The Impact of Labour Party's Policies on UK Investments

The Labour Party's fiscal plan involves new sources of revenue and ambitious spending, but it only represents a small change in government income and spending.

Compared to the US, the scale of the Labour's spending plan is much smaller in relation to the country's total income.

Despite the historical tension between the stock market and the Labour Party, the current outlook for the UK equity market is positive, with new all-time highs expected, indicating optimism towards Labour's policies.

The Impact of Labour Party Policies on UK Economic Growth and Stock Market

The Labour Party's focus on business-friendly policies and increased spending on infrastructure and education is aimed at kickstarting economic growth in the UK.

The party's manifesto, with a strong emphasis on growth and stability, has the potential to positively influence the UK stock market by generating greater demand for goods and services and increasing business investment.

The housing industry and clean energy sectors are expected to benefit from the proposed policies, with potential growth in housing production and a push for Britain to become a clean energy superpower.

UK Labour Party Manifesto's Impact on Energy and Infrastructure

The UK Labour Party plans to fund energy transformation through a windfall tax on energy companies, potentially impacting their stocks.

The manifesto's focus on boosting infrastructure, with significant investments in ports, gigafactories, and the steel industry, is expected to have a positive effect on growth.

However, the party's proposal to meddle with the pension industry and favor labor over capital could create challenges for investors and businesses, potentially affecting UK PLC's competitiveness.

Labour Party's Plans for the Railway and Bond Markets

The Labour Party plans to reform the railways, bringing them into public ownership as existing contracts expire, aiming to provide reliable and efficient services.

They also intend to implement strict fiscal rules to control debt, which could positively impact the bond market by limiting new debt issuance.

Additionally, the party is committed to maintaining the independence of the Bank of England, prioritizing stability.

Labour's Economic Policies and Potential Challenges

Labour plans to maintain a 2% inflation target and have a single budget per year, providing a clear business taxation roadmap.

The party also aims to focus more on the Office for Budget Responsibility for independent fiscal event forecasts.

However, Labour's ambitious plans for NHS, infrastructure, and broadband rollouts may lead to higher-than-expected expenses, potentially requiring more debt issuance and risking a UK debt downgrade.

Additionally, the party pledges not to increase income tax or National Insurance, and to freeze the corporation tax, but these measures could make their economic goals more challenging.

Rachel Reeves, the Shadow Chancellor, plans to bring stability and certainty to the UK economy, aiming to abolish non-dom status and offshore trusts for inheritance tax avoidance.

The manifesto also includes closing the loophole for the private equity industry, with the potential to generate significant additional revenue.

Despite the promising nature of the policies, the Labour party faces the challenge of limited funds for growth and infrastructure improvement, which could lead to a funding gap if economic growth disappoints.