The Political Manifestos and their Impacts on Investors

Here are some comments on the manifestos of the major political parties, now that they are all available. I focus on how they might affect investors. Most readers will have already realised that political manifestos are about bribes to the electorate, or to put it more politely, attempts to meet their concerns and aspirations; however in this particular election, spending commitments certainly seem to be some of the most aggressive ever seen.

Labour Party:

The Labour manifesto includes extensive renationalisation of water/energy utility companies and Royal Mail, part nationalisation of BT Group and allocating 10% of public company equity to employees. It also commits to wholesale intervention in the economy by creating a £400 billion National Transformation Fund. That appears to include a commitment to revive declining industries, i.e. bail-outs of steel making companies one presumes. It includes promises to invest in three new electric battery gigafactories and four metal reprocessing plants for steel and a new plastics remanufacturing industry “thus creating thousands of jobs”.

The best comment on the BT proposals was in a letter to the FT by the former head of regulator OFTEL Sir Bryan Carsberg. He said his memory was clear about the shortcomings of BT before privatisation even if many other people do not remember. The lack of competition meant that the company had no incentive to improve efficiency or take advantage of new technological developments. State monopolies are always poor performers.

There is a commitment to introducing a legal right to collective consultation on the implementation of new technology in workplaces. This writer is old enough to remember the Harold Wilson speech on the “white heat of a scientific revolution” by which he intended to revitalise the UK economy. It only partly happened and at enormous cost. The manifesto includes a very clear commitment to “rewrite the rules of the economy”.

The cost of financing all the commitments is truly enormous, even before the recently announced £58 billion pledge to restore pension commitments lost by some women due to rises in their pension age. Taxes will need to rise substantially to finance all the commitments – that means increases in corporation tax and rises in capital gains tax to equalise it with income tax plus higher rates of income tax for high earners.

The principal risk to UK investors will be the wholesale intervention in the economy.

Conservative Party:

The other main parties are all focusing on Brexit. The Conservatives’ manifesto headline is “Get Brexit Done – Unleash Britain’s Potential”. It is relatively fiscally conservative with no major changes to taxation but some commitments on spending.

Many of their commitments, such as on longer-term social care funding, are subject to consultation but there are some short term increases in that, and for education, for the Police and for the NHS.

Immigration will be restricted by introducing an Australian-style points-based system. This might impose extra costs on some sectors of the economy, but may result in more investment in education/training and more capital investment.

There is a commitment to invest £100 billion in additional infrastructure such as roads and rail. That includes £28.8 billion on strategic and local roads and £1 billion on a fast-charging network for electric vehicles. Compare that though with the cost of £81 billion now forecast in the manifesto for HS2, a decision on which is left to the Oakervee review.

Review and reform of entrepreneurs tax relief is proposed, as it is not apparently meeting objectives. There will be further clampdowns on tax evasion and implementation of a Digital Services Tax already planned for 2020.

Reforms are planned to insolvency rules and the audit regime which must be welcomed, but details of what is planned are minimal. They also plan to “improve incentives to attack the problem of excessive executive pay and rewards for failure”. It will be interesting to see how that is going to be done in reality.

There is a plan to create a new independent “Office for Environmental Protection” which will introduce legal targets including for air pollution. This could be very expensive for both companies and individuals. The Government has already committed to a “net zero” carbon target by 2050 but Cambridge Professor Michael Kelly has said that the cost of decarbonising the economy has been grossly underestimated. He has suggested the cost will run into trillions of pounds. Again there are few details in the manifesto on how these commitments will be implemented in practice.

With promises not to increase income tax, VAT or National Insurance (a “triple-tax lock” in addition to the expensive triple lock on pensions which will be retained) this is generally a positive manifesto for most investors and apart from the issues mentioned above should be positive for the economy. It might also help to restore the confidence of overseas investors.

The Conservative manifesto is likely to please many and displease few.

The Liberal Democrat Party:

They have a strong endorsement of “green” policies and propose a new tax on frequent-flyers, which might include Jo Swinson as she has taken 77 flights in 18 months according to the Daily Mail.

They commit to legalise cannabis and freeze all train fares (like the freeze in London on bus and Underground fares which has resulted in a £1 billion deficit in TfL finances, but even more expensive no doubt).

Corporation Tax would revert to 20% and Capital Gains tax would be unified with income tax with no separate allowances, hitting private investors.

Brexit Party:

Their manifesto (or “Contract with the People” as they prefer to call it), is sketchy in comparison with the two main parties.

They would raise £200 billion to invest in regional regeneration, the support of key sectors of the economy, the young, the High Street and families. This money would be raised by scrapping HS2, saving the EU contribution, recovering money from the EIB and cutting the foreign aid budget, although I am not sure that adds up to £200 billion.

They would scrap Inheritance Tax and interest on student loans and cut VAT on domestic fuel which will all be quite significant costs. They also promise more investment in the NHS as do all the other parties.

In summary, this election has clear implications for private investors. The Conservative manifesto is the least threatening unless investors take the view that the Boris Johnson version of Brexit is going to be very damaging for the UK economy.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson ) with edits by ShareSoc