Radical proposals such as nationalising key industries and hiking many taxes made by the Labour party could deal substantial damage to UK economy and leave investors nursing losses in the portfolios, commentators have argued. 
With the country gearing up for a general election on Thursday 12 December, political parties are in full campaign mode and the main three have now published their manifesto. This week, Trustnet will look at each to find out what investors and analysts, think of them – starting with the Labour Party.
Speaking at his manifesto’s launch event last week, Labour leader Jeremy Corbyn (pictured) said: “Labour’s manifesto is a manifesto of hope. A manifesto that will bring real change. A manifesto full of popular policies that the political establishment has blocked for a generation.”
The Labour party’s 2019 election manifesto –with the slogan It's Time For Real Change – is built around a range of radical policies. These include the nationalisation of key industries (such as the ‘Big Six’ energy firms, National Grid, the water industry, Royal Mail, railways and BT’s broadband arm), holding a second Brexit referendum and hiking taxes to pay for massive spending on infrastructure, the environment and the NHS.
UK public investment compared to international peers
Source: Labour party, all black bars are taken from OECD (Government at a Glance 2019)
However, many of those who spend their days analysing the economy, markets and investments have been critical of party’s proposed policies.
Adrian Lowcock, head of personal investing at Willis Owen, noted that Labour’s proposals have “ruffled a few feathers and sent shivers down the spines of both investors and companies in the UK”.
“The effect of a Labour victory on the 13 December on British investors could be significant,” he added.
“Some policies, such as widespread nationalisation, increases in corporation tax and putting 10 per cent of big companies into an employee ownership scheme, are unlikely to make the UK look like an attractive place for business and investors.
“These policies could also have further unintended effects and significantly impact existing savers and investors, as well as affect people’s pension savings if the value of the companies fall.”
Nigel Green, founder and chief executive of deVere Group, believes the Labour manifesto will create “economic chaos” for the UK at a time when the country is still dealing with the uncertainty created by Brexit.
“Labour’s Marxist manifesto is the most radical and dangerous in decades. It would bring far-reaching economic chaos for a Brexit-battered Britain already on the brink,” he said. “Corbyn and McDonnell’s agenda would create a nightmarish scenario that would hit those very people the most that it is proclaiming to try and support and protect.”
Green added that there are three fundamental reasons why the Corbyn-led Labour manifesto would damage the UK economy.
Firstly, the “mammoth nationalisation programme”, making companies to hand shares to workers and a significant increase in trade union power could cause already stagnate business investment in the UK to deteriorate further.
Secondly, there’s the risk of “an exodus” of some of the country’s wealthiest individuals on the back of worries about Labour’s stance on inheritance tax, income tax, stamp duty and capital gains tax, as well as the slashing of pensions tax relief.
Thirdly, economic damage could come from Labour’s plan to renegotiate the Brexit deal then put it to a second referendum, would lead to many more months of uncertainty for businesses.
Institute for Fiscal Studies director Paul Johnson questioned whether it would be possible for a Labour government to meet the spending pledges that it is making in the election campaign.
The manifesto outlines a “very substantial increase” in the role of the state and the IFS estimated that this would push up day-to-day spending by £80bn in 2023–24, which would be an almost 10 per cent increase on what is currently planned. The party also plans to increase investment spending by £55bn a year, which is a doubling on current levels and even higher than the substantial increases proposed by the Liberal Democrats and the Conservatives.
Labour’s tax-raising measures are expected to yield a sum that would cover the increase in day-to-day spending, but the IFS said this would push the tax burden “well above” levels sustained in the UK since the Second World War.
“There are risks with both the proposed spending increases and the proposed tax rises. It will be extremely hard simply to deliver anything like this scale of increase in capital spending, at least in the near-term, certainly in an efficient and cost-effective way,” Johnson added.
“On the tax side the proposals in the Labour manifesto represent an enormous increase in the amounts they want to raise from corporation tax. If their proposals did raise the sums they suggest then we would be raising more in corporation tax, as a fraction of national income, than any other country in the G7 and more than almost anywhere else in the OECD. This would clearly come with substantial risks.”
Corporation tax rate under Labour’s proposals
Source: Institute for Fiscal Studies
In terms of personal finance, AJ Bell senior analyst Tom Selby drew attention to the promise to leave the state pension age at 66 as being attractive but having significant question marks hanging over it.
“Make no bones about it – this is a gargantuan promise from Labour with enormous ramifications for those affected, society as a whole and long-term government spending,” he said.
“It is therefore incredible that the impact this will have on taxpayers doesn’t appear in the policy costings. This may simply be because planned increases in the state pension age run beyond the next parliament, but such a short-term approach to something as vital to the long-term future of the UK as state pension reform is hardly encouraging.”
Laura Suter, personal finance analyst, noted that Labour has stuck with its 2017 manifesto pledge to increase the number of people paying the 45 per cent income tax rate by cutting the threshold from the current £150,000 to £80,000. The party would also introduce a new rate of 50 per cent for those earning more than more than £125,000.
She highlighted other changes to the income tax regime as significant: “The party will also bring the tax on gains from investments in line with income tax, echoing similar pledges by the Green party.
“The pledge to bring capital gains and dividends into the income tax regime will raise £14bn for the government. The move to crack down on dividends will hit business owners who pay themselves through dividends rather than income, but also investors, with the capital gains tax allowance being slashed from £12,000 to £1,000 – which will cost up to £4,400 a year for those earning £50,000 or more.”