Ever since Rishi Sunak stood on the steps of Downing Street in the bucketing rain on 22 May, the distant jangling of D:Ream’s ‘Things Can Only Get Better’ mocking him from a distance, UK business has been preparing for the increasing likelihood of a Labour government on 4 July.
Rarely regarded as an ally of the City, Labour has been doing what it can to position itself as a backer of UK business. The pledge not to increase corporation tax, and even to cut the rate “should our competitiveness come under threat”, has been presented alongside the suggestion that businesses can now plan their investment projects “with the confidence of knowing how their returns will be taxed” going forward.
But a change in government does not always fill the business world with confidence; indeed in recent weeks the market has been peppered with uncertainty about the highly anticipated rise in capital gains tax following the budget in the autumn. Despite the revenue’s own assertion that such a rise could in fact cause receipts to HMRC to decline by £3bn over the course of three years (as taxpayers put off sales and hold on to their assets during their lifetime), all signs point to such a rise proceeding.
Whilst this may prove to have drastic consequences for private M&A, other Labour initiatives have positive indications for the UK markets. The trend for institutional investors to move away from UK equity investments in the past few years has been well documented. Labour have made much of their commitment to reinvigorate UK markets, in particular with a focus on the fintech and green energy sectors, and one can hope that policies centred around driving innovation in these areas will stimulate investment opportunities. Plans are being developed to make the UK a global leader in AI in financial services, to pursue the next phases in the Open Banking and Open Finance initiatives and to encourage the financial services sector to help finance the party’s pursuit of clean UK energy (although with finances strapped, this may be more out of necessity than choice). Nevertheless, alongside promises to maintain the Patent Box and R&D tax credit regimes, it is clear that the desire for tax and regulation to enable tech and innovation, rather than constrict it, rings loud in Labour’s proposals.
Labour has also signalled no major deviation from the current package of financial services reforms already under way by the current government, a move which has broadly been met with positivity in the City. The party has widely publicised its desire to engage in an ongoing dialogue with FS firms, extending and building on the measures introduced by the Financial Services and Market Act 2023, which gives the Bank of England and the FCA a wide remit when it comes to making the rules.
Predictions for M&A activity in 2024 started strong, bolstered by the decreasing likelihood of a recession and positive murmurings about funding costs and inflation. With the election imminent, some business minds are turning to panic at the prospect of a Labour cabinet (and indeed such panic may be triggering a short but sweet uptick in M&A activity ahead of the autumn). But with Labour policy and reform focussing on technological innovation, sustainable finance and a closer relationship with the financial services sector, the more optimistic amongst us can hope that that uptick will continue.
Checkout our Expert Legal Insights page for more on the Labour and Conservative parties’ positions on other key issues, including housing and employment.
