In this second part of our special series on the general elections, we will focus on battleground constituencies, discuss some of the latest news on the elections and take a closer look at Labour’s policies and market expectations.
The general election on 4 July will be fought across 650 new constituencies after the latest boundary approved changes.
Labour holds 200 of the new constituencies in parliament and would need to win another 126 seats to claim an overall majority in the election. As analysts have noted, Labour would need to focus on areas beyond the standard urban strongholds and attract voters from rural, older and less ethnically diverse areas, including marginals where a small swing could overturn Conservative or SNP majorities.
Battlegrounds and key constituencies
Historically, UK general elections have been characterised by battles fought out in key constituencies that often decide the outcome. These battlegrounds include bellwether seats, marginal constituencies, and high-profile areas that attract media attention.
Battleground seats: are constituencies where the electoral contest is particularly close, and small swings in voter preferences can result in a change of party control.
Bellwether constituencies: are those that historically align with the overall election result, such as Basingstoke, Northampton North and Basildon.
Marginal seats: are constituencies where the incumbent party has a slim majority, making them highly competitive. These include Plymouth, Sutton and Devonport; Warwick and Leamington; and Watford.
Some constituencies attract attention from the media such as Islington North due to former Labour leader Jeremy Corbyn, Uxbridge and South Ruislip, home to former Prime Minister Boris Johnson, and Richmond Park as a result of the intense battles involving Zac Goldsmith.
In the 2019 General Election, Boris Johnson’s victory was the result of battles in Blyth Valley which used to be a Labour stronghold and Kensington.
Which are the targeted battleground seats in the upcoming election?
In the upcoming election campaign, Labour has focused on Conservative-held constituencies, while the Lib Dems are challenging key Tory seats like Esher & Walton, Woking, and Didcot & Wantage. In Scotland, where the SNP holds most seats, the primary focus will be on critical constituencies like Glasgow, Airdrie & Shotts, and Edinburgh North & Leith. In Northern Ireland, there is a mix of parties contesting, with battlegrounds like Fermanagh & South Tyrone and Belfast East.
Swing voters
Labour is targeting 50 key seats for small voter swings in regions such as Greater Manchester and Lancashire, North Wales, and West Yorkshire. Key constituencies include Burnley, Clwyd North, Gedling, and Walsall & Bloxwich. Labour needs 125 seats to gain a majority, with crucial targets in the North West, Yorkshire & The Humber, the East and West Midlands, and Wales. Notable constituencies include Truro & Falmouth, Bournemouth West, Bournemouth East, East Worthing & Shoreham, and Hastings & Rye.
The Liberal Democrats have targeted Conservative and SNP seats in south-west London and Surrey, such as Caithness Sutherland & Easter Ross, North East Fife, and Westmorland & Lonsdale.
The Green Party’s targets include Brighton Pavilion, Bristol Central, Waveney Valley, and North Herefordshire.
Reform UK has focused on such constituencies as Hartlepool, Boston & Skegness, Clacton, and Barnsley.
Plaid Cymru’s main focus is Ynys Môn and Caerfyrddin.
According to the latest figures, Labour and the Conservatives are very close in the South West (34% to 36%) and the East of England (36% to 35%). Labour is leading by 8 points in the North West (43% to 35%), 17 points in Yorkshire (46% to 29%), 16 points in the North East (51% to 35%) and 15 points in the Midlands (48% to 33%). In Scotland, Labour are behind the SNP on 32% and 37%, respectively.
What will motivate battleground constituency voters?
According to a UK 2040 Options report, “a dislike of other parties” is the number one reason of voting intention (39%) and also the key factor for those intending to vote Conservative, followed by economic policy and immigration. For those intending to vote Labour, a policy to help with the cost-of-living crisis is the first factor that is driving voting intention, followed by health policy. For those who intend to vote the Liberal Democrats or SNP, Europe remains a crucial factor, as well as underlying values.
TV debates: In the Sun’s Election Showdown, with Rishi Sinak and Keir Starmer, immigration, the cost-of living-crisis and the latest gambling scandal were discussed. With seven days to go until the general election, Conservative Prime Minister Rishi Sunak tried to resolve the election betting scandal by dropping Tory support for two candidates being investigated by the Gambling Commission over bets placed on the timing of the election.
In regard to funding and the NHS, in the BBC’s Question time, the Labour leader explained that the NHS long-term workforce plan was “fully costed.” In the Labour manifesto, Labour has pledged a top-up of annual NHS England spending of around £1.8bn by 2028-29 and to deliver the NHS long-term workforce plan, which is to increase staffing by 2035, but there is no clear outline how it would pay for it. His critics on the right say that he will need to raise taxes to fund his plans, while those on the left say his manifesto lacks ambition to change Britain for the better.
Labour’s policies and market expectations: If Starmer wins, the question is whether he can fix the current situation we are in and whether he has the political skill to realise his promises. In this section, we look at Labour’s policies by focusing on spending and taxes, GB Energy, Gaza and market expectations.
Tax and spending plans: Labour’s tax and spending plans are considered modest. Revenue will be raised by changing non-dom tax status for wealthy people, preventing tax avoidance, applying VAT to private schools and introducing a windfall tax on big energy. He has pledged to grow the country’s economy by restructuring planning laws and investing in a new industrial strategy. A national wealth fund with £7.3 billion ($9.3bn) of public money will be established to help pay for the transition to net zero emissions.
An £8.3bn publicly-owned energy company, Great British Energy will be headquartered in Scotland and will create jobs and build supply chains across the UK, generating growth, tackling the cost-of-living crisis and making Britain energy independent by 2030. Starmer says all this can be done without raising income taxes, but there are no commitments on other levies, such as capital gains tax.
Labour is determined to keep firm control over finances that’s why there are no surprise announcements, with the party being cautious about promising changes to spending or fiscal rules that could shake financial markets.
By keeping corporation tax at 25% through the next parliament will reassure corporate Britain and provide them with stability. Smaller businesses will welcome the latest promise to abandon and replace the current business rates system.
Given the slow economic environment and payments on government debt, a clear, long-term investment plan is necessary. However, Labour has not specified where it will find the funds for infrastructure projects, new energy systems and supporting high growth sectors, through the “National Wealth Fund.” Fiscal rules may have to be changed while taxes could be raised in the future.
Raising taxes than cutting spending: Indeed, if economic growth continues to be weak, Labour would be forced to raise taxes rather than cut spending according to Paul Johnson, the director of the Institute for Fiscal Studies.
Asked at a press conference on what Labour would do if growth is weaker than expected, Johnson said: “The pressure to change the fiscal rules or find more money from tax will be quite significant.” Labour has said it would keep the current government’s spending plans and meet the rule that debt should be declining as a share of national income after five years. The IFS noted that both the main parties were avoiding the hard choices after the election and have left voters with more questions than answers. As he said, “If taxes are to go up, we do not know which ones. We certainly don’t know how they would respond if things were to get worse.”
Labour’s position on Gaza could cost them at the ballot box: When back in October 2023, Keir Starmer said Israel had the right to withhold water and power from Palestinians trapped in Gaza, he lost support from voters in crucial areas with a high number of students and Muslims. Although Starmer later sought to clarify his stance, the interview sparked disapproval and led to resignations among Labour councillors. This is in turn suggested that the party’s position on Gaza would have a huge impact on voters’ decisions at the elections. According to a YouGov poll commissioned by Action For Humanity, 56% of the general UK public and 71% of those who intend to vote Labour oppose arm sales to Israel. The poll also showed that 59% believe that Israel is violating human rights in Gaza.
There have been many protests across the UK calling for a ceasefire in Gaza. However, Starmer has repeatedly supported Israel’s right to self-defence. In December, he called for “all sides” to return to “cessation” while in February, he called for “a ceasefire that lasts.” However, his position on the war has been described as “fairly non-committal,” and that there is the risk that Muslim and left-wing voters won’t support Labour. Cities such as Bristol, Brighton, and Rochdale, Labour could lose votes to the Green Party. Others have noted that Musim voters are concentrated where Labour have a healthy majority and that will be less costly.
Since taking over the leadership of the party in 2020, Keir Starmer moved the left-wing party back to the centre, a shift that has alienated some ethnic minorities who supported Corbyn and his left-wing vision. According to think tank British Future, one in five of its election candidates are from an ethnic minority background. The last census in 2021 showed that 18% of the population in England and Wales were ethnic minorities. With Labour leading the polls, concerns among ethnic minorities may not affect the election result but may become politically significant later.
What do markets think?
The impact of general elections on financial markets can also be seen from the market’s preference for one party. For example, the Association of Investment Companies looked at how UK-focused investment trusts performed in each parliament since 1987. The best performance was under John Major’s Conservative government between 1992-1997, followed by the Conservative/Liberal Democrat coalition of 2010 – 2015. During Tony Blair’s first term as prime minister between 1997-2001, returns were very close to these highs too. Based on these, it would appear that investment trusts perform well under both Labour and Conservative governments. In the most recent premierships of Boris Johnson, Liz Truss and Rishi Sunak, returns may have been positive, but were nowhere near these highs.
A new government?
Another interesting trend is that the UK stock market tends to welcome new prime ministers. According to analysis by AJ Bell investment director, Russ Mould, since 1962 the FTSE All-Share has recorded a double-digit percentage increase after the first year following an election. The positive effect of a new Prime Minister tends to become even stronger when there is a new government in power. Nonetheless, as mentioned in our previous analysis, market analysts do not anticipate the election to have a significant impact on the exchange rate. As many economists have stressed, for both the pound and the US dollar, the main driver this year for currency movements will be changes in interest rates. And since the Bank of England (BoE) won’t be changing its policy plans due to the election, the overall implications for Sterling should be limited.
We help businesses achieve their financial objectives through tailored solutions delivered by a team of specialists with a tireless work ethic.
In this second part of our special series on the general elections, we will focus on battleground constituencies, discuss some of the latest news on the elections and take a closer look at Labour’s policies and market expectations.
The general election on 4 July will be fought across 650 new constituencies after the latest boundary approved changes.
Labour holds 200 of the new constituencies in parliament and would need to win another 126 seats to claim an overall majority in the election. As analysts have noted, Labour would need to focus on areas beyond the standard urban strongholds and attract voters from rural, older and less ethnically diverse areas, including marginals where a small swing could overturn Conservative or SNP majorities.
Battlegrounds and key constituencies
Historically, UK general elections have been characterised by battles fought out in key constituencies that often decide the outcome. These battlegrounds include bellwether seats, marginal constituencies, and high-profile areas that attract media attention.
Battleground seats: are constituencies where the electoral contest is particularly close, and small swings in voter preferences can result in a change of party control.
Bellwether constituencies: are those that historically align with the overall election result, such as Basingstoke, Northampton North and Basildon.
Marginal seats: are constituencies where the incumbent party has a slim majority, making them highly competitive. These include Plymouth, Sutton and Devonport; Warwick and Leamington; and Watford.
Some constituencies attract attention from the media such as Islington North due to former Labour leader Jeremy Corbyn, Uxbridge and South Ruislip, home to former Prime Minister Boris Johnson, and Richmond Park as a result of the intense battles involving Zac Goldsmith.
In the 2019 General Election, Boris Johnson’s victory was the result of battles in Blyth Valley which used to be a Labour stronghold and Kensington.
Which are the targeted battleground seats in the upcoming election?
In the upcoming election campaign, Labour has focused on Conservative-held constituencies, while the Lib Dems are challenging key Tory seats like Esher & Walton, Woking, and Didcot & Wantage. In Scotland, where the SNP holds most seats, the primary focus will be on critical constituencies like Glasgow, Airdrie & Shotts, and Edinburgh North & Leith. In Northern Ireland, there is a mix of parties contesting, with battlegrounds like Fermanagh & South Tyrone and Belfast East.
Swing voters
Labour is targeting 50 key seats for small voter swings in regions such as Greater Manchester and Lancashire, North Wales, and West Yorkshire. Key constituencies include Burnley, Clwyd North, Gedling, and Walsall & Bloxwich. Labour needs 125 seats to gain a majority, with crucial targets in the North West, Yorkshire & The Humber, the East and West Midlands, and Wales. Notable constituencies include Truro & Falmouth, Bournemouth West, Bournemouth East, East Worthing & Shoreham, and Hastings & Rye.
The Liberal Democrats have targeted Conservative and SNP seats in south-west London and Surrey, such as Caithness Sutherland & Easter Ross, North East Fife, and Westmorland & Lonsdale.
The Green Party’s targets include Brighton Pavilion, Bristol Central, Waveney Valley, and North Herefordshire.
Reform UK has focused on such constituencies as Hartlepool, Boston & Skegness, Clacton, and Barnsley.
Plaid Cymru’s main focus is Ynys Môn and Caerfyrddin.
According to the latest figures, Labour and the Conservatives are very close in the South West (34% to 36%) and the East of England (36% to 35%). Labour is leading by 8 points in the North West (43% to 35%), 17 points in Yorkshire (46% to 29%), 16 points in the North East (51% to 35%) and 15 points in the Midlands (48% to 33%). In Scotland, Labour are behind the SNP on 32% and 37%, respectively.
What will motivate battleground constituency voters?
According to a UK 2040 Options report, “a dislike of other parties” is the number one reason of voting intention (39%) and also the key factor for those intending to vote Conservative, followed by economic policy and immigration. For those intending to vote Labour, a policy to help with the cost-of-living crisis is the first factor that is driving voting intention, followed by health policy. For those who intend to vote the Liberal Democrats or SNP, Europe remains a crucial factor, as well as underlying values.
TV debates: In the Sun’s Election Showdown, with Rishi Sinak and Keir Starmer, immigration, the cost-of living-crisis and the latest gambling scandal were discussed. With seven days to go until the general election, Conservative Prime Minister Rishi Sunak tried to resolve the election betting scandal by dropping Tory support for two candidates being investigated by the Gambling Commission over bets placed on the timing of the election.
In regard to funding and the NHS, in the BBC’s Question time, the Labour leader explained that the NHS long-term workforce plan was “fully costed.” In the Labour manifesto, Labour has pledged a top-up of annual NHS England spending of around £1.8bn by 2028-29 and to deliver the NHS long-term workforce plan, which is to increase staffing by 2035, but there is no clear outline how it would pay for it. His critics on the right say that he will need to raise taxes to fund his plans, while those on the left say his manifesto lacks ambition to change Britain for the better.
Labour’s policies and market expectations: If Starmer wins, the question is whether he can fix the current situation we are in and whether he has the political skill to realise his promises. In this section, we look at Labour’s policies by focusing on spending and taxes, GB Energy, Gaza and market expectations.
Tax and spending plans: Labour’s tax and spending plans are considered modest. Revenue will be raised by changing non-dom tax status for wealthy people, preventing tax avoidance, applying VAT to private schools and introducing a windfall tax on big energy. He has pledged to grow the country’s economy by restructuring planning laws and investing in a new industrial strategy. A national wealth fund with £7.3 billion ($9.3bn) of public money will be established to help pay for the transition to net zero emissions.
An £8.3bn publicly-owned energy company, Great British Energy will be headquartered in Scotland and will create jobs and build supply chains across the UK, generating growth, tackling the cost-of-living crisis and making Britain energy independent by 2030. Starmer says all this can be done without raising income taxes, but there are no commitments on other levies, such as capital gains tax.
Labour is determined to keep firm control over finances that’s why there are no surprise announcements, with the party being cautious about promising changes to spending or fiscal rules that could shake financial markets.
By keeping corporation tax at 25% through the next parliament will reassure corporate Britain and provide them with stability. Smaller businesses will welcome the latest promise to abandon and replace the current business rates system.
Given the slow economic environment and payments on government debt, a clear, long-term investment plan is necessary. However, Labour has not specified where it will find the funds for infrastructure projects, new energy systems and supporting high growth sectors, through the “National Wealth Fund.” Fiscal rules may have to be changed while taxes could be raised in the future.
Raising taxes than cutting spending: Indeed, if economic growth continues to be weak, Labour would be forced to raise taxes rather than cut spending according to Paul Johnson, the director of the Institute for Fiscal Studies.
Asked at a press conference on what Labour would do if growth is weaker than expected, Johnson said: “The pressure to change the fiscal rules or find more money from tax will be quite significant.” Labour has said it would keep the current government’s spending plans and meet the rule that debt should be declining as a share of national income after five years. The IFS noted that both the main parties were avoiding the hard choices after the election and have left voters with more questions than answers. As he said, “If taxes are to go up, we do not know which ones. We certainly don’t know how they would respond if things were to get worse.”
Labour’s position on Gaza could cost them at the ballot box: When back in October 2023, Keir Starmer said Israel had the right to withhold water and power from Palestinians trapped in Gaza, he lost support from voters in crucial areas with a high number of students and Muslims. Although Starmer later sought to clarify his stance, the interview sparked disapproval and led to resignations among Labour councillors. This is in turn suggested that the party’s position on Gaza would have a huge impact on voters’ decisions at the elections. According to a YouGov poll commissioned by Action For Humanity, 56% of the general UK public and 71% of those who intend to vote Labour oppose arm sales to Israel. The poll also showed that 59% believe that Israel is violating human rights in Gaza.
There have been many protests across the UK calling for a ceasefire in Gaza. However, Starmer has repeatedly supported Israel’s right to self-defence. In December, he called for “all sides” to return to “cessation” while in February, he called for “a ceasefire that lasts.” However, his position on the war has been described as “fairly non-committal,” and that there is the risk that Muslim and left-wing voters won’t support Labour. Cities such as Bristol, Brighton, and Rochdale, Labour could lose votes to the Green Party. Others have noted that Musim voters are concentrated where Labour have a healthy majority and that will be less costly.
Since taking over the leadership of the party in 2020, Keir Starmer moved the left-wing party back to the centre, a shift that has alienated some ethnic minorities who supported Corbyn and his left-wing vision. According to think tank British Future, one in five of its election candidates are from an ethnic minority background. The last census in 2021 showed that 18% of the population in England and Wales were ethnic minorities. With Labour leading the polls, concerns among ethnic minorities may not affect the election result but may become politically significant later.
What do markets think?
The impact of general elections on financial markets can also be seen from the market’s preference for one party. For example, the Association of Investment Companies looked at how UK-focused investment trusts performed in each parliament since 1987. The best performance was under John Major’s Conservative government between 1992-1997, followed by the Conservative/Liberal Democrat coalition of 2010 – 2015. During Tony Blair’s first term as prime minister between 1997-2001, returns were very close to these highs too. Based on these, it would appear that investment trusts perform well under both Labour and Conservative governments. In the most recent premierships of Boris Johnson, Liz Truss and Rishi Sunak, returns may have been positive, but were nowhere near these highs.
A new government?
Another interesting trend is that the UK stock market tends to welcome new prime ministers. According to analysis by AJ Bell investment director, Russ Mould, since 1962 the FTSE All-Share has recorded a double-digit percentage increase after the first year following an election. The positive effect of a new Prime Minister tends to become even stronger when there is a new government in power. Nonetheless, as mentioned in our previous analysis, market analysts do not anticipate the election to have a significant impact on the exchange rate. As many economists have stressed, for both the pound and the US dollar, the main driver this year for currency movements will be changes in interest rates. And since the Bank of England (BoE) won’t be changing its policy plans due to the election, the overall implications for Sterling should be limited.
We help businesses achieve their financial objectives through tailored solutions delivered by a team of specialists with a tireless work ethic.
PART 2 OF 3
Shaping Britain’s Future: Election Choices Ahead
In this second part of our special series on the general elections, we will focus on battleground constituencies, discuss some of the latest news on the elections and take a closer look at Labour’s policies and market expectations.
The general election on 4 July will be fought across 650 new constituencies after the latest boundary approved changes.
Labour holds 200 of the new constituencies in parliament and would need to win another 126 seats to claim an overall majority in the election. As analysts have noted, Labour would need to focus on areas beyond the standard urban strongholds and attract voters from rural, older and less ethnically diverse areas, including marginals where a small swing could overturn Conservative or SNP majorities.
Battlegrounds and key constituencies
Historically, UK general elections have been characterised by battles fought out in key constituencies that often decide the outcome. These battlegrounds include bellwether seats, marginal constituencies, and high-profile areas that attract media attention.
Battleground seats: are constituencies where the electoral contest is particularly close, and small swings in voter preferences can result in a change of party control.
Bellwether constituencies: are those that historically align with the overall election result, such as Basingstoke, Northampton North and Basildon.
Marginal seats: are constituencies where the incumbent party has a slim majority, making them highly competitive. These include Plymouth, Sutton and Devonport; Warwick and Leamington; and Watford.
Some constituencies attract attention from the media such as Islington North due to former Labour leader Jeremy Corbyn, Uxbridge and South Ruislip, home to former Prime Minister Boris Johnson, and Richmond Park as a result of the intense battles involving Zac Goldsmith.
In the 2019 General Election, Boris Johnson’s victory was the result of battles in Blyth Valley which used to be a Labour stronghold and Kensington.
Which are the targeted battleground seats in the upcoming election?
In the upcoming election campaign, Labour has focused on Conservative-held constituencies, while the Lib Dems are challenging key Tory seats like Esher & Walton, Woking, and Didcot & Wantage. In Scotland, where the SNP holds most seats, the primary focus will be on critical constituencies like Glasgow, Airdrie & Shotts, and Edinburgh North & Leith. In Northern Ireland, there is a mix of parties contesting, with battlegrounds like Fermanagh & South Tyrone and Belfast East.
Swing voters
Labour is targeting 50 key seats for small voter swings in regions such as Greater Manchester and Lancashire, North Wales, and West Yorkshire. Key constituencies include Burnley, Clwyd North, Gedling, and Walsall & Bloxwich. Labour needs 125 seats to gain a majority, with crucial targets in the North West, Yorkshire & The Humber, the East and West Midlands, and Wales. Notable constituencies include Truro & Falmouth, Bournemouth West, Bournemouth East, East Worthing & Shoreham, and Hastings & Rye.
The Liberal Democrats have targeted Conservative and SNP seats in south-west London and Surrey, such as Caithness Sutherland & Easter Ross, North East Fife, and Westmorland & Lonsdale.
The Green Party’s targets include Brighton Pavilion, Bristol Central, Waveney Valley, and North Herefordshire.
Reform UK has focused on such constituencies as Hartlepool, Boston & Skegness, Clacton, and Barnsley.
Plaid Cymru’s main focus is Ynys Môn and Caerfyrddin.
According to the latest figures, Labour and the Conservatives are very close in the South West (34% to 36%) and the East of England (36% to 35%). Labour is leading by 8 points in the North West (43% to 35%), 17 points in Yorkshire (46% to 29%), 16 points in the North East (51% to 35%) and 15 points in the Midlands (48% to 33%). In Scotland, Labour are behind the SNP on 32% and 37%, respectively.
What will motivate battleground constituency voters?
According to a UK 2040 Options report, “a dislike of other parties” is the number one reason of voting intention (39%) and also the key factor for those intending to vote Conservative, followed by economic policy and immigration. For those intending to vote Labour, a policy to help with the cost-of-living crisis is the first factor that is driving voting intention, followed by health policy. For those who intend to vote the Liberal Democrats or SNP, Europe remains a crucial factor, as well as underlying values.
TV debates: In the Sun’s Election Showdown, with Rishi Sinak and Keir Starmer, immigration, the cost-of living-crisis and the latest gambling scandal were discussed. With seven days to go until the general election, Conservative Prime Minister Rishi Sunak tried to resolve the election betting scandal by dropping Tory support for two candidates being investigated by the Gambling Commission over bets placed on the timing of the election.
In regard to funding and the NHS, in the BBC’s Question time, the Labour leader explained that the NHS long-term workforce plan was “fully costed.” In the Labour manifesto, Labour has pledged a top-up of annual NHS England spending of around £1.8bn by 2028-29 and to deliver the NHS long-term workforce plan, which is to increase staffing by 2035, but there is no clear outline how it would pay for it. His critics on the right say that he will need to raise taxes to fund his plans, while those on the left say his manifesto lacks ambition to change Britain for the better.
Labour’s policies and market expectations: If Starmer wins, the question is whether he can fix the current situation we are in and whether he has the political skill to realise his promises. In this section, we look at Labour’s policies by focusing on spending and taxes, GB Energy, Gaza and market expectations.
Tax and spending plans: Labour’s tax and spending plans are considered modest. Revenue will be raised by changing non-dom tax status for wealthy people, preventing tax avoidance, applying VAT to private schools and introducing a windfall tax on big energy. He has pledged to grow the country’s economy by restructuring planning laws and investing in a new industrial strategy. A national wealth fund with £7.3 billion ($9.3bn) of public money will be established to help pay for the transition to net zero emissions.
An £8.3bn publicly-owned energy company, Great British Energy will be headquartered in Scotland and will create jobs and build supply chains across the UK, generating growth, tackling the cost-of-living crisis and making Britain energy independent by 2030. Starmer says all this can be done without raising income taxes, but there are no commitments on other levies, such as capital gains tax.
Labour is determined to keep firm control over finances that’s why there are no surprise announcements, with the party being cautious about promising changes to spending or fiscal rules that could shake financial markets.
By keeping corporation tax at 25% through the next parliament will reassure corporate Britain and provide them with stability. Smaller businesses will welcome the latest promise to abandon and replace the current business rates system.
Given the slow economic environment and payments on government debt, a clear, long-term investment plan is necessary. However, Labour has not specified where it will find the funds for infrastructure projects, new energy systems and supporting high growth sectors, through the “National Wealth Fund.” Fiscal rules may have to be changed while taxes could be raised in the future.
Raising taxes than cutting spending: Indeed, if economic growth continues to be weak, Labour would be forced to raise taxes rather than cut spending according to Paul Johnson, the director of the Institute for Fiscal Studies.
Asked at a press conference on what Labour would do if growth is weaker than expected, Johnson said: “The pressure to change the fiscal rules or find more money from tax will be quite significant.” Labour has said it would keep the current government’s spending plans and meet the rule that debt should be declining as a share of national income after five years. The IFS noted that both the main parties were avoiding the hard choices after the election and have left voters with more questions than answers. As he said, “If taxes are to go up, we do not know which ones. We certainly don’t know how they would respond if things were to get worse.”
Labour’s position on Gaza could cost them at the ballot box: When back in October 2023, Keir Starmer said Israel had the right to withhold water and power from Palestinians trapped in Gaza, he lost support from voters in crucial areas with a high number of students and Muslims. Although Starmer later sought to clarify his stance, the interview sparked disapproval and led to resignations among Labour councillors. This is in turn suggested that the party’s position on Gaza would have a huge impact on voters’ decisions at the elections. According to a YouGov poll commissioned by Action For Humanity, 56% of the general UK public and 71% of those who intend to vote Labour oppose arm sales to Israel. The poll also showed that 59% believe that Israel is violating human rights in Gaza.
There have been many protests across the UK calling for a ceasefire in Gaza. However, Starmer has repeatedly supported Israel’s right to self-defence. In December, he called for “all sides” to return to “cessation” while in February, he called for “a ceasefire that lasts.” However, his position on the war has been described as “fairly non-committal,” and that there is the risk that Muslim and left-wing voters won’t support Labour. Cities such as Bristol, Brighton, and Rochdale, Labour could lose votes to the Green Party. Others have noted that Musim voters are concentrated where Labour have a healthy majority and that will be less costly.
Since taking over the leadership of the party in 2020, Keir Starmer moved the left-wing party back to the centre, a shift that has alienated some ethnic minorities who supported Corbyn and his left-wing vision. According to think tank British Future, one in five of its election candidates are from an ethnic minority background. The last census in 2021 showed that 18% of the population in England and Wales were ethnic minorities. With Labour leading the polls, concerns among ethnic minorities may not affect the election result but may become politically significant later.
What do markets think?
The impact of general elections on financial markets can also be seen from the market’s preference for one party. For example, the Association of Investment Companies looked at how UK-focused investment trusts performed in each parliament since 1987. The best performance was under John Major’s Conservative government between 1992-1997, followed by the Conservative/Liberal Democrat coalition of 2010 – 2015. During Tony Blair’s first term as prime minister between 1997-2001, returns were very close to these highs too. Based on these, it would appear that investment trusts perform well under both Labour and Conservative governments. In the most recent premierships of Boris Johnson, Liz Truss and Rishi Sunak, returns may have been positive, but were nowhere near these highs.
A new government?
Another interesting trend is that the UK stock market tends to welcome new prime ministers. According to analysis by AJ Bell investment director, Russ Mould, since 1962 the FTSE All-Share has recorded a double-digit percentage increase after the first year following an election. The positive effect of a new Prime Minister tends to become even stronger when there is a new government in power. Nonetheless, as mentioned in our previous analysis, market analysts do not anticipate the election to have a significant impact on the exchange rate. As many economists have stressed, for both the pound and the US dollar, the main driver this year for currency movements will be changes in interest rates. And since the Bank of England (BoE) won’t be changing its policy plans due to the election, the overall implications for Sterling should be limited.
