Once a month, Atticus Partners covers the stories relating to Financial Services (FS) in Westminster and Whitehall. In this special General Election edition, we look at the Conservative and Labour manifestos, analysing what they entail for the financial services sector as a whole and then specific topics such as of taxation and pensions.
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Conservative Party Manifesto
The Conservative Party's 2024 manifesto outlines its plans to enhance economic stability and growth. Key tax reforms include abolishing the main rate of National Insurance for the self-employed by the end of the next Parliament, which aims to reduce the tax burden for millions of self-employed individuals, simplifying their financial planning and potentially increasing their net income.
The manifesto reaffirms previous proposals to establish a strong statutory regulator and enhance director accountability to strengthen the UK's appeal for foreign direct investment. Some believe there is a need for further improvements in trust and accountability in British business, better governance in major UK companies, and a need for reducing the risk of disorderly corporate failures.
With Labour and Conservative policies looking eerily similar, and pro-business, the Conservatives had previously announced their Triple Lock Plus pension policy to out-bid Labour for the boomer vote. The manifesto also further backed the Party’s Edinburgh Reforms, which some referred to as a ‘damp squib’, and commit to continuing to the roll out its Mansion House reforms.
Taxation
As previously announced, the Conservatives state that they will cut employee National Insurance to 6% by April 2027, halving it from 12% at the beginning of this year, resulting in a total tax cut of £1,350 for the average worker on a £35,000 salary. The Tories also committed to abolishing Class 4 National Insurance, building on the announcement of abolishing Class 2 contributions at the Spring Budget. In addition to cutting National Insurance, the Tories pledged to not raise income tax or VAT.
The Party committed to enhancing access to finance for SMEs. Retaining tax incentives like the Enterprise Investment Scheme and maintaining current Capital Gains Tax levels provide stability for investors, encouraging investments in small businesses. Promoting digital invoicing and enforcing the Prompt Payment Code would aim to address cash flow issues, while an empowered Small Business Commissioner would tackle unfavourable payment practices.
Since 2010, the Office for Budget Responsibility (OBR) has evaluated the Conservative Government’s fiscal measures as generating a total of £95 billion across its forecasts, averaging £6.7 billion per year. Building on this, the Party aims to raise at least an additional £6 billion annually by addressing tax avoidance and evasion by the end of the Parliament.
Financial Sector Reform
The majority of public attention to the Conservative’s manifesto was rightly centred on their offer for multiple tax cuts, and announcements on financial services reform were kept to a minimum. Instead, the Conservatives pledged to continue building on the policies set out in the Edinburgh Reforms to ensure that the UK continues to be world’s most innovative and competitive global financial capital, a claim supported by the recent report by the City of London Corporation. These pledges included the expansion of open finance, promotion of digital invoicing as well as the monitoring of Basel III capital requirements to ensure that SMEs received the necessary financing.
On a more macro financial sector level, the Conservatives seemed to employ a policy of steady as she goes. They pledged to continue implementing the Mansion House reforms and measures such as the retail share of NatWest shares. Additionally, the highest standards of consumer protection and prudential regulation would continue to be upheld, yet with no additional substance on how this would be achieved.
This was a manifesto designed to incentivise the population with lower taxes and maintain a business-friendly persona to the private sector.
Pensions
Pensions formed a major part of the Conservative party manifesto with them devoting almost an entire page to the benefits that would be enjoyed by pensioners under a future Conservative Government. Not satisfied with the current Triple Lock, whereby pensions either rise by 2.5%, inflation or average earnings, the Conservatives committed to expanding this to a Triple Lock Plus. This would ensure that pensions would now rise by the highest of prices, earnings or 2.5%.
The other aspect to this would be that the tax-free allowance for pensioners would also be subject to this triple lock plus, thereby guaranteeing that the new State Pension would always be below the tax-free threshold.
This commitment to go further with their current pension policy is a sign that the Conservatives are concerned about drifting support for their party from older voters. As Reform UK has overtaken them in a recent poll, the Conservatives may have to pull out all the stops to keep their base from deserting them.
Labour Party Manifesto
Stability through change has been the Labour Party’s slogan to the British electorate throughout this election. They argue that whilst the Conservatives have spent their time changing Prime Ministers, Chancellors of the Exchequers and economic policies, Labour will bring in a period of political stability; Stability that will reach to the financial sector as part of Rachel Reeves ‘secureonomics.’ This, the Labour Party says, will mean sustainable growth based on “a broad base and resilient foundations” led by “a more active, smart government in partnership with business.” Fiscal events will be reduced to once a year, economic institutions strengthened, and the security of jobs increased in order to provide greater certainty and stability to consumers and businesses alike.
In another commitment to change, Sir Keir Starmer was adamant to emphasise that this Labour manifesto was beyond promising a ‘tax and spend’ Government. Instead, Starmer promised, Labour had become the party of wealth creation with a promise to implement reform to deliver growth for Britain. These include the expansion of open banking and open finance, undertaking a review of the pensions landscape and establishing a new National Wealth Fund. Notably, the manifesto includes the party holding back £2.5bn of increased annual revenue, whilst the Conservatives have pledged to spend every single penny of planned raises.
Taxation
Labour’s tax reform approach aims to enhance fairness and transparency in the UK tax system. By pledging not to increase taxes on working people, Labour seeks to protect disposable incomes and boost consumer confidence, appealing to middle-income voters who feel overburdened by current taxes. However, economists doubt that Labour can generate growth quickly enough to address the UK’s immediate fiscal challenges.
Abolishing non-dom status, criticised for allowing the wealthy to avoid fair taxes, and replacing it with a scheme for genuine short-term residents, is intended to balance attracting global talent with tax equity. This change could increase tax revenues from high-net-worth individuals previously benefiting from non-dom status. Ending the use of offshore trusts for inheritance tax avoidance addresses loopholes seen as favouring the wealthy, potentially increasing tax revenues and gaining popularity among voters who see the current system as skewed.
Reclassifying private equity performance-related pay as income, rather than capital gains, targets significant tax savings in the financial sector, aligning with Labour’s goal of fair taxation for high earners, though it may face opposition from the financial industry.
Labour’s plan to modernise HMRC focuses on improving tax collection through robust enforcement. By increasing registration and reporting requirements and strengthening HMRC’s powers, Labour aims to reduce tax avoidance and evasion, creating a more transparent and accountable tax system.
Financial Services Reform
In line with their ‘Ming vase’ strategy for this manifesto, Labour kept promises to financial services reform to a minimum. A sole one paragraph was devoted to hailing financial services as one of Britain’s greatest success stories, along with a pledge to continue supporting innovation and growth. This perhaps should not come as a surprise, given that Labour have recently published their Financial Services Review in January. Yet it was a pledge Labour has placed emphasis on, with plans to uphold a pro-innovation regulatory framework and support new technology.
As part of a continued effort to ensure that Labour is understood as a pro-business party, the manifesto has committed to advancing open banking and open finance, an important statement to the burgeoning fintech community. Significant investment had been made on the expectation that regulation within in the Data Protection and Digital Information Bill would enter law before Summer recess. On the contrary, the Bill failed to make it through ‘washup’ and the uncertainty caused by the early General Election has put the livelihoods of multiple Fintechs at risk. Labour’s commitment to ensuring momentum remains behind open banking legislation will provide the Party with much credence within the Fintech community. They are commitments broadly similar to the Conservative manifesto, and beyond the closing of carried interest for Private Equity firms, the financial services sector would most likely be very reassured by the manifesto.
Pensions
Despite the innate caution and fiscal discipline that the Shadow Chancellor, Rachel Reeves has brought into the Labour Party’s spending plans, they remain eager to ensure that they do not frighten older voters away with any drastic changes to their pensions. As such, they have committed themselves to retaining the triple lock, as well as commitments to reform workplace pensions for UK savers and pensioners.
A pensions review was also announced to consider what steps are needed to improve security in retirement and improve investment into the economy. Missing from the manifesto was any commitment to resolve the situation with the Women Against State Pension Inequality (WASPI). A few days before the launch of the manifesto, Reeves said that sympathised with their campaign, but that she had not set aside any money to deal with it. The reaction from the WASPI women was not positive, with one speaking of betrayal and their shock at the decision.
As Labour eyes a return to Government after fourteen years in opposition, it is clear that when it comes to pensions, even as Reeves’ takes an iron fisted approach to public finances in general, this is balanced by a desire to not frighten the horses when it comes to older voters..
Economic outlook
Prime Minister Rishi Sunak called the election with the hope that lower than expected inflation levels could bring about a seemingly miraculous victory on a message of ‘things can only get better.’ Yet it is clear from the polls that voters aren’t necessarily believing this is the case. Britain has narrowly missed the technical criteria for a recession, the latest economic figures show zero growth in the economy for April, and a still present cost-of-living crisis is causing endless concern for families across the nation.
Whilst most analysts agree that Britain is slowly turning a corner, with potential interest rate cuts on the cards for later this summer, whoever takes Government on July 4th will have their work cut out for them in implementing their policies. With public finances in the doldrums, we will see on the 4th whether voters support the Tories’ plan to continue cutting taxes, or Labour’s emphasis on growth through the reinvigoration of public services and overdue legislative reform.