Greg Lodge | Performance & Risk Analyst
This article was taken from the Summer 2024 issue of The 1875. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications
After 14 years of Conservative rule, the pendulum has now swung the other way. For the first time since 2005 the Labour party has won a general election, and by a landslide at that. While this represents a significant political realignment, few can say they were genuinely surprised by the result. Polling had consistently indicated a substantial Labour lead for some time and, until the respective seats were declared in the early hours after the polls closed, the main question was simply how big Labour’s majority would be. By mid-morning, it was clear that Labour leader Sir Keir Starmer had a secure majority of 412 seats and was free to start implementing his party’s manifesto. Let’s examine some of these key policies and what impact they might have.
Starmer and former Prime Minister Liz Truss don’t have very much in common, but one preoccupation they do share is the perennial issue of the UK’s lacklustre GDP growth. The 2008-09 financial crisis and ensuing recession cast a long shadow which persists to this day. GDP shrunk by more than 6% over the period and took five years to recover to the size it was pre-crisis. The rate of growth is yet to recover, and this is causing a knock-on effect on productivity, wage growth and living standards. Weak GDP growth translates to lower tax revenue for the Government. With strained public services and an aging population increasingly in need of health and social care, this presents a real problem. Increasing tax and spending is one solution but is likely to be unpopular with voters. Instead, a better plan would be to improve the UK’s growth prospects, although this is easier said than done. Truss’ intended approach of substantial tax cuts fell apart mere days after their unveiling at the now infamous mini-budget.
Recognising that improving GDP is vital to reverse declining living standards and boost public services, Labour has made its plans for growth a central theme of its manifesto. Billing itself as “the party of wealth creation” it marked a significant departure in tone from the Corbyn-era. The manifesto states that the UK’s most successful sectors, including financial services, research institutions and creative industries, will be supported through a pro-business industrial policy. Details on what this approach will look like are light, but it does mention the establishment of an Industrial Policy Council which will be available to provide specialist advice. Corporation Tax will also be capped at its current level of 25% and the planning system will be reformed to encourage infrastructure development.
Clean energy is also a focus of the new government; the manifesto goes so far as to state “clean energy by 2030 is Labour’s second mission”. While this could be attributed to ideological reasons, or as part of an offering to voters concerned by climate change, there are sound reasons why this could be an opportunity for growth. In 1991, clean energy accounted for only 2% of the UK’s electricity generation. By 2023, wind power alone contributed nearly 30%. The use of coal, historically the UK’s chief source of energy, has fallen to 1%. The establishment of vast offshore windfarms in recent years has played a large part in this quiet energy revolution.
With this in mind, Labour is keen to capitalise on what it sees as a home-grown success story. The new government seeks to double onshore wind power by 2030, ending a de facto ban which had been in place since 2015 and which Chancellor Rachel Reeves described as “absurd”. The Government has also announced that it is considering designating large windfarm projects as nationally significant infrastructure, which would bring them under the remit of energy secretary Ed Miliband and reduce the influence of local councils on the planning process. The Government has stated that its Green Prosperity Plan will create 650,000 jobs by 2030.
While wind energy forms a large part of the Green Prosperity Plan, other factors are in play. It also aims to triple solar power and invest in carbon capture, while maintaining a strategic reserve of gas power stations, which still contribute a large portion of the UK’s energy generation. New oil and gas exploration licenses will not be issued, however, and windfall taxes may be levied on the profits of oil and gas companies. Nuclear power looks to benefit from the new administration. The manifesto states that construction of the Hinkley Point C reactor will be completed, and that the lifetime of existing plants will be extended. The nine operational nuclear reactors around the UK contribute a steady 20% of electricity generation, although nearly all are due to be decommissioned over the next decade. Deferring the intended closure of older nuclear plants has become a common policy across several other European countries, due to the costs of new projects and the price of natural gas following Russia’s invasion of Ukraine.
The new government will also introduce a raft of policies aimed at reforming housing in the UK. Affordability has become increasingly strained in recent years as property prices and rents have surged. To this end, Labour has pledged to reintroduce housebuilding targets, with the aim of building 1.5m new homes over the course of the current parliament. The current plans are to prioritise brownfield land – land that was previously developed but is no longer occupied, and ‘grey belt’ land, which is previously developed land sitting within the green belt. For first-time buyers, a mortgage guarantee scheme will be introduced, similar to the Help to Buy scheme which closed in 2023. Section 21 notices, or ‘no-fault’ evictions whereby tenants can be evicted with two months’ notice with no reason given, will be banned. This is a resurrection of the ‘renters reform’ bill which had not passed when Parliament concluded in the run-up to the election.
As Starmer and his party set out the political tone for the next five years, they will be well aware of the scope of the tasks ahead. Re-energising the economy to promote growth while balancing the needs of an ageing population and crumbling infrastructure will not be easy. Starmer’s comfortable majority may provide him with some momentum and goodwill, but the electorate will want to see visible and meaningful improvements to public life and their personal finances if Labour is to repeat its victory for a second time.
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance.