Relax! It’s just the General Election
It’s election time. No, please, stick with us.
Yes, we’re over two weeks into the election campaign now (and still with another three-and-a-half to go). It’s not unusual at this stage for some of us to be suffering from a touch of election coverage burnout.
At least this year there’s been some amusing moments along the campaign trail to give us some light relief. That first rain-soaked announcement outside No. 10, some ill-judged photo opportunities, a party leader falling off his paddleboard, and the two main rivals being told off like school children for shouting over each other in their bad-tempered TV debate (ok, that last one was more annoying than amusing).
Even so, wall-to-wall election coverage can be a bit much sometimes.
At least we can be sure of one thing: while markets can get a bit panicky over the impact of elections, the situation for our investments is not always as terrifying as we think.
What impact do elections actually have?
There’s a general assumption among investors that markets like Conservative victories, and don’t like Labour ones. The Tories have traditionally been seen as the most ‘pro-business’ party (although Labour is doing its best to challenge this notion).
However, research of returns for successive parliaments since 1997 suggests this might not be the case. According to the data published here, the only session when annual returns of UK Investment Association fund managers fell, was in Tony Blair’s second spell in charge between 2001 and 2005 (Blair’s time in office coincided with both the growth of, and bursting of, the tech bubble). Despite other parliaments including the Brexit referendum, Covid, and the Global Financial Crisis, markets still went up. On the face of it, who was in charge wasn’t the most important factor.
What will happen this time round?
This isn’t the to say that the election has no effect at all.
Specific sectors might see a boost if a particular policy goes their way, such as promises to build more homes – a perennial favourite of politicians. They can also suffer if a policy goes against them, such as pledges for windfall taxes on energy companies. Whoever wins will have the chance to make big calls on the direction the nation takes over the next few years.
So far, with their manifestos yet to be published, we’ve not seen too much in terms of big policy announcements (apart from the Tories proposal to reintroduce National Service).
In recent days, Labour has said it wants to make it easier for first-time buyers to get a mortgage, by making the state a guarantor. Its leader Keir Starmer also says he wants to permanently close what the party refers to as non-dom ‘loopholes’. It’s also been claimed the party is considering increasing Capital Gains Tax. Meanwhile, the Conservatives have said they are the only party that is committed to keeping taxes low.
A return for the Lifetime Allowance?
One area we have been asked about by our clients is what Labour’s victory could mean for the pension’s Lifetime Allowance.
The LTA limited the total amount you could pay into your pension tax free to £1,073,000. It was abolished in the most recent budget. Labour have said they want to reinstate it.
The latest reports suggest Labour is no longer planning to do this. Reimposing the threshold would be complicated – and probably not enough of a vote winner. Even if they do. it’s worth pointing out that pensions and tax regulations fluctuate all the time – even between elections. Our role as financial planners is to keep a close eye on what changes from year to year, and make sure your savings and investments are as tax efficient as possible.
We are watching closely to see what impact – short or long term – any new policies could have. And we’ll be back in touch to update you if we do see something that could shift the dial for your finances.
In the meantime, relax.
Elections are important, they affect many aspects of our daily lives. But whichever party is in power, we’ll be on hand to help you make the right decisions.