CORBYN ARE YOU READY?
UK investors and taxpayers should be asking themselves the following three questions. What is the likelihood of a Corbyn-led government some time between now and 2022? How would such a government affect my tax position? What is the wider market impact of the Labour government or Labour-led coalition likely to be?
Jeremy Corbyn is the most likely future prime minister, according to both recent polls and the bookmakers. Labour needs to win only seven more seats to be in a position to form a coalition with other parties, such as the Scottish Nationalists.
With many wrong-footed by the results of the Brexit vote, it would be prudent to accept the very real possibility of Corbyn as Prime Minister. Although the next general election is not due until 2022, many think the current government will fall sooner.
In its last election manifesto, Labour promised that it would raise public spending by £48 billion. This is to be partly funded by higher personal taxation on the country’s top earners, while also significantly increasing corporation tax. Tax will also be levied on private school fees and private medical insurance.
According to the Taxpayers’ Alliance, Labour’s additional spending commitments came to around £100 billion excluding its re-nationalisation plans, so taxes may have to go up even further.
Taxpayers should consider the impact of these proposals on their personal tax bill and what steps they might consider taking now.
How will investors and those with long-term retirement savings be affected by a Labour victory? There are two schools of thought. The first sees the long-term impact as mild, with the UK in effect changing course to follow a Scandinavian model of higher taxes combined with higher welfare spending.
At the other end of the spectrum, Morgan Stanley recently advised its clients that a Corbyn government would wreak havoc on the UK stock market and the pound.
Other commentators have also said the UK government’s credit rating is likely to be downgraded, leading to a rise in interest rates.
What is sure is that Labour has openly acknowledged it has plans for a likely run on the pound if it wins at the polls. Likewise, it has committed to re-nationalising railway, water and energy companies, as well as the Royal Mail group. Investors therefore need to run through a basic checklist of how their savings and investments are likely to be affected in this scenario.
At Best Interest Consultants, our view is forewarned is forearmed. Although a Labour- or Labour-led government may not materialise, the prospect, combined with the host of unknowns surrounding Brexit, may lead to the reassessment of the UK as a high-risk economy and investment destination. Some have pointed to the overall relative weakness of the pound and the UK stock market, as already reflecting this as a reality. Over the coming months, we will be addressing these issues in a series of complimentary briefing papers and webinars.
The UK may become viewed as a high-risk economy’