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I wanted to write about things other than the election but very little has happened: another Irish horse won the Grand National, the Rwanda Bill was passed (seemingly inconsequential now), Donald Trump was convicted, Stonehenge was painted orange (idiots), and Julian Assange returned to Australia.
The rest of the news was politics, politics, politics, oh and England won a penalty shootout! You’ll know if they won it by now. I am however pleased to report that markets have been stable, Sterling has strengthened marginally (to 1.29 vs. the US Dollar) and interest rates remain unchanged pending a potential drop. So, I am hopeful I can allay some fears arising from the “what if” questions prior to the election.
Landslide
When I picked up the metaphorical quill for this newsletter, the election results were filtering through. It has been torn up and re-written a few times, but I sealed the lid on the ink well on 10th July.
It has been a challenging ‘write’, not only because it will be out of date by the time it is delivered, but also because, as with all elections, there is a period of limbo and chatter before we establish the finer detail (which is likely to be announced in an Autumn budget).
As such, the October newsletter will probably be a much better barometer of what is to come. Moreover, this newsletter is titled ‘Leadership’, which over recent times has been ‘meandering’ at best.
So let us look at the results from the General Election on 4th July 2024:
majority of 172)
*Including 5 seats for Reform
Of course, the election was more balanced in terms of the number of votes cast:
Exact vote numbers are still being audited.
The ‘first past the post’ system has, on this occasion, clearly worked in favour of Labour and the Liberal Democrats. I wonder if, when assessing the results, these parties will be as vocal in calling for ‘proportional representation’ as they were after the 2019 election? We will see.
The voter turnout was 59.9% (versus 67.3% in 2019), the lowest for twenty years.
One of the major questions on people’s lips has been: was this an enormous triumph for Labour, a massive capitulation from the Conservatives, or a combination of both?
Observations
Whilst I will not take anything away from Sir Keir Starmer, we live in a world obsessed with data. On examining this data, it appears that Labour’s landslide was in fact fuelled by a Conservative capitulation. i.e. less of a Labour ‘win’ and more of a Tory ‘loss’. This is consistent with outgoing Conservative MPs who have found it far easier to cite their party’s demise than accept an iota of Labour strength, a big difference to Tony Blair’s win in 1997. Labour’s huge majority was won on just 34% of the vote (up only 2% on last time). Remarkably their total number of votes fell from 10.3m in 2019 to 9.7m in 2024. The Tories haemorrhaged 67% of their MPs with support falling from 44% of the vote in 2019 to 24% this time, their lowest percentage since 1918. So where did the other votes go? Ed Davey and his Liberal Democrats secured a fantastic result, but the biggest factor was Reform and the Nigel Farage effect. It is reported that 25% of Conservative voters (from 2019) switched their allegiance to Reform who, despite winning just 5 seats, gained over 4m votes from a ‘standing start’ seeded by these disillusioned Conservatives. There is no doubt that Reform were a massive thorn in Rishi Sunak’s side. Whatever one’s view on Reform, it was such a huge win across the country that all parties must take notice. They have become a real threat to both the incumbent and the opposition.
Voter turnout was worryingly low demonstrating huge disengagement in politics. Maybe it will be higher next time if the Labour party see through on their pledge of giving 16 and 17 year olds the vote. Though looking at opinion polls as to how this generation would have voted, Labour might be wise to put out this fire rather quickly, something with which many of us would concur.
One of the biggest changes we have witnessed over the last two elections has been ‘voter fluidity’, whereby the switching of allegiances has increased markedly. The ‘Northern Wall’ is a great example. It was ‘red’ previously, they lent their votes “to get Brexit done” turning communities ‘blue’, subsequently reverting perhaps even ‘redder’ than before. I respect our Northern comrades for this.
I can only imagine the angst they went through in 2019, haunted by voices of their forefathers as they put that cross in the Conservative box. Maybe they will rest easier now.
And so, the electorate has spoken. The Conservative party with: their mistrust, their smear, their backstabbing, their divide, and their three leaders, were obliterated. From Barnard Castle to the betting shop, the UK public (or the 76% of the electorate who voted for parties other than the Conservatives) decided enough is enough. There were few positives for the Conservatives but, personally, I am pleased that Kemi Badenoch retained her North West Essex seat and will possibly throw her hat back in the ring when we have yet another selection process following Rishi Sunak’s resignation.
We commend Sir Keir Starmer and his team. In the fabulous poem ‘If’, Rudyard Kipling opens with
”If you can keep your head when all about you are losing theirs…”.
The Labour party just about kept their heads (although there were some close shaves, including Angela Rayner’s capital gains tax debacle on her property), but the utter mayhem on the Conservative benches made them unelectable for many, even though the economy had started to turn a corner.
It appears that Labour’s landslide was in fact fuelled by a Conservative capitulation. i.e. less of a Labour ‘win’ and more of a Tory ‘loss’.
Well done Sir Keir for bringing your party back from the brink under Corbyn and McDonnell. Now let’s crack on and see what you’ve got. We hope the ‘change’ is positive and, as a nation, we brace ourselves for an increase in taxes. If these are not too debilitating and are invested wisely into public services so that we see a material change for the better, then on balance we might be able to (mis) quote David Ginola with his L’Oréal slogan; “it was worth it”.
Tax
There
has been commitment not to increase Income Tax, National Insurance, Corporation Tax or VAT.
allowances and thresholds though.
We will see what happens to
We await news on Inheritance Tax, non-domicile taxes, Stamp Duty and Capital Gains Tax (where ISAs remain one of the best solutions for individuals).
Some of these, if not all, will likely go up. Similarly, we await confirmation around the likely imposition of VAT on private school fees.
There is a very fine balance to strike, where modest tax receipts from a large number of payers will, cumulatively, reach a far greater total than larger receipts from a few. (Please forgive my rather unsophisticated language here but I don’t want to overcomplicate it).
If we look at capital gains tax (CGT). At the moment, higher rate taxpayers give up 20% of their profits. So, when disposing of a shareholding, individuals keep their original investment plus 80% of the capital gain. This regime is not too penal. It enables investors to lock in profits, pay tax and release funds, which may in turn get spent in the economy, helping to fuel growth.
In recent years, we have been careful to highlight to clients their large holdings on big gains and, where appropriate, have discussed ‘top-slicing’. If, for example (and for the avoidance of doubt this really is an example), CGT rates were to rise to a figure in-line with income tax (with the top rate of 45%), it is not unreasonable to assume that a very large proportion of those who might have sold previously, will now choose to ‘hold’ because the tax penalty is too substantial. This threatens to ‘clog’ portfolios, luring investors into running dominant (and therefore risky) holdings. Importantly, it also may not achieve the government’s desired effect of increasing Treasury coffers.
This is the real challenge facing Rachel Reeves, our new Chancellor, whereby it is much easier to sit on an opposition bench and ‘pick holes’ than to deliver from government. It appears that she has been working in the background with Mark Carney (the ex Bank of England Governor) to see how Labour can encourage private investors to work alongside the public purse in PFI type structures, helping ease the burden on taxpayers. In principle a good idea but execution will be testing.
There is a very fine balance to strike, where modest tax receipts from a large number of payers will, cumulatively, reach a far greater total than larger receipts from a few.
It is much easier to sit on an opposition bench and ‘pick holes’ than to deliver from government.
Reassurance
Prior to the election a handful of clients telephoned asking “what if, as expected, there is a change in government”. Hopefully, I can reassure readers here.
It is a bit of a myth that the FTSE 100 has materially outperformed under Tory rule, which might be the expectation given that the party purports to be probusiness (with lower taxation). There have, of course, been periods of fantastic stockmarket performance coinciding with Tory power (Margaret Thatcher’s second term a case in point), but this has certainly not always been the case (Margaret Thatcher’s third term).
It is Bank of England monetary policy (interest rate changes and quantitative easing) which often has a more significant impact on stockmarket fortunes although, as we all know, even these forces are modest in the context of global economic factors and natural or humanitarian disasters, i.e. if we experience another dot.com bust, financial crisis or global pandemic, markets are likely to fall sharply whatever the monetary or fiscal backdrop.
To help demonstrate this point, even when considering the UK-listed investments that typically make up a reasonable proportion of our clients’ portfolios:
• Does UK politics materially impact the number of cans of Dove deodorant that Unilever sells in the UK, let alone in the emerging markets (where over 60% of sales originate)?
• Does UK politics materially impact the production of, and demand for, iron ore and other vital commodities to ongoing growth, globally, that Rio Tinto specialises in extracting?
• Does UK politics materially impact the requirement for hazard detection devices that Halma designs, keeping people and properties safe around the world?
• Does UK politics materially impact the relevance of the credit data and analysis that Experian is able to supply on over 1bn people and more than 150m businesses worldwide?
Of course, if we invested with a greater domestic focus, materially allocating to companies and sectors such as the housebuilders, retailers and utilities, we would need to factor political impacts more significantly into our investment thesis. However, whilst such investments may be included at the margin, these are certainly not core sectors for our clients’ portfolios.
The devil may be in the detail, but at this stage, Labour’s manifesto has done little to spook either currency or debt markets (or indeed the equity market).
Where the impact of political change is likely to be most felt by our clients (from an investment standpoint) is of course:
• The impact on gross returns from higher/ lower taxes
• The impact on portfolio management, where differing tax regimes will impact the maneuverability of investments (outside of tax efficient wrappers, such as ISAs and SIPPs)
These more ‘direct’ impacts aside, politics can of course impact:
• Currency markets (with a bearing on the Sterling value of overseas investments)
• Debt markets (with a bearing on the value of gilt investments)
– often a reflection of investors’ opinion of the prudence, or otherwise, of the government’s fiscal policy (See the Kwasi Kwarteng/Liz Truss mini-Budget for context!).
Of course, the devil may be in the detail, but at this stage, Labour’s manifesto has done little to spook either currency or debt markets (or indeed the equity market). Nonetheless, it would be a good start to the Labour term if Andrew Bailey and his eight colleagues on the Monetary Policy Committee (MPC) voted to cut interest rates soon.
It is a new party’s prerogative to blame their predecessor for future challenges. The cost of living crisis remains of paramount importance but the Conservatives have handed over with:
• Inflation at just 2%
• GDP growth in positive territory at 0.7% (on a quarter on quarter basis, the highest in the G7)
• Interest rates stable at a long-term average of circa 5%
• Unemployment relatively low
• The FTSE 100 at all-time highs north of 8,000 points
Of course, our country is burdened with considerable debt but Mr Sunak, whilst Chancellor, did support working people and businesses with furlough payments throughout COVID-19 and I commend him for that. Let’s not forget, Sir Keir Starmer and the Labour party were scathing in their view that we came out of lockdown too quickly and, therefore, it is likely that they would have saddled the UK with even more borrowings. So, the change in power has possibly come at a reasonable time rather than a bad time.
The rest of the world
I am hopeful that we might cling on to balanced, centre left politics, subject to Rachel Reeves and Angela Rayner. Wes Streeting has already spoken with reference to the sicknote culture (not something we suffer from here at Barratt and Cooke!) and has said: “I want to end the begging bowl economy”…“and help get Britain’s economy booming”.
These words are encouraging and we look forward to seeing the action. And so, we look at the rest of the world:
France
In my opening comments I spoke of ‘meandering leadership’. I do not claim to know much about French politics. What I do know is in their recent election, rather than meandering, the French people adopted more of a drunken stagger. In the preliminary round of voting they swerved to the farright before correcting by lurching firmly to the left. A ‘sobering’ thought for President Macron, tasked with foreign policy, who will now have a Prime Minister (in charge of domestic affairs) who will have little alignment with his political views. We have already heard calls for a 90% rate of tax! Monsieur Macron’s timing was more confusing than Sunak’s, not least with an Olympic Games looming (which could be bedlam as the French know better than anyone how to protest and strike).
USA
You don’t need me to tell you about the choice, or, more specifically, lack of choice across the pond. The US electorate is faced with an almost unfathomable quandary. The coup to oust Joe Biden from the ballot paper due to his cognitive state seems to be gaining traction, but time is short and the process of a US election is complex. He would be 86 at the end of a further term. I can’t believe he wants it. Perhaps he doesn’t but can’t bear the thought of his adversary regaining the post from him.
India
With a population of more than 1.4bn, almost 1bn of whom are eligible to vote, India is the world’s largest democracy. They went to the polls earlier in the summer, with Narendra Modi elected to his third term in office, though his party (the BJP) did not achieve their expected majority, instead leading a coalition government as part of the National Democratic Alliance. At a time that Chinese growth is spluttering, India is presently the driving force in emerging markets and an increasingly important focus for western corporates.
2024 has been a year of extraordinary democracy in action. Indeed, roughly half of the world’s population will have had the opportunity to vote as Auld Lang Syne is sung, more voters than ever in history. Of course, not every democracy is born equal. In the UK, we should celebrate the fact that we live in a true democracy where the public are empowered to make a choice. All votes are valid and we have an electoral system which is fair and without corruption, sadly this isn’t the case in so many countries. To see power transferred peacefully, by way of a simple switch of sides in the House of Commons, really is a true blessing.
2024 has been a year of extraordinary democracy in action. Indeed, roughly half of the world’s population will have had the opportunity to vote.
Conclusion
This newsletter revolves around a change in leadership and I’d like to end it by paying tribute to a true leader, the inspirational Rob Burrow. You might not be familiar with the brilliant game of Rugby League; all you need to know is that Rob was tiny in stature but a giant on the pitch. The diminutive scrum half helped lead Leeds Rhinos to eight Super League titles. Rob was diagnosed with the awful and debilitating MND (Motor Neurone disease) in 2019, which he battled with total positivity and great strength, supported by his amazing wife, Lindsey. With the unwavering support of his teammate and best friend, Kevin Sinfield, Rob managed to raise more than £5m for charity.
Very sadly, on 2nd June, his body finally gave in, but his spirit lives on. Rob was an inspiration. I urge you to watch the documentary “There’s only one Rob Burrow” but, have a handkerchief to hand, I cried a lot out of utter admiration for him, his family, his friend Kevin, and their collective courage in raising awareness about this terrible disease. There is a saying I’ve always rather liked “It’s not the size of the dog in the fight, it’s the size of the fight in the dog”. Rob Burrow had spirit and fight in abundance and demonstrated absolute class both in victory and defeat. He was a true leader both on and off the pitch.
For those of us who may have voted Conservative it might be worthwhile considering this: had they got in, what would have happened? The hubris and air of invincibility could have reached even greater heights, and, as many ex Tory MPs have conceded, the electorate needed to hit the re-set button, taming a careering juggernaut. In James Cleverly’s words, the “bitter infighting” needs to stop, they “need to get their act together” and “conduct a sensible post mortem” then, and only then, will they be in a position to oppose and ‘kick on’.
So, as we bid goodbye to some big names: Truss, Rees-Mogg, Coffey, Shapps and Mordaunt, we welcome: Farage, Tice and Starmer to the hot seat. We look forward with hope.
• Hope that Labour can unite the country.
• Hope that they do indeed look out for the most vulnerable in our society.
• Hope that they have a sensible plan for ‘change’, where increases in tax are proportionate and not debilitating on individuals or businesses.
• Hope that a good proportion of these taxes are spent on defence as safety should be any leadership’s primary concern.
• Hope that they have a reasonable solution for immigration where our small island is so densely populated and our ability to fund public services is limited.
• Hope that England’s green and pleasant land is protected, as murmurings about developments on greenbelts are worrying.
We have entrusted the Labour party to look after us for the next five years and we look forward to hearing what the first move is. Perhaps it will be an attacking pawn to E4, safe in the knowledge that there can be no Sicilian Defence in response. The size of the majority and the consequent inability of the opposition to hold the Government to account is probably our most significant fear. We will see, the budget will tell us much.
Come on Sir Keir: “Let’s be ‘avin’ you”. Keep Britain Great. Good luck, we’re backing you and whilst the outcome of this bet is unknown, we have much hope.
William Barratt Chairman July 2024
We have entrusted the Labour party to look after us for the next five years and we look forward to hearing what the first move is.
July 2024 equity suggestions
* Equivalent Gross Redemption Yield for Index Linked Gilts assuming RPI inflation averages 3% or 5% to redemption. ** Price adjusted for inflation (please note the published price may be different as it does not include accrued inflation)
