Yesterday we broke down the main points from the Conservative party’s 2019 election manifesto. With the Conservative party projected to win the elections, a Labour party win would represent a significant market shock. The impact on the British Pound from such an outcome could be quite severe. This is especially true given the contrast in policy proposals contained in the two leading party’s manifestos.
Key Aspects of the Labour Party’s Manifesto
Labour leader Jeremy Corbyn takes a significantly different approach to Brexit than Boris Johnson. Corbyn aims to renegotiate a Brexit deal with the EU within three months. The deal would be aimed at establishing a new EU-UK customs union, maintaining close alignment with the EU single market. Notably, Corbyn’s deal would also afford EU nationals the right to stay in the UK after Brexit while also giving UK nationals the right to remain in the EU. The terms of this deal would then be offered to the UK public, within six months, as a legally-binding referendum.
The impact on the UK economy here is tough to call. While the prospect of further uncertainty (Brexit deadline would need to be extended again) might lean on the Pound in the short term, the prospect of Brexit being cancelled could help fuel a rally in Sterling. If a second referendum finally resulted in Brexit being revoked, this could see the Pound much higher.
On Spending and Taxation
While the Conservative party has pledged to keep taxation at current levels while planning a mild increase in public spending, the Labour party has more radical plans. Corbyn plans to heavily increase public spending which would be funded through tax increases on corporations and those earning over £80k per year. In total, Corbyn plans to increase public spending by £83 billion, putting an end to the decade of Tory austerity which has racked parts of Britain.
Corbyn’s plans to step up public spending could ultimately be growth positive while the extra income derived from taxation increases would also be beneficial. However, concerns over how businesses might react to higher taxation levels could result in capital outflows from the UK with businesses relocation to more attractive environments abroad.
One particularly controversial proposal is that of nationalisation. Labour proposes to nationalise big the big six energy firms, National Grid, the water industry, Royal Mail, railways and the broadband arm of BT. Such a move would be the biggest programme of nationalisation since those operated shortly after the outbreak of WWII.
As we have seen among all the main parties in this election, Labour has supported maintaining the “triple lock” pension meaning that each year pensions will rise by the highest level out of the annual CPI increase, wage growth or 2.5%. However, Labour has taken a different stance when it comes to the pensionable age. Against a backdrop of recent increases in the age at which UK workers will receive a pension, Labour has pledged to freeze the pensionable age at 66.
While this plan, if delivered, would clearly be incredibly costly for the government to operate, it would mark a significant increase in the standard of living for most people and would obviously be very popular with middle-age voters.
In contrast to the Conservative party’s proposal for a points-based system, the Labour manifesto promises to protect and extend freedom of movement. Specifically, with regards to the EU, Labour said that it will seek to protect the rights of movement among both EU and UK citizens. While this policy would certainly benefit the many Brits which travel to the EU each year, the prospect of continued immigration from the European bloc is certainly divisive.
On The Climate
With the climate becoming one of the most important issues of the elections, especially among younger voters, the Labour party’s promise to bring forward the zero-emissions target has drawn a lot of attention. The Conservative party said it is aiming for net-zero emissions by 2050. However, Labour wants to achieve this target by 2030. This represents a significant improvement on the Tory party’s proposal if delivered.
The Labour party manifesto has been incredibly controversial. Delivered under the slogan “It’s Time For Real Change”, the manifesto presents a radically different view on how to handle the economy and social care in Britain. Many critics have been quick to blast the socialist-undertones to Jeremy Corbyn’s plans, specifically calling his economic proposals un-realistic and reckless.
However, on the backend of ten years of Tory austerity, the prospect of an expansionary programmed aimed at rejuvenating social care in Britain is one which many parts of the country are desperately in need of. Many economic experts have come out in support of Corbyn’s proposals arguing that his programmed of “targeted investment” would actually help strengthen the economy more broadly, creating a much better growth environment. At the same time, the planned increases in social care and focus on protecting the environment, offer a much fairer playing field than the one we have seen in the UK under the Conservative party this decade.
If we do see yet another elections upset. and Corbyn takes power, there could be some initial downside volatility in the Pound as the market adjusts to the shock result. There would certainly be a great deal of uncertainty among the business community which might cause investors to pull money out of the UK. However, with the prospect of Brexit being cancelled as a result of a second referendum and with a programme of fiscal expansion, in the medium to long term, the UK economy could actually benefit highly, bringing money back into the UK and sending the Pound higher.
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