Sir Keir Starmer has been elected the UK’s Prime Minister following a landslide victory for Labour in the General Election. For many businesses, this win signals the advent of a stable government capable of prioritising economic progress, with hopes for significant business investment that the country and economy urgently need.
However, with this victory, the UK’s financial services sector faces the prospect of significant change. The Labour Party’s manifesto, with its broad promises of economic reform, tighter regulations, and a renewed focus on social equality, will have far-reaching implications for the sector. As the new government settles into power, financial services firms must prepare for a new regulatory landscape and adapt to the evolving economic policies that Labour intends to implement.
Tax Avoidance
The Labour Party is aiming to boost tax revenues to fund its proposals by further clamping down on tax avoidance. Their manifesto outlines plans to increase registration and reporting requirements, enhance the powers of HM Revenue & Customs (HMRC), invest in new technology, and build capacity within HMRC. There is also a commitment to intensify scrutiny on tax avoidance by large businesses and the wealthy. While it is anticipated that HMRC’s powers may be strengthened early on, the practical implications of these changes remain uncertain.
Additionally, the Labour Party has vowed to abolish the so-called non-dom status, which applies to individuals whose permanent home, or domicile, is considered to be outside the UK. They also plan to end the use of offshore trusts to avoid inheritance tax and to close the loophole in the private equity industry where performance-related pay is taxed as capital gains rather than income. These changes will impact tax planning, likely prompting accountants to advise clients on how to adjust existing structures accordingly.
Green Investment
One of the Labour Party’s key objectives is to “make Britain a clean energy superpower,” aiming to deliver cheaper, zero-carbon electricity by 2030. Achieving this goal will require significant investment. According to the Labour Party manifesto, Financial Conduct Authority (FCA)-regulated entities—including banks, asset managers, pension funds, and insurers—will be expected to develop and implement credible plans to align with the goal of limiting global warming to 1.5°C, as outlined in the legally binding Paris Agreement on climate change.
Entities regulated by the FCA will need to prepare for these changes. While the specific penalties for non-compliance are not yet clear, it is prudent for organisations to be ready given the new government’s clear policy direction.
Investment funds are also expected to be encouraged to support the green agenda. However, considering the FCA’s focus on greenwashing, it will be interesting to see if investment fund managers and asset managers are hesitant to make green investments due to concerns about meeting the FCA’s disclosure requirements. The Labour Party may need to address this issue if it aims to promote increased green investment.
The Labour Party has started its tenure with considerable momentum, and we await further developments.
