Change of Guard - How the direction of British politics will shape wealth management

Wealth Management and Private Banking

08 June 2023

GeopoliticsGrowthInvestmentsManagementMeeting of MindsRegulationWealth Management and Private Banking

Expert: Michael Grady, Head of Investment Strategy and Chief Economist, Aviva Investors Facilitator: Niall Buggy


  1. UK is bottom of G7 growth and Starmer has said he wants to become first in his first term
  2. Share of investment by GDP is low end in international standards, which needs to be addressed through government investment or incentives. Not seen in Conservative govt.
  3. The impact of Brexit is becoming clearer after Covid. Recent academic papers showing 5-10% impact on trade – more on export side
  4. Some cost pressures are coming through that are not easy to substitute: 3-4% of food inflation may have come from Brexit which means will persist
  5. However, the UK is ahead of its peers in attracting FDI and investments into financial services. 


Challenging starting position for new Government.

Several recent shocks: Brexit, Covid, War in Ukraine, coupled with some key structural challenges to evolve over the next 20-30 years:

  1. Climate change and what needs to be done to achieve net zero.
  2. Changing demographics, including UK migration.
  3. Shift in western economies approach to globalisation: an increase in “friend-shoring” and withdrawal from China and other non-friendly states.
  4. Global defence.
  5. UK has lost 500,000-600,00k from workforce since covid: not all long covid, so better worker outcomes needed to attract them back to work.
  6. Overreliance on fossil fuels, especially those from overseas, e.g. Russian gas.

Direction of travel of the British economy - average GDP & productivity growth, respectively:

1997 – 2007: 2.5% and 1.5% (Last Labour government)

2010 – 2016: 2% and 1% (Post financial crisis recovery)

2017 -2019: 1.75% and 0.5% (Post Brexit)

2022 – 2026: 0.6-0.7% and >0% (Post Covid, including BoE forecasts)

Changing Government and their priorities.

  1. Tories are at the point of dysfunction, and it is looking like (as of today) it will be a Labour plus partner arrangement.
  2. Rachel Reeves – shadow chancellor – will be an important person in government: she is well qualified and highly credible.
  3. She outlined strategy: underappreciation of role of govt; and people and places matter across all UK, not just London & SE. Delivery on levelling up, so far, is almost non-existent.
  4. Rachel Reeves talks about ‘Securonomics’ – security of energy, food, technology and health. Global issues that the Tories have been slow on.
  5. A Labour led government will have an activist role in many industries. Push growth towards high value add services: UK’s competitive advantage is professional and financial services – no point restarting manufacturing.
  6. Focus will be on decarbonisation and investing outside London and SE
  7. Energy: green and nuclear will be key, possibly under “GB Energy” which will modelled on the French EDF. More money/subsidies behind it. Like US & EU. Whilst not mentioned, there will be no issues with windfall taxes
  8. Life sciences, professional services, and education will be priorities
  9. EU: some form of customs union likely to be negotiated c. 2025 at first review of EU-UK relationship.

Changing the rules to enact the policies:

  1. Labour know they cannot be seen dropping the ball on public finances.
  2. They will likely change the fiscal rules to help them out:
  3. A) Exclude investment spending will give them more scope to direct investment spending
  4. B) Finance directly through a project and not through general revenues
  5. C) Public-private partnership arrangements have been mentioned.
  6. D) Government debt rules are likely to be changed to using an average over parliament.
  7. E) Taxation – very little said, over the “political” changes such as remove non-dom, vat on school fees, other impacts on higher earners and asset owners. No discussion on CGT, yet. 

Sovereign wealth funds are very in fashion (e.g. Ireland, Australia) but for the UK where does the money come from?

Key takeaways:

  • Structural reforms of this scale, especially in energy, are difficult to deliver on in the timeframes needed, and there are competing countries around the world pushing the same agenda. E.g. US, EU and China are looking to build c. 150 nuclear reactors
  • The UK is starting from a relatively weaker position than its competitors
  • The US election is a risk – Labour’s policies follow Biden’s, however the recent trip by the PM showed a US-UK trade deal is not on the US agenda
  • So far, regulatory change has not been mentioned by Labour
  • A Labour government would find it easier to reform NHS than a Tory government