Doubts emerge

Labour facing tough choices on taxes and spending

Keir Starmer at Labour conference
Sir Keir Starmer has said no to EU re-entry, but is coy on taxes (pic: Terry Murden)

Labour is set for a historic majority in the general election despite claims that the “change” agenda will quickly come under pressure as it inherits a fragile economy from the Tories and is forced to raise borrowing or taxes.

Leader Sir Keir Starmer has also ruled out a return to the EU “in his lifetime” and has declined to comment on whether he will launch a raid on pensions, capital gains and inheritance tax.

During a nationwide tour, he poured scorn on those, such as the SNP, demanding a return to the European Union by saying he can see “no circumstances” in which the UK will rejoin the single market, customs union or allow freedom of movement within his lifetime.

His mood was buoyed by a YouGov poll suggesting the Conservatives will be reduced to just 102 MPs, losing more than 70% of the seats the party won five years ago. Labour would hold 431 seats, a landslide majority of 212.

The Liberal Democrats are on track to win 72 seats, giving the party its best-ever performance. Nigel Farage’s Reform has slipped and is expected to win just three seats rather than the five predicted in an earlier poll.

A survey by Savanta suggests 31% of Scots will vote Labour, three points down on the last poll, while support for the SNP is unchanged at 34%, representing a closing of the gap between the two main parties.

According to the pollster Professor Sir John Curtice, Labour, which won just one seat north of the border in the 2019 election, is on course for 22 Scottish MPs, while the SNP would retain 24 seats, far from the wipe-out some had predicted.

Critics say Labour, rather than offering “change” will offer “more of the same” and that this is showing in the polls, particularly in Scotland.

SNP leader John Swinney said: “We all know that the result of the general election in England is a foregone conclusion. Labour will win and Keir Starmer will be prime minister.

“The only story left in this election is here in Scotland, where seats across the country are on a knife edge.

“And the election in Scotland is the only place where there are genuine, competing visions of the future at stake — a real contest of ideas and values. Labour are offering Scotland more of the same and picking up where the Tories left off.”

Another polling company has predicted that eight Tory cabinet ministers will lose their seat, including Jeremy Hunt, Grant Shapps, Alex Chalk, Esther McVey, Simon Hart, Victoria Prentis, Johnny Mercer and Michael Tomlinson. The fate of Penny Mordaunt, Richard Holden and former Tory leader Sir Iain Duncan Smith is too close to call.

Labour expected to raise taxes

Despite the expected swing to Labour, sceptics doubt that it will be able to stick to its promise not to raise taxes beyond adding VAT on private schools and increasing the windfall tax on oil and gas company profits to fund GB Energy.

Benjamin Nabarro, Citi bank’s chief UK economist, said the Labour Party would “ultimately tax and spend more than the current baseline”. He warned that it will launch a £15 billion tax raid on pensions, capital gains and inheritance in the autumn.

Bim Afolami, the economic secretary to the treasury, said: “Labour want an inheritance tax raid to ‘redistribute wealth’ because they do not think you have the right to pass your savings and your home onto your children.”

Gas bill
Labour has promised to cut energy bills but there will be no quick fix (pic: Terry Murden)

Oil and gas companies are nervously reassessing investment plans in the North Sea ahead of a hike in the windfall tax to pay for GB Energy whose role has still not be fully explained beyond co-investing with energy generators.

It is not clear how it will cut household bills unless it is via some form of subsidy. Daniel Johnson, Scottish Labour’s Economy spokesman told Daily Business recently that it would be done “as quickly as possible” but could offer no timeframe.

Hospitality and retail businesses are concerned that new employment legislation and further measures to tackle low pay will add to their costs and potential cause more closures and lay-offs.

Rachel Reeves, who will become Britain’s first female Chancellor, has insisted there will be no changes to tax relief on pensions, inheritance tax or share ownership. She has ruled out paying compensation to the Waspi campaigners who claim previous governments misinformed them about changes to the women’s state pension age.

The Institute for Fiscal Studies and the International Monetary Fund have warned that public finance projections by both Labour and the Conservatives indicate a significant funding gap, of up to £30 billion, unless unscheduled spending cuts are enforced.

Markets unmoved by campaign, value certainty

Markets have been largely unmoved by the campaign as the polls have pointed to a large majority for Labour from the start.

Danni Hewson, AJ Bell head of financial analysis, said: “London markets have been left un-shaken and un-stirred, largely because the polls haven’t deviated from their initial indications.

“Investors like stability, they like clarity, and by Friday they should have a little of both, at least when it comes to knowing who will be sitting behind the big desks at Numbers 10 and 11 Downing Street.

“Though the outcome seems nailed on, there will be cautious scrutiny of the actions of the next government in those first few heady months.”

Nigel Green, chief executive of financial adviser de Vere, said: “The pound’s recent performance indicates that the market has largely priced in the likelihood of a Labour win, which means the outcome of the election will be muted on currency markets.

“In recent weeks, the GBP/USD exchange rate has demonstrated a relatively stable pattern, suggesting that investors are not anticipating significant upheavals. 

“The prevailing opinion among market participants is that a smooth transition to a Labour government will occur, thereby avoiding the uncertainty of a hung parliament. 

“This confidence is mirrored in the consistent behaviour of the pound, which is showing minimal fluctuations.”

Investors’ attention today was focused on comments by US Federal Reserve chair Jerome Powell on Tuesday who said the US was back on a ‘disinflationary path’.

It fuelled a rally in shares as investors interpreted it to mean there is a stronger case for cutting interest rates soon.

“That was enough to trigger a risk-on rally in the markets, with investors bidding up shares in the US, and for the dollar to fall,” said Russ Mould, investment director at AJ Bell.

The FTSE 100 closed 49.92 points higher at 8,171.12.

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