The Memo: What's in store for the UK's economy with Labour in power?

Since Labour won the election, a hot topic of conversation has been the potential impact of the new government on the economy. There are growing concerns that Starmer’s “things will get worse before they get better” approach is set to snuff out large investment opportunities. Financial advisors have reportedly experienced an influx of investors trying to sell off assets ahead of a rise in taxes. The UK has also seen a mass exodus of high-net-worth individuals over the past few months. 

This rise in taxes may also spark large financial institutions to start moving executive staff abroad. This would be a massive hit as the London Stock Exchange has only just regained its status as the largest stock market in Europe after being overtaken by Paris’s in 2022. The boss of Lloyds of London, the largest insurance market in London, has encouraged policymakers to exercise caution in raising capital gains tax, inheritance tax, personal tax and corporate tax, warning that doing so could disadvantage external and internal trade. Banks in New York pay significantly less taxes than those in London, and London banks are projected to pay higher rates of tax than other European capitals as time goes on. This has resulted in lowered expectations for investment and employment growth, and projected equity flows have taken a nosedive. This political uncertainty is being heralded as bad for business while also putting off potential investors. 

This will have an impact on a range of sectors such as corporate/M&A and global financial market matters that UK firms work on. High taxation may also result in UK law firms assisting clients with a potential unwinding of UK operations.