Our team, in particular, are well underway with initiatives that seeks to reduce the impact of the recently departed dynamic duo (Starmer and Reeves).
When a new Prime Minister arrives, markets don’t ask whether the speeches sound good. They ask a much simpler question – will anything actually change? In many ways it is the same question that people right across the UK are thinking, especially on the issue of tax, given that the last two budgets delivered the biggest tax hikes in memory, one after another.
Our team, in particular, are well underway with initiatives that seek to reduce the impact of the recently departed dynamic duo (Starmer and Reeves). As an example, around £500,000,000 of our client assets are held in pensions, which from April 2027 will then be included in your estate for inheritance tax purposes. As a result, our clients have a potential additional inheritance tax liability £200,000,000 combined, that we of course now need to plan for.
On top of this, and in response to the changes to both income tax and capital gains tax, our investment team have developed new portfolios designed to target both income and capital growth. The new tax landscape means we need to be able to deliver a much more tailored approach to our clients planning needs, such as, the ability to gift from natural income (and gain an immediate exemption from Inheritance tax, rather than having to wait to survive seven years after making a capital gift for it to become exempt from tax), or target capital gains (and benefit from a lower tax rate of 18% or 24% on returns, rather than 20%, 40% or 45%). We do (sadly) expect the tax on the latter to increase inside the next 18 months, so it makes sense to take gains at this tax rate whilst you can.
Another area of focus is the Business Relief market, and again our advice and investment teams are closely monitoring opportunities, as there are reliefs available that provide a 100% exemption from inheritance tax. This is very much a specialist area of advice, though one we feel will become increasingly relevant to clients particularly in the second stage of retirement (post 75).
It is fair to say that legislative changes have increased the demand for our client solutions, and I am sure your respective planning team will be in touch to build positive change into your financial plans to deliver your objectives most effectively.
Of course, politics drives legislative change, and in addition politics impacts investment markets. We have now had five Prime Ministers in the last four years. That statistic alone suggests that all is not well, and certainly investment markets have the UK market priced accordingly, with borrowing costs charged to the UK significantly higher than the US, most European peers, and China. So, with the role out of Andy Burnham this week, we thought it worthy to note his early comments and the impact they might have on the shape of our client portfolios.
One of the biggest signals has been the reshaping of the Cabinet. The appointment of John Healey as Chancellor is seen as a relatively unifying choice for Labour, while changes elsewhere in Government suggest a slightly more pragmatic and economically minded approach than investors had feared. The decision to move Ed Miliband away from Energy and proceed with projects such as Rosebank and Jackdaw we think is positive and shows a willingness to balance environmental ambitions with economic realities. For investors, this absolutely matters. Energy costs remain a major issue for both households and businesses, particularly for growth sectors such as AI and technology. This will have a much greater impact on the economy than shaving 5% off VAT on energy bills or £1 off bus fares.
For housebuilders and construction firms, this could be one of the most significant policy tailwinds the UK market has seen for some time...
If there’s one area where Burnham’s government appears serious, it’s housing.
The return of Angela Raynor to a prominent housing role is viewed positively because many of the planning and affordable housing policies already bear her fingerprints. That continuity increases confidence that reforms could actually be delivered.
For housebuilders and construction firms, this could be one of the most significant policy tailwinds the UK market has seen for some time, and as such our UK equity exposure has increased this week tilted towards companies exposed to housing development. This was funded by taking profits on some banking positions, on the back of a good run, though also on the back of a threat of an increase to levies within the sector.
Burnham has already signalled priorities ranging from housing and public services to industrial policy and defence. The challenge is that all of these require money. Our investment committee are all too aware that sooner or later, governments will have to balance three competing interests: voters, markets and political promises.
Of course, ambition is one thing; funding it is another. It should be noted that Burnham’s housing ambitions in Manchester were heavily touted, though his delivery was poor. By far the most significant contributor to Manchester’s economic growth in recent years has been private sector investment on the back of service industry growth.
The real test won’t be the rhetoric around ending homelessness and sleeping rough, (there are still plenty of sleeping bags on the pavements to Manchester Piccadilly), it will be whether the Chancellor can fund policy ambitions without unsettling bond markets or damaging economic growth. We look forward now to the next budget and will aim to position clients accordingly prior to it (specifically with capital gains in mind).
And to “Manchesterism” itself, Burnham’s vision of greater devolution might carry a compelling political narrative for many, though markets tend to focus on measurable outcomes.
To conclude, our view is that Burnham’s arrival represents a modest improvement to the status quo, largely because it signals a willingness to rethink policies that were seen as holding back growth. Housing reforms, a more practical approach to energy and a greater focus on economic expansion are all welcome developments. This sits against a backdrop of weak growth, strained public finances and competing political pressures. Burnham may have opened the door to change, but whether he can turn those early signals into meaningful economic progress remains the unanswered question.
There’s a sense that the new team at least recognises that the UK needs a different approach to growth, housing and energy policy, so that’s a positive step. The reality of course is that much like our work to improve our clients tax exposures, talk is good, but the hard work starts now.
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Our team at Amber River DB Wood includes Chartered financial planners who look after clients across the East Midlands and beyond.
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