Current polls indicate that Jeremy Corbyn would be elected British Prime Minister if a general election was called. This has led to an increase in the number of reports suggesting Labour’s proposed policies would disproportionally harm the personal wealth of affluent individuals.
Whilst we are not commenting on the impact of tax or other legislative change on personal financial planning, we do believe that a change of government may not be as bad for investors as some fear. Below, we explore the likely realities and opportunities that could be presented by a Corbyn-led Labour government.
Research we conducted last year revealed that more than two-fifths of High Net Worth individuals ranked the prospect of a change in UK government as one of the main threats to their finances. From conversations with our clients, it is clear that this concern has not dissipated, and perhaps with good reason. Newspapers frequently cite industry commentators warning of the danger posed by a wealth tax should Corbyn enter office. Such a levy could encourage capital flight, inhibit investment and lead to sterling depreciation.
But there are also potentially good outcomes for the economy if Corbyn was made Prime Minister. For instance, Labour would likely increase spending on infrastructure. As the solution to the UK’s persistent productivity puzzle remains elusive, diverting more resources to domestic infrastructure could help fill the gap and boost the economy.
Capitalising on potential
Whatever the political outcome over the coming months, we suggest that investors place less focus on the noise surrounding hypothetical political changes and pay close attention to company fundamentals as a guide to sound investment strategy when thinking about their personal wealth. A firm’s business model and balance sheet, and the valuation of its shares provide the most objective indications of potential future returns.
Furthermore, most investors saving for retirement have a time horizon of 20-30 years. This is a significant length of time. Looking back three decades, the Berlin Wall was still standing, Chinese economic reforms had barely started, and the internet was in its infancy. So, investors can be sure that there will be further political changes before their investments are realised.
And if political events do cause the pound to weaken, shrewd investors could in fact gain from such a scenario, as many UK-listed companies derive the majority of their revenues from overseas.
Additionally, a lot of domestically-focused UK businesses are extremely robust, yet trade on very depressed valuations that discount worst-case scenarios. Consequently, they have huge potential as investments if the outcome of Brexit is better than expected. And, of course, there is a wealth of opportunity among international companies.
No guarantees – good or bad
It is important to remember that this is all hypothetical – specific policies are still no more than proposals and no general election has been called. Therefore, we encourage investors not to get distracted. The most important thing is to keep transparency, flexibility and diversification within your portfolio, and ensure it is structured tax efficiently.
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