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UK Election Brings Few Hopes or Fears to Cautious City of London


Hey there, finance aficionados! With the UK election around the corner, all eyes are on the City of London. The financial sector is navigating a sea of cautious optimism mixed with a fair bit of wariness. Labour’s pro-business overtures are making waves, but there’s still some underlying tension about how their policies might unfold. Let’s dive into what’s happening in the City and why this election is stirring both hopes and fears among London’s financial elite.

Labour’s New Approach: A Shift in Tone

Keir Starmer’s Leadership

Under the leadership of Keir Starmer, the Labour Party is making a concerted effort to win over the City of London. This is a significant shift from the last election in 2019 when Jeremy Corbyn’s radical manifesto aimed to increase public investment through higher taxes on companies and top earners, leading to Labour’s worst result since the 1930s.

Pro-Business Stance

Starmer’s approach is more pragmatic. Labour has been courting the financial sector, understanding that economic growth plans will need substantial private capital. William Wright, managing director of think-tank New Financial, notes a significant shift in Labour’s mindset towards the City in recent years. This is evident in their support for ongoing reforms to capital markets and pensions aimed at ensuring continuity and stability.

Key Figures and Policies

Rachel Reeves: The Expected Finance Minister

Rachel Reeves, a former economist at the Bank of England, is poised to become Britain’s finance minister if Labour wins. Her background brings a level of reassurance to the financial sector. Labour’s backing of the Conservative government’s post-Brexit ‘Edinburgh Reforms’ to maintain the City’s global competitiveness has also been a welcome move.

Pension and Savings Industry Review

Labour has promised a review of the pensions and savings industry. This could not only boost Britain’s capital markets but also enhance the financial resilience of the population. However, there’s speculation about potential changes to capital gains and wealth taxes, as well as Reeves’ plans to alter how private equity is taxed.

Industry Reactions: Cautious Optimism

Engagement with Private Equity

Michael Moore, chief executive of BVCA, a private equity industry body, highlights Labour’s willingness to engage substantively with the business community. While Reeves has vowed to close a “loophole” allowing some private equity earnings to be taxed as capital gains instead of at the higher income tax rate, she has indicated that favorable tax treatment will continue in cases where fund managers invest their capital.

Post-Brexit and Truss Impact

Resilience Post-Brexit

Many of Britain’s top bankers and financiers are relatively unphased by the prospect of a left-leaning Labour government, having already weathered the significant impacts of Brexit and the fallout from then-Prime Minister Liz Truss’s plans for unfunded tax cuts. The industry has had positive and constructive conversations with Labour since 2019, and if they win, few new governments will have entered office better briefed on the financial sector’s needs.

Ongoing Challenges

Fixing the damage to investor confidence and the leakage of financial services to the EU caused by Brexit will be a tough challenge for Labour. The UK’s share of cross-border bank lending has fallen since 2016, and Amsterdam has overtaken London as Europe’s top share trading venue.

Seeking Certainty and Stability

Implementing Agreed Reforms

Market participants are eager for financial sector reforms to be implemented properly under Labour. The total tax contribution of the economic and related professional services industry was a whopping £110.2 billion in 2023, more than the UK government’s education budget or half the health budget.

Stock Market Listings

Imminent changes to Britain’s rules on stock market listings aim to attract big-ticket initial public offerings (IPOs). The Financial Conduct Authority’s listings revamp could spur a flurry of corporate activity from end-July, potentially bringing in significant business for the City.

The Broader Economic Backdrop

Economic Recovery and Public Debt

Britain’s economy has pulled out of recession at a faster pace than previously thought in the first three months of this year. However, the broader economic backdrop remains fragile. UK public debt is high, nearly equivalent to GDP, with prospects of tepid growth. This has led analysts to conclude that taxes will inevitably rise to shore up health and other services, making the financial sector a potential target.

Business Sentiment: Wanting Certainty

Views from the Industry

Naresh Aggarwal, associate policy & technical director at the Association of Corporate Treasurers, succinctly states, “Business wants certainty.” M&G Investments also notes that a Labour election win is unlikely to fundamentally alter the direction of the UK equity market, where valuations are depressed compared to Wall Street.

Potential for Radical Changes

Labour’s Possible Shift in Government

William Wright of New Financial cautions that Labour may be more radical in government than in opposition, a view echoed by Samuel Gregg of the American Institute for Economic Research. Gregg points out that the City should recognize Labour as a more left-leaning party than during Tony Blair’s heyday, which could introduce more uncertainty for the financial sector.


As the UK heads towards a potentially transformative election, the City of London is navigating a path of cautious optimism and wariness. Labour’s pro-business overtures and commitment to stability have been well-received, but concerns about future tax policies and economic management remain. For now, the financial sector is bracing for changes, hoping for continuity, and seeking the certainty that is crucial for its operations. The election’s outcome will undoubtedly shape the future of the City and its role in the global financial landscape.

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