General Election ’24: the takeaway for business

The votes are in and the UK is set for a new government. What might that mean for UK Plc?

05 Jul 2024 . 4 min read

Consistent pre-election surveys signalled it, while the exit poll all but confirmed it: a Labour majority so sizeable it warrants the already-worn hashtag ‘Starmergeddon’. By mid-morning on 5 July, Labour had won 412 of 650 constituency seats, putting Sir Kier Starmer as the new Prime Minister, joined by Rachel Reeves as Chancellor.

While Labour has not shared its full economic plans – expect an autumn Budget for that – it has indicated the direction of policies over the coming term. What are the takeaways for businesses, and what targeted support might different industrial sectors enjoy?

During the course of the election we have followed the major (and minor) developments. Below is a summary of the policy announcements we’ve seen and, with an obligatory asterisk, what we may expect*.

Economic and business policy - delivering ‘secureonomics’

Industrial Strategy focused on climate, data, caring and resilience. Emphasis on setting clear market framework.
To increase exporting opportunities for SMEs.
25% Corporation Tax cap, with Capex reliefs to remain. Long-term business taxation roadmap due in the next parliament. 10-year R&D tax policies.
Audit and corporate governance reform.

Education, skills and employment – Labour market is a priority

VAT on private school fees, with timing unknown. Silent on tuition fees.
Support spinouts to translate research into growth, helped by British Business Bank (BBB) using Regional Funds to match funding for Spinout Seed Funds.
Reform to the Apprenticeship Levy, with a new Skills England to help identify and address core skills shortages.
To ban on zero hours contracts, add rights and reform the minimum wage.

Net Zero transition and energy – using private capital to invest in climate

Retain the 2030 target for 100% clean power, plus significant expansion of clean power targets and changes to the Contracts for Difference regime.
To invest £7.3bn in a National Wealth Fund, based on a 3:1 private/public split.
To deliver 55GW of offshore wind by 2030, 35GW of onshore and 60GW of solar.
New nuclear projects at Hinkley and Sizewell, to extend the lifespans of existing plants, and back small modular reactor (SMR) technology.

Retail, leisure and hospitality – backing the High Street

Expand support for Banking Hubs.
Replace business rates with a new system.

Agriculture – focusing on sustainability and resilience

Reduce UK consumers’ reliance on imports, supporting “high quality, local produce” and reducing food insecurity.
Improve the post-Brexit Environmental Land Management Scheme and introduce a land-use framework.
Seek a veterinary agreement with the EU to cut costs and red tape for food exports.

Technology – supporting innovators

Using the BBB to support regionality, underserved communities, and matched funding for Spinout Seed Funds. Increased mandate and greater budgetary freedom.
Further develop the Mansion House Compact to unlock institutional capital.
Create a Regulatory Innovation Office to support new approaches to regulation.
To push for full gigabit and 5G coverage by 2030.
Update national planning policy to ensure it is easier to build laboratories and digital infrastructure.

* - Other runes may be cast

There’s always a ‘but’: the economic backdrop means fiscal consolidation is likely

The overriding economic policy challenge – acknowledged by Labour – is to improve the UK’s lacklustre economic growth. Labour’s Manifesto sets out the (distinctly ambitious) goal of ‘securing the highest sustained growth in the G7’. Alas, on a per capita basis, UK Gross Domestic Product (GDP) growth has languished towards the bottom of the G7 since the 2016 Brexit referendum.

UK trend GDP growth rates appear to have deteriorated from around 2.75% during the Great Moderation (1998-2007) and around 2% in the decade following the Global Financial Crisis to before the pandemic (2010-19), to around 1.25% on some estimates. The latest Office for Budget Responsibility (OBR) forecasts, from the March 2024 Budget, are however relatively optimistic for UK output: averaging 1.85% between 2025 and 2028, albeit without much scope for upward revisions to its growth assumptions.

The incoming Labour Government’s fiscal inheritance is unenviable. To achieve the principal fiscal rule – for public sector debt as a percentage of GDP to be falling in the fifth year of the official forecast – the structural budget deficit (the cyclically-adjusted primary budget) needs to move from a substantial stimulus (averaging around 4.5% of GDP over the past five years) to broad balance by next year and then ever larger surpluses.

The Institute for Fiscal Studies has described the debt rule as ‘an arbitrary and gameable target’. But to be seen to be credibly trying to achieve this will require government to deliver genuine fiscal tightening (not simply promised). That will entail a significant, multi-year fiscal consolidation – dramatically different to the years of largesse since the pandemic.

Get in touch

To speak with our market specialists about the UK policy outlook and what it could mean for your business, get in touch with your NatWest representative or contact us.

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