On Friday 5 July, it was confirmed that the Labour party had won the General Election, returning to power for the first time in 14 years.
With the electoral campaigns behind them, the party, along with newly elected Prime Minister, Keir Starmer, and Chancellor, Rachel Reeves, will now turn their attention towards the UK economy and what they call ‘a mandate for growth’.
But how do Labour intend to do this and what plans do they have for businesses across the UK? We’ve read through the manifesto and highlighted some key aspects.
Tax
Corporation Tax
Labour plans to maintain Corporation Tax at the current rate of 25%. Within their first six months, they intend to outline a future business taxation strategy. The positive news is that Corporation Tax is unlikely to increase this year.
VAT
We can now expect changes to VAT on school fees. Matt Orange, Head of Indirect Tax, has outlined this flagship policy.
However, they have yet to detail their stance on VAT regulations for other businesses, including the VAT registration threshold, which currently stands at £90,000.
Personal Tax
The Labour Party in the past has talked of taking the lowest paid out of the taxation net; might we now see an increase in the personal allowance and employee NIC rates to facilitate that?
Another idea that has been around on and off is that of a universal basic income, which might replace the personal allowance and be withdrawn via the tax system for those on higher incomes.
Labour have also committed to reforming “non-dom” taxation which affects UK residents with assets and income arising overseas, but who are nationals or long-term permanent residents of other countries.
R&D Tax Reliefs
The party has indicated they will maintain the current structure of R&D tax credits over the next parliament to provide stability, alongside maintaining the patent box, which supports the commercialisation of IP in the UK.
Tackling Tax Avoidance and Evasion
We may also see major changes in cracking down on tax avoidance and evasion. This could lead to a rise in penalties. Labour stressed that it will, “modernise HMRC and change the law to tackle tax avoidance.” They are also committed to increase registration and reporting requirements, strengthen HMRC’s powers, invest in new technology and build capacity within HMRC.
The party has also suggested a harsher stance of “tax dodgers” with up to £555M additional funding to HMRC; representing an additional 5,000 staff and investment in infrastructure and non-domiciled taxation.
Business Rates
Labour plans significant changes to business rates, aiming to replace the current system with “one suited for the 21st century.” This change is part of their strategy to support small businesses, especially those with physical premises.
Employment
The Labour party has committed to enhancing worker protections by banning zero-hours contracts, ending fire-and-rehire practices, and eliminating qualifying periods for basic rights. This means abolishing the requirement of two years of continuous service before an employee is eligible for statutory redundancy pay and protection against unfair dismissal.
Additionally, they plan to remove the 26-week qualifying period for parental leave and establish a single worker status for everyone except the genuinely self-employed.
Trade Policies
While Labour has been vague about their plans for EU trade, they may pursue a new approach, focusing on worker protection and potential new regulations. They have confirmed that they have no plans t rejoin the European Union which the UK left after the referendum in 2016.
Supply Chains
Changes in trade policies can significantly impact supply chains. Businesses may need to adapt to new sourcing strategies, re-negotiate contracts, or manage increased costs due to tariffs or import/export restrictions.
Sustainability
Opportunities to integrate sustainability into your business may increase as the government seeks long-term solutions to encourage greener practices. Labour plans to implement a clean energy strategy. This includes imposing a windfall tax on the excess profits of oil and gas companies to help alleviate the cost of living.
What else could come into fruition?
Certain sectors are anticipated to experience more significant impacts due to the Labour government’s policy agenda.
The Labour Party’s manifesto includes plans to invest £24 billion in various green initiatives, which could boost infrastructure-related stocks as the government aims to expedite the transition to a more sustainable energy system.
Labour’s commitment to increasing defence spending to 2.5% of GDP could lead to greater investment in the UK’s defence industry, benefiting companies involved in military equipment and technology production.
The energy sector might face some volatility as the new government’s plans for potential changes to windfall taxes become clearer. Investors will be closely watching the government’s approach to this issue and its effects on the profitability and investment decisions of energy companies.
So, those are just some changes that could happen with Labour as our new government. We’ll ensure to keep you updated as Keir Starmer prepares to take on his new role as Prime Minister.
