What does the City think about Labour’s plans for government?
City figures were cautiously optimistic about Labour’s plans for government despite the party confirming its raid on private equity bosses.
The manifesto, released this week, contained no major promises that had not already been announced. It committed the government to developing a “new partnership” with businesses to generate economic growth.
In a far cry from the party’s 2019 manifesto, Labour identified financial services as “one of Britain’s success stories”, committing to supporting growth in the sector through a pro-innovation regulatory framework.
Miles Celic, chief executive at TheCityUK told CityAM: “Labour’s engagement and ongoing consultation with the industry…is reflected across the manifesto”.
“There is a clear commitment for that to continue should they be elected. It sends a positive signal to investors, as does their focus on ensuring stability, predictability and driving growth,” Celic said.
“The real test will come with implementation. We’ve now had the prospectus, but the acid test is always in how the management team delivers.”
A spokesperson from UK Finance, the banking lobby group, also said the early signals were positive.
“We welcome the fact that Labour say financial services is one of the country’s greatest success stories and, if elected, would support innovation and growth in the sector,” they said.
Labour also confirmed plans to consolidate the UK’s sprawling pension sector and stimulate domestic investment, which echoes much of the current government’s pension push.
Both parties are looking to unlock what could be a £2 trillion pot of retirement capital.
Last year, the Conservative government coerced ten of the top pension money managers in the City to commit five per cent of their assets to UK growth companies, a move that Rachel Reeves had previously backed.
“Labour is supportive of the direction of travel from the Conservative Mansion House speech – seeking to drive UK pension funds to invest in UK assets – something not mentioned in the Conservative Manifesto,” said Adrian Kennet, director of Dalriada Trustees.
Private equity fund managers might be a little less warmhearted towards Labour, however, after the manifesto confirmed plans to close the carried interest loophole, which allows dealmakers to pay less tax.
Under the current arrangements, gains from private equity deals are taxed as capital gains at a 28 per cent rate, rather than income at a rate of 45 per cent.
“Private equity is the only industry where performance-related pay is treated as capital gains. Labour will close this loophole,” it said.
Jason Clatworthy, Managing Director at Alvarez & Marsal Tax said this change would be a “massive concern” for fund managers.
“Most major European jurisdictions have specific tax regimes for carried interest, set up to be at least as attractive as the UK regime in order to attract fund managers. As a result, it comes as no surprise that many private equity managers are already evaluating their options and could aim to be ‘bag ready’ when the reform comes in.”