How could the UK general election in 2024 affect your financial plan?

Prime Minster Rishi Sunak’s recent announcement of a UK general election, scheduled for the 4th of July 2024, has set the stage for a pivotal moment in the country’s political landscape.

As the nation prepares for this significant event, the financial world is bracing for potential impacts and opportunities that may arise from this electoral decision.

The possibility of the election of the first Labour government since 2010 has particularly generated buzz- as the Guardian reports, Keir Starmer and the Labour party have been ahead in the polls since the start of 2022.

You might feel concerned about what the prospect of a change in government could mean for you and your wealth. After all, economic priorities can differ between parties, or indeed even within party lines themselves.

So, take a look back at what elections have historically meant for financial planning, and why taking professional advice can help.

Investment markets often respond to changes in leadership

The first question you may have about the upcoming general election is what could happen to your investments. Markets can certainly react to and price in uncertainty, so you may be concerned that you could see a fall in the value of your portfolio.

Historic figures published by the Times Money Mentor make for interesting reading on how investment markets might react to an election.

Looking at the FTSE All-Share – an index of around 600 companies listed on the London Stock Exchange – since 1962, the index produced average annualised returns of 8.9% in the year leading up to an election. Meanwhile, in the following year of an election, this fell to 6.9%.

These figures might suggest that uncertainty affects the UK market specifically in the following year of an election, rather than in the lead-up to it.

For 2024, some perhaps more enlightening data is what happens when a party takes power from its opposition.

In this case, the average returns in the year after an incumbent government was re-elected were just 0.9%. On the other hand, this rose to 12.8% on average when a new government was installed.

Of course, these figures mean nothing individually, as the data is historical. There is no guarantee that this is what would happen, even if the current Conservative government is replaced as the polls suggest. But, they do indicate that markets can respond positively to a change in government.

The key point to remember is that it is often worth ignoring short-term disruption and keeping in mind that investments are generally left for longer periods.

Looking at the FTSE 100 this time, which comprises the 100 largest companies on the London Stock Exchange by market capitalisation, figures from IG show that the index provided total annualised returns of 7.48% between 1984 and 2022.

In that period, there were nine general elections, comprising Conservative and Labour governments and including two hung parliaments.

Had you reacted to any of those events and sought to make changes to your investment portfolio for fear of impending volatility, you could have missed out on key days in the UK markets that contributed to those annualised returns.

All this to say, although past performance is not necessarily an indicator of future performance, it may be worth taking a cautious and level-headed approach to your investments, regardless of what happens at the polls this year.

Financial rules and regulations can change rapidly

Alongside how investment markets might react, another of the biggest concerns you might have about a change of government is how financial legislation could change.

In particular, rules around personal finances and pensions or the wider taxation regime can be subject to change when a new party or prime minister assumes power.

A good example of this comes from very recent history, with Liz Truss and her short tenure as prime minister in September 2022. Although this is not an example of a general election specifically, it outlines just how quickly rules that affect you can change when a new leader is elected.

Truss’ chancellor, Kwasi Kwarteng, announced a range of notable policy changes during a controversial mini-Budget a couple of weeks into the prime minister’s premiership, including:

  • Cutting basic-rate Income Tax to 19% from April 2023
  • Abolishing the 45% additional-rate Income Tax rate entirely, also from April 2023
  • Raising the bottom Stamp Duty threshold to £250,000 (£425,000 for first-time buyers)
  • Scrapping the limit on bankers’ bonuses
  • Reversing the 1.25% National Insurance increase first introduced in April 2022.

Truss would of course shortly be replaced by Rishi Sunak in October, and new chancellor Jeremy Hunt went on to undo much of what Kwarteng announced – constituting even more changes that would have affected you.

Throughout this somewhat uncertain period, the key was certainly to plan ahead and adapt your plan for these announcements so you were best placed to capitalise on them.

Although the changes never came into place, knowing what to do with the tax savings from the reduction to the basic-rate band and abolition of additional-rate Income Tax would have meant you were well-prepared ahead of April 2023 to use this money effectively.

This election is no different; being prepared for changes and keeping an eye on key announcements, such as the Spring Budget and Autumn Statement, can help you organise your wealth around the most up-to-date rules, no matter what they may be.

Working with a professional can help you stick to your plan

With all the noise surrounding the election, it can be difficult to focus and stick to your financial plan. Fortunately, this is where working with a professional can really add value.

As financial planners at Rosebridge, we can help you navigate the complexities of a change of government, ensuring that you remain on track to reach your goals.

Whether it is pension rules or the tax regime that becomes the focus of the next government, we can help you position your wealth so that you are protected from any changes.

Furthermore, we can find the financial planning opportunities in updated legislation, and provide recommendations and suggestions that further your progress towards your personal targets.

So, if you would like bespoke expert financial and investment advice, from an award-winning team of Chartered Financial Planners, please do get in touch with us at Rosebridge.

Call 01204 300010 or email enquiries@rosebridgeltd.com to speak to one of our team today.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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