Like the US, the UK seems to run on a two-party state. However, this was not always the case. Up to the early 1900s, the two parties were Liberal and Conservative. Labour had its first minority Government in 1923 and its first majority Government in 1945. The number of Prime Ministers is relatively small compared to the Conservatives:
1923 and 1929 – Ramsay MacDonald
1945 and 1950 – Clement Attlee
1964, 1966, 1974 – Harold Wilson (with James Callaghan becoming Prime Minister in 1976)
1997, 2001 and 2005 – Tony Blair (with Gordon Brown becoming Prime Minister in 2007)
The chart below shows the split of Prime Ministers / Parties since 1945:
A recent You Gov Poll highlighted the reality that most people don’t know which Government would be better for the economy:
If you break this down, the younger age group believes Labour would be better, and the older group believes Conservatives would be better. In terms of taxation, Labour seems to come out slightly better.
Polls are one thing, but what does the evidence show?
Evidence
This chart from the FT shows Public Sector borrowing.
We can see how this rose in the 1970s under a Labour Government, came down during the 1980s, and then came back up during the 1990s under a Conservative Government. Labour then kept this relatively steady until the Financial Crisis, and it started to come down again.
The conclusion is that there is very little between the two parties in terms of Public Sector Borrowing.
Research from Sheffield Hallam University was produced, and the chart below shows the annualised GDP growth between General Elections from 1955 to 2022.
The chart below shows the average annual growth:
None of these paints a picture of one party being “better” than the other.
The Institute of Fiscal Studies released this chart:
The point is that whatever way we look at the data, the reality is that whether a Labour or Conservative Government comes into power, the impact on the economy is marginal.
One other chart worth considering is the stock market returns. However, it is tough to judge these, mainly because 9/11, the dot.com bubble, and the global financial crisis are included in the Labour data. The other point is that the UK makes up just 4% of the Global Stock Market Index.
Being prepared
When Gordon Brown announced the IHT nil rate band would be £325,000, little did many expect this to still be in place. As house prices and other assets have risen, this has been pushed more into paying IHT on their estates.
Additionally, we have seen dividend and capital gains allowances come down:
The message is that there is very little evidence to suggest one party is better for the economy than another. Equally, if we remove Thatcher and Major from the equation, stock market returns are similar. When we do consider this, the fact is that the UK only makes up a small percentage of the Global stock markets.
The main challenge is less about who is in charge but around the tax that we pay; we have shown examples:
- Inheritance tax: as house prices and other assets rise, more estates are subject to tax.
- A reduction in dividend and capital gains allowances means more tax.
In conclusion, navigating and maximising tax allowances is potentially more important than the election in the UK because we can exercise some control over it. In contrast, we have no control over the outcome of the forthcoming election.
Disclaimer: Please note these are my thoughts. There are no recommendations within this. I am not regulated, nor can I provide advice. I would always recommend seeking advice from a financial planner before making any investment decisions. Investments can also fall and go up, and past performance is no guide to the future.
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