Sentiment and confidence are very influential weapons
10 September 2024, 15:01 | Updated: 10 September 2024, 18:13
Regardless of all political persuasion, and despite a parliamentary majority of omnipotent proportions, it is generally accepted that Labour has got off to a very average start in government.
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It has even offended its own die-hard supporters, who have patiently waited for fourteen years to see its socialist doctrine adopted, by withdrawing the winter fuel allowance from all but the very needy, saving the Treasury £1.4 billion – a mere bagatelle!
This payment was originally introduced in 1997 by Gordon Brown as a way of helping older people with their heating costs. Chancellor Reeves insists it is essential to help fill in the spurious £22 billion ‘Black Hole’ – much of it of Labour’s making by acquiescing to an above inflation pay award of 5.5% for teachers and health workers, which will cost circa £9.8 billion.
Let’s cast our minds back to the 1st September when PM Starmer addressed the nation in the Rose Garden at No: 10. Rarely can anyone have heard such a downbeat and depressing assessment of the UK, endorsing Chancellor Reeves' comments that Labour had inherited the 'worst economic situation since Second World War.'
That is simply not true. The public finances are not in great shape; everyone on all sides of the political divide know that. However, this is not the time to press the panic button.
Second only to the US, the UK currently enjoys better GDP than any other member of the G7. Compared to the same quarter a year ago, GDP increased by 0.9% in the second quarter of 2024.
At the time of writing, unemployment is down to 4.1%, and inflation has dived to 2.2% up to the end of July. Against that background, PM Starmer tells us poor, unfortunate, lost souls under his political care that the situation will get worse before it gets better.
That is not the sort of message the rest of the world wants to hear, especially as Sir Keir told his supporters that he attached great credence and importance to growth as a key tool to drive productivity.
Labour has very ambitious plans, especially for large projects such as ‘Green Energy’, which will require billions of pounds of investment. The British Business Bank has made measurable progress in identifying investment funds for SMEs, especially tech-orientated, as well as large infrastructure projects.
No doubt the National Wealth Fund will ‘double down’ on the Government’s efforts to support inward investment. It is alarming that UK pensions only invest 4.4% of their portfolios in UK companies, despite efforts from the former Chancellor Jeremy Hunt and Messrs Reeves and Reynolds to stimulate greater support. If renewed confidence and a positive sentiment were to transpire, greater pension fund involvement in UK assets would be inevitable.
The Government should not need me to tell it how important sentiment is. Nonetheless, I am going to indulge myself.
The outside world now believes the UK has a stable Government, with a majority of 174. Even those who support the Conservatives, Lib-Dems and Reform want the UK to perform well. We all benefit from a strong economy.
So, I beg the government "not to look a gift horse in the mouth when the opportunity for victory presents itself.” What Labour has now is a manna from heaven. It must capitalise on the outside world’s perception that the UK is politically stable.
For example, last week the DMO offered £8 billion “gilt-edge” issue of £8 billion – a 15-year maturity with a coupon of 4.375%, maturing in January 2040. It went like a rocket! It attracted a record 110.7 billion pounds of orders, as investor appetite for UK Gilts remained strong after the change of government in July. If ever there was a clear message that stability currently prevails, that sale was a brilliant illustration.
Business is also acutely aware of the damage draconian taxation emanating from next month’s Budget could have on the better off, who are the bedrock for investment funds.
Recently 74, 000 ‘Non-Doms’ paid £8.9 billion in taxes in 2022/3. That is not a drop in the ocean. Rumours permeate that “Reeves – The Grim Reaper” reincarnated is thought to have her eyes on increasing the level on CGT and possibly introducing a property tax, cutting tax relief on pension contributions, as well as persisting with the damaging windfall tax on energy companies.
It is also thought that banks are on the Chancellor’s radar, another ill-conceived idea. These rumours are all conjecture.
Reliable sources tell us that 9,000 wealthy individuals have already left the UK since July, and many others have their bags packed, metaphorically speaking, if the content of the Budget on 30th October is discouraging.
The Chancellor has bills to pay, and the money must come from somewhere. However, growth comes from stimulating investment. The Chancellor has been on a charm offensive in the last six months. She is highly regarded, tough and committed.
She would be well advised NOT to ‘kill the fatted calf’ whilst the government still has ‘Brownie Points’ from investors.
M/S Reeves – SENTIMENT AND CONFIDENCE ARE VERY INFLUENTIAL WEAPONS! Please don’t forget that!
