City braces itself for a Labour victory

The City is bracing itself for a “political reckoning” if Labour wins the 2015 general election, say Jim Pickard and George Parker in the Financial Times. The difficulty Ed Miliband faces is how to pay for “social democracy” in a time of austerity, especially with the budget deficit expected to hit £80bn next year. Labour’s leadership is looking towards the Square Mile with “hungry eyes”. Many of its MPs view the £5.5bn in bonuses “handed out by Barclays, HSBC, Royal Bank of Scotland and Lloyds this year as obscene” and are looking to see how the City can fund schemes to provide guaranteed jobs.

Shadow chancellor Ed Balls is planning “a suite of policies for siphoning off money from Britain’s wealthy”. These include a new bank bonus tax expected to raise up to £2bn, hiking the top rate of tax from 45p to 50p, a reduction in pension relief for top earners from 25p in the pound to 20p and a ‘mansion tax’. However, the FT questions whether Balls will “rake in anything like the £6bn” he hopes for.

Critics say Labour’s sums don’t add up. The Institute of Economic Affairs, a think tank, complains the party is “undermining incentives to save through pensions to generate revenue for their latest political project”. Miliband claims cutting pension tax relief for high earners will generate £900m to fund temporary jobs for young people, says Kate McCann in City AM. But this “could slash retirement savings”. Besides, Labour has already earmarked the bank bonus tax money to build more homes and reverse the VAT hike.

These tax changes are “smart politics” though, says George Eaton on the New Statesman website. While the Tories “boast” about their jobs record, long-term youth unemployment has doubled. The policies are based on the successful Future Jobs Fund, axed by the Coalition despite a government study finding it had a “net benefit to the economy of £7,750 per participant”.

Few voters will “shed tears for the 1.5% fortunate enough to earn over £150,000 a year” who have enjoyed on average a £107,500 Coalition tax cut. Basic tax payers are “still subsidising” higher earners’ pension contributions: before the 2012 Budget Danny Alexander called for the Coalition to bring in a similar policy. Labour’s plan is a “neat way of reopening this particular Coalition divide”.


Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.