The UK election is about far more than just Brexit

Most of the talk about the election is of what the result will mean for Brexit. But there’s much more for voters to worry about than that, says John Stepek.


Theresa May's post-election government could be a lot more interventionist
(Image credit: © 2016 Bloomberg Finance LP)

So far, news of the general election has focused on what it means for Brexit.

That's understandable. Brexit is a big deal. A lot of people are very fired up about it.

But there are other things in life beyond Britain's relationship with the European Union.

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And regardless of who wins the election, a lot of things that we've taken for granted in various economic areas of our lives are set to change drastically...

Brexit isn't the only topic that matters

On Wednesday, my colleague Dominic Frisby discussed his views on the likely political outcomes from the election. My views on the matter which I spelled out last month don't differ much from his.

Labour will lose seats. The SNP will be static or lose a couple of seats (hard to go anywhere else, given their dominance in Scotland). The LibDems should bounce back somewhat, but as Jane Merrick points out in The Times, that can't be taken for granted those who really care about the remain vote will back them, but lukewarm backers of the status quo might instead fear that a vote for the LibDems is effectively a vote for Jeremy Corbyn (eg the London suburb of Twickenham home to adjectives such as "leafy", and "well-heeled" is not exactly anyone's idea of a socialist paradise).

In short, it's hard to see an outcome that doesn't involve the Conservative party returning to power with a larger majority than they currently have.

For now, the talk is of what this means for Brexit. The reality is that it probably doesn't make a huge difference, and if it does, it's a positive one.

Theresa May will be in a better negotiating position, both with the European Union (as the idea of reversing Brexit will be pretty much off the table) and with her own party (it'll be easier to force "dissidents" on all sides into line). May will therefore be more free to pursue a middle-of-the-road' Brexit she can make compromises where necessary, draw red lines where appropriate, and put together a satisfactory deal without constantly having to watch her back.

But strange as it may seem right now, Brexit is not the only thing that matters in UK politics. And it certainly isn't the only thing that matters to investors.

We're very likely to see a government with a strong majority and permission to govern until 2022, coming into power imminently. It's a government that has strikingly different views to the consensus that has prevailed for the last couple of decades. Yet it's been hamstrung by the fact that the last government wrote a manifesto that it clearly doesn't entirely agree with.

So what might the new government do to break with that consensus?

The next government will poke its nose in a lot more

For a start, it looks a lot more interventionist. There's a reason for that. Since 2008, people have felt that they've been messed around and done over in some way by the financial system. In many cases, they're not exactly sure what they're angry about, but they feel that they've been conned.

That's come about partly because governments have been seen as apathetic about doing anything to force through change. That might be unfair, but it's also because the vast majority of the economic heavy lifting has been delegated to central banks.

This is still the case. But it's changing. May has talked about making corporate boards more accountable for executive pay, and it's already happening. We're seeing more pay deals being challenged and more institutional investors, from sovereign wealth funds to asset managers, speaking out against overly-complicated compensation packages.

There's also a more general effort to tackle "unfairness". Philip Hammond's attempt in the last Budget to bring the tax treatment of self-employed workers more in line with the treatment of employees was a political mess.

But the underlying goal is not necessarily wrong. It's not sensible to reward individuals and companies for spending time on restructuring their affairs and gaming the system, rather than doing productive work. Expect this area to be revisited shortly after the election is over, probably in conjunction with the publication of the Taylor review on the future of employment.

On pensions if the Tories are ever going to break with the "triple-lock", then now is the time to do it. Firstly, if you're going to alienate parts of your core vote, best to do it when you have almost no chance of losing them to another party.

Secondly, the triple-lock (which guarantees the state pension rising by 2.5%, earnings inflation or CPI inflation, whichever is highest) is only going to become less affordable over the next few years. One way or the other, inflation is set to rise indeed, that's the policy goal so now is the time to adjust that promise.

And as far as private pensions go again, a Conservative landslide would put serious pension reform back on the cards. Maybe not right away, but at some point the higher rates of tax relief will be targeted again, and the Lifetime Isa pitched as a replacement.

It will all end up making the system more affordable. But it'll also be a lot less generous. So do remember to take advantage where you can just now.

Finally, there's house prices. This is a huge hot button topic right now, and I think it's fair to say that the political calculus has changed. Once upon a time, there were a lot of votes to be had by implicitly promising that house prices would rise at 10% a year.

Now, I'm not so sure that's true anymore. I think that if real house prices (ie after inflation) were to be a lot higher at the end of the next government's term in office than they are now, then that government would and should see that as a policy failure.

Changes to buy-to-let taxation and stamp duty are already having an effect on parts of the market. But the next government really needs to find a sustainable way to allow people to own their own homes, while decoupling the wider UK economy from its dependence on the rollercoaster that is the housing market.

That's a tough job. But if it can do that, it really would be an achievement to be proud of.

We'll be taking a much closer look at the manifestos as their contours are revealed. But I'd take some time to make sure that you've got a grip on where your long-term savings are and what your plans are currently, because I suspect that at least some of those arrangements will have to be re-organised in the coming years.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.