The real risk to your finances is not Brexit, says Merryn Somerset Webb, it's that the mismanagement of Brexit could lead to a Corbyn government. So how do you prepare?
Labour takes aim: much higher taxes, much higher spending
(Image credit: 2019 Getty Images)
Last week, The Sunday Times ran this headline: "Corbyn plot for cut price swoop on water giants." The story about how Labour's plan is to privatise the UK's water companies at a value of less than £20bn, rather than the £70bn everyone else reckons they are worth was a timely reminder that the real risk to the finances of MoneyWeek readers is not Brexit itself, but that the mismanagement of Brexit leads to a Labour government.
Labour is promising much higher taxes, much higher spending and significant-sounding levels of asset confiscation. That's not likely to be good news for anyone who has wealth or who is trying to build it (in which I include the 9.5 million people in the UK auto-enrolled into equity-holding pension schemes). The obvious question and the one readers keep asking is how does one prepare?
It isn't easy. You might sell any property that isn't your primary home second homes, and buy-to-lets in particular, are the most obvious of wealth tax targets. Perhaps fix your mortgage on your main home while you are at it: unfunded spending promises will hit the pound, create inflation and push interest rates up. If you are a high earner (on £70,000-£80,000-plus a year) and have the capacity to bring income forward in order to avoid fast-rising additional rates of income tax (there is talk of 70%), now might be time to do that.
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Also make sure that you are using up all your allowances: capital gains is bound to rise under a Labour government, for example. I'd also top up pensions and individual savings accounts (Isas), with the caveat that a Corbyn government could easily force redirection of the assets within pensions in particular. Can you imagine a scenario in which a fiscally bombed out government puts in place regulations requiring all pension assets over, say, £500,000-a-head, to be invested in, say, perpetual "national regeneration bonds?" Quite.
You could, for insurance purposes, also do the opposite of what we have been suggesting for a while and increase the non-UK element of your portfolio (selling anything vulnerable to nationalisation first). If the pound really does collapse, you'll benefit from earning something in a foreign currency (and avoid rising UK corporation tax at the same time).
Also make sure that the portfolio you have going into the next election is one you will be happy with long term: a new financial transaction tax is likely. Finally, you could think about opening a bank or brokerage account abroad in order to have a head start on the capital controls that will have to be imposed with a major run on the pound. If anyone has any better ideas on preparation tactics please do email us (we will write on this again).
I still don't think it is likely that the UK electorate will put in place a majority Labour government under its current leadership. I do think it is worth remembering how resilient our economy is: UK GDP growth has averaged 1.65% since the Brexit referendum, which puts it roughly in line with France, ahead of Germany and very far ahead of Italy. And I am also aware that many readers are entirely OK with the idea of fast-rising taxation. However, if we find ourselves close to a general election sooner than we should, those of you who are not should start thinking about how to protect the wealth you have worked to create.
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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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