Features

How to prepare for a Corbyn government

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? 

946_MW_P03_Ed-Letter

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?

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

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.

Advertisement
Advertisement - Article continues below

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.

Advertisement

Recommended

Visit/520181/how-the-fear-of-death-affects-your-investment-process
Investment strategy

How the fear of death affects our investment processes

Many of our investment decisions are driven by one simple fact: the knowledge that, one day, we will be dead. Here, in an extract from his new book, J…
2 Jan 2020
Visit/520060/the-good-and-the-bad-investments-of-2010s
Stock markets

The good investments of the 2010s – and the bad

John Stepek takes a look back on which investments did well and which did badly in the decade that’s about to come to an end.
26 Dec 2019
Visit/519223/how-can-we-raise-more-money-in-tax
Economy

What are the best ways of raising more money in tax?

Given that whoever wins next week's election will be going on a massive spending spree, we're going to need to raise at least some of that money throu…
5 Dec 2019
Visit/518715/what-are-the-biggest-mistakes-investors-make-when-it-comes-to-tax
Investment strategy

What are the biggest mistakes investors make when it comes to tax?

The tax implications of an investment are something we rarely consider until after the event. That could prove to be an expensive mistake, says Domini…
27 Nov 2019

Most Popular

Visit/economy/600632/money-minute-friday-17-january-uk-weakness-likely-to-continue
Economy

Money Minute Friday 17 January: UK weakness likely to continue

Today's Money Minute previews UK retail sales figures the UK, inflation data from Europe and industrial production from the US.
17 Jan 2020
Visit/investments/property/house-prices/600638/uk-house-prices-may-be-heading-for-a-boris-bounce
House prices

UK house prices may be heading for a Boris bounce

The latest survey of estate agents and surveyors from the Royal Institution of Chartered Surveyors is "unambiguously positive" – suggesting house pric…
16 Jan 2020
Visit/520525/currency-corner-how-high-can-the-pound-go-against-the-euro-in-2020
Currencies

Currency Corner: how high can the pound go against the euro in 2020?

In the month in which we should finally leave the European Union, Dominic Frisby takes a look at the pound vs the euro and asks just how high sterling…
13 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600636/class-acts-going-cheap-buy-into-europes-best
Share tips

Class acts going cheap: buy into Europe’s best bargains

Value investing appears to be making a comeback, while shares on this side of the Atlantic are more appealing on metrics such as price/earnings ratios…
16 Jan 2020