Can Andy Burnham win over UK plc?
Business and investment leaders are calling on the new Labour administration for greater clarity, decisiveness and a more supportive tax regime, in the hope of reigniting growth.
Could Andy Burnham’s leadership mark a shift in tone and pace for the UK’s beleaguered economy?
Business leaders hope so. Gregor Paterson, fund manager in the UK team at fund management group Amati Global Investors, highlights that the new prime minister ought to have the expertise on hand to do so.
“Burnham himself has a lot of experience, and has a pretty heavyweight team of advisers around him,” says Paterson. “He must be aware – as we all are – of how much Keir Starmer’s team struggled to get the economy moving, and you’d hope that he has a plan.”
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The sense of urgency is critical. One key frustration with the previous government was the lack of clarity around policy direction, especially around the Budget.
“Businesses weren’t able to hire, expand or build because they didn’t know what was coming,” Paterson says, pointing out successive delays around fiscal events, whereas Burnham already looks to be moving at pace.
“It looks like he’s putting his team in place and keen to get things moving much more quickly than might have been the case if there had been a messy leadership battle.”
To the business community, speed and clarity are essential for planning – not merely political virtues. There is a deeply felt need for a credible and ambitious growth strategy.
Anna Leach, chief economist at business leaders’ professional body the Institute of Directors (IoD), says some elements of the previous government’s approach were well-intended but overshadowed by uncertainty.
“We need a better industrial strategy and it all needs to be done a bit more quickly and at a grander scale,” she says.
Infrastructure is a key area of focus
Leach would welcome a clearer long-term framework that gives companies the confidence to commit capital, hire staff and expand their operations.
Planning reform and infrastructure investment should form two central pillars of a growth strategy and she supports Burnham’s ambitions for a more balanced economy.
“A regional growth agenda and devolution are really good ideas. There’s strong economic evidence that – if well-designed – these can deliver strong growth and help draw in private sector investment,” she adds.
But execution will be key.
“It does come down to design because while Manchester looks like it has been successful, I don’t think one could look at Wales and Scotland and say that devolution has unleashed any animal spirits in those two regions.”
Job market dynamics are another area of concern. Cost pressures have intensified, the jobs market has cooled, hiring is declining and vacancies are falling. This all raises questions over how to meet conflicting priorities.
“We want to see how we shape the labour market in a way that balances everybody’s needs… because at the moment things are looking a little bit risky, particularly when you layer in artificial intelligence,” says Leach.
All eyes on Burnham’s tax policies
Given the £3 trillion debt burden, the key question is one of tax. For many in the business community, their immediate wish is not further reform but stability, with uncertainty particularly acute around the non-domicile regime.
“The constant speculation about what tax increases should fall on wealth creators, following big tax increases on businesses themselves, is all detrimental to private sector investment,” adds Leach.
She also highlights the cumulative effect as the business tax burden has been creeping up in successive budgets.
“In the near term… more certainty and a lack of vilification of business would be pretty pleasant to start with.”
Darius McDermott, managing director of investment platform Chelsea Financial Services agrees; he’s a clear believer that if you overtax the wealthy, they will leave the country, shrinking future potential tax revenues.
“If additional rate taxpayers face a 1% increase, I don’t expect you’d see a huge outcry. But if it goes up to 60% over a certain number, then I think you’d see a lot of unhappy wealthy people,” he says.
Markets rely on confidence as well as policy
From a market perspective, the challenge is not just policy design but sentiment.
According to Anna Macdonald, investment strategy director at Hargreaves Lansdown, the UK needs a “credible, investment-friendly plan for economic growth, alongside clarity and stability on tax”, otherwise investors will remain hesitant.
“Constant speculation, including around capital gains tax, risks making people more cautious about moving their money from cash into long-term investments, at precisely the moment when the UK needs more people to invest for their future.”
Critics of Starmer say that Labour was voted in on the promise of growth and change, but it soon emerged he didn’t have a clear plan to achieve it.
“What markets want to see is how we're going to start to grow the economy and grow productivity. We thought the answer to that previously was going to be in housebuilding but that didn’t really materialise,” adds Paterson.
“When you have such high levels of debt, you have to grow your economy. And I think neither people nor businesses feel confident enough to invest – hire people, build factories and expand.”
It’s early days, but if Burnham can shift the mindset, his impact could be significant.
“If he can inject some confidence back into the system, then people and businesses will hopefully start to react,” adds Paterson.
One move that would encourage investors towards UK companies is if the new administration were to lower the rate of stamp duty reserve tax on most UK-listed stocks and shares.
Currently investors directly purchasing more than £1,000 of UK-listed shares, unless they were newly listed or traded on the Alternative Investment Market (AIM) – even inside an ISA – would need to pay 0.5% stamp duty.
“If you were to buy Tesco shares to put in your ISA, you’ll pay half a percent tax when you buy those shares, but if you buy Walmart shares, you won't pay any tax,” Paterson says.
Scaled up, those amounts soon mount up. He says as well as eroding returns, the UK could be putting itself at a disadvantage compared to other markets.
“It’s something most markets don’t have. The French do, but it's only 0.3% and it’s only on the very largest companies. So we're a bit of an outlier in charging people to participate in our stock market.”
Which investments could benefit under Burnham’s government?
John Healey being named chancellor was the big announcement many of us were waiting for.
He stood down as defence secretary on 11 June in protest over insufficient funding of the country’s defence strategy; he’d been calling for a defence budget of 3% of GDP by 2030.
Healey’s appointment saw a bounce in some defence names. Babcock International Group (LON:BAB) jumped roughly 7% following the news and BAE Systems (LON:BA.) was also up around 3% the following day. Both share prices climbed further over the next few days.
While it remains to be seen which defence companies are the specific longer-term beneficiaries, the sector as a whole will be a clear structural winner, according to McDermott.
He says: “The increase in spend isn’t over one year; it’s a multi-year increase. We may see the investment into companies from other countries, the US or elsewhere, but I think European defence, of which we’re obviously a subsector, is likely to see a decent amount of growth over the next decade.”
As always, individual investors should try to avoid overreacting to political headlines or any market noise as the new government sets out its plans.
“Changing a long-term investment strategy in response to a change of chancellor can easily do more harm than good. Staying invested and focused on long-term goals remains the most sensible approach,” says Macdonald.
