How could the 4 July general election affect savings and investments?

By: Jonathan Jones,

Editor, Trustnet

So we’re heading back to the polls. This week Rishi Sunak announced there would be a general election, surprising some with the timing.

The under-pressure prime minister was expected by some to hold out for as long as possible in an effort to overturn the Conservative party’s flailing public image.

But inflation figures have come down markedly and are near the Bank of England’s target rate, GDP is growing (albeit mildly) and the economy appears in reasonable shape.

This may have given Sunak the confidence to press ahead with an election in which he will undoubtedly lean on his economic and financial achievements.

Myron Jobson, senior personal finance analyst at interactive investor said: “A general election could bring huge changes in economic policies, taxation and public spending that can reshape not only the nation’s economic landscape but also personal finances.”

For starters, a change in government could spell the end for a short-lived Great British ISA, which has many critics and may fall by the wayside under Labour – the bookies favourite to win in July.

The biggest topic in the financial sphere will be pensions. The ‘pot for life’ initiative outlined in the latest spring Budget would require an employer to contribute to a pension arrangement chosen by the employee, rather than one selected by the employer. Yet the scheme is in its infancy.

Alice Guy, head of pensions & savings at ii, said:  “The new pensions minister has a big opportunity here to excite people about their pensions, by allowing more choice about where to invest their workplace pension.”

Perhaps the most impactful difference of opinion will be the lifetime allowance. Recently scrapped by chancellor Jeremy Hunt, Labour has said it wants it reinstated.

That’s before looking at the state pension, where the triple lock remains a contentious issue. While both Labour and the Conservatives are supportive of it, the current system puts the onus on the younger generation to shoulder the cost and it will remain under review by both parties, whichever should win in July.

From a stock market perspective there is likely to be little impact. Most are pricing in a Labour win – a prospect far less impactful than a few years ago when there were real concerns about a left-wing government under Jeremy Corbyn. Keir Starmer is viewed more market-friendly.

Perhaps the biggest spanner in the political works would be a surprise Conservative victory. While this seems unlikely, this too could have minimal impact on markets as it would be viewed as a continuation of the status quo – something that investors have generally responded well to.

Of course, with more than 100 current Conservative MPs not standing at these elections, there may be a new-look government even if the incumbent party does win.

However, the thing markets hate above all is uncertainty. With an election called earlier than expected, this should remove this worry fairly quickly, even if there may be more volatility in the weeks before the event.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said a decisive victory by one side or the other will “tend to bring more settled markets than a close-run thing” but noted that, as always, “it’s worth taking a long-term view”.

Jobson agreed: “As is often the case, the ‘keep calm and carry on’ maxim is worth remembering here. Investors should avoid a knee-jerk reaction based on what could happen and concentrate on their long-term goals.”

For what it’s worth, so do I.

Please Note:

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. 

Please note the above article was first published by Trust Net and should not be regarded as individual investment advice on whether to buy, sell or hold any of the funds mentioned. Please speak to Ethical Offshore Investors or your personal adviser BEFORE you make any investment decision based on the information contained within this article.

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