Historically, financial markets have favoured the Tory party and Conservative neoliberal and free-market economics. On the other hand, investors have disliked hard left policies that seek to protect the rights of the many at the expense of the few, such as nationalizations and wealth redistribution. It is not surprising then that Corbyn’s Labour policies would be seen by many as potentially damaging to the pound.
Here we have a look at the possible outcomes for the pound in case of a Conservative or a Labour majority, as well as some of the pledges each party has made.
Getting Brexit done
For economists, this is clear. If the result of the next general election is a Conservative majority, then the British Pound will rise. This is the most positive outcome for Sterling as it will end political uncertainty, get Brexit done, and eliminate the prospect of a Corbynite government.
In other words, a Conservative majority will enable Johnson’s deal to pass smoothly through parliament and it will help to stabilise the political and economic landscape. Markets understand that a Tory majority means the immediate implementation of Boris Johnson's Brexit deal and Brexit taking place on 31 January 2020.
In this sense, an unfavourable result will be a weak conservative win or a Labour majority. A Labour government will create uncertainty, as it will introduce a new Brexit deal to be negotiated all over again and a referendum to pass the deal, further threatening the pound.
Additionally, many argue that further uncertainty will be created if there is a Labour coalition. According to Peter Kinsella of the Swiss private bank Union Bancaire Privée, “We certainly have not priced in anything like a Labour-type coalition, and if we did, it (the Pound) would certainly be an awful lot lower. We have priced out no-deal but we have not priced in any electoral certainty yet.”
A coalition could be positive for Sterling?
However, others are more optimistic. JPMorgan sees that a “hung parliament which delivered or held out the prospect of a softer-Brexit coalition of the left-of-centre parties (Labour/Lib Dems/SNP) might actually be GBP positive." Jordan Rochester at Nomura has also said back in May: “GBP would also benefit from Labour’s stance on Brexit being somewhat ‘softer’ than the Conservatives, especially if it forms a coalition with the SNP and Liberal Democrats. A coalition government may encourage some to argue GBP should be lower owing to the uncertainty. But the removal of austerity (leading to higher real yields) and renewed arguments as to a ‘softer’ Brexit are likely to inspire less GBP negativity as once thought.”
Taxes and spending
The Conservatives have pledged to spend more than £250m to invest in broadband, roads, the NHS, schools, roads and police. The Chancellor Sajid Javid has said that the money, which will come from the Housing Infrastructure Fund will help improve roads, schools and transport links. He said: “I have now launched an infrastructure revolution and this step-change in funding will ensure that all parts of the country benefit as we level-up opportunities. This £250m will increase the number of houses available to buy and help support people to achieve their dream of home ownership.” Shadow Chancellor John McDonnell criticised Javid's "pathetic publicity stunt announcement" and said: "When there are millions of people on our housing waiting lists and families with children living in containers, we need real change and real investment in our infrastructure, not this derisory drop in the ocean."
In terms of personal taxes, Conservatives will increase the threshold for the 40p rate of income tax from £50,000 to £80,000 and raise the starting point for national insurance (NI), which will be worth £460 per worker. The income tax will cost £8bn a year and help 2.5 million of the highest-earning employees.
Labour has not made any specific promises yet but according to its 2017 manifesto, it will increase income tax rates to 45 percent for salaries over £80,000 and to 50 percent for salaries over £123,000. They will spend £250bn on upgrading transport, energy and broadband infrastructure.
This is why, the latest newspaper headlines highlight fears of a Labour government and how wealthy individuals are transferring their money abroad before the general election, since as they stated, “If Corbyn gets in, we're sending our money to Switzerland.” Another recent article, “Super-rich prepare to leave UK 'within minutes' if Labour wins election,” shows how the UK’s richest families are preparing to shift their fortunes and make early gifts to their children in order to avoid Corbyn’s threat to tax inheritances above £125,000. Lawyers and advisers for these millionaire and billionaire clients have said that for these rich individuals, a Corbyn-led government is a bigger threat to their wealth than a hard Brexit.
Health and social care
Conservatives will spend £13bn under a “Health Infrastructure Plan” to build 40 new hospitals in England, but only £2.8bn and six hospitals will go ahead at first. Labour will increase spending which will be paid by the income tax rises on the highest 5 percent of earners and will increase tax on private medical insurance. It will create a new National Care Service for social care for those over-65s (cost £6bn), scrap prescription charges (cost £750m) and develop a state drug company to develop cheaper drugs. It will also increase GP trainee numbers in England by 50 per cent. While more is expected from Labour’s latest manifesto, the 2017 election pledge referred to £30bn in extra funding.
Brexit and NHS: “everything is on the table”
Brexit has complicated the issues of the NHS, with fears of medicine shortages in a no-deal Brexit scenario. It has also opened the possibility of negotiating new trade deals with such countries as the US. Back in June, during a press conference with the then Prime Minister Theresa May, President Trump claimed that “everything is on the table” when it comes to striking a deal with the UK, including the NHS. He said: “So NHS or anything else. A lot more than that.” Whether he meant it or not, this has now created fears that the UK would be paying more for medicines under a US trade deal and passing on costs to both patients and the NHS.
Following the comments of drug pricing expert Dr Andrew Hill on Dispatches that the US spends more per capita than the UK on medicines, something that would equate to an extra £500 million a week in the UK, Labour has used the £500 million figure in an attempt to also criticise Brexiters’ early claims of funding the NHS with £350 million a week.
It is within this context that Jeremy Corbyn accused Boris Johnson of wanting to “hijack Brexit to unleash Thatcherism on steroids.” He added: “Johnson and the Leave campaign promised to rebuild our NHS. Johnson stood in front of a bus and promised £350 million a week for the NHS. Now we find out that £500 million a week could be taken out of the NHS and handed to big drugs companies under his plans for a sell-out trade deal with Donald Trump.”
Of course, this has been denied by the Conservatives who said that it was “shameful” that Labour was spreading “lies about the NHS.”
Boris Johnson already clarified at a press conference with Trump that the NHS “is not for sale.” His health secretary Matt Hancock and trade secretary Liz Truss also said that “The price the NHS pays for drugs won’t be on the table. And the services the NHS delivers won’t be on the table.”
With no concrete evidence, Labour is using political rhetoric to set itself as the party that is committed to protecting the NHS from any such threat. For many commentators, speculation will continue as Johnson will delay the Conservative manifesto launch until just two weeks before the general election. Labour’s manifesto will be out next week after officials decide this Saturday on which policies to include.
As the election campaign heats up, and as the parties publicise their manifestos, the pound will continue to be impacted by political developments. For investors, the only thing certain at the moment, is that a Conservative government appears to be the best possible deal for the future of the pound.