General Election 2024: the economic elephant in the room?

As Managing Partner at Primas, one of the many interesting aspects of my job is that I get to talk to lots of business leaders and decision-makers across a wide variety of sectors. These conversations have been particularly fascinating over the last 12 months, as businesses face-up to numerous and increasingly complex challenges.

At the moment, many of these challenges are brought about by macro, as opposed to micro, economic factors.

I find the macro-issues more difficult to manage for a few reasons: their impact can be pervasive, the outcomes are unpredictable, plus (and this might just be me) I feel less able to influence what’s going on.

The 2024 General Election

One of the macro-events that not many people seem to be talking about yet is the 2024 general election. I understand why it might not currently be on everybody’s radar given that the election could be held as late as December 2024. It can feel like we have more immediate and pressing problems to deal with before we turn our attention to something that could be 15 months away.

However, historically, the general elections typically takes place in the first six months of the year. That means that there could be an election as early as Spring next year – and that isn’t far away at all.

Assuming the election is called after March 2024, we have two scheduled budgets between now and when the polls open: one in October and one in March. To the extent that the parties aren’t already in campaign modes yet, the incumbent government will presumably be viewing October’s and March’s budgets as major campaign events (and let’s not forget party conference season in October!).

Since taking up his post, Jeremey Hunt, the current Chancellor, has endeavoured to foster a more stable economic landscape. But political campaigns require more eye-catching rhetoric and more vote-catching policies that go beyond “strong and stable”.

In short, the Chancellor is going to have to ‘go big’ at some point. 

How could the General Election affect businesses?

Outside of the particulars of the various policies included in campaign manifestos, the issue in all of this for business is (the dreaded) uncertainty that comes with a general election. And businesses hate uncertainty; they can’t stand it.

Outside of the current inflationary and monetary environments (which in themselves are bad enough), general elections generate a lot of uncertainty.

The main consequence of this is that many businesses press the pause button on major decisions until the ground beneath their feet settles. They don’t acquire that target company, don’t move to new premises, don’t make capital investments and don’t hire that expensive new strategic recruit or team.

When things are uncertain, businesses tend to sit tight and let things play out.

In the run up to the upcoming election, I think we’re going to see an interesting push-and-pull battle for commercial activity play out. The pull is the commercial inertia I have mentioned above.

This will be compounded by the fact that the cost of borrowing is comparatively much higher than it has been for a long time. That environment does not encourage investment in the way that it has done in recent years.

The factor that may push businesses against their natural inclination to wait it out is the prevailing view that we are going to see a change in government at the next election; and not just a change in government but a change from Conservative to Labour.

Why does the prospect of a change in political party matter for business? 

Whatever your personal political persuasion, and whatever you think of the incumbent government’s handling of the economy, Labour has historically had to fight against the stigma that it is not as adept at handling the economy as the Conservatives are.

That might be a wholly unfair tag, but it exists nonetheless. Labour is also associated with operating a higher tax environment. These labels, whether justified or not, have historically made businesses and business owners wary of a Labour government.

For example, Labour is thought to dislike that capital gains tax rates are much lower than income tax rates (albeit property investors will be well aware of the Conservative’s raid on the capital gains tax allowance earlier this year).

Labour has frequently denied that they have any intention of tackling this tax disparity post-election. Angela Rayner reissued that denial very recently in a Sunday Telegraph article, at the same time as promising that there would be no new ‘wealth taxes’. But the rumours aren’t going away, and the fact that Labour are working so hard to settle any nerves shows that they are aware that businesses (and business owners) remain concerned.

For business or property owners who had an exit plan that was due to crystallise over the next two or three years, many may now be considering bringing that timeline forward and selling in the current Capital Gains Tax environment, rather than risk paying significantly more post-election.

Final thoughts…

This economic fear (be it rational or not) surrounding a Labour government may drive commercial activity between now and polling day, in circumstances where activity levels otherwise may have been rather flat. This increase in activity could well be followed by a post-election lull, as businesses wait to see what the new Government (be it Labour or Conservative) does next.

But to bring my musings to a conclusion, all of the moving parts I’ve mentioned (as well as the hundreds I’ve not mentioned), make for a challenging time to come. The economic landscape that we will eventually find ourselves in may well be better than the one we are in now, but the journey is going to have some ups and downs.

[As a lawyer, you will expect me to caveat all of the above by saying that each business is different, and what is good for one may be bad for the other. As such, the above is high level… to continue with a theme, it is very much macro rather than micro.]