It has been a challenging start for the Labour government after its first Budget in October was poorly received by investors. Its tax hikes of more than £40bn were regarded as inflationary, with some critics suggesting the Budget was responsible for the gilt market sell-off at the start of the year.
Despite this, some UK managers have remained cautiously optimistic about the future intentions of the Labour government, arguing it is still too early into Labour’s tenure to judge and pointing to positive developments in the pipeline.
Below, Trustnet asks three UK fund managers for their thoughts on the UK government's tenure and what more they hope to see moving forward.
VT Tyndall’s Murphy – There have been steps in the right direction
For Simon Murphy, manager of the VT Tyndall Unconstrained UK Income fund, the government’s initial investment efforts have been mixed.
He described the Budget as a “real kick”, particularly with proposed changes to national insurance constraining businesses with large workforces. “I would not overplay how important it is,” he said
But the Budget was ultimately a “speed bump” for UK businesses that many were already beginning to adjust to, rather than a disaster.
Additionally, the tumultuous early months have taught the government a “valuable lesson about how important it is to keep businesses on their side”, something it has taken on board.
For example, the government has begun to take “quite sensible steps” to improve domestic investment, with a greater emphasis on approaching regulators to see how they can help attract investors rather than hinder them. While these will take a long time to come to fruition, Murphy argued it was the beginning of some positive steps.
"Are they doing enough? The short answer is they can always do more. Have there been some steps in the right direction? I think there have been,” he concluded.
Merchant’s Trust’s Gergel – It takes a while to make structural changes
Simon Gergel, manager of the £814m Merchants Trust, said: “There has always been a lazy assumption that the UK would support its industries and the stock market would function”. But Gergel argued, for the first time in his career, that the government and financial regulators are discussing how to encourage further UK investment.
“This has not been a big feature of conversation until the past year or so", Gergel added. That the government and regulators are recognising the need to support the UK stock market is a very positive sign for the future of the UK, he argued.
While he conceded the government “probably has not done enough yet”, he noted it has not been in power long. “It takes a while to make structural changes, and you do not want to rush into things too quickly”.
In terms of what the government still needs to do moving forward, Gergel identified a reduction in stamp duty as a key change. While he conceded doing this on the whole market is “probably being a bit too aggressive”, the Merchants Trust manager argued a reduction for companies outside the FTSE 100 would be influential.
While large-caps can trade internationally, domestic mid- and small caps face headwinds due to high stamp duty. This is partially why they have struggled to perform and increasingly experienced large outflows from actively managed funds.
“I do not think that is particularly healthy and I do not think the market is functioning as it should”, he said.
Abrdn’s Glennie – A challenging start for Labour
Abby Glennie, manager of the abrdn UK Mid-Cap fund, agreed Labour has had a challenging start. Despite campaigning on a pro-growth agenda, she explained that growth expectations have remained concerning, particularly because of the inflationary effects of the Budget.
However, she argued there was certainly room for some positivity. “More than I have ever seen before, the government is having conversations and listening to people on the ground about what it needs to do to stimulate the UK economy”.
As a result, she explained that there is a greater “agenda of easing regulation from the government” and more interest in how it can drive growth investment.
By encouraging a pro-business agenda, she said companies will find it easier to grow over time, allowing the government to drive taxation more naturally rather than relying on inflationary budgets.