While political transitions often generate uncertainty, they can also reshape the investment landscape. This makes it a crucial time for investors to understand the potential risks and opportunities that may lie ahead.
On 22 June, Sir Kier Starmer announced his resignation as Prime Minister, marking yet another significant shift in the UK’s increasingly turbulent political landscape. His departure would leave the UK with its seventh prime minister in just a decade, underscoring a period of sustained political instability and rapid leadership turnover.
All eyes are on who will succeed him. Speculation is surrounding one of the leading contenders, Andy Burnham, former Mayor of Greater Manchester and ex-Cabinet minister under Tony Blair and Gordon Brown. As early as this week on 17 July, Burnham could indeed be the UK’s next Prime Minister – a development that many expect would herald a notable shift in the government’s economic agenda and broader policy direction.
What are Andy Burnham’s economic goals?
On 29 June, Burnham delivered a speech setting out his vision for the country. Its central theme was the devolution of power from Westminster, a “No.10 in the North”, alongside a ten-year mission to improve living standards through reindustrialisation, reform of essential utilities and the regeneration of housing.
Economically, his approach is generally seen as leaning further to the left of the current Labour government. One phrase being commonly used to describe it is “business-friendly socialism”, and it’s that very phrase that captures something important: that his track record in Manchester is a clear indication of his ability to work with business and make economic growth feel practical rather than theoretical.
At the same time, however, his regional growth agenda is likely to involve greater local government involvement in areas such as transport, housing and healthcare. How far this translates into higher public spending – and potentially higher taxes is not yet known, and will depend heavily on the wider economic backdrop.
What does it all mean for markets?
Burnham has already moved to calm investors’ nerves over a potential spending surge by committing to Rachel Reeves’ self-imposed fiscal rules, the main being the “stability rule”, which requires day-to-day spending to be covered by tax receipts and other revenues by 2029 – 2030. hat commitment has sparked a positive reaction by investors. But reputations in financial markets, as in politics, are hard won and easily lost, and the scars of the 2022 mini-Budget remain at the front of investors’ minds.
There is no doubt that Britain’s brittle bond market looms large over the incoming Prime Minister, and it will constrain what he and his Cabinet can do in office. Government bonds effectively act as a referendum on fiscal credibility: if investors believe a government is likely to borrow more, expand spending significantly or weaken budget discipline, gilt yields tend to rise as investors demand greater compensation for lending to the state.
That matters well beyond Westminster, because higher gilt yields feed directly into mortgage pricing, government borrowing costs and corporate financing conditions. Burnham has signalled higher taxes on wealth and property, but it remains to be seen whether these would fully offset his spending ambitions.
What will Andy Burnham’s higher taxation of wealth mean for investors?
The direction of Burnham’s economic policy appears to be towards higher taxation of wealth and assets rather than higher taxes on earned income. Although no plans have been formally announced, speculation around his speeches point to changes in capital gains tax (CGT), Inheritance Tax (IHT) and other measures affecting accumulated wealth.
Tip: For investors, business owners and higher-net-worth families, this serves as a timely reminder of the value of proactive and comprehensive financial planning. Reviewing investment structures, estate planning arrangements and the timing of major financial decisions can help ensure you remain well positioned to adapt to any future policy changes, rather than reacting once reforms have been introduced.
The impact of a Burnham premiership on UK bonds and equities
Burnham has enjoyed some good fortune so far. UK bond yields, and the accompanying government borrowing costs, have fallen sharply as easing tensions in the Middle East pushed oil prices lower. Yields nonetheless remain elevated, and the highest in the G7, with policymakers having struggled to bring inflation fully under control in recent years. Lower yields do not solve every problem, but they do create more room for a government to act on its priorities.
Within equities, the picture is slightly more mixed. The FTSE 100 is relatively insulated from domestic politics, with around three-quarters of its revenues generated overseas. The FTSE 250 is more domestically sensitive, and it is among small and medium-sized companies that greater government involvement could create clearer winners and losers.
Some UK companies could benefit if Burnham succeeds in rebuilding confidence, supporting investment and creating a more predictable policy environment. UK valuations remain low in many areas relative to international peers, and recent takeover activity suggests overseas buyers can still see value where domestic investors have been more cautious.
How investors should act amid UK political uncertainty
The transition so far has been orderly, and the fiscal guardrails remain in place. Burnham may find the road harder when confronted with difficult spending decisions, including the funding pressures around defence commitments he inherits. In the near term, markets are keen to learn his choice of Chancellor – arguably the most important market event of the entire leadership transition. This is because it will firmly signal how a Burnham government intends to balance growth ambitions against fiscal discipline.
In the meantime, we are advising our clients to stick to their existing plans for savings and investments. There will no doubt be further speculation about a potential increase in capital gains tax (CGT), along with the usual uncertainty around pension rules.
Once the political noise fades, investors are likely to turn their attention back to what matters most over the long term: economic growth, inflation and the outlook for government finances, rather than the latest headlines.
[i] If you would like to discuss anything in this article in the context of your own portfolio, contact one of our consultants on 03300 564 446 or get in touch via our contact form to learn more.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
