OpinionJun 23 2014

Advisers should expect more restrictions if Labour wins

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Does a prime minister Ed Miliband represent a threat to your business and your clients?

This is surely a very reasonable question for financial advisers to ask, given the closeness of the vote expected in next year’s election. One must accept that for general election purposes, the largest number of advisers, if not quite a majority, are likely to vote Tory. This percentage may have increased further following the Budget reforms, in spite of Ukip’s populist and anti-regulatory appeal.

That is for another column. But what if Labour alone or Labour and a rump of Lib Dems form the next government. Are they a threat? I think the answer, whatever way you vote, is yes. There are several reasons. One is that Labour may seek to roll back some of the Budget reforms. It is safe to say that a reform of this nature – liberal with a small ‘l’ that doesn’t just preach the rhetoric of personal responsibility, but actually has the concept at its heart – would not have ever been considered by Labour.

A Labour-led government, especially with Ed Balls involved, may make this reform less generous with a few judicious restrictions, possibly emanating from the FCA. It won’t be wholesale change though, because as the pension minister Steve Webb recently noted, this is one reform where people have actually come up to him in the street and congratulated him.

If Labour helps for the next government are they a threat? I think the answer is yes John Lappin

Labour hasn’t lost all its political instincts and its cautious approach to the policy will surely be trumped by its cautious approach to swing voters. Yet this isn’t the big threat. Ironically, what makes Labour a potential risk is the fact that the chancellor George Osborne has failed to cut the deficit substantially. He has certainly not eliminated the structural deficit over the life of this parliament. (That goal was always a tad ambitious.) While that doesn’t give the chancellor bragging rights, it may actually present a bigger challenge to Labour.

It cannot make many pledges about spending increases, except perhaps on the NHS. So what can it offer? Labour can intervene with policies that do not cost money but appear to deal with the ‘cost of living crisis’. Hence populist price caps. That means there is a risk to portfolios in UK energy stocks and other utilities, although it is probably one of a host of factors already taken into account in clients’ tactical allocation or by the relevant fund managers in their stock picking. It may see more protection for British firms against takeover in key sectors. It could mean banks are treated more harshly or at least fail to roll back regulation when they ask. (Not necessarily a bad thing.)

But it could see tougher regulation, more rules and more price caps than at present. Now let’s be clear: the coalition hasn’t exactly shied away from regulation nor, in many cases, should it have. It has price capped workplace pensions at 0.75 per cent (wrongly and prematurely in my view). Yet I wouldn’t bet against an Ed Miliband government, particularly with Ed Balls as chancellor, extending those policies.

Realistically, Labour hasn’t much room for manoeuvre anyway. Unfortunately, that may mean they end up restricting yours.

John Lappin blogs about industry issues at www.themoneydebate.co.uk