After weeks of speculation and debate, Sir Keir Starmer has led the Labour Party to win the General Election and put an end to 14 years of Conservative government. Across the coming days, weeks and months, the UK will start to feel the impact of the new Labour government, who will now begin to bring into force their new policies.
For many business owners, this can be quite an unsettling time, with uncertainty surrounding the ways that potential changes to the regulatory landscape will actually affect you and your business. At Nordens, our expert team of accountants and advisors are always working hard to ensure that they’re informed and ready to help, with whatever you need from us. To help you get to grips with what’s been happening over the last week, here’s some of the ways that it is likely to affect businesses:
The impact of Labour’s win on businesses
Labour fought its campaign based around a manifesto centred around boosting the UK’s sluggish rate of economic growth in recent years, so we can expect that they’re going to be working on introducing a range of polices to attract investment and grow the economy as a priority. However, they’re facing significant challenges to public finances, and will be wary about the need to raise additional income one way or another, with the new Chancellor, Rachel Reeves saying “There’s not a huge amount of money there”. Let’s have a look at what their changes could mean for Tax, Investment, Reliefs and Incentives.
Tax:
Inevitably, it’s likely to be the case that Labour will have to find ways of increasing their tax revenue within the parameters of their manifesto pledges, which placed them broadly in line with the Conservatives as they ruled out increases to Income Tax, Corporation Tax and National Insurance.
Whilst Labour’s manifesto ruled out raising VAT, it’s possible that they could look into making changes to the VAT threshold- the point at which companies are required to register for the tax. Lowering the VAT threshold would mean that the government is able to collect more revenue through this method, but it would likely be seen as being a very divisive move, potentially having a negative impact on their target to kickstart growth into the economy. Given that the VAT threashold was only recently raised in the last budget, this would be a very different strategy, so it’s probably not going to be something that is changed any time soon.
Corporation Tax shouldn’t change over the next five-year period, with Labour committing to freezing it at its current level of 25%. They have included a section in their manifesto that states that they would consider altering it downwards if there are any changes in Europe which make the UK seem uncompetitive, however given that the UK already has the lowest rate in the G7, this isn’t very likely. Labour claim that this is part of how they want to offer stability for businesses so that they can facilitate long term planning and investment decisions.
Investment:
High up on their list of priorities is acting to reverse the low levels of investment levels in the economy, and Labour are planning to boost this through the leveraging of public investment to de-risk and attract private investors. This will be spearheaded by the creation of a National Wealth Fund to support growth and clean energy missions, targeting transformative investments across the country.
Labour have also promised to make the UK one of the “best places to start and scale up” and intend to reform the British Business Bank to support SMEs in regions across the UK and unlock the supply of capital for technology-intensive, early-stage businesses.
The new Prime Minister, Sir Keir Starmer says his government is committed to a “calm and patient rebuilding” and promises to “rebuild” the country’s “infrastructure of opportunity brick by brick”. Whilst of course, it’s unlikely that any changes will be seen overnight, Starmer said that work will begin immediately to bring changes.
Reliefs and Incentives:
Whilst the Conservative manifesto was clear in committing to several relief and incentive schemes, the Labour manifesto was light around these subjects. It did however include plans to “retain a permanent full expensing system for capital investment and the annual investment allowance for small business”, so it is clear that Labour are not planning to completely abandon the support that is currently in place for early-stage businesses.
The new Chancellor, Rachel Reeves, has declared economic growth “national mission”, so Labour will have to make sure that they are able to foster a good environment for early-stage businesses which are so crucial to our economy, but time will tell how they approach this task.
Election FAQs
With so much going on in the news, it can be a bit confusing to understand what’s actually happened. Here’s a rundown of some of the questions that you might have:
How did the Labour Party win so many seats with less than half the vote share?
The 2024 election result has the largest ever gap between the total amount of votes won by the largest party (34%) and the corresponding number of seats (64%). Whilst this may seem strange, it’s a feature of the UKs electoral system, called ‘first past the post’, whereby each of the 650 constituencies elects a single MP to represent them. This means that in each constituency the MP is decided by simply who wins the most votes, be it by a 20,000 majority, or just by 2. The fairness of the UKs electoral system has long come under scrutiny by people who believe it makes it harder for smaller parties, such as the Liberal Democrats and more recently Reform, who may win a large amount of votes, but win far fewer seats as their vote share is spread across many constituencies.
What does the result mean for smaller parties such as Reform and the Liberal Democrats?
The way the election panned out raises a few interesting scenarios. Firstly, there’s quite a big claim from Reform UK, the Liberal Democrats, and the Green Party that there is a serious appetite for an alternative approach that brings something different to the table. Reform will believe that they have an especially powerful card in their hand given that the weak performance of the Conservatives is largely down to voters backing Reform instead, with this result favouring Sir Keir Starmer’s Labour. However with such a large vote share, but so few MPs, it’s pretty certain that Reform will be making a lot of noise about why some of their ideas need to be listened to, and the debate surrounding a more proportional electoral system could definitely flare up again.
Will the Labour Party be able to do anything they want now?
Whilst Labour have undoubtedly won this election by a landslide, it’s not necessarily the case that the tides have turned by as much as they have done in previous elections, such as in 1997 when Tony Blair became Prime Minister. They’ve got the power to make some sweeping changes to the landscape of the UK, and with a strong majority they should be able to push through a new legislative agenda without much of a challenge from parliament. What’s different this time round is that there’s a sense of how Labour have done so well because so many voters were fed up with the previous Conservative government, and were drawn to Reform, who were able to draw a lot of voters who had previously supported the Conservatives.
It’s possible that following the election result, the Conservative Party will work closely with Reform and take on some of their policies going forward to regain some popularity. Given the circumstances that Reform were founded (in response to how they believed that the Conservative Party hadn’t handled Brexit well) it may be the case that they merge with the Conservatives, or we find that the Conservatives adopt some of their policies to win back voters,
Renowned pollster, Sir John Curtice, told the BBC that “It looks more like an election the Conservatives have lost than one Labour have won”, showing that despite Labour’s success, they can’t become complacent as more than 100 Labour MPs now represent constituencies where, should the Conservatives and Reform UK unite or ally, would unseat them at the subsequent election.
With all this being said, it’s likely that Labour will make some significant changes over the coming years, but they’re going to be very aware that they need to act with caution because many of their MPs are sitting on some quite thin majorities which could easily be overturned at the next election.
Who is in Sir Kier Starmer’s new cabinet?
Sir Keir Starmer’s picks for his cabinet have now all been announced and feature a range of MPs from different backgrounds. Rachel Reeves has become the UKs first female Chancellor of the Exchequer, whilst Labour Deputy Leader, Angela Rayner becomes the Deputy Prime Minister. Other high-profile appointments include Lord Richard Kermer KC as the Attorney General, Johnathan Reynolds as Business and Trade Secretary, and Liz Kendall as Work and Pensions Secretary.
It’s worth noting that Sir Keir Starmer has picked a number of people who aren’t MPs to stand in his cabinet in roles where they have experience. This isn’t unprecedented but it’s surprised a lot of people nonetheless- with James Timpson (Chief Executive of Timpsons) chosen as the Minister for Prisons, Parole and Probation, being picked because of his background campaigning for prison reform and chairing the Prisons Reform Trust since 2016, and Lord Kermer appointed for his legal background.
What happens to the Conservatives now?
Following their defeat to Labour, Rishi Sunak quickly announced that he would step down as leader of the Conservatives once a successor had been chosen. From now on, the Conservatives will be the opposition to the government which means that they are primarily responsible for holding Labour to account in Parliament, especially at Prime Minister’s Question Time. As for making policies, the Conservatives will only be able to try and influence Sir Keir Starmer and Labour since they have no legislative powers anymore. With the relatively small number of MPs that they have for an opposition party, it’s likely that for the next five years the Conservatives will be limited in the impact that they’re able to have and will focus on rebuilding following their defeat.
We’re here to help!
Understanding how the changes that come with a new government will affect your business can be confusing, but you don’t need to tackle it alone! At Nordens Chartered Accountants, we offer expert advice and assistance across all off your business needs: from your everyday accounting to Advisory, Tax, Audit and more! Whatever you need guidance or assistance with, we have the knowledge and expertise to support you.
For support with any accounting services, look no further than Nordens Chartered Accountants. Contact us today at 0208 530 0720 or fill out our contact form to schedule a consultation.
