The Flying Frisby - money, markets and more How to Protect Your Wealth Under a Labour Government Part 2
We have a General Election coming up in the UK, and citizens of this once-great nation want to know how to protect what they have worked for from the incoming Labour Government, which, you can be sure, is going to be sniffing around like a spaniel on luggage in an airport.
We now have the Labour Manifesto, so we can start to be a bit more specific than we were in part one of this series. (Here, also, is part three).
I stress: this is only the manifesto. There is a long history of governments doing things they didn’t mention in their manifestos or failing to honour manifesto commitments. Roosevelt’s confiscation of Americans’ gold is one example that springs to mind, but that might just be because I have just been writing about it. There are plenty of examples in the UK too, even with the current government - increases to National Insurance, the Covid money splurge, failures on renters’ reform, home building, immigration pledges, social care, and so on. Circumstances change and so will pledges, especially with a Prime Minister who has quite a track record when it comes to changing tack. Do not be surprised by the surprises that are inevitably coming.
The broad argument of part one is that the pound will continue to be debased. It will buy you a lot less in five years than it does now. Whether we will see the 33% declines in the pound’s purchasing power we have seen since 2020, I’m not sure, but the way to hedge yourself is to own non-government money - gold and bitcoin.
Labour has pledged to “keep mortgage rates low” and to “retain the 2% inflation target,” which means it will keep a lid on interest rates, or try to, especially with official inflation now having come down to 2%. That all furthers my argument that the pound will continue to lose purchasing power.
Labour has a gazillion things it wants to spend money on, ranging from Great British Energy to new teachers, breakfast clubs, and increased NHS appointments, so it is going to need low rates. It has also said it plans to move the “current budget into balance” and “ensure debt is falling.” All I can say is good luck with that. No chance. Spending is going to increase, and, even with the inevitable currency debasement, it is going to need to find tax revenue too. That means higher taxes.
But higher taxes where? Taxes, relative to GDP, are already at their highest levels since World War Two, and Labour has promised no increases in National Insurance, Income Tax rates, or VAT. It has also pledged to cap corporation tax at 25% throughout the Parliament.
Some increased revenue, it says, will come from clamping down on tax avoidance and modernising HMRC. A lot easier said than done.
The big unmentionables have been Council Tax, Capital Gains Tax, and Inheritance Tax. All three, I expect, will go up. Council Tax valuation bands are based on 1991 property prices. That is an obvious anachronism to “update,” though council tax goes to local coffers and Labour will be more interested in revenue at the national level. Even so, it is an obvious area of tax revenue growth. Not a lot you can do to avoid it, except move.
Inheritance Tax, meanwhile, will not come down and will probably go up. It is, of course, morally wrong to want to pass the wealth you have earned and already paid taxes on to your heirs. Changes will be justified on the grounds of unearned wealth and exploit the politics of envy. The rate could rise to 50%, I suppose, while areas of relief - the seven-year gift rule, perhaps, the relief on main homes - could be removed. All I can say is plan early.
Capital Gains Tax, meanwhile, is likely to rise. Starmer has avoided saying it won’t. I expect to see it rise to levels concomitant with Income Tax with similar bands (i.e., 40% above £37k and 45% above £125k). The way to avoid this is by not transacting, which is what most will do unless they really have to, and so the effect of CGT rises will be market atrophy.
Labour will also come after your pensions too - there is so much capital there - with those in the private sector likely to take a bigger hit than those in the state.
There is also a lot of blurb about the launch of Great British Energy to “harness Britain’s sun, wind and wave energy” with a windfall tax on oil and gas giants. That makes British oil and gas companies uninvestable. It says it will “deliver one hundred percent clean power by 2030,” though we know that clean power is neither clean nor green . They clearly haven’t read their Alex Epstein, and it all means that essential fossil fuel will inevitably get more expensive, and the country will function less well as a result. Labour says it is going to reduce energy bills. Not possible without subsidies somewhere else, and these have to be paid for.
The Housing Market
Followers of Fred Harrison and the 18-year property cycle will note that Britain’s housing market is heading towards a cycle high, with collapse starting in 2026. Perhaps that will be triggered by Labour’s plans. It wants to fix planning and build a lot of social housing - that means a bet on builders and builders’ merchants (Travis Perkins and Vistry, for example) might make sense, at least in the short run. There is a long history of governments failing to deliver on this, and I don’t think Labour has any chance of meeting targets. If it comes anywhere close, it means Britain’s housing stock is about to get even uglier.
Labour’s Freedom to Buy scheme, like Help to Buy, is just another means to pump more money into the housing market, and the general drift seems to be to subsidize at the bottom and tax at the top. It has ruled out Capital Gains Tax on your main residence, but I wouldn’t be surprised to see it anyway. Meanwhile, Stamp Duty will continue, even if it means atrophy at the top end of the market. The attack on non-doms will also hit homes at the top end. For homes above £1 million, the costs of moving - high stamp duty especially, more if we get CGT too - just points to stagnation.
Meanwhile, I expect the introduction of numerous schemes to protect tenants, which will only drive away landlords and end with higher rental costs.
You know that I am a free-market guy, and I dislike on instinct market intervention, subsidy, and all the rest of it. All Labour’s grand plans to encourage investment just reek of crony capitalism to me, so I tend to avoid, but I’ve no doubt that industrialists, who position themselves correctly, might make good money out of them. More on this after the election.
My theory used to be this: that in the same way a Conservative Party that was so scared of the left-wing press became a social-democrat party, so will this Labour Government, scared of the right-wing press, end up lurching to the centre-right. I no longer see that. Labour is trying to present itself as centre-left, but the instinct is for government intervention and I see a lot more of it coming. The civil service, the Blob, and the government are theologically aligned and that is not good. It means they can progress their agenda. I’d love to be more optimistic, but, despite Starmer’s purges, there is still a lot of socialist instinct in that party.
Bottom line. Taxes are going to go up. Freedom is going to be eroded. The pound is going to lose purchasing power.
If you are interested in buying gold, check out my recent report. I have a feeling it is going to come in very handy.
My recommended bullion dealer is the Pure Gold Company. I also like Goldcore.
Don’t forget Life After the State - Why We Don’t Need Government (2013), my first book, and many readers’ favourite, is now back in print - with the audiobook here: Audible UK, Audible US, Apple Books. I recommend the audiobook ;)
And if you are in the Edinburgh neck of the woods this August, look out for me at the Edinburgh Fringe. I’ll be performing one of my “lectures with funny bits”. This one is all about the history of mining. As always, I shall be delivering it at Panmure House, where Adam Smith wrote Wealth of Nations. It’s at 2pm most afternoons. You can get tickets here.
Thoughts on Condor Gold