at the moment there's optimism in the UK stock market and the general consensus seems to be in favor of a change of government in this video we'll break down the effects of the labor party's policies on UK Investments both in the equity market and the bond market we'll also dig into which sectors of the stock market could benefit and which tax challenges investors might face don't forget if you do enjoy our content please do like this video And subscribe to our Channel now let's start off with the fiscal plan from the labor Manifesto and that's what you can see beside me here and the important parts are firstly the sources of revenue these are new sources of revenue that labors identified and then the other column is the policy which that new source of Revenue will be used to fund so notice how there's a very clear tagging of new source of income with a new thing that that money is going to be spent on so for example by closing tax loopholes labor thinks it's going to generate 5 billion in Revenue which is then going to spend on things like the NHS more operations scans and appointments every week doubling the number of CT and MRI scanners in the NHS and so on now if we add up all of those new sources of revenue and all the new expenditures new Revenue comes to 7.4 billion expenditure comes to 4.8 billion and the difference between those two you can think of as fiscal Headroom or wiggle room there's an extra 2.6 billion which is handy because I think that the expenditure may turn out to be much higher than labor expects given its really ambitious spending plans now it's always useful to place these numbers in some kind of context and I think the useful context here is the total income for the UK government in 2023 now that was just over1 trillion it was 1.1 trillion so the new Revenue would only be 7% of those receipts a very slight increase in income and also the expenditure would be only 4% of those receipts so really all we're seeing here is a very small change in income and spending by the government this is very much a Manifesto which is aimed at not rocking the boat nothing shocking nothing huge and nothing unfunded and that's so that labor can maintain their very large lead as I make this video that lead is 20 percentage points if we compare that with the United States and we look at something like the inflation reduction act that was passed in 2022 and the scale of that leaves this plan looking absolutely tiny according to one estimate the increased spending on us renewable energy but also energy generation infrastructure was about $433 billion now as a percentage of total us tax receipts which are about 4.4 trillion that would make up about 10% of their tax receipts so even though the US economy is larger as a percentage of its total income the incremental spending here is much larger and that's because the US can afford it it's got much stronger growth than we have here in the UK whatever party is in power in the UK is going to suffer as a result of that very poor growth and I'm not convinced that the scale of the spending package that labors come up with is really going to move the growth needle hugely but overall I'd say that the manifesto and labor policies are probably positive for the equity Market in the UK so let's go through some of those positives for the UK stock market right now now the stock market and the labor party are not particularly good friends historically so what's a bit surprising this time around is despite the fact that labor is so far ahead in the polls such that their Victory is almost guaranteed not quite the equity Market seems to be taking this in its stride in fact it's pushing new all-time highs so this good feeling this kind of buzz around the UK Equity Market has been a long time coming and it's labors to lose so let's just hope they don't screw it up but what I think is important is that their policies are very much focused on growth they're clearly drawing a line under their previous leadership and trying to be very business friendly but also I think a lot of their spending plans are putting money into the right place which is infrastructure and education that doesn't guarantee increased growth in the UK but it does certainly pave the way for it now you probably seen these graphs before but I never failed to be shocked by them if you look at something like GDP growth in the UK notice how it kind of Trends upwards until we get to the financial crisis then it under goes a kind of inflection point and it never truly recovers to its previous Trend then we got the pandemic and we switched the economy off and on again and the UK just seems to have stalled after that if we look at GDP per head that stalling gets even worse so clearly what we do need is some kind of new set of policies which will Kickstart growth in the UK again and the way to achieve that is through greater productivity and again if you look at productivity in the UK that really really hasn't recovered since that inflection point either and many of the variables you could look at such as household disposable income average earnings all of those suffered from that inflection point as well and although neither labor nor the conservative party are really talking about it brexit's been a big problem when it comes to business investment and that's probably because of the uncertainty it created it's difficult to invest into your own company if it's going to be difficult to know how the econom is going to evolve and whether you can sell your products into our largest market which is the one which is right next door the Euro Zone you can see here that after the brexit vote investment by UK companies into their own businesses certainly fail to grow after that brexit referendum in 2016 but as I say I think the manifesto and the policies at labors come up with have a lot of the right noises for example if we look for the word growth that occurs 49 times in the document stability occurs 16 times so if labor does manage to achieve their first stated Mission which is to Kickstart economic growth I think that would be positive for the UK stock market because that would generate greater demand for goods and services for UK companies it would push up their profits and of course that would push up stock prices plus it would increase business investment and who knows perhaps it would also encourage foreign investors to plow money into the UK stock market and into the UK economy now let's drill into the individual sectors in the UK stock market to see how these policies could bear on their fortunes the first sector which I think could benefit would be the Housing Industry because the stated claim here is to build 1 and a half million homes over the 5 years of the first Parliament so that's about 300,000 homes per year bear in mind that the current rate of building completions is around half that 150,000 a year so convincing house builders to step up production and also to push down prices because remember if they increase Supply that may push down prices they may be reluctant to do that and it's not as if previous governments haven't tried almost every government has tried to do that and failed but if it does succeed then I expect the house builders would be one of the beneficiaries of course and also the companies which feed into that industry so companies that produce bricks which produce glass and which service the building industry another goal which has a fairly clear read through into UK Equity sectors is the one where they're trying to make Britain a clean energy superpower the plan is that they're going to set up a company called Great British energy and the goal here is to harness energy sources is like the coastline in the UK which is got tidal power presumably but also a lot of wind energy and this is already well underway in the UK if you look at the energy breakdown for the UK on a daily basis I sometimes do there's quite a lot of wind energy which is generated on a fairly regular basis so I think if we did harness that source of energy maybe use more solar power that could certainly transform our energy dependence and we saw during the invasion of Ukraine by Russia how dependent we are on dictatorships around the world on our energy so becoming self-sufficient I think should be a strategic goal and I think this is quite a positive move for the UK now the way that this is going to be funded is by imposing a windfall tax on UK energy companies the actual Manifesto statement is that it's going to be on oil and gas giants so presumably those stocks are going to suffer as a result how however the UK's sector composition relies quite heavily on energy so overall this might be a bad story for indices like the footsy 100 and the 250 boosting infrastructure is also a growth positive decision there's going to be 1.8 billion spent on ports and upgrading infrastructure for deliveries into the UK 1 and A2 billion on gigafactories so presumably the car industry could use batteries produced here in the UK that'll be critical if we're going to build our own EVS an interesting retro step which is to put 22 billion into the UK steel industry this is one where historically we haven't been very competitive a billion for carbon capture and 500 million to support the production of green hydrogen a statement which concerns me slightly is that labor are going to meddle with the pension industry in the UK such that they'll be forced to invest in UK infrastructure they say that label will act to increase investment from Pension funds in UK markets of course it's not the job of a pension fund to invest in UK infrastructure and boost it it's their job to maximize returns for their pensioners now if you do enjoy our content remember that you can always go to our website pensioncraft tocom and learn about joining our community it's a really great way to learn with like-minded people you can discuss things like the labor Manifesto or anything that's on your mind and people tend to help each other a great deal so I think that accountability is very useful as an investor if you're interested in learning more just go to our website pensioncraft doom slmh and you'll also find that link in the description below now let's turn to the challenges for the stock market now the clues in the name here it's the labor party and they will try to favor labor over Capital so for example they're going to ensure that the minimum wage is a reasonable level furthermore they're going to link that minimum wage automatically to the rate of inflation namely they're going to change the remit of the independent low pay commission so for the first time it accounts for the cost of living now imagine that inflation does increase that automatically means that hundreds of thousands of people in the UK will see their wages rise so it could create this wage price spiral by an automated mechanism the reason why that's a problem for investors in the UK in UK companies is that of course that's a cost if you have to pay your employees more then it reduces your margins and eventually it'll reduce share prices the thing to remember is that the UK operates on a global stage and if UK businesses become less competitive then that could be a problem for UK PLC for the oil and gas industry there's a choice not to issue new licenses to explore new Fields because as labor says they will not take a penny off bills cannot make its energy secure and will only accelerate the worsening climate crisis they say that in addition they're not going to Grant new coal licenses and will ban fracking for good so I think for the oil and gas industry this combination of a windfall tax who knows there might be another one combined with the lack of new licenses to search for new sources of oil and gas is going to perhaps cap their upside and that'll have a negative impact on their share prices there's also plan to renationalize rail services so for companies which are in that sector this may squeeze their margins or push them out of business alog together the way they're going to implement this seems to be like a kind of phased approach we'll put passengers at the heart of the service by reforming the railways and bringing them into public ownership we'll do this as contracts with existing operators expire or a broken through a failure to deliver without costing the taxpayers a penny in compensation so here again we're going to have a new company which is Great British Railways and the idea is that it's going to deliver a unified system that focuses on reliable affordable high quality and efficient Services I'm old enough to remember National Rail and that certainly isn't what I remember but Great British Railways will be responsible for investment day-to-day operational delivery and Innovations and improvements for passengers now if it did improve the infrastructure that could be a positive but certainly for companies in that sector this is going to be a problem now let's turn to the bond market and think about positives now one thing that can crash the bond market is if there's a flurry of new issuance in other words the government is spending lots of money it's not earning more money through Revenue so it has to plug the Gap the difference between the two by issuing lots of debt and borrowing lots of money in the bond market if you increase the supply of bonds without increasing the demand that pushes down prices and it pushes up yields they move in opposite directions however this time around apparently labor is not going to be a tax and spend government they're going to adopt very strict fiscal rules firstly they're not going to have a big deficit so costs will be met by revenues and secondly they're going to use the same rules which the Tories applied to their budget which is that they may get a temporary blip in debt to GDP that's the amount of outstanding debt relative to the size of the econ economy which is currently around 100% for the UK so it might temporarily increase but by the fifth year looking forward using the OB forecast debt to GDP has to be falling otherwise they'll throw out that spending plan so clearly they want to get debt to GDP to come down now that's a positive for the bond market because it means that issuance new debt being issued will be limited and if that's true then a limited Supply pushes up price and it pushes down yield so if you're an existing bond holder good news if you're looking to get into bonds not such good news because you probably want yields to be higher but overall I think this is going to avoid instability in the bond market which is disruptive both for the bond market and the equity Market as we saw with a mini budget from the conservative party that's an episode which is probably best forgotten and going along with a theme of stability and not rocking the boat the labor party seems fully committed to the independence of the bank of England says so in the manifesto it would be a shock if that wasn't the case but it seems as if things like interest on reserves and keeping the 2% Target for inflation that's going to stay exactly the same as it is now another good policy is to only have one budget per year or fiscal event as they describe it they're going to publish a road map for business taxation for the next Parliament which will allow businesses to plan Investments with confidence so that's a great idea I think too many budgets and too much fiddling with the tax system is seldom a good thing furthermore there's going to be even more focus on the office for Budget responsibility which takes the government's spending plans and works out its effect on things like debt but also on growth and other aspects of the UK economy so Labour says every fiscal event making significant changes to tax or spending will be subject to an independent OB forecast which in my opinion is probably a good thing to sity check these policies however I think there are some challenges for the bond market the first one is that Labor's plans are very ambitious for example really revamping the NHS fixing the UK's infrastructure implementing Broadband rollouts all of this could be very expensive even more expensive than they've budgeted for if that's the case they may have to turn around as they gain power and say look it's much worse than even we thought so we're going to have to spend more and that means issuance of more debt and of course that could push down bond prices the second problem could be a downgrade of UK debt if there is a problem in the UK some kind of economic problem then it's not under the control of the government if one of the rating agencies downgrades UK debt that would tend to push down price prices of bonds and pushup yields that could happen for example if the plan just doesn't work if growth doesn't materialize and they end up with very expensive infrastructure plans which they can't pay for the rating agencies would then probably downgrade the UK again now let's end with taxes for UK investors now firstly there's not going to be an increase in income tax at least not initially they acknowledge that the UK tax burden is currently at a 70-year high and they say we will ensure taxes on working people are kept as low as possible labor will not increase taxes on working people which is why we will not increase National Insurance the basic higher or additional rates of income tax or vat corporation tax will also be Frozen at 25% which of course is going to make their job a lot harder now there were worries that labor was going to bring back the lifetime allowance so this was a cap on how much you could save taxfree over your lifetime in your self-invested personal pension and other pensions it was just over a million pound the conservatives scrapped that but they kind of screwed up the legislation which caused all kinds of confusion and again in line with not rocking the boat and creating more uncertainty labor decided to scrap bringing back that lifetime allowance which is probably a good thing the cost to hmrc is around £800 million a year and a labor source which is close to Rachel Reeves the shadow Chancellor apparently said that Reeves would sort out the mess adding that Labour's priority is to bring stability and certainty back to the economy so there are those two key phrases again so the Sip and the io will remain untouched which is I think a good thing they are going to abolish the non-dom status for people who come to the UK to work for example or to live and apparently they're going to replace that with a modern scheme for people genuinely in the country for a short period they're also going to end the use of offshore trusts to avoid inheritance tax the idea there was that you wouldn't have to pay inheritance tax if the money was stored abroad you only have to pay tax once it was brought back to the UK but apparently that's going to be scrapped and the manifesto says it's so that everyone who makes their home here in the UK pays their taxes here and then finally a scheme which affects very few people but people who have a lot of money the private equity indust IND is the only industry apparently where performance related pay is treated as capital gains labor will close this loophole so referring back to the fiscal plan labor apparently thinks that that's going to generate an additional 565 million a year even though it only affects about 3,000 people in the UK I believe so overall I think the general feeling of markets and my feeling too is that this Manifesto and these set of policies look quite promising of course the reality that labor faces is that they just don't have much money to spend on improving growth improving infrastructure and that's going to be a problem for them if growth does disappoint then they're going to be left with a funding Gap and that's going to be very difficult to break out of without reverting back to their tax and spend policies of the past but let's hope that this is going to be a new start for the UK and it does kick us out of this malaise that we've entered since the Global financial crisis of low productivity growth low GDP growth low wage growth and also increase investment into the UK and maybe it'll even Kickstart the UK Equity Market that's a change which is long overdue now don't forget if you do enjoy our content please do subscribe to this Channel and like this video and of course you can join our membership and if you want to learn more about that just go to our website pensioncraft tocom and as always thank you for listening