What does the General Election mean for your investments?

Emma: Hi I'm Emma Wall and joining me today is Tom McPhail to talk about what the general election means for your investments. Hi Tom.

Tom: Hi Emma.

Emma: So the major political parties have come out with some policies that will impact individual stocks, your investments, and the stock market. Let's start with the one that seemed to have got the most headlines and that's the re-nationalisation of a load of utilities and train companies, from Labour what are the details?

Tom: Yeah absolutely and can I just say it's not just Labour the Greens as well - it's easy to forget about perhaps but important as well they have also said they want to nationalise rail and possibly water and energy companies as well. So there's support there for Labour but you're right Labour are the big beasts here they want to re-nationalise all the rail franchises, they want to nationalise the Royal Mail they want to re-nationalise the water franchises, the energy companies and we heard only quite recently they're looking at broadband as well. This is big stuff now they're saying they will pay fair market value for these businesses there's a lot of anxiety about what that might mean in practice and a real risk that if Labour get into power we're fairly quickly going to see those stocks getting marked down in anticipation.

Emma: And we already have, I mean it's been although some of the detail is very new, talk about nationalisation for some of these stocks in particular the train players and some of the infrastructure companies is not new. I mean Corbyn's mentioned this for a while and I was speaking to an infrastructure investor a couple of months ago who said although the values are depressed actually it doesn't make good sense to buy in even at these levels because of the unknown so it has already had a big impact on equity prices.

Tom: Yeah yeah absolutely agree and it's quite a binary risk for anyone who's invested in these stocks or thinking of investing in these stocks – either everything's gonna be fine or potentially you could lose quite a lot of money and it's also worth noting that investors in the stocks would not be paid in cash they would be given government bonds in exchange for their stock. Now exactly how valuable that those government bonds will be is also perhaps open to question as well so I think legitimately quite a lot of anxiety from investors around those financial stocks.

Emma: Especially for income investors because if we look at the kind of dividends being kicked off equities at the moment versus the kind of yield you can get on a government bond they're very different so it could be as you say quite impactful if it goes ahead.

Tom: Absolutely so one of the more transformational policy announcements we've had from Labour in the run-up to this general election.

Emma: What else is on the card?

Tom: So other stuff on the card I think it's certainly worth picking out the inclusive ownership fund concept and interestingly across the political spectrum most parties would agree that employee share ownership is a good thing, what they differ on is the delivery mechanism. So we've already had well-established save as you earn schemes and share incentive plans the Liberal Democrats are talking about in their manifesto giving employees a right to request shares in their employers company whether that gets honoured or not is another matter but Labour have said that they would introduce inclusive ownership funds which would require businesses to transfer progressively one percent a year over ten years share capital from the business owners to an employee trust type structure, so the employees don't own the shares themselves it's held in it's inclusive ownership fund. The dividends from those shares would be paid to the employees up to a value of five hundred pounds in excess of that the money goes to the Chancellor so the government gets to keep the money. Now this is quite a significant transfer of wealth – a recent FT article gave it a price tag of three hundred billion pounds worth of shares. That's not insignificant and dividend distributions depending on how they define it of five to ten billion pounds a year. This is big stuff and it would create a significant new stake holder in the boardroom that business managers would have to take account of, it could also produce some weird anomalies so for example a company like FeverTree which has very high capitalisation but has very few employees would not be caught by this policy because Labour are talking about it only applying to companies of 250 employees or more. If you put a threshold in like that it could have impact on recruitment policy, it could have an impact on dividend distribution policies where the company would start buying back shares again. So this is big stuff.

Emma: And it's not as you alluded to there without its complexities because of course also the UK market is a very global market if we look at some of the largest employees – employers rather – in the UK they are often either global companies that happen to be listed here or global companies listed elsewhere so what happens to those employees of companies that aren't truly British – do they get captured by this and so there is going to be whatever happens a lot of these things to iron out.

Tom: Absolutely and we've seen some think-tank papers on this already from an organisation called Commonwealth they've put out some work on this but there's not a lot of detail there and we're going to need a lot of detail. I would not be surprised, if Labour form the next government, if they introduced this policy I wouldn't rule out legal challenges as well – it's big stuff.

Emma: And what else is going to affect the stocks?

Tom: I think the other one to look out for is the financial transaction tax what's been called a Tobin tax where the government's - the Labour, a Labour government - would introduce an additional basically stamp duty on financial institutions trading in a spectrum of stocks and derivatives and so on so they're talking about that raising 8.8 billion pounds a year. This is not small beer and this is part of Labour's overall fully costed manifesto so there's big money for them that would all be clearly a drag on all our investment portfolios, on our pension funds, on everything we hold as those get turned over there would be this tax drag on portfolios. Now Labour argue that such a system rewards buy-and-hold investors and investors that are just in for a quick buck and turning stock over well they're going to be the ones that pay for it but in the end it will be our investments our pension funds our long-term future that has to pay for this strategy.

Emma: And of course Labour has to raise the coffers somehow because they are spending in this manifesto, we were talking just before we went on air about the fact that this is a hundred page manifesto so of course in order to balance the books they've got to be raising taxes and raising money in order to pay for the spending that they're promising.

Tom: Absolutely. Ideologically you know this is a new kind of Labour party they've I think taken a view we've got potentially only one term to transform society, we're gonna go all in on this so given the chance they will look to bring all of this in as quickly as they possibly can. It will be a seismic change to society and it will as you say there's a lot of spending powers to be paid for so they will want to bring in a budget fairly early in the term of the new government.

Emma: Watch this space. Tom, thank you very much.

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HL is not expressing a view on the merits or otherwise of any of the policies or any of the political parties, and nothing in this video should be taken to be an endorsement or recommendation of any particular party, candidate or policy. This video is not personal advice or a recommendation to trade any of the stocks mentioned.

Views as at date of filming - 2 December 2019.