All of the main political parties have now held their 2023 party conferences and we can start to draw some conclusions, although the General Election is still probably a year away.
Taking the conferences in order of the events, what have we learned?
First the Green Party. Their conference props looked a bit amateur, probably a sign of limited resources. No chance of any power or power sharing. It is clear that any coalition with them would cause the main party short-term benefit but longer-term problems. Witness events in Scotland and Germany.
Next the Liberal Democrat Party. Struggling to mount the resources they deploy in by-elections to any national scale. Interestingly, the party is opposed to Labour’s VAT and business rates imposition on private schools, which might make any coalition arrangements frosty.
Next, the Conservative government. The deficit in the polls weighed heavily on the Prime Minister and ministers in general. A focus on change policies will struggle against the 13-year syndrome. A week is a long time in politics, let alone a year, but there is a mountain to climb to catch Labour.
Now to the Labour Party conference. Every pundit assumes they will be the next government and the weakness of the SNP is gilding the lily. It is said that opposition parties do not win elections, governments lose them. Despite the background of a pandemic and the Ukraine war as headwinds the electorate is not taking notice of those problems as performance excuses.
So, if that is a likely outcome, Labour just had to keep things simple, display as few policies as possible and keep controversy to a minimum. Some ideas did emerge. No tax rises or mega borrowing for wealth redistribution associated with past labour governments, just working within the current restraints and leading us all to the sunny uplands of a growth economy, even if it will take two terms. Let us look at how easy that might be. Three examples spring to mind.
First to cut the NHS waiting list and pay staff for more overtime. If it works it will benefit everyone, but already NHS staff seem unwilling to participate. Supposed to be funded by Non-Dom taxes, it looks a blind alley. Then two others that seem to only affect a minority of wealthy people. What’s not to like about that?
Well, they may not work either. First the proposed tax on current Non-Doms: Great as a political jibe against Sunak’s wife’s status, but only 37,000 people are Non-Doms and most are marginal and will not bring in the £3.2m plus labour expects to fund its NHS spend. It’s really the top 500 who will pay the estimated funds according to the Warwick Business School model that Labour has adopted. It assumes none of these move. These people are very rich indeed. They will have yachts and multiple homes. With an average £6.7m tax take they will move and Italy, Spain and Portugal will offer a safe haven. I doubt if the tax take will be £1bn and the NHS investment black hole will be large. Then think of the externalities. How much do these people spend in the UK? A lot, so it sounds like less sales for Aston Martins and more for Lamborghinis. Finally, the proposed 20% VAT and business rates for Private Schools. Probably a vote loser for some middle class. Worries are that European schools and the state sector may see the rise in numbers to significantly erode the tax take.
Meanwhile, the world is changing. One war in Ukraine is bad enough, now we have another in the Middle East. We have the IMF cutting world growth sharply to 2%. China in difficulties and high debt servicing costs everywhere. The first conclusion is that growth is going to be hard to achieve
whatever the policies. Defence is a now growth sector, if your ethics allow. Hitting the net zero targets will be almost impossible to do, especially as public opinion turns against imposed changes. (20mph in Welsh towns and ULEZ in London are early examples). Bae Systems. mentioned here when out of fashion on a 5%+ yield. It now yields 3% with more to go as the orders roll in. There are others, Qinetiq and Cohort among them.
Oils remain long term beneficiaries of ESG pressure to stop exploration and drive prices higher. I like Woodside Energy as it develops its LNG capabilities and with a 6.6% yield too.
Hold on to your Index Linked Gilts even as inflation starts to fall. The real benefit comes on the ultimate redemption. Hopefully you will not hold long dated versions with a material wait.
Try to seek out the growth opportunities that are there with specially positioned situations. Think about pet related businesses as there have seen a big increase in pet numbers during the pandemic and pets need more veterinary treatment as they get older. A good 10 years of tailwinds here and a chance to benefit from the depressed prices due to the limited CMA investigation. Look for high entry costs for competitors in regulated sectors. The sudden need for increased capital works now being forced on the water companies will benefit suppliers such as Renew, which has built up a growing presence in this sector to go along with its opex work for the railway sector.
Most important, with the uncertainties in the world, do not panic on any market falls should adverse events unfold. Good stocks will always deliver in the long term.
If you would like to discuss your current investments or future plans we would be happy to schedule a call – Contact details for the CFM team are here and my contact details are:
T: 07977 784167
Barrie Newton, October 2023