Labour manifesto: stocks to watch
We explain what the Labour manifesto for the 2019 general election could mean for investors, including how it might impact stocks and the economy.
The Labour party has released its manifesto ahead of the UK general election on 13 December. The party has pledged to make radical changes and has focused on domestic policies over Brexit.
The UK’s two-party political system is fragile during this election following the rise of the Liberal Democrats and the Brexit Party. However, it still looks like Labour is the only one capable of unseating the Conservatives. If the party and its leader Jeremy Corbyn do get into Number 10, the question is whether it does so with a majority or with the support of other smaller parties, such as the Lib Dems or the Scottish National Party (SNP).
Labour has said it is not aiming to get into power by forming a coalition with any other party, and that feeling is mutual as far as the Lib Dems are concerned. However, the path is open for the pair to enter some form of confidence and supply agreement, whereby the Lib Dems would choose whether to support a Labour government on an issue-by-issue basis. At the heart of any partnership would be a second referendum on Brexit, which the Lib Dems have said they would support if they can’t win a majority. Some believe the SNP remains Labour’s best bet if there is a hung parliament, but that would make Labour vulnerable to the SNP’s demands for a second referendum on Scottish independence and calls to scrap the Trident nuclear deterrent.
As expected, Labour’s manifesto is one of the most radical proposals ever put forward by a party, promising far-reaching changes for businesses and the economy. If Labour win a majority then expect an earthquake of change. However, if there is a hung parliament and Labour must rely on the support of others, then Labour’s manifesto may have to be watered-down significantly for it to secure the votes it needs to get new policies through parliament. Ultimately, in this scenario, Labour won’t be able to get any of its policies through that the Lib Dems don’t support and vice versa, meaning many promises many never come to fruition.
Below is a list of key promises Labour has made that could significantly impact investors and traders. You can read the full manifesto here.
- Brexit policy
- General policies that will impact all types of UK businesses
- Publicly listed stocks in the UK
- Oil companies and frackers
- Infrastructure companies
- Prison operators
- Healthcare, social care and pharma stocks
- Defence stocks
- Gambling stocks
- Retailers and the high street
Labour puts domestic policies before Brexit
Labour’s official Brexit policy continues to face criticism. If the party wins the election, then it aims to press the reset button. It would ask for extension beyond the current deadline of 31 January, 2020, and would aim to strike a new withdrawal deal with the EU within three months of being elected. This ‘sensible leave deal’ will then be pitched against an option to remain, in a second referendum within six months of being elected (so, roughly, by the end of June 2020 at the latest).
The problem for many is that this second referendum wouldn’t offer a proper leave option. Labour has said it wants a ‘permanent and comprehensive UK-wide customs union’ and ‘close alignment with the Single Market’ – both of which are red lines for many Brexiteers. Some have also questioned how a Labour government could strike a new exit deal with the EU and then campaign against it during the referendum. Although Corbyn has said he will be ‘neutral’ during the campaign, it is known that many Labour MPs (including those in the shadow cabinet) intend to campaign to remain.
General policies that will impact all types of UK businesses
Before analysing how the manifesto could impact different sectors, here is a list of promises that would impact all types of businesses in the UK:
- To raise the minimum wage to ‘at least’ £10 per hour
- To increase corporation tax from the current rate of 17% to 21% from April 2020, 24% from April 2021 and 26% from April 2022. Companies that generate less than £300,000 in annual revenue will pay a rate of 19% from 2020, 20% in 2021 and 21% in 2022
- Higher income tax for those earning over £80,000 per year
- No increases in VAT
- An ambition to ‘end the unfairness that sees income from wealth taxed at lower rates than income from work’
- Introducing four new bank holidays per year and reducing the working week to 32 hours ‘within a decade’
- To ‘explore’ the prospect of offering a Universal Basic Income
- Launch the ‘biggest ever crackdown’ on tax avoidance and evasion
- Force larger companies to make prompt payments to suppliers, and banning those that don’t from securing work from the public sector
- A wide range package of reforms aimed at giving employees and trade unions more power, including the introduction of sectoral bargaining power to boost standards and wages
- To spend 3% of GDP on research and development by 2030, predominantly in areas tackling climate change
Publicly listed stocks in the UK
Labour wants to rewrite the rules for publicly-listed companies, claiming the ‘upper echelons of corporate Britain have been corrupted by a culture in which the long-term health of a company is sacrificed for a quick buck for a few’. It claims this ‘short-term culture has seen some treasured companies asset-stripped, leaving workers, small business suppliers and pensioners in the lurch.’
A Labour government would amend the Companies Act so companies must ‘prioritise long-term growth while strengthening protections for stakeholders, including smaller suppliers and pension funds.’ It will also introduce strict new rules on climate change. The party says any company listed on the London Stock Exchange that fails to meet new criteria on climate change and the environment will be promptly ‘delisted’.
Public companies in the UK will also have to reserve one-third of their board seats for ‘elected worker-directors’, which will have more of a say over executive pay. Labour also wants ‘large companies’ to establish Inclusive Ownership Funds that would allow employees to own ‘up to 10% of a company’. The dividends earnt by the employee funds would be distributed equally among staff but capped at £500 each, with any surplus being used to hire more ‘climate apprenticeships’. It says the cap on dividends for staff would rise, so no more than a 25% surplus was generated each year.
There would also be a crackdown on the gender pay gap and equality. Companies with over 250 employees will have to be tested to check they are doing enough or face ‘further auditing and fines’.
It also wants to introduce more protective measures for companies that are struggling or subject to foreign takeover bids. Failed companies would no longer fall into insolvency but put into ‘protective administration’, which means they could be sold as a going concern. This would protect the value of businesses and stop others capitalising on their weakness. Any foreign firms that want to buy a UK company will have to meet a ‘public interest test’ to ensure it won’t lead to asset-stripping, weaken the UK’s industrial base or destroy ‘treasured home-grown companies’. Workers will also have a greater say over any takeover.
Nationalisation: energy, water, broadband, rail and mail
Labour wants to nationalise, to varying degrees, six industries. The party says it would issue government bonds to investors of these companies in return for their shares, but says ‘parliament will decide’ on the ultimate compensation they receive. Labour says it can nationalise all these industries at once because it is ‘fiscally neutral’.
‘When we invest in taking profitable utilities into democratic public ownership, the public balance sheet will record an increase in debt but an equal or greater increase in public sector assets,’ Labour says.
Labour argues Royal Mail should be publicly-owned ‘at the earliest opportunity’ because it is a natural monopoly. It would stop any further store closures and use the firm to launch a new publicly-owned Post Bank to reintroduce community banking. This includes a new Business Development Agency that would focus on helping smaller businesses that struggle to get help from traditional banks.
Labour wants to do the same to broadband for similar reasons. Openreach, which has been separated from BT but remains part of the business, also has a monopoly as it manages the UK’s broadband network that rivals, like Vodafone for example, must use to serve their customers.
Losing Openreach would be a huge blow to BT. It is one of the company’s strongest and most profitable assets: accounting for over one-fifth of all revenue and 36% of adjusted earnings in the six months to the end of September 2019. It would also put a strain on cash flow, which could place pressure on pay outs. BT has already warned it may have to cut dividends within the next couple of years because it needs to put more money into rolling-out full-fibre broadband. However, that responsibility would also be lifted off BT’s shoulders if Openreach was nationalised.
A publicly-owned Openreach would look to roll-out full-fibre broadband nationwide by 2030, but Labour wants to prioritise rural and hard-to-reach areas first. It says the operating costs would be covered by a new tax on ‘multinationals, including tech giants’. It has not said specifically who this is aimed at, but companies like Facebook and Alphabet are certain targets. Separately, Labour has said it wants to ‘address the monopolistic hold the tech giants have on advertising revenues’.
Railways will also be renationalised, but this is likely to be done more gradually. Labour is likely to wait for existing contracts to expire before bringing them back into public ownership, but it ultimately means stocks like Stagecoach, Go-Ahead Group and Firstgroup will lose business.
That also means that these companies won’t benefit from Labour’s other plans, such as electrifying the system or expanding the use of cargo trains to reduce road emissions. Labour has said it will consider reopening old lines and has committed to big projects like Crossrail for the North and High Speed 2.
Labour also wants to take bus routes back into public ownership. While the details are thin, it seems unlikely that it would nationalise all bus routes, stating it will offer free travel for under 25’s ‘where councils take control of their buses’, suggesting there will be some areas where they do not. Stagecoach, Go-Ahead Group, Firstgroup and others like National Express will be affected, but they could also benefit from 3000 new routes being reinstated.
Labour wants to renationalise the UK’s water companies, stating both energy and water will be ‘treated as rights rather than commodities, with any surplus reinvested or used to reduce bills’. Again, details are vague, but this would at the very least impact the industry’s regulated water operations, hitting stocks like Severn Trent and United Utilities. Pennon Group would also be impacted, although it is more diversified than its other peers (it owns waste management firm Viridor, for example).
National Grid and large energy suppliers
National Grid also faces becoming obsolete under Labour plans for a new UK National Energy Agency to ‘own and maintain the national grid infrastructure’, which is the company’s main job. It also wants to nationalise the supply arms of the ‘Big Six energy companies’. In terms of listed companies, this is a threat for Centrica, which owns British Gas. SSE was the other major listed energy supplier, but it has already announced its withdrawal from the retail supply market. Smaller suppliers like Good Energy won’t be targeted but will undoubtedly be impacted by a slew of new publicly-owned suppliers, especially when their aim is to offer the lowest prices possible. Also keep an eye on Drax, which doesn’t supply energy but one of the largest generators in the country.
Labour has ambitions for ‘nearly 90%’ of all electricity and 50% of heating to be generated by renewables by 2030. To achieve this, it aims to build a swathe of new publicly-owned projects, including 7000 new offshore wind turbines, 2000 onshore ones, new nuclear energy, and ‘enough solar panels to cover 22,000 football pitches’. It is unclear how open Labour would be to procuring these from non-publicly-owned companies, but it could prove beneficial to solar panel companies like Verditek or companies that manufacture wind turbines and parts, including Vestas and Siemens Gamesa. Other stocks include Haydale, which has made lightning-proof materials for offshore turbines, and Windar Photonics, which has developed sensors for turbines. French firm EDF currently operates all the nuclear power plants in the UK and is involved in newer developments like Hinkley Point C.
Oil companies and frackers
As part of its effort to decarbonise the country, Labour wants to introduce a ‘windfall tax’ on oil companies. It has not provided details on the rate of the tax, nor which companies would be subject to it – but it is likely to hit all that have projects based in the UK and primarily target those in the UK North Sea, including BP, Shell, Eni, Chevron, EnQuest, and Cairn Energy. This could also have a knock-on effect on services firms like Petrofac, Hunting and John Wood.
Infrastructure companies and public contractors
Labour has pledged to invest billions of pounds in infrastructure, to build the likes of schools, hospitals, care homes and council houses. This should spell good news for the country’s big construction firms like Balfour Beatty, Morgan Sindall, Kier Group, Galliford Try and Mitie Group. However, the party has warned it will ‘end the current presumption in favour of outsourcing public services and introduce a presumption in favour of insourcing’. This includes ‘taking back all PFI contracts over time’.
Still, it is hard to see where Labour will procure all these services in-house. Labour has said that when work is procured from the private sector that it will apply stringent rules, including ‘provisions for collective bargaining, fair wage clauses, adherence to environmental standards, effective equalities policies, full tax compliance and application of pay ratios’.
The PFI contracts currently issued to companies like G4S and Serco, which run numerous prisons, will also not be renewed when they expire, with Labour promising no new privately-run prisons will be built. It has also said it will take a new approach to detention centres, including closing down two of the worst run, which will impact both stocks and others including Mitie and US firm GEO Group.
Labour, like all other parties, wants to increase the number of new homes being built but has decided to focus on social and affordable housing. It has pledged to build at least 150,000 council and social homes each year, of which 100,000 will be rented out by councils to tenants.
Housebuilders will have to play a role in building the houses that the country needs but will not enjoy the freedom and margins they have become accustomed to. Labour has said it wants to ‘reform Help to Buy to focus it on first-time buyers on ordinary incomes’. Help to Buy has been hugely profitable for housebuilders like Barratt Developments, Persimmon, Berkeley Group, Taylor Wimpey, Redrow and Bovis Homes. It also wants to ban the sale of leasehold properties, end the unpermitted conversion of office blocks into homes, and force builders to utilise the land they own more quickly. All-in-all, expectations of housebuilders will remain high but the prospects will be lower than in previous years.
Interestingly, Labour also wants to use firms like AirBnB to alleviate the shortage in temporary housing.
Labour also wants to set a ‘tough, new zero-carbon homes standard’ for all new homes while retrofitting existing ones to make them more climate-friendly by installing things like heat pumps, solar hot water and hydrogen. That could prove beneficial to heating specialists like Flowgroup and Centrica, insulation stocks such as Autins Group and Kingspan Group, and hydrogen-based technology companies like Hydrogen Group, PowerHouse Energy, and AFC Energy.
Healthcare, social care and pharma stocks
Labour has an ‘urgent policy’ to end all privatisation of the National Health Service (NHS), claiming ‘every penny spent on privatisation and outsourcing is a penny less spent on patient care’. It would no longer require health authorities to put services out for competitive tender and deliver as much as it can in-house. This will ultimately mean companies like Capita, Serco, Spire Healthcare and Totally PLC will gradually lose business. It is also worth monitoring firms that let out properties to NHS organisations, such as Primary Health Properties and Assura.
One area it will have to procure from the private sector is new equipment, including AI, cybersecurity, and pricey items like MRI and CT scanners. Sophos already provides cybersecurity services to the NHS, so could benefit. Large foreign companies including General Electric, Toshiba and Canon– all of which make scanners – could also be ones to watch.
Labour also wants to enforce a cap that means care costs can’t exceed £100,000 per person. This could dramatically impact social care firms like Caretech Holdings.
Pharmaceutical companies will also face the threat of a new generic drug company that Labour wants to establish so the NHS can access cheaper drugs. It has issued a stark warning to pharma companies that refuse to co-operate: ‘If fair prices are rejected for patented drugs we will use the Patents Act provisions, compulsory licences and research exemptions to secure access to generic versions.’ It also wants to scrap all prescription charges in England (which amounted to about £576 million in 2017/18). This could hamper the profitability of stocks like GlaxoSmithKline, AstraZeneca, Eli Lilly and Pfizer.
Labour has said it intends to maintain spending of 2% of GDP on defence, which will be welcomed by BAE Systems, Cobham, Babcock International and Rolls-Royce. However, it has also promised to halt arms exports to countries that may use them ‘in violation of human rights or international humanitarian law’ – which is thought to include Saudi Arabia, which takes more UK arms than every other country apart from the US. Labour has also committed to renewing the Trident nuclear deterrent. BAE, Babcock and Rolls Royce are among the largest provider.
The party will also publish a ‘Defence Industrial Strategy White Paper’ that will outline plans to keep all shipbuilding for the Royal Navy in the UK, which again should help firms like BAE.
Labour wants to help safeguard the UK automotive sector, which is being threatened by Brexit and the transition to new technologies like electric and autonomous vehicles. To ensure that the industry ‘isn’t left behind’, the party wants to establish three new ‘gigafactories’ and four metal recycling plants to ensure it has the materials and expertise it needs. It has separately committed to safeguarding the UK steel industry too, which will help UK-based manufacturers.
It is not clear whether this will be enough to protect the large number of manufacturers, including Nissan, BMW, Honda and Toyota. The biggest concern at present is how exports will work post-Brexit, considering 8 out of every 10 cars produced in the UK is exported, largely to Europe.
Labour has said it will end all sales of combustion engine vehicles by 2030 and remove the five-year surcharge on electric vehicles with a list price of over £40,000. It will further encourage uptake with a new Clean Air act and scrappage schemes.
The party wants to bring in stricter rules for gambling companies. This will include a new Gambling Act that is fit for the ‘digital age’, including stake limits, better compensation for customers, and ‘curbing’ gambling advertisements during sporting events like football matches. All-in-all, this will make the environment tougher for GVC Holdings, 888 Holdings, William Hill and Rank Group.
Retailers and the high street
Labour wants to review business rates that have long been pressuring high street stores and retailers. It has not committed to it, but says it will ‘review the option of a land value tax on commercial landlords as an alternative’. If pursued, this would be welcomed by retailers, but could shift the problem onto landlords, including stocks that own shopping malls like Intu Properties, British Land, Hammerson and Land Securities.
It has also said it wants to ban zero-hours contract altogether, forcing employers to give regular hours to those that work more than 12 hours each week. This would impact many retailers like Sports Direct, JD Wetherspoon and McDonald's. That will also impact companies in the so-called gig economy, like Uber. Labour says it wants to end ‘bogus self-employment’ and strengthen employee rights through trade unions.
Medicinal cannabis, but not recreational
Labour says it will ‘progress clinically appropriate prescription of medical cannabis', which should benefit stocks like GW Pharma. However, Labour has not said it is willing to consider legalising recreational use.
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